1. finance
2. bank

Visit us at www.sharekhan.com
April 10, 2015
Index
 Sharekhan Special >> Q4FY2015 earnings preview
 Stock Update >> CMC
 Sector Update >> Pharma earnings preview
For Private Circulation only
REGISTRATION DETAILS Regd Add: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station,
Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos. BSE - INB/INF011073351 ; BSE- CD ; NSE - INB/
INF231073330 ; CD-INE231073330 ; MCX Stock Exchange - INB/INF261073333 ; CD-INE261073330 ; DP - NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-2712004 ; PMS-INP000000662 ; Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ;
NCDEX-00132 ; (NCDEX/TCM/CORP/0142) ; NCDEX SPOT-NCDEXSPOT/116/CO/11/20626 ; For any complaints email at igc@sharekhan.com ; Disclaimer:
Client should read the Risk DisclosureSharekhan
Document issued by SEBIApril
& relevant
10,exchanges
2015 and Do’s & Don’ts by MCX & NCDEX and the T & C on www.sharekhan.com
1
before investing.
Home
Next
investor’s eye
sharekhan special
Q4FY2015 earnings preview
Sharekhan Special
Another quarter of weak performance but outlook remains encouraging
Q4FY2015 result expectations
largely in line with the long-term average price/earnings
(P/E) multiple of 15x FY2017 consensus earnings estimate.
Though there is scope for some estimate downgrades in
the forthcoming result season, the valuations are still in
a comfortable zone. We re-iterate our prognosis that given
the weakness in the corporate results, mounting pressure
from the opposition parties, unseasonal rains that
damaged the rabi crop and global uncertainties, the
benchmark indices would slip into a consolidation phase
with sideways movement in a range for some time before
the earnings growth trajectory revives again.
The Q4FY2015 performance of the Sensex companies
would reflect the impact of several unfavourable factors
like (1) cross-currency movement (appreciation of the
dollar and the rupee against the euro which adversely
affected the financials of the export-oriented companies,
ie information technology [IT] and pharmaceutical [pharma]
companies); (2) weak rural demand (plummeting agricommodity prices along with crop damage due to
unseasonal rains); (3) inventory losses (mark-down of
inventory to fully reflect the plunge in the prices of crude
oil and other inputs); and (4) moderation in government
spending in a bid to adhere to the fiscal deficit target for
FY2014.
Sensex’ one-year forward P/E band
Consequently, the aggregate revenues of the Sensex
companies are estimated to decline by 4.7% whereas their
aggregate net profit is likely to remain flat or show a
marginal decline in Q4FY2015. The key drag on the
earnings would come from the metal, capital goods and
some of the energy companies.
Outlook
Weakness more of an aberration; earnings revival
ahead: In spite of the weak quarterly results for the second
consecutive quarter, the consensus is building on a 1617% compounded annual growth in the earnings of the
Sensex over the next two years. That’s because some of
the negative factors are temporary and the macro scenario
favours a revival in economic growth and corporate
earnings in terms of higher government spending on
infrastructure, a low energy cost, easing interest rates
and an improving policy environment.
Source: Bloomberg, Sharekhan Research
Outperformers
Underperformers
Cadila Health, Cipla
Ipca Labs, Torrent Pharma
Ashok Leyland, Maruti Suzuki,
Eicher Motors
Mahindra & Mahindra,
Bajaj Auto
Century Ply , Relaxo Footwears
Sun TV, GAIL
Oil India, Skipper, Triveni Turbines
BHEL, PTC India
Valuation
Yes Bank, HDFC Bank, PFS, Bajaj Finance
IDBI Bank, Federal Bank
Near the long-term average on FY2017 consensus
earnings estimate: In spite of the handsome rally for the
past 18 months, the valuations are not stretched and
Marico, GCPL, GSK Consumers
ITC, HUL
Sharekhan
The Ramco Cements, Mangalam Cement, Shree Cement
GDL, Thomas Cook
2
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Estimated sector-wise contribution to Sensex’ earnings growth (%)
Trend in Sensex’ (ex oil) earnings growth—actual vs estimated
Source: Company data, Sharekhan Research
Source: Company data, Sharekhan Research
Estimated revenue growth by sector ex energy (%)
Estimated PAT growth by sector ex energy (%)
Source: Company data, Sharekhan Research
Source: Company data, Sharekhan Research
Consensus earnings estimates of Sensex for FY2017
Source: Company data, Sharekhan Research
Sharekhan
3
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Sectoral previews
Auto
Barring a few bright spots, a relatively weak quarter for the sector
Q4FY2015 result expectations
Mid-single digit growth for the auto universe in Q4FY2015: The automobile companies (ex Tata Motors) are expected to report a modest
4.9% growth in revenues for Q4FY2015. The growth is on the lower side primarily owing to a slowdown in the two-wheeler and tractor
segments. Given a fall in their volumes, original equipment manufacturers (OEMs) such as Bajaj Auto and Mahindra & Mahindra (M&M) are
expected to report a decline in revenue. Ashok Leyland Ltd (ALL) is expected to outperform the industry with a growth of 52%. Riding on
the continued popularity of Royal Enfield, Eicher Motors too is expected to post an impressive growth of 29.3%. In the ancillary space, aided
by a strong growth in exports Bharat Forge’s revenues are expected to grow by 32.8%. Tyre manufacturers are expected to post a marginal
decline in revenues due to a drop in the realisations.
Margins improve YoY due to stable raw material prices and favourable currency: On a Y-o-Y basis, the margins of the OEMs (ex
Tata Motors) are expected to expand by 50 basis points (BPS). ALL, deriving the benefit of operating leverage and price hikes
undertaken, is expected to report the highest expansion in the operating profit margin (OPM). The depreciation of the yen against
the dollar is expected to boost the margins of Maruti Suzuki. The tyre manufacturers, aided by a sharp fall in the prices of the key
raw materials, are expected to report a 200-BPS Y-o-Y margin expansion. Automobile companies (ex Tata Motors) are expected to
report a 3.3% growth in the net profit for Q4FY2015.
Outlook
The weak monsoon rainfall last year, damage to the rabi crop due to unseasonal rains in this year and a lack of growth in the farm income
has weighed heavily on rural demand especially for motorcycles and tractors. Meanwhile, the urban demand-led scooter segment
continues to outperform and its contribution is bound to increase going forward. A regular monsoon rainfall will re-kindle the rural
demand. While the passenger vehicle (PV) segment has grown by 10% in FY2015, the growth has been driven by a discount push and excise
duty cut. The lower fuel prices coupled with expectation of interest rate cuts should spur demand in FY2016. Meanwhile, the CV segment
is expected to continue to grow in double digits, albeit at a slower pace.
Valuation
The auto stocks have been re-rated significantly in the last one year and most of them are trading at a premium to the average
valuation multiple. Thus, it is essential to be selective now. From an investment perspective, we continue to prefer Maruti Suzuki
in the four-wheeler space and Hero MotoCorp in the two-wheeler space. In the CV segment we like ALL and in the ancillary space
we like Apollo Tyres and Gabriel India.
Preferred picks this earnings season: ALL, Maruti Suzuki, Eicher Motors and JK Tyres
Q4FY2015 results snapshot
Banks
Q4FY15E
Coverage Coverage
Maruti Suzuki
Hero MotoCorp
Bajaj Auto
TVS Motor
M&M**
Ashok Leyland
Apollo Tyres
Greaves Cotton
Gabriel India
Rico Auto Industries*
Soft coverage
Tata Motors
Eicher Motors #
Exide Ind
Bharat Forge
Suprajit Eng
Ceat
Balkrishna Industries
JK Tyre & Industries
Sales (Rs cr)
Q4FY14
YoY %
QoQ %
Q4FY15E
OPM (%)
Q4FY14 YoY BPS QoQ BPS
Q4FY15E
PAT (Rs cr)
Q4FY14
YoY %
QoQ %
13,480
6,572
4,528
2,441
8,779
4,682
3,024
431
361
320
12,101
6,513
4,932
2,156
10,214
3,077
3,229
435
335
368
11.4
0.9
-8.2
13.2
-14.1
52.2
-6.4
-1.0
7.7
-13.2
7.2
-3.9
-20.0
-8.0
-5.2
39.3
-2.6
-0.1
0.4
-10.4
13.1
13.0
19.8
6.1
11.3
9.5
15.8
12.0
8.1
7.5
10.3
13.7
19.6
6.4
10.4
6.0
14.3
10.6
8.3
10.1
275
-77
15
-37
94
356
152
136
-16
-262
40
94
-51
3
-34
245
0
5
9
134
1,093
615
643
81
608
187
260
34
17
2
800
554
788
75
915
(13)
271
28
15
3
36.7
11.0
-18.4
8.9
-33.6
NA
-4.1
19.7
12.7
-35.9
36.3
5.5
-20.2
-9.9
-9.0
NA
-1.3
4.6
-1.1
-130.8
69,323
2,487
1,878
1,236
161
1,456
1,023
1,944
65,317
1,924
1,613
931
154
1,453
1,037
1,912
6.1
29.3
16.5
32.8
4.5
0.2
-1.3
1.7
-0.9
8.4
20.5
3.2
-0.9
2.5
6.6
5.8
15.7
13.6
14.0
29.6
15.5
13.3
27.1
13.7
15.3
11.5
13.6
24.8
16.9
11.0
25.8
10.0
39
203
43
485
-143
226
125
364
249
200
-1624
1413
255
-1420
1329
-48
4,872
185
161
203
13
104
138
100
3,972
139
132
107
13
69
154
45
22.7
32.9
21.9
90.3
4.0
51.1
-10.4
122.6
25.2
20.3
65.7
3.4
11.7
17.1
6.4
8.9
* Please note Q4FY2015 results not comparable with Q4FY2014 results due to sale of its subsidiary to joint venture partner, FCC of Japan
** M&M+MVML
# Results are for Q1FY2016, the company has changed accounting year to March ending
Sharekhan
4
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Valuations
Company
Reco
Price
CMP
EPS (Rs)
PE (x)
target (Rs)
(Rs)
FY14
FY15E
FY16E
FY14
FY15
FY16
164.0
39.7
31.1
22.3
Maruti Suzuki
Buy
4,250
3,657
92.1
117.5
Hero MotoCorp
Buy
3,400
2,610
105.6
128.9
163.0
24.7
20.2
16.0
Bajaj Auto
Buy
2,400
2,097
113.9
115.3
122.4
18.4
18.2
17.1
TVS Motor
Hold
270
251
5.5
7.5
11.8
45.7
33.3
21.3
M&M*
Buy
1,425
1,274
65.3
56.0
67.4
19.5
22.8
18.9
Ashok Leyland
Buy
76
75
(1.8)
0.7
3.0
NA
101.6
24.8
Apollo Tyres
Buy
260
181
20.7
22.1
23.8
8.8
8.2
7.6
Greaves Cotton
Buy
165
137
5.0
5.5
7.8
27.5
24.7
17.6
Gabriel India
Buy
110
90
3.3
5.0
7.0
27.7
18.0
12.8
Rico Auto Industries
Buy
55
54
0.2
(0.1)
3.3
268.6
NA
16.3
Soft-coverage
Tata Motors
Positve
559
43.5
57.7
66.4
12.9
9.7
8.4
Eicher Motors
Positve
16,339
145.7
227.0
364.9
112.1
72.0
44.8
Exide Ind
Neutral
189
5.7
6.7
8.1
33.0
28.2
23.3
Bharat Forge
Neutral
1,321
21.4
27.2
36.0
61.7
48.6
36.7
Suprajit Eng
Positve
123
4.2
4.4
6.1
29.0
27.9
20.2
Ceat
Neutral
832
78.2
74.6
84.8
10.6
11.2
9.8
Balkrishna Industries
Positve
701
50.5
50.9
56.9
13.9
13.8
12.3
JK Tyre & Industries
Neutral
124
11.9
15.4
17.1
10.5
8.1
7.3
* M&M + MVML
Banking and NBFC
Slower credit growth and higher provisioning to affect earnings growth
Q4FY2015 result expectations
Earnings growth of PSBs to be subdued: We expect the aggregate earnings of the banks under our coverage to grow by
about 11% year on year (YoY) in Q4FY2015. However, despite the benefit of treasury gains and the utilisation of floating
provisions the public sector banks (PSBs) are expected to report a marginal growth (of about 6% YoY) in their earnings due to
a higher provisioning for the non-performing assets (NPAs), employee expenses and a slow core income growth.
Asset quality remains key monitorable: Stress on asset quality will persist in Q4FY2015 as well, largely due to higher
additions to the restructured book since this was the last quarter of regulatory forbearance on restructured loans. Overall,
fresh NPA additions may remain elevated (ie remain near Q3FY2015 levels) partly because of rising NPA additions from the
restructured portfolio which would keep the provisioning high.
Outlook
While the concerns persist in the near term (a slow credit growth, stress on asset quality and weak capital position) we
believe a pick-up in the economy, easing of the interest rates by the Reserve Bank of India and some structural reforms in the
financial sector could ease the challenges in the medium term.
Valuation
The PSBs trade at a discount of about 30% to the 12-month forward book value because of the concerns in the near term
(weak asset quality, low capital ratio, etc). A revival in the economy will improve their valuations though. The private banks
will continue to trade at premium valuations due to their superior performance and better operating metrics compared with
the PSBs.
Preferred picks this earnings season: Axis Bank, HDFC Bank and Yes Bank (private banks); State Bank of India and
Bank of Baroda (PSBs); LIC Housing Finance and PTC India Financial Services (non-banking finance companies [NBFCs])
Sharekhan
5
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Q4FY2015 results snapshot
Banks
Rs cr
NII
Q4FY15E Q4FY14
Public
State Bank of India
Punjab National Bank
Bank of Baroda
Bank of India
Union Bank
Corporation Bank*
Andhra Bank*
Allahabad Bank
IDBI Bank
PSBs total
Private
ICICI Bank
HDFC Bank
Axis Bank
Federal Bank
Yes Bank
Private banks total
Grand total
NBFCs
HDFC
LIC Housing Finance
Capital First#
Bajaj Finance
PTC India Fin. Ser.
YoY % QoQ %
PPP
Q4FY15E Q4FY14 YoY %
QoQ %
PAT
Q4FY15E Q4FY14 YoY %
QoQ %
14,323
4,361
3,434
3,116
2,320
1,076
1,176
1,621
1,490
32,917
12,903
4,002
3,124
3,047
2,052
907
950
1,353
1,574
29,913
11.0
9.0
9.9
2.3
13.0
18.6
23.8
19.8
-5.4
10.0
4.0
3.0
4.5
12.1
9.4
4.6
-6.6
0.8
4.1
4.4
10,632 10,628
2,869
3,173
2,569
2,580
2,105
1,996
1,685
1,320
788
637
823
850
1,098
835
1,212
1,850
23,781 23,868
0.0
-9.6
-0.4
5.5
27.7
23.8
-3.2
31.4
-34.5
-0.4
14.4
4.3
9.8
12.8
15.0
8.5
-10.9
2.1
8.8
10.3
3,552
911
932
523
561
120
261
258
255
7,372
3,041
806
1,157
558
579
42
88
158
518
6,946
16.8
13.0
-19.5
-6.2
-3.2
187.5
196.9
63.4
-50.8
6.1
22.1
17.6
179.0
201.8
85.4
-18.8
29.6
57.1
147.9
44.3
4,842
6,039
3,734
642
933
16,190
49,106
4,357
4,953
3,166
625
720
13,820
43,733
11.1
21.9
18.0
2.7
29.6
17.2
12.3
0.6
6.0
4.0
9.3
2.6
3.8
4.2
5,202
4,453
4,826
3,779
3,973
3,248
445
420
918
680
15,364 12,581
39,144 36,449
16.8
27.7
22.3
6.0
34.9
22.1
7.4
3.3
1.0
19.9
12.0
6.4
6.8
8.9
2,908
2,835
2,140
248
550
8,682
16,054
2,652
2,327
1,842
277
430
7,528
14,475
9.7
21.9
16.2
-10.6
27.8
15.3
10.9
0.7
1.5
12.7
-6.4
1.8
3.5
18.9
2,632
627
133
745
98
2,278
533
96
553
65
15.5
17.5
38.2
34.6
51.9
30.5
14.2
-3.6
-9.6
9.8
15.2
18.8
41.4
31.3
35.0
30.1
12.3
-45.2
-11.2
15.8
1,890
396
35
240
65
1,723
370
30
182
46
9.7
7.0
15.8
31.6
40.4
32.6
15.0
15.5
-7.3
18.8
2,745
593
42
445
106.1
2,383
499
29
339
79
*Strong PAT growth in Corporation Bank and Andhra Bank is mainly attributed to a low base of Q4FY2014
#Capital First’s PAT growth adjusted for tax write-back in Q4FY2014 is about 50% YoY
Valuations
Reco
Price
target
CMP
(Rs)
(Rs)
FY14
FY15E
FY16E
FY14
FY15E
FY16E
FY14
378
203
212
275
268
78
104
135
82
274
153
169
206
157
57
80
101
74
0.6
0.6
0.8
0.5
0.5
0.3
0.3
0.6
0.3
0.5
0.7
0.6
0.5
0.4
0.5
0.3
0.4
0.3
0.2
0.4
0.8
0.8
0.7
0.5
0.5
0.4
0.5
0.5
0.3
0.5
10.0
9.7
13.4
10.1
9.5
5.7
5.1
10.1
5.0
8.7
10.5
9.8
10.0
7.4
9.9
6.4
7.9
5.6
2.4
7.8
12.7
12.4
12.7
9.7
10.7
8.4
10.7
9.9
4.4
10.2
1.8
0.8
1.1
0.5
0.6
0.5
0.5
0.5
0.5
0.8
1.7
0.7
0.9
0.5
0.5
0.5
0.5
0.5
0.5
0.7
1.5
0.7
0.8
0.4
0.5
0.4
0.5
0.4
0.5
0.6
Buy
Buy
Buy
Buy
Buy
424
1,260
610
170
930
315
1,035
556
130
821
1.7
1.7
1.7
1.1
1.6
1.6
1.0
1.8
1.7
1.8
1.1
1.7
1.6
1.0
1.8
1.8
1.8
1.1
1.6
1.6
1.1
14.0
21.3
17.4
12.6
25.0
18.1
13.4
14.7
19.7
17.8
13.3
21.4
17.4
12.6
15.7
19.2
17.9
14.3
18.6
17.1
13.7
2.5
5.7
3.4
1.7
4.2
3.5
2.1
2.3
4.3
3.0
1.5
2.9
2.8
1.7
2.1
3.7
2.6
1.3
2.5
2.4
1.5
Hold
Buy
Buy
Buy
Buy
1,360
558
485
UR
90
1,299
453
452
4,489
59
2.6
1.6
0.6
3.4
5.0
2.5
1.4
1.0
3.3
3.2
2.5
1.5
1.2
3.3
3.4
20.5
18.8
4.9
19.6
16.1
20.7
17.4
8.2
20.7
14.8
21.5
18.6
10.1
22.3
19.0
7.3
3.0
3.2
5.6
2.5
6.4
2.7
2.6
4.7
2.2
5.6
2.3
2.4
3.9
2.0
6
April 10, 2015
Banks
Public
State Bank of India
Punjab National Bank
Bank of Baroda
Bank of India
Union Bank
Corporation Bank
Andhra Bank
Allahabad Bank
IDBI Bank
PSBs total / avg.
Private
ICICI Bank
HDFC Bank
Axis Bank
Federal Bank
Yes Bank
Private banks total / avg.
Grand total / avg.
NBFCs
HDFC
LIC Housing Finance
Capital First
Bajaj Finance
PTC India Fin. Ser.
Buy
Hold
Buy
Buy
Buy
Hold
Hold
Buy
Hold
RoA (%)
RoE (%)
P/BV(x)
FY15E FY16E
UR - Under review
Sharekhan
Home
Next
investor’s eye
sharekhan special
Consumer goods & services
Sustained volume growth and margin expansion to drive earnings
Q4FY2015 result expectations
Double-digit revenue growth in Q4 also: In spite of signs of weakness in rural demand, most of the fast moving consumer
goods (FMCG) companies under our coverage (barring Marico, which is likely to report a growth of over 20%) are expected to
announce a revenue growth of 10-14% for Q4FY2015. The revenue growth would be led by a growth in volumes during the
quarter. On the other hand, the leisure & travel majors like Thomas Cook India and Cox & Kings are expected to report a
relatively higher revenue growth of 37% and 18% respectively for the same quarter.
Low input prices to keep GPM high: The third quarter of FY2015 had marked the beginning of an improvement in the gross profit
margin (GPM) of the FMCG companies due to a decline in the raw material prices. However, the larger benefits of lower raw
material prices were expected to flow in from Q4FY2015. For Q4FY2015 the GPM of the FMCG companies is expected to show an
improvement of 100-300 BPS (barring Marico, which will see a marginal improvement only). However, we expect the FMCG players
to deploy some of the savings from the reduced raw material cost for advertisement and promotional activities, thereby limiting
the margin expansion to 75-150BPS at the operating level. Given the improving profitability, the earnings growth of most of the
FMCG companies is likely to be higher than the revenue growth.
Outlook
Soft input prices and improving demand to support earnings growth: Unseasonal rains in February and March damaged the
ready-to-reap Rabi crop this year. This will dampen the rural sentiment and affect the sales of certain FMCG products in the rural
markets. On the other hand, moderation in inflationary pressures, savings from reduced fuel prices and improving income levels
(especially after an upward revision of the pay of government employees in keeping with the recommendations of the Seventh Pay
Commission) are likely to sustain the revival in urban consumption.
Valuation
Premium valuations make us selective: We maintain our selective stance on the FMCG sector due to the premium valuations
of some companies and retain Marico as our top FMCG pick due to a better visibility of its future earnings compared with the
rest. The recent correction in the stock price of Jyothy Laboratories has made it one of our preferred picks in the mid-cap
FMCG space. In the discretionary services segment, we continue to like Cox & Kings and Thomas Cook India because their
growth prospects are better from the medium- to long-term perspective.
Preferred picks this earnings season: Marico, Jyothy Laboratories, Cox & Kings and Thomas Cook India
Q4FY2015 results snapshot
Banks
Net s7ales (Rs cr)
Q4FY15E Q4FY14 YoY %
QoQ %
OPM (%)
Adjusted PAT (Rs cr)
Q4FY15E Q4FY14 YoY BPS QoQ BPS Q4FY15E Q4FY14 YoY %
QoQ %
FMCG companies under coverage
HUL
7588.1
6935.8
9.4
0.1
14.2
13.1
111
-9
896.4
820.6
9.2
ITC
9879.8
9238.5
6.9
6.9
36.1
34.7
139
139
2550.3
2278
12
12
GSK Consumers
1241.7
1079.1
15.1
27.3
18.2
17.5
63
63
208.4
171.6
21.4
116.2
GCPL
2191.7
1931.5
13.5
-1.6
18.8
17.7
109
94
279.6
236.3
18.3
6.1
Marico
1300.6
1072.1
21.3
-10.5
14.7
14.4
32
-160
110.7
88.8
24.6
-30.8
Jyothy Laboratories
Zydus Wellness
-6.9
409.7
359.9
13.9
15
9.5
8.3
119
-62
31.1
21.8
42.5
17.8
114
101.1
12.7
6.5
19.4
19.8
-47
-190
23.3
21.8
6.9
-15.5
Under soft coverage
Dabur India
1948.1
1769
10.1
-6.1
18
16.7
131
-
275.2
235.5
16.8
-3
Britannia Industries
2052.8
1801.5
13.9
1
10.8
9.4
144
0.9
141.1
108.1
30.5
-5.5
231.9
184.5
25.7
12.7
14.2
58.7
47.7
23.1
12.6
26726.4 24288.5
10
4516 3982.5
13.4
Bajaj Corp
Total
29.6
28.6
99
22.9
21.9
98
Other companies under coverage
Cox & Kings
Speciality Restaurants
Thomas Cook (India)
567.9
494.9
14.7
21.9
18.3
11
729
-
3.3
-42.5
-
-
77.3
67.5
14.6
-3.9
10.4
9.9
47
-5.3
2.8
3.4
-17.5
-12
663.6
481.4
37.8
-10.4
6.1
5.7
45
-
15.8
7.9
99.1
-40.5
Sharekhan
7
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Valuations
Companies
CMP
(Rs)
FY14
EPS (Rs)
FY15E
FY16E
FY14
913
17.2
18.3
21.9
53.1
PE (x)
FY15E
Reco.
FY16E
Price target
(Rs)
FMCG
HUL
ITC
49.9
41.7
Hold
925
346
11.0
12.1
13.9
31.5
28.6
24.9
Hold
380
GSK Consumer
6,305
160.4
137.7
160.5
49.1
45.8
39.3
Hold
**
GCPL
1,167
22.1
27.0
34.0
52.8
43.2
34.3
Hold
1,175
408
7.5
8.8
11.2
54.4
46.4
36.4
Buy
1,020
25.2
24.1
30.9
40.5
42.3
33.0
Hold
280
4.7
8.0
11.4
59.5
34.9
24.5
Buy
Marico
Zydus Wellness
Jyothy Laboratories
Consumer discretionary services
430
1,025
320
EV/EBIDTA (X)
Cox & Kings
323
15.7
23.7
21.4
10.9
8.2
8.3
Buy
395
Speciality Restaurants
186
4.0
2.3
5.0
25.1
28.4
17.6
Hold
205
Thomas Cook India
212
2.5
5.6
5.0
33.9
18.6
16.6
Buy
250
*Thomas Cook India’s FY2015 estimates are for 15 months due to a change in the accounting year from December 2014 to March 2015
Capital goods & engineering
Delay in investment cycle revival; be selective
Q4FY2015 result expectations
Double-digit growth driven by smaller companies: Excluding Bharat Heavy Electricals Ltd (BHEL), the financial performance
of the capital goods and engineering companies under our coverage is encouraging with the aggregate revenues and earnings
of our capital goods and engineering universe estimated to grow by 20% and 16% respectively in Q4FY2015. Incidentally, the
mid-caps like Finolex Cables Ltd (FCL), Kalpataru Power Transmission Ltd (KPTL), V-Guard Industries (V-Guard) and Skipper
are likely to witness a sound growth. On the other hand, the bellwethers like BHEL, Crompton Greaves Ltd (CGL) and
Thermax continue to suffer from the weakness in the investment cycle.
Margins under pressure only for large players under coverage: Even on the margin front, the large power equipment
companies are facing pressure due to negative operating leverage (lower execution and higher fixed cost leading to lower
profitability) especially in BHEL. On the other hand, smaller companies like Skipper, Triveni Turbines Ltd (TTL) and KPTL are
expected to witness an improvement in the margins as compared with Q4FY2014.
Outlook
Order inflow picks up but demand environment still challenging: Though some of the large companies like BHEL and
Larsen & Toubro (L&T) received some large orders from the power generation segment, the demand outlook remains challenging.
On the positive side, the order flow in the power transmission sector has been quite healthy domestically. Internationally,
the weakness in Europe and the rising volatility in the currency movements are putting pressure on the order flow from the
overseas markets.
Valuation
Valuations factor in expected revival; be selective: Industrial companies had witnessed a sharp re-rating after the majority
mandate given to the Narendra Modi-led government on hopes of an early revival in the investment cycle. Though the new
government has taken steps to remove bottlenecks and improve the policy environment, the delay in the revival of the
investment cycle is likely to limit the upside for some of the large companies in the near term. Thus, it is advisable to be
selective.
Preferred picks this earnings season: L&T, KPTL, FCL and Skipper
Sharekhan
8
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Q4FY2015 estimates
Company
Sales (Rs cr)
Q4FY15E
Y-o-Y %
BHEL
Crompton Greaves
L&T (stand-alone)
KPTL (stand-alone)
Thermax (stand-alone)
Finolex Cables
V-Guard Industries
Va Tech Wabag
Skipper
Triveni Turbines
Sharekhan coverage
Ex BHEL performance
12,154
4,252
24,523
1,208
1,506
813
482
1,097
495
189
46,720
34,566
Q4FY15E
OPM (%)
Y-o-Y BPS
7.7
4.9
14.6
10.3
10.6
11.7
8.5
8.9
11.1
21.1
11.4
12.7
(900)
(8)
14
88
78
1
0
(354)
237
32
(251)
20
-17.6
12.9
22.1
4.9
10.9
26.5
15.1
21.6
14.8
44.2
7.1
19.7
PAT (Rs cr)
Q4FY15E
Y-o-Y %
783
67
2,608
49
111
66
24
77
19
25
3,829
3,046
-57.7
5.0
16.5
4.3
4.9
17.9
16.7
8.9
79.6
29.7
-14.6
15.7
Valuations
CMP
Particulars
BHEL
Crompton Greaves
L&T #
KPTL #
Thermax #
Finolex Cables
V-Guard Industries
Va Tech Wabag
Skipper
Triveni Turbines
Price
(Rs) target (Rs)
234
168
1,770
225
1,105
286
945
824
159
135
270
230
1,840
280
1,300
335
1,160
850
185
145
EPS
CAGR over
PE(x)
Reco
FY2014
FY2015E
FY2016E
FY14-16E
FY2014
FY2015E
FY2016E
14.1
3.9
52.9
9.5
18.5
12.4
23.5
20.4
2.6
2.1
5.4
3.3
58.6
11.4
26.3
14.5
25.0
21.4
4.8
2.9
14.9
8.7
70.1
14.4
32.8
16.9
32.7
30.0
8.2
4.1
2.8
49.4
15.1
23.1
33.2
16.7
18.0
21.3
77.6
39.7
16.6
43.1
33.5
23.7
59.7
23.1
40.2
40.4
61.2
64.3
43.3
50.9
30.2
19.7
42.0
19.7
37.8
38.5
33.1
46.6
15.7
19.3
25.2
15.6
33.7
16.9
28.9
27.5
19.4
32.9
Hold
Buy
Buy
Buy
Hold
Buy
Hold
Buy
Buy
Hold
# stand-alone
Cement
Players with exposure to south and west to outperform their peers in Q4
Q4FY2015 result expectations
Revenue growth to be driven by rising capacity: We expect the revenues of the cement companies under our coverage
(both active and soft) to increase by 13% largely supported by a growth in volumes (due to capacity expansion) and price
hikes (in the western and southern regions). Consequently, we expect the companies from the west and the south to show an
improvement in the OPM for the quarter.
Southern players to benefit from strong pricing discipline: As compared with the other markets, the southern market has
shown strong pricing power which is expected to boost the earnings for the southern players. Hence, we expect a strong
earnings growth in The Ramco Cements, Mangalam Cement and JK Lakshmi Cement.
Outlook
Our channel-check suggests strong but volatile realisations in all regions except selected pockets in the west and the north. Going
ahead, the key monitorables are a revival of demand across the country and sustainability of the cement price at the current level.
We expect the demand revival to be driven by the infrastructure-led sectors as the economic environment of the country improves.
Valuation
Most of the players in the cement space have recently corrected from their near-term peak levels which provides selective
opportunities to enter the sector now. We believe there is still scope for further appreciation for UltraTech Cement in the
large-cap space and for The Ramco Cements in the mid-cap space considering their peak up-cycle valuations.
Preferred picks this earnings season: UltraTech Cement, The Ramco Cements and Mangalam Cement
Sharekhan
9
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Q4FY2015 results snapshot
Rs cr
Company
Net sales
Q4
FY15E
Q4
FY14
OPM (%)
YoY
%
QoQ
%
Q4
FY15E
Adj. PAT
Q4
FY14
YoY
BPS
QoQ
BPS
Q4
FY15E
Q4
FY14
YoY
%
QoQ
%
Grasim
8,789.4
8,245.9
6.6
11.4
15.8
16.4
-58
247
561.8
576.4
-2.5
68.4
UltraTech
6,476.3
5,831.9
11.0
18.0
18.3
19.6
-128
292
630.5
742.4
-15.1
73.0
28.6
Shree Cement
1,762.1
1,247.5
41.2
14.1
20.5
20.0
49
67
121.5
173.3
-29.9
India Cements
1,242.7
1,080.1
15.1
20.0
15.1
6.9
819
-26
31.7
-30.6
-
-
The Ramco Cements
1,095.3
985.1
11.2
34.2
18.7
13.1
565
282
27.5
10.4
166.1
20.0
Mangalam Cement
294.5
213.7
37.8
41.9
14.7
11.2
342
1287
13.8
0.2
-
-
JK Lakshmi Cement
874.1
648.2
34.8
57.2
17.9
17.4
43
430
92.1
71.9
28.1
222.6
20,534.4
18,252.4
12.5
17.1
17.2
16.9
29
252 1,478.9
1,544.0
-4.2
78.2
Total
Valuations
Company
Reco
Price
target (Rs)
CMP
EPS (Rs)
(Rs)
FY14
FY15E
PE (x)
FY16E
FY14
FY15
FY16
Grasim
Buy
4,475
3,791
212
195.9
215.6
18
19
18
UltraTech
Buy
3,440
2,968
74.8
71.2
106.5
40
42
28
Shree Cement
Hold
11,500
10,830
248.3
389.1
462.6
44
28
23
The Ramco Cements
Buy
420
324
5.2
9
15.4
63
36
21
India Cements
NA
NA
108
-1.2
0.8
3.5
-93
136
31
JK Lakshmi cement
NA
NA
369
10
15.6
21.1
37
24
17
Mangalam Cement
NA
NA
293
10
12.2
16.2
29
24
18
** price targe under review
IT
A soft quarter led by cross-currency headwind
Q4FY2015 result expectations
Unfavourable cross-currency movements to dampen growth: The recent appreciation of the dollar by 10.4%, 4.1% and 8.3%
against the euro, the pound and the Australian Dollar respectively would negatively affect the revenue growth of the top four
IT companies by 200-250BPS in Q4FY2015. On a constant-currency basis, the sequential growth is expected to be in the range
of 2.3-4.0% in Q4FY2015 with HCL Technologies leading among the front-line companies. Owing to unfavourable cross-currency
movements, the OPM of the top four IT companies is likely to decline by 27-57BPS sequentially.
Key issues to watch out for would be: (1) management commentary on IT budget for CY2015 and the overall demand
environment; (2) outlook for energy & utilities and manufacturing verticals owing to a steep fall in crude oil prices; (3) the
commentary on the deal flow and the trends in the digital space; (4) wage hikes for FY2016 (which could be higher than the last
year’s average); (5) hedging policy, given the volatile cross-currency movements; and (6) Infosys is expected to deploy cash to
the tune of $5 billion in carrying out acquisitions and buy-backs, as indicated by Dr Vishal Sikka, who is expected to unveil the
company’s cash deployment strategy in April 2015 (which will serve as a re-rating trigger for Infosys in the near term).
Outlook
The demand environment is strong with improving discretionary IT spending in the USA and evolving opportunities in digital
technologies. Thus, we believe that the adverse impact of a possible downgrade in the earnings estimates due to crosscurrency movements is already getting reflected in the valuations. Consequently, we remain constructive on the IT sector
for an investment horizon of 12 months.
Valuation
In the last one month the CNX IT Index has corrected by close to 5% owing to the fear of growth tapering off in FY2016 and
negative impact of unfavourable cross-currency movements. However, we remain positive on the sector and recent
underperformance offer opportunty to buy for a decent return in next 12 months.
Preferred picks this earnings season: Infosys, Tata Consultancy Services, HCL Technologies, Tech Mahindra (unrated)
and Persistent Systems (in the mid-cap space).
Sharekhan
10
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Earnings expectations
Particulars
Rs cr
Revenues
QoQ (%)
YoY (%)
EBITDA (%) QoQ (BPS) YoY (BPS)
Net profit
QoQ (%)
YoY (%)
Infosys
13,992.7
1.4
8.7
28.2
(50)
(12)
3,261.7
0.4
9.0
TCS
24,474.4
-0.1
13.6
28.4
(39)
(248)
5,424.4
-0.4
2.4
Wipro#
12,146.0
1.3
4.2
22.9
61
(126)
2,265.2
3.3
1.7
9,427.9
1.6
12.9
24.4
(57)
(232)
1,905.9
-0.5
17.4
6130.5
6.6
21.2
17.7
(243)
(345)
732.4
-9.1
19.2
Persistent Systems
495.3
0.1
10.9
20.3
22
(666)
66.5
-10.7
-1.1
Firstsource Solutions
774.1
3.1
-2.8
12.8
34.8
38.2
63.4
10.2
7.7
HCL Technologies *
Tech Mahindra
#blended margins *June year ending
Valuations
Company
Infosys
TCS
Wipro
*HCL Technologies
Persistent Systems
Firstsource Solutions
#Tech Mahindra
Reco
Buy
Buy
Hold
Buy
Buy
Buy
Unrated
Price
CMP
target (Rs)
2,540
3,100
715
1,025
940
43
NA
(Rs)
2,223
2,555
629
992
700
29
633
EPS (Rs)
FY14
94.6
97.7
31.8
45.1
31.2
2.9
31.6
FY15E
108.8
108.4
35.3
54.6
35.1
3.5
29.8
FY16E FY17E
124.2 138.3
125.3 142.7
40.8
43.8
59.9
67.5
43.3
52.5
5
5.8
35.8
42.4
P/E (x)
FY14 FY15E
23.5
20.4
26.2
23.6
19.8
17.8
22
18.2
22.5
20
9.8
8.2
20.1
21.2
FY16E
17.9
20.4
15.4
16.6
16.2
5.7
17.7
FY17E
16.1
17.9
14.4
14.7
13.3
4.9
14.9
**June year ending #EPS for FY2014 includes EO gains, EPS excludes treasury shares
Oil & Gas
A favourable equation in Q4; nil subsidy burden and strong GRM
Q4FY2015 result expectations
Weak crude but nil subsidy benefits: Global crude oil prices remained weak in Q4FY2015 (the same corrected by 29%
sequentially to $54 per barrel) on global supply worries. In the meanwhile, the dollar remained resilient against the rupee at
around Rs62.1. This is expected to pressurise the quarter’s gross realisation of the upstream companies. However, their subsidy
burden is expected to be nil in this quarter. This would be positive for both the oil marketing companies (OMCs) and upstream
companies. Nevertheless, the OMCs may report a marginal inventory loss but a better marketing margin. We have built in a net
realisation of around $54 per barrel in our quarterly estimate for the upstream companies. In the absence of under-recoveries,
the earnings of Oil India are expected to improve substantially (up by 39% YoY and 58% QoQ).
Strong GRM but weak petchem margin: On the positive side, in Q4FY2015 the Singapore gross refining margin (GRM) moved
up by around 37% YoY and 38% QoQ to $8.5 per barrel as spreads in light and heavy distillates strengthened over the previous
quarter. We have built in a premium of around $1 over the Singapore benchmark GRM for estimating the GRM of RIL at $9.5 per
barrel in this quarter. This would improve the profitability of RIL’s refining business sequentially. However, we expect the
petrochemical margins to be soft for the current quarter which could affect GAIL’s earnings too. The earnings of RIL are
expected to be up by 12% QoQ in Q4FY2015.
Outlook
Reforms to drive value: We believe reforms are going to drive value in the oil & gas space. The deregulation of diesel has
played a major role in significantly reducing the subsidy burden of the OMCs and upstream companies which was one of the
major drags for the sector. However, the Street seeks clarity from the government over the fixing of the subsidy sharing
formula for future which could improve the visibility, though a regular revision of gas prices has helped to some extent. The
global crude oil prices seem to be forming a new normal around $50 per barrel currently which is pressurising the realisation
of the upstream companies but benefitting the downstream companies.
Valuation
Concerns factored in, remain positive on a few: We remain positive on Oil India, which could be one of the key beneficiaries
of the recent reforms. RIL is going to benefit from its ongoing capital expenditure plan in the petrochemical and refining
businesses. The valuations of RIL and OIL remain attractive.
Preferred stocks: RIL and Oil India
Sharekhan
11
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Q4FY2015 results snapshot
Rs cr
Company
Sales
OPM (%)
PAT
Q4
FY15E
Q4
FY14
YoY
%
QoQ
%
Q4
FY15E
Q4
FY14
YoY
BPS
QoQ
BPS
Q4
FY15E
Q4
FY14
YoY
%
QoQ
%
RIL
63,196
95,193
-33.6
-21.2
13.6
8.8
480.2
456.6
5697
5613
1.2
12.0
OIL
2,640
1,948
35.5
20.3
39.2
24.5
1470
950
785
566
38.8
57.6
ONGC
21,374
20,881
2.4
13
47.4
44.0
337.8
241.7
6,174
4889
26.3
73.0
GAIL
14,281
14,464
-1.3
-2
7.7
10.0
-223.2
-498.0
650.0
972.0
-33.1
8.1
Coverage
Soft coverage
Valuations
Company
CMP
Price
Reco.
target
Coverage
RIL
OIL
Soft coverage
GAIL
ONGC
EPS (Rs)
CAGR
PE (x)
FY14
FY15E
FY16E
FY14-16E
FY14
FY15E
FY16E
904
468
1,045
625
Buy
Buy
69.6
49.5
68.3
40.3
67.9
48.1
-1%
-1%
13
9.5
13.2
11.6
13.3
9.7
399
310
NA
NA
NR
NR
37.73
30.98
31.01
29.03
31.52
33.51
-9%
4%
10.6
10
12.9
10.7
12.7
9.3
Pharma
Higher base effect and weaker exports to moderate growth considerably in Q4
Q4FY2015 result expectations
Growth to moderate in Q4: Most of the pharma players in our universe are expected to show a moderate performance for
Q4FY2015, mainly due to a high base effect (the exclusivity on Cymbalta to five leading players had formed a high base in
Q4FY2014), adverse cross-currency movement, fewer product approvals for the regulated markets, and political instability in
the Middle-East and the Commonwealth of Independent States region.
Flattish growth at PAT level: On an aggregate basis, the net sales of our pharma universe are expected to show a 16% growth
(versus a 28% growth in Q4FY2014) on the back of a 21% growth in the Indian formulation business and an 11% growth in the
export of formulations. The OPM is likely to contract by 140BPS YoY while the net profit of the universe is likely to remain flat
YoY for Q4FY2015. The profit growth for the quarter will be led by Cadila Healthcare, Cipla, Divi’s Laboratories and JB
Chemicals while Glenmark Pharma, Ipca Laboratories and Torrent Pharma will see a decline in the profit.
Outlook
Issues in near term but a healthy growth outlook for long term: The past few quarters have seen a fewer number of product
approvals in the USA, as the US Food and Drug Administration (USFDA) has been busy overhauling the drug review process.
Meanwhile, the abbreviated new drug application (ANDA) filings by the generic players kept piling up and currently, on an average,
nearly 40% of ANDAs filed remains to be approved by the USFDA. This has moderated the growth in the US market (the US market
is the largest contributor to the revenues of our universe) for most of the players. However, we expect a large chunk of the pending
ANDAs to unfold in the next few quarters and that will help revive the growth rates. Also, the growth is likely to be driven by the
domestic market, which is witnessing a robust volume growth, and the introduction of new drugs. Therefore, while we are positive
on the long-term prospects of the sector, a few of the front-line players may see headwinds in the short term.
Valuation
Relying on the long-term prospects, most of the pharma companies have been successively re-rated over the past few
quarters and that has led most of the front-line players to trade at a significant premium to their respective historical
average multiples. On an aggregate basis, our pharma universe is trading at 28.5x FY2016E earnings (versus 16x Sensex
earnings) as compared with its historical average of 14-20x (on one-year forward earnings basis). However, we expect the
premium to sustain due to an improving product profile and increasing reach of the Indian pharma companies. We advise
staying selective in this space.
Preferred picks this earnings season: Cadila Healthcare, Cipla and Divi’s Laboratories
Sharekhan
12
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Q4FY2015 results snapshot
Company
Net sales (Rs cr)
OPM (%)
Adj PAT (Rs cr)
Q4FY15E
YoY %
QoQ %
Q4FY15E
YoY (BPS)
QoQ (BPS)
Q4FY15E
YoY %
Aurobindo Pharma
3190
37
1
19.5
-1244
12
435
-7
7
Cadila Healthcare
2316
17
6
19.9
88
-56
314
40
0
Cipla
2890
15
4
20.0
380
0
365
40
11
23
Divi's Lab
QoQ %
831
11
5
38.9
159
265
258
23
1877
10
10
20.2
-111
-170
215
-17
-3
696
-6
-5
16.7
-663
108
61
-49
16
3455
11
9
28.5
41
72
599
8
2
272
19
3
18.3
663
-25
40.2
63
51
Sun Pharma*
4886
21
14
43.9
-28
-81
1584
0
11
Torrent Pharma
1203
0
4
22.4
-506
272
138
-44
-17
21615
16
7
27.4
-136.9
42
3696
-0.2
-5
Glenmark Pharma
IPCA Lab
Lupin
JB Chemicals
Total
*Without factoring in Ranbaxy’s numbers
Valuation
Price
EPS (Rs)
P/E (x)
RoE (%)
Particulars
Reco.
target
FY15E
FY16E
FY17E
FY15E
FY16E
FY17E
FY15E
FY16E
Aurobindo Pharma
Buy
***
48.9
65.3
80.3
27
20
17
32.3
31.7
FY17E
28.9
Cadila Healthcare
Buy
2060
49.9
79.3
102.7
38
24
19
22.0
26.4
25.9
Cipla
Buy
843
16.6
25.4
34.3
44
29
22
12.5
16.7
19.1
Divi's Lab
Hold
***
62.2
78.1
98.3
31
25
20
25.6
26.2
26.5
Glenmark Pharma
Buy
915
28.7
37.6
50.0
31
23
18
21.7
22.5
23.4
IPCA Lab
Buy
***
30.1
41.1
53.3
22
16
12
17.6
20.2
21.7
Lupin
Buy
2300
52.9
63.5
81.5
38
32
25
26.3
24.4
24.1
JB Chemicals
Hold
***
13.7
17.0
20.8
14
11
9
10.6
12.1
13.3
Sun Pharma
Hold
1250
29.6
33.0
40.1
39
35
29
26.8
23.7
22.9
Torrent Pharma
Buy
1500
47.8
62.2
78.5
35.1
33.2
31.3
Sector
26
20
16
35.6
28.5
22.6
Power
Prevailing uncertainties reflected in the valuation
Q4FY2015 result expectations
Weak performance on slower demand outlook: We expect companies under our coverage in power sector to report a weak set
of numbers for Q4FY2015. Due to lower offtake from some of the large power buying states, the power trading volume is
expected to be weak. Consequently, the earning of PTC India are likely to remain under pressure in this quarter. CESC is also
expected to report weak numbers on an adjusted basis; given the lower volume (down 9% YoY and 16% QoQ). However, the
reported numbers of CESC are not truly comparable as we expect the annual tariff adjustment (a tariff revision was approved
by the regulator recently) to be included in the Q4 numbers.
Regulated large companies to be stable, but weak demand to influence numbers: The regulated large-cap utility companies
like NTPC and Power Grid Corporation of India Ltd (PGCIL) are likely to deliver a mixed set of numbers. NTPC is expected to
report a moderate set of numbers with a marginally lower volume offtake. Though the revenues of PGCIL are expected to be up
by 11% on higher capitalisation, its net profit is expected to be moderately higher by 6% YoY in Q4FY2015.
Outlook
Reforms led clarity emerging gradually, though several patches are still in dark: The new government is taking the right
measures structurally to clear the critical hurdles for the sector like coal block e-auction, ensuring coal supply to operational
plants and thrust on renewable energy. However, the coal auction has thrown new challenges for the aggressive bidders (who
are unable to pass on part of the cost hike into their tariff). On the other hand, though Coal India has raised its production
target substantially for the next three to four years, no convincing plan is visible yet.
Sharekhan
13
April 10, 2015
Home
Next
investor’s eye
sharekhan special
Valuation
Valuation factors in concerns; remain positive on a few: We believe most of the power companies are currently factoring
in the prevailing uncertainties in their valuations. However, we believe some of the companies are passing through a rough
patch and offer value. We like CESC due to expectations of a meaningful improvement in its subsidiaries in future;
commencement of the Haldia plant and improvement in the First Source and Spencer’s businesses. Though PTC India is
passing through a temporary phase of weak demand, it is available at an attractive valuation, considering the substantial
embedded value of its investments.
Preferred stocks: CESC and PTC India
Q4FY2015 results snapshot
Rs cr
Company
Net sales
Q4
FY15E
OPM (%)
YoY
%
PAT
QoQ
%
Q4
FY15E
YoY
BPS
QoQ
BPS
Q4
FY15E
YoY
%
QoQ
%
Coverage
CESC
1,238.0
-1
-1
29.1
-739.0
511.0
152.2
-37
37
PTC India
1,979.0
-29
-30
1.6
7.0
1.0
27.0
-19
-30
Non-coverage
NTPC
19,680.0
-6
4
24.0
231.7
-325.2
2,550.0
-18
-17
4,407.0
11
1
86.4
102.8
-18.6
1,246.0
6
1
Power Grid Corporation
Valuations
Company
CMP
Price
Reco.
EPS (Rs)
target
Coverage
CESC
PTC India
Non-coverage
NTPC
PGCIL
CAGR
PE (x)
FY14
FY15E
FY16E
FY14-16E
FY14
FY15E
FY16E
598
79
730
120
Buy
Buy
48.9
7.3
48.3
8.2
52.6
9
4%
11%
12.2
10.8
12.4
9.6
11.4
8.8
156
153
NA
NA
NR
NR
13.83
9.81
11.31
11.62
11.94
13.36
-7%
17%
11.3
15.6
13.8
13.1
13
11.4
Miscellaneous
Q4FY2015 results snapshot
Rs cr
Company
Net sales
Q4
FY15E
Q4
FY14
UPL
3,412
BEL
2,835
376
Ratnamani Metal
Sun TV
OPM (%)
YoY
%
QoQ
%
Q4
FY15E
Q4
FY14
3,296
3.5
13.4
21.0
3,056
-7.2
79.2
27.4
401
-6.2
-24.7
Adjusted PAT
YoY
BPS
QoQ
BPS
Q4
FY15E
Q4
FY14
YoY
%
QoQ
%
20.1
90
210
343
402
-14.6
12.5
25.1
230
980
656
663
-1.1
141.5
19.7
21.3
-160
70
9
11
-16.5
-19.5
565
520
8.6
2.3
76.0
76.9
-90
-150
209
198
5.8
-2.4
1,231
1,159
6.3
-9.7
20.6
27.0
-640
-530
202
218
-7.2
-34.5
Eros Int.
299
315
-5.0
-39.1
28.0
23.4
460
-200
53
41
28.9
-51.2
Gateway Distriparks #
250
266
-5.9
-8.1
31.8
26.6
523
63
47
46
0.1
-14.4
1,002
883
13.5
4.0
55.3
50.1
524
-232
141
109
29.2
6.5
365.8
Zee Ent
IRB Infrastructure
Gayatri Projects
406
499
-18.5
3.5
20.0
16.2
381
1164
20
16
27.5
Pratibha Ind.
679
620
9.4
-14.4
13.6
13.3
30
6
5
4
29.9
-63.8
IL&FS Transportation
1,985
1,829
8.5
1.6
20.9
20.9
-6
-624
81
94
-14.1
-45.7
Supreme Industries*
1,199
1,005
19.3
12.5
13.6
12.8
80
150
74
55
33.5
39.7
267
322
-17
22.9
15.9
9.0
690
-2
25
26
-3.8
13.5
Techno Craft Industries
*June ending year
Supreme Industries - Q3FY2015 results, Q3FY2014*-no real estate contribution
#Adjustment in accounting of Snowman Logistics from subsidiary to associate company
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
Sharekhan
14
April 10, 2015
Home
Next
investor’s eye
stock update
CMC
Reco: Hold
Stock Update
Soft quarter, maintain Hold
Key points
Company details
Price target:
NA
Market cap:
CMP: Rs2,026
Rs6,141 cr
52 week high/low: Rs2,403/1,355
NSE volume:
(no. of shares)
25,647
BSE code:
517326
NSE code:
CMC
Sharekhan code:
CMC
Free float:
(no. of shares)
1.5 cr
Shareholding pattern
Price chart
 For Q4FY2015, CMC has delivered a revenue growth of 4.4% QoQ and 10.2% YoY to
Rs666 crore, led by a 47% Q-o-Q growth in the customer service business, while the
system integration and ITES revenues were down by 3.9% and 4% QoQ respectively.
The EBITDA margin remained stable at 14.4% QoQ, led by a lower sub-contracting
cost, which was down by 4.3% QoQ. The net income for the quarter was down by
2.1% QoQ and 21% YoY to Rs70.5 crore (the Y-o-Y figures are not comparable as
there was an extraordinary income included in Q4FY2014, a one-time gain from the
Kuwait Stock Exchange [KSE] case win, while the tax excludes the one-time impact
of the KSE win and tax on dividend from its subsidiary [Rs20 crore]).
 During the quarter, the company added 16 new clients, out of which 13 clients have
been added in India largely in the insurance space. The management has stated
that the domestic business has started seeing momentum and expects opportunities
to emerge in ports, insurance, e-governance and defence space. During the quarter,
the company also added 255 headcounts taking the total to 12,665 headcounts. The
offshore revenues stood at 20.3%. The total cash and cash equivalents stood at
Rs314 crore.
 As per the scheme of amalgamation, CMC as an entity will cease to exist in the next
three to four months as it will get fully integrated into Tata Consultancy Services
(TCS). The management has not given any timeline for the record date of the swap
ratio (as per the swap ratio, a shareholder will get 79 shares of TCS for every 100
shares of CMC). However, the management will likely make an announcement for the
same after the annual general meeting of CMC in June 2015. The company has
announced a dividend of Rs27.5 per share to the existing shareholders of CMC. We
retain our Hold rating on the stock for the existing shareholders in-line with our
positive view on TCS (on which we have a price target of Rs3,010). But for a fresh
investment it would be more prudent to buy into TCS rather than CMC, as the latter
will cease to exist as an entity in the months to come.
Results
Rs cr
Particulars
Price performance
(%)
1m
3m
6m 12m
Absolute
3.2
5.5 -11.2
38.7
Relative
to Sensex
3.0
0.1 -18.4
7.3
Revenues
Materials
Staff costs
Other expenses
Sub contracting and outsourcing
Total expenditure
Operating profit
Other income
EBIDTA
Depreciation
Interest
PBT
Tax
PAT
Net profit
EPS
Margins analysis
OPM
Staff costs
Sub-contracting costs
Tax rate
NPM
Q4FY15
Q4FY14
Q3FY15
666.0
75.1
154.1
56.1
284.8
570.1
95.9
4.7
100.6
11.6
0.0
88.9
18.3
70.6
70.6
23.3
604.2
62.3
140.9
56.0
243.8
502.9
101.3
3.8
105.1
7.8
0.0
97.4
22.4
75.0
89.5
29.5
638.1
35.6
153.3
58.4
297.5
544.7
93.4
2.1
95.5
11.6
0.0
83.8
11.7
72.1
72.1
23.8
14.4
23.1
42.8
20.6
10.6
16.8
23.3
40.3
23.0
12.4
14.6
24.0
46.6
14.0
11.3
YoY %
QoQ %
10.2
20.6
9.4
0.2
16.8
13.4
(5.3)
23.0
-4.3
50.0
4.4
110.9
0.5
-3.9
-4.3
4.7
2.7
121.5
5.3
0.1
-8.7
-18.1
(5.8)
(21.1)
-21.1
6.1
56.5
(2.1)
(2.1)
-2.1
* For Q4FY2014 the extraordinary items include one-time gain from the Kuwait Stock Exchange (KSE) case win
while tax excludes the one-time impact of the KSE win and tax on dividend from its subsidiary (Rs20 crore).
Sharekhan
15
April 10, 2015
Home
Next
investor’s eye
stock update
Valuation
Particulars
FY2014
FY2015
FY2016(P)
FY2017(P)
Total revenue (Rs cr)
2,212.6
2,513.5
2,889.6
3,406.8
EBITDA margin (%)
16.2
15.3
16.8
16.6
Net profit (Rs cr)
266.0
296.0
360.6
421.7
EPS (Rs)
87.8
97.7
119.0
139.2
PER (x)
23.1
20.8
17.0
14.6
EV/EBITDA (x)
16.3
15.2
11.4
9.5
RoE (%)
25.3
23.6
24.3
24.0
RoCE (%)
32.1
27.0
29.4
29.0
P/E (x)
23.1
20.8
17.0
14.6
Segmental performance
Particulars
Rs cr
Q4FY15
Q4FY14
Q3FY15
YoY %
QoQ %
136.3
119.8
6.7
8.1
92.6
13.8
47.2
5.5
-17.3
21.3
Customer services
Revenues
PBIT
Margins (%)
% of revenues
4.9
6.8
6.0
20.5
19.8
14.5
System integration
Revenues
422.1
379.4
439.3
11.3
-3.9
PBIT
62.5
77.3
76.8
-19.1
-18.6
Margins (%)
14.8
20.4
17.5
% of revenues
63.4
62.8
68.9
73.7
77.4
76.8
-4.8
-4.0
-18.1
-13.9
31.8
45.0
ITES
Revenues
PBIT
21.5
26.2
24.9
Margins (%)
29.1
33.8
32.5
% of revenues
11.1
12.8
12.0
18.2
13.8
12.5
7.6
0.8
-0.5
42.1
6.2
-3.8
2.7
2.3
2.0
Revenues
15.7
13.8
16.9
14.0
-6.8
PBIT
10.4
10.0
10.3
4.0
0.4
Margins (%)
66.1
72.4
61.3
2.4
2.3
2.6
Education and training
Revenues
PBIT
Margins (%)
% of revenues
SEZ
% of revenues
Total revenues
666.0
604.2
638.1
10.2
4.4
Total PBIT
108.7
122.5
117.1
-11.2
-7.1
16.3
20.3
18.3
Blended margins (%)
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
Sharekhan
16
April 10, 2015
Home
Next
investor’s eye
sector update
Pharma
Sector Update > Q4FY2015 Earnings preview
Higher base effect and weaker exports to moderate growth considerably in Q4
Q4FY2015 result expectations
Growth to moderate in Q4: Most of the pharma players in our universe are expected to show a moderate performance for
Q4FY2015, mainly due to a high base effect (the exclusivity on Cymbalta to five leading players had formed a high base in
Q4FY2014), adverse cross-currency movement, fewer product approvals for the regulated markets, and political instability in
the Middle-East and the Commonwealth of Independent States region.
Flattish growth at PAT level: On an aggregate basis, the net sales of our pharma universe are expected to show a 16% growth
(versus a 28% growth in Q4FY2014) on the back of a 21% growth in the Indian formulation business and an 11% growth in the
export of formulations. The OPM is likely to contract by 140BPS YoY while the net profit of the universe is likely to remain flat
YoY for Q4FY2015. The profit growth for the quarter will be led by Cadila Healthcare, Cipla, Divi’s Laboratories and JB
Chemicals while Glenmark Pharma, Ipca Laboratories and Torrent Pharma will see a decline in the profit.
Outlook
Issues in near term but a healthy growth outlook for long term: The past few quarters have seen a fewer number of product
approvals in the USA, as the US Food and Drug Administration (USFDA) has been busy overhauling the drug review process.
Meanwhile, the abbreviated new drug application (ANDA) filings by the generic players kept piling up and currently, on an average,
nearly 40% of ANDAs filed remains to be approved by the USFDA. This has moderated the growth in the US market (the US market
is the largest contributor to the revenues of our universe) for most of the players. However, we expect a large chunk of the pending
ANDAs to unfold in the next few quarters and that will help revive the growth rates. Also, the growth is likely to be driven by the
domestic market, which is witnessing a robust volume growth, and the introduction of new drugs. Therefore, while we are positive
on the long-term prospects of the sector, a few of the front-line players may see headwinds in the short term.
Valuation
Relying on the long-term prospects, most of the pharma companies have been successively re-rated over the past few
quarters and that has led most of the front-line players to trade at a significant premium to their respective historical
average multiples. On an aggregate basis, our pharma universe is trading at 28.5x FY2016E earnings (versus 16x Sensex
earnings) as compared with its historical average of 14-20x (on one-year forward earnings basis). However, we expect the
premium to sustain due to an improving product profile and increasing reach of the Indian pharma companies. We advise
staying selective in this space.
Preferred picks this earnings season: Cadila Healthcare, Cipla and Divi’s Laboratories
Q4FY2015 estimates of Sharekhan’s pharma universe
Company
Net sales (Rs cr)
OPM (%)
Adj PAT (Rs cr)
Q4FY15E
YoY %
QoQ %
Q4FY15E
YoY (BPS)
QoQ (BPS)
Q4FY15E
YoY %
Aurobindo Pharma
3190
37
1
19.5
-1244
12
435
-7
7
Cadila Healthcare
2316
17
6
19.9
88
-56
314
40
0
Cipla
2890
15
4
20.0
380
0
365
40
11
831
11
5
38.9
159
265
258
23
23
1877
10
10
20.2
-111
-170
215
-17
-3
696
-6
-5
16.7
-663
108
61
-49
16
3455
11
9
28.5
41
72
599
8
2
Divi's Lab
Glenmark Pharma
IPCA Lab
Lupin
QoQ %
JB Chemicals
272
19
3
18.3
663
-25
40.2
63
51
Sun Pharma*
4886
21
14
43.9
-28
-81
1584
0
11
Torrent Pharma
Total
1203
0
4
22.4
-506
272
138
-44
-17
21615
16
7
27.4
-136.9
42
3696
-0.2
-5
*Without factoring in Ranbaxy’s numbers
Sharekhan
17
April 10, 2015
Home
Next
investor’s eye
sector update
Valuation
Price
Particulars
Reco.
Aurobindo Pharma
EPS (Rs)
P/E (x)
RoE (%)
target
FY15E
FY16E
FY17E
FY15E
FY16E
FY17E
FY15E
FY16E
FY17E
Buy
***
48.9
65.3
80.3
27
20
17
32.3
31.7
28.9
Cadila Healthcare
Buy
2060
49.9
79.3
102.7
38
24
19
22.0
26.4
25.9
Cipla
Buy
843
16.6
25.4
34.3
44
29
22
12.5
16.7
19.1
Divi's Lab
Hold
***
62.2
78.1
98.3
31
25
20
25.6
26.2
26.5
Glenmark Pharma
Buy
915
28.7
37.6
50.0
31
23
18
21.7
22.5
23.4
IPCA Lab
Buy
***
30.1
41.1
53.3
22
16
12
17.6
20.2
21.7
Lupin
Buy
2300
52.9
63.5
81.5
38
32
25
26.3
24.4
24.1
JB Chemicals
Hold
***
13.7
17.0
20.8
14
11
9
10.6
12.1
13.3
Sun Pharma
Hold
1250
29.6
33.0
40.1
39
35
29
26.8
23.7
22.9
Torrent Pharma
Buy
1500
47.8
62.2
78.5
35.1
33.2
31.3
Sector
26
20
16
35.6
28.5
22.6
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
Sharekhan
18
April 10, 2015
Home
Next
Sharekhan Stock Ideas
Apollo Tyres
Ashok Leyland
Bajaj Auto
Gabriel India
HeroMotoCorp
M&M
Maruti Suzuki India
Rico Auto Industries
TVS Motor Company
Infrastructure / Real estate
Gayatri Projects
ITNL
IRB Infra
Jaiprakash Associates
Larsen & Toubro
Pratibha Industries
Punj Lloyd
Automobiles
Oil & gas
Oil India
Reliance Ind
Selan Exploration Technology
Pharmaceuticals
Aurobindo Pharma
Cadila Healthcare
Cipla
Divi's Labs
JB Chemicals & Pharmaceuticals
Glenmark Pharmaceuticals
Ipca Laboratories
Lupin
Sun Pharmaceutical Industries
Torrent Pharma
Banks & Finance
Allahabad Bank
Andhra Bank
Axis (UTI) Bank
Bajaj Finserv
Bajaj Finance
Bank of Baroda
Bank of India
Capital First
Corp Bank
Federal Bank
HDFC
HDFC Bank
ICICI Bank
IDBI Bank
LIC Housing Finance
Punjab National Bank
PTC India Financial Services
SBI
Union Bank of India
Yes Bank
Consumer goods
GSK Consumers
Godrej Consumer Products
Hindustan Unilever
ITC
Jyothy Laboratories
Marico
Zydus Wellness
IT / IT services
Firstsource Solutions
HCL Technologies
Infosys
Persistent Systems
Tata Consultancy Services
Wipro
Capital goods / Power
Bharat Heavy Electricals
CESC
Crompton Greaves
Finolex Cables
Greaves Cotton
Kalpataru Power Transmission
PTC India
Skipper
Triveni Turbine
Thermax
V-Guard Industries
Va Tech Wabag
Building materials
Grasim
Orient Paper and Industries
Shree Cement
The Ramco Cements
UltraTech Cement
Discretionary consumption
Cox & Kings
Century Plyboards (India)
Eros International Media
KDDL
KKCL
Raymond
Relaxo Footwears
Speciality Restaurants
Sun TV Network
Thomas Cook (India)
Zee Entertainment Enterprises
Diversified / Miscellaneous
Aditya Birla Nuvo
Bajaj Holdings
Bharti Airtel
Bharat Electronics
Gateway Distriparks
Max India
Ratnamani Metals and Tubes
Supreme Industries
Technocraft Industries (India)
UPL
To know more about our products and services click here.
Disclaimer
This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type of circulation and any
review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official
confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.
The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such.
While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information
current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment
decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient
of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own
advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of SHAREKHAN may have issued other
reports that are inconsistent with and reach different conclusion from the information presented in this report.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons
in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its affiliates or its directors or employees/representatives/clients or their relatives may have position(s), make market, act
as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before
publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved
in, or related to, computing or compiling the information have any liability for any damages of any kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies
and its or their securities and do not necessarily reflect those of SHAREKHAN. Further, no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document.
Sharekhan
19
April 10, 2015
Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: compliance@sharekhan.com • Contact: myaccount@sharekhan.com
Home
Next