Strategy - Voices - India Inc On Call - Mosl

1QFY19 | August 2018
VOICES
VOICES
India Inc on Call
VOICES, a quarterly product from Motilal Oswal Research, provides a ready reference for all the post results earningscalls attended by
our research analysts during the quarter. Besides making available to readers our key takeaways from these interactions, it also
provides links to relevant research updates, transcripts and audio links of the respective conference calls.
This quarterly report contains

 Key takeaways from the post results management commentary for 153 companies, with links to the full earnings call
transcripts
 Links to our Results Updates on each of the companies included
Research & Quant Team (Gautam.Duggad@MotilalOswal.com); Tel: +91 22 3982 5404

Investors are2015
24 November advised to refer through important disclosures made at the last page of the Research Report.
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Contents
Summary .................................................................................................................................................................................................................................. 3
Sectors............................................................................................................................................................................................................................... 7-134
Automobiles ......................................................................................................... 8-16 Glenmark Pharma ........................................................................................................... 70

Ashok Leyland ................................................................................................................... 9 IPCA Labs ......................................................................................................................... 71
Bajaj Auto .......................................................................................................................... 9 Laurus Labs...................................................................................................................... 72
Bharat Forge.................................................................................................................... 10 Lupin ............................................................................................................................... 73
Eicher Motors.................................................................................................................. 10 Sun Pharmaceuticals ....................................................................................................... 73
Endurance Tech............................................................................................................... 11 Torrent Pharma ............................................................................................................... 74
Escorts............................................................................................................................. 12 Media..................................................................................................................75-88
Hero MotoCorp. .............................................................................................................. 12 D B Corp .......................................................................................................................... 75
Mahindra & Mahindra..................................................................................................... 13 Dish TV ............................................................................................................................ 77
Maruti Suzuki .................................................................................................................. 14 Entertainment Network .................................................................................................. 78
Motherson Sumi.............................................................................................................. 14 HT Media ......................................................................................................................... 79
Tata Motors..................................................................................................................... 15 Jagran Prakashan............................................................................................................. 81
TVS Motors...................................................................................................................... 15 Music Broadcast .............................................................................................................. 82
Capital Goods ..................................................................................................... 17-28 PVR Ltd ............................................................................................................................ 83
ABB.................................................................................................................................. 17 Sun TV Network .............................................................................................................. 84
BHEL ................................................................................................................................ 18 Zee Entertainment .......................................................................................................... 86
Blue Star .......................................................................................................................... 18 Metals ............................................................................................................... 89-92
Crompton Greaves CG ..................................................................................................... 19 Hindalco Inds................................................................................................................... 89
CG Power Industrials ....................................................................................................... 20 Hindustan Zinc ................................................................................................................ 90
Cummins ......................................................................................................................... 20 JSW Steel ......................................................................................................................... 90
GE T&D India ................................................................................................................... 22 Rain Inds.......................................................................................................................... 91
Havells India .................................................................................................................... 23
Oil & Gas .............................................................................................................93-97
KEC International ............................................................................................................ 23
L&T .................................................................................................................................. 24 BPCL ................................................................................................................................ 93
Solar Inds......................................................................................................................... 25 GAIL................................................................................................................................. 94
Thermax .......................................................................................................................... 25 Indian Oil ......................................................................................................................... 94
Va Tech Wabag................................................................................................................ 27 Mahanagar Gas ............................................................................................................... 95
Voltas .............................................................................................................................. 28 ONGC .............................................................................................................................. 95
Cement............................................................................................................... 29-32 Petronet LNG................................................................................................................... 96
Dalmia Bharat ................................................................................................................. 29 Reliance Inds ................................................................................................................... 96
Grasim Inds ..................................................................................................................... 30 Retail ................................................................................................................ 98-100
India Cements ................................................................................................................. 31
Jubilant Foodworks ......................................................................................................... 98
JK Lakshmi Cements ........................................................................................................ 31
Sanghi Inds ...................................................................................................................... 31 Titan ................................................................................................................................ 99
Ultratech Cement ............................................................................................................ 32 Technology ...................................................................................................... 101-109
Cyient ............................................................................................................................ 102
Consumer ........................................................................................................... 33-45
HCL Tech ....................................................................................................................... 102
Asian Paints ..................................................................................................................... 34
Hexaware Technologies ................................................................................................ 103
Britannia Inds .................................................................................................................. 34
Infosys ........................................................................................................................... 104
Dabur India...................................................................................................................... 36
KPIT Tech....................................................................................................................... 105
Emami ............................................................................................................................. 38
Mindtree ....................................................................................................................... 105
Godrej Consumer ............................................................................................................ 39
Mphasis ......................................................................................................................... 106
GSK Consumer................................................................................................................. 40
NIIT Technologies .......................................................................................................... 106
Hindustan Unilever.......................................................................................................... 41
Persistent Systems ........................................................................................................ 107
Jyothy Labs ...................................................................................................................... 42
TCS ................................................................................................................................ 107
Marico ............................................................................................................................. 42
Tech Mahindra .............................................................................................................. 108
Page Inds ......................................................................................................................... 43
Wipro ............................................................................................................................ 108
Pidilite Inds...................................................................................................................... 43
Zensar Technologies ...................................................................................................... 109
United Breweries ............................................................................................................ 44
Telecom .......................................................................................................... 110-116
United Spirits................................................................................................................... 45
Bharti Airtel ................................................................................................................... 110
Financials- Banks ................................................................................................ 46-56 Bharti Infratel ................................................................................................................ 112
AU Small Fin. ................................................................................................................... 47 Idea Cellular .................................................................................................................. 113
Axis Bank ......................................................................................................................... 47 Tata Comm .................................................................................................................... 114
Bank of Baroda ................................................................................................................ 48 Utilities ........................................................................................................... 117-119
Canara Bank .................................................................................................................... 48 Coal India ...................................................................................................................... 117
DCB Bank ......................................................................................................................... 49 JSW Energy .................................................................................................................... 117
Federal Bank ................................................................................................................... 50 NHPC ............................................................................................................................. 118
ICICI Bank ........................................................................................................................ 51 Tata Power .................................................................................................................... 119
Indian Bank ..................................................................................................................... 51 Others ............................................................................................................. 120-134
IndusInd Bank.................................................................................................................. 52
Allcargo Logistics ........................................................................................................... 120
Kotak Mahindra Bank ...................................................................................................... 53
Ashoka Buildcon ............................................................................................................ 120
RBL Bank ......................................................................................................................... 53
Arvind............................................................................................................................ 121
South Indian Bank ........................................................................................................... 54
BSE Ltd .......................................................................................................................... 121
State Bank of India .......................................................................................................... 55
Castrol .......................................................................................................................... 122
Yes Bank .......................................................................................................................... 56
CEAT .............................................................................................................................. 122
Financials – NBFC ................................................................................................ 57-65 Container Corp .............................................................................................................. 123
Aditya Birla Cap ............................................................................................................... 57 Coromandel Intl ............................................................................................................ 123
Bajaj Finance ................................................................................................................... 58 Delta Corp ..................................................................................................................... 124
Chola Inv. & Fin ............................................................................................................... 58 Indo Count Inds ............................................................................................................. 125
Equitas Holdings .............................................................................................................. 59 Info Edge (India) ............................................................................................................ 125
HDFC Standard Life.......................................................................................................... 60 Interglobe Aviation........................................................................................................ 126
ICICI Pru Life .................................................................................................................... 60 IRB Infra ........................................................................................................................ 126
IndiaBulls Housing Finance .............................................................................................. 61 Kaveri Seeds .................................................................................................................. 127
L&T Finance..................................................................................................................... 62 MCX............................................................................................................................... 127
M&M Financial ................................................................................................................ 63 Oberoi Realty ................................................................................................................ 128
PNB Housing.................................................................................................................... 64 Phoenix Mills ................................................................................................................. 128
Shriram City Union Fin..................................................................................................... 64 Piramal Entp .................................................................................................................. 129
Shriram Transport Finance .............................................................................................. 65 PI Inds............................................................................................................................ 129
Healthcare .......................................................................................................... 66-74 Sadbhav Engg ................................................................................................................ 130
Alembic Pharma .............................................................................................................. 66 SRF Ltd .......................................................................................................................... 130
Alkem Labs ...................................................................................................................... 67 Tata Chemicals .............................................................................................................. 132
Aurobindo Pharma .......................................................................................................... 67 Team Lease ................................................................................................................... 133
Biocon ............................................................................................................................. 68 Trident........................................................................................................................... 133
Cadila Healthcare ............................................................................................................ 68 UPL ................................................................................................................................ 134
Cipla ................................................................................................................................ 69
Dr Reddy’s Labs ............................................................................................................... 69
st
Note: All stock prices and indices are as on 21 August 2018, unless otherwise stated.
Voices
1QFY19 | India| Inc
1QFY19
on Call
Voices
BSE Sensex: 38,337 S&P CNX: 11,583
Demand improvement visible; Cyclicals continue driving performance

Outlook on asset quality of corporate banks improving
 Management commentary - the key ingredient to keeping investor sentiment upbeat -
for the June quarter has provided some belated cheer to market participants.
Importantly, the year-old chestnut of 'transformative reforms-led disruption' hardly
finds a mentioning now. Improved consumption demand and a stabilizing economy
were the common themes in management commentaries. Demand improvement
across B2C sectors such as FMCG, Auto, Durables, Retail, Electricals, and even Cement
is a proof to this. Some fervor was seen in the keenly watched Financials space too,
with sequentially better commentary by Corporate Banks, guidance for slippage
reduction and stabilization in overall asset quality.
 In BFSI, GNPL accretion across corporate banks slowed down in 1QFY19, mainly due to
the recoveries from the resolution of the NCLT-related accounts, even as fresh
slippages have also moderated. The operating performance, however, was impacted
by margins pressure for private banks, tepid treasury income, gratuity/wage
provisions and MTM losses. NBFCs delivered another quarter of consistent and broad-
based growth, with profit growth at a multi-quarter-high. Management of smaller
HFCs have cautioned on the growth outlook, given the supply-side constraints in
affordable housing finance. Managements of larger HFCs, though, have guided for
continued robust growth over the near-to-medium term. However, most companies
are likely to witness spread compression as the rise in cost of funds is only partially
offset by the yield increase.
 For the Consumer sector, 1QFY19 was one of the best quarters (aided by low base) in
recent times, with double-digit revenue and profit growth. It turned out to be the
fourth consecutive quarter of rural sales growth outpacing urban growth, with
managements expecting the trend to continue, going forward. Rising raw material
costs, however, pose a threat to margins.
 In Autos, the demand outlook for FY19 remains healthy - most OEMs expect 8-10%
volume growth in the 2W, PV and CV segments, while the tractor industry is estimated
to grow at 12-14% during the year. The increase in axle capacity in M&HCV is not
expected to impact 50-60% of CV industry volumes. After being hit by RM inflation in
1QFY19, margins may continue facing the heat in the current quarter as key
commodity prices are on an uptrend.
 In Information Technology, where profit growth has returned to double-digits after a
while, there has been a stark improvement in deal wins and the build-up of pipeline
has also been strong. This lends confidence to a sustained uptick in growth.
 In Healthcare, most companies believe that price erosion has stabilized at mid-to-high
single-digit. They also remain optimistic about the US business outlook for FY19,
subject to timely ANDA approvals.
 In Capital Goods, ordering from government segment is likely to remain curtailed in
the run up to the general elections in CY19. Private sector ordering has been good in
sectors like steel, oil & gas and cement. Overall ordering activity is likely to remain
subdued in FY19.
 In Cement, with the sand mining ban issue getting resolved in states like UP, Bihar and
Tamil Nadu, significant traction is expected from the central and southern regions.
 Telecom sector continues facing the brunt of elevated competitive intensity, with no
respite in sight. Managements highlighted that the current low level ARPU is
unsustainable. However, companies are unclear as to when ARPU accretion will kick in
with RJio continuing with its aggressive stance.
August 2018 3
Voices | 1QFY19
Autos
 The demand outlook for FY19 remains healthy – most OEMs expect 8-10%
volume growth in the 2W, PV and CV segments, while the tractor industry is
estimated to grow at 12-14% during the year. Positive rural sentiment, MSP hike
and normal monsoon bode well for 2W and PV demand, while higher infra
allocation should benefit CV demand. The increase in axle capacity in M&HCV is
not expected to impact 50-60% of CV industry volumes. After being hit by RM
inflation in 1QFY19, margins may continue facing the heat in the current quarter
as key commodity prices are on an uptrend. However, the RM inflation impact is
expected to subside 2HFY19 onward.
Capital Goods
 Ordering from the government segment is likely to remain curtailed in the run
up to the general elections in CY19. Private sector ordering has been good in
sectors like steel, oil & gas and cement; however, the trend in other sectors
remains muted. Overall ordering activity is likely to remain subdued in FY19.
 Execution of orders in hand for most companies has been on track.
Managements expect execution to remain stable, given the availability of
necessary infrastructure to execute projects and clients’ preparedness to take
delivery of orders.
 Despite facing headwinds in the form of higher raw material costs,
managements expect stable margins for FY19 on account of cost-rationalization
and value-engineering measures.
 In the room AC segment, revenue growth remains muted due to weak demand
on account of early onset of rainfall in the south and north regions.
Managements have trimmed the CY18 industry growth outlook to single-digit
growth from 15% earlier.
Cement
 The demand scenario should remain favorable in the coming years, led by the
increasing focus on the housing, infra and irrigation projects. With the sand
mining ban issue getting resolved in states like UP, Bihar and Tamil Nadu,
significant traction is expected from the central and southern regions. The
recent increase in petcoke prices is likely to impact power & fuel cost.
Additionally, higher diesel prices would affect freight cost. However, the impact
is likely to be diluted by the new norm of an increase in axle load.
Consumer
 Rural sales growth outpaced urban growth for the fourth consecutive quarter in
1QFY19. Managements expect this trend to continue, going forward. The much-
vaunted earnings revival in the sector appears poised to come through, and
rural-dependent plays are likely to be at the vanguard. The impact of
government schemes like extension of DBT, an increase in rural outlay in the
recent budget, and MSP increase to 1.5x of cost of production will be keenly
watched. Hopes from monsoon, which is forecast to be normal, remain high. If
monsoon is normal, FY19 could be a very good year for FMCG companies, as the
preceding four years either were affected by droughts or demand/supply-side
disruptions like demonetization and GST. Urban-focused companies like Nestle
and Glaxo Consumer have also reported healthy sales growth, albeit off a weak
base. Pace of new launches finally appears to be picking up in anticipation of a
demand revival, with particularly Britannia and GCPL calling out an
unprecedented set of new launches in FY19. Passing on of the ongoing material
cost increases will be a challenge, and thus, we see a risk on margins for
companies lacking growth visibility.
August 2018 4
Voices | 1QFY19
Financials
Banks
 GNPL accretion across corporate banks slowed down in 1QFY19, mainly due to
the recoveries from the resolution of the NCLT-related accounts, even as fresh
slippages have also moderated. The operating performance, however, was
impacted by margins pressure for private banks, tepid treasury income,
gratuity/wage provisions and MTM losses. Resolution of a few more NCLT-
related accounts is in the final stages, which will provide further respite to the
corporate banks. Private corporate banks guided for normalization in credit cost
from 2HFY19, while PSU banks’ credit costs are expected to stay elevated
throughout FY19.
 While margins shrank for private banks, they expanded marginally for PSU banks
as recoveries were accounted through interest income. Managements guided
for margin expansion in the upcoming quarters as most banks have raised the
MCLR in 1QFY19. CASA ratios are expected to be around same levels due to the
rising interest rate differential and weak SA growth.
 On the business growth front, private banks guided for continued strength in
loan growth – many of them (KMB, YES) are already reporting multi-year-high
growth, while PSU banks guided for modest trends (SBIN guided for ~12% loan
CAGR until FY20).
NBFC
 1QFY19 was a mixed quarter for our coverage universe, especially HFCs.
Managements of smaller HFCs such as GRUH and REPCO have cautioned on the
growth outlook, given the supply-side constraints in affordable housing finance.
On the contrary, managements of larger HFCs have guided for continued robust
growth over the near-to-medium term. However, most companies are likely to
witness spread compression as the rise in cost of funds is only partially offset by
the yield increase. In vehicle finance, most managements are looking to expand,
especially in rural areas, where they see growth. Most companies in vehicle
finance have guided for a decline in credit costs.
Healthcare
 One of the main reasons for companies reporting a better quarter (1QFY19) was
robust growth in the domestic market (+25-40% YoY) off a low base (1QFY18
was impacted by GST-led disruption). Most companies believe that price erosion
has stabilized at mid-to-high single-digit. They also remain optimistic about the
US business outlook for FY19, subject to timely ANDA approvals. Product-
specific intensification in competition and seasonality impacted the sequential
performance to some extent in US generics. Although the operating margins
improved in 1QFY19, the gross margin remained under pressure due to supply
disruptions in China. Companies are in the process to change the sources and/or
undertake in-house manufacturing.
Media
 Large media houses (Zee and SUN in particular) are bullish on ad revenue
growth. However, higher investments in content and launch of new channels
are likely to limit margin expansion. Although ad growth momentum is
uncertain, managements of print and radio companies are optimistic about the
2HFY19 performance, given the likely boost from the festive season and the
upcoming state and general elections. Increase in newsprint prices poses a
threat for the print pack, though. In response to this, Jagran is reducing copies.
DB Corp, however, hinted that it would continue increasing circulation. DTIV is
getting aggressive on subscriber ads (mainly HD subscribers) and expects an
uptick in the EBITDA margin (led by merger synergies).
August 2018 5
Voices | 1QFY19
Metals
 Demand was strong across metals on the back of government spending on
infrastructure and a weaker base (1QFY18 was impacted by GST). Domestic steel
demand has outpaced GDP growth for the second consecutive quarter now, and
the trend is likely to continue, going forward. Domestic steel prices have
corrected due to seasonal factors, but are likely to recover once monsoon
subsides.
Oil & Gas
 After a weak refining performance from the OMCs, GRMs are expected to
improve going ahead in line with the global benchmarks. Domestic auto fuel
consumption is expected to continue growing strongly. Private players continue
to be marginalized in marketing of petroleum products. Gas consumption has
been increasing, led by higher availability of domestic gas and increased LNG
imports. This is expected to continue over the next few quarters. Any slowdown
or delay in domestic gas production would be positive for PLNG led by higher
imports. GAIL would be a key beneficiary of rising gas consumption in the
country. Any progress toward unified tariff or pipeline tariff hike would be
positive for GAIL. City gas distributors (CGDs) are expected to grow their
volumes, led by new customer acquisition, improving infrastructure and access
to new gas.
Retail
 Titan’s Jewelry segment grew by 70% YoY in July 2018. Adjusted for
advancement, growth was at 40% YoY (with 20% increase in customer
acquisition). 1QFY19 sales growth of 14-15% (a miss versus our estimate) implies
that full-year growth may come in at ~22-23% (based on its earlier targets for
the remainder of the year). Titan is likely to record double-digit margins in
Watches segment in FY19. JUBI stated that it would accelerate store addition
2QFY19 onward – it added 10 stores in 1Q, but maintained the target of 75 store
additions for full year. Dunkin Donuts impacted margins by 55bp in 1QFY19 (-
143bp 1QFY18 and -106bp for 4QFY18). Online ordering accounts for 65% of
total; its share will continue growing faster than offline.
Technology
 There has been a stark improvement in deal wins and the build-up of pipeline
has been strong, lending confidence to a sustained uptick in growth going
forward. Critical areas, the resurrection of which would be prime to steering
companies into an accelerated growth trajectory, have also started seeing green
shoots, which should materialize in the coming quarters. Profitability continues
to be a function of the benefits of currency depreciation and improvement in
operational efficiency being partly offset by investments, either growth-inducing
or capability-building.
Telecom
 Managements highlighted that the current low level ARPU is unsustainable.
However, they are unclear as to when ARPU accretion will kick in as RJio remains
aggressive on competition, now with the launch of Jio Phone 2. However, until
then, the merger synergies for both Bharti/Vodafone-Idea should aid in
sustaining competition. Bharti is planning to step up its investments in the FTTH
business and continues maintaining its capex guidance of ~INR270b to match
RJio’s coverage and capacity.
August 2018 6
Voices | 1QFY19
Utilities
 Overall electricity demand is expected to improve, driven by measures like
UDAY and the focus on ‘Make in India’ and ‘Power for All’. Electricity demand
growth was relatively muted in 1Q. However, spot prices have increased on
account of domestic coal shortage and some supply disruption. There is no
visibility on long-term PPAs; however, companies are evaluating opportunities in
short- and medium-term contracts. Power Grid is positive on the future growth
opportunities from solar, wind and opening up of the intra-state transmission
network. NTPC expects a pick-up in project execution. JSW Steel is evaluating
acquisition opportunities, but at the same time is aggressively venturing into the
electric vehicles segment.
August 2018 7
AUTOMOBILE | Voices
Key takeaways from management commentary

AUTOMOBILES
The demand outlook for FY19 remains healthy – most OEMs expect 8-10% volume growth in the 2W, PV and CV
segments, while the tractor industry is estimated to grow at 12-14% during the year. Positive rural sentiment,
MSP hike and normal monsoon bode well for 2W and PV demand, while higher infra allocation should benefit CV
demand. The increase in axle capacity in M&HCV is not expected to impact 50-60% of CV industry volumes. After
being hit by RM inflation in 1QFY19, margins may continue facing the heat in the current quarter as key
commodity prices are on an uptrend. However, the RM inflation impact is expected to subside 2HFY19 onward.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY19 Regulatory Impact-Volumes
 M&CV industry growth of 8-10% for FY19.  Gross margin in LCV business are better than
Ashok Leyland  Expect gradual market share recovery in rest of that in M&HCV, while margins are almost at
FY19. par with S/A business.
 Scrappage policy will create demand for 200-  50-60% of volumes will not get impacted by an
300k units (if vehicle age is 20years) in FY2.1 increase in axle norms.
 Targets total sales of 4.8m units in FY19 (+20%),  Price hike of INR500-750/unit in motorcycles
driven by exports (~2m units), domestic 2Ws (ex-entry level) and INR1-1.5k/unit in 3W in
(~2.4m units) and domestic 3Ws (375-400k July-18.
Bajaj Auto
units).  Spare revenue affected by supply shortage
 Targets 45-50% market share (v/s 35% which grew only 8% (v/s normal growth rate of
currently) in M1 segment and 20% share in 15-20%).
domestic 2Ws by end-FY19.
 Producible capacity to be 950k in FY19  Supply is aligning with demand with waiting
 Capacity expansion at Vallam plant to come by period <1 month.
2HCY19.  SSG (for >2 years old dealer) at 10%.
Eicher Motors  Room for margin expansion in S/A led by  VECV – average price increase of ~1.5% in
further optimization of material cost. 1QFY19.
 Indicated double digit growth for 2W industry  Not to participate in price competition in
Hero MotoCorp in FY19. economy segment.
 Expect to gain market share in 2W with new  Witnessed ~200bp RM pressure in 1Q and
launches under scooter and premium expect further pressure in 2Q as well.
motorcycle segment.  Price increase of ~1% in Jul-18.
 Rural growth (11%) outpaces urban growth  125cc scooter account for ~21% of scooter
(9%). Expect momentum to continue. sales.
 FY19 Industry growth guidance: Tractor 12-14%,  Price hikes of 1.5% in auto and 1.3% in FES.
PVs (>10%).  Inventory level in FES better than industry
M&M
 Strong product pipeline with the launch of 3 while in auto, it is in-line with industry.
new products in PV (2 before Diwali). MPV U321  Rural demand remains robust led by normal
would be launched next month. monsoon, good Rabi crop output and ~15%
 Expect CV growth to be impacted by new axle growth in MSPs.
load norms in the short term.
 PV industry to grow 8-9% in FY19, with MSIL to  Growth from the rural markets healthy at 15%
Maruti
grow faster than industry. in 1QFY19.
 Gujarat plant phase 2 to begin by Jan-19.  Average discount increased QoQ at
INR15.2k/unit. (V/s INR13.9k/unit in 4Q).
 Expect higher sales growth and improved  Level of incentives increased to 8% of sales in
profitability in remainder of FY19. 1QFY19 (v/s 6%each in4QFY18 and 1QFY18).
Tata Motors
 Structural impact on margins in China JV due to  Wholesales impacted by de-stocking in China
price cuts led by lower import duty. and in other markets.
 Expect some impact of de-stocking in 2Q.  I-pace and PHEV RR/RR sport order book is at
 Negative sentiment for diesel will continue to 5.5 months and 3-4 months.
have impact in volumes at UK.
August 2018 8
AUTOMOBILE | Voices
Ashok Leyland Buy

Current Price INR 129 Target Price INR 149 | 16% Upside
 Positive outlook maintained: Domestic M&HCV industry to grow 8-10%, led by
Click below for increase in infrastructure spends (e.g. in road building and mining). In FY20, pre-
Detailed Concall Transcript & buy demand due to BS-6 is expected to drive industry volumes.
Results Update
 Expect gradual market share recovery for AL in rest of FY19; market share
decline in 1Q was due to staying away in deals where pricing was very
aggressive.
 Management reiterated that AL will stay away from negative margin deals;
however, network expansion will lead to market share gains.
 Capacity: No plans of green field capacity addition as current capacity of 180k
vehicles can be increased by 10-20% through debottlenecking. However,
capacity constraints are being addressed at AL level (for chassis assembly,
gearbox, cabins (paint shop) and high HP engines).
 Scrappage policy: Will create demand for 200-300k units (if vehicle age is
20years) in FY21.
 LCVs: Gross margin in LCV business is better than that in M&HCV business.
Margins are almost at par with S/A business. AL expects merger of LCV
subsidiaries by 3Q/4QFY19 subject to approval.
 Aftermarket and exports business grew 28% and 24%, respectively in 1QFY19.
 Revenue contribution: Trucks – 62%, Bus – 9-10%; defense business
contribution declined to 3-4% v/s 6-7% earlier.
 Guided for FY19 capex and investment (can be in Optare) of INR10b in LCVs,
EVs, modular vehicle program and maintenance capex.
 Expect steel price to come down in 2HFY19.
Bajaj Auto Buy

Current Price INR 2,728 Target Price INR 3,223 | 18% Upside
 BJAUT targets total sales of 4.8m units in FY19 (+20% YoY), of which exports to
Click below for be 2m units, domestic motorcycle to be 2.4m units and domestic 3W to be 375-
Detailed Concall Transcript & 400k.
Results Update
 Expect 2W market share of 20% (from 16% currently), driven by CT 100, Platina
and Pulsar.
 New Discover volumes weren’t at par with internal expectations.
 Don’t expect Pulsar Classic to be a volume driver; Pulsar twin disc has been well
received by the customers.
 Dom. motorcycle inventory at ~5weeks, whereas for CT100 it stood at 3-4
weeks, where demand is greater than supply.
 Domestic 3W sales momentum to be healthy at ~30k/month, despite the
benefit of permit release now behind.
 Growth in 3Ws will be led by higher volumes from the diesel and cargo
segments. The current diesel cargo volume is ~3k units per month, while that of
diesel passenger 3W volume stand at ~15k units per month.
 In 1QFY19, spare revenues grew by 8% to INR6.5b as the same was affected by
supplies shortages. Exports spare revenues stood at INR1.2b.
 EBITDA margins: Growth of motorcycle, particularly in M1, would be faster than
3Ws and exports. Hence, there would be further impact of adverse mix on
margins.
August 2018 9
AUTOMOBILE | Voices
 Have taken average price increase of INR500-750/unit for 2W (barring M1) and
INR1, 000-1,500/unit for 3W in July-18.
 Forex hedge: Expect only 50% of rupee depreciation benefit to be realized, due
to par Forwards. Expect additional benefit of INR0.5 in remaining FY19.
 Guided for capex of INR2.5-3b in FY19. Expect FY20 capex of INR5b considering
capacity expansion.
 Quote: Expect billing of the product to commence in next few days for domestic
market. Expect 35-40 vehicles to get retailed in Kerala and north-east markets in
1-2 months.
Bharat Forge Buy

 Outlook: Management expects strong growth across segments in FY19. It is
Click below for betting on three strategic business verticals that would drive substantial growth
Results Update over 5-7 years – Defense, Centre for light weighting technologies and e-mobility.
 Outlook for CV segment: Management has maintained guidance of 28% growth
in the US class 8 truck sales in CY18. Outlook for domestic CV market also
remains positive, with growth of 10-12% in FY19.
 Revenue from Oil and Gas segment has potential to double over the next three
years on the back of new products, customers and geographies.
 Order wins: Secured new business wins of INR1.2b across domestic and export
markets in S/A business during the quarter. German operations (CDP BF)
secured a multi-year EUR40m p.a business win for supply of aluminum forgings
for a marquee global premium vehicle manufacturer. Execution of this business
will commence in CY19.
 Management sees huge potential in aluminum business, driven OEM focus on
light weighting. Contribution of aluminum forgings can increase up to 10-15% of
revenue over the next 3-4 years (5% currently).
 Non-auto exports capacity is operating at full capacity. Through
debottlenecking, management expects to increase capacity by 15% over the
next three months.
 Management expects no threat to existing business from imposition of tariffs in
the US on imports of auto components.
 Capital expenditure guidance of INR5b/4b for FY19/FY20 in S/A business for
capacity expansion at Baramati (by 1QFY20) and AP (by mid FY20). Further, BF
PMT (US subsidiary) is investing USD55m toward setting up of aluminum
forgings facility in Tennessee, USA. This would cater to the needs of the North
American car market. It will commence production in CY20.
Eicher Motors Buy

Royal Enfield
Click below for  Demand remains healthy in all states, except for Maharashtra and Karnataka.
Detailed Concall Transcript &
Management alluded decline in >150cc industry volume for slower growth in
Results Update
Maharashtra (however RE has gained market share) and increase in road tax as
one of the reason for decline in sales in Karnataka market.
 Have ~50% market share of premium motorcycle segment in states like
Chandigarh, Punjab, Goa and Delhi.
August 2018 10
AUTOMOBILE | Voices
 Sees enough scope for growth in all the states particularly in BIMARU status.
 Supply is now aligning with demand, with waiting period of <1 months. SSG (for
>2 year old dealer) at 10% in 1QFY19.
 Demand for higher priced model (Gunmetal Grey Classic 350, Stealth Black
Classic 500, Thunderbird X) is healthy and account for ~50% of current bookings.
 Have been converting booking into sales in less than a month’s time, backed by
increased production.
 Network expansion: Targets 950 dealers in India by Mar-19 (v/s 849 currently).
Have added new store in Malaysia, taking total count to 37 stores globally.
 RE’s twin 650cc motorcycle booking (Interceptor and Continental GT) to begin
by November. Have separate engine and vehicle assembly lines for the
products, while paint shop and machining components are fungible with other
models.
 Capacity expansion update: Producible capacity to be 950k units in FY19.
Capacity expansion at Vallam plant to come on stream by 2HCY19.
 Chennai technical center to come on stream by end of CY19.
 Maintain average inventory of ~10 days. Will take production cuts in-case of
demand slowdown but do not believe in increase in inventory.
 Scope for further margins expansion in medium to long term by optimizing
variable costs. Expect RM inflation pressure to stabilize from 2QFY18.
VECV
 New axle norms – do not see any demand softness due to new axle norms.
Working on new models to comply with new rating system.
 Launched CNG trucks (<5ton), Pro 6049 and Pro 6041 (HD), 7 speed transmission
(MD) and expects to launch more CNG variants in LMD segments going forward.
 Average price increase of +1.5% in 1QFY19.
Endurance Technologies Buy

 During the quarter, ENDU received new business to the tune of ~INR2.3b from
Click below for Kia, HMSI, HMCL, Yamaha, RE and Tata Motors. EU business order book stands
Detailed Concall Transcript & at EUR315m.
Results Update
 ENDU is seeing huge growth in rear disc brake assemblies, particularly from RE
and Bajaj Auto. Management believes revenue potential from this segment
could be larger than ABS.
 Halol plant (HMCL) is expected to commence production in Sep’18, Karnataka
plant (HMSI) is expected to commence production in Jan’19. Production has
started in Sanand plant (HMSI) in Apr’18.
 In European business, ENDU expects to grow in-line with the industry growth of
~3% in constant currency.
 It expects aluminum content to go up, particularly in EVs. It is working with VW
group for transmission part for Porsche, which VW is evaluation to use in across
brands. This could be EUR75m revenue opportunity.
 Export business grew 94% to ~INR612m in 1QFY19, driven by strong growth in
largest export customer, Getrag. Getrag’s acquisition by Magna is opening up
new opportunities for ENDU, as it would get foothold in Magna’s global supply
chain.
 Revenue from replacement market grew 20.3% YoY to INR531m in 1QFY19.
August 2018 11
AUTOMOBILE | Voices
 ENDU has received GST-related incentive from Maharashtra Government,

totaling INR2.8b, which would be spread out over 7 years. First disbursement of
this is expected in 4QFY19.
 ENDU has ramped up its supply of inverted front forks to KTM. Management
mentioned that they are receiving new enquiries from other customers too.
 Tie-up with BWI to tap ABS opportunity on track: As per schedule, prototypes
will be sent out to BWI by Oct-18 and commercial supplies would commence
from Mar-19.
 Increased capex guidance to INR4-4.5b in India business in FY19 (from INR2.75-
3b earlier).
Escorts Neutral
Click below for  Domestic tractor industry to grow at 12-15% (v/s 9-11% earlier) in FY19, and ESC
Results Update to outperform led by new product launches.
 Tractor market share for 1QFY19 was at 10.7% (+100bp), with 15.3% share in
strong market and 5.7% share in opportunity market.
 Expect growth of ~16-18% in CE business and ~18-20% in railway business.
 RM inflation impact of 2.5% in 1QFY19 passed on, with ~0.8% price hike in Apr-
18 and balance in July-18. (e) Total debt declined to INR0.4b (v/s INR0.5b in
Mar-18).
 Expect tractors/CE/ railways business margins to be ~14%/~5%/~18%.
Hero Motocorp Neutral

 Outlook: Management expects the current demand momentum to carry
Click below for forward in FY19, with double-digit growth in the 2W industry.
Detailed Concall Transcript &  Rural demand growth (~11%) is outpacing urban growth by (~9%) by ~2-3%.
Results Update Healthy demand from rural market to continue in FY19 as well, backed by
healthy monsoon and MSP hikes.
 Expect to gain market share in 2W with new launches under scooter (high
margin 125cc) and premium segments (Xtreme 200).
 125cc scooters account for ~21% of scooter sales in 1QFY19 (v/s 16-17% in
FY18). Growth from 110cc scooter segment is losing momentum, while healthy
growth in 125cc scooter segment is driving overall scooter industry growth.
 Don’t see impact of price discounting by competition on market share in
motorcycles. Believes brand building is more powerful tool than brand
discounting. Have managed to gain market share despite price difference of 10%
with Bajaj in FY18.
 Commodity costs: Price increase of average INR500/vehicle was taken (starting
1st July, 2018) to soften the impact of RM inflation. Management anticipates
RM inflation impact to recede from 2QFY18.
 Retails in West Bengal market have been slow and impacted by need of
compulsory 2W license. No impact on wholesales so far.
 LEAP benefit possible to the tune of ~30-40bp in FY19 (v/s ~50-60bp in FY18).
August 2018 12
AUTOMOBILE | Voices
 Haridwar plant expiry of incentive to impact margins by ~70bp in 1QFY19;

rampup at Halol (100% increase in production in FY19 to 600k) and
commissioning of AP plant (2HFY20) to dilute this impact in FY20.
 Exports: Bangladesh market performed well in 1QFY19 with retail level market
share of ~30% in last two months. Expect double-digit growth in exports in FY19,
with launch of market-specific products in countries like Nigeria.
 Hero FinCorp financed ~13% of HMCL volume in 1QFY19 v/s ~11.5% in FY18.
 Expect price increase of ~INR500/unit for CBS and ~INR4k/units for ABS.
 Inventory levels remain at ~4-6 weeks and expect to go up in coming months
due to festivals.
 Initial response to used 2W platform has been good in Gujarat and Tamil Nadu
market.
Mahindra & Mahindra Buy

Current Price INR 958 Target Price INR 1,084 | 13% Upside
 For Tractors, company expects industry to grow at 12-14% in FY19 (v/s 8-10%
Click below for growth earlier). Industry growth to remain flat in 2QFY19 due to onset of Diwali
Results Update
in 3QFY19 v/s 2QFY18 in previous year.
 Rural demand remains robust, driven by normal monsoon, good rabi crop
output and ~15% growth in MSP for Kharif crops.
 Inventory level in FES is better than industry level, while that in Auto, it is
comfortable and in line with industry.
 Have taken price increase of ~1.5% in Auto and ~1.3% in FES segment and have
managed to pass on partial RM inflation. The balance has been offset by internal
cost-control measures.
 Expects to fill gaps in mid CUV and premium MPV segment with launch two of
the three products planned before Diwali, resulting in market share gains. MPV
U321 would be launched next month. Also, Furio (ICV) would be launched
before Diwali. Post these new UV launches, it would not have any new platform
launch in CY19.
 The response to Plush new XUV500 has been good, with average monthly
volume of around 2.7-2.8k.
 Recently launched Trakstar brand; sold 1,162 units of tractors in YTD June FY19.
 To launch Novo 65 and intelligent tractor during FY19. Don’t expect significant
volumes as both the launch will be in niche segment.
 The farm implements business grew by 41% in 1QFY19 with revenues of INR1b.
 Have maintained PV industry growth at >10% in FY19, with UV growth to be
>15%. Fuel price inflation and a rise in interest rates could pose a threat to
customer sentiment.
 Expect CV growth to be impacted by new axle load norms in the short term as
OEMs will need to reconfigure vehicle (Brakes, Axle, Steering, Chassis and Tyres)
as per new rated capacity which can take 3-6 months. However, demand is
expected to normalize from Sep-18.
 In 1QFY19, HCV market share improved to 5.7% (v/s 5.2% in 1QFY18).
August 2018 13
AUTOMOBILE | Voices
Maruti Suzuki Buy

Click below for  Growth from rural markets (1/3rd of sales) remains healthy at 15% in 1QFY19.
Results Update Momentum is expected to continue, led by better monsoon and hike in MSP.
 While footfall growth is declining, MSIL is witnessing inquiry and booking growth
of 15% and 13%, respectively.
 For FY19, expects 8-9% growth for the industry, with MSIL continuing to grow
faster.
 Demand for entry-level cars still intact and it continues to remain part of MSIL’s
long-term growth story.
 Demand for Petrol model continues to grow faster with its share in industry mix
increasing to 62%, while for MSIL it is higher at 72%.
 Waiting period for petrol variant declined to ~2-4weeks for models such as
Baleno, new Dzire and new Swift, while that of diesel variant there is no waiting
period. However, Brezza (only diesel) still enjoys waiting period of ~4 months.
 Commodity inflation: Management indicated they don’t see much increase in
RM from current levels.
 Average discounts increased QoQ at INR15,161 per unit (v/s INR13,880 per unit
in 4QFY18 and INR16,600 per unit in 4QFY17).
 Gujarat plant update: Contributed ~66k units of production in 1QFY19 (total
production of 157k units in FY18). Phase 2 to begin by Jan-19.
 Royalty in 1QFY19 declined to 5.5% (5.7% in 4QFY18 and 5.4% in FY18) of net
sales which had an impact of ~25bp due to FX variation.
 Guided for effective tax rate of 29% for FY19.
 Demand from cab-aggregators grew in 1QFY19 albeit at a lower base of FY18.
This segment accounts for ~4-4.5% of sales.
Motherson Sumi Buy

SMP - Highlights from the earnings call
Click below for
 Expect SMP margins to gradually expand as the ramp-up takes place at Hungary
Results Update plant.
 No impact of WLPT regulations (Sep-18) on MSS as no customer has indicated a
decline in production volumes.
 RM pass-through policy at SMP and SMR is more specific to products and
customers, unlike of wiring harness business.
 Start cost was lower due to commencement of Kecskemet plant in Hungary.
SMR - Highlights from the earnings call
 Strategically staying away from lower-margin business while keeping strong
focus on profitability.
 Sees enough scope for growth at SMR going forward.
PKC - Highlights from the earnings call
 PKC growth to be healthy and supported by increasing content and complexity
in trucks wiring harness requirement with implementation of Euro-6 standards
in China.
 Expects to achieve 35-40 RoCE by 2020.
Other highlights from the earnings call
 No new capacity addition required for current order book.
August 2018 14
AUTOMOBILE | Voices
 Guided for capex of INR20b in FY19.

 S/A margins impacted by copper inflation and a lag in pass-through of the same.
 Reydel consolidation from 2Q (wef 2nd August 2018), which has
revenue/EBITDA of USD1050m/USD67m and it is a net cash company.
Tata Motors Buy
Click below for  Level of incentives was higher by 2% to 8% of sales in 1QFY19 (v/s 6% each in
Detailed Concall Transcript & 1QFY18 and 4QFY18).
Results Update  Wholesales impacted by de-stocking (~11.3k units) in China (due to reduction in
import duty) and in other markets. De-stocking impact to further impact
wholesales in 2QFY19 as well.
 Expect receding impact of non-recurring events such as China duty, de-stocking,
WLTP in remainder of FY19.
 Structural impact on margins in China JV (as reflected in 1QFY19 EBIT margins
declining by ~17.5pp YoY/QoQ) due to price cut led by lower import duty (as JV
product pricing is pegged to imports).
 Negative sentiment for diesel will continue to have impact in volumes at UK
(diesel at 85% v/s 93% in CY17YTD) and EU (share of diesel currently at 84% v/s
90% in CY17YTD).
 For JLR, it expects medium-term EBIT margin at 4-7% EBIT (FY19-21) and 7-9% in
the long term. Expects positive CFO and working capital contribution from
2HFY19.
 I-Pace order book is at 5.5 months, whereas order book for PHEV RR/RR Sport is
at 3-4 months.
 New model launch: New Evoque by 1QCY19, New Defender and XJ in FY20. To
launch locally made E-Pace in China by Sep-18.
 Unrealized Fx hedge losses have increased on QoQ basis. Current period
unrealized hedge loss now stands at GBP562m (v/s GBP457m in 4QFY18) and
non-current portion was at GBP169m (v/s gain of GBP52m in 4QFY18).
TVS Motors Neutral

Click below for  Demand outlook: Management expects healthy demand momentum to
Detailed Concall Transcript & continue in FY19 as well. It expects industry to grow at 10-12% in FY19 and TVSL
Results Update
to outperform the industry.
 Exports: Management has guided that it will continue its growth momentum in
exports; it expects higher-than-industry growth in 2W and 3W exports.
 The company reiterated that it will continue investing in brand and focus on
market share. It is not reacting to aggressive pricing in commuter segment.
 Margin guidance intact, but refrains from giving timeline: Management
reiterated its aspiration of double-digit EBITDA margin going forward, driven by
fixed cost reduction, operating leverage, variable cost reduction (through VAVE),
etc.
 Price hike to mitigate RM costs: TVS took a price increase of 0.5% in Apr-18 and
0.3% in Jul-18 to dilute the impact of RM cost inflation. RM inflation to be felt in
2QFY19 as well.
August 2018 15
AUTOMOBILE | Voices
 Investments in subsidiaries: During the quarter, the company made following

investments. (a) Indonesia subsidiary – INR268.5m and (b) TVS Credit Services –
INR250m.
 TVS Credit Services (captive financing arm) ramp-up continues, with ~38%
disbursal growth in 1QFY19, with a book size of ~INR65b and PAT of ~INR300m.
This NBFC now has ~50% share of volumes financed for TVS.
 Indonesian subsidiary had EBITDA loss of USD1m in 1QFY19 (flat YoY). It has
started supplies of 3W as well. It expects break-even this year.
 Capex: Guided capex at INR7b for new products development, technology, BS6-
related spends and maintenance capex. This is excluding investments in
subsidiaries which could be over INR1.25-1.5b in FY19.
 Tax rate to be higher at 30-31% in FY19 due to exhaustion of tax benefit at
Uttarakhand plant and deferred tax credit in FY18.
August 2018 16
CAPITAL GOODS | Voices
CAPITAL GOODS
Ordering from the government segment is likely to remain curtailed in the run up to the general elections in
CY19. Private sector ordering has been good in sectors like steel, oil & gas and cement; however, the trend in
other sectors remains muted. Overall ordering activity is likely to remain subdued in FY19.
Execution of orders in hand for most companies has been on track. Managements expect execution to remain
stable, given the availability of necessary infrastructure to execute projects and clients’ preparedness to take
delivery of orders.
Despite facing headwinds in the form of higher raw material costs, managements expect stable margins for FY19
on account of cost-rationalization and value-engineering measures.
In the room AC segment, revenue growth remains muted due to weak demand on account of early onset of
rainfall in the south and north regions. Managements have trimmed the CY18 industry growth outlook to single-
digit growth from 15% earlier.
Outlook for FY19 Domestic Capex Cycle
 Cummins has maintained its outlook for FY19. It expects  Infrastructure demand continues to remain
domestic revenue to register 8-10% YoY growth and robust for the company’s product portfolio.
Cummins Exports to register Flat YoY growth.
 Larsen has maintained its FY19 guidance on revenue,  Domestic ordering has registered 45%
order inflow and margins growth YoY for L&T in 1QFY19. Activity
Larsen and  Order intake guidance: issued order inflow guidance of shows signs of pickup with order finalization
Toubro 10-12% YoY growth for FY19 picking up in the E&C segment.
 Revenue guidance: 12-14% growth for FY19
 Margin improvement of 25bp YoY.
ABB India Sell

Current Price INR 1,272 Target Price INR 950 | -25% Downside
Orders
Click below for  Large orders are few, but base orders doing quite well.
 Services orders up 52% to INR3.8b and exports up 68% to INR4.2b. 1HCY18
Results Update
services orders stand at INR8b.
 Order Backlog: Well diversified and clear visibility for next few quarters.
Margins
 66% is RM cost and this is due to RP800 sales; ex of this, RM cost is 64% of sales
– is in line with 2QCY17.
 Electrification Products and Robotic & Motion have a high imported content.
Margins of these segments were thus impacted by the INR depreciation.
 Margins impacted by currency depreciation, especially in the industrial segment.
INR10cr impact on MTM due to currency impact.
 Industrial automation margins higher due to increase value-added and services
content.
Industry end-market
 GST and demonetization impact has faded - GST will have a positive impact on
the economy.
 Steel and cement are yet to pick up, so core segment still not doing very well.
Opex is being done, but not much of new capex. It is about increasing
productivity in existing assets.
 Focused on both mid-sized and small projects - not many large projects in the
industry.
August 2018 17
Transport and Infrastructure end market

 Transportation was a growth driver in the quarter, with a first-of-its-kind
integrated power and automation package order for ferries, and orders for
‘drive propulsion systems’ for Indian Railways.
 Transport sector driven by rail expansion, high speed rail, metro and ports.
BHEL Sell
Current Price INR 76 Target Price INR 60 | -21% Downside
 FGD orders have started to flow in and momentum is expected to gather pace.
Click below for Within FGD orders, INR49b has been received till now and BHEL is L1 in INR29b
Results Update
of orders. Pricing has been depressed.
 Signed a MoU with Government for sales of INR300b on very good basis and
INR320b on excellent basis.
 INR190b is slow moving orders - INR50b yet to get zero date on these orders,
INR23b stuck due to political issues (DVC Raghunathpur and Ramgarh, Rajasthan
are stuck project).
 BHEL expects BTG ordering of 8-10GW of tenders to be finalized in FY19.
Ordering of 48GW can happen on account of replacement of capacities.
 Of total debtors of INR379b, deferred debtors stand at INR69b as work
amounting to INR238b is yet to be done by BHEL. Current receivables stand at
INR238b and has been bought down to 261 days. Of the total debtors, 82% is
from government companies, 14% is from the private companies and balance is
from exports.
Blue Star Neutral

Overall business environment: INDAS 115 impacted revenue recognition in
Click below for
Results Update
Q119/Q118 meaningfully
 Adopted INDAS 115 and realigned revenue recognition - done retrospectively
for all segments.
 Major shift in revenue recognition “From dispatch to customer earlier to
delivery received by customers and also discounts netted off sales vs, part of
costs earlier”. This has led to reclassification of Q1/Q418 nos.
 LTL sales for Q119 was +7.3% YoY on an adjusted basis.
Unitary cooling products (Room aircon and commercial refrigeration): 9.5-10.5%
margin guidance for FY19
 Room Aircon - unseasonal rain in Southern affected Q119 sales, Industry down
13% and B Star was down 10% and they were planning 20% growth so inventory
of 60 days and expect pricing under pressure till Diwali.
 60 days of excess inventory and take 4 months to liquidate and bring back to
normalized levels - not seen any major price discounting yet.
 Volume decline in room aircon is higher than value decline of 10% - higher focus
on 5 star and inverter has also helped increase value growth. Inverter sales in
Q119 were 45% vs. 45% of industry. 20% for B Star in Q118.
 North did better in June on higher billing of premium products and market share
in room aircon at 11.7% vs 11.4% in Q118.
 Competition increasing in inverters and pricing not raised despite RM pressure.
August 2018 18
 Expect industry sales to increase in FY19 - see good prospects in the remaining
part of year.
 Commercial has done very well so restricted decline for the segment, primarily
freezers, water purifiers, coolers, medical refrigeration.
 Margin guidance: 9.5-10.5% EBIT margin after the impact of water purifier, Have
retained ASP despite competition, growing volumes helping them lower prices,
Backward integration (making IDU), Cut ad spend during the quarter.
 Higher CE to INR5b from INR3.82b in Q418 - due to weak sales in Q119 has led
to higher CE.
 Competition - no structural change in competition, 3/5 star inverters most
selling, Fixed - no 5 star and primarily in 3 star now, Top 5-6 players continue to
do well but pricing is under pressure on excess inventory.
Water purifier
 Sales doubled YoY - during the quarter launched stylish RO, UV, RO+UV
technologies, has 9 series with price from INR10900-44000, Now have 35
models across price points. Also looking at commercial water purifiers for clinics,
offices,
 Available in 174 towns with over 200 dealers and 2400 retail touch points, take
this to 3600 touch points and have 400 sales people
 Impact of 140bps in Q119 on brand, R&D, distribution - continue to invest and
FY19 impact of 150bps as well
 Target is to do INR1b of sales in FY19 and will be 2-2.5% of share; this is year 2 in
this category.
Projects segment – enquiry levels increasing; 5.5-6% margin is sustainable margins
for FY19
 MEP market enquiry seeing improvement on private sector revival in hospital,
offices and also Govt infra projects like metro, airports and healthcare; still to
translate into orders and come in next 2 quarter
 Q118 saw a good growth ahead of GST so based was higher
 After many quarters, seeing a market revival in orders - next 3-5 months see
enquiry conversion into orders, Good traction in centralized
 Margins - focused on large projects with minimum threshold visibility and not
took orders which were not in line with commercial guidelines, 5.5-6% margin is
sustainable margins for FY19.
Crompton Greaves Consumer Elec Buy

Overall business environment
Click below for
 Existing business will continue to grow and contribute to growth, Anti dust and
Results Update
Aero 360 also contributing along with CREST Mini along with innovations in
lighting
 Cooler and Water heaters will drive incremental growth for CGCEL on top of the
core business of lighting and fans
 Innovations will be done in mass premium and not in very niche/ premium or in
mass segment. Anit dust/Aero 360 is in the top half of the market
 Strong growth in ECD and share in fans up by 1%
Fans
 Introduced Aero 360 has got off to a strong start; 10-11% of fan growth is from
this model.
August 2018 19
 Grew share in fans by 1% in Q119

 Aspire to grow faster than the market and take share in fans - overall industry
growth is still muted as it is a function of housing starts which is subdued
 Growth for CGCEL is coming from share gains and an improvement in mix
 Within fans, aim is also to improve the mix by getting into higher share of
premium fans - value growth in Q119 is ahead of volume growth'
 Premium fans are at 20% of total sales in Q119 - these are INR2200 and more
expensive, Mass premium is INR1600-2200 and Aero 360 is within this and
better sales of Aero 360 also improves mix
Lighting
 LED's have become cheaper than CFL and this is leading to sharp price fall in CFL
 LED is growing but sales are in Q119 are dragged down by: a) EESL sales
declining sharply, b) Price erosion in CFL segment
 Price erosion has happened in batons and bulbs and also in B2B - this is matched
by cost savings by CGCEL.
 Will identify consumer meaningful needs, develop innovation and introduce
products for this - have established a base for LED's and have a programme to
introduce innovative products (In August, introducing first 5 star rated LED
bulbs) and also increase in store presence.
CG Power Industrial Solutions Neutral

Power Systems
Click below for
 Sales declined off a high base of 1QFY18 and as sales of INR1b got deferred from
Results Update
1QFY19 to 2QFY19.
 Indonesia transformers – CG Power has formed a JV for switchgear along with
local utility and is now ready for commercial ops. USD33m of orders in JV and
this will get executed from the Nashik factory.
 JV signed with Malaysian utility for switchgear sales in Malaysia which will be
sent from India.
 Ireland - undergoing a restructuring and has been completed. There is a
turnaround with Ireland in black and the costs is EUR2m in Q119
 SEBs demand seeing an uptick in Bihar, Maharashtra, Rajasthan. PGCIL also
ramping up tendering - this will translate into orders
Industrials systems
 10 quarters of steady growth. Market share in motors has improved by 300bp.
 Railways also doing well - increased portfolio of offerings to rail and so saw good
growth in orders in FY18 and now in sales.
 CG has been supplying traction motors to railways for decades and now in
partnership with railways for traction electronics.
 Motors are two thirds of sales and also doing well - also launched the high
efficiency motors which helped them take share.
 INR10b of orders annually from INR2.5b three years back from rail and doing
more of traction electronics.
Cummins Buy
Overall business environment and guidance
Click below for
 Guidance of Domestic "+8-10% YoY and exports to be 'flat YoY' remains
Results Update unchanged. Export guidance kept flat YoY as would wait for a few more quarters
August 2018 20
before raising the guidance and if Q219 is good, then will raise the FY19
guidance
 Domestic sales were down 7% due to a) Pre-buy in Q118 due to GST, b) Price
reduction in GST, c) Supply constraints at the supplier end. Backlog remains
strong
 Had some supply issues in July as well due to transport strike - have a strong
backlog in place and working to execute the backlog
 SEZ has 100% IT exemption for first 5 years and then 50% for next 5 years – tax
rate to be around Q119 of 28%
Power Generation: decline in Q119 on pre buy in Q118
 Key end markets being looked at a revival is commercial realty, manufacturing,
healthcare, pharma along with data centers are seeing growth
 Monitor prices at customer level but not seen a significant price change by any
competition in the recent past
 DG industry: "+8-10%" YoY CAGR is possible and will grow with the market,
Telecom had fuelled the growth for last 3-4 (6-7% growth) primarily from this
and this will shift to the traditional sector. Traditional segments like
manufacturing, infrastructure, IT, data center will be the key growth drivers
Industrial – see 9-10% YoY growth in FY19
 Compressors are a little subdued - else all other segments are doing quite well.
 Industry segment will come back to a double digit growth – construction
continue to do well despite the monsoons
 Rail is doing well - 20-25% growth in this segment is doable
Margins: better mix and LHP exports improved margins along with forex
 Higher exports has led to the increase in margins and also the mix impact along
with rupee depreciation
 FY19 margins will be higher by 100bps YoY on gross margin level and will
translate into EBITDA margins +150bps as well - pricing improvement, mix, forex
and higher volumes
 Q119 margin improvement: 0.5% improvement on RM costs from forex
movement in Q119 and 100bps from mix impact
 ACE and AMAZE to reduce the costs -ACE is a 10 year old programme and 0.5-
1% reduction in Raw material costs every year, AMAZE - improvement in
warranty costs via this programme and 3-4 year old.
Exports: strong growth in LHP segment
 Middle East was a good quarter, Africa too sustaining growth. Europe not doing
too well - Q118 had a high base last year. Some positive signs in LATAM, Mexico
 Hopeful that with higher crude prices and commodity, do expect a better year in
FY19
 Guidance kept flat YoY - would wait for a few more quarters before raising the
guidance and if Q219 is good, then will raise the FY19 guidance
 Expect a recovery in global power gen market and will capture share here
 Good growth in O & G, Mining and seeing +ve changes in Power generation as
well.
August 2018 21
GE T&D Neutral
Click below for  Commissioned the first leg of the mega grid-stabilization project by handing
Detailed Concall Transcript & over Wide Area Monitoring System (WAMS) - installed 1184 Phasor
Results Update measurement systems.
 Deployed Sri Lanka’s first centrally integrated control and load forecasting
system in Colombo.
 Excellent quarter in terms of execution – a lot for first-time complex projects
was completed.
Margins
 Write-back of provisions during the quarter and provisions were released during
1QFY19.
 INR140m is write-back and part of "Other Income". Earlier had retention related
discounting here and offset to sales.
 Gross margin expansion in Q119 due to Project cost outs and better margins.
This was INR200-250m in Q119 and aim is to keep this at this level and similar to
FY18.
 Interest expenses at INR150m will continue at around these levels - this also has
interest to be paid on advances.
Ordering activity
 Orders down 61% YoY to INR6.2b, betting on upcoming TBCB orders for own
order growth.
 Orders down 61% YoY as Q118 had a large private sector order from TBCB and
thermal power. There are lesser TBCB orders and thermal opportunity. Backlog
at INR65b.
 FY19 is seeing a slowdown in TBCB and thermal power sector.
 Renewables - Govt is planning a USD800m for substation over 1-2 years via TBCB
for evacuation of renewables and first given to PGCIL under nomination. Expect
an upturn in transmission projects from Q219.
 States are doing better than last year in Q119 – it has grown 60% YoY. TBCB
orders are down sharply in Q119 and expected to revive in a few quarters.
 TBCB has two large packages to be ordered for Jharkhand in August and
September as well.
 Higher share of renewables would imply more spending on grid stabilization
products, which are provided by GE T&D.
 USD1.2-1.3b of industry size in last 6 months and going up to $1.8b in next six
month - so a big opportunity building up for them.
 Pricing is under pressure in states as well - states are looking at projects to
commission at time and they are getting commissioned, WB, Odisha, UP,
Telangana, HP. Funding by multi-lateral agencies like Jharkhand. No reverse
auction.
 States are also upgrading to 400/220kv and this has led to states also inter
connecting at this level - competition is similar to that of PGCIL.
 Looking at exports to Sri Lanka and also in Africa.
Execution
 INR400m of sales adjusted in reserves under IND AS115 - this could have been in
sales if not from IND AS.
August 2018 22
 CK2 still has INR3.5b to be billed out and will be finished in FY19.
 INR850-1000m of projects had slipped from Q4 - these are still not completed
but are likely to slip to Q2-Q319.
Havells India Buy

Current Price INR 698 Target Price INR 645
Switchgear segment +26% YoY on adj. basis
Click below for  Not seeing a huge revival in real estate.
Detailed Concall Transcript &  Targeting new enterprise customers in B2B segment.
Results Update Cables & Wires segment +18% YoY on adj. basis
 8% volume growth and 10% price growth seen in 1QFY19.
 Will be in a 15-17% margin band.
 50% of growth from residential and balance from industrial cables.
Consumer durables +43% YoY on adj. basis, growth across segments
 Aided by a low base; has 15% share in fans, 40%+ in premium fans (premium is
25% of the industry).
 New product launches are also helping growth in fans.
Lighting +25% YoY (ex EESL) on adjusted basis
 Defocussing at government business (EESL), which is more commoditized.
 Overall lighting continues to do well and will be driven by semi urban and rural
areas on village electrification and switch to LED.
Lloyd Electric +14% YoY
 Growth in 1QFY19 driven by change in energy ratings and switch to inverters,
which has increased ASP.
 Invested in brand building and got into new channels like MBO and LFR.
 INR3b of capex being done on AC and 0.6m of volumes being targeted.
 Inverters are 30% of overall company’s sales in 1QFY19.
KEC International Neutral

 Guidance maintained for FY19 at 15% sales, 10% margin.
Click below for  25% sales decline in T&D and equal in both domestic and overseas.
 NWC went up to 124 days, specifically due to an increase in bank borrowings –
Results Update
take back to 95-96 days.
 40% of debt is overseas debt and 60% is domestic.
 INR1.4-1.5b of capex in FY19.
 Orders primarily driven by rail and international transmission.
 L1 of INR32b including INR10b from PGCIL.
 Rail is 34% of orders and got more orders for OHE.
 51% of orders are from T&D and primarily from overseas - first EPC order from
US and also got orders from Dubai.
 Double digit order intake will be done in FY18.
 Domestic orders quite weak - Karnataka had elections and L1 in PGCIL.
 Strong order pipeline for overseas - M East, Bangladesh.
 Domestic T&D - INR5 0b of orders to be finalized in one quarter incl. TBCB,
PGCIL and SEB, New TBCB tenders are also floated and come out in three
months. New green corridors being built and see these ordered by PGCIL (Ph2).
August 2018 23
 INR10b of orders from PGCIL each year for KEC.

 Overseas T&D - NR9b won in Q119 and Africa, Malaysia, Thailand and also in
Bangladesh; Brazil also seeing big tender.
SAE (+78% YoY)
 Expect further pick up in 2H with pick-up in sales from 3 large EPC orders.
 Sales were up 78% despite the truck strike in Brazil.
 Brazil - first 2 auctions done and ordering started for these and also for 3rd
auction orders. Another auction is planned in December'18.
Solar
 INR1.6b from APGENCO orders.
 New orders still muted in solar - expect traction in M East.
 Domestic market subdued on GST uncertainty and further added by safe guard
duty.
Working Capital
 Higher interest expense on increase in rupee debt as buyer’s credit is not being
extended/roll over for imported RM and so replaced with rupee debt and
creditors went down.
 Due to tightened liquidity, SMEs demanding credit support and so KEC had to
give advances to vendors so creditors have gone down.
 Inventory higher as copper availability is a problem with shutdown of Sterlite
plant.
Larsen & Toubro Buy

 Private sector capex is still muted – a revival is at least two years away.
Click below for  Order opportunity of INR5.4t for the 9MFY19 period.
Results Update
 NWC to sustain at ~20% of sales.
 Domestic tendering activity remains strong; overseas tendering improving as
well.
 Tendering activity strong in domestic market; International opportunities
improve.
 Public sector continues driving order inflows. Private sector on wait-and-watch
mode.
 Order Inflow growth mainly driven by Infrastructure, Heavy Engineering and
Hydrocarbon.
 Tax rate higher as not taken DTL on Realty write-down, higher dividend also lead
to a higher tax rate.
 Sales in realty will be recognized based on completion of the flat only.
 Realty sales were at INR7b on completed contracts and INR4.5b on POC
method.
 EBITDA margins in development projects positively impacted by value
monetization of Kattupalli port by INR3.5b.
August 2018 24
Solar Industries Neutral

Current Price INR 1,214 Target Price INR 1,150 | -5% Downside
 Defense revenue stood at INR280m in 1QFY19, and management expects
Click below for defense revenue to reach INR2b in FY19.
Detailed Concall Transcript &  Solar intends to incur capex of INR3b of which they have incurred INR600m
Results Update
capex in 1QFY19. Of INR3b capex, INR750m would be spent on defense and
balance would be spent on industrial explosive segment.
 Solar plans to expand its overseas reach by increasing its manufacturing facilities
(from 5 to 10 countries).
 Solar’s order book from CIL stands at INR8.1b, which is supposed to be executed
over the next two years.
 SOIL has order backlog in defense segment of INR2.5b, of which it expects to
execute orders worth INR2b in FY19.
 Solar has participated in RFP of 3 products in the defense segment: BMCS,
122mm rocket and 30mm rocket, which it expects to finalize within a year’s
time. BMCS order is for one lac pieces.
 Order backlog currently stands at INR11.5b (INR8.1b from CIL, INR1.0b from
SCCL and balance INR2.5b from defense)
 Solar has signed MoU with Eurenco for the BMCS technology.
Vision 2020 released by SOIL
 SOIL plans to increase sales volume from 3.00 lakh metric tons to 4.5 lakh metric
tons. To enable this, SOIL plans to expand its capacity to produce 7 lakh metric
tons.
 Plans to increase overseas revenue by three-fold from the current INR3.5b; to
enable this, it plans to increase its manufacturing reach from 5 countries to 10
countries.
 Plans to generate defense revenue of INR5b+.
Thermax Buy
 Had INR2b of sales were pushed out to Q119 - these were product orders which
Click below for
Results Update were delivered in Q119, Inventory has gone up in Q119 as pick up of finished
goods is not good enough as smaller customers are impacted.
 Smaller and medium companies have trouble in getting bank credit.
 Process cooling for industrial use - air cooling v/s water cooling using towers and
looking at steel, food, pharma, refinery. 60-70% of industries can go for process
cooling; Global size is $2.1b and 3x of absorption cooling market.
 Margin for energy, environment and environment have increased at a SA level
during the Q119.
 Can maintain growth rate of Q119 in the remaining quarter as well
 Export sales were INR3.3b to INR5.03b in Q119 - product orders are growing but
need large project orders to compensate the Dangote refinery which was won in
Q118.
Energy segment
 FGD orders: 10% advance, 35% retention money and order is INR5-10b for NTPC
and project delays can happen in these sites.
August 2018 25
 Dangote order is going very well - started assembly at the Mundra unit and
expect first boiler to be ready by Q319 and next two quarters to complete all
the boilers.
 Current liabilities are higher on increased customer advances.
Environment
 Air and municipal water is also stable - expect an increase in profitability in this
segment YoY.
Chemicals
 Improvement in margins - have been able to revise prices by 4-7% and so
margins are improving and from Q4FY19 all prices will be reset and margins will
revert.
Orders
 Still targeting flat orders YoY and will wait till Q319 before reducing the order
guidance - election impact could push out the order inflow and not clear at this
time.
 Good order booking during the quarter and INR64.2b (+30% YoY)
 F&B - has been the biggest contributor in Q1.
 Consumer facing sectors also continue to invest and air pollution orders from
industrial customers also seeing orders along with water also contributing
 Steel - no major orders is pending, JSW has ordered out 80% of steel mills
primarily to, Tata Kalinganagar Ph2 order also done and BTG gone to BHEL.
 Overseas - higher oil prices will mean more refining orders but 15-18 months
away for large sized order, Q119 has seen much of big orders from international
side.
 Are looking at INR10b plus orders each quarter for the next few quarters
 FGD - will continue to selectively bid for FGD orders in NTPC and SEB, Were
initially not pre-qualified but are now qualified with states, NTPC changing terms
of payment will let Thermax bid us well.
Margins
 PBT for Thermax Ltd is up 38% to INR0.68b.
 3 reasons for fall in operating profit a)Danstoker had INR41m in Q118 and Q119
in -INR41m from Boiler works, b) Themax Europe profit of INR39m and
breakeven in Q119 as provision for future claims, c)E&C in Q118 of INR72m and
down to INR22m in Q119. Last year had a one time from Reliance Industrial.
 Don’t expect any further losses from the current order book and hoping to w off
the loses from the entire year.
 Danstoker - cost overruns were there in this quarter on delay in ordering of
components.
 Standalone margins have improved on better mix and leverage
 Order book - have built up a sizeable order book with profitable orders, Target is
do double digit and will do for FY19.
Indonesia subs
 Order intake is as per expectation - selling locally made boilers and price levels
are lower than expected.
 Enquiry pipeline is good and on target for the manufacturing facility – heating
boiler.
August 2018 26
Va Tech Wabag Buy

Click below for  98 days net working capital as of Mar18 and in 1QFY19 it largely remains the
Results Update
same.
 INR1-1.5b is expected from APGENCO by Q219.
 Forex loss of INR234m - translation loss on MTM basis driven by the Tukish Lira
on a loan outstanding in Turkey which has increased the liability (Lira down 10%
in Q119). Also, a loss from Czech subsidiary.
 Overseas margins driven by improved project mix and especially projects in
advanced stages of execution helped improve overall margin, Both Dangote and
Saudi Arabia are in advanced stage and seeing better margins in both.
Orders
 Namami Gange, Mumbai STP, Chennai Desalination are also on track for FY19 -
confident to achieve our guidance.
 Delhi, Bangalore projects are coming up which are large multi-lateral funded
projects and size of each is INR2-3b.
 Integrated city projects with 7-8 plants to be awarded for Kolkata, Patna,
Allahabad and Kanpur with 15 year O&M; submitted bids for 2 and more two to
be submitted, Each INR10-15b on HAM basis and 15% equity requirement,
Orders in CY18.
 Chennai desalination - bids have been submitted and are expected to be
finalized in one more quarter.
 Mumbai STP – company has been waiting for last 5-6 years for these orders and
can see some more delays here, Expect to order all 6 projects in this fiscal, Pre
bid queries done and waiting for final bid submission and the award in 3 months
 Rajasthan and Bihar also have a few large projects up for bidding which is INR2-
3b.
Execution
 Chennai - civil works and pipeline are progressing well
 Petronas -Engineering and procurement done and civil works are almost done;
95% project is complete and focuses on pre commissioning and project is
expected to complete by Nov18.
 Polghawela - detailed engineering and equipment order placement is underway.
 AP Genco order - Rayalseema COD is being done in Mar18 and all peripheral
work and punch list is expected to be completed soon.
 Kakatiya - all punch list items and boiler testing also done and final settlement
being done with client. INR6b receivable and 60% to come in FY19.
 Howrah, West Bengal - on track for completion, substantially collected payment
and all in this quarter.
 Turkey and Austria were lower margin earlier - have bought these down by
restructuring and not bidding for projects. Have cut losses in Turkey and Austria
is doing better.
Working capital
 INR1.5-2b is expected to be received from APGENCO by Q219 – and total of
INR4b to be got from APGENCO.
 Debtors are INR26b and payables are INR14b.
August 2018 27
Voltas Neutral
Click below for Unitary cooling products: weak summer season hurts sales
Results Update  Erratic weather conditions across the northern and southern markets led to
weak sales. While sales improved in the month of June, industry de-grew by
around 11%. Decline in demand led to intense competitive intensity in the
market with higher inventory seen across channels.
 Inventory is excess in the industry; would take two months to normalize; also
entering into Diwali/Festive season; hope to sell off by 2Q/3QFY19.
 Market share at 23.5% in 1QFY19 (+130bp YoY) and 24.5% in June'18. Secondary
sales for the industry declined 11% YoY; VOLT too showed de-growth but
performed better than industry. Note that 1QFY18 secondary sales were
positively impacted by GST-related stock clearance, while 1QFY19 sales were
adversely impacted by unseasonal rain.
 Better product range, extended warranties, attractive consumer offers, sensible
pricing, impactful print and digital advertisement campaigns, and increased
penetration through more than 15,000 touch points across the country, have all
contributed in sustaining this market leadership.
 Inverter ACs contributing to approx. 50% of the total split AC sales for Voltas.
 Margins are lower by 160bp YoY on the back of a poor season, intense
competition, aggressive pricing and depreciation of the INR.
 Price increases have been taken to offset the (a) INR depreciation, (b) RM
increases and (c) higher marketing spends. Are in the 12-13% sustainable
guidance range and this will sustain.
Air coolers
 VOLT continues to be amongst the top 3 air cooler brands owing to its increasing
market presence, new product offerings, better features, sleeker designs, and
competitive pricing.
 Bad summers have meant that cooler sales have been hurt more than AC
industry sales.
Projects segment: Margins expand on better execution and projects reaching
margin recognition threshold
 The improved margins in 1QFY19 can be attributed to better execution of
quality orders both in domestic and international business. In current quarter,
some of these projects have also crossed the internal threshold, thus margins
have been reckoned. Recognize margins only post 20% sales are completed –
1QFY19 margin of 10.2% is not sustainable and will revert to 7-8%.
Domestic Projects
 VOLT has strategically focused on Govt./Govt. funded projects, given the
subdued pace of investment from the private sector.
 Opportunities are increasing in urban infrastructure (incl. Metros, Malls,
Hospitals, Hotels, etc.), electrical distribution and water treatment.
Overseas Projects
 With the uptick in oil prices and improved investor sentiment, the team is well
poised to reap the benefits of its long established standing as a preferred and
trusted contractor.
August 2018 28
CEMENT | Voices
CEMENT
The demand scenario should remain favorable in the coming years, led by the increasing focus on the housing,
infra and irrigation projects. With the sand mining ban issue getting resolved in states like UP, Bihar and Tamil
Nadu, significant traction is expected from the central and southern regions. The recent increase in petcoke
prices is likely to impact power & fuel cost. Additionally, higher diesel prices would affect freight cost. However,
the impact is likely to be diluted by the new norm of an increase in axle load.

Outlook FY19 Volume Growth
 All-India demand should grow at a CAGR of 8-9% over the  The company operated at utilization
next three years, led by various infrastructure projects and of 80% in north, 70% in central, 95%
Ultratech pick-up in rural demand on the back of MSP hikes and in east, 75% in west and 60% in
better monsoon. south in 1QFY19
 Capacity addition should increase at a CAGR of 3-4% over  The acquired JPA assets operated at
the next three years due to an increase limestone average utilization of 70% for the
acquisition costs. quarter.
 Capex incurred for the quarter was ~INR 3.3b. The company
plans to incur ~INR18b capex for the remaining year and
INR20b for FY20.
 Dalmia has paid INR1.5 bn towards acquisition of Kalyanpur
cement with production expected to start from Novemebr-  Volumes grew 13% YoY to 4.51mt
Dalmia Bharat 18 in 1QFY19
 It is awaiting NCLT clearance for Murli industries
acquisitions
 Rural projects in East have resulted in 13%YoY growth for
the region in 1QFY19.
 South has grown by 16%YoY on account of healthy demand
from AP/Telangana on account of irrigation projects.
 North East grew by 17%YoY in 1QFY19
 Capacity expansion of 4.2mt will be commissioned by FY20.  1QFY19 grey cement volumes (incl.
 FY19 capex would be INR4-5b toward expansion project and clinker) increased 9% YoY to 2.03mt,
maintenance cost led by healthy growth in cement
JK Cements  Petcoke prices continue to be firm with increase of volumes, partially offset by lower
INR600/t QoQ clinker sales. White cement volumes
rose 9% YoY to 0.28mt, driven by
healthy growth in the wall putty
segment due to ramp-up of new
capacity
Dalmia Bharat Buy

Strategic Acquisitions
 Dalmia has paid INR1.5 bn towards acquisition of Kalyanpur cement with
Click below for production expected to start from Novemebr-18
Results Update
 It is awaiting NCLT clearance for Murli industries acquisitions
Industry demand scenario
 Rural projects in East have resulted in 13%YoY growth for the region in 1QFY19.
 South has grown by 16%YoY on account of healthy demand from AP/Telangana
on account of irrigation projects.
 North East grew by 17 %YoY in 1QFY19.
August 2018 29
CEMENT | Voices
Costs
 Petcoke prices for the company increased 27%YoY to USD 99/t. The company
has been able to mitigate the cost pressure by increasing its green power
proportion to 9% and alternate fuel to 4%
 The 21%YoY increase in diesel prices was mitigated by route optimization
 Slag cost for the company increased 24%YoY which the company mitigated by
selling more of composite cement
Leverage
 The company reduced its gross debt by INR 2.03b and Net debt by INR 850m in
1QFY19. The gross debt for the company stands at INR 70b while net debt
stands at ~INR 34bn
Other key takeaways
 OCL merger should be complete by December 2018.
 Share of premium products is ~12-14%.
 Proportion of trade stands at 65%
Grasim Industries Neutral

 VSF: Sales volume improved due to debottlenecking of capacity. The share of
domestic sales volume in overall sales volume improved to 82% (Q1FY19) from
Click below for 69% (Q1FY18). Prices remained firm during the quarter. Operational efficiency
Results Update
improved as consumption norms improved for steam, power, caustic soda and
others. The water shortage issue, which had affected Harihar last year, was
absent this year.
 The Vilayat expansion project is progressing well with substantial ordering of
long lead items.
 Chemical Business: Utilization stood at 92% for 1QFY19. Chlorine realizations
turned positive in 1QFY19. The 146 KTPA Brownfield expansion of caustic soda
at Vilayat was commissioned during the quarter. The board approved capital
expenditure plan for an amount of INR11.12b for caustic soda and specialty
products capacity expansion.
 Cement Business: 1QFY19 sales for Ultratech increased 28% YoY, led by ramp up
of JPA assets. The acquired assets operated at 70% utilization, and witnessed a
reduction in operating costs, increase in petcoke usage at 83% and a rise in
retail sales.
 Aditya Birla Capital: NBFC lending book grew 30% YoY to INR536b. Revenue
stood at INR 30.24b, while net profit after minority interest stood at INR 2.16b.
 Other Businesses: The fertilizers business undertook an annual maintenance of
23days during the quarter. In the textile business, Rishra plant was impacted in
Jun 2018 due to strike and lockout.
 Business outlook: The capex plan of INR75b (at standalone level) is under
execution for raising capacities in both VSF and Chemical businesses, apart from
capex earmarked for maintenance at various plants. A significant portion of our
capital expenditure will be funded by internal accruals over FY19-21.
August 2018 30
CEMENT | Voices
India Cement Neutral

 Demand: Strong growth of ~20%YoY in south has enabled India Cement to
Click below for achieve utilization of 81% for 1QFY19. Utilizations are expected to reach 85% by
Results Update next two quarters and 100% by 4QFY19. Also, sand mining issue in Tamil Nadu
has been resolved.
 Pricing: Prices in south region have stabilized and improved MoM in August.
 Costs: Power & fuel cost/t increased sharply QoQ due to partial shutdown of
one of the CPPs. Dependence on grid power increased from 17% to 22%.
Petcoke usage stood at 31% as the company sourced 1.8mt of Indonesian coal.
The company plans to gain savings on freight cost by a change in the method of
sales.
 Gross debt: Gross debt for the company stands at INR 32.87bn (an increase of
INR1.24b QoQ).
 Capex: ICEM plans capex of INR1.5-2b in FY19.
 Other details: PPC is ~60%, while trade is ~60% of sales.
JK Lakshmi Cement Buy

Current Price INR 339 Target Price INR 384| 13% Upside
Click below for  Power consumption improved: Power consumption improved YoY to 67kwh/t
Results Update
from 72kwh.
 Capacity expansion: Thermal power plant and Odissah GU are likely to
commission by 3QFY19.
 Cement volumes increased 4% YoY, while clinker sales declined, resulting in
overall flat growth.
 Lead distance reduced by 20km in 1QFY19, resulting in savings of INR40/t.
 Trade mix was 54% for 1QFY19.
 Udaipur Cement Works operates at 80% utilization.
 Capex outlay of INR1b each in FY19 and FY20.
 PPC mix is 65% for 1QFY19.
Sanghi Inds Buy

 Volumes: Volumes in 1QFY19 were flat YoY due to unavailability of fleet in
Click below for Gujarat markets due to stricter compliance post E-way bill implementation.
Results Update
Volume growth in underlying market of Gujarat/Mumbai/Rajasthan has been
15%/9%/10% YoY for 1QFY19.
 Pricing: Prices in Gujarat market after being firm for the month of April/May-18
witnessed sharp decline in June thus impacting company’s realizations for
1QFY19. Realization was further impacted due to higher proportion of OPC sales
due to unavailability of FLYASH IN THE REGION.
 Cost: Power and fuel cost/t increased 18% YoY/13% QoQ to INR1232 due to
lower proportion of low cost lignite used in 1QFY19 at 27% vs 83% in 1QFY18.
 Prices of fly-ash had also increased due to constraint at Mundra plant. PPC
constituted 33% of the overall volumes while OPC constituted 67%. The lower,
the lower proportion of PPC was due to fly-ash constraint from Mundra Port
which should get normalized in coming quarters.
August 2018 31
CEMENT | Voices
 Power and fuel cost increased led by difficulty in procurement of lignite from
GMDC. The company had to switch to higher cost imported coal which
constituted 73% of the mix while lignite constituted 27%.
 Interest cost: Interest cost at INR123mn declined 34% YoY/29% QoQ. SIL has
replaced high cost debt of INR3.25bn at 15.5% with 10.5% lower cost of debt
resulting in annual interest cost savings of INR100mn from FY19 onwards.
 Ongoing capacity expansion: The additional 4mt of capacity should get
commissioned by March 2020. Orders for certain key equipment has been
placed.
Ultratech Cement Buy

Utilization and price trend
 The company operated at utilization of 80% in north, 70% in central, 95% in
Click below for east, 75% in west and 60% in south.
 All-India prices increased 1-2% QoQ.
Results Update
Operations of new assets
 The acquired JPA assets operated at average utilization of 70% for the quarter.
 Petcoke usage in JPA units was at 83% in 1QFY19 v/s 75% in 4QFY18.
 The acquisition should breakeven at PBT level by April-June 2019.
 Retail volumes constitute 69% of total sales.
 The variable cost per tonne differential between JPA and UTCEM assets is
INR160, of which INR50 has scope for further improvement.
Expansion
 The company commissioned its 1.75mt cement grinding unit at Dhar.
 The company has also secured a limestone block in Madhya Pradesh, with
reserves of ~54mt.
 62MW of WHRS is also under commissioning, post which 15% of the power
requirement will be met by the same.
Demand supply outlook
 All-India demand should grow at a CAGR of 8-9% over the next three years, led
by various infrastructure projects and pick-up in rural demand on the back of
MSP hikes and better monsoon.
 Capacity addition should increase at a CAGR of 3-4% over the next three years
due to an increase limestone acquisition costs.
Cost trend
 Cost of petcoke for the quarter was USD 114/t, as against spot rate of USD119/t.
Petcoke usage in kilns stands at 75% (21% imported coal; 4% alternative fuels).
 Logistics cost has increased due to higher diesel prices, partly mitigated by a 6%
YoY decline in lead distance. Average lead distance is 427km.
Other details
 Capex incurred for the quarter was ~INR 3.3b. The company plans to incur
~INR18b capex for the remaining year and INR20b for FY20.
August 2018 32
CONSUMER | Voices
CONSUMER
Rural sales growth outpaced urban growth for the fourth consecutive quarter in 1QFY19. Managements expect
this trend to continue, going forward. The much-vaunted earnings revival in the sector appears poised to come
through, and rural-dependent plays are likely to be at the vanguard. The impact of government schemes like
extension of DBT, an increase in rural outlay in the recent budget, and MSP increase to 1.5x of cost of production
will be keenly watched. Hopes from monsoon, which is forecast to be normal, remain high. If monsoon is normal,
Y19 could be a very good year for FMCG companies, as the preceding four years either were affected by droughts
or demand/supply-side disruptions like demonetization and GST. Urban-focused companies like Nestle and Glaxo
Consumer have also reported healthy sales growth, albeit off a weak base. Pace of new launches finally appears
to be picking up in anticipation of a demand revival, with particularly Britannia and GCPL calling out an
unprecedented set of new launches in FY19. Passing on of the ongoing material cost increases will be a challenge,
and thus, we see a risk on margins for companies lacking growth visibility.
Demand scenario & comment on Trade Management comment onOutlook
Channel Rural
 Competitive intensity continues to be

Asian Paints  Capex for FY19 will be around
high, though there is some recovery.
INR10b.
 There is likely to be some initial disruption
 Current dealer network is at 52,000;
in the trade channel on account of GST
plan to add 3,000 dealers every year.
rate reduction.
 There is an upward trend in the demand  New innovations are likely to be

Britannia environment.  Double digit growth in seen this fiscal.
 The company is adding additional outlets rural continues.  Cost efficiencies target for FY19 is at
every month. INR4.5b.
 Green shoots on demand, in line monsoon  Capex: INR2.5-3b in FY19 (for

and much lower supply chain disruption capacity expansion).
 Rural grew at the same
are leading to demand revival which  Likely to achieve double digit volume
Dabur rate as urban.
appears likely to continue. growth in the domestic business for
 Rural wholesale is doing
 Attrition of urban wholesale continues on the full year.
very well and was up
account of e-way bill.  Gross margins are unlikely to expand
24% YoY.
 Rural wholesale, modern trade and e- for the rest of the year owing to
commerce likely to see rapid growth. material cost increases.
Hindustan  Gradual improvement in demand

 Capex will be 3-4% of turnover on
Unilever continues.
average.
 Management anticipates a step up in
competitive intensity
 Copra prices are expected to see

 Saffola oil is expected to come back to the further softening in 2HFY19.
Marico earlier growth levels by the next few  Rural growth outlook  Ad spends are likely to be at ~10% of
quarters. looks encouraging. sales in FY19.
 Targeting 8-10% volume growth for
the full year.
 The demand situation is definitely  Full-year ad-spend would be ~3.5%-
improving. There have been market share 4% of sales.
Pidilite gains in a few categories as well.  The tax rate in FY19 is likely to be
 Distribution expansion will be an ongoing slightly higher than FY18, as one of
activity for PIDI. the plants has come of tax
exemption.
August 2018 33
CONSUMER | Voices
Asian Paints Neutral

Current Price INR 1,402 Target Price INR 1,405
Click below for On GST rate reduction
Detailed Concall Transcript &  GST rate reduction will be passed on. If company takes price increases, it would
Results Update
come under anti-profiteering lens. It may thus have to take a hit on margins.
Nielsen study quotes 30% of the market being unorganized in value terms,
mainly in enamels and distempers, but also in some emulsions.
 There will be some initial disruption in the trade channel due to GST rate
reduction.
 Management would have liked to take 10% price increase given input cost rise,
but was able to take around 3.3% price increase between March 2018 and May
2018, which was nevertheless good enough to offset cost increase for 1QFY19.
Competitive intensity
 Competitive intensity continues to be high, though there is some recovery.
 Difference in gross margin growth between standalone and consolidated was
mainly because of more subdued demand and absence of dominance overseas,
unlike India.
International business
 Forex (depreciation and availability), weak business environment and rains
affected international operations.
Infrastructure
 For two new plants – first phase is likely to be operational in FY19. Mysore plant
is expected to commence operations in September 2018 and Vizag plant is
expected to be operational in January 2019. There will be some fiscal benefits
on sales made locally in those states.
 Current dealer network is at 52,000. Adding ~3000 dealers every year.
 FY19 standalone capex will be ~INR10b and consolidated capex will be at
~INR12b.
Other points
 Other income declined due to lower investible surplus on account of capex as
well as exchange gain last year versus exchange loss in 1QFY19.
Britannia Inds Buy

Analyst meet highlights
Click below for  100 years of Britannia – what are the changes?
Results Update  Britannia unveiled a new logo, the meaning of which is ‘Exciting Goodness’.
 Britannia of future would be based on Goodness and Purity.
 There will be brand re-launches in the next few months. The company will do a
solid consumer campaign, focusing on 100 years of Britannia.
Biscuits
 Britannia now sells around 1b packs a month.
 The market share gap of 6% was in favor of Parle in 2012-2013; now it is in favor
of Britannia with a gap of 3%.
 Almost all the core biscuit brands to see change in packaging and some change
in the product as well in the next few months, as part of the company
completing 100 years. Good-day, 50:50, Marie Gold, Bourbon, Tiger, Nice Time
and Pure Magic are all to see a change in packaging with a brand new look.
August 2018 34
CONSUMER | Voices
 Some new innovations are also to be seen, most likely this fiscal. A snacking
product under Bourbon and a star product under Deuce are some hints which
the company mentioned.
 The lower unit packs (LUPs), i.e. INR5 and INR10 packs currently contribute to
40-45% of revenues.
Adjacencies (including Bread, cakes and rusks)
 Bread is a six decade old category, Cake is five decade old and Rusk is slightly
newer (13 years old).
 The scope of growth for cake in India is huge. Penetration of cakes is barely in
the double digits and is skewed toward the eastern part of the country. The
cakes category in Iran and Indonesia are larger than biscuits, while it is just a
small portion of biscuits sales in India.
 The company will drive growth in these categories through driving penetration
and adoption.
 More innovation to be seen this year as compared to the last 10 years.
 There are four new formats in cakes which will be introduced this year; the
company is calling it Britannia Cakes Gen Z.
 The company recently launched the rusk portfolio under a new sub-brand
“Toastea”, Britannia also launched multigrain rusk to premiumize the portfolio.
 Britannia will be launching center filled croissants in a couple of months from
the JV BritChip.
 Cream wafers are another category that the company is going to launch soon.
 The company is also exploring new occasions to target its snacking products
such as Out of home and On the Go.
 In snacking, the company first wants to explore bakery adjacencies and then will
look at other snacking options.
 In new categories, BRIT will be a challenger to the leader; a distant challenger
but different.
Dairy
 Britannia will play in the fresh and value added dairy products category.
Britannia’s dairy portfolio would be Scalable, Profitable and Defensible. Cheese,
yoghurt, drinks and whitener will be key products while ghee, butter and UHT
will be tactical.
 The company has been procuring 20,500 litres of milk now since the last 2-3 qtrs
as part of the program. Once the plant for dairy procurement is up and running,
milk procurement would be around 3 lakh liters per day.
 Going forward the company will have a mix of both in-house production as well
as contract packers.
 New launches in the dairy category will include milk-based drinks in tetra pack
format, which will be launched by the next quarter. New formats in cheese to be
launched in 3Q & 4Q of FY19, followed by new packs in dairy whitener. Some
innovation in yoghurt is also likely to be seen.
International
 Britannia is the no.2 or no. 3 player in most of the geographies in which it is
present.
 It is the only FMCG Company in India to have an export oriented unit.
 Britannia will be targeting one new geography every year, as was the plan
earlier. They will however explore the Indian subcontinent and Africa first.
Management also gave the reason as to why it makes sense to set up a unit in a
August 2018 35
CONSUMER | Voices
geography, through an example; In Bangladesh the import duty is 150% thus if
Britannia wants to sell its products in Bangladesh it makes sense to locally
manufacture the products.
 The Nepal unit will be up and running by the end of this fiscal year. Growth,
launches and expansion
 Britannia has been adding additional outlets every month.
 Double digit growth in rural continues.
 The Hindi belt continued to see accelerated growth in 1Q. Rajasthan, MP, UP
and Gujarat grew 37%, 22%, 24% and 24%, respectively. Weaker states share is
still in teens for BRIT while for the industry it would be around 40%.
 New launches during the quarter include: 1) Wonderfulls at INR15 (Jeera and
Fruit variant). 2) Chunkies was re-launched this month (Democratized); INR20
pack and more grammage in the bigger sku. 3) Launched the rusks portfolio
under a new sub-brand Toastea along with a Multigrain variant.
 The demand environment is seeing an upward trend.
Costs and margins
 There is some commodity cost inflation seen in wheat due to the MSP hike; the
company is however covered till January. The company will take a price hike if
needed in 4QFY19 to the tune of 4-5%.
 Cost efficiencies target for FY19 is at INR4.5b.
 The new variants/formats and disruptive products now form 5% of sales.
 All the new products launched by BRIT are gross margin accretive.
 Margins in bread have improved sharply but still not accretive to the company.
Profitability and reach expansion is a key priority in bread.
 Management stated that the reason for democratization is that the average
biscuit price/kg is INR100 while for premium products like Chunkies it is 5x, so to
increase the sale of these premium products company believes democratization
is necessary.
 There have been savings in logistics cost; Logistics of products have reduced
from 650kms to 375kms, can reduce to 250kms.
 Through efficiencies in factories, Britannia expects to achieve savings of ~15-
20%.
Other points
 75% of capex would be toward the core category.
 Smaller players are reporting depressed business.
 Modern trade share is around 11-12% of sales.
Dabur Neutral
Demand environment and rural/ urban growth
 Green shoots on demand, in line monsoon and much lower supply chain
Click below for disruption are leading to demand revival which appears likely to continue.
Detailed Concall Transcript &  For 1QFY19 rural sales grew at the rate same as urban for Dabur, as beverages
Results Update
and modern trade did very well in the quarter. Management thinks that 1QFY19
was a bit of an aberration and going forward rural should grow faster. The FMCG
sector rural growth was reportedly 250 bp higher than urban growth in 1QFY19.
 Rural wholesale is doing very well and was up 24% YoY. Urban wholesale grew
only 8% YoY. Attrition of urban wholesale continues, it was earlier led by
demonetization/ GST implementation and now by the e-way bill. Management
August 2018 36
CONSUMER | Voices
was expecting the development in the latter. Urban wholesale is 22% of sales
and is likely to decline in terms of salience, partly because its role of acting as a
feeder route to rural has now been curtailed. Rural wholesale, modern trade
and e-commerce likely to grow at a rapid pace.
 Uttar Pradesh has witnessed lower than expected rains but is fortunately well
irrigated. MSP increase is also good news from a demand perspective.
Segmental information
 Toothpastes: Dabur Red toothpaste is doing very well growing by 30%. Meswak
has also been a steadily good performer. Babool however has declined in sales
due to high competitive intensity in the INR 10 segment. Colgate has amped up
advertising intensity in herbal toothpastes but overall advertising intensity in the
toothpaste category has not gone up materially. Promotion intensity is high.
 Hair Oils: Brahmi and Sarson will drive growth in the hair oil category. Dabur will
invest in Amla oil to regain the market share lost share over the past 2 years.
Incremental value market share in hair oils is flat while volume market share has
gone up 60 bp YoY
 Chyawanprash: Dabur Chyawanprash has seen a 200 bp market share gain on a
YoY basis.
 Honey: Dabur honey is likely to have increased market share by 5-6%. Nielsen
does not report honey market share. Sales and tonnage are back to the highest
levels after losing market share to Patanjali.
 Juices: Real Activ is likely to be a big driver of juices sales going forward, on
account of its no sugar platform which will bode well for the increasingly health
conscious consumers.
 International business- Currency devaluation is affecting growth in Turkey; the
growth in other markets has been impacted by the Iran sanctions. Egypt and
Algeria are seeing a revival in growth. International business from a full year
perspective should be better than last 2-3 years. Namaste margins at 12-13%
are much better than a year ago. Local manufacturing in Africa is increasing.
What has changed recently?
 The management believes that they are getting better in terms of responding to
market and competitive requirements.
 Dabur is now focusing less on profitability and instead concentrating on gaining
market share.
New products
 New product development should pick up in 2HFY19. Focus will however be
more on underinvested but promising brands in the current portfolio. The last
two years have been tough and they were in defensive mode. Dabur will get
back to being aggressive as exhibited in 1QFY19 through increase in ad spend.
Other guidance and capex
 Dabur is likely to achieve double digit volume growth in the domestic business
for the full year. June was a good month. Management however stopped short
of calling out double digit volume growth for the remainder of the year which is
surprising as 1QFY19 witnessed 21% volume growth, albeit off a low base.
 Full year should have a 3-4% gap between volume and value growth.
 If volume growth continues, Dabur can expect to maintain the all-time high
EBITDA margin which it had attained in FY18. If volumes don’t grow at desired
levels, the company will need to increase adspend and promotion spend
further.
August 2018 37
CONSUMER | Voices
 Gross margins are unlikely to expand for the rest of the year owing to material
cost increases.
 Other income is likely to be under pressure in the next few quarters because of
the recent high dividend payout.
 Capex for expansion in Tezpur, Pantnagar and Nepal facilities is likely to be in
the lower end of the INR 2.5b-INR3b in FY19. Capex for FY20 may be higher on
account of Egypt expansion although capex plans for FY20 have not been
finalized yet.
Emami Buy
Domestic
 Despite increasing prices (around 4%), gross margins were just slightly up. The
Click below for price hike should take care of the RM inflation faced by the company.
Results Update  Modern trade (MT) now stands at 8% of sales.
 Around 65-70% of current portfolio is still seasonal in nature.
 Truckers strike impacted primary sales for 7-8 days in 1QFY19.
 Wholesale contributed to 40% of turnover in 1QFY19 (38% in 4QFY18).
Domestic-Segmental
 The company has taken proactive actions on Kesh King to counter competition;
Emami will relaunch Kesh King in the current quarter (2QFY19). Management
called out some pressure coming down from one of the competitors.
 Fair & Handsome was also re-launched in the quarter.
 Pancharishtha saw a growth of 19% YoY in 1QFY19. Emami has roped in
Mr.Amitabh Bachchan as the brand ambassador. Pancharishtha contributes
to~40% of the Healthcare range.
 Management expects Kesh King, Men’s Grooming and Navratna to be the three
key drivers of growth in FY19.
International
 The CIS region underperformed.
 Emami is looking at Iran for the export of Navratna and Fair & Handsome. They
are looking for a partner in Iran for distribution.
Other key highlights
 Emami expects to maintain margins despite input cost inflation. There are no
plans to take any further price hikes.
 Reached 0.85m retail outlets, which has been the company’s target. Emami has
also managed to reach its target distribution reach for the healthcare division, at
0.13m chemist outlets. The company does not expect to make any further
investments to expand distribution.
 There are no major capex plans for this year; company expects capex to be in
the range of INR0.8-1b for FY19.
 Expect benefits from supply chain costs to come in FY19. The company has hired
EY to do a project on that front.
 Other income saw a decline in 1QFY19 on account of the forex loss of around
INR8-10m versus forex gain of INR20m in the base quarter.
August 2018 38
CONSUMER | Voices
Godrej Consumer Neutral

Click below for India business
 Urban and rural business witnessed growth of 13% and 17%, respectively.
Results Update
Management expects rural business to continue to grow faster.
 Household Insecticides (HI) saw a relatively good season on a YoY basis. The 17%
sales growth was aided by new launches.
 Category recovery in HI is still a work in progress. Weak base was a factor in
1QFY19.
 Hair colour segment expanded its portfolio, with entry in the herbal-based
powder hair colour segment, under the Godrej Nupur brand.
 Godrej Expert Rich Crème hair colour saw a new campaign being launched to
promote growth. There is a large potential for distribution expansion as well.
 In the soaps category, Godrej No.1 and Cinthol grew at a healthy pace. GCPL
continues growing market share in soaps.
 GCPL’s HI and hair colour category have also seen a marginal expansion in
market share.
 There have been price increases in hair colour and home fresheners toward the
end of 1QFY19, which will reflect more prominently 2QFY19 onward. Soaps is
witnessing a benign material cost environment, and thus, price increases have
not been and unlikely to be significant.
New launches in India
 GCPL launched the Good Knight Power chip, a high efficacy liquid vaporizer (at
the same price as the incumbent product) and a henna based powder hair
colour under Godrej Nupur.
 A couple of more new launches are expected in the HI space over the next 3-4
months.
 Power Chip launch has not witnessed any down trading from Liquid vaporizers
(LVs). The power chip is meant to be an upgrade from coils. Management has
stated that even if there is marginal down trading from LVs, it is fine as there is
an attempt to increase category penetration.
International business highlights
 The Indonesia business has witnessed market share gain; however, overall HI
market has seen a decline.
 Indonesia is likely to see double-digit growth rate and an improvement in
margins for the full year.
 International margins are affected by brand-led investments.
 Africa business saw sales being affected by weakness in South Africa due to
various factors. April was bad; however May and June witnessed some
improvement.
 Currency devaluation has been a key feature of margin contraction for the SoN
business since its acquisition. Localisation of manufacturing, increasing
proportion of wet hair and scale is likely to expand margins. Currency is also
more stable than in the past.
 Management believes that the Africa business should see margins in the high
teens within the next 3-5 years.
August 2018 39
CONSUMER | Voices
GSK Consumer Neutral

Growth and volumes
 HFD volume growth in 1QFY19 was at around 12.5%-13% (was not shared in the
Click below for
Results Update
PPT), albeit off a weak base.
 The Company expects mid to high single digit category volume growth going
forward.
 Volume growth has been driven by sachets. Sachets currently contribute to 9%
of sales and is growing at high double digits. Management expects growth in
sachets to be in the high teens going forward.
 Foods business has seen a decline of 5% YoY in 1QFY19. The discontinuation of
‘Marie’ affected biscuit sales, while other traditional biscuits sales grew in
midsingle digits. Oats grew at 7-8% YoY.
 Auxillary commission grew by 21% YoY in 1QFY19.
 The market share of Protein plus is 0.7% and Growth Plus is 0.3% on a MAT
basis. Both of these are part of Horlicks extension. They have surprisingly not
shared market share for Horlicks extensions for 1QFY19, unlike the past. They
indicated ongoing differences with Nielsen in terms of offtake capture in this
sub-segment as a reason.
 In the North and West region, the HFD category is predominantly a kid’s product
unlike in the South and East where consumption is relatively more broad based
by age group. This also opens up higher opportunity for the protein drink in the
North and East.
 E- Commerce is only 1% of sales but for categories like Protein Plus E-
Commerce contributed to around 10% of sales.
New and recent launches
 ‘Boost on the Go’, a ready- to-drink product (chocolate flavor) was piloted in
Tamil Nadu Market in the last quarter and has received good response so far. It
has already managed to reach a market share of 1% in the flavored milk
category in the two months since its launch. The company plans to roll it across
rest of South India by early next year.
 The RTD milk category is around INR 11b in size but is extremely fragmented
with only Amul being a reasonably large brand. Right to Win of Boost however
appears unclear.
 GSK has been increasing distribution and media spend on Growth Plus.
Margins
 Gross margin expansion has been on account of commodity deflation and cost
savings.
 The outlook on key commodity costs is positive but the steep deflation seen in
1QFY19 YoY won’t be possible going forward.
 MSP implementation and general elections next year could present risks to
gross margins.
 Staff cost included a one-off item of INR 200m in 1QFY19.
 Other income one-off was at INR 270 m.
August 2018 40
CONSUMER | Voices
Hindustan Unilever Buy

Business environment improving
 Gradual improvement in demand continues.
Click below for
 HUL reported double digit volume growth across all three key segments. 14% in
Results Update Home Care and 11% growth each in Beauty & Personal care and Foods &
Refreshment.
 1QFY19 is the last quarter of GST impact on accounting. Sales growth will look
better in subsequent quarters but margin expansion YoY won’t be as high. This
quarter witnessed 11.2% reported sales growth and 16% underlying sales
growth adjusted for GST.
 Management anticipates a step up in competitive intensity.
Segmental details
 Oral care is growing, but still more work to be done. Close-up doing much better
than Pepsodent. Management still not calling out recovery in oral care.
 Deodorants witnessed strong growth with Axe Ticket gaining traction.
 Premium detergent market is growing 3x of mass. Overall detergents category is
doing very well and gaining share despite significant discounting by P&G (Ariel).
 In Personal Wash, premium part of the portfolio (Dove) doing very well.
 Launched Brylcreem beard and hair grooming range exclusively on Amazon.
 On water purifiers, premium segment (RO and UV) and low price water purifier
doing well, but gravity segment is not doing well.
 Natural segment growth target was 2.5x that of overall company growth. The
first two quarters of the calendar year are tracking well on that target.
 Indulekha continues to do well across all states where it has been launched.
Lever Ayush is on track in South India but company is tweaking the mix for West
and North India as offtake is more from modern trade. Citra did not meet
company’s expectation in the first round of launch.
 Natural variants of large brands are also doing well, particularly the Pudina
variant of Vim bar.
Other key points
 While crude related costs are up, vegetable oil costs are benign.
 Taking price increases is relatively easy now, as GST-led price reduction last year
and benign commodity costs earlier have meant low price increases in the past
2-3 years.
 Capex will be 3-4% of turnover on average.
 Small exceptional item was on supply chain write-offs. The company is starting
with making distribution infrastructure rational and then doing the same with
industrial infrastructure as well later. These exceptional items will be there for
the next 5-6 quarters. There could also be some restructuring costs due to
oneoff payments to employees on industrial infrastructure going forward. This
also means that operating margins can go up further.
August 2018 41
CONSUMER | Voices
Jyothy Labs Neutral

Macro factors
Click below for  Demand scenario is getting better compared to the previous two years led by
rural market.
Results Update
 There is an uptick in the raw material prices. Price increases may ensue. Reason
for not disclosing consolidated numbers
 Two subsidiaries are not hugely significant and also to ensure timeliness as the
information from the Bangladesh Subsidiary was taking time.
Key developments on brands
 Henko INR10 pack is doing very well; key driver of the 18.1% volume growth in
the Henko franchise this quarter. There has been a high degree of promotion
and hence volume growth exceeded sales growth. Margins are not significantly
lower for the INR10 pack compared to the larger packs.
 Margo now an INR1.67b brand compared to INR480m at the time of acquisition.
Traditional markets are only 30% of the sales which means that most of the
growth has come from new areas.
 Maxo- Household Insecticides growth likely to be in double digits for the full
year for the leading players.
 The unorganized segment accounts for around 75% of the scrubber market. Exo
is India’s first antibacterial scrubber.
T shine is not expected to see any expansion to other states this year.
Guidance/Outlook
 Company is targeting sales growth of 15% for FY19 led by 10-12% volume
growth, along with 16-17% EBITDA margin range with ~50% gross margin.
 Overall interest payout will be less in FY19, as there will be reduction in net debt
to around INR1,500m this year. Interest costs are however going up.
 Volume growth in fabric care is expected to be at around 12-14% in FY19.
 Volume growth in dish wash is expected to be at 15-17% in FY19.
Marico Neutral
Click below for
Macro
Detailed Concall Transcript &  Rural growth outlook looks encouraging.
Results Update Growth and margins
 Marico is targeting 8-10% volume growth for the full year. The company is
targeting 5-7% volume growth in Parachute and double-digit growth for the
other categories.
 Copra prices are expected to see further softening in 2HFY19; some gains are
also expected to be seen in the second quarter of FY19. Import of copra is not
allowed unless it is for re-export.
 Full year margins are unlikely to contract on a YoY basis.
 Saffola oil is expected to come back to the earlier growth levels by the next few
quarters.
 Marico is targeting revenue of INR2b from Saffola Food by the next year. The
company is also targeting 30%+ growth in the category. The current annual run
rate is at INR1.5b; this is based on 1QFY19 sales.
August 2018 42
CONSUMER | Voices
International business
 The company expects to achieve 15% constant currency growth for Bangladesh
in the medium term, i.e. once the non-Parachute portfolio picks up scale.
 ASEAN is seeing a tu rnaround; the company expects high-single-digit growth for
remaining of the year.
Guidance
 Ad spends are likely to be at ~10% of sales in FY19.
Page Inds Neutral

 Overall volume growth for the quarter was at ~9%.
Click below for
Results Update  Elastic shortage witnessed in men’s innerwear for 4QFY18 (which affected
volumes but boosted realizations due to a better mix) continued into the early
part of 1QFY19. This was however resolved during the quarter. This also had a
positive rub-off on gross and EBITDA margins which may not sustain in
subsequent quarters. Volume growth could however be better for the rest of
the year.
 Yarn costs have started going up marginally on a sequential basis; this could
possibly affect them 3QFY19 onward if the increase in momentum sustains. The
company usually takes price increase in the fourth quarter, which is likely again
this year.
 Capex for the current year is likely to be around INR700-800m.
 Outsourcing proportion was 28% for the quarter and is likely to be around 30-
35% by end of the year and around 40% by end of FY20. Lower staff costs to
sales as a result of outsourcing are also contributing to EBITDA margin
expansion.
 EBO store openings are on track and there are likely to be around 1,000 EBOs by
the end of FY20, as per the earlier target.
Pidilite Industries Buy

Demand outlook and expansion
Click below for  The demand situation is definitely improving. There have been market share
Results Update
gains in a few categories as well.
 There have been gains from the unorganized segment as well due to both
implementation of GST and the company’s own initiatives. There has been some
rationalization of depots in smaller states.
 Distribution expansion will be an ongoing activity for PIDI.
 Management stated that its key objective is to achieve 14-15% volume growth
in the Consumer Bazaar segment.
Material costs increasing, adspend higher than usual in 1QFY19
 Average cost of VAM in 1QFY19 was USD1,200; the current spot price is at
~USD1,325. The company has taken some price increases in 1QFY19 as well as in
July. The effective price increase is ~3-5% in case of products where they have
taken an increase. Both Consumer Bazaar business and Industrial business use
VAM as a raw material.
 Full-year adspend would be ~3.5%-4% of sales. This number was higher than
usual in 1QFY19. Other expenses appear to be high for the past two quarters on
account of higher adspend.
August 2018 43
CONSUMER | Voices
 Gross margin are likely to contract YoY for the full year unless mix changes play
a positive role. EBITDA margin impact will be determined by the extent of
volume and sales growth. Operating leverage plays a big role on EBITDA margins
as it has done in the Consumer and Bazaar segment in 1QFY19. Management is
comfortable with 21-22% EBITDA margin band over the medium term.
Other points
 The construction chemicals segment is doing well despite the construction
sector struggling.
 Market share of imported products in most of their categories is small.
 PIDI recently launched Fevicol Easy Spray which is an aerosol-based adhesive.
Other recent variants like Heatex and Hyper are doing well.
 The tax rate in FY19 is likely to be slightly higher than FY18, as one of the plants
has come of tax exemption.
 There was a profit of INR330m in 1QFY19 on inter-company transfer of a
business from the standalone business to the JV. Impact of this income is visible
in standalone numbers, but is eliminated in consolidated numbers. The effective
23% tax paid on this income is reflected in 1QFY19 consolidated numbers.
Hence, the 1QFY19 tax rate was unusually high and will normalize from 2QFY19.
United Breweries Buy

Performance
 UBL has maintained market share on a secondary volume basis.
Click below for
Detailed Concall Transcript &  Underlying growth trend is encouraging in all markets.
Results Update  The company saw strong growth in Rajasthan (where they gained market share),
West Bengal continues to contract, Karnataka has seen challenges due to
election (pressure on market share) and Uttar Pradesh (more wholesalers) faced
supply shortages leading to a loss in shares.
 The premium portfolio grew in strong double digit; successfully launched Amstel
in May. The contribution of premium brands is in mid-single-digit for UBBL.
 In terms of raw material cost, barley cost has been favorable YoY.
 UB fully provided for the GST on 'surplus profit' received from beer
manufacturing units; however, the company will appeal against the ruling.
 The increase in other income is on account of reversal of provisions made on
collectibles above six months. Around INR115m of INR150m is on account of this
reversal in 1QFY19.
 In terms of distribution, the current outlet count stands at 74-75k; the company
has still not reached pre-highway prohibition levels. The number of outlets
across India was at 82,000-83,000 before the highway ban.
 The share o f craft beer category is still relatively small in volume terms.
Globally, the market share of craft beer is in the single digits. As of now, it has
picked up majorly only in the US and Europe.
Outlook
 The market is expected to grow at 6-8% if election (state and national) doesn’t
affect it; UBBL is expected to grow faster than this. Management is confident of
the industry achieving 6-8% volume growth as industry growth in some of the
large markets such as Telangana is seeing double digit growth which is led by
healthy consumer demand.
 The company expects to be completely debt-free by end-FY19.
August 2018 44
CONSUMER | Voices
 Other expenses as % of sales in FY19 will be similar to what the company
reported in 1QFY19.
 Capex guidance is maintained as per the earlier guidance of ~INR3b.
United Spirits Neutral

Comments on Quarter gone by
 Net sales in popular segment in priority states grew by 7%.
Click below for  Events like IPL and FIFA World Cup led to 30% YoY increase in marketing spend.
Results Update
A&P to sales for FY19 will be between 9%-10%. A&P over the medium term can
increase by at most 50bp to 100bp going forward.
 Clarifications: Management believes they have no dues regarding possible
imposition of GST on surplus from contract manufacturers.
 While franchisee income for 1QFY19 was on the higher side, FY19 franchisee
income will be maintained at around INR 1.5b.
 Restructuring cost to continue in FY19 as UNSP is planning to reduce its high
cost plant footprint. Earlier company had 94 plants; post the restructuring
process it has reduced to 50 plants.
Inflation and gross margins
 Input costs unlikely to be soft going forward but increases will be still
manageable or can even be mitigated. Premiumization process will continue.
Price increases won’t happen every year. Gross margins now at 49% are getting
closer to reaching the kind of levels that they are comfortable from a
competitive stand point. Nevertheless gross margins improvement, cost savings
and operating leverage will be the three factors boosting EBITDA margins to
mid-high teens target in the medium term.
 No significant new price hikes granted in 1QFY19.
New investment
 During the quarter the company invested in Hipbar, a technology startup in the
alcobev space. The delivery portal also facilitates online age verification and
currently operates in Bangalore and Chennai. Potential sales can be higher than
that of E-commerce in FMCG as distribution reach in conventional FMCG is
much better.
August 2018 45
FINANCIALS/BANKS| Voices
FINANCIALS/BANKS
 GNPL accretion across corporate banks slowed down in 1QFY19, mainly due to the recoveries from the
resolution of the NCLT-related accounts, even as fresh slippages have also moderated. The operating
performance, however, was impacted by margins pressure for private banks, tepid treasury income,
gratuity/wage provisions and MTM losses. Resolution of a few more NCLT-related accounts is in the final
stages, which will provide further respite to the corporate banks. Private corporate banks guided for
normalization in credit cost from 2HFY19, while PSU banks' credit costs are expected to stay elevated
throughout FY19.
 While margins shrank for private banks, they expanded marginally for PSU banks as recoveries were
accounted through interest income. Managements guided for margin expansion in the upcoming quarters as
most banks have raised the MCLR in 1QFY19. CASA ratios are expected to be around same levels due to the
rising interest rate differential and weak SA growth.
 On the business growth front, private banks guided for continued strength in loan growth - many of them
(KMB, YES) are already reporting multi-year-high growth, while PSU banks guided for modest trends (SBIN
guided for ~12% loan CAGR until FY20).
Outlook for FY19 Provisioning Pressure Asset Quality Stress
 Management has guided  Credit cost normalization from 2HFY19. Bank  Bank guided that rating
for NIM’s to be in the has guided for ~110-130bp of credit cost for downgrade into BB and
Axis Bank range of 3.50% to 3.75% FY19. below has almost ended
 Management has guided  Management estimates slippages to remain and further downgrades
for 18-20% loan growth high over the near term and then normalize in would be definitely
in the the loan book 2HFY19 below the usual run rate
of INR25b per quarter.
 Bank guided for run  Normalized credit cost will be in the range ~90-  Apart from the fund
down in the 110bps for FY19e provided the non-fund based based watch list of
Bank of Baroda
international book over facilities do not devolve into NPA INR86b; the outstanding
the next three quarters non fund based limit is
 Management is planning INR28.8b (which might
to raise INR60b in this devolve into NPA). Bank
fiscal over and above carries 35% PCR on the
the government infusion same
 Management guided for  Bank guided for 70% PCR by FY20e and much of  Bank disclosed the BB
run down in the the improvement in the PCR will happen in FY19 and below pool at
international loan book itself INR246b
ICICI Bank  Bank guided for consol  Normalized credit cost of ~160-180bp and will
RoE of 15% by Jun ‘20 endeavor to bring NNPA around 1.5% by FY20
 Management guided for  Management guided for 2% credit cost for  Apart from the
12% loan CAGR till FY19e corporate slippages from
St. Bank FY20E the watch list retail
of India
 FY20E expected ROA : slippages (from outside
0.9% to 1% the watch list) will
 Also management continue at the run rate
guided for 2% slippage to ~INR30b to INR40b
ratio
August 2018 46
FINANCIALS/BANKS | Voices
AU Small Finance Bank Buy
 Bank earned PSLC income of INR433m this quarter. It guided that PSLC income
will be similar over the next three quarters, as the bank has enough cushion to
Click below for
Detailed Concall Transcript & sell PSLC certificates and there is a huge market for the same.
Results Update  88% of the bank’s portfolio is in the BBB and above category.
 Most of the business banking and real estate clients are unrated and therefore
the RWA for the same would be ~100%.
 Currently, the bank is acquiring 10,000-12,000 customers every month;
targeting 15,000 per month.
 NIMs shrank as interest income declined due to a fall in yield on AUM (yields
had come off in the fourth quarter and the effect of the same was seen in this
quarter) and also due to higher liquidity in form of cash on the balance sheet.
 Approximately 55 out of the 89 BCs are in Rajasthan.
 In the MSME segment, the bank is targeting tier III and IV cities.
 Disbursements yields have increased this quarter, which should flow into the
NIMs this quarter.
Asset quality
 During the quarter, one account slipped into NPA (INR680m). One account from
the NPA category has been resolved, but not upgraded as the bank is assessing
the same for satisfactory performance.
 From the originations last year, only loans worth INR10m are in the 90dpd
bucket.
Guidance
 Bank guided +/- 100bp in the CI ratio from the current quarter.
 No plans to open more branches this year.
Axis Bank Buy

Click below for
Asset quality
Detailed Concall Transcript &  INR46.09b of downgrades during the quarter into the BB and below pool, taking
Results Update the stock of BB and below pool to INR103.9b.
 Non fund exposure in BB & Below: INR28b.
 INR13b of upgrades from BB & below to BBB and above during the quarter.
 Bank guided that rating downgrade into BB and below has almost ended and
further downgrades would be definitely below the usual run rate of INR25b per
quarter.
 NPA in the non fund based is INR34b.
 If the accounts are settled outside NCLT (Samadhan), then all lenders are
required to make 100% provisions.
 Slippages outside the corporate book were INR22b; net slippages in the retail
were INR8b.
 Exposure to the NCLT lists: Fund based (INR46b) and Non- fund based (INR44b) -
Bank has also filed many cases outside NCLT.
 Break up of NPA: Corporate: INR270b ; Retail : INR27b ; SME: INR25b.
 PCR on fund based exposure: 83%.
 SMA-2: 0.5% of the advances.
August 2018 47
P&L and Balance sheet related
 NIMs during the quarter were boosted by one offs (recovery from NCLT 1
accounts). INR2.5b of interest reversal during the quarter.
 Business mix shift toward retail is almost coming to end as per the banks
strategy.
 Recoveries from w/o account were INR7.03b over the last four quarters, 13%
(on four quarter basis) of the written off accounts were recovered. Previously
written off book now stands at INR148.32b.
 Re classified international card business from transaction banking to retail
banking.
 As per the new practices in retail book: Accounts are classified as GNPA
immediately on completion of 90day period.
Bank of Baroda Buy

B/S and P&L related
Click below for  Bank guided for the run down in the LOU’s (international book) over the next
Results Update three quarters as the RBI has disallowed the same
 Margins in the international business saw a significant improvement as some of
the lower yielding loans were replaced by higher yielding loans
 Bank is planning to raise INR60b over and above the government infusion that
will happen in this fiscal. The approval for the same will be taken in the
upcoming AGM
Asset quality related
 Apart from the fund based watch-list of INR86b; the outstanding non fund based
limit is INR28.8b (which might devolve into NPA). The bank carries 35% PCR on
the same on the assumption that 50% might actually devolve into NPA -As per
RBI regulation no provision is required to be carried on the non-fund based
exposure
 There are 2 accounts in the telecoms sector worth INR38b which have turned
NPA. Bank will create additional provision on the same if the accounts do not
get resolved
 RBI has taken up another 22-23 accounts (already NPA) in the forensic audit. As
per the management this is the regular/continuous exercise across banks
 Bank has sold few assets on the cash basis in July’18 and is expected to sell few
more assets during the quarter which will boost up the recoveries for the bank
 In the international book; large part of the NPA’s were from EPC sector and bank
carries ~75% PCR on the same. INR40b was due to rupee depreciation
 Samadhaan scheme: Bank has ~INR19b of exposure to the power sector and
bank is expecting ~20-25% recovery rate from the same.
Canara Bank Neutral

Current Price INR 284 Target Price INR 278| -2% Downside
Balance sheet & P&L Related
Click below for
 MSME dispensation of ~INR7b was availed.
Results Update
 Standard restructured book of INR43.5b, S4A of INR16.5b and 5:25 of INR37.2b.
 Private power exposure of INR145.3b with NPA of INR58b.
 SMA1 advances of INR60b and SMA2 advances of INR48b. Expects to bring
down these numbers going forward.
August 2018 48
 NCLT Exposure: List 1 INR80b and List 2 INR50b.
 Project Sashakt: 112 account (exposure of >500m) with exposure of INR280b, of
which INR150b has already been provided for under NCLT List 1 and List 2
accounts.
 Project Samadhan: 8 account with exposure of INR25b.
 Recovered INR5.19b from resolution of Bhushan account and INR2.24b were
received from income tax refund which was recorded in interest income.
 INR2.81b recovered from other NCLT accounts, which were recorded under
other income.
 Gross exposure of INR23.26b toward Bhushan and INR5.11 toward Electro Steel.
 ARC sale during the quarter was INR1.75b. Expected to sell further ~INR15b by
FY19.
 Provision toward NCLT 1 at ~61% and towards NCLT 2 at ~75% with an overall
PCR of ~66%.
 INR13b of upgrades during the quarter from one power and one steel account.
 Corporate slippages include one oil account of INR4b.
Guidance
 PCR target of ~70% in next 4-5 quarters.
 Capital raising of INR70b approved by the board.
 Advances to grow ~10%-12%, with retail (22%-23%), MSE (10%-12%) and
corporate (7%-8%), for FY19.
 Expects recovery and up gradation of INR160b in FY19 (of which INR100b
expected from NCLT1 accounts).
 Tech w/o expected of INR40b for FY19.
 Expected slippages of INR100b for FY19.
 GNPA target of ~8.5%-9% and NNPA of ~5.5-5.75% by FY19.
 Target global NIM of ~2.75% by FY19.
 Management will take a call on CanFin by FY20.
DCB Bank Neutral

Current Price INR 174 Target Price INR 170| -2% Downside
P&L related
Click below for  Pricing pressure in the mortgage and corporate portfolio impacted the NIM
Detailed Concall Transcript & during the quarter. Management reiterated that the NIM would not contract
Results Update
beyond 3.75%-3.80%.
 1QFY18 had some benefit on NIM with a raise of T1 capital. Increase in T2
capital in 4QFY18 (at 9.85%) pushed up cost of funds in 1QFY19.
 Although the bank met the overall PSL commitments, it fell short in the
agriculture segment, wherein it bought PTC at low rates, impacting NIMs to
some extent.
 30bp impact from a jump in operational risk capital, which is normal in 1Q (have
to add 15% of average income of last three years).
 The bank highlighted competition across all forms of retail lending.
 Key risks to 14% ROE – trajectory of branch profitability.
 Employee costs should start to moderate in 3-4 quarters.
 Bank guided for 55% CI ratio for FY19 and addition of 15-18 branches till
March’19.
August 2018 49
B/S related
 Entire book is linked to MCLR, except some loans like CV and tractors, which are
on a fixed rate basis. Bank has increased MCLR by ~16bp in last three months.
 Within the corporate book, one account turned NPA this quarter, as it was taken
to NCLT by some other bank.
 Have recovered most of 1QFY19 CV slippages in 2QFY19. Bank does not see any
fundamental issue in the CV book.
 Not focused on corporates at all. Bank would like to grow the MSME book.
 The bank holds INR0.6b of floating provisions.
 CV/tractor/small ticket mortgages are priced at a fixed rate (or two years fixed
and then MCLR).
 Recognized INR0.31b of MSME NPAs, which have been given dispensation by
the RBI.
 INR60-70m exposure to corporate NPA.
 6K employees at the end of June.
 90% of AIB is in-house, 70% of mortgages in DSA, SMEs, construction, gold are
completely in-house.
Federal Bank Buy

Click below for P&L related
Detailed Concall Transcript &  Provision on SRs: Bank holds INR1.8b of cumulative provisions on SRs. Bank
Results Update
provides every quarter taking into account the NAV; provisions also depend on
the redemptions that take place during the quarter
 Bank is committed to bring the CI ratio down; the only line item that could be
spoiler would be the pension costs (variable costs).
 Bank is expecting the cost of deposits to be flat for the quarter and then
increase from there onwards. Weighted average cost of SA is 3.5%.
 Break-up of provision: INR1.7b for NPAs, INR30m for standard assets and
INR1.9b for taxes.
 Blended yield on corporate loans are 9% to 10%, and incremental yields are in
the range of 8.5% to 9%.
Balance sheet related
 During the quarter, bank run down its CD book by INR30b as deposits were
sufficient to fund credit growth.
 Bank is treading cautiously in one or two geographies in the SME book.
 Gold loan: Retail gold loan has come down for the bank, but agri gold loan is
showing good tractions.
 70% of the book is linked to MCLR; less than 10% of the book is linked to
external benchmark and/or 3-6 months MCLR.
Business updates and guidance
 FedFina has got a strategic partner, final nod is awaited from regulator.
 Bank is still exploring options for the BC partner to enter into the MFI business.
 FY19 credit costs: ~65bp to 70bp.
 Stressed assets: 1.70% to 1.75% (currently 2.01% of the total assets).
 Bank has guided for INR11b of slippages for the full year (Air India is
notconsidered in the guidance).
August 2018 50
ICICI Bank Buy
 20% growth in the retail loan book
Click below for
Detailed Concall Transcript &  International advances declined 9% in rupee terms
Results Update  INR3.36bn of slippages came from Kisan Credit Card due to farm loan waiver
announced (classified under retail NPA). Banks normally see rise in the NPA in
June and December as it is a 6 month cycle
 Some builder loans have slipped during the quarter
 Bank provided 100% on the principal on one steel account due to ageing of the
account
 Movement in the Drill down List: One Large steel and one power sector in the
list
 Impact of INR10bn (addition to NPA) is due to fluctuation in the currency
 Non Fund based exposure carry the same risk as fund based
 In BB and below within the borrowers outstanding greater than INR1bn (Total
exposure INR54. 5b) only one account is more than INR6b
 Bank does not do 10:90 schemes in builder financing
 ROE Target: 15% by June’20
 Loan loss provisions: 70% PCR by FY20. Lot of improvement in the PCR will
happen in the near quarter only
Indian Bank Buy

Click below for
 SMA1 stands at INR22b and SMA2 at INR6.32b.
Results Update
 Slippages of INR2.1b came from MSME sector.
 Major slippages came from 1-2 lumpy accounts (INR7b of which INR4.5b came
from corporate sector).
 O/s exposure toward NCLT (both list 1 and list 2) is INR28b, with a PCR of ~71%.
 56% of the loan book linked to MCLR.
 Power sector exposure of INR110b.
P&L related
 NIM for the quarter was 3.14%.
 ROE came in at 5.25%.
 Stressed assets as a % of gross advances reduced by 23bp QoQ.
 Recovered INR5.35b from Bhushan and INR1b from Electro Steel.
 INR1.45b of recoveries were recorded in interest income.
Guidance
 Expect loans to grow ~30% from RAM sector, with overall loan growth likely to
be at ~20% for FY19.
 Slippages run-rate to be ~5b per quarter.
 Expect to recover INR15b from NCLT resolutions during the year.
 Expect GNPA in the range 6%-6.5%, while NNPA to be ~3% for FY19 with PCR of
~65%.
 NIM to remain above 3%.
 C/I ratio to reduce to 40% by end of this fiscal.
August 2018 51
IndusInd Bank Buy
 NIM trajectory going forward: NIMs for the quarter shrank by 5bp, as the rise in
Click below for
yields has been lagging the rise in MCLR. Management expects re-pricing to
Results Update happen over the next six months as the yield catches up. 40% of the loan book is
linked to MCLR (~60% of the corporate book is linked to MCLR).
 Trade fees: As interest rates have risen in the past few quarters, the bank has
taken up only those deals that are profit-accretive, and thus, growth in trade
fees has been muted.
 Capital consumption: 8bp due to dividend payout and 25bp for the loan growth.
Also, RWA to total assets (~79.4%) has risen in the recent quarters as the banks
have lent to sectors like real estate and in the unsecured category like personal
loans, credit cards, etc.
 Corporate finance: Bank has done four refinance-related disbursals in
consortium (relating to NCLT) this quarter. Typical strategy adopted by the bank
is to write 20% of the loan amount in consortium and then sell down the same.
The consortium for refinance is smaller than the original consortium (15-20
banks). Average duration of the corporate finance book is 270 days.
 Distribution fee: High growth due to traction in third-party products and also
due to good traction seen from distributing home loans for HDFC.
 Two-wheeler portfolio : Bank is of the view that although the two-wheeler
market is growing , the two-wheeler finance market is actually shrinking as a lot
of purchases are done on cash and credit cards (~80% of the new 2Ws). Bank is
facing accelerated rundown in the portfolio.
 CA growth: Bank reiterated that it is difficult to garner CA accounts, and thus,
growth in the CA will be moderated. Bank’s acquisition of IL&FS (~30% market
share in the clearing space) is expected to provide some boost to CA growth as
bank will get an entry into capital markets (where HDFC bank is the leader).
 SA Growth: Government deposit form 15-20% of overall balance sheet and rest
is retail SA. Bank has been garnering 125,000 SA accounts per month and this
number is expected to go up to 150,000 per month.
 Opex growth : Digital initiatives taken two years ago have started to yield results
and bank is saving ~INR2b annually on opex and also there has been a reduction
in the employee headcount by 300, despite the bank growing at 25-30%
 WARS: The new disclosure given by the bank relates only to six retail products
(out 10 products) and is a lead indicator for the credit cost in these six
portfolios.
Update on mergers
 Bank has signed a definitive agreement with IL&FS two weeks ago and the
merger is expected to close this quarter
 BHAFIN merger: Minor operational approvals are pending from NCLT, following
which another process which could take approx. three months’ time depending
on the regulators.
August 2018 52
Kotak Mahindra Bank Neutral
Click below for Balance sheet and P&L related
Detailed Concall Transcript &  Fixed income book investments duration of 2years
Results Update
 HTM book (46%) and Non HTM book (54%). Elevated provision for MTM losses
arises primarily on account of the Non HTM book
 Business banking (SME) book continues to have reasonable stress
 Corporate loan growth of 20%-25% should be sustainable
 Bulk of the floating loan book is on base rate regime, whereas bulk of MCLR
book is on 6months basis
 RWA of ~INR2t at bank level and ~INR2.7t at consol level
 Consumer banking loan book has grown at ~30%
 Consumer finance business to be done by bank instead of Kotak prime
 Yields on investments has moderated on account of lowering the duration
 Fee income split between retail: corporate is 75:25
 Kotak prime to launch 2W lending which should scale up by FY19 (penetration to
be ~80%)
Guidance
 INR0.5m new customers are added per month
 Loan growth to be ~20%
 To add 100 branches by FY19
RBL Bank Buy

P/L related
Click below for  Cost of funds expected to inch up marginally; NIMs to remain above 4% going
Detailed Concall Transcript & ahead (MCLR increased in the recent past) as MCLR increase will support yields.
Results Update  MTM loss of INR240m during the quarter, which has been fully provided.
 Yields in the retail assets improved due to changing mix within retail segment.
 Due to investment in branches, credit cards and BC branches, the CI ratio will be
in the range of 52%-53%
 Fee income: Co-branded credit cards run on the annual fee structure. 40% of the
cards from own acquisition and 60% come from Bajaj Finance, while fee income
of 57% is from Bajaj portfolio and 43% is from own portfolio.
 Calculation of operational risk is based on last three years’ profits.
 Break-up of provisions: INR1b of NPA and standard assets provisions.
 90 day PAR at 0.38% in the new portfolio (micro banking) post Jan’17.
 SR at 0.06% of advances.
 Cost of funds for the quarter was 6.63%, while the cost of SA was 6.2%.
 Capital consumption was higher for the quarter due to one-time adjustment of
operational risk.
 Total agri exposure (Corporate + retail) comprises 3.7% (5% last year) of total
advances. Have restructured the business and slowed down. Bank is cautious on
the agri portfolio and just maintaining the portfolio.
 One account got slipped and recovered within the quarter (INR270m).
 Bank does short-term working capital loans on the wholesale side.
 50% of the total retail book is secured. Bank is comfortable with the current
secured: unsecured mix and would largely maintain the mix.
August 2018 53
 Credit card business has turned profitable and making ROAs greater than banks
ROA.
 10% of the cards customers and 25% of the MFI customers are new to credit
customers.
 Duration of AFS book is 2.5 years.
 Break up of retail book: LAP/WC 13% of the total retail, while 6.9% is cards.
 Average spends on the cards INR10,500/- per card per month. Total cards as on
1QFY19 is 9.77 lacs cards (60,000 incremental cards added during the month).
 Retail processing fee will grow around the retail book. Processing fee is less than
the acquisition cost. LAP and MFI customers are a drag on processing fee.
 Yields: LAP (10.4%) and cards (20%).
 40% of SA balances are above 1cr.
 Out of total customers of 4.9m, 2.9m are MFI customers.
Business updates
 40-45 bp of tier 1 capital consumption per quarter.
 FY20E ROA : 1.5%.
South Indian Bank Buy

Asset quality
 Slippages break up: Corporate: INR3.08b; Retail: INR2.98b and MSME: INR2.26b.
Click below for
 Out of the corporate slippages, one large account worth INR1.05b was in social
Results Update infra project. It was recognized as NPA due to inherent weakness in the account
and due to a delay in DCCO.
 Two accounts worth INR 1.17b from the cashew sector. Management
highlighted that the cashew sector in Kerala is undergoing severe stress and the
state government is working on the same.
 EPC contractor (restructured std. account) of INR220m and one contractor
account of INR330m.
 Out of the total slippages, 45% of the slippages came from Kerala.
 Contribution of the top 10 accounts in the SME sector slippages – trading firms:
INR590m, textiles: INR380m, food processing: INR360m, service: INR200m,
engg: INR170m, metal: INR 160m, leather: INR100m, other mfg. industry
INR130m and other service sector: INR60m (INR100m of the SME accounts had
taken dispensation in last quarter which slipped into NPA this quarter).
 SR book: INR9.5b of the SR book represents large sell-off to ARC that happened
in 4QFY17. Depreciation of INR2.52b had been created in Sept’ 17 on this book
(PCR on the book: 50%).
Balance sheet and P&L related
 In the current quarter, there was no PSLC sale, and thus, other income was a bit
on lower side.
 Bank is expecting the NIMS’ to go up as the recent rise in MCLRR is expected to
flow in NIM in the next six months. Substantial portion of the book is linked to
one-year MCLR.
 Effect of 9 BP by way of interest reversals. INR180m for the quarter.
 Employee count: 7,690.
 All processing of loans (except gold loans) are centralized.
August 2018 54
 MSME book is growing in proportion of the branch distribution. Bank prefers
100% collateral if there is high risk. On pure trade account bank prefers 100%
security.
 Break-up of deductions from NPA: Cash recovery INR130m and upgrades and
recoveries: INR240m. No W/off for the quarter.
 Total exposure for the bank to the cashew sector: INR4.15b, of which 42% has
turned NPA.
Guidance
 Credit cost: 1% for FY19.
 Slippages in the next three quarters to be in the range of INR6b to INR7b.
 Recoveries to be approx. INR5b for FY19.
State Bank of India Buy

Asset quality related
 NCLT write back of INR40b is expected in 2QFY19/3QFY19.
Click below for  SME sector GNPA at 9.11%.
Results Update
 Out of the power sector exposure of INR1.76t, 37% is with the private sector
and 63% is with the PSU sector.
 -69% of the power sector exposure is to the entities rated “A” & above.
 -Nearly 60% of the power NPAs are expected to be resolved before 3QFY19
outside NCLT
 SAMAADHAN scheme: Focus on resolving the accounts by 27th August 2018 is
on full swing.
 Upgrades during the quarter were ~INR45b.
 Breakup of slippages in the retail segment: SME (INR17.70b), Agriculture
(INR25.60b), Personal segment (INR19.65b).
 Slippages (from retail segment) from outside the watch list will continue.
 Debit to existing accounts were from SBLC (INR45b); provisions as per ageing
were held.
 7.7% of exposure (corporate + SME) is non fund based which is expected to slip
in the next three quarters. Approx. non fund based exposure is INR135b.
 Total exposure to aviation sector is INR35b.
 RBI has reviewed ~104 accounts in the annual review.
 Recovery during the quarter in the retail segment was INR17.19b.
Balance sheet and P&L related
 Planning to sell stake in three of the subsidiaries in the coming quarters.
 Bank has carved out a subsidiary in the UK and transferred ~100b of assets to
the same.
 Gratuity provisions (due to increase in ceiling) of INR9b will be continued for
two more quarters.
 59% of the portfolio (including SME) is retail and the proportion will be largely
the same going forward.
Guidance
 Loan CAGR till FY20E: 12%
 ROA target by FY20E: 0.9% to 1%
 Fresh slippages won’t exceed 2% for the entire year (~INR400b).
August 2018 55
Yes Bank Buy
P/L related
Click below for  Benefit of re-pricing of loan to accrue in subsequent quarters.
 The bank made INR570m of general provision.
Results Update
 IBU margins were little less than 2%, while domestic margins were higher than
average margins by ~10bp-20bp.
 Forex, debt capital market and securities fee income: INR700m on account of SR
redemption, INR1b gain on account of portfolio shuffle and remaining was
largely from forex and derivatives.
 PSLC of INR38b was purchased in Q1.
 Corporate fees largely pertain to loans-related fees.
 W/o for the quarter were INR1.31b.
Balance-sheet related
 Corporate loan: ~30%-40% growth from working capital loans and ~60%-70%
growth from term loans
 85% of the loan book is on MCLR.
 MSME loans to pick up in 2HFY19.
 Average SA of INR1.6lakh-1.7lakh.
Business updates
 Expect ~30bp improvement in yields with ~20bp-25bp improvement in margins
in the next 12months.
 Expect ~30%-40% growth in CASA for FY19.
 Cost to income ratio expected to be ~39%-40%.
August 2018 56
FINANCIALS/NBFC| Voices
FINANCIALS/NBFC
 1QFY19 was a mixed quarter for our coverage universe, especially HFCs. Managements of smaller HFCs such
as GRUH and REPCO have cautioned on the growth outlook, given the supply-side constraints in affordable
housing finance. On the contrary, managements of larger HFCs have guided for continued robust growth over
the near-to-medium term. However, most companies are likely to witness spread compression as the rise in
cost of funds is only partially offset by the yield increase. In vehicle finance, most managements are looking
to expand, especially in rural areas, where they see growth. Most companies in vehicle finance have guided
for a decline in credit costs.

Outlook for FY19 Asset quality Impact of IND AS
 FY17 networth declined ~6% mostly
 AUM growth of 25%+ over the
due to amortization of up-fronted
Bajaj Fin medium term
 Asset quality to be largely stable income (net basis INR7.97b, pretax)
 Expect 40% C/I ratio going
and hit due to adoption of ECL
forward
(INR2.7b pretax).
 Expect overall loan book to grow  Largely neutral impact of Ind-AS on
Chola Inv at 18-20% over the medium term.  Expect resolutions in LAP to aid networth. FY18 PAT 6% lowers under
& Fin PAT growth to be in line with asset quality in FY19 Ind-AS.
AUM growth.
 Networth up 2% due to transition.
 Target GNPL ratio of 7% by end- FY18 PAT up 20% due to lower credit
Mahindra  Expect 17-18% AUM growth for
Finance FY18. Credit costs to decline to costs.
FY19 if monsoons are good
sub-2% in FY19
 Share of rural + housing will  In the Infra portfolio, LTFH took the
 Credit costs should moderate
L&T Fin. increase to 50% by FY19 entire Expected Credit Loss on its
since wholesale lending book is
 Credit costs in housing finance to legacy stressed portfolio (INR18b)
adequately covered
decline to 1% in the near term and adjusted against FY17 reserves.
Aditya Birla Capital Buy

Business Updates
Click below for
 Management believes that corporate lending is a big opportunity for players like
Results Update ABCL since supply of capital is limited.
 Expect significant improvement in VNB margin post overrun from FY18 levels.
 Expanding into Tier 2,3 geographies in SME lending (entered 32-33 new places
in the past year).
 Will expand to 84 branches by end-FY19 in HFC (70 currently).
 Distributing LI through 3,000 branches of HDFCB. Have allocated 1,500 people to
focus on the HDFCB channel.
 Banca contributes 32-33% of sourcing from partnerships.
Ind-AS Impact
 Stage 1 & 2 provisions outstanding = INR2.13b.
 Impact on NBFC as well as consol. networth was very marginal (< 1%).
Others
 Health insurance business generally breaks even in 6-7 years.
August 2018 57
FINANCIALS/NBFC | Voices
Bajaj Finance Neutral

Business Updates
Click below for  Witnessed significant operating leverage across segments of the company
 Management restructured the mortgage business resulting in INR30-40m per
Results Update
month cost savings
 40% of SME book comes from tier 3 cities
Ind-AS impact
 Provisions on NPLs have gone down while those on standard assets have gone
up under Ind-AS
 Stage 1 – current customers; Stage 2- 1-2 month overdue customers; Stage 3: 3+
months overdue
 Easier to predict ECL in retail lending vs corporate lending, since there is more
empirical data
Others
 Management reiterated C/I ratio of 40% (despite the 37% ratio achieved in 1Q)
 BAF is among the Top 2 LAS players in India
 BHFL profitability will be subdued for FY18. Improvement will commence in
FY19.
 Around 50% of BHFL comes from BT. Business done only from 45 cities in India.
CoF from bond market 15-20bp lower than for parent.
 In the past three years, 1Q CD sales have been better than 3Q
Cholamandalam Inv & Fin Buy

Business Updates
Click below for
 Mr. N. Srinivasan stepped down for personal reasons
Results Update  Overloading ban relaxation is only for intra-state transit. Long haul trucks still
have overloading ban. Only 25% of all CVs will be impacted.
 New axle norms – OEMs will still take some time to produce such vehicles and
get it to the market. Management clarified that the notification was not for
existing vehicles on the road.
 Opex is lower because part of opex moves into the interest expense line.
However, on apples to apples basis, it has improved ~50bp.
 Will wait for Tier I capital ratio to come down to 12% before deciding on a
capital raise
 Margins have dipped meaningfully because of growth in HCV (lower yielding
compared to other products) has been strong and share of used CV has gone
down
 Incremental COF = 9% for long tenor (7.5-8% on short tenor). Bank loans at 8.8-
8.9%. NCDs – 9% (3-5 year tenure). However, unable to raise large quantities
through debentures without impacting price. Securitization: 100-120bp below
normal bank loans
 Incremental yield = 14% overall
 Home Equity – Expanding into Tier 3,4 locations. Expect strong disbursement
growth to continue. Average ticket size will be maintained at ~INR5m
 VF – Expect 20% overall growth
August 2018 58
Asset Quality
 GNPL ratio is as per IGAAP for 1QFY19 (it also includes off-BS assets)
 Stage 3 includes current 90dpd plus any asset that has been in 90dpd over the
past one year even if it’s standard now
 Acquired 45 properties under SARFAESI worth INR700-750m. Overall, 150 such
customers for whom CIFC can go for SARFAESI.
Ind-AS Impact
 Profit on de-recognition of financial assets is basically profits from up-fronting of
assignment of loans. No assignment was done in FY18, that’s why it’s a negative
drag on PAT in FY18
 Securitized income will continue to be recognized on an amortized basis
Provisions for over-dues on securitized assets – INR640m, Write-back of income
reversals for NPLs – INR2,115m
Others
 Capital adequacy has been calculated as per earlier method
Equitas Holdings Buy

P&L related:
Click below for  Product wise yields: Microfinance: 23%, secured business loans: 10%-14%,
Detailed Concall Transcript & unsecured: 16%-19%, corporate: 10%-10.5%, small corporates: 10.5%-12%.
Results Update
 Cost of SA – 6% till 10L, 6.5% above 10L. 6.3% blended.
Balance sheet related:
 Secured business loans stand at INR2b and unsecured stands at INR4.11.
 NCDs maturing in FY19/FY20 – INR11b/INR16.6b, rate of 11-11.25%.
 The bank continues to be cautious on microfinance and is not looking to raise
ticket size.
Asset quality related:
 Sept onwards collection efficiency was restored in vehicle finance. New vehicle
financing has also shown strong traction.
Business updates:
 Asset centers have been rationalized, bringing neighboring branches under one
center.
 No significant branch addition to be done. Some staff to be added for
collections, the only other increase in opex would come from increased rentals.
Guidance:
 MF book growth to be 15%-20% in FY19, 35%+ total AUM growth for FY19,
driven by MSE (INR350m-400m business loans to micro enterprises) and vehicle
finance.
 Spreads will continue to hold at 11%+ in FY19.
 Deposits should reach 70% of borrowings by end of FY19.
 Steady state ROA/ROE of 2-2.5%/16-18%.
August 2018 59
HDFC Standard Life Buy

 Company started “Agency Life Program” last year, and this channel (agency)
Click below for witnessed 28% growth, whereas direct channel grew 55% YoY.
Results Update
 Despite HDFC Bank distributing products of other two insurers, HDFC Life’s
share remained same across all products distributed.
 HDFC Life covered 10m lives during the quarter v/s 5.7m lives in 1QFY18.
 99.9% of the individual business is done through digital channels.
 Board has proposed to change the name of the company to “HDFC Life
Insurance Co. Ltd” subject to shareholder approval.
 Major contributors to the margin: Volume (in number of policies), protection
uplift, rapid growth from the annuity business.
 Group protection is all credit protect. Many competitors have entered the
market, but HDFC Life has benefitted from its scale, lower expense ratio and
better re -insurance rates due to better underwriting. Large part of the credit
protect business is coming from micro finance where rates are competitive.
 Break up of protection: Credit protect: INR7.6b, Group protect: INR6.9b. Within
credit protect home loans and LAP is 40% of the portfolio.
 Among the new non-traditional partnerships, protection is done only through
some partnerships.
 Share of protection is expected to go up in the next 2-3 years both on the
company level and the industry level.
 Company has discontinued with some brokers as it was not in customers’
interest and also persistency ratios of those brokers were very low.
 Cross sell is in the developmental phase. Company has created a separate
channel to scale up cross-sell opportunities.
 Credit protect can be priced differently for different customers/cohort/age
groups.
 Payback period will be shorter (3-4 years) in credit protect business and higher
in ULIP (5-7 years).
ICICI Prudential Life Buy

 Protection mix: 8% of the APE as of 1QFY19
Click below for
Detailed Concall Transcript &  Expense ratio were elevated due to muted premium income
Results Update  June monthly numbers were sequentially better
 Non-bank channels have contributed 45% of the APE
 Surrenders have reduced by 35% YoY due to specific efforts of the management.
 Cost ratios for protection segment are higher
 In Q2FY18 company had introduced certain products which has different
commission structure
 Drop in PAT is due to decline in Non-PAR life and Annuity segment
 Drop in solvency is due to dividend payout and due to increase in the protection
business. Dividend declaration to come down
 Opex ratio is based on the forecast of the business numbers (not on the last
year’s numbers)
August 2018 60
 Advertisement and promotion expenses for protection segment. Increase in

employee count to ~15,000ee as of FY18; the flow of the manpower cost in
1QFY19
 Annuity business : Going forward company will focus on deferred annuity
whereas currently company is focusing on immediate annuity
 Capital raising: Levers of capital management is dividend policy (special dividend
will come down). Can raise tier II capital up to 25% of the equity capital
 INDAS is going to change the entire measurement of Revenue, profit.
Smoothening of product
 Policyholder surplus : Discount rate used for the liability is function of yield on
portfolio (not entirely dependent on the interest rates)
 Lot of new business was written in annuity in Q4 last year
 Group business has 3 comp: Group fund, group credit life , group term business:
Most of the growth has come in protection side and credit life
 More clarity on expenses as the quarter passes by
 In a single premium policy strain should be lower as the compared to other
policies
 Mortgage is still the largest part of credit protect segment
 Group protection has grown faster than individual protection
 Deferred annuity in the current Indian environment will be high risk on the
balance sheet
 Surrender in ULIP before 5 years is not captured in the persistency ratios
IndiaBulls Housing Finance Buy

P&L related
Click below for
 Sell-down income up-fronting only un-favorable change in IND-AS
Results Update  FY18 NW at INR154b under IND-AS vs INR129b under older accounting rules
 NII to be reported inclusive of fees but excluding up-fronting
 Amortized fee doesn’t include securitization fees; the latter will be disclosed
separately and will not be included in NII
 INR640m – net of up-fronting of present quarter and negative impact of last
quarter.
BS related
 Capital raise has been pushed back
 Capital markets entire source of incremental funding for the quarter
 Yield on commercial loans went up from 12.35% – 12.86%
 Against a 12bp increase in cost of funds, loans yields have gone up by 30-50bp
 Home loan/mortgages – 60%/19%
 Oak North revaluation is allowed to be included in CET1
 FY17 net-worth INR121.25b under GAAP, 124.7b under IND-AS
 CP – 9% - 10% of total borrowings, maturity has increased to 8 months from 3-
3.5 months earlier
Asset Quality related
 99.22% of assets in stage 1 and 2
 Credit cost should reduce to 25bp from 70-80bp earlier as home loans
proportion increases
August 2018 61
 Expect some release of provisions over the next few quarters as part of IND-AS
adoption
 There is no scope for creating ad-hoc provisions for micro reasons (contingency
provisions)
 GNPA on commercial book – 2.12%
 ECL basis – 90% of data through 13 years of own data, 10% through external
consultant and other 3rd parties
 Product wise ECL – 25% of stage 3 assets, lower over a period of time
Others
 IBHFL clocked INR25b of sell-downs
 Smart city – 20% of total home loans
 E-home loans 25% of incremental business
 Mid-income housing remains the main area of interest (up between 40% - 70%
across suburbs for the industry)
 Post GST, credit assessment in Tier II/III cities has become easier, and they are
booking higher growth in these geographies
 Price correction has been seen mostly in super premium category of housing
 Prepayments: HL – 1% for 1Q, 0.75% for FY18, which is not alarming
 Long standing dividend policy – 50% of PAT.
L&T Finance Holdings Buy

Business Updates
Click below for  65% direct sourcing in home loans.
 Focus on early warning signals and NPL resolutions led to a significant decline in
Results Update
rural stage 3 loans.
 Credit costs in housing finance should settle at 1% in the short term.
 Most customers in ‘micro’ loans are above the INR1lac income range. However,
its 100% JLG.
 Real estate finance yield is ~14%.
 Growth in wholesale opex is due to addition to workforce and ESOP costs. Also,
there was a one-off item (INR70-80m).
 Most incremental manpower is deployed in rural finance, and then housing
finance.
 Growth in rural lending will slow down as base picks up from 2Q. Growth should
be 30%+ in rural lending from now on.
 Management expects to gain market share in tractor finance. Share of preferred
OEMs is ~80%. 0dpd+ in tractors is 20% (in most difficult time, it was more than
50%).
Asset quality
 8.7% and 3.5% overall Gross Stage 3 and Net Stage 3 ratio in 4QFY18.
 Steady state credit costs in wholesale should be 70-80bp of loans annually,
according to management.
 Stage 1 coverage of 0.4% (rural = 0.8%) and Stage 2 coverage of 6% on a consol.
basis (rural+hsg = 4%; wholesale = 8%).
Ind-AS
 FY18 PAT – impact due to pref. dividends and ESOP costs
August 2018 62
 Small negative impact from EIR calculation due to cost of raising debt (earlier
deducted through reserves, now has to flow through P&L).
 Insurance fees on retail lending are not be amortized.
 Revaluation of investments of INR2.25b was on a few investments based on
market value less cost of acquisition. One of these investments has already been
sold.
Others
 Tax benefit (INR2.25b) due to amortization of goodwill will continue under Ind-
AS too.
 CRAR is 19% according to RBI and 17% according to Ind-AS.
 Wholesale loan growth will continue to be modest.
 Stage 2 in wholesale & real estate finance starts at 60dpd, while that in rural
starts from 30dpd.
M&M Financials Buy

Click below for Business Updates
 Growth also coming in from 100 new branches opened in the past 12 months
Results Update
 Interest rate hike will not be across all products and all geographies
 Gaining market share from banks since they have gone slow
 OEM discounts are still continuing, in order to reduce inventory. Management
expects it to abate by the festival season
 Mahindra HFC – present in 70,000 villages while MMFS is present in 3lac
villages. The HFC will expand into all these villages.
 CoF should increase by 15bp in FY19
 Ola/Uber would be 7-8% of the car portfolio (2-2.5% of the overall loan book)
Asset quality
 Lowest ever QoQ increase in GNPL ratio from 4Q to 1Q in the history of MMFS
 Mahindra Rural Housing Finance – NPL hike in certain geographies like
Maharashtra (45-50% of total loan book). Management expects improvement
next quarter onwards.
 ECL - Stage 1 - 1.2%; Stage 2 – 12-14% Stage 3 – 35%
 LGD in stage 3 is 27-28%
 GNPL ratio under IGAAP is 70bp higher in 1QFY19 vs 4QFY18
 Will try to get GNPL ratio (IGAAP) to 7% by end-FY19 vs 8.5% in end-FY18.
 Expect credit costs for FY19 to be lower than that of 1QFY19 (2.0%)
Others
 Monsoon expected to be above average
 80% of UV disbursements is of M&M vehicles
 D/E ratio to be 5.5-6x
 PD/LGD data is taken for last 4-5 years
 MH, TN, AP, MP and Gujarat are the key states for Mahindra Rural HFC
August 2018 63
PNB Housing Finance Buy

Business Updates
Click below for  16% increase in sanction volumes in the quarter.
Results Update  22% of disbursement by value in sub-INR2.5m ticket size (affordable housing).
 Rates increased by 25bp in April and again by 15bp in July (for incremental
loans).
 Spread of 211bp in 1QFY19 (under Ind-AS). Guidance of 205-210bp is desirable.
Not much difference between Ind-AS and IGAAP.
 Yield on book: CF – 12.22%, LRD – 9.9%, HL – 9.3%, LAP – 10.43%
 Incremental yield: CF – 11.93%, LRD – 8.9%
 Will open 24 branches in FY19
 Not looking to raise capital in the near term (may raise in end-CY19). Will
continue to assign loans going forward (7-8% of AUM).
 INR45m ESOP cost in the quarter. Depends on movement in stock price.
 Cost of bank borrowings: 8.3-8.6%.
Ind-AS Impact
 Networth for FY18 is INR66.06b under Ind-AS v/s INR63.06b under IGAAP.
 PAT in FY18 was INR70m higher under Ind-AS .
 ECL calculation not done at a pool level, but at an account level.
Others
 30% of business coming from branches opened post FY17.
Shriram City Union Finance Buy

Business Updates
Click below for  Business team is contemplating some yield hikes across some products and
Results Update some customers in MSME
 However, management is guiding to 50-60bp drop in yield from 20.1% in FY18.
MSME yield compression due to customer retention in second cycle.
 Management is hopeful for exit RoE of 18-20% in FY18
 No more branch expansion for FY19. Employee reduction of 550 people (out of
bench strength of 1,500) during the quarter.
 SCUF has not lost many employees to SFBs
 Average tenor of SME loans has increased from 36 months to 48 months over
the past 1.5 years
 Expect 20-25bp increase in cost of funds for FY19
Ind-AS impact
 PAT for full year FY18 is INR80m higher under Ind-AS vs IGAAP
 Management reiterated twice during the concall that we should wait for
another 2-3 quarters to make any conclusions on Ind-AS, ECL, etc.
Asset quality
 Shriram Ventures remains a standard asset on the books – provisions against it
is 2.3% just like for other standard assets
 Management has reiterated 2.5-2.75% credit cost guidance. The ultimate loss
would be 4.46% * 43.39% (probability of default * loss given default). This
translates into INR5.6b as of 1QFY19.
August 2018 64
Others
 Very less overlap (4-5%) between 2W customer and MSME customer
 2W finance penetration for the market has moved close to 40% now
Shriram Transport Finance Buy

Business Updates
Click below for  New axle load norms will apply to new trucks only, as per management’s
Detailed Concall Transcript & interpretation. Also, 40% of existing capacity on highways is at fixed axle
Results Update capacity. Management expects 4-5% impact on sale of new vehicles due to this.
 25-30% improvement in operating efficiency of trucks due to GST. This has
offset increase in fuel prices.
 Management reiterated 18-20% YoY AUM growth throughout the year.
 Disbursements: Total – INR134.25b; Used vehicles –INR109.55b; New vehicles -
INR19.36b; Business loans – INR5.34b.
 INR46b securitization done during the quarter. Marginal COF is ~9%.
 Opex has gone up so much due to increase in branch and employee count.
 Resale prices of 8-12 year vehicles will increase as scrappage policy threshold
has been pushed to 20 years.
 Will not need additional equity capital for the next 1-2 years.
 Working capital loans: 6-9 months (20% yield); Business loans: 3-5 years (16-
18%).
 Expect 20-24% C/I ratio for FY19.
Ind-AS Impact
 Gross Stage 3 loans are much higher than GNPL under IGAAP because 90dpd+ of
securitized portfolio is accounted for in Gross Stage 3 (INR11.28b) and
recognition of interest previously derecognized (INR5.78b).
 INR8.78b addition to networth as on FY18 due to Ind-AS (INR9.11b for 1QFY19),
largely due to provision release (INR12-13b pre-tax) (PCR requirement down
from 67% to 57% under Ind-AS).
 AUM is INR1t and loan book is INR950b – difference is due to provisions netted
off against loans under Ind-AS.
Asset Quality
 Credit costs should decline to ~2% as per Ind-AS by 4QFY19, according to
management. GNPL ratio should reduce to 8.5% by FY19.
 Shriram Ventures exposure is classified as a standard asset currently.
 Expect 55-60% coverage ratio under Ind-AS.
 Write offs in 1QFY19 – INR5.3b v/s INR3.5b in 1QFY18 due to accelerated write
offs in the Shriram Equipment Finance portfolio.
 78% of loans are in Stage 1, 13% in Stage 12.
 PD for Stage 1 and 2 – 5.82% and 13.39% respectively.
Others
 Have reported CRAR under Ind-AS. Under IGAAP, it would have been Tier I -
14.31%, Tier II - 2.41%
 SHTF has tied up with HPCL to provide fuel loans to its customers. Essentially,
like a credit card facility for truck drivers who don’t have a credit card.
August 2018 65
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HEALTHCARE
One of the main reasons for companies reporting a better quarter (1QFY19) was robust growth in the domestic
market (+25-40% YoY) off a low base (1QFY18 was impacted by GST-led disruption). Most companies believe that
price erosion has stabilized at mid-to-high single-digit. They also remain optimistic about the US business outlook
for FY19, subject to timely ANDA approvals. Product-specific intensification in competition and seasonality
impacted the sequential performance to some extent in US generics. Although the operating margins improved
in 1QFY19, the gross margin remained under pressure due to supply disruptions in China. Companies are in the
process to change the sources and/or undertake in-house manufacturing.
Outlook for FY19 US business
 CDH’s robust performance during the quarter was  CDH saw ~57% growth in the US business in FY18 due to
Cadila largely led by strong growth in domestic business (low launch of gLialda (under exclusivity) and Tamiflu. Despite
base of last year) and US business. Although overall the high base, company expects growth in US business led
growth was below our estimates on back of US by strong product launches and increased traction in
business which was impacted by seasonality and existing products.
competition in one of the key product.
 Lupin 1QFY19 results were muted largely on account of  US business was impacted during the quarter due to
decline in the US business. LPC expects growth to pricing pressure in key products and seasonality. However,
Lupin bounce back from 2HFY19 on back of new product with the launch of levothyroxine and ramp-up of recently
launches. launched Solosec, company expects growth to pick up in
2HFY19.
 Expect strong earnings growth largely on the back of  Shilpa Medicare saw healthy traction in its US business
sharp ramp up in US business. Overall earnings growth from its recently approved 2 ANDAS. Subject to timely
Shilpa Medicare will be slower due to decline in CRAMs business approvals, we expect US business to ramp up on the back
of strong product pipeline with 34 ANDAs pending for
approval at the end of 1QFY19.
 Post clearance of Halol facility and woes of GST behind,  US business reported growth after five quarters on back of
SUNP expects overall performance to improve in FY19. launch of the authorized generic version of Welchol,
Sun Pharma
1QFY19 reported healthy growth led by new product Yoansa and some business from the Halol facility. SUNP is
launches in the US and domestic market. With further likely to launch Ilumya in 2QFY19, the process for which
new approvals by USFDA and ramp-up of existing has already been initiated. Also its specialty product
products, along with healthy traction in the domestic CEQUA (OTX-101) is also likely to be launched in coming
market, SUNP expects low double digit growth in FY19. quarters.
Alembic Pharma Neutral

Current Price INR 589 Target Price INR 540|-8% Downside
Click below for  ALPM has guided for 15 product launches in FY19 in the US market (launched
Results Update one in 1QFY19).
 Oncology facility is complete and onco injectable and general injectable facility
will be complete by 2HFY19. ALPM has started production of exhibit batches
from the onco facility.
 Sequentially price erosion in the US was flat for the company.
 Net debt stood at INR8b.
 Capex during the quarter was INR1.6b.
 Domestic business grows on back of low base: India’s formulation business
grew significantly by ~40% YoY to INR3.3b. Growth was mainly led by a low base
of last year (impacted by pre-GST implementation pressures). All therapies of
ALPM witnessed strong double-digit growth. The company expects the domestic
business to grow higher than IPM in FY19. Alembic’s nephron/ Uro therapy
witnessed highest growth of 82% YoY, followed by derma (+60% YoY), Anti-
Infective (+51%).
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 Non-US business drives export business: International business increased

significantly by ~25% YoY to INR3.5b, mainly led by strong growth of ~79% YoY
in non-US business to INR1.3b. US business grew moderately by 7% YoY to
INR2.3b. During the quarter, the company filed three ANDAs (including 1 from
JV Aleor), taking cumulative ANDA filings to 132. During the quarter, ALPM
received three ANDA approvals, taking cumulative approvals to 73, including
nine tentative approvals.
Alkem Labs Buy

India business (67% of sales)
Click below for  ALKEM’s India sales grew by 26% YoY to INR10.9b in 1QFY19.
Detailed Concall Transcript & Healthy growth led by new product launches and higher productivity
Results Update  ALKEM’s domestic business recorded a robust growth in 1QFY19, partly on
account of last year’s low base, new product launches, increasing MR
productivity and growth in the chronic segment. The company’s chronic
portfolio has achieved break-even. We expect the domestic business to grow by
~15% in FY19.
 The growth in the domestic business was also led by a growth across ALKEM’s
entire therapy portfolio. The company improved its market share and rankings
in the chronic therapy areas of Cardiac, Anti-diabetes, Neuro/CNS and
Vitamins/Minerals/Nutrients. ALKEM’s entire therapy portfolio outperformed
the market growth. The company’s secondary sales growth came in at ~14% YoY
as compared to the market growth of ~11% YoY.
 US business – Second consecutive quarter of robust growth (26% of sales) US
sales recorded a significant growth of 43% to INR4.2b, largely on the back
increasing market share of the existing portfolio. The US business is expected to
improve going forward, with the increase in the number of ANDA filings (the
company has guided for 12 ANDA filings in FY19), and ~50% of the portfolio yet
to be approved and commercialized. ALKEM has guided for 8-9 product
launches in the US for FY19. In 1QFY19, the company filed four ANDAs and
received two approvals, including one tentative approval. Cumulatively, ALKEM
has filed 111 ANDAs (including 41 para IV filings) and received 52 approvals till
date, including seven tentative approvals and one NDA.
Other international business – Healthy growth led by new launches (9% of sales)
 Other international business grew by 13% YoY to INR1.2b. Its key markets,
including Australia and Chile, recorded a healthy growth for the quarter, driven
by new product launches and increase in market share.
Aurobindo Pharma Buy

Current Price INR 662 Target Price INR 750 |13% Upside
 Although 1QFY19 US injectable sales were subdued, ARBP remains confident to
Click below for
grow by 30% YoY on USD163m sales in FY18.
Results Update  Net debt increased by USD33m sequentially due to an increase in working
capital (up USD63m) and capex of USD70m.
 ARBP filed first derma ANDA this quarter; is on track to file 10-12 ANDAs in this
space.
August 2018 67
HEALTHCARE | Voices
 Apotex deal would be complete by 3QFY19. (5) A few ANDAs expected in FY19
are g-Toprol, g-Prevacid and g-Welchol.
 US business growth remains on uptrend (~45% of sales): US business grew by
~12% YoY and ~9% QoQ to INR18.9b. Although growth injectable business was
subdued, company is confident of growing 30% in FY19, with growth kicking in
from 2QFY19. ARBP expects grow momentum to continue over next 12-18
months on the back of launches in injectable space and other key launches like
gToprol and gPrevacid
 Growth momentum continues in Europe and RoW market (34% of sales): In
1QFY19, Europe and RoW combined increased by ~31% YoY to INR14.6b on back
of healthy growth across geographies in the respective regions. Europe business
grew ~31% YoY to INR12b while RoW market grew ~32%YoY to INR2.6b.
Margins in Europe are on increasing trend on back of outsourcing of products to
Indian facility.
Biocon Neutral
 In July, Mylan/Biocon (BIOS) has launched ‘at risk’ Pegfilgrastim biosimilar in the
Click below for US market.
 On Biologics sales of ~36m in 1QFY19, BIOS maintained its guidance of
Results Update
USD200m in FY19.
 Biocon intends to submit a comprehensive response on g-Copaxone in FY19.
 Trastuzumab and Pegfilgrastim filings for the EU market are on track and would
be presented to Committee for Medicinal Products for Human Use (CHMP) in
CY18.
Other key highlights
 Other income during the quarter was higher by ~28%, primarily due to forex
gain of INR390m as against forex gain of INR170m in 1QFY18.
 On competition on pegfilgrastim, Coherus has TAD in Nov-18.
 Capex for the quarter was INR3.4b.
Cadila Healthcare Buy

 Price erosion in the US base business was to the tune of 2-3% QoQ. Though US
Click below for
Detailed Concall Transcript & sales were lower for the quarter, CDH is confident of exceeding FY18 US sales of
Results Update USD~900m in the current year, led by strong product launches and increased
traction in existing products.
 CDH launched g-Asacol from its in-house manufacturing facility, which would
improve the operating margin of the product. Moreover, CDH has launched g-
Toprol recently.
August 2018 68
HEALTHCARE | Voices
 The company also bought a 51% stake in Windlass Healthcare for INR1.6b,
which would expand manufacturing capacity for oral solids in the US market.
R&D expense stood at INR1.9b, 6.5% of net sales.
 CDH incurred capex of INR2.8b in 1QFY19. Net debt was at INR30b at end-
1QFY19.
US Formulations (44% of sales) – seasonality leads to sequential decline
 US business reported robust growth of ~27% YoY to INR12.3b. Sequentially US
business declined by ~25%, primarily due to weak seasonality, which led to
lower sales of Tamiflu and approval of gLialda by Teva in March-2018.
 Company witnessed 2-3% price erosion QoQ
 Company plans to launch 50 products in FY19.
India Formulations (32% of sales) – robust growth on the back of low base
 Domestic formulation business increased 40% YoY in 1QFY19 to INR8.9b on back
low base of last year due to GST and launch of 13 new products.
 These include four first time launches and 9 line extensions.
Cipla Neutral
 ~30% of revenue in the US derived from products launched over the last 12
Click below for
Detailed Concall Transcript & months.
Results Update  CIPLA guided for 15 product launches in the US in FY19.
 Company expects R&D expense to increase with the start of Advair clinical trials,
but it should not exceed ~8% of sales.
 Gross margin to improve with new launches in the US and reduced share of B2B
products.
 CIPLA launched three MABs (Bevacizumab, Trastuzumab & Rituximab) in
partnership with Roche, strengthening its Cardiac portfolio. It has also partnered
with Eli Lilly to market and distribute insulin glargine injection (Basaglar).
Recent acquisition to boost South Africa business
 South Africa business grew by 14% YoY (in dollar terms), outperforming market
growth of 7%. CIPLA expects to launch its first biosimilar product in 2QFY19. The
company’s recent acquisition of Mirren is expected to boost its OTC portfolio in
the South African market. With new product launches and recent acquisition,
CIPLA expects double-digit growth in South Africa.
New product launches to support growth in EM
 CIPLA expects healthy growth in the emerging markets in FY19 on the back of
new launches. During the quarter, the company received four product approvals
in Colombia and launched five new products. It also received approval for
Azacitidine injection in Australia and launched Dymista in New Zealand. CIPLA
has signed deals for Trastuzumab in key emerging markets like ANZ, Colombia
and Malaysia.
Dr. Reddy’s Labs Neutral

 Receivables have increased considerably due to increased credit period in the
Click below for
US.
Results Update  There have been addition al queries from the USFDA on g-Nuvaring, which is
likely to delay the launch of the drug to 1HCY19.
August 2018 69
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 DRRD is expected to submit a response on g-Copaxone in a few weeks, and

expects to launch in 2HCY19.
 DRRD has requested USFDA for inspection at Duvvada.
 Data investigation and analysis at Srikakulam site are expected to be completed
by Sep’18.
 DRRD filed four ANDAs in this quarter, taking cumulative generics pending for
approval to 112.
 R&D expense for FY19 is likely to be same as FY18 (~INR18.2b).
 Growth in emerging market to be led by new launches, increasing presence in
countries like Brazil/Columbia and better traction in existing products.
Business highlights
 DRRD’s global generic business grew ~12% YoY to INR30.6b, driven by strong
growth in the domestic business by ~30% YoY (16% of sales) and emerging
markets (13% of sales) by ~14% YoY. US business, after eight quarters of decline,
reported modest growth of ~6% YoY. Europe business de-grew marginally by
~3% YoY. The company’s PSAI business (15% of total sales) saw healthy growth
of 16% YoY to INR5.4b, while Innovative business (3% of total sales) grew 10%
YoY to INR1.2b.
 Niche opportunities drive US sales: US sales for DRRD stood at ~USD237m in 1Q
(v/s ~USD223m in 4QFY18). Growth of ~3% YoY and ~6% QoQ (in constant
currency) in the US business is primarily due to the launch of gSuboxone,
partially offset by competition in key products. During the quarter, the company
launched four products in the US market and filed four ANDAs. Price erosion
during the quarter has come down compared to mid-high double-digit
witnessed over the last few quarters.
 New launches and low base drive growth in domestic business: Domestic
business reported strong growth of ~30% YoY to INR6.1b. Growth is partly due
to a low base of last year, which was impacted on the back of anticipation of
GST implementation and also new product launches. Going forward, DRRD
expects double-digit growth in India business. The company also plans to grow
its biosimilar portfolio in Indian market. Recently, it introduced four biosimilar
products and recently launched Hervycta (trastuzumab biosimilar) in India.
Glenmark Pharma Neutral

India – robust growth trajectory in OTC segment (31% of sales)
 GNP domestic sales increased ~8% YoY (+9% QoQ) to INR6.6b. The company
Click below for recently launched Akynzeo, an oral fixed-dosage product. Growth was led by
Detailed Concall Transcript & market share gains in key therapies of Derma (from 9.15% to 9.19%) and
Results Update
Respiratory (from 4.6% to 4.77%). Its OTC business is growing at ~25% and is
expected to continue the healthy growth rate. We expect the domestic business
to grow ~15% in FY19.
US business de-grows off a high base (33% of sales)
 US sales declined by ~33% YoY (marginal increase QoQ) to USD105m from
USD155m in 1QFY18, primarily due to price erosion and a high base of last year
(gZetia sales which was under exclusivity). Although price erosion still persists,
GNP believes it has stabilized. The company launched three products during the
August 2018 70
HEALTHCARE | Voices
quarter and also received one approval. It has filed three ANDAs in the first
quarter and plans to file three more in the second quarter.
LatAm – Brazil and Mexico led growth (5% of sales)
 LatAm sales reported robust growth of ~16% YoY to INR976m and 15-20% in
constant currency. Growth in the region was largely led by a healthy
performance in the larger markets of Brazil and Mexico. Although overall LatAm
region is expected to perform well, GNP expects the Brazil market to taper going
forward on the back of certain issues in the approval of new products.
Europe – new product launches and geographical expansion drive growth (10% of
sales)
 GNP’s Europe business reported significant growth of ~36% YoY during the
quarter to INR2.2b, mainly driven by new product launches in key markets. The
Western Europe region reported healthy growth with its (a) recent expansion in
the Nordic region via a new entity in Sweden and (b) launch of gSeretide
Accuhaler in Denmark and Norway. GNP is expected to receive approval for
gSeretide Accuhaler in Germany. With this approval and ramp-up in other
geographies, growth in Europe is expected to continue.
Africa, Asia and CIS Region (ROW) – growth restricted by de-growth in Russia (11%
of sales)
 RoW region reported growth of ~8% YoY to INR2.5b. Glenmark Russia reported
de-growth of ~5.5% during the quarter, while volumes remained flat. The
company expects growth in Russia to rebound in the coming quarters.
IPCA Labs Buy

Click below for  IPCA is confident of maintaining gross margins at 1QFY19 level; however,
Detailed Concall Transcript & inconsistency in the availability of key materials from China may lead to
Results Update disruption in production.
 Though unbranded generics sales came in at INR1b in 1QFY19, IPCA has
maintained its guidance of INR5.4b for FY19.
 Remediation cost for 1QFY19 was INR60m.
 On track to achieve prequalification for supplying Artesunate injection in FY19.
 IPCA’s key therapies in D F increased significantly during the quarter on a low
base of past year. Its largest portfolio of Pain (46% of domestic sales) increased
by 41% YoY, cardiac and anti-diabetic increased by ~45% YoY and anti-bacterial
has grown significantly by ~83% YoY. IPCA has guided for 14-15% growth in the
domestic business.
 The Generic business (12% of sales) contracted 15% YoY, primarily due to the
absence of US sales and a marginal decline in the UK and flat growth in other
regions. However, IPCA has guided for 6-8% YoY growth in this business.
 Within branded segment (~9% of sales), all geographies like South East Asia,
Middle East, Latin and West Africa witnessed healthy growth during the quarter.
However, Russia sales were lower on account of lower dispatch. IPCA believes
growth in Russia will be normalizing in FY19 on constant currency basis.
 One task in the remediation measure recommended by US FDA was to do data
review of the past batches at all its facilities. IPCA has completed the study at
Silvasa and submitted to USFDA recently. IPCA is expected to complete similar
study at Pithampur and Ratlam by 3QFY19.
August 2018 71
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 IPCA received orders of small quantum; however, larger orders are yet to be
awarded from Global Fund in anti-malaria tender.
Laurus Labs Buy

On Revenue side:
Click below for  Laurus Labs reported revenues of INR5.4b growing 9.7% YoY.
 The ARV segment which forms 69% of total sales grew at a high rate of 37% YoY
Results Update
on account of increased offtake in existing products and new product approvals
globally (US, Canada, Australia, ROW). The company has guided for the ARV
segment to grow at 10% CAGR hereon which is going to be in line with growth in
new number of patients to be added on ARV therapy in next 6 years. Other
segments are expected to grow at a much higher rate.
 Some of the CMO shipments in API segment (4% of sales) for the company has
been postponed to 2QFY19.
 Laurus has received approval from Global Fund for Dolutegravir, lamivudine and
Tenofovir (DLT) which will allow it to participate in WHO tenders and country
wise tenders.
 For the US business, the company has 13 ANDAs filed and has completed 5
product validations. LAURUS has TAD for 3 products of which it expects to have
final approval for two in this fiscal. The company received final approval for
Tenofovir Disoproxil Fumurate in 4QFY18 revenues from which have started to
kick in. DLT revenues to kick in from second half of this fiscal. The company has
also filed for 2 dossiers in Canada, 4 dossiers in Europe, 5 dossiers with WHO, 2
dossiers with South Africa, 2 dossiers in India and 26 in ROW.
On Margins:
 Key molecule for Laurus, Emtricitabine witnessed the most price hike for the
company. Due to fixed price contract with Aspen (20% of ARV sales) for 3 years
the company could not pass on the increase in RM price while it could pass a bit
to other customers. This led to fall in Gross Margin.
 The company has started to manufacture in house intermediates to reduce
dependence on China for key raw materials like Emtricitabine and Lamivudine.
The company has not built any new facility for the same and is manufacturing
these intermediates from existing facilities. Dependence on China for these key
intermediates will reduce by 50% in 2Q and 100% in 3Q. FY19 Due to this, the
gross margin will stabilize gradually by the end of third quarter.
 The earnings for the company were hit because of significant decrease in gross
margin due to steep increase in Raw Material prices sourced from China.
Chinese companies have shut down their chemical facilities on account of
environmental concerns which has in turn in turn led to limited supply of
intermediates used in manufacturing APIs resulting in price hike.
 Profitability was also impacted due to fluctuation in currency and increased
depreciation cost on account of expansion of the FDF facility in the quarter.
Other Key Highlights:
 The company has guided for capex of INR2.5b-INR3b in FY19 towards increase in
capacity for existing ARV products (60% of capex) while also towards the
construction of a dedicated block for CMO customer (40% of capex) where
multiple APIs will be manufactured.
August 2018 72
HEALTHCARE | Voices
 Commercial supplies of Metformin API has started in EU, US and ROW. Capacity
utilization to improve going forward.
 API supply to EU region to ramp up
 The company is expecting 2 final approvals and 1 tentative approval for the US
business.
 Facility details: Unit-2 is for metformin API and formulation, Unit-4 is for Natural
extraction and High potent API – validation completed and yet to file DMF, Unit-
6 for backward integration and Unit-5 is for Aspen Netherlands
Lupin Buy
 The recently launched Solosec has received encouraging response, and LPC
expects to exceed its guidance. In the long term, it expects to gain 25% market
Click below for
share in the next 3-4 years.
Results Update  Branded formulation revenue came in at ~USD12m v/s ~USD24m 1QFY18,
mainly due to generic competition in Methergine.
 Gross margin during the quarter was impacted by supply constraints from China,
which led to higher raw material cost of a few inputs. LPC expects this scenario
to continue in the coming quarters.
 During the quarter, other expenses increased on the back of marketing
expenses related to the launch of Solosec, which the company expects to come
down in 2QFY19.
 LPC’s respiratory product Proair received CRL from the USFDA, and the company
is in the process to respond to the same. It expects launch in FY20.
 The company is expected to launch levothyroxine in 2HFY19 and expects a
gradual uptick in sales as it ramps up for all RLDs.
 LPCs biosimilar portfolio, for which it has partnered with Mylan and Nichi-Iko, is
expected to be launched in FY20. While Etanercept will be launched in Japan in
1HFY20 with partner Nichi-Iko, it will launch in Europe, Australia, and New
Zealand, LatAm, Africa and most markets in Asia in 2HFY20 with partner Mylan.
 Company is on track regarding its warning letter resolution. It has sent last
update to the US FDA in July, post which it will have a discussion with the US
FDA and invite for inspection.
Sun Pharma Buy

Click below for  SUNP is likely to launch Ilumya in 2QFY19, the process for which has already
Results Update
been initiated. Specialty product Cequa (OTX- 101) is also likely to be launched
in coming quarters.
 Although R&D cost stood lower for the quarter, SUNP maintained its guidance
of 8-9% R&D expense for FY19.
 SUNP launched 16 new products in domestic business in 1QFY19.
 Post Halol clearance, Xelpros is likely to be launched in FY19.
Taro’s 1QFY19 results
Intensity of price cuts – although reducing – remains a key concern
Sun Pharma’s US subsidiary Taro reported 1Q numbers on 9th August 2018. Key
highlights:
 Taro’s revenue declined 4% YoY/11% QoQ to USD155m (our estimate:
USD174m). It is the lowest quarterly run-rate in past 16 quarters.
August 2018 73
HEALTHCARE | Voices
 YoY growth has been on a downtrend for seven quarters now. Albeit, the
intensity of decline has been reducing over the past two quarters.
 Volume growth for the quarter stood at 11% YoY, which implies that pricing
pressure was to the extent of 15% YoY. Though pricing pressure remains high on
an absolute basis, it is considerably down compared to the 29% YoY pricing
contraction in FY18.
 Gross margin shrank 750bp YoY/310bp QoQ to 64.6% due to the challenging
price environment.
 EBITDA margin (-720bp YoY to 40.9% v/s our estimate of 44%) contracted in line
with the gross margin.
Torrent Pharma Neutral

 TRP is on track to (a) reduce the attrition rate of field force acquired from
Click below for Unichem and (b) improve brand sales and productivity.
Results Update
 After two launches in the US in 1QFY19, TRP is confident of launching 15 ANDAs
in FY19.
 Price erosion in the US market has stabilized at low-single-digit. Gross margin is
expected to remain in the 71-72% range. Other expenses are expected to be
~INR5b per quarter for FY19.
 TRP expects complete integration of Unichem portfolio by end of this fiscal.
 It expects other expenses to remain in the current range of INR4.9-5b in the
coming quarters.
August 2018 74
MEDIA| Voices
MEDIA
Large media houses (Zee and SUN in particular) are bullish on ad revenue growth. However, higher investments in
content and launch of new channels are likely to limit margin expansion. Although ad growth momentum is
uncertain, managements of print and radio companies are optimistic about the 2HFY19 performance, given the
likely boost from the festive season and the upcoming state and general elections. Increase in newsprint prices
poses a threat for the print pack, though. In response to this, Jagran is reducing copies. DB Corp, however, hinted
that it would continue increasing circulation. DTIV is getting aggressive on subscriber ads (mainly HD subscribers)
and expects an uptick in the EBITDA margin (led by merger synergies).
Outlook for FY19 Margins
 FY19 circulation revenue is expected to grow in double digit.
DB Corp  Newsprint cost could be 20% higher in FY19  EBITDA margins would be at
 Management will evaluate pass through of the increase in newsprint current 27.5% levels or higher
prices
 Expect FY19 revenue to grow at 7-8%
 Management expects the current ARPU level of INR214 to be sustainable
Dish TV  Guided for 34-35% EBITDA
 FY19 capex guidance lowered to INR8-9b (INR10-11b earlier)
margins for FY19
 Expect 8% print ad revenue growth for FY19; 4-5% circulation revenue

Jagran growth
Prakashan  Expect 12-13% YoY increase in newsprint cost for FY19;
 Capex guidance for FY19 stands at INR500-600m  No Margin outlook provided
 Expect MIB approval for acquisition of Friends FM 91.9 to be received in
next two months.
 Company will be launching its second GEC channel in the TN and AP
markets in FY19.
Sun TV  Also the Bangla channel is expected to be launched before FY19 end  No Margin outlook provided.
 Movie capex is expected to be ~INR4.3b for FY19.
 Industry’s FY19 ad growth could exceed previous expectation of +12% and

expect ZEE’s ad growth to be higher than that of industry.
Zee Entp.  Domestic subscription growth in FY19 likely to be in low teens.
 Guidance of 30%+ EBITDA
 Malayalam channel should be launched by Sept-18, subject to regulatory
margin for FY19 is maintained
approval
 Expect to increase original content on ZEE5 from 14 to 34 shows by
2QFY19
D B Corp Neutral
Key takeaways
Click below for  2QFY19 ad revenue should witness growth on the back of a low base. Higher
Results Update govt. ad spends in the run up to state elections should aid revenue growth.
 2QFY19 should witness full impact of higher newsprint prices. Expect the prices
to settle down to original levels in 3Q/4QFY19.
 FY19 newsprint cost should be 20% higher.
 EBITDA margins for FY19 should be at current 27.5% levels or higher.
1QFY19 performance
Print Ad business:
 Ad revenue grew 5% YoY, mainly on the back of volume growth.
 FMCG category ad spends grew 8.5% in 1QFY19 (largely from organized
segment), while education category ad spends grew 7% YoY.
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 Auto ad spends remained flat. Two-wheelers have seen growth, while

fourwheeler remained subdued due to no new launches.
 Ad spends from real estate category declined in double digits. BFSI category
spends too remained muted.
Circulation business:
 Circulation revenue was up 10% YoY on account of circulation expansion
strategy.
 Circulation copies witnessed 12% YoY jump to 5.8m, mainly across markets of
Bihar, Rajasthan, Gujarat and Madhya Pradesh. Avg. circulation copies for
1QFY19 stood at 57.5m.
 Avg. realization rate/copy stood at INR2.59.
 Company maintained its leadership position in MP, Chhattisgarh, Chandigarh,
Punjab and Haryana.
 In Gujarat, company is gaining volume market share and now focusing on
circulation price increase.
Radio business:
 Radio revenue was subdued due to muted govt. and local ad spends. However,
corporate ad spends were healthy.
 New stations revenue grew at 20%+ YoY. However, legacy stations growth
remained muted.
 New stations acquired in Phase III auctions have turned EBITDA positive.
 Currently, inventory utilization at new radio stations is less than 50%. In next 18-
24 months, management expects utilization at these stations to reach near to
that of legacy stations.
Newsprint cost update/outlook
 FY19 newsprint cost should be 20% higher.
 2QFY19 should witness full impact of higher newsprint prices. Expect prices to
settle down to original levels in 3Q/4QFY19.
 Of the 28% jump in newsprint cost, 12% is due to newsprint price, while balance
14-15% is due to higher circulation copies.
 Current newsprint price is ~INR40k. This is mix of imported and domestic
newsprint.
 Cost of imported newsprint is ~USD750, while that of domestic ‘A’ grade
newsprint (used by the company) is near to USD750.
 Company’s mix of domestic/imported newsprint is 70:30.
 Measures used to mitigate rising newsprint cost:
 Increase in ad-edit ratio
 Cutting down size of the paper
 Keeping pagination in control but not changing quality
Business outlook/balance sheet
 2QFY19 ad revenue should witness growth on the back of a low base. Higher
govt. ad spends in the run up the state elections should aid revenue growth.
 EBITDA margins for FY19 should be at current 27.5% levels or higher.
 Net cash balance as on Jun-18 stands at INR3,630m. Of this, INR3,128m will be
used for buyback.
 Circulation expansion strategy would be slowed down, given the increase in
newsprint prices.
August 2018 76
MEDIA | Voices
 Management will evaluate pass through of the increase in newsprint prices.
Dish TV India Buy

Key takeaways
Click below for  Taking into account ARPU growth and subscriber adds, DITV guided for FY19
Results Update
revenue growth of 7-8%.
 Management expects the current ARPU level of INR214 to be sustainable.
 FY19 EBITDA margin guidance stands at 34-35%. Merger synergies should be
more evident from 2QFY19.
 FY19 capex guidance lowered to INR8-9b (INR10-11b earlier).
 DITV is going aggressive on subscriber adds in south markets; increasing focus
on HD subscribers.
1QFY19 performance
 Of total INR16.6b revenue, subscription revenue is INR14.9b, bandwidth
revenue is INR0.4b, lease rentals is INR0.25b, teleport services is INR0.06b,
advertising revenue is INR0.5b and income from sale of equipment is INR0.5b.
 Gross debt as on Jun-18 stood at INR27.5b, while net debt stood at INR22b.
 Capex for the quarter stood at INR1.9b, while free cash flow stood at INR1b.
 Monthly churn stood at 1%.
 Subscriber acquisition cost stood at INR1,575.
 Price for Swagat (SD) pack increased from INR199 to INR209, for Swagat (HD)
pack increased from INR209 to INR229 and for Super Family pack increased
from INR283 to INR299. However, no price increase was taken on INR100 pack.
 Management also took price increase of INR200 for STBs.
 Interest cost rose significantly in 1QFY19 due to INR200m one-time fee for
procuring loan so as to pre-pay Videocon’s loan.
 Avg. interest cost for 1QFY19 increased from 7.5% to 8.5%.
 Activation income booked per box is INR925.
 License fees, according to new norms (expected to be out in 2-3months), will be
8% of AGR.
 License fee provision during the quarter stood at INR550m.
 DITV’s rural subscribers mix stands at 65%, while balance 35% constitutes urban
subscribers.
 One-offs during the quarter:
 INR150m subscription revenue has been deferred to 2QFY19 due to applicability
of IND-AS115.
 Forex loss of INR210m included in other expenses.
 RJio’s Giga fiber should not have any major impact in short term.
Business outlook
 FY19 revenue guidance stands 7-8% on the back of ARPU growth and subscriber
adds.
 Management expects the current ARPU level of INR214 to be sustainable.
 FY19 EBITDA margin guidance stands at 34-35%. Merger synergies should be
more evident from 2QFY19.
 Though the price hike was taken from the start of 1QFY19, full impact will be
seen in 2QFY19 (as there is lag in flow of benefits).
 FY19 capex guidance has been lowered to INR8-9b (INR10-11b earlier).
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 DITV is going aggressive on subscriber adds from south markets; focus

increasing on HD subscribers.
 DITV continues to have fixed fee deals with broadcasters.
 Tax outflow for FY19 to be in the range of INR200-250m.
 Management considers TRAI’s tariff order as an opportunity for DITV; a concern
for MSOs though.
Entertainment Network Buy

Key takeaways
Click below for
 Entire 22% YoY growth in core radio revenue was volume-led. Old/new stations
Results Update avg. utilization stands at 80%/30%.
 Expect ENIL to grow ahead of radio industry (10-12%) due to its expansion of
stations.
 Expect yield improvement in 2HFY19.
 Remaining 16 of 21 batch-2 - phase III stations to be launched by mid-3QFY19.
 Capex for overall batch-2 stations would be INR150-200m.
1QFY19 performance
 Growth in FCT business was entirely volume-led, while in non-FCT business,
growth was largely margin-led.
 Yield improvement was not taken in the current quarter v/s 7% in 1QFY18.
 Core radio revenue growth was 22% YoY; old 35 stations witnessed growth of
10.3% YoY. Batch 1 stations revenue was up 72% YoY.
 Avg. utilization for old stations stood at 80%, while for Batch 1 stations, it stood
at 30%. Top 8 stations operated at 100% utilization.
 2nd frequencies at Bangalore and Hyderabad are operating at 40-45% utilization
levels.
 Of the total 21 stations acquired in Batch 2, 5 stations have been launched. This
led to INR10m drag on EBITDA,
 Revenue from Govt. category has grown 66% YoY, mainly led by low base;
revenue contribution stands at ~10%.
 E-commerce/real estate category saw 63%/31% YoY growth; Durables category
doubled, while Auto category witnessed drop of 30%; FMCG/BFSI categories
stood flat YoY.
 Revenue contribution from non-FCT business stood at 25%.
 Gross margin for non-FCT business saw 150bp YoY improvement.
 Net cash stands at INR628m.
 Political ad spends contributed ~1% during the quarter.
 YouTube views have increased dramatically, reaching 50m views per month.
 21 stations running on Ganna have hit 30m streams a month.
 2nd frequencies at Bangalore and Hyderabad (Hindi channels) are running well.
 ‘Mirchi Love’ stations at Surat, Ahmedabad, Kanpur are also doing well.
Industry
 Radio industry is expected to grow 10-12% in FY19, 15-17% in medium term
mainly led by Phase III.
 Radio industry grew at 7.5% in last 2 years, while Radio Mirchi grew at 10%.
 Print business ad volumes grew at 6% in 1QFY18; however, in 1QFY19, it has de-
grown by 6%.
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 TV ad volumes grew 4% in 1QFY18, but 17% in 1QFY19. Total ad volumes for FTA
channels are higher than those of Pay TV business.
 Expect overall media industry to grow in coming quarters led by (1) higher Govt.
spends due to general and state election, and 2) buoyancy in consumer markets.
Business Outlook
 ENIL’ FY19 growth rate to be higher than the industry’s 10-12%.
 Expect yield improvement in 2HFY19.
 Expect INR100-150m revenue from political ads during elections.
 Remaining 16 Batch-2 radio stations launch to be completed by mid-3QFY19.
 Batch 2 stations are currently in the launch phase. This will be followed by
period of extended marketing and promotion activities.
 Capex for overall Batch 2 stations would be INR150-200m.
 Approval for three TV Today radio station acquisitions is still pending.
 Company is investing in making original content.
 Tax rate for FY19 would 38.5%.
 Management is keen on establishing the product and pricing for the Batch 1
stations first. Post this, it expects to the focus on filling volumes - in third year
from launch.
 Digital business contributes 1.3% of overall revenue; expect to reach 10% in 4-5
years.
 Major outflow expected in near term is for the acquisition of three TV Today
radio station. Post this; capex will be steady at INR100m.
HT Media Neutral
 Print business is facing turbulence. Expect headwinds to continue for the next
Click below for
Detailed Concall Transcript & few quarters.
Results Update  Newsprint cost to remain high for the next 2-3 quarters, post which it should
start coming down.
 2QFY19 newsprint cost is expected to be 7-10% higher than that in 1QFY19.
 Merger of the metro radio business of HTML with the radio business of Next
MediaWorks is under consideration.
1QFY19 performances
Print - English:
 Ad revenue is down 9% YoY on account of muted ad spends in categories such
as Government, Auto, Retail, Education, Entertainment and BFSI.
 However, Real Estate and E-commerce showed some uptick in ad revenue.
 Local ad spend is witnessing a recovery in contrast to muted growth in national
ad spends.
Print - Hindi:
 Ad revenue is down 5% due to muted ad spends in Government, Classifieds,
Retail, Medical/Health & Fitness, Durables and BFSI categories.
 Categories including Auto, FMCG, E-commerce and Real Estate showed some
revival.
 National advertising witnessed pressure on yields and spends.
 Cover price actions have started yielding returns. Should see benefits flowing in
2QFY19.
 Launched Hindustan Purnea edition to strengthen the position in Bihar.
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Radio business:
 Revenue is up 12% YoY led by ad revenue growth across real estate and auto
categories.
 EBITDA margins came in at 30%.
Proposed merger of Radio business:
 The company has proposed the merger of the metro radio business of HT Media
(7 stations) with the radio business of Next Mediaworks Ltd (NMW, 6 stations)
 Rationale for the merger –
 To create a metro focus business. Metro markets contribute 60-65% of the total
radio industry advertising revenue.
 Post-merger, it will have widest reach in the top seven metro markets.
 Revenue synergies in the Delhi, Mumbai and Bangalore markets as well as cost
synergies will aid in strengthening EBITDA margin.
Valuation
 Comparable methodology was being used by the company to evaluate the value
attributable to its radio business. Regulatory issues, tax issues and resulting
value are the key parameters of the deal.
 Consideration – Proposed merger is a pure equity transaction
Scheme of merger –
 HT media will demerge the radio business except Hyderabad (due to regulatory
issues) and UP (as it has more synergies with print business) stations.
 NRL’s Ahmedabad station will not form part of the resultant entity.
 Amalgamation of HT Music & Entertainment Company Ltd (HTM) with NMW.
 Demerger of the FM radio business of Next Radio Ltd (NRL) to NMW.
 Consequent to implementation of proposed transaction, HT Media and its
shareholders will jointly hold 74% of the equity share capital of NMW while
current shareholders of NRL and NMW will hold the balance 26%.
 HT shareholders will have stake in NMW, both directly and indirectly.
 The deal is expected to close in 12-18 months.
 Issue of shares by NMW to HT Media and shareholders will not trigger any open
offer requirement.
 Net debt transferred from HT Media will be 0 while from NMW will be INR470m.
Business outlook/balance sheet
 Print business is facing turbulence. Expect headwinds to continue for next
couple of quarters.
 Newsprint cost to remain high for next 2-3 quarters, post which it should start
coming down.
 Full impact of the rise in newsprint prices will be visible in 2QFY19; expected to
be 7-10% higher than that in 1QFY19.
 Currently, the newsprint price is ~42k/mt (+15% YoY).
 Awaiting NCLT approval for the closure of the deal between HT Media and
Digicontent. Would take about 3-6 months for closure.
 Net cash balance for HMVL has dipped compared to Mar-18 due to working
capital investment.
August 2018 80
MEDIA | Voices
Jagran Prakashan Buy

Key takeaways
Click below for  Dainik Jagran/Nai Dunia’s realization/copy increased 9%/10% YoY; full impact of
Results Update
increase in cover price is not factored in 1QFY19.
 Increase in cover price has led to a 4-5% decline in circulation copies.
 Expect 8% print ad revenue growth for FY19; 4-5% circulation revenue growth.
 Expect 12-13% YoY increase in newsprint cost for FY19; full impact of increase in
newsprint price is not fac tored in 1QFY19.
 Digital business expected to report positive EBITDA by 4QFY19.
 Capex guidance for FY19 stands at INR500-600m.
 Expect MIB approval for acquisition of Friends FM 91.9 to be received in next
two months.
1QFY19 performance
Print ad business
 Nai Duniya’s local ad revenue grew 25% YoY
 Company has taken an average ad rate hike of 4-5% in some local markets.
 Lower DAVP and pressure on nation ad revenue continues for Dainik Jagran and
Nai Dunia.
 FMCG, E-commerce and education category spends improved amongst national
advertisers while retail category drove local advertising.
 Govt spends mainly in UP and MP saw some improvement.
Circulation business
 Dainik Jagran’s realization/copy has increased 9% YoY (mainly led by UP and
Uttarakhand markets); Nai Dunia’s witnessed 10% YoY increase. However, in
Bihar, competition is restricting the cover price increase.
 Increase in cover price per copy has led to 4-5% decline in circulation copies
 Dainik Jagran’s EBITDA margins stood at 33%, despite 10% YoY increase in
newsprint price
 Newsprint price grew 10% YoY but newsprint cost grew 3% YoY led by decline in
newsprint quantity. Full impact of the increase in newsprint price is yet to come.
 Digital revenue grew 24% YoY.
 Other expenses have reduced led by GST input credit (not available in 1QFY18).
 Depreciation has reduced due to the WDV method being adopted by company.
 Completed buyback of ~INR3b during the quarter.
Business outlook
 De-growth in ad revenue for 2 consecutive quarters has stopped and normal
growth should return in 2HFY19.
 Higher revenue in coming quarters should offset the rise in newsprint cost.
 Expect 8% print ad revenue growth for FY19; full impact of increase in cover
price is not reflected in 1QFY19
 Expect 4-5% circulation revenue growth for FY19
 Expect 12-13% YoY increase in newsprint cost for FY19; full impact of increase in
newsprint price is not factored in 1QFY19
 Ratio of domestic to imported newsprint is 75:25. Management has signed
contracts for imported newsprint for FY19, thus, locking in the price. However,
domestic newsprint price increase remains a concern as the contract tenure is 2-
3 months.
August 2018 81
MEDIA | Voices
 Expect radio ad revenue to grow at 12-15%. Digital revenue is expected to grow

at 20-25% in medium term
 EBITDA margins to improve led by ad revenue growth.
 Digital business expected to report positive EBITDA by 4QFY19
 Capex guidance for FY19 stands at INR500-600m.
 Expect MIB approval for acquisition of Friends FM 91.9 to be received in next 2
months.
 Radio City will continue to operate at the premium pricing despite HT Media and
Next Media works radio business merger.
 Govt. spends have started improving from July-18 mainly related to
developments and schemes; not political.
 Ad spends for July-18 month has shown positive growth; August month also
looks good. However, September month would be little challenging as entire
festive season will fall in 3QFY19 (v/s split of festive season between
2Q/3QFY18).
 Company has not reduced pagination and will not comprise with the product.
 In Bihar, company will wait and watch for the strategy to be undertaken to
counter competition.
 No lucrative opportunity for M&A as of now but management continues to
evaluate such opportunities.
Music Broadcast Buy

Key takeaways
Click below for
 Rate hike taken in 12 key markets of about 8%. This contributed to MBL’s 8%
Results Update
revenue growth ahead of industry growth of 5-7% primarily led by volumes.
 Management expects 12-15% growth in FY19. 2H will see higher growth due to
higher government spending, festive season and improvement in ad market.
 Management will continue to look at inorganic growth opportunities.
 Buy back of 1.5m shares will be through exchange in couple weeks upto price of
INR385 for INR570m. Promoters and key managerial personnel will not
participate.
1QFY19 performance
 Phase III stations made positive EBITDA contribution 2 years ahead of the plan.
This led to reduction in costs.
 Rate hike was implemented in 12 key markets backed by leadership position.
 1QFY19 revenue growth of 8% is slightly below management’s expectation of
9%. Given the rate hike, there is some kneejerk reaction.
 Revenue growth has been equally contributed by volume and pricing
improvement.
 EBITDA margin for 1QFY19 stood at 34%, ahead of company’s expectation of
33%.
 New stations contributed 9-10% of overall revenue and 30% of incremental
EBITDA.
 Govt ad volume contribution stood at 12% v/s 13% YoY.
 Real estate was not impacted during the quarter; it registered 21% volume
growth (for top 15 markets). Specific sectors – jewelry, apparel, personal
household retailers, white goods retailers, education, restaurant business have
August 2018 82
MEDIA | Voices
impacted. GST impacted working capital of these companies. Ecommerce grew

significantly during the quarter.
 Rate hike of 8% is already being absorbed by the advertisers. It is taken in
specific 12 markets where utilization are at optimum levels. Others companies
have not taken rate hike yet.
Industry
 Industry volume jumped 3x led by new stations.
 Industry growth for 1QFY19 could be 5-7%; largely volume led. Majority of the
growth has come from the larger cities.
 Comparing depth v/s reach strategy: Advertisers prefer reach as that will
increase share of radio’s ad pie.
 2nd frequency is unable to provide differentiated content compared to the
primary frequency and therefore does not garner healthy listenership
comparedto the primary frequency.
Business Outlook
 Expect 12-15% revenue growth in FY19. 2QFY19 revenue growth would be
higher than 1QFY19.
 2HFY19 will witness higher growth led by higher Govt spending, festive season
and improvement in ad market.
 Govt ad volumes to catch up in 2HFY19 and contribute 16% (of the overall ad
volumes) for FY19 led by election related ad spends.
 Management hinted that it will continue to evaluate inorganic growth
opportunities Marketing spends will reduce from 9% to 7% in FY19. This is
because FY18 witnessed marketing spends for the launch of new stations.
 Approved buy-back of INR570m – 1.48m shares at price of INR385/share.
Promoter & Key managerial personnel will not be participating in the buy-back.
This will get started from the market in 2 weeks.
PVR Buy
Current Price INR 1,305 Target Price INR 1,565 |20% Upside
Key takeaways
 Expect 90 screens to be added in FY19. 2Q/3QFY19 are expected to witness 20-
Click below for
Detailed Concall Transcript & 25 screen adds.
Results Update  FY19 occupancy rate is expected to be higher led by healthy content pipeline.
 Expect 18-20% advertising revenue growth in FY19.
 PIL for controlling prices and allowing outside F&B filed with MP High Court got
dismissed.
 1QFY19 performance
 PVR added nine screens during the quarter.
 Despite the high base in 1QFY18 (led by Baahubali movie release), net box office
revenue grew 12% YoY in 1QFY19.
 F&B revenue growth is on the back of higher conversion.
 Fall in other operating revenue is because of absence of INR136.7m government
subsidy (for tax holidays) in 1QFY18.
 Decline in convenience income is due to non-renewal of the contracts with ‘Just
Dial’ and ‘Ticket New’.
 GST gains on rental are being passed on to consumers.
 Avg. occupancy across premium formats is higher than regular formats.
August 2018 83
MEDIA | Voices
 Avg. capex per screen stands at ~INR30m.

MENA updates – JV with Al-Futtaim Group
 The JV is not a capital-intensive model.
 No guidance provided on growth potential.
F&B order updates
 Maharashtra govt. has sought two week’s time to file a reply to the MP High
Court.
 Expect the High Court order to be challenged in Supreme Court.
 Similar PIL for controlling prices and allowing outside F&B filed with MP High
Court got dismissed.
 Company is trying to make F&B offerings more affordable and value accretive to
consumers.
Business outlook:
 Management plans to have 50-60% of portfolio in big cities.
 FY19 occupancy expected to be higher led by healthy content pipeline. 3QFY19
will have 3-4 blockbuster films.
 Adding premium formats and blockbuster movies in 3QFY19 should propel ATP
growth.
 Management is focused on increasing footfalls rather than ATP growth.
 Expect SPH growth to be maintained. Lower price would lead to higher volumes
and propel growth.
 Expect FY19 advertising revenue growth to be in the range of 18-20%.
Management is targeting value growth rather than volume growth by limiting ad
to 20-22min.
 Personnel cost expected to grow at 8-10% on same stores.
 Rental cost is expected to grow at 6-7% on annual basis and remain under
pressure due to new property adds.
Sun TV Networks Buy

Current Price INR 800 Target Price INR 1,050 |31% Upside
Key takeaways
 The TN market still has ~8m analog subscribers who are yet to be digitized.
Click below for  The company will be launching its second GEC channel in the TN and AP
Results Update
markets.
 The Bangla channel is expected to be launched before FY19 end and achieve
break-even in 2-3 years.
 The capex for movies is expected to be INR4.3b for FY19.
 The current IPL revenue of INR3.8b is expected to grow further over the next
four years.
1QFY19 performance
Financial performance
 Revenue break-up: Advertising revenue stood at INR3,620m, Broadcasting
revenue at INR200m, International subscription revenue at INR430m, Cable
revenue at INR1,000m, DTH revenue at INR2,120m, and IPL revenue at
INR3,820m
 During the quarter, the overall ad yield improved by 10% YoY.
August 2018 84
MEDIA | Voices
 Out of the increase of INR400m in subscription revenue (led mainly by increase

in subscriber base), DTH segment contributed INR370m while the balance
~INR40m came from the cable segment.
 Pay channel subscription revenue was flat YoY; 1QFY18 revenue included some
one-offs of catch up revenue due to delay/renegotiation of contracts.
 Depreciation for the quarter stood at INR160m while amortization was
INR1,310m.
 Dividend pay-out was doubled from INR2.5/share in 1QFY18 to INR5/share in
1QFY19.
 One-offs during the quarter:
 Higher depreciation cost - INR390m was mainly due to showcasing of some
blockbuster movies on the occasion of the 25th anniversary of SUNTV.
 Higher employee cost - INR130m was due to special bonus awarded to old
employees.
Channel performance
 Dip in Sun TV viewership was mainly due to 1) IPL and 2) Standoff with ARASU
for analog subscription revenue leading to the SUNTV network channel being
switched off for a couple of days.
 MoM basis viewership returned and Sun TV surpassed 1b impressions.
 Sun TV launched four new shows back to back in the last three months.
 During the last couple of quarters, the revenue contribution from the Tamil
market was down to ~60% due to a higher contribution from other clusters:
Kannada grew by 57%, Malayalam grew by 30%, and Telugu was up 20%.
 The cable subscriber count in TN which was less than 1m earlier increased to 4-
5m subscribers.
 Colors Tamil has 4% viewership market share.
Business outlook
 The TN market still has ~8m analog subscribers who are yet to be digitized.
 The current IPL revenue of INR3,820m is expected to grow further over the next
four years.
 Management sees an opportunity for an additional 4-5% viewership share
available in the TN market.
 The company will be launching its second GEC channel in the TN and AP
markets.
 The second GEC (flanking) channel in the TN market will be a re-positioning of
the existing Sun Life (music/movie) channel. This will be launched in the next
couple of months and will be targeted at the youth. It will not cannibalize the
existing viewership of Sun TV.
 The Bangla channel is expected to be launched before FY19 end and will achieve
break-even in 2-3 years. The channel will have pure original content instead of
dubbed content from other genres.
 Management expects the Bangla channel to achieve 10-12% viewership within a
couple of years.
 The capex for movies will be ~INR4,250m for FY19.
 Three big ticket Tamil movies are under production, out of which one is
expected to be released in 3Q/4QFY19.
 Amortization of INR4,250m is expected for FY19.
August 2018 85
MEDIA | Voices
 Management plans to step up its pay-out ratio given the company’s INR22b+
cash balance as on June 2018.
 The remuneration for the chairman and joint MD for FY19 has been capped at
the FY18 levels (INR1,750m).
Zee Entertainment Buy

Key takeaways
Click below for
Detailed Concall Transcript &  Industry ad growth could exceed previous expectation of +12% -- this is based
Results Update on our discussion with ad agencies, which highlighted upbeat spending budgets
by advertisers. Zee should grow above industry. Domestic subscription revenue
should grow in low teens.
 ZEE5 is amongst the top 5 entertainment platforms in India; the target is to
reach the top position in 18-24 months. Will increase original content from 14 to
34 shows by 2QFY19. Expect breakeven in ~5 years.
 Malayalam channel should be launched in Sept, subject to regulatory approval.
It plans to launch Punjabi channel and movie channels in other regional market.
 EBITDA margin guidance of 30%+ factors in all new content and marketing costs
on TV and digital, including the regional market.
1QFY19 performance
 Domestic ad revenue grew 22%, led by demand across categories and increase
in network share.
 Dip in international ad revenue is due to geopolitical pressure in Middle East.
 International subscription revenue has been impacted by a change from Pay TV
to FTA channel in the UK market.
 Other income is not comparable on YoY/QoQ basis due to: 1) absence of forex
gains YoY basis and absence of income tax refund on QoQ basis and 2) change in
accounting policy for MTM.
 Performance in Tamil and Bengali genre continues to improve.
 ZEE has gained market share in Tamil genre, despite increased competitive
intensity.
 Rebranding of ‘Zee Studio’ as ‘&Flix’ is to leverage the ‘&’ brand content.
Management eyes growth in the viewership share from the same.
 50m active industry English channel viewers.
Industry Outlook
 Cap of 15% discounting for Bouquet channel price-pack vis-a-vis al-carte channel
prices has been removed in the TRAI’s order.
 Industry ad growth could be higher compared to the initial expectation, as per
discussion with ad agencies.
 Broadcaster’s share should continue to remain at 25-35% of the industry
subscription revenue. Increase in ARPU would lead to an uptick in subscription
revenue.
 All technology – DTH, Cable and FTTH should co-exist in the longer term.
 As the content viewing is diverse, unlike telecom, single player cannot pull the
market.
 Digital content library could be 800hrs annually compared to 400hrs weekly on
TV network. So cost/hour might not be the proper metric to evaluate digital
segment
August 2018 86
MEDIA | Voices
 Globally, broadcasters get 30% of the subscription revenue with 2-3 TV

distributors in each market, while in India despite having a fragmented
distributor market, subscription share at low. So consolidation should benefit as
it would provide distributors wherewithal to improve ARPUs and subsequently
improve subscription revenue.
 Jio may be aggressive on the FTTH side which could put pressure on cable
however, it may not impact content player.
Business outlook
 ZEE’s ad revenue should grow at a higher rate than the industry ad growth.
 In the new TRAI tariff order regime, subscription revenue should continue to
grow at a steady pace. Management has maintained its guidance of low-teens
growth.
 Margin guidance of 30%+ is after factoring in the investment in all regional
markets and ZEE5.
 Tax rate should be 35% on annualized basis
 Depreciation of 1QFY19 should be the new run-rate for FY19
 Management is contemplating rebranding of Zee Café as ‘&’ branded channel
going forward.
 ZEE would continue to strengthen its viewership share in all existing regional
markets. Besides, it is also evaluating foray into other regional markets.
 Management does not foresee any impact from RJio’s FTTH launch.
 Malayalam GEC is expected to launch by Sept-19, subject to regulatory approval.
 Management is working on the launch of Punjabi regional channel.
 Movie library inventory has gone up due to expansion of library in existing
regional and new markets where ZEE has aspiration to launch movie channel as
well as for ZEE5. Thus, inventory days is expected to come down post 12
months.
ZEE5 updates
 Management plans to launch ZEE5 globally by the end of FY19, but in a phased
manner.
 Spending for digital content on ZEE5 would continue to remain heavy and in 18-
24month, management expects that ZEE5 should be the top digital
entertainment platform in India.
 ZEE5 could take closer to 5 years to breakeven.
 ZEE5 is amongst the top 5 digital entertainment platforms in India as per
monthly active users and management is committed to make ZEE5 the top
destination for entertainment in India.
 ZEE has released 14 ZEE5 original series and will more than double by adding 20
more by 2QFY19. It has the largest regional content on OTT platforms.
 Reduction of subscription fee on ZEE5 is a marketing promotion which will be
valid until Aug-15th.
 ZEE has not signed any telecom deals for ZEE5.
 ZEE5’s operating metrics will be shared by end of 2QFY19. Management hinted
that the time spent/user/month on is going up.
 Subscribers for ZEE5 should see a gradual uptick based on the pipeline of fresh
content.
 ZEE5 cannibalizing the ZEE’s international subscription revenue allows it to own
customer directly.
August 2018 87
MEDIA | Voices
 Marketing push for ZEE5 was awaiting for the Tentpole content launch of
Karenjit Kaur. Next 75 days should see aggressive marketing.
Balance sheet and cash flows
 As on Jun-18, cash and treasury investments stood at INR30b.
 Management plans to bring back surplus cash funds outside India. It has already
repatriated surplus cash pertaining to the sale of sports business and will be
bring the balance back in due time.
 Inventory of movie library includes content for genre even where are no
channels, e.g., Malayalam.
August 2018 88
METALS| Voices
METALS
Demand was strong across metals on the back of government spending on infrastructure and a weaker base
(1QFY18 was impacted by GST). Domestic steel demand has outpaced GDP growth for the second consecutive
quarter now, and the trend is likely to continue, going forward. Domestic steel prices have corrected due to
seasonal factors, but are likely to recover once monsoon subsides.
Outlook for FY19 Global Commodity Prices
 India smelting cost of production would increase 3-4% from 1Q.  Remain positive on aluminum
Higher share of linkage coal and peaking of carbon product costs amid Chinese supply measures
Hindalco
should however help stabilize cost.
 Domestic demand has improved materially from and outlook is better
for FY19.
 Novelis will continue to benefit from tailwinds in auto. Pressure in
beverage cans is now behind. Investment in new auto line in China
and US has begun.
 Domestic demand is improving on government spending, auto and  Supply side measures in China will
JSW Steel some revival in other sectors. 2Q however is a seasonally weak determine direction of steel
quarter. prices.
 Expect domestic steel demand to growth at least at the rate of GDP.
 Expect captive iron ore mines to start in FY19
 Investing in growth projects as believe steel demand outlook has
turned positive.
 Aluminum smelter ramp-up progressing well despite the recent  Aluminum and zinc outlook is
smelter ramp-up issues positive on supply side measures.
 Aluminum CoP to decline on improved domestic coal availability
Vedanta
 Crude oil production to see sharp growth as investment to ramp-up
production continues.
 Zinc India mine output to increase to ~1.2mt by FY20. Zinc
international projects are on track. Evaluating plans to ramp-up
production to 1.5mt.
Hindalco Inds Buy

 Demand: Domestic demand for both aluminum and copper was strong in 1Q.
Click below for Copper demand increased ~12% YoY in 1Q, and the strength is expected to
Detailed Concall Transcript & continue for the remaining part of the year. With disruption of one of the major
Results Update
copper producers, imports have surged from ~28% share YoY to ~40% share of
domestic market.
 Aluminum hedging: For remaining 9MFY19, ~27% of the volumes is hedged for
commodity and currency at INR140k/t and 11% is hedged for commodity at
USD2,274/t. The notional hedging loss on aluminum stood at INR1.8b in 1Q
against ~INR2b in 4QFY18.
 Aluminum volumes: While production was 323kt, sales were lower at 300kt.
~5kt was stuck at port at the end of the quarter. Change in accounting policy
impacted recognition of another ~8kt, pushing these volumes to 2Q.
 Cost of production in aluminum: Cost of production, on integrated basis
including Utkal, was unchanged QoQ in INR terms and declined in USD terms.
Cost of coal and furnace oil increased by ~2% QoQ while other cost declined.
The decline was driven by lower fixed cost, which is seasonal. Cost of production
is expected to increase by 3-4% in Q2 driven by increase in coal cost and furnace
cost. On CRU global aluminum cost curve, HNDL’s primary operations are at the
lowest end of the first quartile cost curve.
August 2018 89
METALS| Voices
 Copper value-add mix to increase: The CC rod mill is ramping-up well and
produced ~2k4kt in Q1. Value-add margin is USD200/t and rod volumes will be
higher by ~90kt in FY19 with full ramp-up in FY20.
 Copper business outlook: Q1 was impacted by maintenance shutdown for ~30-
45days. However, full-year volumes are likely to be similar to FY18, but with a
higher value-add mix. Benefit of the new rod mill will accrue from Q2 onwards.
Copper EBITDA is expected to increase in 2Q driven by higher volumes and
better by-product realization.
Hindustan Zinc Neutral

 Zinc market outlook: Prices are expected to rebound once global trade risk
Click below for
concerns are behind. Zinc inventory levels remain low and treatment charges
Results Update continue to be at multi-year lows, indicative of a tight concentrate market.
While new mines are likely to add to supply, it will not be enough to offset the
current deficit and demand growth. Zinc demand is expected to grow by ~2%
over the next five years.
 Mine production: Mine metal production is expected to increase progressively
every quarter. Production is likely to ramp up sharply in 2H with start of the
main shafts. Mine production guidance remains unchanged at slightly higher
than FY18.
 Cost of production increased during the quarter to USD1,043/t (+13% QoQ) due
to lower output, an increase in met coke, coal and diesel prices, wage increase,
and lower coal linkage materialization. Cost of production, however, is guided to
remain unchanged at USD950-975/t. Linkage coal materialization (was ~7% in
1Q) is expected to improve. VRS scheme to employee will drive some savings in
employee cost, offsetting some of the recent wage hike impact. Higher
production volumes will also aid in lower per unit production cost.
 Expansion projects: (a) Rampura Agucha: Ventilation system was commissioned.
Shaft development is on track and production is expected to start from 3QFY19.
(b) Sindesar-Khurd: It has received environment clearance for expansion of the
mine from 4.5mt to 6mt. Main shaft skip winder was cold commissioned and
production is expected from 3QFY19. Civil work for new 1.5mtpa mill is
progressing well and also expected to commission by Q3. (c) Zawar: New 2mtpa
mill is on track with commissioning likely by 4QFY19. The fumer project is 75%
complete.
 It has completed the long-term wage negotiation with employees, resulting in a
USD33/t recurring impact on CoP. The cost during the quarter includes INR1.2b
pertaining to the prior period (partly in employee cost and partly in other
expenses for contractual labors).
JSW Steel Buy

Click below for  Demand and pricing: Domestic steel demand remained strong in 1QFY19 driven
Detailed Concall Transcript & by strong demand by auto and consumer durables. Infrastructure activity has
Results Update
picked-up which is likely to aid demand growth. In the near-term monsoon is
likely to impact demand, but is expected to rebound from October onwards. Flat
product prices remain steady in July and are expected to remain range-bound.
August 2018 90
METALS| Voices
Long product prices have corrected due to higher utilization rate of secondary
mills and seasonally weak demand, but are expected to recover from October as
demand improves.
 Iron ore mines and conveyor belt: Of the five captive iron ore mines, two mines
have started production. The remaining three mines are expected to commence
production in three-four months. Iron ore sourcing remains through a mix of
local, Odisha and imports. The conveyor belt for transporting iron ore at
Vijaynagar is expected to commission by September/October 2018. It would
initially carry 10-12mt and later ramped-up to 20mt. Conveyor transport will
lead to freight cost saving of ~INR300-400/t. Seven-to-eight iron ore mines with
capacity of ~10mt are likely to be auctioned in the next few months.
 Acquisition of Acero: The acquisition of US based Acero Junction was completed
during the quarter. The facility includes a 1.5mtpa Electric Arc Furnace and
3mtpa Hot Strip Mill. The EV of the transaction is USD180m, which includes debt
of USD100m. The work to commence production is underway and the company
expected to start operations by October 2018. The facility has a potential
steelmaking capacity of 3mt. In phase 1, it will revamp and restart the electric
arc furnace and the slab caster, and modernize the hot strip mill. The proposed
additional investment will be USD70m. In phase 2, the facility will be expanded
by 1.5mt at investment of USD250m. Phase 2 will depend on economic viability
and market conditions.
 Acquisition of Aferpi: It completed the acquisition of Aferpi, Italy for a
consideration of EUR55m. The facility has a downstream capacity of ~1mt and
has potential to be expanded to ~4mt. The expansion will depend on market
demand and economic viability.
 Capex in 1Q was INR20b.
 Coking coal cost in 1QFY19 was USD205/t and guided to remain same in 2Q.
Benefit of recent fall in coking coal prices will accrue from 3Q.
Rain Inds Buy

 CPC market: CPC prices have started to stabilize. Demand remains strong,
Click below for particularly from Asia and Middle East. Demand from US has been lower-than
Results Update
expected due to slower restarts by US smelters. Alcoa has restarted 2 of the 3
pot lines and Century has restarted 1 of 3 pot lines at their US facilities. The
ramp-up by the US smelters is delayed due to availability of skilled labor and
technical constraints. Raw material GPC prices have also started to stabilize
after rising in 2QCY18. The management’s focus remains on protecting margins
in the carbon business. The outlook for the CPC business is better than 1Q and
2QCY18.
 India petcoke ban: The Supreme Court in India has ordered ban on import and
use of petcoke as fuel on July 26th, 2018. However, it has excluded certain
industries, like cement, which use petcoke as feedstock in their operations. Rain
Industries uses green petroleum coke (a form of petcoke) as its key material as
feedstock in its operations. It has petitioned the Supreme Court for exclusion
from the ban and expects a favorable outcome.
 MARPOL: The convention for prevention of pollution from ships (MARPOL) by
limiting sulfur content in the marine fuel will be implemented from 2020. This
August 2018 91
METALS| Voices
could impact the supply of low sulphur fuel oil (as more gets diverted to the
shipping industry), which is the raw material for production of calcined
petroleum coke. While this could impact the CPC industry as a whole, Rain has
competitive advantage as most of its facilities have installed scrubbers which
allow it to be use even some of the lower grades of petroleum coke.
Project updates
 Rain is investing USD66m in a 30ktpa for Dicyclopentadiene (DCPD/C9) resin
plant at its integrated coal and petrochemical site in Castrop-Rauxel, Germany.
The project is expected to complete in 3QCY19. Major contracts for equipment
and contractors are concluded.
 The calcination plant in Vishakhapatnam, AP of 370kt remains on the revised
schedule of 3QCY19. All permissions are obtained and detailed engineering, land
acquisition, site clearance work and contractor selection is done. Foundation
work is underway.
 The petro Tar distillation facility in Belgium is on track for commissioning in
4QCY18.
August 2018 92
OIL & GAS| Voices
OIL & GAS

After a weak refining performance from the OMCs, GRMs are expected to improve going ahead in line with the
global benchmarks. Domestic auto fuel consumption is expected to continue growing strongly. Private players
continue to be marginalized in marketing of petroleum products. Gas consumption has been increasing, led by
higher availability of domestic gas and increased LNG imports. This is expected to continue over the next few
quarters. Any slowdown or delay in domestic gas production would be positive for PLNG led by higher imports.
GAIL would be a key beneficiary of rising gas consumption in the country. Any progress toward unified tariff or
pipeline tariff hike would be positive for GAIL. City gas distributors (CGDs) are expected to grow their volumes, led
by new customer acquisition, improving infrastructure and access to new gas.
Oil & Gas Outlook for FY19 GRMs
 RIL should continue its good GRM performance in coming years.  RIL continue to improve its refining
Reliance performance. Despite soft benchmark GRM,
We expect USD11.5/bbl GRM for FY19/20.
Industries RIL reported GRM of USD10.5/bbl in 1QFY19.
 RJio performance would remain key to stock performance.
Premium over SG GRM stood at USD4.5/bbl.
 We expect benchmark GRM to hover around ~USD6/bbl in near  OMCs reported weak core GRM in 1QFY19.
OMCs to medium term supporting good GRM performance for OMCs. Refining earnings during the quarter was
(IOC/BPCL/HP  We also expect strong auto-fuel consumption trend to continue mainly driven by higher inventory gains.
CL) in India  We expect core refining performance to
 Marketing margins are expected to improve on account of improve in coming quarters.
softness in crude oil prices.
 High oil prices remain the biggest risk for OMCs.
 Rising crude oil prices raise the threat of subsidy sharing for the  No subsidy sharing for ONGC and OINL in
1QFY19, despite average crude oil price of
ONGC and upstream companies.
USD74/bbl.
OINL  ONGC is also likely to increase gas production by ~10% annually
 Fear of subsidy sharing remains the
next 2-3 years
overhang on the stocks.
 Expect no subsidy burden as long as oil prices are below
 Expect Brent of USD65/-75bbl in FY19/20
USD75/bbl, although there is no written communication
 Much awaited key pipeline tariff hike would improve
transmission earnings
GAIL  PATA-2 has stabilized fully, expect improvement in utilization.
 Though the threat of US LNG volumes have diminished at current
level of crude oil price, still concern remains on long term
placement of 5.8mmtpa US contracts
 Expect strong volume growth of 10-15% to continue for next 3-4
Petronet years
LNG  Expect no major competition from other existing or upcoming
LNG terminals
Bharat Petroleum Buy

Kochi refinery
Click below for  Currently, almost all units are operating at 100% utilization. API of crude oil
Detailed Concall Transcript & processed has declined from 39° to 31° on a YoY basis.
Results Update
 High sulfur crude oil processed increased to 95% in 1QFY19 v/s 58% in 1QFY18.
 Distillate yield stood at 82%. No fuel oil produced from the refinery, 300tmt of
petcoke was produced in 1QFY19. Fuel loss at 8%.
 Propylene is not being produced as evacuation of propylene in absence of
petrochemical unit is not economical. As a result, LPG yield is high at 7%, will
reduce to 4% subsequently.
 Management has planned a refinery shut down in Oct-Nov 2018 for
optimization.
August 2018 93
OIL & GAS | Voices
Mumbai refinery
 Distillate yield of 84%; fuel & loss at 5.5%.
BINA refinery
 PAT of INR3.93b in 1QFY19 v/s INR1.46b YoY.
 GRM inclusive inventory gain and loss stood at USD15/bbl v/s USD8.9/bbl YoY.
 Crude processed of 1.72mmt v/s 1.77mmt last year.
 Planned shutdown from 17th August for hook-up.
 Capex guidance of INR30b.
NRL
 GRM including excise stood at USD30/bbl in 1QFY19.
 PAT of INR7.58b v/s INR5.67b YoY.
Miscellaneous
 Capex of INR26b in 1QFY19, guidance of INR78b for FY19 excluding any big
ticket like Mozambique which may come up.
 Highest volume growth in sales amongst OMCs.
 Market share of HSD among OMCs increased from 28.56% in 1QFY18 to 28.8%
in 1QFY19.
 Total receivable from government at INR32b, mostly corresponding to 1QFY19.
GAIL India Neutral

Current Price INR 378 Target Price INR 361 |-5% Downside
 Trading volume has been up due to 11.92mmscmd US volume sales overseas as
Click below for well as increased offtake of 6.76mmscmd of RLNG in India.
Results Update
 LPG transmission affected because of shutdown at one of the plants.
 Regas tariff at Dhamra would be slightly more than that of Dahej; also has 5%
escalation clause.
 Kochi-Mangalore pipeline by Feb-Mar’19 latest; delay on account of monsoon
and some local issues.
 8 cargoes (0.5mmt) of US volumes sold in India, 12 cargoes sold off abroad.
 Petchem sales down due to confusion created by plastic ban in Maharashtra.
 Petchem utilization currently at +90%.
 Petchem gas feedstock gas cost has come down in 1QFY19.
 INR9.5b capex in 1QFY19, full-year guidance at INR65b.
Indian Oil Buy

 Refinery capacity utilization stood at 102.4% in 1QFY19 v/s 101.6% in 1QFY18
Click below for  Distillate yield improved to 80.3% in 1QFY19 v.s 78.6% in 1QFY18
Detailed Concall Transcript &  Fuel & loss stood at 8.6% in 1QFY19 v/s 9% in 1QFY18
Results Update
 Normalized (CP) GRM stood at USD5.18/bbl vs USD6.44/bbl YoY
 MS cracks were down by ~USD2/bbl on YoY basis; HSD cracks remained flattish
 Paradip had a shutdown of 22 days in Apr’18 due to planned shutdown of the
hydrogen unit
 9mmtpa crude import term contract with Iran; importing on pro-rata basis
 PPU completion stands at 87% as of June 2018; expected to be completed by
December 2018
August 2018 94
OIL & GAS | Voices
 Ennore LNG terminal 95% completed as of June 2018; expect commissioning by
October 2018
 Approval for a very small stretch of pipeline pending; no problems from locals
 Initial utilization of 1.5mmtpa
 Total capex of INR228b in FY19
 Refining – INR85b including INR46b in BS-VI, INR7.5b in Indmax at Bongaigaon
 Marketing- INR23b
 Petrochem- INR21b
 FO yield stands at 4% overall
 No significant change in marketing margin
 West Coast refinery
 Land acquisition ongoing
 DFR would take time, post which orders would be given
 IOCL won 18 GAs till now – 7 GAs (standalone), 9 GAs (JV with Adani), and 2 Gas
(Green Gas – JV with GAIL)
 Forex loss during the quarter is accounted in other segment
Mahanagar Gas Buy

 Added 20,000 new consumers in PNG-domestic, taking the cumulative number
Click below for to 1.05m.
Results Update  Added 57 industrial/commercial consumers, taking the total number to 3,657.
 CNG volume was driven by 15,800 3W additions in 1QFY19 v/s 2,000 in 1QFY18.
Higher petrol and diesel prices pushed conversion of taxi aggregator during the
quarter.
 RM cost per unit was flat sequentially despite rise in domestic gas prices, mainly
because of sharp decline in RLNG prices in 1QFY19.
 Management took two price hikes (on 3rd April and 8th June) during the quarter
to take care of the increased domestic gas prices.
 MGL has bid for three Gases in the 9th CGD round—(1) Chennai and Tiruvallur
districts in Tamil Nadu, (2) Medchal Rangareddy and Vikarabad districts in
Telangana and (3) Srikakulam, Visakhapatnam and Vizianagarm districts in
Andhra Pradesh.
 While Chennai has the expected potential of ~2mmscmd, other two have an
expected potential of 0.8-1mmscmd.
 MGL booked a one-time charge of INR129m pertaining to OMCs’ commissions, it
was accounted for higher-than expected anticipated commissions negotiated
with OMCs for FY16-18, which has been netted off against revenue during the
quarter.
ONGC Buy
 Crude oil realization inclusive of VAT/CST at USD74.23/bbl in 1QFY19.
 Other expenditure includes a forex loss of INR8.97b, 4QFY18 included
Click below for
Results Update
INR1.88bof forex loss; forex gain in 1QFY18 was shown in other income.
 Tax rate was higher as interest on loan taken for HPCL acquisition does not
qualify for tax benefits.
August 2018 95
OIL & GAS | Voices
 Production target remains intact at 22.75mmt of oil (standalone) and
25.9mmtincluding JV production.
 Gas production target of 24.4bcm (standalone) and 25.51bcm including JV
production.
 Standalone debt has declined from INR250b to INR210b QoQ.
 Oil production declined 4% YoY due to operational woes.
 Rigs have been deployed in KG-DWN-98/2: drilling of six wells ongoing.
 4 rigs operational at Daman.
 Incremental production.
 Daman-2.2-2.5mmscmd
 S1/Vashistha- 3.6-3.7mmscmd
 WO16- 0.7-0.8mmscmd
 B127- 0.3mmscmd
 Capex of INR64b in 1QFY19, target INR320b standalone.
 Opex is sequentially down due to
 429cr lower due to work over
 77cr lower due to water injection
 240cr lower due to R&M
 150cr lower due to provisions
 247cr due to other expenses
 270cr due to admin
 128cr due to CSR
 No discussion on subsidy at current level of crude oil.
Petronet LNG Buy

 Dahej terminal utilization at 111%, operational efficiency and lower internal
Click below for consumption resulted in lower opex
Results Update  Dahej terminal to expand to 17.5mmtpa by June 2019 – capex of INR390cr
 Submitted bid for 7 GAs in 9th CGD bidding round, expected capex of INR60b
and total potential of 1mmtpa over 8 years
 17tbtu of Gorgon volume processed during the quarter – 6.2 tbtu at Kochi and
rest at Dahej
 Bangladesh land based terminal with a 7.5mmtpa capacity – capex of ~USD1b
 Sri Lanka FSRU - expected capex of USD300m; PLNG’s stake – 47.5%
 LNG demand from China has remained robust resulting in higher spot price
during summer
 Commissioning of Kochi – Mangalore pipeline will give access to MCFL, MRPL
and OMPL; total potential demand of 1-1.5mmt
 No threat of competition: Entire capacity is booked, no risk to volumes
 Current cash stands at INR53b and debt stands at INR11.75b
Reliance Industries Buy

Refining & marketing: GRM of USD10.5/bbl
Click below for  RIL clocked 14 consecutive quarters of double-digit GRM (USD10.5/bbl in
Results Update 1QFY19).
August 2018 96
OIL & GAS | Voices
 On a QoQ basis, refining margins were lower across regions due to soft light
distillate and stable middle distillate cracks. Increased supply from China
impacted gasoil cracks, and end of turnaround season offset favorable crude
differential.
 Refining throughput during the quarter stood at 16.6mmt.
 The company expects global demand growth to support refining margins in the
medium term. Incremental supply of 800kbpd does not appear to catch up with
1.4mnbopd of incremental demand in 2018. Additionally, refineries in Mexico
and Venezuela continue operating at low utilization levels.
 ROs stood at 1,325, covering arterial highways.
 1Q volume growth for HSD and MS stood at 1% and 27%, respectively.
 DTA gasifiers stabilized, to ramp up soon; SEZ gasifiers to stabilize in another
quarter.
 IMO 2020 would lead to a sharp rise in diesel cracks; light-heavy crude
differential may also expand.
Petrochem: Production volumes were up 33% YoY led by ROGC ramp-up
 The segment reported EBITDA margin of 23%, led by healthy polymer and
polyester chain margins and benefits of feedstock optimization and product mix.
 Deltas YoY – PET (+101%), PTA (+61%), MEG (+18%), POY (+15%), PSF (+11%),
PVC (+2%). Deltas QoQ – PET (+56%), PTA (+25%), Butadiene (+28%).
 PE deltas have been supported by higher demand of PE pipes in China due to
residential heating being forced to convert to natural gas from coal.
 China has also banned import of scrap recycled plastics; two US crackers are
ongoing commissioning, two more would come up in next year. Delays in
commissioning would allow demand to catch up. Thus, deltas may dip
marginally for next 2-3 quarters, but would recover thereafter.
 Nagothane cracker is expected to commence ethane cracking in 2QFY19. While
cracker reconfiguration and pipeline construction is completed, pre-
commissioning activities are under progress. The company is importing full
1.5mmtpa of ethane, some part being used as fuel in the refinery.
E&P: R-series by 2020
 Gas production at KG D6 declined to 4.1mmscmd; for Panna Mukta, at
4.7mmscmd. CBM production stood at 1.01mmscmd. MA field expected to be
shut by September 2018.
 Shale realization increased 26% YoY (-6% QoQ). Production declined 31% YoY (-
17% QoQ).
 Contracts for development of R-series have been awarded. Rig is being deployed
to commence a 6-well drilling campaign soon; production to commence from
mid-2020.
 Engineering and other project activities ongoing for Satellite Cluster; production
to commence from mid-2021.
 RFPs for MJ field are being issued; production expected by early 2022.
Reliance Retail: 4,003 stores with 18.6m sq. ft. of area
 With a total of 4,003 retail outlets, revenue stood at INR259b (+124% YoY, +7%
QoQ) and EBITDA at INR12b (+204% YoY, +11% QoQ) in the quarter.
 A total of 166 stores were added in the quarter.
 Excluding petro/connectivity, EBITDAM stood at 6.8%.
August 2018 97
RETAIL| Voices
RETAIL
Titan’s Jewelry segment grew by 70% YoY in July 2018. Adjusted for advancement, growth was at 40% YoY (with
20% increase in customer acquisition). 1QFY19 sales growth of 14-15% (a miss versus our estimate) implies that
full-year growth may come in at ~22-23% (based on its earlier targets for the remainder of the year). Titan is likely
to record double-digit margins in Watches segment in FY19. JUBI stated that it would accelerate store addition
2QFY19 onward – it added 10 stores in 1Q, but maintained the target of 75 store additions for full year. Dunkin
Donuts impacted margins by 55bp in 1QFY19 (-143bp 1QFY18 and -106bp for 4QFY18). Online ordering accounts
for 65% of total; its share will continue growing faster than offline.
Retail Outlook Budget
 The high jewelry margins attained in 1QFY19 may not be  Store expansion is on target for Titan with 10
sustainable going forward. stores being added in 1QFY19.
Titan  Double-digit margins are likely in Watches in FY19.
 Eyewear is on the way to meet 26% YoY growth for the full year.
 Online ordering is 65% of total and will continue to grow faster.  Store addition likely to accelerate from
Jubilant  Benign raw material environment especially in dairy. 2QFY19.
Foodworks  Few more states are likely to hike minimum wages in 2HFY19.  Target of 75 stores additions in FY19
Will look to mitigate the increase through productivity gains. maintained.
Jubilant Foodworks Neutral

Macros and demand
Click below for
Detailed Concall Transcript &  Has seen healthier sales growth since GST rate reduction in November; believes
Results Update that its own efforts have played a bigger part in driving growth.
 Both orders from existing customers as well as from new customers are growing
at a healthy pace.
 Longer term there will be fragmentation in the QSR market. Company will aim to
grow faster than the market.
 Management believes that the FIFA World Cup impact on sales was not very
high because of the timing of the matches.
Store addition and backend capacity
 Store additions likely to be higher going forward. Added 10 stores in 1Q, but
maintained target of 75 stores for the full year. Store addition likely to
accelerate from 2QFY19.
 Store splits also likely where there is capacity constraint. The number of these
stores are however small.
 New stores typically tend to open at 75-80% of system average and payback is
around 2.5-3 years.
 Greater Noida commissary which was commissioned recently (Q4FY18) takes
care of any future backend capacity constraints.
 60% of stores currently are in Metros and Tier 1 towns. Have seen demand pick
up from both metros/Tier 1 towns and smaller centers as well.
August 2018 98
RETAIL | Voices
Dunkin Donuts
 Dunkin Donuts 55bp negative impact in 1QFY19 (-143bp in 1QFY18 and -106bp
for 4QFY18).
Delivery and online ordering
 Growth was led largely by delivery business. This is an industry wide trend and
Dominos is benefiting from it.
 Online ordering is 65% of total and will continue to grow faster.
 Revamped Domino’s app will be rolled out shortly. The app is smaller in size
(mb), enables greater customization and also enables reordering past order as
well as favorite orders.
 Intention is to further increase its own share of online delivery.
 Going forward, company aims to have 100% of own fleet and not rely on third
party delivery boys.
Costs savings
 Few more states are likely to hike minimum wages in 2HFY19. Will look to
mitigate the increase through productivity gains.
 Renegotiated rents last year.
 Manpower productivity has also been increased.
Other points
 Benign raw material environment especially in dairy.
 Employees stood at 30,279 at the end of 1QFY19.
 Spent higher than usual levels on marketing in 1QFY19.
Titan Buy
Jewelry business
Click below for
Detailed Concall Transcript &  Titan gained market share again in 1QFY19.
Results Update  Jewelry growth in July was at 70% YoY. When adjusted for advancement, the
growth was at 40% YoY (with 20% increase in customer acquisition). The last
week of July saw activation.
 1QFY19 sales miss versus expectations of 14-15% means that full-year growth
may be ~22-23% based on its earlier targets for the remainder of the year.
 For Titan, June was the only bad month in the first four months of the year as it
saw a decline of 20% YoY. Sales in April and May were up 20% YoY.
 The high jewelry margins attained in 1QFY19 may not be sustainable going
forward.
 Exchange sales proportion was at 43% in 1QFY19 versus 40% in 1QFY18. Share
of exchange sales was up in July. The newly launched range ‘Gulnaz’ has done
very well.
 Higher studded sales proportion aided EBIT margin growth of 110bp YoY in
1QFY19.
 Store expansion is on target for Titan with 10 stores being added in 1QFY19.
Watches and eyewear
 The company saw 21% YoY sales growth on a comparable basis in 1QFY19.
 Double-digit margins are likely in Watches in FY19. Titan achieved 18.8%
margins in watches in 1QFY19. Brand/ mix/ channel/activation can vary on a
quarterly basis for Titan. ‘Titan’ brand sales were much higher during the
quarter resulting in a positive mix.
August 2018 99
RETAIL | Voices
 Eyewear is on the way to meet 26% YoY growth for the full year. The recent ad
campaign has been well received. The company is targeting 3.6m customers in
FY19 from 2.3m customers in FY18, but with higher sale of lower-priced
products now, average sales per customer will come down.
Other points
 Depreciation increased YoY because they moved from a rented corporate office
space to a newly owned one. There is also some accelerated depreciation on
furniture and fixture.
August 2018 100

TECHNOLOGY| Voices
TECHNOLOGY
There has been a stark improvement in deal wins and the build-up of pipeline has been strong, lending confidence
to a sustained uptick in growth going forward. Critical areas, the resurrection of which would be prime to steering
companies into an accelerated growth trajectory, have also started seeing green shoots, which should materialize
in the coming quarters. Profitability continues to be a function of the benefits of currency depreciation and
improvement in operational efficiency being partly offset by investments, either growth-inducing or capability-
building.
Revenue outlook Digital / New services Margins
 Deal wins in 1Q and the  HCLT is pivoting to Mode-2 and Mode-3  On the margin front, margins of
HCL pipeline currently lend services, which contributed 26.6% to 1QFY19 19.7% are at the lower end of the
Technologies confidence for HCLT to see revenues, growing 10% YoY including band.
sequential growth inorganic investments.  Currency depreciation and the
acceleration.  Mode 2 margins are currently lower than benefits associated with it could
 If the deals currently in company average. Significant investments in be offset by reinvestments.
pipeline materialize, there capability building, setting up of labs around  Additionally, all the benefits
could be an inflection point in the globe and over-investing in programs to aren’t likely to flow through as
organic growth. deliver superior outcomes have resulted in newer contracts are being priced
lower profitability. Investments are of focus at the revised currency rate.
and are likely to continue, keeping margins
lower in the near term.
 INFO has been seeing overall  Revenue from Digital contributed to 28%  INFO’s intention to invest in the
strength in the demand of total revenue in 1QFY19 and saw business continues, and it has
environment, with good growth of 8.0% QoQ CC and 25.6% YoY identified areas to invest and
trends seen in the verticals of CC. figured the quantum required. A
Energy, Utilities, Retail, gradual increase is expected in
Infosys Manufacturing and investments through the year.
Insurance.  Any tailwind from factors like INR
 Discussions around large depreciation would not necessarily
multi-year deals have been imply higher investments. INFO
increasing and INFO is has several tailwinds in the form of
starting to step up in this higher margins in Digital and
area. With this, momentum is improved efficiencies.
likely to continue through the
rest of the year
 The deal pipeline has been  Strong growth continued in Digital, and it  TCS maintained its EBIT margin
very strong and TCS is well now constitutes 25% of total revenue. guidance of 26-28%. During the
placed to continue building Growth acceleration can be attributed to quarter, the impact of wage hike
on the growth momentum. In early investments made by TCS and to was partly offset by INR
the quarter, it won deals with customers increasingly taking up depreciation and productivity
TCS a TCV of USD4.9b. transformational work. improvement.
 TCS has been uniquely  The growth seen in Digital is likely to  With EBIT margins contracting by
positioned with its portfolio sustain in the medium term, visibility to 40bp QoQ, TCS has managed to
of capabilities, helping it win which is gained from TCS’ positioning and offset a larger quantum of the
multiple large deals. deal wins. wage hike impact this time.
 The trajectory for  26% revenue from Digital, which has  A lot of the levers have resulted
Tech Communications looks been growing at ~30% YoY. in margin expansion in the past
Mahindra positive going forward given few quarters.
the deal flow and wins.  Going forward, benefits from AI,
TECHM is confident of automation and improvement in
sequential acceleration portfolio companies would result
starting 2Q, leading to in further expansion.
growth in FY19 over the
previous year.
 Green shoots are being
witnessed in the areas of
network modernization and
5G, which will pose broad-
based opportunities for the
company.
August 2018 101

TECHNOLOGY| Voices
Revenue outlook Digital / New services Margins
 Beyond the issues that are  Digital grew by 6.2% QoQ CC and now  Profitability is expected to revive
expected to be faced in 2Q, constitutes to 28% of revenue. as revenue growth resurrects.
Wipro WPRO has been seeing  WIPRO saved 1.1% in efforts through Apart from the one-time
strength in its core business. automation; revenue per employee was restructuring expenses that
Strong deal wins, healthy up 4.1% YoY. would reverse in 2Q, automation,
order booking and strength in productivity improvement and
Digital have been adding to improvement in efficiency would
confidence around a revival. play to be key levers.
Cyient Neutral
Click below for  1Q performance: The revenue decline during the quarter was on expected lines.
Results Update Revenue from Services grew 1.1% QoQ in CC terms, while that in DLM declined
QoQ on account of a high base.
 Vertical-wise commentary:
 Aerospace & Defense: The company witnessed healthy growth of 15.4% YoY
(2% inorganic, rest organic) in 1QFY19; guided for >20% growth for FY19.
Communications: Performance was tepid this quarter on account of lower
work volumes from select clients in Europe and ramp-down of a program in
APAC. FY19 outlook remains healthy, though (double-digit growth expected,
going forward).
 Utilities and Geospatial: The segment witnessed de-growth due to delays in
project commitments, although growth going forward may be aided by a
low base.
 I&ENR: So far, the performance has been soft. However, the situation can
get better with an improvement in areas like oil and mining.
 Semiconductor: An apt strategy helped it emerge as the fastest growing
vertical this quarter.
 Medical: Long-term outlook appears promising.
 On track to sustain margins: Margin expansion going forward may be restricted
by a change in onshore- onshore mix. However, once new projects are
increasingly shifted offshore, utilization and thus margins may improve. Traction
developing in communication and semiconductors is encouraging.
 Encouraging outlook: With strong traction across verticals and an improving
situation in problem areas, strong growth is expected next year as well.
Aerospace & Defense, Communications, Transportations and Semiconductor are
expected to be the key growth drivers.
HCL Technologies Neutral

Click below for  1Q performance: 2.7% QoQ CC growth during the quarter included incremental
Detailed Concall Transcript & revenue from C3i, which contributed to 2pp. Mode 2 and 3 revenues together
Results Update contributed to 26.6% of total revenue and grew by 9.6% QoQ. Deal wins during
the quarter were at the highest ever, and exceeded the previous highest. The
company won 27 large transformational deals during the quarter.
 Confidence on organic growth acceleration: Deal wins in 1Q and the pipeline
currently lend confidence for HCLT to see sequential growth acceleration. If the
deals currently in pipeline materialize, there could be an inflection point in
August 2018 102

TECHNOLOGY| Voices
organic growth. This is also likely to be reflected in the service lines of
Applications, IMS and Engineering; and in several verticals.
 Mode 2 margins lower: Mode 2 margins are currently lower than company
average. Significant investments in capability building, setting up of labs around
the globe and over-investing in programs to deliver superior outcomes have
resulted in lower profitability. Investments are of focus and are likely to
continue, keeping margins lower in the near term.
 Success stories in products & platforms: In Mode-3, 60% of the products for
HCLT are mature, while 40% of the pie is made up of new products. The
company highlighted three cases where revenue was declining for products
when partnerships were struck with HCLT. Through investments in the
expansion of engineering teams, focus on innovation and new capabilities, the
decline has been stemmed, and growth has been propelled.
 Confidence of achieving the guidance: Despite a material pick-up in wins and
increased confidence around sequential acceleration in growth, HCLT
maintained its guidance. On the margin front, margins of 19.7% are at the lower
end of the band. Currency depreciation and the benefits associated with it could
be offset by reinvestments. Additionally, all the benefits aren’t likely to flow
through as newer contracts are being priced at the revised currency rate.
Hexaware Technologies Sell

 Margins decline: Two key margin drags during the quarter apart from
Click below for anticipated headwind of visa expenses were: [1] Drop in utilization (74bp
Detailed Concall Transcript & impact) and [2] one-time benefit in 1QCY17 profitability from earlier completion
Results Update
of a T&M project (97bp – not called out in the last quarter)
 Levers going forward: HEXW expects gross margin to improve going forward,
based on levers of: [1] utilization, which has some room for expansion and [2]
Structural reduction in cost-to-serve with the availability of a ready bench. Also,
over the medium to long term, onsite-offshore mix is a lever. There is some
leverage in G&A but not as much in S&M
 Growth to accelerate in 2HCY18: HEXW has been impacted by ~6pp due to the
two top-client specific issues. These started ramping down from 3QCY17. As a
result, the low base from next quarter should drive acceleration in YoY growth in
2H. Also, while 4Q has been traditionally weak, the ramp up schedules of some
recent deal wins suggests that HEXW should be able to buck that trend this time
around.
 Existing-New deal wins seeing traction: HEXW continues to see four-pronged
factors at work driving new deals with existing clients: [1] Improved services
portfolio, [2] Clients’ recognition of the improved portfolio, [3] Substantial size
of clients’ wallets to grow by selling these services, and [4] Successful sales
execution
 Automation-led deals embed some risks: Deals in Automation entail some
productivity benefits that naturally imply risks in the event of a sub-par
execution. Also, most deals have better profitability over the course of the
engagement than a constant margin curve from the beginning.
August 2018 103

TECHNOLOGY| Voices
Infosys Buy
 Confident of upward momentum: INFO has been seeing overall strength in the
Click below for
demand environment, with good trends seen in the verticals of Energy, Utilities,
Results Update Retail, Manufacturing and Insurance. This is mostly being driven in the
geographies of North America, Europe and Australia. Discussions around large
multi-year deals have been increasing and INFO is starting to step up in this
area. With this, momentum is likely to continue through the rest of the year.
 Weak areas recovering: An update on areas that were relatively weak: (i) BFSI –
weakness was on account of spending softness in a couple of accounts and
insourcing. However, deal wins have been robust with BFSI constituting for 40%
of the TCV won in 1QFY19. (ii) Europe – saw a decline in this quarter because of
weakness in one client. However, growth is expected to be strong 2Q onwards.
 Increasing momentum in Digital: Digital grew by 8% QoQ in CC terms during the
quarter and it now contributes to 28.4% of total revenue. Digital has been a key
driver of spend across verticals and is also forming a higher proportion of new
deals. INFO is focusing on building out a team in Digital to spearhead sales
across verticals. Gross margins in Digital have been higher, and an increasing
proportion of Digital in the overall pie is expected to bode well for overall
profitability. While strong traction is seen across cloud, data/analytics, IoT and
experience, recent acquisitions are helping INFO build its prowess in experience.
 Vertical health: Positive outlook for growth going forward is based on strong
trends seen in the verticals of Energy, Utilities, Retail, Manufacturing and
Insurance. Insurance: has performed well so far, and is expected to going
forward basis its pipeline; Retail: deal ramp-ups have led to good momentum,
which is expected to continue; while Retail has been strong, CPG has been
impacted by consolidation; Energy: stability in oil prices poses opportunity in the
vertical; Utilities: changing regulation has been driving spend, apart from Digital;
Manufacturing: demand in Continental Europe has been getting better.
 Margin movement in 1Q: During the quarter, INFO witnessed a 100bp margin
contraction. This was a function of (i) INR depreciation offset by cross currency
headwinds (+100bp), (ii) compensation increase for 85% of the organization (-
100bp), (iii) increased utilization and offshoring (+40bp), and (iv) onsite talent
acquisition, subcontracting, H1B visa expenses and increase in overheads (-
140bp).
 Margin guidance maintained: Despite being at the higher end of the band, INFO
left its guidance on margins unchanged. Its intention to invest in the business
continues, and it has identified areas to invest and figured the quantum
required. A gradual increase is expected in investments through the year. Any
tailwind from factors like INR depreciation would hence not necessarily imply
higher investments. While there is limited room for further improving
utilization, INFO has several tailwinds in the form of higher gross margins in
Digital and improved efficiencies in service lines that are more susceptible to
automation.
August 2018 104

TECHNOLOGY| Voices
KPIT Technologies Neutral
Click below for  Margins likely to be in the range of 11.5-12.5%: KPIT margins for the next
Results Update
quarter would be impacted by wage hike (220-240bps). However, growth and
cost levers should help offset ~100bp of this impact. The remaining should be
recouped through the course of 2H.
 More constructive on IT Services: SAP business was impacted by yet another
quarter; H1 to remain soft for SAP. However, IES’ good run should continue.
 Significant traction in Engineering: KPIT has shown constant growth in PES
business and registered growth of 5.5% sequentially. This segment is likely to
continue exhibiting strength in the next year as well. Autonomous vehicles,
electrification, connected cars and multiple standards remain key themes.
 Positive on Europe and Americas: Although revenue from Europe declined
sequentially by 3.4%, KPIT is bullish on deals coming from Germany. This quarter
growth was led by the US, and going forward, more traction can be seen in areas
of manufacturing, analytics and automation.
Mindtree Buy
 1Q performance: CC growth of 8.2% QoQ was driven by (i) MTCL’s strategy
resonating well with customers and its Digital investments yielding results, (ii)
Click below for
deal wins ramping up as expected, (iii) improved win ratios and (iv) traction in
Results Update top account. While the top account has shown very healthy growth, the
company is aware of the risks of client concentration and is focusing on other
accounts too. During the quarter, its top 2-20 accounts exhibited growth of 5.2%
QoQ in USD terms.
 Margins weighed upon by wage hikes: The 200bp margin contraction during
the quarter was a function of salary increases (-270bp), visa expenses (-20bp),
endowment to Stanford (-60bp), improvement in operational efficiencies
(+30bp) and INR depreciation (+120bp). During the quarter, a sum of USD1.5m
was paid to Stanford, where MTCL collaborated with the university to create a
faculty scholar position for Artificial Intelligence. Research here could lead to IP
that has the potential to be monetized. Through the year, MTCL is likely to
spend ~USD3.5-4m on such investments.
 Top client growth: Strong growth in 1Q in the top client was partly led by
seasonal strength (contract renewals). MTCL’s engagement with the customer
has been deepening and its offerings within the account are well diversified.
Despite the 50% YoY growth seen in the account, there is massive headroom for
growth hereon. MTCL is a relatively small vendor for the account and it sees no
headwinds going forward.
 2Q expectations: Since revenue growth was exceptionally strong in 1Q, growth
is expected to be marginally lower in the next quarter. Margins, however, are
expected to slightly improve. While continuation of growth would act as a
tailwind, the headwinds that the company will face are: (i) full impact of
headcount addition from 1Q and (ii) salary increases led by promotions effective
on July 1
August 2018 105

TECHNOLOGY| Voices
Mphasis Neutral
 Broad-based growth: Growth during the quarter was broad-based, driven by
Click below for
Detailed Concall Transcript & both the HP channel and the Direct Core business. Digital Risk too has stabilized
Results Update with it in the desired range of USD28-30m. While renewed relationships across
entities in the HP stream have been aiding growth, the Direct Core business is
being aided by (i) traction in new-gen services, (ii) strong growth in Europe and
(iii) addition of revenue from the Blackstone portfolio.
 Opportunity in HP/DXC: The relationship with HP has expanded, from being
one-dimensional to four: HPE, HP Inc, DXC and Micro Focus. Investments are
being made in Digital, cloud and automation in terms of capabilities and in new
geographies. With multiple opportunities, the channel is poised to grow at or
above market this year. The opportunity here remains large as MPHL’s revenue
is just 1% of HP’s.
 New growth engines: Europe showed strong growth during the quarter (12%
QoQ and 14% YoY). MPHL will continue increasing its focus, sales and
investments within the region. It is expected to be a material driver of growth
during the year.
 Aspire to inch up to the upper end of the margin band: MPHL maintained its
desired margin band. While an upcoming wage hike would add pressure to
profitability, it would be mitigated by automation, efficiency improvement,
benefits from fixed-price projects and higher realization. With this, the push
would be toward improving profitability and achieving the higher end of the
guided band.
 Capital allocation: The Company announced a buyback in this quarter, which is
one-time, and beyond the payout policy of the company. It would assess such
allocation on a time-to-time basis. In terms of M&A, there are options that
MPHL can utilize in terms of structuring.
NIIT Technologies Neutral

 Strong growth in the quarter: NITEC clocked 3.3% QoQ CC growth in the
Click below for quarter, despite a seasonal decline in GIS and ramp-down of Morris. Growth was
Results Update
very strong in the verticals of Banking, Insurance and Travel, whereas the impact
of both the weak factors was seen in the ‘Others’ vertical.
 Steady increase in wins: During the quarter, NITEC won USD151m worth of
deals. This marks a steady increase over the last few quarters: USD110m in
1QFY18, USD122m in 2QFY18, USD130m in 3QFY18 and USD145m in 4QFY18. Of
the deals won during the quarter, USD69m were from the US, USD56m from
Europe and USD26m from RoW.
 Continued improvement in the pipeline: The increase in wins has led to a new
normal for client wins at ~8 per quarter, from 4-5 earlier. Stronger traction in
the areas of cloud, data, digital and experience has been leading to an increase
in pipeline. Sharper positioning and focus on verticals have also been aiding the
improvement.
 Leadership expansion: Significant changes have taken place at key positions
within the company post Mr Sudhir Singh’s (CEO) joining. The company has
hired several people from Tier-I companies. During the quarter, it also hired
industry veterans to act as transformation consulting leaders. Changes have
been made to compensation metrics – the range of salary increase has been
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TECHNOLOGY| Voices
doubled to drive differentiation. On the sales front, payouts have increased
four-fold for large deals.
 Expect acceleration going forward: Growth momentum and margin trajectory
are both expected to look upward, led by (i) broad-based traction, (ii) sustained
deal flow (won USD151m TCV in 1QFY19, compared to USD110m a year ago),
(iii) strengthening of leadership across verticals from Tier-I peers, (iv) traction in
newer capabilities like cloud and data automation, (v) higher growth in Digital
(53% YoY growth; now 27% of total revenue), and (vi) the worst being behind on
Morris.
Persistent Systems Buy

 Progress on Digital: Revenue in Digital was soft during the quarter as three
Click below for
customer engagements came to a close, and new ramp-ups took time. However,
Detailed Concall Transcript & there has been no drop in customers, and the issue has been more because of
Results Update timing. Given the robust pipeline and strong traction, the segment is poised to
grow well. In Digital, two new partnerships have been signed by PSYS this
quarter, one with Out Systems and the other with Blue Prism, to tap into the
areas of low-code and RPA respectively.
 1Q performance: During the quarter, PSYS saw strong growth (~USD6m) from
the re-selling products built with partners. Investments in sales were being
made since the past couple of quarters and they have started to show results.
Continued business (although not similar in quantum each quarter) is expected
going forward. Seasonality too is expected in the business, in line with the
partners (better growth in 2Q and 4Q of a calendar year).
 Accelerite at its lowest: The revenue run-rate in Accelerite is currently at its
lowest. PSYS has discontinued the sale of R-Cloud, where the costs started
overshooting revenue. However, aggressive selling of Share Insights, Neuro and
Sentient is expected to drive better revenue going forward.
 Margins expected to expand: During the quarter, investments in sales were
accelerated (reflected in S&M). On the other hand, while utilization was down,
yield per person increased by 5.2%. Margins also benefited from depreciation in
INR, acting as a tailwind to the tune of 50bp. In 2Q, wage hikes are expected to
negatively impact margin by 250bp. However, this would be partly offset by
revenue growth, better onsite utilization and cost optimization. On a full year
basis, margins are expected to expand by 100bp compared to the previous year.
Tata Consultancy Services Neutral

 Robust growth in Digital: Strong growth continued in Digital, and it now
Click below for constitutes 25% of total revenue. Growth acceleration can be attributed to early
Results Update investments made by TCS and to customers increasingly taking up
transformational work. The growth seen in Digital is likely to sustain in the
medium term, visibility to which is gained from TCS’ positioning and deal wins.
 Positive outlook: The deal pipeline has been very strong and TCS is well placed
to continue building on the growth momentum. In the quarter, it won deals with
a TCV of USD4.9b, which translates to a book-to-bill ratio of just under 1, in line
with historical trends. TCS has been uniquely positioned with its portfolio of
capabilities, helping it win multiple large deals.
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 BFSI turnaround: BFSI grew well sequentially in 1QFY19. The reported growth
didn’t include revenue from the insurance platforms (that is reported in
‘Regional Markets & Others’). Of the total deal wins, BFSI made up for the
highest contribution with a TCV of USD1.6b. While Europe was strong even in
the previous year, the recovery now is led by improvement in North America.
 Maintaining guidance band: TCS maintained its EBIT margin guidance of 26-
28%. During the quarter, the impact of wage hike was partly offset by INR
depreciation and productivity improvement. With EBIT margins contracting by
40bp QoQ, TCS has managed to offset a larger quantum of the wage hike impact
this time.
Tech Mahindra Buy

 1Q performance: 1Q is usually a soft quarter post the 4Q seasonal strength; and
Click below for to that tune this quarter was no different from expectations. The business saw a
Results Update
decline in Communication and healthy growth in Enterprise. In constant
currency terms, Enterprise grew by 3% QoQ and 18% YoY.
 Margins cushioned by operational efficiency: Margins for the quarter were
impacted by Comviva (-90bp), wage hikes (-40bp), visa expenses (-60bp), lower
utilization (-60bp), INR depreciation (+80bp) and the remaining was covered up
by improvement in operational efficiencies.
 Between EBIT and PAT: Other income for TECHM was impacted by lower forex
gains (USD2m in 1QFY19 v/s USD27m in the previous quarter). The company
now has an increased hedge position with a book of USD1.46b. Other income
too was lower on account of a mark-to-market impact on ultra-short-term
bonds (yield curve strengthening).
 Healthy outlook for Communications: The trajectory for Communications looks
positive going forward given the deal flow and wins. TECHM is confident of
sequential acceleration starting 2Q, leading to growth in FY19 over the previous
year. Green shoots are being witnessed in the areas of network modernization
and 5G, which will pose broad-based opportunities for the company. It is also
likely to result in margin expansion, as it has in previous quarters, as early
investments fructify.
 Enterprise on track: Most verticals within Enterprise remain strong. Healthcare
may slowdown in 2Q given very strong growth seen in the last few quarters.
However, it is expected to pick up again starting 3Q. A healthier outlook (across
the company) is being led by USD270m of net new wins (spread evenly between
both the segments) and 26% revenue from Digital, which has been growing at
~30% YoY.
Wipro Neutral
 1Q performance: WPRO met the upper end of its guidance range in 1Q.
Click below for Continued challenges in the India business and in HPS weighed upon growth,
Results Update apart from the client bankruptcies. Strength was seen in BFSI, North America,
and Product Engineering.
 Strategy update: (i) Digital grew by 6.2% QoQ CC and now constitutes to 28% of
revenue; (ii) Growth in top clients was strong, led by WPRO’s efforts on client
mining; (iii) WIPRO filed 2,042 patents out of which 40% were in new-age
technologies, (iv) Localization efforts have picked up pace; proportion of locals
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TECHNOLOGY| Voices
in the US is 58%; a high level of localization is also seen in other geographies
including APAC and Europe (v) WIPRO saved 1.1% in efforts through
automation; revenue per employee was up 4.1% YoY.
 Outlook going forward: Beyond the issues that are expected to be faced in 2Q,
WPRO has been seeing strength in its core business. Strong deal wins, healthy
order booking and strength in Digital have been adding to confidence around a
revival.
 Inline margin: Margins in the quarter were impacted by one-time restructuring
expenses, excluding which IT services EBIT margins were in the 16% range.
Consolidated margins were lower because of losses in the Products business.
The business had done well on the profitability front in the last four quarters
and is expected to return to those levels going forward.
 Profitability outlook: Profitability is expected to revive as revenue growth
resurrects. Apart from the one-time restructuring expenses that would reverse
in 2Q, automation, productivity improvement and improvement in efficiency
would play to be key levers.
Zensar Tech Buy

Click below for  Acquisitions integrating well: ZENT has acquired four companies in the last two
Results Update years, the latest being Indigo Slate. All of the acquisitions have been
wellintegrated and are generating new avenues for growth through synergies.
New and existing engagements are both contributing to revenue growth. These
have also been an integral part of new deal wins.
 Growth drivers: Growth was strong in both Applications and Infrastructure.
Applications grew on the back of Digital and ramp-up of large deals, whereas
growth in IMS was driven by a new GTM, revised service catalogue and new
sales team.
 Turnaround in the US: The US geography has turned around with a solid sales
engine in place. Results of efforts are reflected in the pipeline. Digital sales too
in the US have been doing well. Moreover, recent acquisitions would only
further strengthen performance.
 Top clients robust: The focus of ZENT on top clients has been paying off. It saw
an increase in wallet share across top customers, driven by Digital, which has
been pivoting relationships, and led by its three-in-a-box model.
 Won three USD50m+ deals: ZENT put together a dedicated team for large deals
eighteen months ago. Working with advisors and a differentiated strategy
(platforms plus services) has led to it winning three USD50m+ deals and getting
invited for more RFPs.
 Margins likely to be stable: The margin increase in 1Q because of the
integration of Cynosure (USD5.9m in revenue and 28% EBITDA margin) was
partly offset by provisioning for the bankruptcy of a client in Retail. In the next
quarter, some headwinds are expected because of a wage hike. However, this
would be mitigated over the remainder of the year.
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TELECOM| Voices
TELECOM
Managements highlighted that the current low level ARPU is unsustainable. However, they are unclear as to when
ARPU accretion will kick in as RJio remains aggressive on competition, now with the launch of Jio Phone 2.
However, until then, the merger synergies for both Bharti/Vodafone-Idea should aid in sustaining competition.
Bharti is planning to step up its investments in the FTTH business and continues maintaining its capex guidance of
~INR270b to match RJio’s coverage and capacity.
Outlook for FY19 Margins
 FY19 capex guidance of ~INR270b is maintained  No guidance on consol. margins provided.
 Management targets to have ~2m incremental FTTH
Bharti Airtel home-passes in FY19
 Investments in FTTH business is expected to be
stepped up.
 Plans on re-farming 900mhz spectrum to 4G over
next 6-12 months.
 Expect Bharti Infratel-Indus merger to get concluded  No guidance on rental/consol. margins provided
by Mar-19
Bharti Infratel
 Co-location adds have reduced, as Bharti and
Vodafone-Idea are in the process of network
integrating of merger/acquisition-related assets.
 Expect fresh 4G site addition to drive co-location
once the Vodafone-Idea merger is completed
 Expect Vodafone-Idea merged operations to be  No guidance on consol. margins provided

effective from Aug-18
Idea Cellular  ~INR3.5-4b annualized EBITDA for tower business
will not form part of consol. EBITDA in FY19
 More than 70% of the combined entity’s spectrum
will be re-farmed to 4G
 Expect ~35% YoY increase in Growth segment  EBITDA losses for Growth segment to be halved in
revenue for FY19. 2QFY19 and will reach breakeven in 2HFY19
Tata
 Expect Traditional business to grow at 4-5% in FY19.  Traditional segment margin will be in the range of
Communications
 Management will continue spending USD12-13m 29-30%.
opex every quarter in Innovation segment
 Expect land demerger to get completed in CY18.
 Capex guidance of USD250-275m is maintained
Bharti Airtel Buy

Key takeaways
Click below for
 Targets to have ~2m incremental FTTH home-passes in FY19.
Results Update  FTTH business to have short-term pain. Expect investments to be stepped up.
 Capex guidance of ~INR270b is maintained.
 Plans on refarming 900mhz spectrum to 4G over next 6-12 months.
1QFY19 performance
 India wireless revenue grew on the back of Telenor business. Management
hinted that it is seeing some stabilization in pricing.
 Depreciation during the quarter increased due to higher capex.
 Capex of INR82b for the quarter is front-loaded.
 Net debt stood at INR1,029b, higher due to Telenor-related deferred payment
liabilities and high capex.
 Net debt/EBITDA is 3.6.
 Witnessed ~10m broadband net subscriber adds in 1QFY19.
Telenor acquisition:
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 Got completed 14th May-18. It added 43.4mhz spectrum in 1,800mhz band
across seven circles.
 Telenor acquisition led to net 28m subscriber adds.
 Revenue from Telenor for 1FY19 was ~INR1.5b.
India business updates
 Airtel payments bank has received approval from RBI to start on-boarding
customers.
 Airtel TV has crossed 60m downloads.
 Partnered with over 50k enterprise customers, including telcos, OTT players,
software companies etc.
 Rolled out carrier digital platform for wholesale voice offerings quick voice
interconnect,real time traffic analytics etc.
 Content on the bundled plans is being provided free till Dec-18.
 Postpaid downtrading - no major impact seen. In a couple of quarters, the same
should stable.
Africa business:
 Africa business turned PAT positive during 1QFY19.
 Despite 1Q being seasonally weak, business grew on the back of data, mobile
money and cost control.
 Revenue in the top 5 Africa markets is growing at an avg. 10-12%.
Growth drivers:
 Enhancing distribution – Direct distribution model led by 1.25m retail points and
200k activating outlets.
 Network – Launched 4G in 9 countries and is also investing in backhaul.
 Airtel money – Tapping the avg. banking penetration of less than 25% in Africa.
1QFY19 throughput is ~USD24b.
 Cost – Zero base cost
 In Africa, avg. telecom penetration of 41%, smartphone penetration of 27%
provide good opportunity.
M&A updates:
 TTSL acquisition: Awaiting NCLT approval.
 BHIN-Indus merger: CCI and BEBI approval received.
FTTH:
 Targets to have ~2m incremental home-passes in FY19. Focused on affluence
cities.
 Expect step-up investments in FTTH business.
 Garners 40-45% EBITDA margins.
 In short term, business would be under pressure but profitable in long term.
Industry:
 Replacement cycle for smartphones is ~20-22months.
 Unique mobile penetration is less than 2/3 of the total 1.3b consumers.
 Average daily time spent on mobile has increased from 3 hours (L.Y) to 4 hours.
 Feature phone market is limited while that of smartphone is expected to grow.
 Data contribution from smartphones priced between INR3-4k is small. Higher
data volumes are witnessed only on smartphones priced at INR5k and above.
Business outlook and balance sheet:
 Capex guidance of ~INR270b is maintained.
 Management is focused on ring-fencing the high ARPU customers and getting
onto primary SIM-slot of customers.
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TELECOM| Voices
 New areas of growth are 1) Data centers, 2) IOT and 3) Security – have
partnership to offer security solutions.
 Management expects pricing should start reverting – no timing guided.
 Continues to explore opportunities for inorganic monetization.
 Last 12-15 months, BAL has focused on FDD footprint (mostly complete across
India). TDD (2300mhz) footprint is 50-60% complete across India.
 BAL plans on refarming 900mhz to 4G over next 6-12 months.
 Capex is targeted towards 1) coverage 2) capacity 3) backhaul 4) fiber
transmission and 5) core network.
Bharti Infratel Neutral

Key Takeaways
Click below for  Revenue in 1QFY19 also accounts for 6,672 discontinued sites. Thus, we may see
Detailed Concall Transcript & a downward adjustment (~3) in the coming quarter.
Results Update  New co-location has reduced, as Bharti and Vodafone-Idea are in the process of
network integrating of merger/acquisition-related assets.
 Most of the 4G rollout is happening on existing sites. However, expect fresh 4G
site addition to drive co-location once the Vodafone-Idea merger is completed.
 Management strongly believes that network rollout by the top players will have
to accelerate to accommodate data growth.
Quarter performance
 Revenue billing is still continuing on 6,672 sites which have received
discontinuation notice. This has partly contributed to the high rental
revenue/tenancy as it is already adjusted from the no of tenancies. The revenue
should accordingly adjust downward in the coming quarters (~3%).
 Impact from TTSL has been taken but revenue from some of the discontinued
sites may still be received. Thus, revenue could decline to that extent.
 Capex of INR3.7b is incurred towards a.) new towers, b.) tenancy, c.)
replacement capex at INR65000/tower/year, d.) energy initiatives, e.) loading
and pre-buying for towers.
Industry/business outlook
 Vodafone and Idea are in the last leg of merger, and Airtel is in the process of
integrating TTSL, Telenor acquisitions. These companies have stalled new
colocations additions until the acquisition gets completed, and merger related
network addition is streamlined.
 Management strongly believes that network rollout by the top players will have
to accelerate to accommodate data growth.
 India is poised to launch 5G (keeping pace with the global 5g launch – which will
be on 3.5ghz having significantly low propagation), which will drive network
investment and infra investments.
 The company should get tenant exit penalties. Secondly, it should also offset the
impact through higher rentals charged for towers having lower tenancy. Further
the cut in tenancies could be staggered and therefore the impact may be spread
across years.
 4g rollout continues to be accelerated but presently majority of the 4g
deployment is happening on existing sites. Once Vodafone-Idea merger is over,
expect the co-location pace to accelerate.
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 Going forward micro site rollout should be on 2 operator basis instead of 1
operator basis. Even though operators have own small cells deployment, the
benefit of sharing rentals and energy on micro sites should support micro sites.
Plus the overall capex for micro sites could be significant and therefore
companies would be forced to use the sharing model. The purpose Bharti
Infratel was created was not to offload capex from Bharti Airtel but to create
network sharing related operating synergies.
 Exit penalties issues are under litigation. Some of the cases have seen favorable
decision.
Merger update
 Bharti Infratel Merger: CCI and BSE exchange approval received that are key to
submit NCLT approval.
 The merger could be concluded in additional 6-7 months, and therefore
confident that the merger could be concluded by March’19.
Idea Cellular Buy

Key takeaways
Click below for  Reduced channel pay-outs, lower data/voice offerings resulted in declining
Detailed Concall Transcript & subscriber growth.
Results Update
 Annualized EBITDA for tower business is ~INR3.5-4b, which will not form part of
consol. EBITDA in coming quarters.
 More than 70% of the combined entity’s spectrum will be re-farmed to 4G.
 Significant amount of orders have been placed for TDD equipment in top 8
markets.
 Expect Vodafone-Idea merged operations to be effective from Aug-18.
1QFY19 performance
 Uptake of unlimited bundled plans resulted in growth of voice/data traffic but
impacted ARPU.
 Normalized revenue declined 2.9% QoQ due to continued ARPU down-trading
and weak new subscriber adds.
 Reduced channel pay-outs for customer acquisition resulted in higher-than
expected churns.
 EOP subs base stands at 187.9m; VLR subs base stands at 203.4m.
 Broadband subscriber base stands at 41m.
 Network footprint stands at 2,91,555 sites (including GSM, 3G and 4G).
 Both (Vodafone India & IDEA) operators are sharing ~66k sites under the active
infrastructure sharing and ICR arrangements.
 Forex loss for the quarter was INR1.9b.
 No tax outflow is expected on the gain from sale of towers given the
accumulated losses.
 Capex stood at INR9.8b; net debt at INR505.8b.
 Cash and cash equivalents balance stands at INR132.4b.
 IDEA’s AGR market share stands at 18.3% (FY18), down 2% from 20% earlier
 VLR market share increased by 1.4% YoY to 20.9% (May-18).
Merger updates
 Received DoT’s final approval for merger of Vodafone India Ltd. (VIL) and
Vodafone Mobile Services Ltd. (VMSL) with IDEA.
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 Paid INR39,263m toward the differential between entry fee and market
determined price for Vodafone India’s spectrum and also provided bank
guarantee of INR33,224m for OTSC. The payments made as well as bank
guarantee provided are under protest with TDSAT.
 Merged entity is in the process of completing certain procedural formalities and
expect merger to be effective and operational from Aug-18.
 Vodafone PLC is progressing on equity infusion through rights issuance.
Merged entity to have:
 Subscriber base of 408m; this includes multi-SIM subscribers though.
 Data subscriber base of 123m.
 Quarterly revenue would be INR130b.
 Cost synergies to be worth USD10b.
Industry
 AGR revenue for the industry declined by INR296b (-21% YoY) to INR1,108b
(FY18).
 ~450m subscribers as on Jun-18 have opted for unlimited bundled plans.
 ~300m+ people are still not owing mobile phones in India.
 Consolidation in the telecom sector is heading towards culminating.
 Post the dust is settled, even a small ARPU increase would be beneficial for the
operators.
Business outlook
 Annualized EBITDA for tower business is ~INR3.5-4b, which will not be forming
part of consol. EBITDA in coming quarters.
 Combined entity remains well-funded and if situation arises for equity infusion,
shareholders remain committed for the same.
 More than 70% of the combined entity’s spectrum will be re-farmed to 4G.
 New plans for merged entity are being readied and will be unfolded once
merger is effective.
 Opex synergies will be same; capex synergies will be known once the merged
entity starts operating.
 Significant amount of orders have been placed for TDD in top 8 markets.
 Network integration includes (1) re-use of existing overlapping equipment, (2)
re-farm 2G/3G spectrum where multiple carriers exist to 4G and (3) increase
presence in TDD.
 Management is not currently reacting to feature phone low ARPU competition.
However, is observing the same.
Tata Communications Buy

Click below for Key takeaways
Results Update
 Expect ~35% YoY increase in Growth segment revenue for FY19, led by healthy
order funnel; EBITDA losses for Growth segment to be halved in 2QFY19 and will
reach breakeven in
 2HFY19.
 Management will continue spending USD12-13m opex every quarter in
Innovation segment.
 Received NCLT approval for land de-merger; awaiting MCA approval and expect
to complete the demerger in CY18.
August 2018 114

TELECOM| Voices
 Capex guidance for FY19 maintained at USD250-275m. Net debt should start
reducing post 2-3 quarters once EBITDA sees improvement.
1QFY19 performance
 Consol. revenue declined 2.4% QoQ, primarily due to a fall in voice business and
operator consolidation in India.
 Despite headwinds, the company maintained margins due to productivity
initiatives taken in previous quarters.
 Other income was lower QoQ, since 4QFY18 other income included one-time
interest income on income tax refund of INR1, 890m.
 Finance cost was high due an increase in net debt and average Libor movement
from 1.21% in 1QFY18 to 2.34% in 1QFY19.
 Data revenue growth was impacted by operator consolidation and Ind-AS 115
impact.
 Data EBITDA grew on the back of cost efficiencies.
 Foreign exchange benefit on revenue was INR550, while in EBITDA it was
INR70m.
 Traditional business EBITDA margin has expanded 40bp QoQ on the back of
sustained productivity initiatives.
 Growth service revenue declined due to a change in one-time service revenue
recognition.
 Transformation service revenue declined due to the impact of Tata Tele
operations. Higher provision of doubtful debt and normalization of one-time
gain in 4QFY18 led to a contraction in the EBITDA margin.
 Payment solution business EBITDA margin was impacted by (1) decline in
revenue – led by closure of loss making ATMs and (2) provision of doubtful debt
(INR490m).
 Average daily transaction in IndiCash ATMs has increased from 89 in 4QFY18 to
96 in 1QFY19.
 Decline in enterprise revenue is due to the impact of Ind-AS 115.
 Capex incurred during the quarter was directed toward expansion of India
access network and Bay of Bengal cable.
 Net debt at USD1.27b increased by USD117m due to higher capex spends and
working capital investments.
Business outlook:
 Traditional segment: Expect Traditional business to grow at 4-5% for FY19;
EBITDA margins expected to be in the range of 29-30%.
Growth segment
 Expect ~35% YoY increase in Growth segment revenue for FY19, led by healthy
order funnel.
 EBITDA losses for Growth segment to be halved in 2QFY19 and will further
reduce in 2HFY19.
 Transformation segment: Expect Transformation segment to bounce back in
2QFY19.
 Innovation segment: Management will continue spending USD12-13m opex
every quarter in Innovation segment.
 Capex guidance for FY19 maintained at USD250-275m.
 Impact of TTSL and operator consolidation will continue until early 4QFY19.
 Current opex run-rate is sustainable for FY19.
August 2018 115

TELECOM| Voices
 USD10-15m is being spent on digital transformation initiative (for leaner cost
structure) and will continue till mid-FY20.
 TCOM will not take any debt/liabilities related to consumer business of TTSL.
 Company is in the final leg of getting Board approval for acquiring enterprise
business of TTSL. Expect approval to be received in the next 3-4 weeks.
 Net debt should start reducing post 2-3 quarters once EBITDA sees
improvement.
 Company is focused on US, UK, France, Germany, Singapore and Hong Kong as
principal markets for enterprise business.
 Received NCLT approval for land de-merger; awaiting MCA approval and expect
to complete the demerger in CY18.
August 2018 116

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UTILITIES
Overall electricity demand is expected to improve, driven by measures like UDAY and the focus on ‘Make in India’
and ‘Power for All’. Electricity demand growth was relatively muted in 1Q. However, spot prices have increased
on account of domestic coal shortage and some supply disruption. There is no visibility on long-term PPAs;
however, companies are evaluating opportunities in short- and medium-term contracts. Power Grid is positive on
the future growth opportunities from solar, wind and opening up of the intra-state transmission network. NTPC
expects a pick-up in project execution. JSW Steel is evaluating acquisition opportunities, but at the same time is
aggressively venturing into the electric vehicles segment.
Coal India Buy

 Dispatches increased 11% YoY to 153mt. However, the mix was more toward
Click below for FSA volumes, which rose 22% YoY to 130mt, as supplies were preferred to the
Results Update power sector due to domestic shortage of coal. E-auction volumes were down
29% YoY to 19.4mt, additionally due to lower offtake by customers
premonsoon. E-auction volumes are likely to be recovered in the remaining
quarters. While e-auction volumes were low, the impact was partly offset by
higher realization.
 Other operating income increased by INR9b YoY to ~INR17b on introduction of
evacuation charges facility of INR50/t on all coal dispatches (except rapid
loading system) in December 2017.
 Adj. for the INR3b in prior-period pension liability, the employee cost run-rate of
~INR92-93b in 1Q is likely to decline in subsequent quarters as retirements
increase. Retirements in 1Q were lower.
 Contractual expenses increased by just ~2% YoY to INR31.7b, despite ~15% YoY
increase in production as outsourcing rates remain competitive. The increase in
diesel prices will have some inflationary impact on contractual cost, going
forward.
 OBR charge increased from a negative INR1.1b in 1QFY18 to a cost of INR8.8b in
1QFY19. OBR is a non-cash charge to normalize the impact of stripping ratio
over the life of the mine.
 Tax rate was at ~38% in 1Q, as against full-year rate of ~34-36%.
JSW Energy Neutral

 Captive unit at Ratnagiri: U2 of 300MW was converted to a group captive unit.
Click below for There is visibility of tie-up of the capacity under the captive route over the next
Detailed Concall Transcript & 18-24months. The customers will primarily include JSW Cement and JSW Steel
Results Update Dolvi (led by its upcoming expansion). With load under captive route secured, it
will provide opportunity to take benefit of higher peaking tariff on exchanges
when load from group customers is low.
 Solar: It has commissioned ~12MW of rooftop and ground mounted solar
capacities within the JSW group. The plan for the year is 200MW.
 Electric vehicles: Capex on EV is likely to be lower than initial guidance of
~INR10b in FY19. This is due to certain delays in finalizing land acquisition and as
the business plan firms-up.
August 2018 117

UTILITIES| Voices
 Domestic coal for imported plants: It started receiving some e-auction domestic
coal from WCL mining area. The landed cost is likely to be lower by ~INR0.5-
0.6/kWh compared to imported coal, but subject to various delivery conditions.
 Hydro generation is expected to be lower during the year due to weather
conditions, which is impacting water flow. This is a one in many years event and
the generation is expected to improve next year. As per the PPA, any lower
primary energy charge in a year of lower generation can be recovered in the
subsequent year if the generation in the next year is healthy. However, the loss
of secondary energy and incentive income is permanent.
 PAT of JVs and associates increased to due higher interim transfer price of
lignite allowed at the BMCL lignite mine.
 Other expenses were lower due to savings in open-access charges as the
Karcham Wangtoo plant was tied-up under long-term PPA.
 Tax cost in the quarter was lower due to deferred tax reversal after Karcham
Wangtoo power plant was fully tied-up under long-term PPAs. The PPA with
Punjab for 200MW commissioned on 1 April 2018.
 Depreciation charge increased due to change in accounting of depreciation at
Karcham Wangtoo plant to make it in line with CERC depreciation norms, as the
plant is now fully under long-term PPA.
NHPC Buy
 Revenue and PAT was lower due to lower generation. It impacted recovery of
Click below for energy charge of ~INR2b in 1Q. It expects to recoup this loss in the remaining
Results Update quarters as the generation improves. In any case, if the generation in FY19 is
lower than the design generation, it will seek the regulators compensation for
the lower generation and resulting energy loss in the coming year.
 Interest cost declined YoY due to refinancing of loans (~INR70m) and repayment
of loans (~INR200m).
 Kishanganga: The 330MW project was commercialized in 1Q. It has boosted
regulated equity by ~INR17b to ~INR130b. The CERC has provisionally approved
the project cost at ~85% of the actual cost. Until the final project cost is
approved, the contribution from Kishanganga will be broadly PAT break-even.
We are building in approval in FY20E (for part of the year).
 CERC is now allowed to approve tariff and project cost on provisional basis
without waiting for approval from PIB, MoP and CCEA: CERC can now approve
the tariff on 100% of the project cost, instead of 85% earlier, even before
seeking final approval of CCEA. CERC will provisionally approve the tariff at 100%
on project cost approved by the company’s board and CEA. This will save
significant time as in the earlier process the cost had to be first approved by the
CEA, followed by PIB, MoP and finally the CCEA. NHPC is in process of filing tariff
petitions for approval of pending differential project cost of INR20-24b towards
five operating projects. It will boost annual revenue (and PBT) by ~INR2.5-3b. It
also has cumulative revenue under-recoveries of more than ~INR6b as at the
end of FY18.
 NHPC has incurred capex of INR4.7b in 1QFY19 and plans to spend INR27b in
FY19E, which includes:
 INR5b for Parbati-II,
 INR8.6b for Subhansiri Lower,
August 2018 118

UTILITIES| Voices
 INR2b for Kishanganga,
 INR4b for Debang,
 INR1b for Testa-IV
Tata Power Neutral

Click below for  Sale of non-core assets: Proceeds from sale of Tata Communications were
Results Update realized during the quarter. Arutmin proceeds are likely in a run-rate of USD10-
30m every quarter. The sale of Tata Projects, however, is unlikely in FY19.
 Resolution for Mundra: The Gujarat government has formed a committee to
give recommendations for resolution of some of the stressed imported coal
based plants in Gujarat, including TPWR’s CGPL Mundra. The committee is
having meeting with various stakeholders. A report is expected by end of August
2018.
 Indonesia DMO regulations: The regulations require Indonesian coal mining
companies to sell 25% of their output locally at price of not more than USD70/t.
The regulation is to protect the coal-based electricity generation sector. At spot
prices of coal, the DMO regulations result in a loss of ~USD10/t on domestic
sales. Management believes the regulations are temporary in nature and are
likely to be revoked in the near-to-medium term. The DMO impacts TPWR’s
hedge between Mundra and coal mines and also impacts its upside from higher
coal prices. At current coal prices, it would impact TPWR’s coal mining profit by
~USD20m annually.
 Mumbai’s regulated equity declined 10% QoQ to INR37.9b as Unit-6 at Trombay
was taken out of service.
 TPWR has won 400MW of solar PPAs in recent auctions. The price is INR2.72-
2.85/kWh. The plants have to be commissioned in the next two years. It plans to
double-triple its RE capacity in next 3-4 years.
 CGPL Mundra’s FoB price of coal declined USD3/t QoQ, despite an increase in
global coal prices. Discounted cargos and coal mix drove this saving in cost.
Under-recovery was unchanged QoQ at INR0.92/kWh.
August 2018 119

OTHERS| Voices
Others
Allcargo Logistics Buy

 CFS volumes increased 4% YoY, led by the commencement of Kolkata CFS and
Click below for
growth in DPD volumes.
Results Update
 MTO volumes grew 26% YoY, led by growth from key regions, despite the
challenging freight and trade conditions.
 LCL volumes grew 5% YoY, while FCL volumes increased 40% YoY. FCL
contributes ~13-15%.
 The company has been increasing its focus on project transportation, where the
current executable order book is ~INR1.75b. Revival in eight core sectors (coal,
crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity)
should help increase capacity utilization.
 Equipment division is operating at 50%+ utilization.
 PAT for contract logistics stood at INR37.2m for 1QFY19.
 Net debt stands at ~INR2.0b.
 The company incurred a capex of INR250m for warehousing facilities in
Hyderabad and JNPT, and INR1.35b for land acquisition at Jhajjar. The company
plans to incur capex of INR1.5b for the remainder of the year.
Ashoka Buildcon Buy

BoT/HAM projects
Click below for  The company witnessed healthy traffic growth of ~11% (on like-to-like basis)
Results Update across its key BOT projects, mainly led by a pick-up in economic activity and a
low base. Projects such as Jaora-Nayagaon, Sambalpur, Dhankuni-Kharagpur and
Durg have registered healthy toll revenue growth YoY.
 From 4QFY18, the company started receiving annuity payment for the Mudhol-
Nipani BOT project and the Chennai ORR BOT projects.
 Of the total five HAM projects, ASBL has received financial closure for four HAM
projects and the process is on for the remaining one project.
 ASBL expects execution of the newly won HAM projects to start from 3QFY19.
 Land availability for all projects is in excess of 80%.
CGD business
 ASBL has received LoI for Latur, Usmanabad, Chitradurga and Davangere. The
license is for 25 years and total capex is INR2.5b over eight years.
 Ratnagiri CGD circle is expected to start operating from 3QFY19, given that it is
yet to receive a few certificates before becoming operational.
Equity requirement
 ASBL has incremental equity requirement of INR4.7b for its ongoing HAM
projects, which is expected to be deployed over the next three years.
Growth prospects in EPC business
 EPC business is expected to register 30-40% growth in FY19 given strong order
backlog available for execution. Growth is expected to be back ended as most of
the HAM projects were bagged by FY18.
August 2018 120

OTHERS| Voices
Arvind Ltd Neutral

 Textile revenue is expected to grow by ~10%, led by 35%+ growth in garment
Click below for volumes; margins to remain flat.
Results Update
 Brands & Retail is likely to grow in the range of 20-24%; power brands to
maintain momentum; significant expansion planned for Unlimited; innerwear
business to grow at 50%+ on a full-year basis; expects 100bp margin
improvement despite higher marketing spends.
 Engineering business likely to grow at 10-12%; will maintain profitability.
 Process of demerger is proceeding as expected; expect related approvals in
early 2QFY19.
 Value fashion has clearly bucked the trend – all players have been posting very
healthy growth.
 E-commerce, which accounts for ~4% of overall apparel and accessories market,
is likely to cross the 10% mark by 2020
 a) Omni-channel experience is becoming a table-stake
 b) Tier 2/3 and semi-urban customers already account for over half the
online demand
 Innerwear business consisting of USPA, Hanes & CK saw 33% growth during the
quarter; expect growth to accelerate to over 50% during the year.
 Brand building pushed marketing spend up by 25%.
 Online sales up 140%+; Omni channel sales up 70%+ riding on industry leading
technology platform.
 The company’s debt as of June 30, 2018 was INR3.9b; does not expect any
increase in FY19.
 In 1QFY19, in textiles - fabric volumes were lower by 1m; garments grew from
6.6m to 7.9m.
BSE Buy
 MF platform – monetization started: BSE recently commenced a steady source
Click below for
of revenue from the MF platform, which would grow with increasing
Results Update
participation of investors. It has an 82% share in the business and the platform
contributed over 50% of the net MF inflow in equity funds in June 2018. The
number of distributor registrations has now crossed 10,000.
 Insurance distribution network: BSE and EBIX set up a JV to develop an
insurance distribution network with the goal of revolutionizing sales and
processing of insurance in India. Leveraging of the technology from Ebix and the
distribution network of both entities would be a key driver.
 Unified exchange: BSE has already made an application to the regulator for
launching commodities at the exchange. It is currently holding mock trading
sessions and is ready to launch on October 1, once approval from the regulator
is in place.
 1Q performance: Revenue was lower on account of the downward trend in
equity markets and its consequent impact on small and mid-cap stocks. There
has also been a redu ction in book-building charges, which are directly
correlated to the number of new issues.
August 2018 121

OTHERS| Voices
Castrol Buy
 CSTRL’s 2QCY18 total volumes were up 12% YoY, led by double-digit volume
Click below for growth in PCMO segment (~41% volume share) and CVO segment (~46% volume
Results Update share). CVO segment volume grew higher than PCMO segment, the growth was
on account of pick-up in economic activity. Industrial segment (~13% volume)
grew at healthy rate during the quarter.
 Castrol has grown its volume ahead of the industry at ~7% YoY in 1HCY18.
Industry volume grew at ~6% YoY over the same period.
 The company has re-launched 50% of the products with better technology
contributed to volume growth. As per management, ~80% of the volume growth
has come from the new products launched during the last nine months.
 Management took some price hikes to pass on the increase in raw material cost;
raw material cost was up 8% YoY/QoQ. Despite the sharp rise in input costs
during the quarter, company was able to grow their volumes along with price
hikes. Company has taken ~3% price hike in July.
 Management has guided to grow ahead of the market; market is expected to

grow at ~4-5%. With continued volatility in crude oil price and steep
depreciation of the Indian rupee, the company expects a challenging second
half, but will be taking appropriate actions to support the volume growth
momentum.
CEAT Buy
 Expect further RM cost inflation in 2QFY19 by 2-3% QoQ. To mitigate this
Click below for impact, management expects to take ~1% price hike in 2Q.
 CEAT has taken average price increase of 1.5-2% in 1Q. Management highlighted
Results Update
that ~1% price hike was taken in 2Ws in Jul’18, which implies that price gap visà-
vis competitors has widened.
 During the quarter, CEAT witnessed healthy growth across segments, with
growth of ~20% in CVs and ~15% in 2Ws. Both OEMs and replacement segments
witnessed robust growth.
 Impact of new axle load norms: Management expects new norms to lead to
moderation in demand in the near term. Although the company awaits more
clarity on implication of these norms, it could lead to development of new tyres
with increased rim size. The company could need to incur additional cost (~INR
200m) to purchase molds for this increased size. Testing of new tyres would take
around six months.
 While debt has come down during the quarter (INR7.5b in Jun’18 v/s INR8.7b in
Mar’18) due to strong control over working capital, management expects it to
be maintained at this level or marginally increase in FY19.
 On Capex: Guided for FY19 capex of ~INR15b. Capex of INR2b was incurred in
1Q.
 De-bottlenecking of PCR capacity is still underway and would be completed by
Aug’18. This would lead to increase in PCR capacity by ~40tpd.
August 2018 122

OTHERS| Voices
 Capacity utilization of Ambernath plant stands at 25-30%. Second phase taking

OTR capacity to 100tpd will be operational in 18 months.
Container Corp Buy

 Significant pick up in exports in 1QFY19 helped CCRI drive volumes.
Click below for  The first phase of DFCC will be commissioned on August 15, 2018
Results Update
 CCRI witnessed 11% YoY growth in EXIM volumes and 9% YoY growth in
domestic volumes.
 Market share: CCRI continues to enjoy leadership position at JNPT. It has a
market share of ~84% in JNPT; 50.5% in Mundra and 52.6% in Pipavav port
 Double-stacking volumes increased YoY: The double-stack running trains
increased to 829 trains in 1QFY19(+52% YoY).
 Reduction in empty running charges: Empty running charges in EXIM segment
declined 25% YoY to INR295m v/s INR395m in 1QFY18. This was due to increase
in double stacking and higher exports in 1QFY19.
 SIES income booked in 1QFY19: Concor booked SIES related income of
INR700mn in 1QFY19.
 Land license fees increased by 25% YoY in 1QFY19 which impacted margins.
 Concor has gained market share in domestic segment by 4% while lost 1%
market share in EXIM segment on YoY basis
Coromandel Intl Buy

All-round improvement in agri parameters
Click below for  The GST rate for phosphoric acid has been revised to 5%, which is expected to
improve working capital situation. The custom duty on import of phosphoric
Results Update
acid stands at 5%.
 The season has witnessed a recovery in crop sowing in the past month, with
total acreage under Kharif increasing on account of monsoon revival in East,
North East and Gujarat.
 In key states of AP and Telangana, the acreage of paddy has increased by 35%,
while cotton acreage is down by 3%. Total acreage is up by 7%.
 The rainfall in AP and Telangana stands at 95% and 102%, respectively, of long-
term average.
 The reservoir level in south India stands at 58%, significantly up from last year’s
figure of 25%.
Business front
 The subsidy payout via DBT route has commenced, with the subsidy being
settled in a time span of 2-3 weeks. The company has received subsidy up to
December 2017, with DBT claims received so far amounting to INR980m.
 Raw material prices remain firm on account of high global demand and pressure
of supply in China.
 The phosphoric acid price fixed for 2QFY19 is at USD758/MT, which is 4% higher
over the previous quarter.
 DAP prices have also moved up ~25% to INR26,600/MT. With increased prices,
farmers are looking to shift to grades of NPK.
August 2018 123

OTHERS| Voices
 Management expects INR2,000m reduction of working capital per year on

account of credit accumulation coming down with the ease of GST rate.
 Expanded capacity of Mancozeb is expected to get commissioned by Dec’18.
Company Performance
 Margins in crop protection business are beginning to improve on the back of
signs of improvement in overall raw material availability.
 The export business registered double-digit growth, driven by APEC and Africa.
Going forward, higher acreage of soybean in Brazil is expected to carry forward
growth.
 The retail business was impacted by lower acreage in June in AP and Telangana.
However, better rainfall in July is likely to improve performance.
 The subsidy-non-subsidy revenue mix in 1QFY19 stood at 75%-25%, while the
EBITDA mix stood at 63%-37%. Management intends to take the EBITDA mix to
50%-50%.
 The share of unique grades stood at 38% in FY19, which management wants to
take up to 43% in FY19.
 Other expenses increased due to exchange impact of INR350m and a slight
increase in rental and stores and spares across plants. The power cost, too, went
up in Gujarat.
Delta Corp Buy

 Casino revenue was driven by a robust pick-up in tourism and unserved demand
Click below for
(spillover from casinos that shut down operations), and dynamic pricing on
Results Update
weekends. This helped offset the adverse impact of increased license fee on the
margins.
 DELTA incurred promotional expenses of INR230m in FY18 and INR130m in
1QFY19 (excl. fantasy sports business). These spends will continue in near
future.
 Online gaming margin to be sustainable at 15-17%; could go up to 20-21% over
long term.
 Rummy vertical reported INR11m revenue in June; expect rummy software
(w.r.t user interface and experience) to be fully ready and reach the intended
upgrade levels by September/October 2018. This vertical is likely to contribute
INR150-200m to revenue in FY19, but will not be profitable until FY20.
 Goa hotel operates at 70-80% average full-year occupancy; Daman hotel
operates at 50-55% average full-year average occupancy.
 Deltin Caravela and Deltin JAQK reported revenue of INR240m and INR400m,
respectively, in 1QFY19
 The company is investing in promotional activities to attract visitors for daytime
gaming. Typically, visitors visit the ship for an evening event. According to the
management, tourists are not aware of daytime gaming as an option.
 Nepal Casino at Fairfield by Marriott, Kathmandu, is likely to commence
operations by December, and will likely contribute to 4QFY19 revenues. The
company has already signed a lease agreement with Marriott-Kathmandu.
 The company has a full-year marketing budget at INR700m/INR800m. It has
incurred marketing expenses of INR140-150m in 1QFY19.
 The company currently holds INR4.5b of cash on its balance sheet.
August 2018 124

OTHERS| Voices
Indo Count Inds Neutral

 Global growth has begun to pick up, especially in large economies such as the
Click below for US and Europe. The company is looking to diversify into other markets such as
Detailed Concall Transcript & Europe, the UK, Japan, the Middle East and Australia.
Results Update
 The company maintained its volumes guidance of 58-60m meters in FY19, after
witnessing growth of 22% in 1QFY19 to 14.4m meters. EBITDA margin guidance
has also been maintained at 14-16%.
 Volume growth couldn’t translate into similar revenue growth on account of
lower currency realization, a change in export incentive and more captive
consumption of yarn.
 EBITDA margin was impacted by a rise in employee cost and other operating
expenses.
 The company believes that its plans to expand presence in Europe would be
aided by the expiry of duty preference being enjoyed by Pakistan and
Bangladesh exports in 2020.
 There is a rift prevailing between India and US over the non-WTO compliance of
MEIS. Management is confident that if MEIS is withdrawn, a similar scheme
would be introduced by the Commerce Ministry to nullify its drawback which
would be WTO-compliant.
Info Edge Buy

Click below for 99acres.com
Detailed Concall Transcript &  With higher marketing spend; 99acres saw consolidation of market share in the
Results Update real estate space. In terms of time spent and unique visitors, it now has a traffic
share of 50%.
 The worst in the real estate market seems to be behind. And 99acres is
consolidating its position in the market.
 INFOE will continue investing in the business, in the areas of marketing,
branding, technology, product and data. Improving the quality of listings and
bettering the mobile experience are focus areas.
Naukri.com
 Billings saw a significant jump due to recovery in IT hiring, which was soft till the
previous quarter. Revenue in Naukri.com grew by 15% YoY to INR1.8b,
maintaining the traction seen in the previous quarter when it grew by 13% YoY
 These trends are reflected in geographic performance. Recovery was seen in
Bangalore, Chennai and Hyderabad.
 The outlook for Naukri remains uncertain because it’s difficult to call out a
definitive path for IT. However, non-IT segments are expected to continue
exhibiting strong growth.
Others
 The matrimony business saw a 4% growth in revenue while billing was flat YoY.
90% of the users in the business are on its mobile app.
 Operating losses continued in Jeevansathi on account of higher ad spend.
August 2018 125

OTHERS| Voices
 INFOE increased stake in Policybazaar on account of an improved outlook,

better financial performance and a more favorable risk perception (reduced
regulatory risk).
 Zomato saw a strong increase in orders to 14m (compared to 5.5m in March). It
has also been seeing good traction in new initiatives like Zomato Gold and
Piggybank.
Interglobe Aviation Neutral

Current Price INR 1,073 Target Price INR 903 | -16% Downside
1QFY19 performance
 INDIGO’s RASK for the quarter stood at INR3.7 (-3% YoY), driven by a decline in
Click below for
Detailed Concall Transcript & yields. PLFs were up 130bp YoY to 89.3%, and ticket yields were down by 5.4%
Results Update YoY to INR3.62.
 Fuel cost per ASK was up at INR1.54 (+30% YoY, +11% QoQ), despite a 27% YoY
increase in ATF prices in 1QFY19.
 CASK excluding fuel stood at INR2.17 (+13% YoY) and total CASK stood at INR3.7
(+20% YoY) led by a rise in fuel cost.
 RASK less CASK stood at INR0.02 (-98% YoY), impacted by lower yields and
higher fuel cost.
25% ASK guidance for FY19
 Management expects ASK addition to increase by 25% YoY in FY19 and by 28%
YoY in 2QFY19.
 It had a fleet of 169 aircraft, which includes 36 NEOs, 124 CEOs and 9 ATRs as of
30th June 2018.
Other highlights
 INDIGO added two new destinations in the quarter; total number of
destinations increased to 52, including 8 international destinations.
 For the quarter, the company had a Technical Dispatch Reliability of 99.85%, on
time performance of 83.9% at four key metros.
 It had a total cash balance of INR132b, comprising INR61b of free cash and
INR71b of restricted cash; total debt stood at INR25b as of 30th June 2018. The
entire debt for IndiGo is aircraft-related. It does not have any working capital
debt.
IRB Infra Neutral

Click below for BoT Segment:
Results Update  Traffic volume growth stood at 6-7% across portfolio for 4QFY18.
 Agra Etawah toll collection has been impacted temporarily as traffic has been
diverted to newly commissioned Agra Lucknow expressway, where tariff
discounts are currently provided to commuters. IRB expects toll collection to
improve once normal tariff rate is implemented.
 For the loss in revenues in the Ahmedabad Vadodara highway due to competing
State Facility, the claim has been filed with NHAI and is under active discussion
 In the Mumbai Pune highway, due to closure of Mumbra bypass which acts as a
last mile connectivity to NH-4 with NH3 and NH8, there has been diversion of
heavy traffic and revenue loss stands at INR12-14 lacs per day
August 2018 126

OTHERS| Voices
HAM and EPC segment

 Financial closure for all three HAM projects and BoT project is on track and is
expected to be completed by 1HFY19 end.
 IRB expects revenue contribution from HAM projects to start from 3QFY19 once
it achieves financial closure and receives appointed date from NHAI.
 Will bid for ToT project in JV with the existing partner as and when tender is
floated by NHAI or State Government.
Kaveri Seeds Buy

Click below for  The company has held a market share of 15% overall and further plans to
Results Update penetrate into the northern region, where the market size is 8m packets with
negligible presence of KSCL.
 The company has had a write-off to the tune of INR150m in 1QFY19 reported in
the cost of goods sold.
 On account of late pickup in cotton sowing, the company expects cotton packet
spillover in AP and some parts of Tamil Nadu. However, volumes for 2QFY19
have been guided to be at similar levels of 2QFY18.
 The company is planning to launch two new products in the northern market
and two for AP, Telangana and Karnataka.
 The guidance for FY20 has been as follows – 10-15% growth in maize, 25%
growth in hybrid rice, 40% growth in selection rice and 70-80% growth in
vegetable seeds.
 Other expenses declined on account of a decrease of INR10 per packet in
royalty. The total impact on account of declining royalty stood at INR90m.
 The illegal seeds market stood at more than 12% of the total market sales in
1QFY19 compared to 8% in FY18 on account of higher illegal sales in AP,
Telangana and Karnataka.
MCX Buy
 Pick-up in volumes: During the quarter, revenue growth of 3% QoQ was led by a
Click below for
Detailed Concall Transcript & pick-up in ADT to the tune of 4%. ADT growth has been encouraging in the
Results Update recent quarters and 1QFY19 clocked growth of 33% YoY. Options are now
trading on five commodities and currently clocking 5-7% of futures volume. MCX
would term it as a success once it crosses 60% of the futures volume.
 Focused on liquidity: For now MCX is focused on building its Options portfolio
and increasing liquidity on these contracts. It intends to start monetizing it once
the premium crosses INR1b. Assuming a 1% premium, it implies a notional value
of INR100b. To boost volumes, a Liquidity Enhancement Scheme was introduced
on Options. The mechanism entails no cash payout, but gives a rebate on fees
payable on all products. This is thus reduced from revenue and doesn’t show up
in expenses. INR7.2m was the amount accounted for in 1QFY19.
 Regulatory thrust positive: While Options have been launched, SEBI is now
considering allowing Indices. On the distribution front, MCX has on boarded four
of the five largest bank distributors, one of which should start trading by next
quarter. On participation, institutional pick-up is slow because of problems in
August 2018 127

OTHERS| Voices
the custodial framework. There is hence no growth in AIFs’ participation on

commodities and no guidelines from SEBI on PMS/MFs.
 Technology glitches solved: MCX faced technological glitches several times in
the recent past. The management stated issues in a piece of hardware that
didn’t allow data packets to be communicated between two servers. The
hardware has been isolated and systems are now running without it.
Clarification has been given to regulators and the solution is in place.
Oberoi Realty Buy

 Raised INR12b through QIP, which will be used for land acquisition.
Click below for  The construction of two malls – one in Borivali and another one in Worli (luxury
Results Update mall) – has commenced. OBER has already commenced leasing activity at
Borivali Mall by pre-leasing ~1 lakh sf.
 Construction of Exquisite phase III has commenced and is expected to be
launched in FY19. (d) Management continues exploring opportunities in new
business models like DM/JVs.
 Gross margin shrank on account of change in revenue recognition policy for
Mulund projects and higher contribution of low-margin Borivali projects.
 Company has already pre-leased 1 lakh sq. ft. in Borivali mall to Inox.
 Company recently issued 24m equity shares in a QIP raising INR12b.
Management has specified that capital will be used toward land acquisition to
build land bank.
 Construction of Exquisite phase III has commenced and is expected to be
launched in FY19.
 The company will build 0.35-0.4msf project in Tardeo. It is a redevelopment
project where the company will develop the tenant building first and once that
is complete, the construction for free sale building will commence.
 The company also plans to execute the JVLR (single building) project in FY19.
 Full occupation certificate received for Prisma on June 28, 2018.
 Management reiterated that it has received good feedback for the new
subvention schemes it has introduced.
Phoenix Mills Buy

Click below for  Acquired under construction retail development in Lucknow for INR4.7b – to be
Results Update developed as PMC Lucknow. It has a GLA of 0.9m sq ft and is 100% owned by
Phoenix Mills. In this project, 90% RCC is completed; project expected to be
operational in FY21.
 In July 2018, the company undertook a JV with Ahmedabad-based Safal Group
to acquire 5.2 acre land parcel in Dhaltej, Ahmedabad (for INR2.3b for a 50%
stake). It will be a premium retail space having a GLA 0.6m sq ft.
 With this, the retail portfolio under development stands at 4.6m sq ft, which is
in addition to 6m sq ft that is already operational. The company is well on its
path to reach target of 11-12m sq ft of operational retail portfolio by FY23.
 Going forward, the company will focus on specific micro markets and will be
selective in acquisitions, it wishes to add 2-2.5m sq.ft to retail portfolio and is
evaluating specific micro markets.
August 2018 128

OTHERS| Voices
 It believes there is 2msq.ft additional development potential in existing assets.

At HSP Lower Parel, it is evaluating options under new TCR, to add 1.2m sq.ft.
However, plans for the same are not finalized yet.
 Gross debt is at INR4.4b and management believes the levels are comfortable.
 Balanced development potential (~2.2msf+) at various locations includes –
Bangalore mall 1.5m sq.ft (retail and commercial office), Pune Viman Nagar
potential of 0.7m sq.ft., Chennai – 0.4m sq.ft. Also, in new acquisitions, there is
3rd phase potential of 1.3/1.4m sq.ft (Hebbal 0.7msf, Pune 600msf).
 PHNX expects revenues from new developments to the tune of ~INR5.6b which
comprises: PMC Hebbal Bangalore - potential of INR1500m-1550m per year,
Indore PMC - potential of (1st full year operations) INR900m-950m topline, PMC
Wakad, Pune – potential of INR1300m, Ahmedabad (600k sq ft) - potential of
INR750m, Lucknow (900k sqft) - potential of INR850-900m.
Piramal Enterprises Buy

Click below for

Financial Services
Detailed Concall Transcript &  Growth coming from CF and hospitality sector.
Results Update  Half of the repayments in the quarter came through project cash flows and
others through refinancing.
 Sanction pipeline – Majority is CF.
 Leverage, which is 3.9x now, will go up to 4.5-5x by FY20, according to
management.
 Consolidation playing out in the real estate industry due to RERA.
 Retail home loans - 54% of home loans are to salaried employees; INR8m
average ticket size; yield is 9.1%; LAP is only 5% of book; 80% of loan book
through existing relationships.
 Management is focusing on fee income generation from its lending
relationships.
Pharma
 Expect EBITDA margin to expand from 20% to 25% by FY20.
Others
 Segmental assets are reported at marked-to-market.
 Fee income is amortized over the asset tenor.
 A few equity deals with Ivanhoe-Cambridge in the pipeline.
 Developers make 18-20% margins today v/s 40% at the peak.
P I Industries Buy
 The order book for CSM business has remained at similar level of USD1.1b, with
Click below for execution being replaced by new orders.
Detailed Concall Transcript &  The company expects robust growth in FY19, backed by ramping up of existing
Results Update
product portfolio, new product launches and execution of order book.
 The guidance for topline growth for both domestic agrochemical business and
CSM business has been maintained at 18-20% each for FY19.
 The company has been trying to de-risk the raw material pressure situation in
China by developing sources in India and other geographies like Vietnam,
Indonesia and Thailand.
August 2018 129

OTHERS| Voices
 Robust growth in domestic agrochemical business in 1QFY19 has been aided by

4-5 key brands, with Nominee Gold witnessing better growth than last year.
 Management guided for a flattish margin for FY19 on account of continued
investment in R&D and expected initial streamlining cost for launch of new
products.
 The company is coming up with two new plants in Jambusar, which are expected
to get commissioned by end-CY2018. Capex for FY20 has been guided at
INR2,500-3,000m.
 Investment in the aforementioned plants is expected to be INR1,500m and
INR1,000m respectively with revenue potential at maturity in the range of 1.5-
2x of investment.
 The company has commercialized two new products in 1QFY19 – one each in
domestic agrochemical business and CSM business. Further, the company has
guided to launch four products in domestic market and 2-3 more products for
CSM business.
Sadbhav Engg. Buy

 Maintains revenue guidance of INR41b for FY19, given strong order backlog
Click below for position of INR137b.
Results Update  Restates its plan to bring down debt from current INR14.2b to INR12b by FY19.
 Loans to SIPL have been bought down by INR1b to INR4.3b, which it expects to
bring down further to INR 3.0b.
 SIPL has securitized cash flow of MBCP, which has been utilized for repaying
loans of Sadbhav Engineering.
 Other income during the quarter had increased, given the rise in leasing income
from mining equipment and interest earned on advance taken by subcontractor.
 SADE has asked to delink the project scope for UNA- Kodinar and
Rampurkothagudam as land availability is an issue.
 Tax rate for FY19 is expected to be 5%, given MAT credit availability of INR1.0b.
From FY20, normal tax rate would be applied.
 Capex of INR1b planned for FY19.
 Mobilization advance of INR7b is yet to be received, which will further ease out
the funding requirement for the company.
 Revenue from execution of seven HAM projects is INR5.5b in 1QFY19.
SRF Buy
 Healthy contribution from all businesses
Click below for  Have realigned businesses into 4 segments – laminated and coated fabric and
Results Update engineering plastic business has been regrouped as other
Chemical
 Flurochemicals – higher volumes from OEM in auto segment, robust double digit
growth in PV aided growth
 Domestic AC market remains sluggish – although SRF maintain market share of
more than 50%
 Low growth in refrigerant due to high inventory in US
 Chloromethane plant in Dahej achieve highest production in quarter
August 2018 130

OTHERS| Voices
 Specialty chemical subdued performance – weakness to continue for 1 more Q–

improvement/turnaround in 2HFY19 – 40-50% growth expected in 2HFY19 in
specialty chemical. Closed FY18 at 650cr revenue (which will growth 40-50% in
FY19)
Packaging
 Healthy growth in rev and enhanced margin due to revival in demand of BOPET,
operationalizing of lines in Indore
 Thailand plant doing exceedingly well, announced setting up of BOPET film plant
and resin unit in this plant
 BOPET is showing good traction – margins expected at similar level
 BOPP challenge continues – it might aggravate further. 2 lines have come up in
the industry which is giving competition
Technical textile
 NTCF improved volume and market share maintained
 PBIT margin expanded – improvement in margin and volume growth in
polyester industrial yarn and belting fabric
 Witnessing higher demand in NTCF
Others
 Laminated fabric had huge supply overhang
 Coated fabric - maintained domestic market share of more than 50%
 Engineering plastic robust performance due to higher volume led by demand
form 2W, 4W segment – 100% utilization as of now, looking at increasing the
capacity
 Packaging business - All plants have run at 100% capacity – growth form
increase in volume, margin and additional contribution arising out of weaker
rupee
 Margins registered in technical textile and packaging are sustainable
 Capacities will come in FY20 – Hungary and Thailand. Capacities for FY19 have
already come in which are being utilized at 100%
 134a utilized fully, doing bottlenecking to increase volumes further, R22 fully
utilized, R32 and blends are a little higher compared to last quarter
 Capex – 750-800cr in FY19
 Margin improvement in packaging business – value added product is larger
portfolio compared to peers , general price increase in BOPET segment (this
advantage will be reaped by all producers, but SRF will have more advantage as
they product value added product) – this should sustain in next 3-4 Qs
 BOPP – is challenging, 2 capacities have recently come in the industry
 Out of 80,000MT of chloromethane, chloroform is consumed 25-30%, rest is
sold
 As of now they are largely (almost entirely) in Europe, some presence in US –
exploring Japan, South America
 Tax guidance at 28-29%
August 2018 131

OTHERS| Voices
Tata Chemicals Buy

 The overall situation of soda ash in global market is fairly tight in spite of the
Click below for Turkish capacity coming on stream.
Detailed Concall Transcript &  On account of strong demand in soda ash and tightness in supply, energy cost
Results Update has witnessed a surge, which to an extent has been passed on. The company has
taken INR500 increase in soda ash price in India.
 The company witnessed a stellar performance in India and UK entities, which
covered up for the slowdown in the US and Kenya – the company had a planned
shutdown in the US, while in Kenya, heavy rains impacted operations.
 The company witnessed a volumes loss of 16,000MT in Kenya due to heavy
rains, and a volumes loss of 25,000MT in the US due to outage.
 Annual soda ash volume is expected to be flat in the US, whereas in the UK, full
year volumes are expected to fall as the company has pulled back from the
trading business which was 23,000MT last year at negligible margin.
 The company is further debottlenecking in US and India (subject to government
approval). However, in UK, the focus would be on moving to higher-value
products rather than increasing capacity.
 The company guided for EBITDA of ~GBP25m in the UK, ~USD10m in Magadi
and ~USD100m in the US in FY19.
 Soda ash and sodium bicarbonate business forms 75% of UK subsidiary, while on
the EBITDA front, the contribution is 1/3rd (2/3rd contribution of EBITDA from
salt).
 Rallis India sales volumes were higher due to normal monsoon in most parts of
the country.
 The company completed the transfer of phosphatic fertilizer business. The
subsidy outstanding receivable stands at INR5.1b as on 30th June 2018 v/s
INR8.6b as on 31st March 2018.
 The company’s gross debt stood at INR64.7b as on June 2018, with net debt at
INR15b, while the company has negative net debt of INR28.6b on standalone
basis.
 The company has launched varieties of chutneys, organic dals and new
improved zero sugar during the quarter.
 The company witnessed 20% QoQ growth in pulses and over 250% QoQ growth
in spices. There has also been reconfiguration of supply chain in spice, as the
consumer business witnessed de-stocking in the previous year.
 Nearly 50-60% of consumer products demand is witnessed from 8 metro cities.
The company plans to focus with its products in North, East and West at first
and then the southern region upon product stabilization.
 Going forward, the company is investing in packing and distribution center of
food – firstly for protein platform (pulses, besan etc.).
 The capex in FY19 is guided at INR8, 000m – INR5,000m in basic chemistry,
INR3,000m in specialty (INR250-300m in Rallis, balance in HDS and
nutraceuticals).
 Further, over a period of 3-4 years, a capex of USD50m is planned for US,
INR15b for India, out of which INR5b is for salt.
 TTCH has completed the acquisition of precipitated silica business of Allied Silica
Ltd by way of a slump sale on a going concern basis for INR1, 230m.
August 2018 132

OTHERS| Voices
TeamLease Services Buy

 Headcount revival: Headcount growth picked up in 1QFY19 as the company
Click below for added ~5,400 associates. From here, headcount growth is expected to continue
Results Update strong momentum or even accelerate through the year. However, during the
quarter, incremental revenue came in with fixed price contracts, resulting in a
lower blended realization. Growth in these accounts is also likely to result in
similar realization and margin trends in the next quarter.
 Specialized staffing: Growth in Specialized Staffing was strong as well, both in IT
and in Telecom. Going ahead, introduction of new profiles in Telecom and
opening up of new accounts in IT are expected to drive growth. While TEAM’s
presence in IT services is broad, it doesn’t have too many accounts in captives
and product companies. Hunting for new accounts in these areas is the focus.
 Margin levers in place: Whereas there are near-term headwinds on margins
because of incremental growth from lower-realization contracts, the outlook on
margins going forward remains positive. The optimism stems out of the
expectation of strong associate headcount growth, without the addition of core
employees, resulting in benefits from operating leverage.
 Fresher’s World acquired: The company approved and acquired an additional
21% stake in Cassius Technologies Private Limited (Fresher’s World) reaching a
total of 51%. It paid INR37.8m for the additional stake; the company had
revenue of INR58.3m in FY18. TEAM intends to strengthen its sourcing
capabilities through the acquisition, adding another channel to the existing
channels.
Trident Buy
 The company’s net debt as on June 2018 reduced by INR2,400m YoY to
Click below for
Results Update INR23,810m.
 Captive consumption of yarn increased 100bp from 38.5% in FY18 to 39.5% in
1QFY19.
 The company has guided for investment of INR5.5b for captive power
generation plant of 60MW (expected to get commissioned in FY21). Capex is
expected to be financed by internal accruals and external borrowing. External
borrowing is expected to the tune of INR3.75b.
 The captive power plant once commissioned is expected to aid to margin
expansion of 200bp as it will curb power & fuel cost.
 Employee cost increased in 1QFY19 on account of one-time impact due to
upward revision in salary slabs. The expected run-rate on a quarterly basis is
INR1,300-1,400m.
 The company hedges ~50% of its export sales in forward contracts. The current
hedging is at 67.5 for the next six months of FY19.
 The company continues holding cotton inventory till October at a cost of
INR115-120/kg (without including holding cost) v/s the current market price of
INR130/kg.
August 2018 133

OTHERS| Voices
UPL Buy
 Finance cost was reported inflated due to forex impact. The company had
Click below for INR500m of forex gain in 1QFY18 v/s a gain of INR50m in 1QFY19, which
Results Update stretched the finance cost. Further, borrowing in Argentina and Brazil was of
high cost as the company borrowed in local currency because of currency
depreciation.
 Gross debt as of June 2018 stood at INR74,310m compared to INR66,380m as of
March 2018. Net debt stood at INR47,060m, up by INR9,600m compared to
March 2018 (of which an increase of INR5,260m can be attributed to working
capital increase).
 The current season in LATAM is more of pre-placement and order booking
season which looks promising. This indicates that inventory levels in the region
have normalized.
 Market growth in India was in double-digits in the last three months on the back
of good Kharif sowing and weather conditions.
 Market growth in North America was in low-single-digits because of a delay in
season by 3-4 weeks. The plantings were delayed in Midwest which impacted
the use of herbicides used before planting. Due to late sowing, the season is
expected to be short. Hence, market growth will be subdued going forward.
 The seeds business registered double-digit growth driven by US where there
was strong demand in sorghum. In India, the traction was witnessed in
vegetable seeds, while in Argentina, sunflower witnessed good traction.
 The company has expanded the presence of gluphosinate from North America
to LATAM, India, Africa and other markets.
August 2018 134

GALLERY
Explanation of Investment Rating Voices
Investment Rating Expected return (over 12-month)
BUY >=15%
SELL < - 10%
NEUTRAL > - 10 % to 15%
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm
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Registration details of group entities: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:
INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409)
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MOSL would be used until receipt of new MOFSL registration numbers.
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1QFY19 | August 2018

This quarterly report contains

Research & Quant Team (Gautam.Duggad@MotilalOswal.com); Tel: +91 22 3982 5404

Automobiles ......................................................................................................... 8-16 Glenmark Pharma ........................................................................................................... 70

Demand improvement visible; Cyclicals continue driving performance

Key takeaways from management commentary

Ashok Leyland Buy

Bajaj Auto Buy

Bharat Forge Buy

Eicher Motors Buy

Endurance Technologies Buy

 ENDU has received GST-related incentive from Maharashtra Government,

Hero Motocorp Neutral

 Haridwar plant expiry of incentive to impact margins by ~70bp in 1QFY19;

Mahindra & Mahindra Buy

Maruti Suzuki Buy

Motherson Sumi Buy

 Guided for capex of INR20b in FY19.

TVS Motors Neutral

 Investments in subsidiaries: During the quarter, the company made following

ABB India Sell

Transport and Infrastructure end market

Blue Star Neutral

Crompton Greaves Consumer Elec Buy

 Grew share in fans by 1% in Q119

CG Power Industrial Solutions Neutral

Havells India Buy

KEC International Neutral

 INR10b of orders from PGCIL each year for KEC.

Larsen & Toubro Buy

Solar Industries Neutral

Va Tech Wabag Buy

KEY HIGHLIGHTS FROM CONFERENCE CALL

Dalmia Bharat Buy

Grasim Industries Neutral

India Cement Neutral

JK Lakshmi Cement Buy

Sanghi Inds Buy

Ultratech Cement Buy

 Competitive intensity continues to be

 There is an upward trend in the demand  New innovations are likely to be

 Green shoots on demand, in line monsoon  Capex: INR2.5-3b in FY19 (for

Hindustan  Gradual improvement in demand

 Copra prices are expected to see

Asian Paints Neutral

Britannia Inds Buy

Godrej Consumer Neutral

GSK Consumer Neutral

Hindustan Unilever Buy

Jyothy Labs Neutral

Page Inds Neutral

Pidilite Industries Buy

United Breweries Buy

United Spirits Neutral

Axis Bank Buy

Bank of Baroda Buy

Canara Bank Neutral

DCB Bank Neutral