Page 1
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.
Contents
Daily Alerts
Results
LIC Housing Finance: NIM improvement drives earnings; retail disbursements remain weak
Mindtree: Valuation dulls company's luster
DB Corp.: Readership data crucial for price hike
Karur Vysya Bank: Getting better
Sector alerts
Consumer Products: Month in review - September 2015: Promotional intensity remains high
Insurance: Individual APE growth slows down
INDIA DAILY October 16, 2015 India 15-Oct 1-day 1-mo 3-mo
Sensex 27,010 0.9 4.0 (5.0)
Nifty 8,180 0.9 3.5 (5.0)
Global/Regional indices
Dow Jones 17,142 1.3 2.4 (5.4)
Nasdaq Composite 4,870 1.8 (0.4) (5.7)
FTSE 6,339 1.1 1.8 (6.7)
Nikkei 18,286 1.0 0.6 (11.2)
Hang Seng 22,888 2.0 4.2 (9.0)
KOSPI 2,032 (0.0) 2.9 (2.7)
Value traded – India
Cash (NSE+BSE) 187 195 210
Derivatives (NSE) 1,815 1,588 1,905
Deri. open interest 2,254 2,360 2,318
Forex/money market
Change, basis points
15-Oct 1-day 1-mo 3-mo
Rs/US$ 64.8 4 (143) 134
10yr govt bond, % 7.8 - (23) (38)
Net investment (US$ mn)
14-Oct MTD CYTD
FIIs 24 410 4,018
MFs 26 123 9,018
Top movers
Change, %
Best performers 15-Oct 1-day 1-mo 3-mo
AL IN Equity 95.0 0.2 8.9 27.7
JPA IN Equity 14.2 0.4 51.1 19.8
DLFU IN Equity 134.6 0.9 8.9 15.9
BOB IN Equity 179.9 3.7 (1.5) 15.7
IDBI IN Equity 77.2 2.0 35.7 15.4
Worst performers
BHEL IN Equity 211.8 3.2 0.7 (24.4)
VEDL IN Equity 109.3 1.3 10.5 (23.9)
COAL IN Equity 341.4 2.0 1.2 (22.1)
BHFC IN Equity 885.3 (0.6) (5.8) (21.6)
ABB IN Equity 1129.2 2.5 2.9 (21.0)
Page 2
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
High NII growth supported earnings
LIC Housing Finance (LICHF) reported 35% growth in NII driving 25% growth in PBT. Provisions
were higher yoy due to one-offs in the base; gross NPL ratio was stable at 0.6% qoq. As such,
LICHF reported 21% earnings growth to `4.11 bn, in line with estimates. PBT before provisions
were up 35% yoy to `6.74 bn.
Slowdown in housing and competition in mortgages are concerns
We find two key risks for housing finance companies:
Competition from banks. Banks have reduced home loan rates by 20-25 bps in 2QFY16 on
the back of ~40 bps decline in base rates. The base rate system has ensured that home loan
rates for existing borrowers decline as well; this will reduce home loan transfers to housing
finance companies. Most banks and housing finance companies (including LICHF) have
launched festive schemes (marginally lower rates, waiving off fees etc.) this week.
Slowdown in housing. This remains the biggest headwind for the sector. LICHF reported
9% retail disbursement growth in 1QFY16; in this backdrop, 13% disbursements growth in
2QFY16 is good but much lower than 20% in FY2015. We will monitor the trend cautiously
over the next few quarters.
Declining liability cost provides comfort, retain ADD
Decline in bulk borrowing rates provide us the maximum comfort on the ability of housing
finance companies to grow NII i.e. support NIM and sustain competition from banks; this is the
driver of our positive view on the stock. Bulk borrowing rates declined by 130 bps in FY2015
and are now getting reflected in NIM of LICHF. Marginal borrowings cost is still 50 bps below
average cost of borrowings, thus providing scope for further reduction in overall borrowings
costs. Moreover, bond yields rallied by 15 bps post recent policy rate cut leading to further
decline in marginal borrowings cost for LICHF in October 2015. We tweak up estimates to
factor in higher NII growth and retain ADD rating with a price target of `525.
LIC Housing Finance (LICHF) Banks/Financial Institutions
NIM improvement drives earnings; retail disbursements remain weak. Sharp NIM
expansion (15 bps qoq to 2.56%) was the key positive highlight of the quarter. The
decline in bulk borrowing rates is now clearly getting reflected in LICHF’s earnings.
Disbursements growth inched up qoq though remains the key monitorable for the
mortgage industry. Declining bond yields and low marginal borrowings cost will cushion
the headwinds of competition and slowdown in the housing industry. Retain ADD with
a price target of ₹525.
ADD
OCTOBER 16, 2015
RESULT
Coverage view: Attractive
Price (`): 491
Target price (`): 525
BSE-30: 27,010
QUICK NUMBERS
35% NII growth;
21% earnings
growth
13% retail
disbursement
growth
Retain ADD with
₹525 TP
LIC Housing Finance
Stock data Forecasts/Valuations 2015 2016E 2017E
52-week range (Rs) (high,low) EPS (Rs) 30.0 36.7 44.5
Market Cap. (Rs bn) EPS growth (%) 15.2 22.3 21.2
Shareholding pattern (%) P/E (X) 16.3 13.4 11.0
Promoters 40.3 NII (Rs bn) 23.7 30.2 36.4
FIIs 36.9 Net profits (Rs bn) 15.2 18.6 22.5
MFs 5.0 BVPS 165.0 193.7 228.7
Price performance (%) 1M 3M 12M P/B (X) 3.0 2.5 2.1
Absolute 12.5 7.3 47.3 ROE (%) 18.8 19.8 20.4
Rel. to BSE-30 7.0 12.0 43.7 Div. Yield (%) 1.1 1.3 1.6
Company data and valuation summary
524-320
247.9
Page 3
LIC Housing Finance Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 3
Exhibit 1: LIC Housing Finance—quarterly results Quarterly data, 2QFY15 - 2QFY16 (` mn)
Source: Company, Kotak Institutional Equities estimates
NIM: Liability side comfort
We expect LICHF to deliver 20 bps NIM improvement in 2HFY16E (up 27 bps yoy in 1HFY16)
and 7 bps yoy in FY2017E. Decline in liability costs (as discussed above) will drive NIM
expansion though partially offset by lower asset yields.
Home loan rates stable till 2Q. LICHF has not dropped its home loans rates for new or
existing borrowers, unlike its peers. The company focuses on fixed-floating loans (loans
that carry fixed rate of interest for the first 2-3 years); such loans comprise 35% of its
loan book. As such, LICHF’s home loan rates may not be directly comparable with those
of banks.
Festive rates will reduce incremental yields. LICHF has launched festive discounts
indirectly reducing home loan rates for new borrowers. Effective home loan rates at 9.5-
9.6% are almost comparable with peers’. In 2QFY16, its incremental home loan yield was
about 9.8-9.9%. We hence expect compression in asset yields to be reflected over the
next few quarters.
(% chg.)
2QFY16 2QFY16E 2QFY15 1QFY16 2QFY16E 2QFY15 1QFY16 1HFY16 1HFY15 FY2016E
Operating income 30,894 29,950 26,587 29,655 3 16 4 60,548 52,023 16 124,437
Interest on loans 30,260 29,350 25,961 29,174 3 17 4 59,434 50,787 17 122,063
Fees and other charges 386 300 315 285 29 23 36 671 580 16 1,374
Other income 247 300 311 196 (18) (21) 26 443 656 (32) 1,000
Interest expenses 23,091 22,585 20,643 22,585 2 12 2 45,676 40,407 13 92,905
Net operating income 7,803 7,365 5,944 7,069 6 31 10 14,872 11,616 28 31,532
Total Fund based income 30,507 29,650 26,272 29,370 3 16 4 59,877 51,443 16 123,063
Net interest income 7,169 6,765 5,318 6,589 6 35 9 13,758 10,380 33 29,158
Other exp. 1,336 1,250 753 1,256 7 77 6 2,592 1,519 71 6,017
Establishment exp. 674 700 650 495 (4) 4 36 1,169 1,044 12 2,808
Staff expenses 362 350 293 317 3 23 14 679 574 18 1,552
Provisions 301 200 (190) 443 50 (258) (32) 744 (99) (854) 1,657
PBDT 6,467 6,115 5,191 5,813 6 25 11 12,280 10,097 22 25,515
Depreciation 25 25 21 23 (2) 15 6 48 46 4 103
PBT 6,442 6,090 5,170 5,790 6 25 11 12,233 10,051 22 25,412
Tax 1,860 1,644 1,415 1,575 13 31 18 3,435 2,752 25 6,861
DTL provision 465 365 341 394 27 859 663 1,715
PAT 4,117 4,080 3,413 3,821 1 21 8 7,939 6,636 20 16,836
PAT before DTL/normalised 4,582 4,446 3,754 4,215 3 22 9 8,797 7,300 21 18,551
Tax rate (%) 29 27 27 27 28 27 27
PBT excl. extraordinary item+provisions 6,743 6,290 4,979 6,234 7 35 8 12,977 9,952 30 27,069
EPS (Rs) 9 7 8 22 9 17 14 21 37
Business growth
Disbursements (Rs bn) 84 72 61 17 37 204 111 84 352
Individual (Rs bn) 79 70 59 13 34
Others (Rs bn) 4 2 2 197 146
Outstanding portfolio (Rs bn) 1,141 1,151 975 1,104 (1) 17 3 1,019 864 18 1,249
Individual (Rs bn) 1,111 951 1,077 17 3
Spreads/ margins (%)
NIMs (KS estimate- %) 2.56 2.40 2.23 2.41
NPLs
Gross NPLs (Rs mn) 6,830 6,110 6,591 12 4
Gross NPL ratio (%) 0.6 0.6 0.6
Net NPL ratio (%) 0.3 0.3 0.3
(% chg.)
Page 4
Banks/Financial Institutions LIC Housing Finance
4 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: We expect margins to remain stable in the medium term Average yields, costs and margins, March fiscal year-ends, 2008-2018E (%)
Source: Company, Kotak Institutional Equities estimates
Exhibit 3: LIC Housing Finance offering home loan rates in line with peers Retail home loan rates for loans below ₹7.5 mn
Source: Company, Public documents, Kotak Institutional Equities
0.0
0.7
1.4
2.1
2.8
3.5
0.0
2.4
4.8
7.2
9.6
12.0
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
E
20
17
E
20
18
E
Yield on loans (LHS) Cost of borrowing (LHS) NIM (RHS)
Jan-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Dec-14 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Oct-15
HFCs - home loan rates
HDFC Ltd. 10.25 10.25 10.15 10.15 10.15 10.15 10.15 10.15 10.10 9.90 9.85 9.85 9.65
LIC Housing Finance 10.25 10.15 10.15 10.15 10.15 10.15 10.15 10.10 10.10 10.10 9.90 9.80 9.50
Banks
ICICI Bank
Home loan rates 10.25 10.15 10.15 10.15 10.15 10.15 10.15 10.10 10.10 9.85 9.85 9.85 9.65
Base rate 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 9.75 9.75 9.75 9.35
Spread 0.25 0.15 0.15 0.15 0.15 0.15 0.15 0.10 0.10 0.10 0.10 0.10 0.30
SBI
Home loan rates 10.15 10.15 10.15 10.15 10.15 10.10 10.10 10.10 10.10 9.90 9.90 9.75 9.50
Base rate 10.00 10.00 10.00 10.00 10.00 9.90 9.90 9.90 9.90 9.85 9.85 9.70 9.30
Spread 0.15 0.15 0.15 0.15 0.15 0.20 0.20 0.20 0.20 0.05 0.05 0.05 0.20
Page 5
LIC Housing Finance Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 5
Exhibit 4: Bond borrowings rate for LICHF have declined in recent weeks LICHF –Yields on 1-5 year bonds, 2011-15 (%)
Source: Prime Database
Exhibit 5: Yield on 5-year AAA rated corporate bond has increased ~30 bps since June 2015 Yield on 5-year AAA, AA corporate bonds and 10-year G-Sec bonds, October 2014-2015 (%)
Source: Bloomberg
Disbursements growth inched up qoq; remains key monitorable
Disbursement growth inched up, but remains weak. LICHF reported retail
disbursement growth of 13% yoy in 2QFY16. The company reported 20% disbursement
growth in FY2015 which slipped to 9% in 1QFY16. Retail disbursements growth for
LICHF, to some extent, is supported by loans against property (5.6% of loan book in
2QFY16 and about 4% in 2QFY15).
Long tenure of home loans; higher prepayment is a risk. Longer loan tenure
supports home loan growth even if disbursements growth is weak for a few quarters; this
is unlike auto finance in which the weakness in disbursements is quickly reflected in loan
growth and vice versa. We hence model 18% loan growth between FY2016-18E even as
we expect disbursements growth of 16% in FY2016E which will inch up to 18% in
FY2017E as compared to 20% in FY2015 and 4% in FY2014. Lower incremental home
loan rates will support disbursement growth to some extent from 2HFY16. However,
8.0
8.6
9.2
9.8
10.4
11.0
Apr-
11
Aug-1
1
Dec
-11
Apr-
12
Aug-1
2
Dec
-12
Apr-
13
Aug-1
3
Dec
-13
Apr-
14
Aug-1
4
Dec
-14
Apr-
15
Aug-1
5 7.4
8.0
8.6
9.2
9.8
10.4
Oct
-14
Nov-
14
Dec
-14
Jan-1
5
Feb-1
5
Mar-
15
Apr-
15
May-
15
Jun-1
5
Jul-15
Aug-1
5
Sep-1
5
Oct
-15
5-Year AAA 5-Year AA 10-Year G Sec
Page 6
Banks/Financial Institutions LIC Housing Finance
6 KOTAK INSTITUTIONAL EQUITIES RESEARCH
higher interest rates for existing borrowers may sustain higher prepayments (11% in
1HFY16, 8.4% in FY2015).
Lower transfers from banks. With limited growth in new business, most housing finance
companies and banks are now focused on reducing repayment rates by arresting home
loan transfers. Recently, SBI and ICICI Bank reduced home loan rates for existing borrowers
as a consequence of reduction in base rates but increased spread over base rates for new
home loans; thus, new home loans were offered at ~20-25 bps higher than existing
home loans. This is a strategy to incentivize its existing borrowers to stay with the bank.
Exhibit 6: Disbursements improved qoq to 17% yoy growth Disbursement growth, March fiscal year-ends, 2QFY13-2QFY16
Source: Company, Kotak Institutional Equities estimates
Exhibit 7: We expect LIC Housing Finance to report 19-20% loan
growth Loan and disbursement growth, March fiscal year-ends, 2012-18E
Source: Company, Kotak Institutional Equities estimates
Exhibit 8: LICHF’s growth is driven by higher volumes; ticket size growth moderate March fiscal year-end, 2011-2015
Source: Company, Kotak Institutional Equities
0
8
16
24
32
40
2Q
FY1
3
3Q
FY1
3
4Q
FY1
3
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1Q
FY1
5
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
Disbursements yoy growth (%)
0
8
16
24
32
20
12
20
13
20
14
20
15
20
16
E
20
17
E
20
18
E
Loan growth (%) Disbursement growth (%)
2011 2012 2013 2014 2015
Ticket size (Rs mn) 1.52 1.56 1.73 1.85 1.93
Ticket size growth (%) 2.4 10.6 6.9 4.4
Disbursement (Rs bn) 199 200 243 253 303
Disbursement growth (%) 0.5 21.4 4.1 19.9
Page 7
LIC Housing Finance Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 7
Exhibit 9: LICHF has gained market share over last few years March fiscal year-ends, FY2009-1QFY16
Source: Companies, Kotak Institutional Equities
GNPL rise qoq
LICHF reported marginal (4%) qoq rise in GNPLs (`6.8 bn); GNPL ratio remained stable at
0.6% qoq. Typically, GNPL ratio declines qoq in 2Q after rising sharply qoq in 1Q. The rise in
GNPLs this year was largely in the developer segment (up `250 mn).
Provisioning expenses were higher at `301 mn in 2QFY16 as compared to net write back of
`190 mn in 2QFY15.
Key drivers of provision write back in previous year:
GNPL decline of `1.42 bn qoq of which `1.36 bn was from a developer loan. NPL
recovery had driven provision write-back of `200 mn.
LICHF had made 2% standard asset provision on its teaser loan book; this was written
back till 4QFY15.
LICHF’s developer loan NPLs comprises two large accounts. LICHF had proposed to auction
one of the properties of the NPL account in 2QFY16, but the auction did not go through.
The company will continue its efforts to recover this loan. We are not factoring in any large
NPL recovery in our forecasts.
We expect LICHF to raise capital in the near-term
LICHF reported tier I CAR of 11.6% in 2QFY16. While the ratio appears comfortable and will
improve further if risk weights on home loans decline to 35% from 50% (as seen in the case
of banks). However, LICHF’s leverage ratio (average assets/ equity) is high at ~14X in
1HFY16. Notably, LICHF raised capital in FY2012 when the ratio crossed 12X and FY2010
when the ratio crossed 13X. We are not factoring in capital issuance in our forecasts.
Other highlights of the quarter
LICHF reported cost to income ratio of 13.3% as compared to 11.5% in 1QFY16 but lower
than 15.9% in 2QFY15. Typically, this ratio increases qoq in 2Q. We are assuming 15% ratio
in 2HFY16 i.e. stable yoy.
Loan book (Rs bn) Market share (%)
2009 2010 2011 2012 2013 2014 2015 1QFY16 2009 2010 2011 2012 2013 2014 2015 1QFY16
Key public banks
BoB 83 103 125 141 160 196 225 228 2.1 2.4 2.3 2.3 2.1 2.2 2.2 NA
Canara Bank 79 101 152 158 131 197 256 259 2.0 2.3 2.8 2.5 1.8 2.2 2.5 NA
PNB 84 106 118 126 143 170 215 224 2.2 2.4 2.2 2.0 1.9 1.9 2.1 NA
SBI 541 712 899 1,027 1,195 1,407 1,592 1,637 13.9 16.4 16.7 16.4 16.0 15.8 15.5 NA
Key private banks NA
Axis Bank 104 147 189 282 389 509 616 645 2.7 3.4 3.5 4.5 5.2 5.7 6.0 NA
HDFC Bank 51 87 115 143 168 193 241 269 1.3 2.0 2.1 2.3 2.2 2.2 2.3 NA
ICICI Bank 576 475 541 489 579 709 893 939 14.8 10.9 10.1 7.8 7.7 8.0 8.7 NA
All the banks listed above 1,517 1,731 2,140 2,367 2,765 3,382 4,039 4,202 38.9 39.8 39.8 37.8 37.0 38.1 39.3 NA
Other banks 1,277 1,278 1,451 1,667 1,802 2,026 2,247 2,332 32.7 29.4 27.0 26.6 24.1 22.8 21.9 NA
Total banks (from RBI) 2,794 3,009 3,591 4,034 4,567 5,408 6,285 6,534 71.6 69.2 66.9 64.5 61.1 60.9 61.2 NA
Key NBFCs NA
HDFC Ltd. (a) 549 613 736 888 1,113 1,333 1,557 1,596 14.1 14.1 13.7 14.2 14.9 15.0 15.2 NA
LIC Housing Finance (a) 252 339 467 599 751 886 1,056 1,077 6.5 7.8 8.7 9.6 10.1 10.0 10.3 NA
Dewan Housing Finance (a) 58 88 141 255 297 352 432 456 1.5 2.0 2.6 4.1 4.0 4.0 4.2 NA
Indiabulls (a) 63 78 140 195 244 292 371 384 1.6 1.8 2.6 3.1 3.3 3.3 3.6 NA
CanFin Homes 19 21 22 26 40 58 82 90 0.5 0.5 0.4 0.4 0.5 0.7 0.8 NA
REPCO (a) — — — 24 30 38 49 51 — 0.0 0.0 0.4 0.4 0.4 0.5 NA
All NBFCs listed above 922 1,118 1,485 1,961 2,436 2,901 3,465 3,564 23.6 25.7 27.6 31.3 32.6 32.6 33.7 NA
Other NBFCs 184 224 295 261 468 577 520 NA 4.7 5.1 5.5 4.2 6.3 6.5 5.1 NA
Total NBFCs 1,107 1,342 1,780 2,222 2,904 3,478 3,985 NA 28.4 30.8 33.1 35.5 38.9 39.1 38.8 NA
Total Banks and NBFCs 3,900 4,351 5,371 6,256 7,471 8,886 10,270 NA 51.8 52.5 52.7 52.5 53.9 54.5 55.6 NA
Page 8
Banks/Financial Institutions LIC Housing Finance
8 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 10: LICHF is trading at 2.5X book (one-year forward) LICHF: Rolling PER and PBR, October 2008 - October 2015 (X)
Source: Kotak Institutional Equities , Company, Bloomberg
Exhibit 11: LIC Housing Finance—old and new estimates March fiscal year-ends, 2016-18E (` mn)
Source: Company, Kotak Institutional Equities
-
0.7
1.4
2.1
2.8
3.5
0
4
8
12
16
20
Oct
-08
Apr-
09
Oct
-09
Apr-
10
Oct
-10
Apr-
11
Oct
-11
Apr-
12
Oct
-12
Apr-
13
Oct
-13
Apr-
14
Oct
-14
Apr-
15
Oct
-15
Rolling PER (X) (LHS) Rolling PBR (X) (RHS)
New estimates Old estimates Old vs New (%)
2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E
NIMs(%) 2.46 2.52 2.42 2.38 2.43 2.40
Loan growth (%) 18 19 18 19 19 18
Net interest income 29,158 35,643 40,558 28,168 34,534 40,388 3.5 3.2 0.4
Other income 2,374 2,339 2,493 2,374 2,339 2,493
Fee income 1,374 1,539 1,693 1,374 1,539 1,693
Other income 1,000 800 800 1,000 800 800
Total income 31,532 37,982 43,050 30,542 36,873 42,881 3.2 3.0 0.4
Loan loss provisions 1,657 2,111 4,172 1,423 2,120 4,194 16.5 (0.4) (0.5)
Operating expenses 4,463 5,077 5,799 4,253 4,771 5,484 4.9 6.4 5.8
Employee expenses 1,552 1,784 2,052 1,487 1,710 2,001 4.3 4.3 2.6
Other expenses 2,911 3,292 3,747 2,766 3,061 3,483 5.3 7.6 7.6
PBT 25,412 30,793 33,079 24,866 29,981 33,202 2.2 2.7 (0.4)
Tax 6,861 8,314 8,931 6,714 8,095 8,965 2.2 2.7 (0.4)
PAT 16,836 20,401 21,915 16,474 19,863 21,997 2.2 2.7 (0.4)
PAT (before DTL/ normalised) 18,551 22,479 24,148 18,152 21,886 24,238 2.2 2.7 (0.4)
Page 9
LIC Housing Finance Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 9
Exhibit 12: LIC Housing Finance—key growth rates and financial ratios March fiscal year-ends, 2013-2018E (%)
Source: Company, Kotak Institutional Equities estimates
2013 2014 2015E 2016E 2017E 2018E
Growth (%)
Total assets 25 19 18 18 19 17
Housing loans 23 17 19 18 19 18
Total borrowings 21 20 18 17 19 18
Net income before provisions 8 27 15 27 21 13
Fee income (12) (7) 14 12 12 10
Total expenses 19 11 21 18 14 14
PBT 12 33 15 21 21 7
PAT (before DTL/normalised) 12 29 15 22 21 7
Spread calculation (%)
Average cost of funds 9.5 9.5 9.3 8.9 8.4 8.2
Average yield on assets 10.4 10.5 10.2 10.0 9.7 9.4
Spreads 0.9 0.9 0.9 1.2 1.2 1.2
Difference on housing loan 1.1 1.2 1.3 1.4 1.5 1.4
NIM 2.2 2.3 2.3 2.5 2.5 2.4
Other ratios (%)
Tax rate 25 27 27 27 27 27
Tax rate including DTL 26 28 34 34 34 34
Debt/equity (X) 11 11 12 12 12 12
Total expenses/assets 0.3 0.3 0.3 0.3 0.3 0.3
Total expenses/total income 16 14 15 14 13 13
Divd payout ratio 19 17 17 17 17 17
Du Pont analysis (% of average assets)
Net interest income 2.2 2.3 2.3 2.5 2.5 2.4
Loan loss provisions and Inv pro 0.1 0.0 0.0 0.1 0.1 0.2
Net other income 0.2 0.1 0.1 0.1 0.1 0.1
Operating expenses 0.4 0.4 0.4 0.4 0.4 0.3
(1- tax rate) 74.5 72.2 66.3 66.3 66.3 66.3
RoA 1.4 1.5 1.3 1.4 1.4 1.3
Average assets/average equity (X) 11.9 12.6 13.6 14.5 14.6 14.6
RoE (%) 16.8 18.8 18.1 19.9 20.6 18.8
RoE before DTL (%) 16.8 18.8 18.8 19.8 20.4 20.7
Page 10
Banks/Financial Institutions LIC Housing Finance
10 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 13: LIC Housing Finance—income statement and balance sheet March fiscal year-ends, 2013- 2018E (` mn)
Source: Company, Kotak Institutional Equities estimates
2013 2014 2015E 2016E 2017E 2018E
Income statement
Total income excluding fee income 74,591 90,733 105,467 122,063 139,630 160,193
Other operating income 839 1,532 1,293 1,000 800 800
Interest payable 59,246 71,744 83,102 92,905 103,987 119,635
Provisions 790 214 73 1,657 2,111 4,172
Net total income 16,553 21,387 24,812 29,875 35,870 38,879
Total expenses 2,817 3,131 3,792 4,463 5,077 5,799
Staff expenses 903 1,038 1,293 1,552 1,784 2,052
Establishment expenses 1,301 1,333 1,567 1,803 2,073 2,384
Other expenses 538 684 838 1,005 1,106 1,239
Depreciation 75 76 94 103 113 125
Profit before tax 13,736 18,256 21,019 25,412 30,793 33,079
Tax 3,503 5,082 5,849 6,861 8,314 8,931
Deferred tax — — 1,309 1,715 2,079 2,233
Profit after tax 10,233 13,174 13,862 16,836 20,401 21,915
PAT (before DTL/normalised) 10,233 13,174 15,170 18,551 22,479 24,148
EPS (Rs) 20 26 27 33 40 43
EPS before DTL/ normalised (Rs) 20 26 30 37 45 48
BVPS (Rs) 128 149 155 181 212 251
BVPS before DTL/ normalised (Rs) 128 149 171 200 236 278
ABPS before DTL/ normalised (Rs) 125 145 165 194 229 273
Balance sheet
Disbursements 243,000 253,000 303,270 351,793 415,116 489,837
Yoy growth (%) 21 4 20 16 18 18
Net loans 778,120 913,408 1,083,610 1,283,698 1,531,420 1,805,939
Total investments 1,845 1,992 2,371 2,371 2,371 2,371
Cash & deposits 14,655 30,223 29,331 29,331 29,331 29,331
Loans and advances and other assets 7,990 8,825 8,082 8,082 8,082 8,082
Deferred tax assets 2,488 2,565 1,260 1,260 1,260 1,260
Fixed assets owned 624 756 797 410 410 410
Total assets 805,722 957,769 1,125,450 1,325,152 1,572,874 1,847,393
Total loans and bonds 675,580 808,506 957,770 1,118,323 1,328,432 1,571,821
Deposits 7,700 11,894 7,700 7,700 7,700 7,700
Total borrowings 683,280 820,400 965,470 1,126,023 1,336,132 1,579,521
Deferred tax liabilities — — 7,950 9,665 11,744 13,977
Other current liabilities 57,509 62,041 81,796 98,155 117,786 141,344
Total liabilities 740,789 882,441 1,047,266 1,233,843 1,465,662 1,720,865
Share capital 1,010 1,010 1,010 1,010 1,010 1,010
Reserves 63,803 74,319 77,174 90,298 106,202 125,518
Shareholders' funds 64,813 75,329 78,184 91,308 107,212 126,528
Page 11
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Revenue growth of 8% qoq on organic basis; net income beat of 13%, weak cash generation
Mindtree reported 16.4% sequential revenue growth to US$180.3 mn, ahead of our estimate
of 11.8%. Bluefin solutions and Relations Solutions contributed US$ 12.9 mn. Organic c/c
growth was strong at 8.2% (KIE 5%). Growth was broad-based across verticals and
geographies. Mindtree’s emphasis on growing focused accounts is yielding results. The top
account, Top 5 and Top 10 accounts grew 13%, 11.5% and 9% qoq. EBITDA margin of 18.5%
(KIE 18%) increased 90 bps qoq led by benefits of Rupee depreciation (+100 bps) and operating
efficiencies, partly offset by wage revision (180 bps impact). Net profit of Rs1.58 bn was 13%
ahead of our estimate driven by higher EBIT and aided by fx gain of Rs64 mn.
Europe recovers; attrition declines. Org structure can do with simplification
Mindtree is making progress in two areas where it slipped recently—(1) Europe revenues grew
at a robust 10% qoq on organic basis. Note that Europe business had a few leadership changes
in the past and suffered from high attrition. Revenues stagnated for an extended period,
contributed partly by customer specific challenges. Though still early days, it seems the new
Europe leadership is making some difference and (2) quarterly annualized attrition has declined
further to 17.2% after peaking at 21.6% in the Dec-14 quarter. Mindtree has given higher-
than-industry wage increase to protect talent, a smart move in our view. We are also pleasantly
surprised that multiple exits of senior management at Mindtree failed to dent the strong
growth—we may have underestimated the resilience and depth of Mindtree leadership. Mindtree
can do with simplification of the organizational structure; we detail our thoughts on this aspect later.
Underestimated revenue growth, overestimated margin; align both resulting in no EPS change
We raise FY2016-18E revenue growth estimates by 2-3%. We expect Mindtree to grow ahead
of the industry for the next three years. Our confidence stems from the company’s strong client
base, sharp go-to-market and account management processes and portfolio aligned to growth
areas. However, getting this growth requires elevated levels of investment. We cut FY2017-18E
EBIT margin assumption by 40-100 bps as a result. The net result—no change in EPS estimates.
Strong growth and confidence of sustainability merit a premium—we recognize that and raise
the target multiple to 17X from 16X earlier. Yet this is not sufficient enough to get any
meaningful returns from the stock. REDUCE stays—we like the company but not the stock
price.
Mindtree (MTCL) Technology
Valuation dulls company’s luster. Mindtree reported another quarter of strong and
broad-based revenue growth. The company is reaping the benefits of focused customer
acquisition, effective account management and early start to the digital business
(+9.6% qoq). Mindtree has made solid progress in a few areas where it slipped
recently—attrition is down 165 bps sequentially and Europe business has registered
strong 10% growth. We retain our EPS estimates, but take the multiple up a tad and
target price to Rs1,400 from Rs1,350 earlier. There is plenty to like about Mindtree,
except expensive valuations. REDUCE.
REDUCE
OCTOBER 16, 2015
RESULT
Coverage view: Attractive
Price (`): 1,404
Target price (`): 1,400
BSE-30: 27,010
Mindtree
Stock data Forecasts/Valuations 2015 2016E 2017E
52-week range (Rs) (high,low) EPS (Rs) 63.7 72.6 83.0
Market Cap. (Rs bn) EPS growth (%) 18.7 14.0 14.2
Shareholding pattern (%) P/E (X) 22.0 19.3 16.9
Promoters 13.8 Sales (Rs bn) 35.6 45.6 53.9
FIIs 37.3 Net profits (Rs bn) 5.4 6.1 7.0
MFs 7.2 EBITDA (Rs bn) 7.1 8.4 10.0
Price performance (%) 1M 3M 12M EV/EBITDA (X) 15.3 13.3 10.9
Absolute 2.1 14.6 35.6 ROE (%) 29.4 27.6 26.2
Rel. to BSE-30 (2.8) 19.7 32.3 Div. Yield (%) 1.2 1.4 1.6
Company data and valuation summary
1,602-967
117.7
Page 12
Technology Mindtree
12 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Unlike competition, Mindtree has relatively low exposure to ‘legacy’ businesses. It derives
36.6% of revenues from the fast-growing digital business. In addition, another 8.6% of
revenues accrue from product engineering services where growth rates are likely to pick up.
With 45% of the business exposed to high-growth segments, Mindtree is well-positioned to
grow faster than the industry. However the market is already paying a premium for this
growth. We downgraded the stock at Rs1,471 at the beginning of the year citing expensive
valuations. Expensive valuations continue, so does our REDUCE view.
Cash generation disappoints again
Mindtree’s operating cash flow declined 38%yoy to Rs1.5 bn in 1HFY16. This decline is due
to sharp increase in receivable days to 84 from trendline 80 days. Free cash flow (excluding
acquisitions) was modest Rs712 mn in 1HFY16, a sharp decline of 52% over 1HFY15.
Addressing concern areas effectively
Mindtree went through a phase of small challenge at the beginning of the year and has
come out of it reasonably well. We detail those areas
Mindtree’s attrition spiked to over 20% at the beginning of the year. Attrition was high
in hot skill digital arena. The company has taken effective measures to bring attrition
under control. It moved an experienced hand internally to drive the people function and
made suitable interventions. Compensation was raised where required. The impact of
these measures has started showing in numbers with 165 bps decline in attrition rate in
Sep 2015 quarter and 440 bps in the last three quarters.
Europe business grew 10% on organic basis after stagnating for more than three years.
Leadership change at the beginning of the year seems to be making a difference though
it is still too early to call this a decisive turnaround. We note the Europe business has
suffered from leadership exits in the past and also faced challenges with decline in
budgets of a few accounts.
We are also pleasantly surprised that leadership exits at Mindtree failed to dent the strong
growth momentum. We admit that we may have underestimated the leadership bench
strength. Note that, Mindtree lost many people at senior levels late last year and early part
of this year including the head of Europe, head of quality, head of consulting, head of North
America sales, head of digital practice and company secretary and legal head.
Organization structure can do with simplification
Before we highlight our view on the org structure, a quick recap of changes made at the
beginning of the year:
Digital services group, headed by Radha R, has its own sales team which will work closely
with the sales force of industry verticals to approach opportunities in the digital space.
Digital services group will have its own sales targets besides being responsible for
execution and profitability (gross margins) of the digital practice.
Digital services group and Platform solutions group are an organization-wide horizontal.
All traditional service lines would remain verticalized.
All industry vertical heads report into Scott Staples, the President of Americas business.
Rostow Ravanan is now responsible for leading the company’s European business.
Mindtree has separate teams for client mining (account managers) and client hunting
(business development managers) in the US and Europe.
We note that the co-existence of geo heads and industry vertical heads under the new
structure may result in dual-reporting for several sales folk and it would mean joint
responsibility for growth in some areas. We do not rule out simplification of this org
structure.
Page 13
Mindtree Technology
KOTAK INSTITUTIONAL EQUITIES RESEARCH 13
Highlights from 2QFY16 results and conference call
Strong growth in top accounts. Mindtree’s emphasis on growing focused accounts is
yielding results. The top account grew 13% qoq, top 5 grew 11.5% and Top 10 by 9%
sequentially in the September quarter. The management indicated that one of the top 10
clients (Europe based) is ramping down. Aggregate revenues from the other 9 accounts
grew 20% yoy.
Digital deals contribute 75-80% to TCV. Mindtree signed TCVs of US$193 mn in 2Q,
up 17% yoy but down 7% qoq. Digital deals form 76% and 82% of TCVs in the 1Q and
2Q. The management indicated that the average deal size in digital has increased from
about US$220K to about US$ 430,000 over the past three months. Mindtree expects
digital to be the key growth driver for the company. Digital revenues (excluding
acquisitions) grew 9.6% qoq and now accounts for 36.6% of total revenues. The
management indicated that digital services are not discretionary in nature and it doesn’t
expect any volatility in quarterly performance from a higher proportion of digital deals in
the order book.
Margins. EBITDA margin of 18.5% (KIE 18%) increased 90 bps qoq led by benefits of
Rupee depreciation (+100 bps) and operating efficiencies partly offset by wage revision
(180 bps impact). Excluding acquisitions, EBITDA margin was 19.1% (up from 17.6% in
1QFY16). The management has guided for a slight decline in margins in 3Q (excluding
currency). The drop will be on account of wage revision for 28% of the employees that
would lead to 80 bps impact on margins.
Guidance. Mindtree guided that it would exceed NASSCOM’s growth guidance of 12-
14% in FY2016 on organic basis (excluding Discoverture, Bluefin and Relational
acquisitions). The management has indicated that investments in digital would result in
some decline in margin in FY2016. Mindtree expects margins to stabilize over 18-24
months.
Exhibit 1: Mindtree, 2QFY16 interim results (Indian GAAP), March fiscal-year ends (Rs mn)
Source: Company, Kotak Institutional Equities
Change
2QFY16 2QFY16E 1QFY16 2QFY15 2QFY16E 1QFY16 2QFY15 1HFY16 1HFY15 (%)
Revenues (US$ mn) 180.3 173.2 154.9 147.1 4.1 16.4 22.6 335.2 288.4 16.2
Revenues 11,693 11,186 9,816 8,886 4.5 19.1 31.6 21,509 17,321 24.2
Direct costs (6,868) (6,695) (5,712) (5,196) 2.6 20.2 32.2 (12,580) (10,070) 24.9
Gross profit 4,825 4,491 4,104 3,690 7.4 17.6 30.8 8,929 7,251 23.1
SG&A expenses (2,661) (2,472) (2,375) (1,935) 7.6 12.0 37.5 (5,036) (3,811) 32.1
EBITDA 2,164 2,018 1,729 1,755 7.2 25.2 23.3 3,893 3,440 13.2
Depreciation (317) (330) (322) (235) (4.1) (1.6) 34.9 (639) (463) 38.0
EBIT 1,847 1,688 1,407 1,520 9.4 31.3 21.5 3,254 2,977 9.3
Interest (2) (0) (0) — (2) —
Other income 195 121 374 241 569 451 26.2
Profit before tax 2,040 1,809 1,781 1,761 12.8 14.6 15.8 3,821 3,428 11.5
Tax (458) (404) (399) (387) (857) (760)
Net profit 1,582 1,405 1,382 1,374 12.6 14.5 15.1 2,964 2,668 11.1
EPS (Rs/ share) 18.9 16.8 16.5 16.4 12.6 14.5 15.1 35.3 31.8 11.1
Shares outstanding (mn) 84 83.9 83.9 83.9 83.9 83.9
Margins (%)
Gross margin 41.3 40.1 41.8 41.5 41.5 41.9
SG&A as % of revenues 22.8 22.1 24.2 21.8 23.4 22.0
EBITDA margin 18.5 18.0 17.6 19.8 18.1 19.9
Tax rate (%) 22.5 22.3 22.4 22.0 22.4 22.2
Change (%)
Page 14
Technology Mindtree
14 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: Key changes to estimates, fiscal year-ends March, 2016E-2018E
Source: Company, Kotak Institutional Equities
Exhibit 3: Attrition eased 165 bps in the September quarter
Source: Company, Kotak Institutional Equities
Exhibit 4: Revenues from Europe grew 10% qoq on organic basis and 41% overall
Source: Company, Kotak Institutional Equities
2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E
Revenues (Rs mn) 45,626 53,933 61,990 44,637 52,622 60,511 2.2 2.5 2.4
Revenues (US$ mn) 703 811 925 688 791 903 2.1 2.5 2.4
Growth (%) 20.4 15.3 14.1 17.9 14.9 14.2
EBITDA (Rs mn) 8,403 10,012 11,365 8,166 10,001 11,675 2.9 0.1 (2.7)
Net Profit (Rs mn) 6,115 6,985 7,954 5,836 6,986 8,120 4.8 (0.0) (2.0)
Fully diluted EPS (Rs/share) 72.6 83.0 94.5 69.3 83.0 96.4 4.8 (0.0) (2.0)
Re/ $ rate 64.9 66.5 67.0 64.9 66.5 67.0 0.1 — —
EBITDA margin (%) 18.4 18.6 18.3 18.3 19.0 19.3
New Old Change (%)
17.2
0
10
20
30
40
Jun-1
0
Sep
-10
Dec-
10
Mar-
11
Jun-1
1
Sep
-11
Dec-
11
Mar-
12
Jun-1
2
Sep
-12
Dec-
12
Mar-
13
Jun-1
3
Sep
-13
Dec-
13
Mar-
14
Jun-1
4
Sep
-14
Dec-
14
Mar-
15
Jun-1
5
Sep
-15
Quart
erly
annualiz
ed a
ttritio
n (
%)
Quarterly annualized attrition (%)
(10)
0
10
20
30
40
25
28
31
34
37
40
Jun-1
2
Sep
-12
Dec-
12
Mar-
13
Jun-1
3
Sep
-13
Dec-
13
Mar-
14
Jun-1
4
Sep
-14
Dec-
14
Mar-
15
Jun-1
5
Sep
-15
Revenues (US$ mn) (LHS) Growth (qoq %) (RHS)
Page 15
Mindtree Technology
KOTAK INSTITUTIONAL EQUITIES RESEARCH 15
Exhibit 5: Share increase in receivable days
Source: Company, Kotak Institutional Equities
Exhibit 6: Strong growth from the top account continues
Source: Company, Kotak Institutional Equities
Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
Receivables 6,203 6,186 6,004 6,905 7,241 7,145 6,963 7,278 9,220
Unbilled revenues 837 583 1,014 882 787 911 982 1,390 1,554
Total 7,040 6,769 7,018 7,787 8,028 8,056 7,945 8,668 10,774
Receivable days 83 78 78 84 82 81 79 81 84
Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 4 qtr 8 qtr 12 qtr
Revenues (US$ mn)
Top client 8.7 9.0 9.0 9.2 9.8 9.9 10.9 12.3 13.4 14.2 14.9 17.0 19.3 9.6 8.8 6.9
Top-5 clients 36.2 37.0 35.8 36.7 39.2 41.1 44.0 45.6 47.6 48.0 47.7 51.4 57.3 4.7 4.9 3.9
Top-10 clients 50.2 51.8 51.6 54.1 58.9 62.2 65.3 69.2 71.8 71.0 69.9 75.1 81.9 3.3 4.2 4.2
Non Top-10 accounts 57.1 58.1 61.4 63.6 65.1 64.9 67.5 72.1 75.3 76.7 77.9 79.8 98.4 6.9 5.3 4.6
Growth (%)
Top client 8.4 3.7 0.3 1.6 6.7 1.2 9.8 12.9 8.9 6.0 5.3 14.1 13.2
Top-5 clients 2.3 2.4 (3.3) 2.5 6.7 4.8 7.1 3.8 4.4 0.8 (0.5) 7.7 11.5
Top-10 clients 1.1 3.1 (0.2) 4.8 8.8 5.5 5.1 6.0 3.6 (1.0) (1.6) 7.5 9.0
Non Top-10 accounts 2.3 1.8 5.5 3.6 2.4 (0.2) 3.9 6.8 4.5 1.8 1.6 2.4 23.4
CQGR (%)
Page 16
Technology Mindtree
16 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 7: Mindtree: Key operational metrics
Source: Company, Kotak Institutional Equities
Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
Revenues (US$ mn) 124.0 127.1 132.8 141.3 147.1 147.7 147.8 154.9 180.3
Revenue by geographical segment (%)
USA 57.5 57.6 58.8 59.2 60.4 63.1 64.9 67.5 63.2
Europe 28.8 28.3 28.0 26.8 26.1 24.2 23.7 21.9 26.6
India 4.9 4.7 3.7 3.5 4.0 4.1 3.6 3.4 3.2
Rest of the world 8.8 9.4 9.5 10.5 9.5 8.6 7.8 7.2 7.0
Revenue by service offering (%) - new classification
Development 26.1 25.3 23.3 24.2 24.0 23.7 23.2 24.4 23.2
Engineering 11.1 10.1 9.8 9.7 9.4 10.3 10.0 9.0 8.6
Maintenance 22.7 23.7 22.6 20.6 21.2 21.4 20.8 21.7 21.0
Consulting 3.0 3.3 3.8 3.8 4.2 4.1 3.9 3.7 2.8
Package implementation 2.5 2.4 4.1 5.4 5.4 5.8 7.5 7.2 13.3
IP led revenue 0.8 0.7 1.1 1.7 1.6 1.6 1.7 1.4 1.3
Independent testing 17.6 16.6 16.7 15.7 15.5 15.4 15.4 14.9 12.8
Infrastructure management & Tech support 16.3 17.8 18.6 18.9 18.7 17.6 17.5 17.7 17.0
Revenue by industry (%) - new classification
Hi-Tech & Media Services 33.1 31.7 31.8 32.7 32.7 32.7 32.6 31.7 30.4
BFSI 22.7 23.3 23.3 22.7 22.8 23.5 25.0 26.4 24.7
Retail, CPG & Manufacturing 21.6 21.5 22.1 21.2 21.6 22.2 21.7 22.0 20.6
Travel & Hospitality 15.5 15.9 15.4 16.4 17.1 16.2 16.0 15.5 13.9
Others 7.1 7.5 7.4 7.0 5.8 5.4 4.7 4.3 10.5
Revenue by project type (%)
Fixed price 40.4 41.4 42.5 43.8 43.6 46.5 46.5 48.9 49.7
Time & materials 59.6 58.6 57.5 56.2 56.4 53.5 53.5 51.1 50.3
Effort mix (%)
Onsite 16.5 16.3 17.2 17.0 17.6 18.2 18.5 18.6 20.0
Offshore 83.5 83.7 82.8 83.0 82.4 81.8 81.5 81.4 80.0
Revenue mix (%)
Onsite (%) 41.4 42.8 43.8 44.2 45.6 45.8 47.1 48.1 52.4
Offshore (%) 58.6 57.2 56.2 55.8 54.4 54.2 52.9 51.9 47.6
Effort and Utilization
Onsite - Billled hours 703,139 712,041 764,071 800,872 865,381 880,982 909,540 976,426 1,152,159
Offshore - Billed hours 3,564,643 3,643,072 3,685,294 3,917,308 4,046,150 3,957,435 4,019,146 4,265,360 4,613,339
Total 4,267,782 4,355,113 4,449,365 4,718,180 4,911,531 4,838,417 4,928,686 5,241,786 5,765,498
Fee revenues (US$ mn)
Onsite 50.5 53.6 57.4 61.8 66.3 67.0 68.9 73.7 93.7
Offshore 71.6 71.7 73.6 77.9 79.2 79.3 77.4 79.7 85.0
Utilization (%)
Including trainees 65.9 67.4 68.5 72.1 73.5 71.8 70.2 70.3 71.4
Excluding trainees 70.3 68.7 68.7 72.4 74.2 74.2 71.1 71.9 73.3
Client metrics
Number of active clients 220 208 207 206 200 201 217 218 296
New clients added 9 9 15 3 8 5 8 16 18
US$1 mn clients 70 68 73 75 77 83 88 88 92
US$5 mn clients 21 22 24 26 27 27 28 28 29
US$10 mn clients 10 13 13 13 13 13 14 13 13
US$20 mn clients 5 6 6 6 7 6 6
US$25 mn clients 5 6 6 6
US$30 mn clients 3 3 3 3 4 4 4
US$50 mn clients 1 2 2
Client contribution to revenue (%)
Top customer 7.9 7.8 8.2 8.7 9.1 9.6 10.1 11.0 10.7
Top 5 customers 31.6 32.3 33.1 32.3 32.4 32.5 32.3 33.2 31.8
Top 10 customers 47.5 48.9 49.2 49.0 48.8 48.1 47.3 48.5 45.4
Revenue from repeat business 99.4 99.6 99.1 99.2 99.7 99.4 99.2 98.9 98.9
Total Contract Value signed (TCV), US$ mn
Renewals 102 114 120 130
New 63 50 88 63
Total 165 165 164 208 193
Expiring within 1 year 157 159 157
Expiring >1 year 7 49 36
Digital 63 105
Employee metrics
Software professionals 12,169 12,193 12,122 12,037 12,204 12,500 13,350 13,560 14,655
Sales and support 772 799 804 808 814 823 852 867 927
Total 12,941 12,992 12,926 12,845 13,018 13,323 14,202 14,427 15,582
Gross addition 1,122 397 397 516 810 1,016 1,517 900 1,801
Net addition 702 51 (66) (81) 173 305 879 225 1,155
Attrition (LTM) (%) 11.9 11.6 12.7 14.2 15.7 18.1 18.2 18.4 17.1
Quarterly annualised attrition (%) 13.3 10.7 14.3 18.5 19.7 21.6 18.5 18.9 17.2
Page 17
Mindtree Technology
KOTAK INSTITUTIONAL EQUITIES RESEARCH 17
Exhibit 8: Condensed consolidated financials for Mindtree Limited, March fiscal year-ends, 2013-2018E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
2013 2014 2015 2016E 2017E 2018E
Profit model
Revenues 23,618 30,316 35,619 45,626 53,933 61,990
EBITDA 4,860 6,100 7,092 8,403 10,012 11,365
Interest (expense)/income (10) (4) (1) (1) — —
Depreciation (624) (809) (1,018) (1,310) (1,494) (1,707)
Other income 10 496 835 780 580 801
Pretax profits 4,236 5,783 6,908 7,872 9,097 10,460
Tax (847) (1,275) (1,545) (1,757) (2,112) (2,506)
Profit after tax 3,389 4,508 5,363 6,115 6,985 7,954
Diluted earnings per share (Rs) 40.8 53.7 63.7 72.6 83.0 94.5
Balance sheet
Total equity 13,137 16,405 20,128 24,262 28,983 34,360
Deferred taxation liability (360) (402) (449) (449) (449) (449)
Total borrowings 249 27 23 23 23 23
Current liabilities 3,524 4,562 6,398 7,458 8,295 9,353
Total liabilities and equity 16,551 20,593 26,101 31,295 36,854 43,289
Cash 1,238 1,184 3,763 437 2,738 5,647
Other current assets 7,881 10,141 11,077 14,270 16,965 19,609
Tangible fixed assets 3,160 3,932 5,909 11,235 11,799 12,680
Total assets 16,551 20,593 26,101 31,295 36,854 43,289
Free cash flow
Operating cash flow, excl. WC 4,933 6,081 7,218 8,403 10,012 11,365
Tax paid (969) (1,297) (1,539) (1,757) (2,112) (2,506)
Working capital changes (1,022) (1,766) 28 (2,133) (1,857) (1,586)
Capital expenditure (1,057) (1,517) (1,987) (1,771) (2,058) (2,588)
Free cash flow 1,885 1,501 3,720 2,742 3,984 4,685
Ratios (%)
EBITDA margin 20.6 20.1 19.9 18.4 18.6 18.3
EBIT margin 17.9 17.5 17.1 15.5 15.8 15.6
Net debt/equity (0.4) (0.4) (0.5) (0.2) (0.3) (0.3)
RoAE 29.8 30.5 29.4 27.6 26.2 25.1
RoACE 29.0 27.7 25.8 24.8 24.5 23.2
Page 18
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
2QFY16—weak quarter on all counts
Print ad revenues declined 7% yoy as (1) 20-22% price increase pushed by DBCL continued
to see some resistance from advertisers resulting in volume loss (down 15-20% yoy) and (2)
late start to the festive season this year was an additional headwind but for which ad
revenues in 2Q would have been flat yoy, as per the management. BFSI, classifieds,
healthcare and lifestyle categories did well while real estate, education and auto were
laggards. The internet/ecommerce category is still small in regional print as these advertises
are focused on top 8-10 cities. The management expects ad revenue growth to recover in
2H—ad revenue growth in 3Q so far is around 10-12%.
Circulation revenues grew 15.5% yoy. The growth in radio revenues was modest at 5%
partly due to a high base on account of elections last year. Digital ad revenues grew 82%
yoy to `114 mn. DBCL’s unique visitors increased to 40 mn from 14 mn on a yoy basis.
Newsprint price trended down for the sixth consecutive quarter. The growth in operating
costs was restricted to 3% thanks to (1) 7% drop in raw material costs (aided by 8% yoy
decline in newsprint prices) and (2) well-contained other operating costs. EBITDA and PAT at
`1.1 bn and `591 mn declined 10% and 13% yoy. EBITDA margin at 23.4% was down 240
bps yoy. Forex loss stood at `29 mn. The management indicated that newsprint prices would
remain at current levels in 3QFY15.
Updates on radio—DB Corp has acquired 14 frequencies in the phase III radio auctions for
`320 mn. Of these, 9 frequencies are in Maharashtra. These new stations would be
operational in the next 6-9 months.
We cut earnings and target price, maintain ADD
We now build flat ad revenues in FY2016E as against growth of 5.5% earlier. We retain our ad
revenue growth expectations for FY2017E given tailwinds from low base of FY2016 and our
expectation of marginal improvement in print ad spends. This translates into earnings cut of 5-
6% for FY2016-17E. Further depreciation of rupee could lead to inflation in newsprint prices in
FY2017. We are conservatively building 5% increase in newsprint price in FY2017. We reduce
our TP to `350 valuing the stock at 15X FY2017E PE. Maintain ADD.
DB Corp. (DBCL) Media
Readership data crucial for price hike. DB Corp (DBCL) reported 7%, 10% and 13%
yoy decline in ad revenues, EBITDA and net profit, all weaker than our estimates. The
management expects recovery in ad revenue growth starting 3Q. We believe it is
imperative that the print industry reinstate a robust and acceptable readership
measurement system. This is necessary to (1) prevent loss of ad spends to other mediums
for lack of data and (2) push price hikes and justify pricing gaps between players, in the
long term. We cut FY2016-17E earnings by 5-6% and reduce TP to `350 (from `375).
ADD
OCTOBER 16, 2015
RESULT
Coverage view: Neutral
Price (`): 306
Target price (`): 350
BSE-30: 27,010
DB Corp
Stock data Forecasts/Valuations 2015 2016E 2017E
52-week range (Rs) (high,low) EPS (Rs) 17.2 19.2 23.3
Market Cap. (Rs bn) EPS growth (%) 3.2 11.1 21.5
Shareholding pattern (%) P/E (X) 17.7 15.9 13.1
Promoters 69.9 Sales (Rs bn) 20.1 21.0 24.1
FIIs 18.5 Net profits (Rs bn) 3.2 3.5 4.3
MFs 7.8 EBITDA (Rs bn) 5.6 6.0 7.2
Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.7 9.0 7.3
Absolute (2.4) (4.5) (13.0) ROE (%) 26.0 25.9 28.3
Rel. to BSE-30 (7.1) (0.3) (15.1) Div. Yield (%) 2.5 3.2 4.2
Company data and valuation summary
424-284
56.1
Page 19
DB Corp. Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 19
Lack of readership data hurts as much as adverse data; print industry ought to
reinstate readership measurement system
Sample this—(1) DBCL’s ad revenues declined 3% in 1HFY16 versus 1HFY14 (despite
benefit of Bihar launch) whereas that of Jagran increased 15% and Hindustan increased
32%. (2) There was hardly any divergence in growth of these three players between 1HFY12
and 1HFY14 (increase in a narrow band of16-20%). (3) The new Indian Readership Survey
(2013) was released in January 2014. It indicated loss of readership share of DBCL in its key
markets (MP-CG and Rajasthan), slight weakening of dominance of Jagran in its key market
(Uttar Pradesh) and significant readership gains for Hindustan in Uttar Pradesh.
Based on the above, DBCL’s ad revenue growth underperformance could be due to (1) loss
of readership share in the new IRS or (2) maybe, the print ad spend environment in DBCL’s
key markets (MP, Rajasthan and Gujarat) has been very weak and that in Jagran and
Hindustan’s key markets (UP & Bihar) is better or (3) maybe, both these factors have played a
role.
We note that the findings of new Indian Readership Survey (IRS 2013 and 2014) deviated
from the previous results and the data was adverse for several large publishers.
Consequently, most leading publishers disregarded the readership data and some have
withdrawn from the readership system. These players have argued that about two-thirds of
advertising on regional print come from local advertisers who base their advertising decision
on customer response. Further, they expected national advertisers to base their media
buying decisions on old IRS data (2012) or on perceptions. We note that the beneficiaries of
new IRS have used the new readerships data in their marketing/promotion activities to
influence local advertisers.
Our industry interactions suggest that media agencies and advertisers are not happy to make
media buying decisions on print without acceptable readership data. At present, some
advertisers refer to old data while some give weightage to both. Eminent personalities from
advertisers’ associations and media agencies have voiced their concern on several occasions.
In our view, this situation is hurting the print industry to some extent.
DBCL pushed a steep price increase of 20-22% at the beginning of FY2016. This price
increase met stiff resistance from advertisers. DBCL makes steady investments and lays
emphasis on content quality. The franchise has reputation of higher share in the SEC A and
SEC B population and in urban markets. These factors allowed the company to command
significant premium over competition in the past. This time around, the advertisers’
resistance is surprisingly stiff. It may be due to lack of data or weak markets or perhaps
both.
We believe it is imperative that the print industry fix readership measurement system. In
absence of acceptable, creditable and comprehensive readership data, the print industry will
lose out to other mediums. It is even more important for players such as DBCL who aspire to
take regular increases in ad yields and command pricing premium. We hope leading print
players take initiative on this front. The television industry has done an excellent job in
setting up BARC (new TV viewership measurement system).
Page 20
Media DB Corp.
20 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 1: Interim results of DB Corp (DBCL), March fiscal year-ends (Rs mn)
Source: Company, Kotak Institutional Equities
Exhibit 2: Revised earnings estimates of DBCL, FY2016E-17E (Rs mn)
Source: Company, Kotak Institutional Equities estimates
chg (%)
2QFY16 2QFY16E 2QFY15 1QFY16 2QFY16E 2QFY15 1QFY16 1HFY16E 1HFY15 chg (%)
Total revenues 4,783 4,845 4,802 4,734 (1.3) (0.4) 1.0 9,517 9,694 (1.8)
Advertising revenues 3,079 3,186 3,319 3,107 (3.4) (7.2) (0.9) 6,186 6,784 (8.8)
Circulation revenues 1,057 1,034 915 1,022 2.2 15.5 3.4 2,079 1,800 15.5
Other revenues 647 625 568 605 3.6 14.0 7.1 1,252 1,110 12.8
Total expenditure (3,666) (3,660) (3,567) (3,515) 0.2 2.8 4.3 (7,181) (7,114) 1.0
Raw material costs (1,495) (1,500) (1,612) (1,448) (0.4) (7.3) 3.2 (2,943) (3,275) (10.1)
Employee expenses (968) (966) (840) (930) 0.2 15.3 4.2 (1,898) (1,675) 13.3
Other expenses (1,203) (1,194) (1,116) (1,138) 0.8 7.8 5.8 (2,341) (2,164) 8.2
EBITDA 1,117 1,185 1,235 1,218 (5.7) (9.5) (8.3) 2,336 2,580 (9.5)
EBITDA margin (%) 23.4 24.5 25.7 25.7 24.5 26.6
Other income 53 60 36 68 (11.0) 47.4 (21.8) 122 131 (7.2)
Interest expense (27) (20) (15) (21) 36.1 87 26.7 (49) (30) 61.0
D&A expenses (215) (250) (208) (208) (13.9) 3.6 3.7 (423) (412) 2.8
PBT 928 975 1,048 1,057 (4.8) (11.5) (12.2) 1,986 2,270 (12.5)
Extraordinaries — — — — — —
Tax provision (337) (332) (367) (393) 1.6 (8.3) (14.2) (730) (797) (8.5)
Minority interest — — — — — —
Reported PAT 591 644 681 665 (8.1) (13.2) (11.0) 1,256 1,472 (14.7)
Adjusted PAT 591 644 681 665 (8.1) (13.2) (11.0) 1,256 1,472 (14.7)
EPS (Rs/share) 3.2 3.5 3.7 3.6 6.8 8.0 (14.7)
Tax rate (%) 36.3 34.0 35.0 37.2 36.8 35.1
Revised Previous Change (%)
2016E 2017E 2016E 2017E 2016E 2017E
Print ad revenue 13,901 15,852 14,681 16,645 (5.3) (4.8)
Circulation revenue 4,299 4,643 4,243 4,540 1.3 2.3
Other revenue 2,846 3,587 2,875 3,649 (1.0) (1.7)
Total revenues 21,046 24,083 21,799 24,834 (3.5) (3.0)
Production cost 8,370 9,047 8,604 9,440 (2.7) (4.2)
Employee cost 3,932 4,492 3,980 4,546 (1.2) (1.2)
SG&A expenses 2,775 3,373 2,802 3,405 (1.0) (0.9)
Total expenditure 15,077 16,912 15,387 17,391 (2.0) (2.8)
EBITDA 5,969 7,171 6,412 7,443 (6.9) (3.7)
EPS (Rs) 19.2 23.3 20.5 24.6 (6.4) (5.1)
Key assumptions
Ad revenue growth (yoy %) (0.1) 14.0 5.5 13.4
Circulation revenue growth (yoy %) 14.5 8.0 13.0 7.0
Newsprint price (yoy %) (3.0) 3.0 (3.5) 5.0
EBITDA margin (%) 28.4 29.8 29.4 30.0
Page 21
DB Corp. Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 21
Exhibit 3: DBCL's breakdown of financials, 1QFY14-2QFY16 (Rs mn)
Source: Company, Kotak Institutional Equities
Exhibit 4: Trends in advertising revenue growth of DBCL (yoy %)
Source: Company, Kotak Institutional Equities
1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 yoy (%) qoq (%)
DBCL standalone
Revenues 4,508 4,380 5,203 4,584 4,987 4,837 5,573 4,952 4,801 4,834 (0.1) 0.7
EBITDA 1,403 1,133 1,628 1,180 1,442 1,271 1,876 1,296 1,317 1,208 (5.0) (8.3)
Margin (%) 31.1 25.9 31.3 25.7 28.9 26.3 33.7 26.2 27.4 25.0
MyFM radio
Revenues 173 175 239 215 208 228 257 268 215 240 5.1 11.4
EBITDA 51 56 113 98 73 86 115 120 61 80 (7.0) 31.1
Margin (%) 29.5 32.0 47.3 45.6 35.1 37.7 44.7 44.8 28.4 33.4
Mature editions
Revenues 3,969 3,834 4,503 3,914 4,180 3,979 4,589 3,671 4,109 4,043 1.6 (1.6)
EBITDA 1,410 1,173 1,570 1,166 1,457 1,267 1,739 1,342 1,401 1,264 (0.2) (9.8)
Margin (%) 35.5 30.6 34.9 29.8 34.9 31.8 37.9 36.6 34.1 31.3
Emerging editions
Revenues 366 371 461 455 540 566 635 929 385 452 (20.1) 17.4
Expenses 424 467 516 539 620 638 591 1,059 487 569 (10.8) 16.8
EBITDA (58) (96) (55) (84) (80) (72) 44 (130) (102) (117)
Margin (%) (15.8) (25.9) (11.9) (18.5) (14.8) (12.7) 6.9 (14.0) (26.5) (25.9)
Notes:
(a) DB Corp includes other/interest income in its calculation of mature, emerging editions and FM radio EBITDA.
(b) Almost all spill over new editions that have completed 2 years have been transferred to mature editions from 2QFY14.
(c) Costs associated with mobile apps downloading and e real estate business included in emerging edition from 4QFY15.
(d) Larger part of Jharkhand, after completion of 4 years have been transferred to mature editions with effect from 1QFY16.
20
16
7 5
(1)1
11 13
20
18 18
13
7 7 5
1
(7)
(10)
-
10
20
30
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
Page 22
Media DB Corp.
22 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 5: Trends in circulation revenue growth of DBCL (yoy %)
Source: Company, Kotak Institutional Equities
Exhibit 6: Trends in effective newsprint price for DBCL
Source: Company, Kotak Institutional Equities
6
13
17 16 15
16 16
18 17
14 14 15
15 15
17 17
15 16
-
5
10
15
20
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
30.5 31.2
31.8 31.8 32.3 33.1 33.5
32.8 33.2
34.9
37.2 37.9
37.2 36.2
35.3 34.4
33.6 33.3
19
16 14 14
6 6 5 3 3
5
11
16
12
4
(5)
(9) (10)(8)
(15)
(10)
(5)
0
5
10
15
20
20
25
30
35
40
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
Newsprint price (Rs/Kg) Growth (yoy %)
Page 23
DB Corp. Media
KOTAK INSTITUTIONAL EQUITIES RESEARCH 23
Exhibit 7: Trends in DBCL EBITDA margins (%)
Source: Company, Kotak Institutional Equities
28.4
21.5
26.3
19.3
22.5 21.5
28.0
23.4
30.0
25.7
29.7
23.0
27.5
25.7
33.3
24.6 25.7
23.4
15
20
25
30
35
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
Page 24
Media DB Corp.
24 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 8: Financial summary of DB Corp, FY2012-18E (Rs mn)
Source: Company, Kotak Institutional Equities
2012 2013 2014 2015 2016E 2017E 2018E
Profit model
Net sales 14,515 15,923 18,598 20,096 21,046 24,083 27,228
EBITDA 3,465 3,821 5,003 5,626 5,969 7,171 8,314
Other income 139 153 239 257 318 483 601
Interest (92) (80) (75) (76) (79) (74) (74)
Depreciation (506) (581) (642) (881) (914) (1,171) (1,192)
Pretax profits 3,006 3,313 4,524 4,926 5,293 6,409 7,649
Extraordinary items — — — — — — —
Current tax (932) (1,044) (1,406) (1,759) (1,773) (2,131) (2,475)
Deferred taxation (51) (88) (51) — — — —
Net income 2,023 2,181 3,066 3,167 3,520 4,278 5,174
Adjusted net income 2,021 2,181 3,066 3,167 3,520 4,278 5,174
Earnings per share (Rs) 11.0 11.9 16.7 17.2 19.2 23.3 28.2
Balance sheet
Total equity 9,271 10,292 11,467 12,882 14,325 15,886 17,705
Deferred taxation liability 746 834 885 832 832 832 832
Total borrowings 2,100 1,593 1,506 983 983 983 983
Current liabilities 3,320 3,598 3,837 4,349 5,436 6,222 7,024
Total capital 15,452 16,327 17,695 19,046 21,575 23,923 26,544
Cash 1,896 1,279 1,135 1,767 2,674 4,285 6,283
Other current assets 5,069 5,780 7,248 8,328 8,676 9,667 10,734
Total fixed assets 7,933 8,383 8,526 8,203 9,477 9,223 8,779
Investments 460 807 724 686 686 686 686
Miscellaneous expenditure 94 78 62 62 62 62 62
Total assets 15,452 16,327 17,695 19,046 21,575 23,923 26,544
Free cash flow
Operating cash flow, excl. working capital 2,662 2,969 3,878 3,867 4,195 5,040 5,839
Working capital changes (421) (618) (1,387) (567) 738 (204) (265)
Capital expenditure (1,215) (605) (1,058) (840) (2,188) (918) (749)
Income from investments 116 95 79 257 318 483 601
Free cash flow 1,142 1,840 1,512 2,716 3,063 4,401 5,427
Ratios (%)
Debt/equity 21 14 12 7 6 6 5
Net debt/equity 2 3 3 (6) (11) (20) (29)
ROAE (%) 21 21 26 24 24 27 29
ROACE (%) 20 19 24 23 25 29 35
Page 25
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Strong revenue growth led by NII and operating leverage aids healthy earnings growth
KVB reported strong earnings growth of 57% yoy on the back of 36% yoy revenue growth and
72% yoy growth in operating profit. Loan growth was still slow at 6% yoy but declining cost of
funds led to ~70bps yoy (5bps qoq) improvement in NIM and healthy NII growth of 30% yoy.
Non-interest income got support from treasury income. Another key positive was the cost-
income ratio which fell to 45%, the first time since 1QFY14. Impairment ratios were stable but
slippages have declined to 1.9% and fresh restructuring to 3% of loans.
Revenue issues will emerge in 2HFY16 but there are a few positives to unfold in P&L
KVB has been steadily addressing some of the most critical issues: (1) NIM is impressive at over
3%. We are seeing an impressive performance on savings account mobilization (2) The adverse
cost structure has been addressed. However, the tailwind on revenue growth ahead of loan
growth will start to dissipate in 2HFY16. Revenue growth will fall sharply but tailwinds on costs
and provisions should keep earnings growth among the best in the industry. There are still
some niggling issues on impairments, but the bank has adequate operating profits to manage
any sharp negative surprises.
Fresh impairments higher, primarily due to restructuring of pending cases; provisions high
KVB reported a relatively weaker quarter on fresh impairment ratios despite headline ratios
remaining flat qoq. Fresh impaired loans were at 5.3% of loans, slippages declining to 1.9%,
the best in the past three quarters but fresh restructuring was higher at 3% as the bank
completed a few pending cases. Slippages have been a bit chunky coming from one large
account. Outstanding gross NPL ratio was flat qoq at 2% of loans while outstanding
restructured loans increased 60bps qoq to 6% of loans. High provisions for NPLs does suggest
aggressive write-off this quarter.
Most key issues have been addressed; valuations attractive at current levels
We revise our TP to `580 (from `600 earlier) to reflect changes to our medium term growth
assumptions. RoEs which bottomed to 12% in FY2015 are likely to improve from now. At our
TP, we value the bank at 1.4X book and 9X FY2017 EPS for RoEs in the range of 16% and
earnings growth of over 30% CAGR for FY2015-17E.
Karur Vysya Bank (KVB) Banks/Financial Institutions
Getting better. KVB reported strong earnings growth of 57% yoy led by 36% yoy
revenue growth and operating leverage. Fresh impairments were high at 5% as the
bank completed the last few cases of loans pending to be restructured. While there
would be headwinds on revenue growth from hereon due to slow loan growth and
NIM pressure, we think operating leverage exists for some time which should result in
steady improvement in RoEs. Maintain BUY with TP at ₹580 (from ₹600 earlier).
BUY
OCTOBER 16, 2015
RESULT
Coverage view: Attractive
Price (`): 429
Target price (`): 580
BSE-30: 27,010
QUICK NUMBERS
Earnings grew 57%
yoy; NII grew 30%
yoy
Gross NPL at 2%
and restructured
loans at 5.9% of
loans
Maintain BUY with
TP at ₹580 (from
₹600 earlier)
Karur Vysya Bank
Stock data Forecasts/Valuations 2015 2016E 2017E
52-week range (Rs) (high,low) EPS (Rs) 37.5 53.5 61.9
Market Cap. (Rs bn) EPS growth (%) (6.5) 42.9 15.6
Shareholding pattern (%) P/E (X) 11.5 8.0 6.9
Promoters 2.2 NII (Rs bn) 14.7 17.1 18.7
FIIs 19.6 Net profits (Rs bn) 4.6 6.5 7.5
MFs 15.6 BVPS 334.1 365.4 410.4
Price performance (%) 1M 3M 12M P/B (X) 1.3 1.2 1.0
Absolute (3.9) (9.3) (19.5) ROE (%) 12.0 14.5 15.1
Rel. to BSE-30 (8.5) (5.3) (21.4) Div. Yield (%) 3.0 3.1 3.6
Company data and valuation summary
619-421
51.9
Page 26
Banks/Financial Institutions Karur Vysya Bank
26 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 1: Karur Vysya Bank – Quarterly details March fiscal year-ends, 2QFY15-2QFY16 (` mn)
Source: Company, Kotak Institutional Equities estimates
2QFY16 2QFY16E 2QFY15 1QFY16 2QFY16E 2QFY15 1QFY16 1HFY16 1HFY15 (% chg.) FY2016E
Interest Earned 13,645 13,774 13,589 13,563 (0.9) 0.4 0.6 27,209 27,034 0.6 54,607
Interest on loans 10,839 11,019 10,520 10,825 (1.6) 3.0 0.1 21,664 20,997 3.2 43,218
Interest on Investment 2,754 2,720 3,014 2,683 1.2 (8.6) 2.6 5,437 5,923 (8.2) 11,167
Interest on bal. with RBI & other inter bank funds 5 10 6 7 (53.0) (17.5) (30.9) 12 12 (7.3) 222
Interest expense 9,271 9,551 10,215 9,332 (2.9) (9.2) (0.7) 18,604 20,259 (8.2) 37,463
Net interest income 4,374 4,223 3,374 4,231 3.6 29.6 3.4 8,605 6,775 27.0 17,144
Other Income 2,057 1,735 1,360 1,622 18.6 51.3 26.9 3,679 2,539 44.9 7,362
Other Income exld treasury 1,417 1,385 1,322 1,513 2.3 7.2 (6.3) 2,930 2,472 18.5 5,662
Treasury 640 350 37 109 82.9 1,620.4 488.8 749 67 1,021 1,700
Total Income 6,432 5,958 4,734 5,853 7.9 35.9 9.9 12,284 9,314 31.9 24,505
Operating Expenses 2,879 3,005 2,663 2,895 (4.2) 8.1 (0.6) 5,775 5,108 13.1 11,860
Employee expenses 1,330 1,470 1,268 1,485 (9.5) 5.0 (10.4) 2,816 2,495 12.8 5,813
Other operating expenses 1,549 1,535 1,395 1,410 0.9 11.0 9.8 2,959 2,613 13.3 6,048
Operating Profit Before Prov. & Cont. 3,552 2,953 2,071 2,957 20.3 71.5 20.1 6,510 4,206 54.8 12,645
Provisions & Contingencies 1,260 1,044 931 1,177 20.7 35.3 7.1 2,437 1,795 35.7 3,724
Loan loss provisions 1,000 1,044 738 950 (4.3) 35.5 5.3 1,950 2,068 (5.7) 3,774
Investment depreciation — (25) 19 190 (100.0) (100.0) (100.0) 190 (486) (139.0) (100)
Profit before tax 2,292 1,910 1,140 1,781 20.0 101.1 28.7 4,073 2,411 69.0 8,921
Provision for Taxes 870 592 235 435 47.0 270.2 100.0 1,305 285 2,409
Net Profit 1,422 1,318 905 1,346 7.9 57.1 5.7 2,768 2,126 30.2 6,513
Tax rate 38.0 31.0 20.6 24.4 32.0 11.8 27.0
PBT - treasury + investment dep. 1,652 1,535 1,122 1,862 7.7 47.3 (11.3) 3,514 1,858 89.1 7,121
Key balance sheet items (Rs bn)
Deposits 467 449 457 4.1 2.3
CASA (%) 23.4 21.8 23.3
Advances 375 355 372 5.6 0.8
Retail 55 49 54 13.0 3.4
Agriculture 63 62 65 0.9 (3.2)
Commercial/SME 122 114 118 6.3 3.0
Corporate 135 130 135 4.3 (0.2)
Gold loans 64 80 67 (19.6) (4.3)
Yield ratios (%)
Yield on advances 11.9 12.3 11.9
Cost of deposits 7.6 8.2 7.6
NIM 3.4 2.7 3.3
Asset quality measures
Gross Non Performing Assets (Rs mn) 7,320 4,807 7,131 52.3 2.7
Gross Non Performing Assets (%) 2.0 1.4 1.9
Net Non Performing Assets (Rs mn) 3,545 2,076 3,231 70.8 9.7
Net Non Performing Assets (%) 1.0 0.6 0.9
Provision coverage ratio (%) 51.6 56.8 54.7
Provision coverage ratio including tech. write-offs (%) 75.1 75.0 75.0
Restructured (Rs mn) 22,270 15,990 19,615 39.3 13.5
Restructured loans (%) 5.9 4.5 5.3
Capital adequacy details
CAR (%) 13.0 14.4 13.2
Tier I (%) 12.1 13.5 12.3
Tier II (%) 1.0 1.0 0.9
(% chg.)
Page 27
Karur Vysya Bank Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 27
Exhibit 2: NII growth is slowly gaining traction NII and loan growth, March fiscal year-ends, 2QFY12-2QFY16 (%)
Source: Company, Kotak Institutional Equities
Exhibit 3: Steady improvement in cost-income ratio Operating expenses growth and cost-income ratio, March fiscal year-ends, 2QFY12-2QFY16 (%)
Source: Company, Kotak Institutional Equities
Loan growth still weak at 6% yoy; gold loan portfolio remains the key area of
concern
Loan growth continued to remain slow at 5% yoy this quarter. While it does appear to be a
bottom for the bank, recovery in growth appears to be still elusive as it has been in the
range of 5-8% yoy over the past four quarters. The big portfolio of gold loans (~17% of
loans) showed a decline of 20% yoy (4% qoq) where the bank has been impacted by RBI’s
dispensation on LTV ratios and price decline. Ex-gold loans, the retail portfolio is growing at
a fairly healthy pace. Most other segments like corporate banking and commercial banking
grew at a modest level of 4-7% yoy, primarily due to weak demand for new loans from
clients as well as refinancing by other banks which the bank has not been too comfortable
with. The other large portfolio in infrastructure loans (9% of loans) is seeing a similar
challenge with a decline of 2% yoy. This muted performance is a conscious decision of the
management given the headwinds in this business.
Over the past four years, the contribution of term loans to the overall loan portfolio has
increased to 88% from 68% in FY2010. On the other hand, the exposure of the top 20
borrowers has been consistently declining and is at 10.5% of loans currently as compared to
26% in FY2010.
We expect loan growth to improve to 10-12% yoy in FY2016-17E driven by growth in retail
and SME loans.
(10)
-
10
20
30
40
2Q
FY1
2
3Q
FY1
2
4Q
FY1
2
1Q
FY1
3
2Q
FY1
3
3Q
FY1
3
4Q
FY1
3
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1Q
FY1
5
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
Loan NII
24 32
24
37 32
50 43 42 40
28 25
11 7 7 11 18
8 30
38
46
54
62
70
-
12
24
36
48
60
2Q
FY1
2
3Q
FY1
2
4Q
FY1
2
1Q
FY1
3
2Q
FY1
3
3Q
FY1
3
4Q
FY1
3
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1Q
FY1
5
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
Opex (LHS) Cost-income (RHS)
Page 28
Banks/Financial Institutions Karur Vysya Bank
28 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 4: Loan growth slowed on the back of decline in growth in gold loans Break-up of loan book, March fiscal year-ends, 2011-2QFY16 (%)
Source: Company, Kotak Institutional Equities estimates
Cost-income ratio declines below 45% for the first time since 1QFY14
On the back of strong growth in revenues and cost controls, KVB was able to improve its
cost-income ratio to 45% after it being high at over 50% for the past two years. This is the
first time that it has fallen below 45% since 1QFY14. KVB reported 8% yoy growth in
operating expenses as the growth in staff costs (5% yoy) was negligible due to weak hiring
and focus on improving productivity. We have seen the bank slow down in branch
expansions (10% yoy) and employee hiring (flat yoy) which helped it to slow down costs.
We believe that the bank will continue to focus on improving productivity from existing
branches rather than increasing infrastructure presence, especially as demand conditions
appear fairly weak.
We expect cost-income ratio to decline to ~47-48% by FY2016-17E.
Other highlights in the quarter
Non-interest income increased 51% yoy led by strong performance from treasury related
income albeit from a very low base. As compared to the previous quarter, the bank has
not taken a reversal in its investment portfolio which it had provided for an adverse rate
movement in the previous quarter. We believe it could do so in the coming few quarters.
Tier-1 stands comfortable though it has declined 25bps qoq sharply to 12.1% with
overall capital adequacy at 13%. Capital consumption for the quarter was only ~2%.
Exhibit 5: KVB Change in estimates March fiscal year-ends, 2016-18E (` mn)
Source: Company, Kotak Institutional Equities estimates
2011 2012 2013 2014 2015 1QFY16 2QFY16
Agriculture 14.3 15.7 18.3 17.7 17.0 17.5 16.8
Retail 7.5 8.2 11.9 12.5 13.4 14.4 14.8
SME 13.4 34.0 32.3 32.5 32.4 31.7 32.4
Corporate and others 64.8 42.1 37.6 37.3 37.2 36.4 36.0
of which
Gold loans 16.2 21.5 26.3 23.4 19.6 18.0 17.1
New estimates Old estimates New vs old (%)
2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E
Net interest income 17,144 18,709 20,373 17,507 19,373 21,434 (2) (3) (5)
Loan growth 9.0 12.7 15.4 12.3 13.8 15.4
NIM 3.2 3.1 3.0 3.2 3.1 3.0
Loan loss provisions 3,774 3,350 3,107 2,874 2,817 2,981 31 19 4
Other income 7,362 8,325 9,381 6,804 7,814 8,808 8 7 7
Fee income 4,371 5,026 5,780 4,013 4,615 5,307 9 9 9
Operating expenses 11,860 13,031 14,267 12,115 13,249 14,355 (2) (2) (1)
Employee expenses 5,813 6,386 6,989 6,026 6,546 7,084 (4) (2) (1)
PBT 8,921 10,603 12,330 9,372 11,071 12,856 (5) (4) (4)
Tax 2,409 3,075 3,576 2,531 3,211 3,728 (5) (4) (4)
Net profit 6,513 7,528 8,754 6,842 7,861 9,128 (5) (4) (4)
PBT before treasury profits
and investment depreciation 7,121 8,753 10,380 8,032 10,076 12,126 (11) (13) (14)
Page 29
Karur Vysya Bank Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 29
Exhibit 6: KVB trading at 1.1X one-year forward adjusted book One-year forward PER and PBR, March fiscal year-ends, 2008-15
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Exhibit 7: Premium to peers below long term average Trading premium to private banks, March fiscal year-ends, 2008-15
Source: Company, Bloomberg, Kotak Institutional Equities estimates
0.0
0.4
0.8
1.2
1.6
2.0
0
3
6
9
12
15
Oct
-06
Oct
-07
Oct
-08
Oct
-09
Oct
-10
Oct
-11
Oct
-12
Oct
-13
Oct
-14
Oct
-15
Rolling PER (X) (LHS) Rolling PBR (X) (RHS)
0.0
0.2
0.4
0.6
0.8
1.0
Oct
-06
Oct
-07
Oct
-08
Oct
-09
Oct
-10
Oct
-11
Oct
-12
Oct
-13
Oct
-14
Oct
-15
Page 30
Banks/Financial Institutions Karur Vysya Bank
30 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 8: KVB - Key ratios and growth rates March fiscal year-ends, 2013-18E (%)
Source: Company, Kotak Institutional Equities estimates
2013 2014 2015 2016E 2017E 2018E
Growth rates (%)
Net loan 23.1 15.3 6.2 9.0 12.7 15.4
Total asset 24.2 10.4 2.9 9.9 11.7 13.2
Deposits 20.4 13.2 2.1 10.1 12.7 14.3
Current 23.2 17.3 (1.5) 19.7 16.7 18.2
Savings 19.4 23.3 16.7 17.8 15.0 16.6
Fixed 20.2 11.4 0.2 7.8 11.8 13.4
Net interest income 26.3 10.8 14.2 16.9 9.1 8.9
Loan loss provisions 207.4 48.1 134.1 (31.5) (11.2) (7.3)
Total other income 29.2 24.7 2.9 26.7 13.1 12.7
Net fee income 22.5 20.5 18.4 10.0 15.0 15.0
Net capital gains 237.2 17.4 (31.5) 139.3 8.8 5.4
Net exchange gains 21.0 21.0 21.0 12.0 15.0 15.0
Operating expenses 40.7 32.6 9.2 7.5 9.9 9.5
Employee expenses 30.0 53.6 3.6 6.3 9.9 9.4
Key ratios (%)
Yield on average earning assets 10.4 10.8 10.7 10.1 9.8 9.5
Yield on average loans 12.3 12.2 12.0 11.5 11.1 10.7
Yield on average investments 7.9 8.9 9.1 8.3 8.2 8.0
Average cost of funds 8.0 8.5 8.3 7.5 7.2 7.0
Interest on deposits 8.0 8.4 8.0 7.4 7.2 7.0
Spread 2.4 2.3 2.4 2.6 2.6 2.5
Net interest income/earning assets 2.8 2.7 2.9 3.2 3.1 3.0
Spreads on lending business 4.3 3.7 3.8 4.0 3.9 3.7
New provisions/average net loans 0.6 0.7 1.6 1.0 0.8 0.7
Total provisions/gross loans 0.6 1.2 2.6 3.3 3.6 3.7
Interest income/total income 71.9 69.5 71.6 70.0 69.2 68.5
Other income / total income 28.1 30.5 28.4 30.0 30.8 31.5
Fee income to total income 17.3 18.2 19.4 17.8 18.6 19.4
Fee income to advances 1.0 1.1 1.1 1.2 1.2 1.2
Fees income to PBT 38.4 84.9 85.9 49.0 47.4 46.9
Net trading income to PBT 17.9 (27.7) 35.8 20.2 17.4 15.8
Exchange income to PBT 2.9 9.2 9.5 5.5 5.3 5.3
Operating expenses/total income 47.3 54.7 53.9 48.4 48.2 47.9
Operating expenses/assets 1.8 2.1 2.1 2.1 2.1 2.0
Tax rate 24.1 (8.6) 1.5 27.0 29.0 29.0
Dividend payout ratio 27.3 32.6 34.8 25.0 25.0 25.0
Share of deposits
Current 11.3 12.4 13.1 15.1 15.4 15.7
Fixed 80.8 79.5 78.6 76.3 75.7 75.1
Savings 11.3 12.4 13.1 15.1 15.4 15.7
Loans-to-deposit ratio 76.3 77.7 80.8 80.0 80.0 80.8
Equity/assets (EoY) 6.6 6.4 8.0 8.1 8.0 7.9
Loan impairment ratios (%)
Gross NPL 1.0 0.8 1.8 1.9 1.7 1.5
Net NPL 0.4 0.4 0.8 1.0 0.9 0.7
Slippages 0.8 0.5 1.8 2.0 1.7 1.5
Provision coverage 62.0 49.9 58.5 48.2 52.4 53.8
Dupont analysis (%)
Net interest income 2.7 2.6 2.8 3.1 3.0 2.9
Loan loss provisions 0.4 0.5 1.1 0.7 0.5 0.4
Net other income 1.1 1.1 1.1 1.3 1.3 1.3
Operating expenses 1.8 2.0 2.2 2.1 2.1 2.1
(1- tax rate) 75.9 108.6 98.5 73.0 71.0 71.0
ROA 1.3 0.9 0.9 1.2 1.2 1.3
Average assets/average equity 14.6 15.3 13.8 12.5 12.4 12.5
ROE 19.0 13.4 12.0 14.5 15.1 15.8
Page 31
Karur Vysya Bank Banks/Financial Institutions
KOTAK INSTITUTIONAL EQUITIES RESEARCH 31
Exhibit 9: KVB - financial statements March fiscal year-ends, 2013-18E (` mn)
Source: Company, Kotak Institutional Equities estimates
2013 2014 2015 2016E 2017E 2018E
Income statement
Total interest income 42,424 51,160 53,959 54,607 59,048 64,669
Loans 32,744 38,720 42,113 43,218 46,483 51,174
Investments 9,504 11,974 11,776 11,167 12,318 13,219
Cash and deposits 177 466 70 222 248 277
Total interest expense 30,840 38,323 39,300 37,463 40,339 44,296
Deposits from customers 28,197 34,684 35,404 34,967 37,799 41,798
Net interest income 11,585 12,837 14,659 17,144 18,709 20,373
Loan loss provisions 1,590 2,355 5,513 3,774 3,350 3,107
Net interest income (after prov.) 9,994 10,482 9,146 13,370 15,359 17,266
Other income 4,526 5,645 5,808 7,362 8,325 9,381
Net fee income 2,785 3,356 3,973 4,371 5,026 5,780
Net capital gains 884 1,037 710 1,700 1,850 1,950
Net exchange gains 210 365 439 492 565 650
Operating expenses 7,622 10,104 11,034 11,860 13,031 14,267
Employee expenses 3,436 5,279 5,471 5,813 6,386 6,989
Depreciation on investments (413) 2,132 (948) (100) — —
Other provisions 57 (64) 240 50 50 50
Pretax income 7,254 3,955 4,628 8,921 10,603 12,330
Tax provisions 1,751 (341) 72 2,409 3,075 3,576
Net profit 5,503 4,296 4,556 6,513 7,528 8,754
% growth 10 (22) 6 43 16 16
PBT - Treasury + Provisions 7,605 7,341 8,723 10,945 12,154 13,537
% growth 9 (3) 19 25 11 11
Balance sheet
Cash and bank balance 17,960 26,782 27,491 31,000 34,371 38,580
Cash 3,710 4,195 6,272 6,522 6,849 7,191
Balance with RBI 12,577 21,267 20,658 23,916 26,961 30,827
Net value of investments 138,373 132,470 127,730 144,096 159,087 172,817
Govt. and other securities 126,290 121,931 115,114 131,860 147,193 161,230
Shares 1,453 1,436 1,071 1,071 1,071 1,071
Debentures and bonds 2,647 3,293 3,798 3,418 3,076 2,769
Net loans and advances 294,801 339,921 361,089 393,691 443,815 512,196
Fixed assets 3,221 3,847 4,112 4,033 3,950 3,809
Net Owned assets 3,221 3,847 4,112 4,033 3,950 3,809
Other assets 13,113 13,295 11,103 11,325 11,551 11,782
Total assets 467,468 516,316 531,525 584,145 652,775 739,183
Deposits 386,530 437,577 446,903 492,076 554,727 634,268
Borrowings and bills payable 42,297 34,986 31,869 34,708 35,361 36,034
Other liabilities 7,789 10,490 10,293 10,293 10,293 10,293
Total liabilities 436,616 483,053 489,064 537,077 600,381 680,595
Paid-up capital 1,072 1,072 1,216 1,216 1,216 1,216
Reserves & surplus 29,780 32,192 41,244 45,852 51,178 57,372
Total shareholders' equity 30,852 33,263 42,460 47,068 52,395 58,589
Page 32
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Pricing/promotions – Promotional intensity remains high; soaps witness fresh promotions
Refer to Exhibit 2 for complete pricing monitor and Exhibit 3 for ongoing promotional offers
Soaps/Detergents. We witnessed fresh promotional offers in soaps from HUVR in brands
like Lifebuoy, Dove and Pears (largely in the form of freebies). In detergents, HUVR continues
to run promotions across all its brands/SKUs – we did witness fresh promotional offer on Rin
1Kg SKU (offering free Pears 50 gm soap worth `22). P&G continues to run limited
promotions on Tide Plus and Ariel Matics (has withdrawn promotional price-off on 1Kg SKU).
Personal care items. (1) Shampoos - promotional intensity remains elevated (sharp price-
offs/price cuts) in bottles across brands and key players HUVR, P&G and Loreal; we did notice
fresh actions on larger shampoo bottle SKUs (mostly in the form of freebies), (2) Hair
colours - both Godrej (freebies) and Loreal (price-offs) are running promotional offers in hair
crème and (3) other products – we did witness fresh offers by HUVR in Ponds body lotions,
Ponds face wash and Fair & Lovely winter fairness cream (extra grammage/freebies).
Food/beverage items. (1) Biscuits – promotional intensity remains high, (2) Milk/HFD –
Nestle (20% price-off) and Go (free Hershey’s syrup sachet) are running promotions on its 1L
milk Tetrapak while Danone has withdrawn its promotions. Several promotions are on in HFD
category (by all players – Complan, Horlicks and Bournvita), (4) Chocolates – Nestle
continues to offer extra units in larger multi pack SKUs of Kit Kat and Munch and has
increased grammage in Bar One (multiple SKUs) by 25%, (5) Edible Oils – promotional
intensity remains high in larger packs led by Sundrop and Saffola and (6) Tea – HUVR
continues to run price-off in Red Label 1 Kg SKU and is offering freebies on Taj Mahal.
RM inflation – deflationary tailwinds persist; select agri-inputs witness modest mom inflation
Refer to exhibit 4 for detailed RM inflation impact.
Agri-inputs. Agri-inputs witnessed a mixed trend – while domestic tea prices (down 3%
mom) and international coffee prices (down 3-6%) dropped, several agri-inputs like wheat
(up 4% mom), barley (up 4% mom), milk powder (up 6% mom), cocoa bean (up 5% mom)
and sugar (up 2% mom and 4% over last 3 months) witnessed inflationary trends.
Oil commodities basket. Oil commodities continue to witness a deflationary trend barring
edible oils like sunflower oil and groundnut (up 4-8% mom). PFAD witnessed a sharp 17%
mom drop this month (this has driven fresh offers in soaps, in our view) and copra declined
3% mom (down 28% yoy).
Other commodities. Other commodities continued to witness deflation – LAB dropped 7%
mom and several paint inputs like PAN, VAM and styrene monomer dropped 5-11% mom.
Consumer Products India
Month in review – September 2015: Promotional intensity remains high. KIE
consumer universe underperformed the market in the past one month despite strong
outperformance by heavyweight ITC (up 10% mom). Input cost trends remain
deflationary barring select agri-inputs. Promotional intensity across categories (led by
detergents and shampoos) remains high with fresh offers initiated by HUVR in soaps
(led by sharp drop in PFAD prices, in our view). Sector valuations at 33X FY2017E
earnings (ex-ITC) remain rich. We retain our ‘tread selectively’ stance. Preferred picks
are GCPL, Dabur, BRIT, Bajaj Corp, ITC and TGBL.
CAUTIOUS
OCTOBER 16, 2015
UPDATE
BSE-30: 27,010
Page 33
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 33
Who benefits? (1) Drop in PFAD is likely to benefit soap companies like HUVR and GCPL,
(2) correction in LAB will benefit HUVR and JYL, (3) paint companies/Pidilite are likely to
benefit from drop in select inputs like PAN, VAM and styrene and (4) TGBL, HUVR and
Nestle are likely to benefit from drop in coffee prices.
Who gets impacted? (1) Higher sugar and wheat prices are likely to impact food
companies like Britannia, ITC, Nestle and GSKCH (will also be impacted by higher barley
prices) and (2) higher milk powder prices will impact companies like GSKCH and Nestle.
Sector (KIE consumer universe) underperforms despite ITC’s strong run
Our overall coverage universe underperformed the broader markets by 2% (ex-ITC
underperformance higher at 5%) posting a 3% return in absolute terms. Only 4 out of 19
stocks under our coverage outperformed led by ITC (up 10%), PC Jeweller (up 9%), Titan
(up 8%) and TGBL (up 7%). Key underperformers were – Bajaj Corp (down 10%), Colgate
(down 7%) and JUBI (down 6%). On a 12-month basis, the sector (our coverage universe
ex-ITC) has delivered significant outperformance delivering 20% returns versus 3% returns
for the broader market.
Sector valuations have corrected marginally to 29X FY2017E earnings and 33X (ex-ITC);
however, they remain rich in absolute terms. We retain our ‘tread selectively’ stance.
Preferred picks are Dabur, GCPL, BRIT, Bajaj Corp, ITC and TGBL.
Key industry/stock developments
New launches/ relaunches
Dabur India has launched Vatika Jasmine Non-Sticky Coconut Hair Oil, which provides
nourishment of coconut oil, jasmine extracts & is enriched with Silicon Oils. The product is
available in two SKUs – 100 ml and 200 ml priced at `45 and `80 respectively.
Dabur India has launched a range of two professional salon facial products under the
OxyLife brand i.e, OxyLife Salon Professional ProWhite Pure Oxygen Facial for Women and
Men. Strengthening its presence in the skin care market, this also marks the brands foray
into the male professional grooming market. The 6-step OxyLife Salon Professional
ProWhite Pure Oxygen Facial for Women is priced at `1,800, while the 5-step OxyLife
Men Salon Professional ProWhite Pure Oxygen Facial is priced at `1,500.
Tata Tea has launched a new offering Tata Tea Gold Mixture (TTG) in Maharashtra. The
product is a blend of high quality Assam tea positioned to deliver ‘Ek Chai Teen Kamaal
(one tea, three wonders)’. The launch of the product is also accompanied by a new
Marathi television commercial created especially for the local audience. With the TTG
Mixture launch, the company is looking to make a dent and gain prominent market share
in the state.
Tanishq has rolled out its latest diamond jewelry collection under Tanishq Zuhur brand
with a high decibel ad campaign.
Wipro Consumer Care & Lighting has launched its unique skin nourishing soap “Santoor
Gold” in Andhra Pradesh & Telangana market. This new premium soap comes in a
contemporary packaging with a unique formulation enriched with extracts of Sakura,
Sandal and Saffron. The soap is available in 75 gm and 125 gm SKUs priced at `28 and
`48 respectively.
P&G India has rolled out its new offering Pampers premium care pants with an all-around
soft waistband and great dryness. Its other key features include baby lotion in inside layer
of the pants and wetness indicator.
Page 34
India Consumer Products
34 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Gujarat Cooperative Milk Marketing Federation (GCMMF), the owner of brand Amul, is
looking at making a splash in the relatively nascent sports drink category in India, with
the recent relaunch of its whey-protein based sports drink Stamina in PET bottles. Amul's
Stamina seems to be pitched against Pepsi's Gatorade as both are now available in PET
bottles with similar pricing; a 500 ml bottle of Gatorade costs around `40 and Stamina
comes for `15 for a 200ml pack.
Reckitt Benckiser has launched a premium handwash variant under Dettol brand – Dettol
Touch of foam handwash with milk and honey. It is priced at `125 for 250 ml SKU, at
significant premium to Dettol liquid soap pump priced at `74 for 215 ml SKU.
Godrej Consumer Products has launched a new variant under its HI brand Godrej Kala Hit
with lime fragrance. It is priced at `195 for 400 ml SKU with a special `30 price-off
(introductory offer).
ITC has restaged packaging of its premium cookie brand Sunfeast.
CEO Speak –
Al Rajwani, MD & CEO – P&G India
Key strategic focus areas for P&G India in near-term are going to be in the areas of
(1) driving physical distribution harder, (2) sharp market execution and recalibrating value
offered to consumers and (3) focus on double-digit sales growth and profitability.
There is no need for any massive correction in strategy in India. P&G will continue to
sharpen its focus on winning from the top – offering tier-1 and tier-2 consumers the best
premium products at the right value. The strategy to cut prices in shampoos was part of
this approach to offer better value to consumers, lower barriers to purchase P&G brands
and drive stronger category growth rates.
Sunil Duggal, CEO – Dabur India
The demand situation in the early part of the quarter of July and August was bad.
However, September is looking better but whether this signals beginning of longer term
recovery is hard to say, but the late monsoon which happened little bit in September has
helped things a bit. The second half of this year should be definitely better than the first
both for urban as well as for rural.
2QFY16 is going to be subdued particularly from the volume point of view due to couple
of reasons – (1) lack of demand and (2) there is also a bit of a base effect - the shifting of
Diwali by two-three weeks this year as compared to last year is going to shift the demand
forward into 3Q for many Diwali oriented products, particularly in beverages.
Dabur is equally focused on rural and urban markets. There is no particular bias towards
urban but the urban infrastructure build-up is consequent to a little bit of shift in strategy
where the company will be investing higher amounts in consumer health and that will be
an urban centric initiative to begin with and filter down to rural over a period of a couple
of years. Rural is more of home and personal care play and there the infrastructure build-
up has already happened over the last few years, so Dabur will still continue to invest but
at a slower pace.
The most important aspect of Dabur’s urban healthcare initiative is to play the advocacy
card to build a very strong connect with doctors who will then promote its products
which will be over the counter (OTC); they won't be prescriptive, but it will depend a lot
upon doctor endorsements and the company is hopeful that this initiative will enable it to
cut short the very time consuming process of building consumer healthcare brands and
enable it to launch products with far greater rate of success.
Page 35
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 35
.Exhibit 1: Key new launches in September, 2015
Source: Company, Kotak Institutional Equities
Other newsflow –
HUL is focusing on premium ayurvedic health products and e-commerce marketing
channels to overcome subdued demand in certain segments, particularly in rural markets.
The company is resurrecting Lever Ayush, its herbal health supplement brand, to compete
in the premium ayurvedic segment against products from Dabur and Emami. Lever Ayush,
once a dying health and personal care brand, was recently relaunched exclusively for sales
online. HUL is positioning Lever Ayush as a premium brand. The products will be two to
four times more expensive than competing brands. A 100 ml bottle of Lever Ayush oil is
expected to cost around `600. The brand will have products ranging between hair and
skin and pain management. The naturals product category in India is pegged at around
`40-50 bn. HUL plans to partner with online marketplaces for Lever Ayush, which was
earlier sold through HUL Network, its direct selling business.
Page 36
India Consumer Products
36 KOTAK INSTITUTIONAL EQUITIES RESEARCH
The Indian business of Procter & Gamble expanded at the slowest pace in more than a
decade in FY2015 as demand for its shampoo brands tapered off while skin care portfolio
growth declined amid lack of innovation and internal focus on higher margins. P&G's
three entities in the country, selling an array of products ranging from detergents and
shampoo to razors and sanitary napkins, posted combined revenues of `103.5 bn for
FY2015, growing at 12.7% compared to 15% a year ago. The growth rate halved
compared to that in most of the past decade when the company saw its business grow
more than 25%. The company's worst-hit arm was the unlisted entity P&G Home
Products which sell brands such as Tide, Pantene and Olay and grew 12% to `60.5 bn
during the fiscal. Its hair care business grew 6% to `12.8 bn while skin care segment
declined 3% to `2.3 bn. The year also saw two of its senior executives, long serving MD
Shantanu Khosla and sales director Uday Bhaskar, quit at a time when P&G has lost
market share in over two-thirds of its business, a struggle reminiscent of its parent
company that has now put over 100 brands on the block to focus on its core
business. With the new CEO Al Rajwani taking control in July, margins-over-sales
approach has taken a back seat. P&G cut shampoo prices 25-30% and relaunched both
Tide and Ariel during last quarter, a step seen as one aimed at regaining lost market share
from Unilever that is thrice as big in India. .
Baba Ramdev's Patanjali Ayurved has entered into an exclusive partnership with Future
Group to make its entire range of products available in Big Bazaar outlets across the
country. Other food-based chains of Future Group such as Easyday, KB's Aadhaar and
Nilgiris too will subsequently sell Patanjali products, making them available in more than
240 cities and towns in the country. The two companies are also looking at forming a
manufacturing partnership in the future. Future group is planning around five units for
Patanjali for future expansion. Under the marketing partnership, Future Group will set up
an office for collaborating with Patanjali Ayurved in Rishikesh to develop, market and
distribute these products exclusively in modern trade. Patanjali products will also be
available at its own retail outlets which number around 5,000 now. Future Group is
hopeful that its stores will do a business of `10 bn in 20 months with Patanjali. The
company expects to start with `0.4 bn per month sales of Patanjali products, which it
expects to go up to `0.8 bn in the next 12 months. Patanjali Ayurved offers the entire
range of FMCG products in food, staples, nutrition, hair care, skin care, dental care and
toiletries at a much more competitive price than other brands available in the market.
Ramdev expects Patanjali to become a `50 bn brand by the end of this financial year.
A potential merger between AnheuserBusch InBev and SABMiller is likely to give
Budweiser, one of the world's largest selling beers from the AB InBev stable, a promising
boost. The deal may also provide SABMiller a chance to discard the tag of being a
perennial laggard in the country. AB InBev and SABMiller will together have 26% share of
domestic beer sales, nearly half of market leader United Breweries (UB), makers of
Kingfisher beer. Industry data suggests that India's beer market is around 280 mn cases
(of 6.8 liters each). UB, jointly owned by Heineken and Vijay Mallya, sells about 140 mn
cases. SABMiller's sales were approximately 65 mn cases, while AB InBev's slightly over 6
mn cases. But the silver lining is Budweiser - it has emerged as the largest selling
international lager, and can thrive on wider distribution and manufacturing footprints. It
fits well with SABMiller's Indian portfolio, which includes Haywards 5000, Knock Out,
Foster's, Miller and Peroni. Gaining access to SABMiller's 10 owned breweries will help
Budweiser, which has also rolled out a stronger brew in sync with local preferences, in
managing inter-state operational complexities, which holds back many global brands in
India. SABMiller has pan-India distribution and an experienced team. The possible merger
will help SABMiller fend off the challenger in Carlsberg, the most aggressive global
brewer in the country. The Danish beer giant has made heavy greenfield investments
tracking volume sales of 32 mn cases annually, most of which is coming from Tuborg,
which possibly counts India as its biggest market.
Page 37
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 37
Yum! Brands Inc that owns KFC, Pizza Hut chains and Taco Bell has reported widening of
operating loss in India to US$8 mn in the third quarter due to falling same-store
sales. The company had posted an operating loss of US$3 mn in the prior year. India
division system sales decreased 9% prior to foreign currency translation, as 10% unit
growth was offset by an 18% SSSG decline. In the September quarter, despite opening
new stores, Yum! Brands' India division reported total revenue of US$29 mn as against
revenue of US$36 mn in the corresponding period in the previous year. At present, Yum
Brands! operate 811 stores (426 Pizza Hut outlets, 378 KFC and 7 Taco Bell) in
India. India accounts for only about 1% of Yum's global sales.
Café chains like Costa Coffee and Barista are brewing plans to expand with fresh
investments into their retail operations. The two companies are getting ready for a
comeback after having shut several outlets in the recent past. Skewed revenue to rental
ratios apart from frequent management changes did not bode well for these companies.
Besides, the entry of Starbucks, in 2012, took its toll on players like Costa, which had
almost similar premium positioning. Today, both have become wiser, when it comes to
choosing locations and have sharpened their business models to focus on profitability.
Costa Coffee took a call on its non-performing assets last year and shut down 20 stores.
In the last six months, Costa has become EBITA positive. Barista, with its new owner
Carnation Hospitality is adding 60 new stores this year with an investment of `0.3 bn and
Costa Coffee through its franchise Devyani International intends spending `0.25 bn to
increase by another 20 stores.
Berger Paints India has recently announced the launch of their latest innovative offering –
Berger Express Painting, an initiative to upgrade the painting process with the use of
automatic painting machines making it “Faster, Cleaner and Better”. The mess created by
dust and paint spillage and the long duration taken for completion of a painting job by
the current manual process is being addressed by the Berger Express Painting system.
Launched nationally in a phased manner, Berger Express Painting is being made available
across all states in India. As part of the concept, in addition to providing the Berger
Express Painting technology and usage training to the applicators, Berger is also setting
up the infrastructure to train painting applicators on customer sensitization and support
to ensure that the customer painting experience is enhanced.
Japanese paint manufacturer Nippon Paint is mulling setting up a decorative paint plant
in north India. However, the investment, capacity and other details have not been
finalized yet. As of now, Nippon’s decorative paint business is mainly focused on the
south. Nippon Paint hopes to close current fiscal with a turnover of `6.75 bn up from
around `5 bn posted last year. Presently, nearly 50% of the company turnover is
contributed by the decorative business and the rest from industrial and automotive paint
business lines.
Page 38
India Consumer Products
38 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: KIE Consumer Pricing monitor
Source: Kotak Institutional Equities
MRP (Rs)
Category/Brand/SKU Sep-15 Norm Wt Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 1M 3M 6M 1Y
Soaps
Dove Moisturising Cream 3*100gm 174 100g 58 61 61 61 61 61 61 58 58 58 58 58 58 — — (4) —
Dove Moisturising Cream 75gm 46 100g 64 64 64 64 64 64 64 61 61 61 61 61 61 — — (4) (4)
Breeze Lemon Splash (3+1)*75gm 30 100g 10 10 10 10 10 10 10 10 10 10 10 10 10 — — — —
Hamam 100gm 26 100g 27 27 26 26 26 26 26 26 26 26 26 26 26 — — — (4)
Lifebuoy Clini Care 10 Complete125gm 52 100g 40 40 40 42 42 42 42 42 42 42 42 42 42 — — — 4
Lifebuoy Total 125gm 24 100g 20 19 19 19 19 19 19 19 19 19 19 19 19 — — — (4)
Lifebuoy Total 3*100gm 58 100g 19 19 19 19 19 19 19 19 19 19 19 19 19 — — — —
Liril 2000 Soft Aloevera Lemon 125gm 50 100g 40 40 40 40 40 40 40 40 40 40 40 40 40 — — — —
Lux Creamy White 125gm 48 100g 38 38 38 38 38 38 38 38 38 38 38 38 38 — — — —
Lux Sandal & Cream 150gm 38 100g 24 25 25 25 25 25 25 25 25 25 25 25 25 — — — 6
Pears Pure Gentle 3*125gm 168 100g 45 45 45 45 45 45 45 45 45 45 45 45 45 — — — —
Vivel Satin Soft 3*100gm 70 100g 22 23 23 23 23 23 23 23 23 23 23 23 23 — — — 4
V ivel s Luxury Olive Butter 4*100gm 100 100g 25 25 25 25 25 25 25 25 25 25 25 25 25 — — — —
F iama Di Wills Clear Spring 125gm 60 100g 46 46 46 46 46 46 46 48 48 48 48 48 48 — — 3 3
F iama Di Wills Soft Green 3*100gm 174 100g 54 54 56 56 56 56 56 56 56 56 56 56 58 4 4 4 7
F iama Di Wills Mild Dew (3+1)*115gm 174 100g 35 35 37 37 37 37 37 37 37 37 37 37 38 4 4 4 7
Cinthol Original 100gm 33 100g 33 33 33 33 33 33 33 33 33 33 33 33 33 — — — —
Cinthol Original 4*100gm 132 100g 31 31 32 32 32 32 32 33 33 33 33 33 33 — — 4 6
Godrej No 1 Lime & Aloevera (3+1) *75gm 40 100g 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Godrej No 1 Saffron & Milk Cream (3+1) *100gm 68 100g 17 17 17 17 17 17 17 17 17 17 17 17 17 — — — —
Shower Gels/Facewash/Handwash/Bodywash
Facewashes
Pears Pure & Gentle Cleansing 60gm 80 100g 117 117 117 117 133 133 133 133 133 133 133 133 133 — — — 14
Lakme Strawberry 50ml 99 100ml 180 180 180 180 180 180 198 198 198 198 198 198 198 — — — 10
Dove Beauty Moisture 50gm 105 100g 198 198 198 198 198 198 210 210 210 210 210 210 210 — — — 6
Ponds Daily Act Cleansing System 50gm 70 100g 130 130 130 130 130 130 130 130 130 130 130 130 140 8 8 8 8
Fair & Lovely Multiv itamin 50gm 55 100g 100 100 100 100 100 100 100 100 100 100 100 100 110 10 10 10 10
Olay Cleanser Total Effect Foaming 100gm 260 100g 245 245 245 245 245 245 245 245 245 260 260 260 260 — — 6 6
F iama Di Wills Aqua Pluse Men 100gm 150 100g 100 100 100 100 100 100 100 100 100 100 100 100 100 — — — —
Handwash
Lifebuoy Total 215ml 69 100ml 30 30 30 30 30 30 30 30 30 30 30 30 32 8 8 8 8
Lifebuoy Activfresh Pouch 185ml 40 100ml 20 20 20 20 20 20 20 20 20 20 20 20 22 8 8 8 8
Lifebuoy Colour Changing Pump 200ml 85 100ml 40 40 40 40 40 40 40 40 40 40 40 40 43 6 6 6 6
Bodywash/ Shower Gels
F iama Di Wills Shower Gel Clear Spring 200ml 160 100ml 73 73 80 80 80 80 80 80 80 80 80 80 80 — — — 10
Lux Bodywash Soft Luxury Strawberry & Cream 240ml 145 100ml 60 60 60 60 60 60 60 60 60 60 60 60 60 — — — —
Cinthol Shower Gel Energy Deodorize 200ml 150 100ml 60 60 60 60 60 60 60 60 60 60 60 60 60 — — — —
Detergents
Detergent Bars
Wheel Active Blue 140gm 5 100g 4 4 4 4 4 4 4 4 4 4 4 4 4 — — — (7)
Rin Advance 85gm 5 100g 6 6 6 6 6 6 6 6 6 6 6 6 6 — — — —
Rin Advance 150gm 10 100g 7 7 7 6 6 6 6 6 6 6 6 6 6 — — — (9)
Rin Advance 250gm 17 100g 7 7 7 7 7 7 7 7 7 7 7 7 7 — — — —
Surf Excel Bar 100gm 10 100g 11 11 11 10 10 10 10 10 10 10 10 10 10 — — — (10)
Surf Excel 250gm 27 100g 12 12 12 11 11 11 11 11 11 11 11 11 11 — — — (7)
Surf Excel 4*200gm 88 100g 11 11 11 11 11 10 10 11 11 11 11 11 11 — — 7 —
Tide 135gm 10 100g 6 6 7 7 7 7 7 7 7 7 7 8 8 — 8 8 24
Tide 85gm 6 100g 7 7 7 7 7 7 7 7 7 7 7 8 8 — 13 13 13
Tide 4*250gm 75 100g 7 7 7 7 7 7 7 7 7 7 7 8 8 — 4 4 9
Normalised price in Rs (adjusted for grammage changes) Change (%)
Page 39
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 39
Exhibit 2: KIE Consumer Pricing monitor (continued)
Source: Kotak Institutional Equities
MRP (Rs)
Category/Brand/SKU Sep-15 Norm Wt Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 1M 3M 6M 1Y
Detergent Powders
Wheel Active Lemon & Jasmine 1kg 45 100g 5 5 5 4 4 4 4 4 4 4 5 5 5 — 2 2 (6)
Wheel Act Gold 1.5kg 86 100g 6 6 6 6 6 6 6 6 6 6 6 6 6 — — — —
Rin Advance 1kg 76 100g 8 8 8 8 8 8 8 8 8 8 8 8 8 — 1 1 (5)
Rin Matic 1kg 115 100g 12 12 12 12 12 12 12 12 12 12 12 12 12 — — — —
Surf Excel Easy Wash 1.5kg 187 100g 12 12 12 12 12 12 12 12 12 12 12 12 12 — — — —
Surf Excel Matic 1kg 185 100g 21 21 21 21 19 19 19 19 19 19 19 19 19 — — — (12)
Surf Excel Matic Front Load 1kg 205 100g 23 23 23 23 21 21 23 20 20 20 21 21 21 — 2 (11) (11)
Surf Excel Quickwash 1kg 185 100g 19 19 19 19 19 19 19 19 19 19 19 19 19 — — — —
Ariel Complete Pp 1kg 185 100g 18 19 19 19 19 16 16 16 19 19 19 19 19 — — 16 2
Ariel 24Hour Fresh Complete 1kg 205 100g 20 20 21 21 21 21 21 21 21 21 21 21 21 — — — 3
Ariel Matic Complete Box 1kg 230 100g 22 19 19 19 23 20 23 23 23 23 23 20 23 18 — — 3
Tide Natural Lemon & Chandan 150gm 10 100g 6 6 7 7 7 7 7 7 7 7 7 7 7 — — — 13
Tide Plus 1kg 90 100g 10 10 10 10 10 10 10 9 9 9 9 9 9 — 6 (6) (6)
Henko 1kg 135 100g 14 14 14 14 14 14 14 14 14 14 14 14 14 — — — —
Fabric Conditioners/ Dishwash/ Floor Cleaners
Fabric Conditioners/Liquids
Rin Liquid Fabric Blue Perfect Shine 250ml 49 100ml 20 20 20 20 20 20 20 20 20 20 20 20 20 — — — —
Comfort Fabric Conditioner Anti Bacterial 200ml 46 100ml 23 23 23 23 23 23 23 23 23 23 23 23 23 — — — —
Ezee Detergent Liquid 500gm 90 100g 18 18 18 18 18 18 18 18 18 18 18 18 18 — — — —
Dishwashing Bar/Gels/Powder
Vim Drop Dishwash Active Gel Green Lime 250ml 58 100g 22 22 23 23 23 23 23 23 23 23 23 23 23 — — — 4
V im Drop Dw Active Gel Green Lime 500ml 105 100g 21 21 21 21 21 21 21 21 21 21 21 21 21 — — — 1
V im Utensil Bar 130gm 10 100g 7 7 7 7 7 7 7 7 7 7 7 7 7 — — — —
Vim Utensil Bar 200gm 17 100g 9 9 9 9 9 9 9 9 9 9 9 9 9 — — — —
Floor Cleaners/Other Cleaners
Cif All Puprose Cleaner White 120ml 29 100ml 24 24 24 24 24 24 24 24 24 24 24 24 24 — — — —
Domex F loor Cleaner Thick 500ml 70 100ml 13 13 14 14 14 14 14 14 14 14 14 14 14 — — 3 8
Sanifresh Toilet Cleaner Shine 1L 114 100ml 10 10 10 10 10 11 11 11 11 11 11 11 11 — — 6 19
Oral Care
Toothpaste
Colgate Cdc 150gm 60 100g 38 38 38 38 38 38 38 38 38 38 38 40 40 — 5 5 5
Colgate Cibaca 175gm 44 100g 24 24 24 24 24 24 24 24 25 25 25 25 25 — — 5 5
Colgate Active Salt 100gm 46 100g 46 46 46 46 46 46 46 46 46 46 46 46 46 — — — —
Colgate Maxfresh Blue 150gm 88 100g 56 56 56 57 57 57 57 57 57 57 57 59 59 — 2 2 5
Colgate Sensitive Pro Relief 70gm 110 100g 150 150 150 150 150 150 150 150 157 157 157 157 157 — — 5 5
Colgate Sensitive 80gm 100 100g 119 119 119 125 125 125 125 125 125 125 125 125 125 — — — 5
Colgate Total Adv Health 140gm 102 100g 69 69 69 71 71 71 71 71 71 73 73 73 73 — — 3 6
Pepsodent 2 In 1 150gm 88 100g 56 56 56 56 56 56 56 57 57 57 57 57 59 2 2 5 5
Pepsodent Centre Fresh 150gm 86 100g 55 55 55 55 55 55 55 55 55 55 55 57 57 — 5 5 5
Pepsodent Whitening 150gm 86 100g 56 56 56 56 56 56 56 57 57 57 57 57 57 — — 2 2
Pepsodent Exp Prot Complete 150gm 105 100g 70 70 70 70 70 70 70 70 70 70 70 70 70 — — — —
Pepsodent Expert Prot Sensitive 80gm 80 100g 100 100 100 100 100 100 100 100 100 100 100 100 100 — — — —
Pepsodent Expert Prot Pro Sensitive 80gm 99 100g 124 124 124 124 124 124 124 124 124 124 124 124 124 — — — —
Close Up F ire Freeze 150gm 100 100g 67 67 67 67 67 67 67 67 67 67 67 67 67 — — — —
Close Up Red 150gm 81 100g 53 53 53 54 54 54 54 54 54 54 54 54 54 — — — 1
Babool 180gm 42 100g 23 23 23 23 23 23 23 23 23 23 23 23 23 — — — —
Dabur Red 200gm 88 100g 41 41 42 42 42 42 42 42 42 42 42 44 44 — 5 5 7
Meswak 200gm 90 100g 41 41 41 41 41 42 42 42 42 42 42 45 45 — 7 7 10
Sensodyne Fresh Gel 80gm 100 100g 125 125 125 125 125 125 125 125 125 125 125 125 125 — — — —
Toothpowders
Colgate 200gm 67 100g 31 32 32 32 32 32 32 34 34 34 34 34 34 — — 5 8
Dabur Lal Dant Manjan 100gm 38 100g 34 35 35 35 35 35 35 35 35 38 38 38 38 — — 9 12
Mouthwashes
Colgate Plax Complete Care 250ml 115 100ml 46 46 46 46 46 46 46 46 46 46 46 46 46 — — — —
Colgate Plax Freshmint 250ml 110 100ml 42 42 42 42 42 42 42 42 42 44 44 44 44 — — 5 5
Normalised price in Rs (adjusted for grammage changes) Change (%)
Page 40
India Consumer Products
40 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: KIE Consumer Pricing monitor (continued)
Source: Kotak Institutional Equities
MRP (Rs)
Category/Brand/SKU Sep-15 Norm Wt Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 1M 3M 6M 1Y
Shampoo bottles
Clear Active Care Antidandruff 80ml 69 100ml 86 86 86 86 86 86 86 86 86 86 86 86 86 — — — —
Clinic Plus Anti Dandruff 80ml 45 100ml 53 53 53 53 55 55 57 57 57 57 57 45 45 — (21) (21) (15)
Dove Dandruff Care 80ml 50 100ml 86 86 86 86 94 94 94 94 94 94 94 63 63 — (33) (33) (28)
Sunsilk Anti Dandruff 80ml 45 100ml 74 74 74 74 75 75 75 75 75 75 75 56 56 — (25) (25) (24)
Tresemme Hair Fall Defense 100ml 50 100ml 80 80 80 80 83 83 83 83 83 83 83 56 56 — (33) (33) (31)
Head & Shoulders Anti Hair Fall 170ml 135 100ml 96 96 96 96 96 96 96 96 96 96 79 79 79 — (17) (17) (17)
Pantene Hair Fall Control 180ml 110 100ml 86 86 86 86 86 86 86 86 86 86 61 61 61 — (29) (29) (29)
Dove Daily Shine 80ml 50 100ml 86 86 86 86 94 94 94 94 94 94 94 63 63 — (33) (33) (28)
Sunsilk Black Shine 80ml 45 100ml 74 74 74 74 75 75 75 75 75 75 75 56 56 — (25) (25) (24)
Head & Shoulders Smooth & Silky 170ml 135 100ml 96 96 96 96 96 96 96 96 96 96 79 79 79 — (17) (17) (17)
Pantene Long Black 180ml 110 100ml 86 86 86 86 86 86 86 86 86 86 61 61 61 — (29) (29) (29)
Dabur Vatika Black Shine Amla 90ml 56 100ml 62 62 62 62 62 62 62 62 62 62 62 62 62 — — — —
Skin Creams/Lotions/Talcs
Face Creams/Fairness Creams/Facial Cleansers
Fair & Lovely Skin Cream Multi V itamin 50gm 89 100g 170 170 170 178 178 178 178 178 178 178 178 178 178 — — — 5
Fair And Lovely Foreever Glow 25gm 59 100g 236 236 236 236 236 236 236 236 236 236 236 236 236 — — — —
Ponds Face Cream Oil Control Skn Mattify ing 100gm 130 100g 130 130 130 130 130 130 130 130 130 130 130 130 130 — — — —
Olay Cleanser Total Effect Foaming 100gm 260 100g 245 245 245 245 245 245 245 245 245 260 260 260 260 — — 6 6
Anti-Ageing/Special Creams
Ponds Skin Cream White Beauty Naturals 50gm 249 100g 498 498 498 498 498 498 498 498 498 498 498 498 498 — — — —
Ponds Skin Cream Age Miracle Daily 50ml 549 100ml 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 1,098 — — — —
Olay Age Protect Anti Ageing Cream 40gm 275 100g 688 688 688 688 688 688 688 688 688 688 688 688 688 — — — —
Olay Skin Cream Total Effect Normal 50gm 775 100g 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 — — — —
Body Lotions
Dove Go Fresh Normal Skin 400ml 350 100ml 75 75 75 75 81 81 81 81 81 81 81 81 88 8 8 8 17
Ponds Drm Flower 100ml 68 100ml 65 65 65 65 65 65 65 65 65 65 65 65 68 5 5 5 5
Vaseline Healthy White 100ml 95 100ml 85 85 85 85 95 95 95 95 95 95 95 95 95 — — — 12
Parachute Normal 100ml 59 100ml 59 59 59 59 59 59 59 59 59 59 59 59 59 — — — —
Talcs
Ponds Talc Dream Flower Pink 100gm 60 100g 55 55 55 55 55 60 60 60 60 60 60 60 60 — — — 9
Cinthol Talc Original 100gm 45 100g 45 45 45 45 45 45 45 45 45 45 45 45 45 — — — —
Deodorants
Deodorants
Axe Dark Temptation 150ml 180 100ml 120 120 120 120 120 120 120 120 120 120 120 120 120 — — — —
Dove Original Anti Perspirant 169ml 185 100ml 109 109 109 109 109 109 109 109 109 109 109 109 109 — — — —
Cinthol Spray Dive 150ml 175 100ml 117 117 117 117 117 117 117 117 117 117 117 117 117 — — — —
Zatak Avenger 150ml 150 100ml 100 100 100 100 100 100 100 100 100 100 100 100 100 — — — —
Set Wet Rave 150ml 180 100ml 110 110 110 110 110 110 110 110 120 120 120 120 120 — — 9 9
Home Insecticides
Coils/Machine/Mats
Good Knight Mosquto Coil Low Smoke 12Hr 32 31 31 31 31 31 32 32 32 32 32 32 32 32 — — — 3
Goodknight Coil Maha Jumbo 10P 31 31 31 31 31 31 31 31 31 31 31 31 31 31 — — — —
Goodknight Machine Activ Combi 99 99 99 99 99 99 99 99 99 99 99 99 99 99 — — — —
Hair Oils
Coconut Oils
Parachute coconut oil 100ml 34 100ml 34 34 29 29 34 31 34 34 34 34 32 34 34 — — — —
Parachute coconut oil 250ml 87 100ml 35 35 33 33 35 32 35 35 35 29 29 29 29 — — (17) (17)
Dabur Vatika hair oil 75ml 33 100ml 44 44 44 44 44 44 44 44 44 44 44 44 44 — — — —
Perfmued Hair Oils
Parachute Advansed hot oil 190ml 105 100ml 55 55 47 47 47 47 47 55 55 55 55 55 55 — — 17 —
Parachute Advansed 80ml 45 100ml 60 60 60 60 60 60 60 60 60 60 60 60 60 — — — —
Parachute Jasmine 200ml 75 100ml 38 38 35 35 38 38 38 38 38 38 38 38 38 — — — —
Hair & Care 100ml 50 100ml 50 50 45 45 50 50 50 50 50 50 50 50 50 — — — —
Shanti Badam Amla 200ml 49 100ml 27 28 28 28 28 28 28 28 28 28 28 28 28 — — — 4
Dabur Amla hair oil 100ml 42 100ml 42 42 42 42 42 42 42 42 42 42 42 42 42 — — — —
Dabur Hair Oil Almond Damage Free100ml 60 100ml 58 58 58 58 58 58 58 58 58 60 60 60 60 — — 3 3
Dabur Vatika Enriched Almond hair oil 100ml 60 100ml 55 55 55 58 58 58 58 58 58 60 60 60 60 — — 3 9
Bajaj Almond hair oil 100ml 60 100ml 58 58 58 58 58 58 58 60 60 60 60 60 60 — — 3 3
Navratna Cooling oil 100ml 65 100ml 62 62 62 62 62 62 62 65 65 65 65 65 65 — — 5 5
Normalised price in Rs (adjusted for grammage changes) Change (%)
Page 41
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 41
Exhibit 2: KIE Consumer Pricing monitor (continued)
Source: Kotak Institutional Equities
MRP (Rs)
Category/Brand/SKU Sep-15 Norm Wt Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 1M 3M 6M 1Y
Edible Oils
Saffola Kardi Oil - 1L 185 100ml 19 19 19 19 19 19 19 19 19 19 19 19 19 — — — —
Saffola Gold - 1L 150 100ml 15 15 15 15 15 15 15 15 15 13 15 15 15 — 15 — —
Saffola Active - 1L 130 100ml 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Sundrop Heart - 1L 195 100ml 15 15 15 15 19 19 19 19 19 20 20 20 20 — — 3 26
Sundrop Nutrilite - 1L 140 100ml 14 14 14 14 14 14 14 14 14 14 14 14 14 — — — 4
Sundrop Superlite Advanced -1L 180 100ml 17 14 14 14 14 15 15 15 15 15 15 15 15 — — 3 (12)
Tea/ Coffee
Tea
Red Label Ctc 1kg 350 100g 39 34 34 34 35 35 35 35 35 35 35 35 35 — — — (10)
Red Label Ctc Pp 500gm 192 100g 39 40 40 40 40 40 40 36 38 38 38 38 38 — — (3) (1)
Red Label Natural Care Box 500gm 233 100g 42 46 46 46 43 43 43 47 47 47 47 47 47 — — 9 11
Taaza Ctc 1kg 285 100g 28 28 29 29 29 29 29 29 29 29 29 29 29 — — — 2
Tajmahal Ctc Box 250gm 122 100g 47 48 49 49 49 46 46 49 49 49 49 49 49 — — 6 3
Agni Ctc Leaves 1kg 232 100g 23 23 23 23 23 23 23 23 23 23 23 23 23 — — — —
Tata Ctc Gold 1kg 420 100g 400 412 412 412 412 412 412 412 420 420 420 420 420 — — 2 5
Coffee
Bru Gold Jar 100gm 230 100g 217 217 220 220 220 220 220 220 220 220 230 230 230 — 5 5 6
Bru Instant Jar 100gm 174 100g 174 174 174 174 174 174 174 174 174 174 174 174 174 — — — —
Nescafe Classic Box 200gm 415 100g 208 208 208 208 208 208 208 208 208 208 208 208 208 — — — —
Nescafe Classic 50gm 115 100g 216 216 216 220 220 220 220 220 220 230 230 230 230 — — 5 6
Sunrise Premium Jar 50gm 100 100g 180 180 200 200 200 200 200 200 200 200 200 200 200 — — — 11
Dairy
Milk/Condensed Milk/ Milk Powder
Nestle Milk Slim 1L 80 100ml 8 8 8 8 8 8 8 8 8 8 8 8 8 — — — —
Nestle Milk Toned A+ 1L 60 100ml 8 8 8 8 8 8 8 8 8 8 6 6 6 — (20) (20) (20)
Britannia Milk 1L 75 100ml 8 8 8 8 8 8 8 8 8 8 8 8 8 — — — —
Britannia Milk Slimz 1L 69 100ml 7 7 7 7 7 7 7 7 7 7 7 7 7 — — — —
Amul Taaza 1L 58 100ml 6 6 6 6 6 6 6 6 6 6 6 6 6 — 4 4 4
Amul Gold 1L 62 100ml 6 6 6 6 6 6 6 6 6 6 6 6 6 — 3 3 3
Amul Lite 1L 58 100ml 6 6 6 6 6 6 6 6 6 6 6 6 6 — — — —
Everyday Milkpow Dairy Whitner Pouch 400gm 174 100g 44 44 44 44 44 44 44 44 44 44 44 44 44 — — — —
Butter/Cheese
Britannia Cheese Spread Classic 180gm 81 100g 45 45 45 45 45 45 45 45 45 45 45 45 45 — — — —
Britannia Processed Cream Cheese 180gm 199 100g 111 111 111 111 111 111 111 111 111 111 111 111 111 — — — —
Amul Butter 500gm 187 100g 36 36 36 36 36 36 36 36 36 36 36 37 37 — 3 3 3
Health Drinks/ Juices/ Health Supplements/ OTCs
Health Drinks
Horlicks Chocolate Jar 500gm 215 100g 40 40 40 40 42 42 42 42 42 42 42 43 43 — 1 1 6
Horlicks Junior Jar 500gm 265 100g 45 48 50 50 50 50 50 50 50 50 50 53 53 — 6 6 17
Horlicks Standard Jar 500gm 215 100g 40 40 40 40 42 42 42 42 42 42 42 43 43 — 1 1 6
Horlicks Lite Malt Jar 500gm 260 100g 48 48 48 48 50 50 50 50 50 50 50 52 52 — 4 4 8
Horlicks Womens Chocolate Jar 330gm 279 100g 73 77 77 77 79 79 79 79 79 79 79 85 85 — 7 7 16
Boost Jar 500gm 215 100g 41 41 41 41 41 41 41 41 41 41 41 43 43 — 5 5 5
Actilife Malt Jar 250gm 160 100g 64 64 64 64 64 64 64 64 64 64 64 64 64 — — — —
Juices
Real Juice Active Orange 1L 105 100ml 11 11 11 11 11 11 11 11 11 11 11 11 11 — — — —
Real Juice Orange 1L 99 100ml 9 9 10 10 10 10 10 10 10 10 10 10 10 — — — 8
Real Juice Apple 1L 99 100ml 9 9 9 9 10 10 10 10 10 10 10 10 10 — — — 8
Health Supplements/OTCs
Dabur Chyawanprash 1kg 280 100g 28 28 28 28 28 28 28 28 28 28 28 28 28 — — — —
Dabur Digestive Hajmola Regular 120 P 25 25 25 25 25 25 25 25 25 25 25 25 25 25 — — — —
Dabur Glucose-D Jar 1kg 160 100g 15 15 15 15 15 15 15 15 15 16 16 16 16 — — 5 5
Dabur Honey 500gm 199 100g 38 38 38 38 39 39 39 39 39 39 39 40 40 — 2 2 5
Normalised price in Rs (adjusted for grammage changes) Change (%)
Page 42
India Consumer Products
42 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 2: KIE Consumer Pricing monitor (continued)
Source: Kotak Institutional Equities
MRP (Rs)
Category/Brand/SKU Sep-15 Norm Wt Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 1M 3M 6M 1Y
Biscuits/Atta
CreamBiscuits
Sunfeast Dark Fantasy Chocolate 100gm 25 100g 25 25 25 25 25 25 25 25 25 25 25 25 25 — — — —
Britannia Cream J im Jam 150gm 25 100g 17 17 17 17 17 17 17 17 17 17 17 17 17 — — — —
Britannia Cream Treat Bourbon 150gm 26 100g 13 17 17 17 17 17 17 17 17 17 17 17 17 — — — 33
Sunfeast Cream Bourbon 150gm 25 100g 17 17 17 17 17 17 17 17 17 17 17 17 17 — — — —
Parle Cream Hide & Seek Bourbon 150gm 20 100g 16 16 16 16 16 16 16 16 13 13 13 13 13 — — (17) (17)
Cookies/Healthy biscuits
Sunfeast Cookie Butter 100gm 10 100g 10 10 10 10 10 10 10 10 10 10 10 10 10 — — — —
Britannia Good Day Butter 150gm 20 100g 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Britannia Cookies Good Day Cashew 100gm 15 100g 15 15 15 15 15 15 15 15 15 15 15 15 15 — — — —
Britannia NutriChoice Digestive 75gm 12 100g 20 20 20 20 20 16 16 16 16 16 16 16 16 — — — (20)
Britannia Cookies NutriChoice Oats 150gm 55 100g 37 37 37 37 37 37 37 37 37 37 37 37 37 — — — —
Marie/Glucose/Salted/Nice Biscuits
Sunfeast Marie Light 100gm 10 100g 9 9 9 9 9 9 9 9 9 9 9 9 9 — — — —
Britannia V ita Marie Gold 150gm 20 100g 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Parle Digestive Marie 100gm 10 100g 10 10 10 10 10 10 10 10 10 10 10 10 10 — — — —
Sunfeast Bisccuits Glucose 80gm 5 100g 6 6 6 6 6 6 6 6 6 6 6 6 6 — — — —
Britannia Tiger 133gm 10 100g 8 8 8 8 8 8 8 8 8 8 8 8 8 — — — —
Parle Glucose 144gm 10 100g 7 7 7 7 7 7 7 7 7 7 7 7 7 — — — —
Horlicks 100gm 10 100g 11 11 11 11 11 11 11 11 11 11 11 11 11 — — — —
Sunfeast Snacky Salted 80gm 10 100g 16 16 16 16 16 16 16 16 16 16 16 16 16 — — — —
Parle Salted Krackjack 80gm 10 100g 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Parle Salted Monaco Classic 80gm 10 100g 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Sunfeast Plain Nice 150gm 20 100g 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Britannia Nice Time 150gm 22 100g 15 15 15 15 15 15 15 15 15 15 15 15 15 — — — —
Atta
Aashirvaad Atta Multigrain 5kg 255 100g 5 5 5 5 5 5 5 5 5 5 5 5 5 — — — —
Aashirvaad Atta Whole Wheat 5kg 220 100g 4 4 4 4 4 4 4 4 4 4 4 4 4 — — — 2
Soups/Sauces/Spreads
Ketchup/Sauces
Maggi Ketchup Tomato 1kg 125 100g 13 13 13 13 13 13 13 13 14 14 13 13 13 — (8) (6) (4)
Kissan Ketchup Fresh Tomato Bt 1kg 135 100g 13 13 13 13 13 13 13 13 13 13 13 14 14 — 2 4 8
Spreads/Jams
Kissan Cheesy Garlic Creamy Spread 100gm 34 100g 34 34 34 34 34 34 34 34 34 34 34 34 34 — — — —
Kissan Jam Mixed Fruit 200gm 50 100g 24 24 24 24 24 25 25 25 25 25 25 25 25 — — — 4
Soups
Maggi Rich Tomato 54gm 45 100g 83 83 83 83 83 83 83 83 83 83 83 83 83 — — — —
Knorr Classic Thick Tomato 55gm 50 100g 82 82 82 82 82 82 82 82 82 82 82 91 91 — 11 11 11
Maggi Sweet Corn Vegetable 36gm 45 100g 125 125 125 125 125 125 125 125 125 125 125 125 125 — — — —
Knorr Sweet Corn Vegetable 47gm 50 100g 96 96 96 96 96 96 96 96 96 96 96 106 106 — 11 11 11
Chocolate bars
Nestle Kit Kat 108gm 75 100g 83 83 83 83 83 83 83 83 83 83 83 83 83 — — — —
Nestle Munch Home Pk 69gm 38 100g 51 51 51 51 51 55 55 55 55 55 55 55 55 — — — 9
Nestle Milk 18gm 10 100g 56 56 56 56 56 56 56 56 56 56 56 56 56 — — — —
Nestle Bar One 26gm 10 100g 45 45 45 45 45 45 45 45 45 45 45 45 36 (20) (20) (20) (20)
Nestle Alpino Bar 22gm 30 100g 136 136 136 136 136 136 136 136 136 136 136 136 136 — — — —
Noodles
Maggi Masala 70gm 12 100g 14 14 14 17 17 17 17 17 17 17 17 17 17 — — — 20
Maggi Masala 140gm 23 100g 14 14 14 14 14 16 16 16 16 16 16 16 16 — — — 15
Maggi Masala 280gm 45 100g 14 14 14 14 14 16 16 16 16 16 16 16 16 — — — 13
Maggi Masala 560gm 86 100g 14 14 14 14 14 15 15 15 15 15 15 15 15 — — — 8
Maggi Chicken 304gm 59 100g 19 19 19 19 19 19 19 19 19 19 19 19 19 — — — —
Maggi Veg Atta 320gm 95 100g 27 27 30 30 30 30 30 30 30 30 30 30 30 — — — 12
Sunfeast Yippee Magic Masala 75gm 10 100g 13 13 13 13 13 13 13 13 13 13 13 13 13 — — — —
Sunfeast Yippe Chinese Masala Pp 75gm 15 100g 20 20 20 20 20 20 20 20 20 20 20 20 20 — — — —
Knorr Soupy Mast Masala Pp 70gm 15 100g 17 17 17 17 17 17 21 21 21 21 21 21 21 — — — 25
Horlicks Foodle Multigrain Ala Masala 320gm 78 100g 24 24 24 24 24 24 24 24 24 24 24 24 24 — — — —
Baby Food
Cerelac Babycereal Rice S1 300gm 158 100g 52 52 52 53 53 53 53 53 53 53 53 53 53 — — — 1
Cerelac Babycereal Wheat S1 300gm 155 100g 51 51 51 52 52 52 52 52 52 52 52 52 52 — — — 2
Cerelac Babycereal Multigrain Dal Veg 300gm 205 100g 66 66 66 68 68 68 68 68 68 68 68 68 68 — — — 4
Lactogen Babycereal Nan 1 Frml 400gm 490 100g 118 118 118 123 123 123 123 123 123 123 123 123 123 — — — 4
Nestum Babycereal Rice Dal S2 300gm 128 100g 41 41 41 43 43 43 43 43 43 43 43 43 43 — — — 5
Normalised price in Rs (adjusted for grammage changes) Change (%)
Page 43
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 43
Exhibit 3: Ongoing promotional activity across FMCG categories for September, 2015
Source: Kotak Institutional Equities
SKU Original Offer Eff change (%) Promotional offer
Soaps
Lifebuoy Total 10 soap 120gm 24 24 Free Horlicks sachet
Dove soap 50gm 24 24 Free Dove shampoo sachets worth Rs5
Pears soap (3 x 125gm pack) 375gm 168 168 Free Pears soap worth Rs36
Dove soap (3 x 100gm pack) 300gm 174 174 Free Dove 75gm soap #
Lux Velvet Touch soap 54gm 10 10 (10.0) Free 11% extra #
Lifebuoy Total 10 soap 59gm 10 10 (13.2) Free 15% extra #
Detergents/Dishwash
Rin detergent powder 1Kg 76 76 Free Pears 50gm soap worth Rs22
Vim dishwash bar 300gm 24 24 Free 2 Comfort sachets
Wheel detergent bar 125gm 5 5 (7.4) Free 10gm extra #
Wheel detergent powder 1Kg 45 45 Free - V im dishwash bar 75gm worth Rs5
Rin detergent bar 150gm 10 10 (6.3) Free 10gm extra #
Rin detergent bar 4x250gm 68 58 (14.7) Price off of Rs10 #
Surf Excel detergent bar 90gm 10 10 (10.0) Free 10gm extra #
Surf Excel detergent bar 250gm 29 27 (6.9) Price off of Rs2 #
Henko Stain Champion detergent bar 250gm 25 25 (9.1) Free 25gm extra #
Rin detergent powder 4kg 352 352 Free - Container worth Rs150
Surf Excel Quickwash detergent powder 500gm 94 94 Free 3x20ml Comfort sachet worth Rs9 #
Surf Excel Quickwash detergent powder 1Kg 185 185 Free Comfort fabric conditioner 200ml worth Rs48 #
Surf Excel Quickwash detergent powder 2Kg 370 370 Free Surf Excel detergent bar 250gm worth Rs27 #
Surf Excel Easywash detergent powder 500gm 68 55 (19.1) Price off of Rs13 #
Surf Excel Easywash detergent powder 700gm 96 77 (19.8) Price off of Rs19 #
Surf Excel Easywash detergent powder 1.5Kg 207 187 (9.7) Price off of Rs20 #
Surf Excel Easywash detergent powder 4Kg 544 479 (11.9) Price off of Rs65 #
Surf Excel Matic - Front Load 1Kg 235 205 (12.8) Price off of Rs30 #
Surf Excel Matic - Top Load 1Kg 215 185 (14.0) Price off of Rs30 #
Ariel Matic detergent powder 2Kg 453 388 (14.3) Price off of Rs65 #
Tide Plus detergent powder 1Kg 96 90 (6.3) Price off of Rs6 #
Tide Plus detergent powder 500gm 48 46 (4.2) Price off of Rs2 #
Tide Plus detergent powder 4kg 382 382 (20.0) Free - 1kg extra #
Henko Matic Lintelligent 210 180 (14.3) Price off of Rs30 #
V im dishwash bar 75gm 5 5 (6.3) Free 5gm extra #
V im dishwash bar 130gm 10 10 (7.1) Free 10gm extra #
Exo dishwash bar 130gm 10 10 (10.3) Free 15gm extra #
Shampoos
Garnier Fructis Long & Strong 340ml 255 255 Free - Garnier Fructis shampoo 175ml worth Rs150
Loreal Total Repair 5 360ml 275 275 Free - Colgate Total 140gm toothpaste worth Rs100
Clinic Plus 340ml 212 212 Free - Clinic Plus oil 150ml worth Rs80
Clinic Plus 80ml 57 45 (21.1) Price off of Rs12 #
Clinic Plus 175ml 122 102 (16.4) Price off of Rs20 #
Sunsilk 80ml 60 45 (25.0) Price off of Rs15 #
Sunsilk 340ml 225 225 Free - Shampoo 80ml #
Dove 80ml 75 50 (33.3) Price off of Rs25 #
Dove 180ml 165 115 (30.3) Price off of Rs50 #
Dove 340ml 270 205 (24.1) Price off of Rs65 #
Dove Intense Repair 650ml 430 430 Free - 3X100gm Dove Soaps worth Rs174 #
Tresemme 85ml 90 65 (27.8) Price off of Rs25 #
Tresemme 200ml 160 110 (31.3) Price off of Rs50 #
Loreal 175ml 155 120 (22.6) Price off of Rs35 #
Loreal 360ml 275 220 (20.0) Price off of Rs55 #
Garnier Fructis Long & Strong 175ml 150 150 Free - Shampoo 80ml worth Rs70 #
Garnier Fructis Triple Nutrition 175ml 150 150 Free - Shampoo 80ml worth Rs70 #
Garnier Fructis Shampoo + Oil 2 in 1 80ml 90 90 Free - Garnier Pure Active Neem facewash worth Rs20 #
Garnier Fructis Shampoo + Oil 2 in 1 340ml 350 350 Free - Garnier Pure Active Neem facewash worth Rs100 #
Head & Shoulders 80ml 79 60 (24.1) Price off of Rs19 #
Head & Shoulders 180ml 163 135 (17.2) Price off of Rs28 #
Head & Shoulders 340ml 305 250 (18.0) Price off of Rs55 #
Head & Shoulders cool blast 180ml 180 150 (16.7) Price off of Rs30 #
Head & Shoulders cool blast 340ml 329 275 (16.4) Price off of Rs54 #
Head & Shoulders conditioner 170ml 170 150 (11.8) Price off of Rs20 #
Pantene shampoo 80ml 75 50 (33.3) Price off of Rs25 #
Pantene shampoo 180ml 155 110 (29.0) Price off of Rs45 #
Pantene shampoo 340ml 264 200 (24.2) Price off of Rs64 #
Pantene shampoo 675ml 427 400 (6.3) Price off of Rs27 #
Pantene conditioner 175ml 139 120 (13.7) Price off of Rs19 #
Notes:
(1) # offer was available in August, as well.
MRP (Rs)
Page 44
India Consumer Products
44 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 3: Ongoing promotional activity across FMCG categories for September, 2015 (continued)
Source: Kotak Institutional Equities
SKU Original Offer Eff change (%) Promotional offer
Other personal care items
Fair & Lovely w inter fairness cream 180ml 180 150 (16.7) Free - Vaseline Healthy White 40ml
Ponds moisturizing lotion 300ml 185 185 Free - Ponds White Beauty Facial Foam 20gm
Colgate CDC toothpaste 100gm 42 42 (16.7) Free - 20% extra
Godrej Expert Rich Crème hair colour 3 pack 60ml 90 90 Free - Cinthol Deo soap worth Rs39
Garnier Color Naturals cream 60ml 170 150 (11.8) Price off of Rs20
Loreal Excellence cream 72ml 590 530 (10.2) Price off of Rs60
Ponds daily facewash 100gm 140 140 (23.1) Free - 30% extra
Dabur Vatika Enriched coconut hair oil 300ml 167 167 Free - Meswak toothpaste worth Rs47 #
Dabur Vatika Enriched coconut hair oil 150ml 84 84 (16.7) Free - 20% extra #
Biscuits
Britannia Tiger cream biscuits 43gm 5 5 (14.0) Free - 16% extra
Britannia Nutrichoice oat cookies 150gm 55 55 Free - Jar worth Rs40
Britannia Bourbon 60gm 10 10 Free - Paytm cash worth Rs10
Parle Krackjack 200gm 25 25 (20.0) Free - 25% extra
Hide & Seek Black Bourbon 100gm 25 25 (16.7) Free - 20% extra
Britannia Marie Gold 89gm 10 10 (11.0) Free - 12% extra
Britannia Milk Shakti 85gm 10 10 (26.3) Free - 35% extra
Parle Top 200gm 25 25 (20.0) Free - 50gm extra
Britannia Nutrichoice Digestives 100gm 20 20 (16.7) Free 20% extra grammage #
Parle-Gold 100gm 10 10 (20.0) Free - 25% extra #
Parle Magix 50gm 5 5 (14.3) Free - 16% extra #
Parle Hide & Seek Bourbon 150gm 25 20 (20.0) Price off of Rs5 #
Dairy/Chocolates
Nestle Bar one 12gm 5 5 (20.0) Free - 25% extra
Nestle Munch multi pack 182gm 90 90 (9.9) Free - 2 units (20 units now versus 18 units)
Kit Kat multi pack 115gm 90 90 (10.2) Free - 1 unit (10 units now versus 9 units)
Kit Kat multi pack 64gm 50 50 (16.7) Free - 1 unit (6 units now versus 5 units)
Go Milk (Double toned) 1L 60 60 Free - Hershey's chocolate syrup worth Rs10
Nestle A+ Dahi 200gm 30 25 (16.7) Price off - Rs5
Nestle A+ Dahi 400gm 65 55 (15.4) Price off - Rs10
Nestle A+ milk 1L 75 60 (20.0) Price off of Rs15 #
Other foods
Maggi Pichkoo 90gm 16 16 (10.0) Free - 10% extra
Maggi Ketchup 1L 137 125 (8.8) Price off of Rs12
Maggi Sauce 1L 138 126 (8.7) Price off of Rs12
Saffola Gold 5L 700 700 Free 500ml pack
Sundrop Superlite Advanced 5L 913 913 Free - 1Litre PET bottle #
Sundrop Heart 5L 988 988 Free - Sundrop Heart bottle 1L free worth Rs185 #
Sundrop Superlite Advanced 2L 369 369 Free - Sundrop Heart bottle 500 ml worth Rs100 #
Sundrop Heart 2L 396 396 Free - Sundrop Heart bottle 500 ml worth Rs100 #
Sundrop Heart bottle 1L 195 195 Free - Sundrop Heart bottle 200 ml worth Rs40 #
Sundrop Heartlite bottle 1L 155 155 Free - Sundrop Heart bottle 200 ml worth Rs40 #
Sundrop Superlite Advanced bottle 1L 185 185 Free - Sundrop Heart bottle 200 ml worth Rs40 #
Fortune rice bran oil 5L 650 650 Free - 1L pouch free #
Riso rice bran oil 5L 650 650 Free - 1L pouch free #
Beverages
Nescafe jar 100gm 230 230 Free mug
Horlicks Classic box 1Kg 374 374 Free - 75gm Horlicks Kesar Badam worth Rs45
Horlicks Royal Kesar Badam box 500gm 240 240 Free - 100gm Horlicks worth Rs60
Women's Horlicks 400gm 279 279 Free - Kellogs Special K worth Rs58
Cadbury Bournvita 75gm 30 30 (25.0) Free - 33% extra
Cadbury Bournvita 500gm 200 200 Free - Oreo biscuit 150 gm worth Rs30 #
Cadbury Bournvita 750gm 300 284 (5.3) Price off of Rs16 #
Horlicks Junior 500gm 252 252 Free - Johnsons baby soap 50gm worth Rs27 #
Taaza tea Free - Taaza Maska Chaska 75gm
Taj Mahal tea 500gm 265 245 Price off of Rs20
Taj Mahal tea 1Kg 470 429 (8.7) Free - Two Lipton Green tea packs #
Red Label tea 1Kg 390 350 (10.3) Price off of Rs40 #
Notes:
(1) # offer was available in August, as well.
MRP (Rs)
Page 45
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 45
Exhibit 4: Monthly raw material trends for September, 2015
Source: Bloomberg, Kotak Institutional Equities
Inflationary = +3%
Deflationary = -3%
No Commodity Unit Current MoM 3M 6M YoY MoM 3M 6M YoY Companies impacted
Agri Commodities
1 Tea - India Avg. Rs/Kg 133 (3) 7 57 2 (3) 7 57 2 HUL, TGBL
2 Tea - World Avg. USD/MT 2,890 — (1) 22 9 2 3 30 19 HUL, TGBL
3 Tea - Mombassa/Nairobi USD/MT 2,950 — (2) 16 56 2 2 23 70 HUL, TGBL
4 Coffee Arabica - Intl. USD/MT 2,404 (8) (10) (7) (35) (6) (6) (10) (30) HUL, Nestle, TGBL
5 Coffee Robusta - Intl. USD/MT 1,939 (4) (9) (6) (17) (3) (6) (5) (9) HUL, Nestle, TGBL
6 Sugar - domestic Rs/Quintal 2,644 2 4 (3) (17) 2 4 (3) (17) HUL, Nestle, GSKCHL, ITC, Dabur, Britannia
7 Wheat Rs/Quintal 1,648 4 8 (3) 4 4 8 (3) 4 ITC, Nestle, GSKCHL, Britannia
8 Barley Rs/Quintal 1,281 4 2 (7) (17) 4 2 (7) (17) GSKCHL
9 Maize (corn) USD/MT 163 — (2) (7) (0) 2 1 (1) 8 Colgate, HUL, Dabur (Sorbitol)
10 Liquid Milk - domestic Rs/Ltr 30 — — (3) (21) — — (3) (21) Nestle, GSKCHL, Jubilant Foodworks, Britannia
11 Milk Powder - domestic Rs/Kg 217 6 (3) (3) (21) 6 (3) (3) (21) Nestle, GSKCHL, Britannia
12 Cocoa Bean USD/MT 3,560 5 1 9 1 6 5 20 9 Nestle
Oil Commodities
13 Crude Oil - Brent USD/Barrel 47 1 (24) (16) (51) 2 (21) (10) (47) HUL, GCPL, J yothy Labs, Asian Paints, Pidilite
14 Palm oil MYR/Ton 2,021 4 (11) (13) (3) (1) (20) (18) (21) HUL, GCPL, J yothy Labs
15 PFAD USD/MT 360 (19) (37) (27) (41) (17) (34) (37) (36) HUL, GCPL, J yothy Labs
16 Light liquid paraffin (LLP) Rs/Ltr 39 — (7) (9) (34) — (7) (9) (34) Marico, Dabur, Bajaj Corp
17 Copra Rs/Quintal 7,651 (3) (5) (14) (28) (3) (5) (14) (28) Marico, Dabur
18 Coconut oil Rs/Quintal 11,360 (3) (5) (13) (28) (3) (5) (13) (28) Marico, Dabur
19 Rice Bran oil Rs/10Kg 536 — 3 9 (5) — 3 9 (5) Marico
20 Kardi oil/ Safflower oil Rs/MT 90,000 — 3 3 3 — 3 3 3 Marico
21 Sunflower oil Rs/MT 66,500 4 4 11 19 4 4 11 19 Marico
22 Groundnut oil Rs/MT 109,842 8 13 7 39 8 13 7 39 Marico, Dabur
23 Linseed oil Rs/MT 78,737 2 0 (1) 5 2 0 (1) 5 Marico, Dabur, Bajaj Corp, Asian Paints
24 Castor oil Rs/MT 85,663 3 3 11 2 3 3 11 2 Marico, Dabur, Bajaj Corp, Asian Paints
25 Mentha oil Rs/Kg 1,086 (1) (7) 15 33 (1) (7) 15 33 Emami, Colgate, HUL, Dabur
Chemicals/Paints/Other Commodities
26 Caustic soda Rs/ 50Kg 1,639 0 (5) (8) (2) 0 (5) (8) (2) HUL, GCPL, J yothy Labs
27 Soda ash Rs/ 50Kg 1,226 (1) (6) (2) (8) (1) (6) (2) (8) HUL, GCPL, J yothy Labs
28 LAB Rs/Kg 84 (7) (18) 1 (31) (7) (18) 1 (31) HUL, J yothy Labs
39 HDPE - domestic Rs/Kg 109 — (6) 5 (14) — (6) 5 (14) All companies
30 PAN Rs/Kg 65 (8) (12) 3 (24) (8) (12) 3 (24) Asian Paints
31 PENTA Rs/Kg 115 — — — — — — — — Asian Paints
32 Tio2 Anatese Rs/Kg 125 — — — (17) — — — (17) Asian Paints
33 Tio2 Rutile Rs/Kg 155 — (9) (9) (18) — (9) (9) (18) Asian Paints
34 Tio2 Dupont Rs/Kg 219 3 2 (3) (8) 3 2 (3) (8) Asian Paints
35 Turpentine oil Rs/Ltr 85 — — 1 (6) — — 1 (6) Asian Paints
36 Formaldehyde Rs/Kg 25 — (4) (4) (7) — (4) (4) (7) Asian Paints
37 Acry lic acid Rs/Kg 103 — 2 (3) (27) — 2 (3) (27) Asian Paints
38 Vinyl Acetate - China US$/MT 872 (5) (16) (7) (35) (3) (13) (6) (29) Pidilite, Asian Paints
39 Styrene - domestic Rs/Kg 76 (11) (22) 10 (30) (11) (22) 10 (30) Asian Paints
40 Gold Rs/10gm 26,237 2 (2) (2) (3) 2 (2) (2) (3) Titan, Jewellery companies
41 Diamond price index USD/Carrat 128 (0) (3) (4) (11) 2 0 2 (4) Titan, Jewellery companies
% chg - local currency % chg - currency Adj.
Page 46
India Consumer Products
46 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 5: KIE Consumer universe valuation summary
Source: Bloomberg, Company, Kotak Institutional Equities estimates
TP 15-Oct-15 EPS Sales
Company Rating (Rs) Price (Rs) (Rs bn) (US$ m) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E
Consumer Products
Asian Paints REDUCE 800 870 (8) 835 12,839 14.8 19.8 22.9 15.8 33.7 15.5 58.7 43.9 38.0 24.2 13.0
Bajaj Corp BUY 520 420 24 62 954 14.9 18.4 21.0 23.7 23.8 14.0 28.2 22.8 20.0 18.8 17.2
Britannia Industries ADD 3,500 3,179 10 381 5,866 45.2 72.5 93.4 37.2 60.3 28.8 70.3 43.8 34.0 43.7 17.1
Colgate-Palmolive (India) REDUCE 1,000 907 10 247 3,795 20.6 23.0 27.9 13.9 12.1 21.3 44.1 39.4 32.5 16.6 11.4
Dabur India ADD 315 272 16 477 7,345 6.1 7.7 8.9 15.7 27.6 15.0 44.8 35.1 30.5 21.1 13.7
GlaxoSmithKline Consumer REDUCE 6,300 6,006 5 253 3,886 138.8 164.0 186.1 12.6 18.2 13.5 43.3 36.6 32.3 15.8 12.0
Godrej Consumer Products ADD 1,400 1,225 14 417 6,414 25.9 34.5 42.2 16.9 33.3 22.4 47.3 35.5 29.0 27.7 14.0
Hindustan Unilever REDUCE 790 792 (0) 1,713 26,346 17.4 19.4 22.3 5.8 11.4 15.0 45.5 40.8 35.5 13.2 8.9
ITC ADD 360 349 3 2,813 43,281 11.9 12.8 14.5 10.6 7.1 13.6 29.3 27.3 24.1 10.3 8.6
Jubilant Foodworks SELL 1,400 1,555 (10) 102 1,575 16.9 24.5 35.3 (6.1) 45.0 44.4 92.2 63.6 44.0 44.7 26.9
J yothy Laboratories NR — 312 — 57 869 5.8 8.3 10.4 47.0 45.1 24.9 54.2 37.4 29.9 34.6 13.8
Manpasand Beverages BUY 500 415 20 21 320 8.0 11.1 16.8 46.1 38.6 52.3 52.0 37.6 24.7 45.3 45.0
Marico REDUCE 440 400 10 258 3,966 8.9 11.5 13.3 18.1 29.9 15.1 45.0 34.6 30.1 22.3 13.1
Nestle India REDUCE 5,800 6,207 (7) 598 9,207 122.1 121.3 157.1 6.7 (0.7) 29.5 50.8 51.1 39.5 13.4 4.6
PC Jeweller BUY 480 424 13 76 1,169 21.1 24.1 30.3 3.3 14.1 25.8 20.1 17.6 14.0 19.8 15.2
Pidilite Industries REDUCE 525 580 (9) 307 4,729 10.1 13.7 16.0 13.4 35.6 16.7 57.4 42.4 36.3 25.8 13.6
Speciality Restaurants REDUCE 155 155 0 7 112 2.0 3.0 4.8 (50.0) 47.8 60.2 76.9 52.0 32.5 53.9 17.7
Tata Global Beverages BUY 150 135 11 85 1,308 5.4 6.2 7.3 (1.0) 14.8 16.8 24.8 21.6 18.5 15.8 7.2
Titan Co. REDUCE 320 353 (9) 313 4,821 9.2 9.6 11.4 9.1 4.3 19.1 38.4 36.8 30.9 11.4 9.0
KIE universe 9,022 138,801 11.6 15.4 17.1 39.6 34.3 29.3 16.2 10.9
KIE universe (ex-ITC) 6,209 95,520 11.9 20.6 18.6 47.1 39.0 32.9 19.6 11.5
Company 1-mo 3-mo 6-mo 1-yr 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2016E 2017E
Asian Paints 5 4 4 35 36.9 28.0 24.2 5.8 5.2 4.5 0.9 1.8 2.4 0.9 1.1
Bajaj Corp (10) (7) (12) 48 24.8 19.4 16.0 7.1 6.1 5.0 3.5 3.8 4.8 2.1 2.9
Britannia Industries 3 12 36 137 43.8 29.3 22.8 4.8 4.2 3.5 1.7 1.5 2.5 0.8 0.9
Colgate-Palmolive (India) (7) (10) (16) 7 29.7 25.5 20.5 6.1 5.6 4.9 1.4 2.3 2.3 3.3 3.9
Dabur India (4) (7) (1) 29 37.1 29.0 25.2 6.2 5.4 4.6 1.7 2.4 2.5 1.0 1.1
GlaxoSmithKline Consumer (3) (4) (6) 14 31.5 25.7 21.8 5.3 4.9 4.1 2.2 1.6 2.1 1.1 1.2
Godrej Consumer Products (4) 2 2 28 32.6 25.4 20.9 5.3 4.6 3.9 0.4 2.0 2.4 0.6 0.7
Hindustan Unilever (2) (15) (15) 8 32.5 28.4 24.3 5.4 5.1 4.5 1.6 2.4 2.8 1.9 2.1
ITC 10 11 (2) 1 20.5 18.8 16.2 7.4 6.9 6.2 2.3 2.8 3.3 2.0 2.4
Jubilant Foodworks (6) (17) (0) 27 39.7 28.6 23.0 4.8 3.8 3.3 (0.1) 0.3 0.2 0.2 0.3
J yothy Laboratories 1 2 14 24 32.6 24.1 20.0 3.9 3.5 3.0 2.5 2.6 4.2 1.3 1.3
Manpasand Beverages 2 — — — 34.2 17.7 13.3 6.1 3.4 2.6 (4.8) (5.5) (0.3) 0.4 0.6
Marico (1) (9) (1) 33 30.0 23.1 20.3 4.5 4.0 3.4 2.4 2.6 2.8 1.0 1.1
Nestle India 3 4 (12) 4 28.7 29.1 22.7 6.0 6.4 5.4 2.8 1.7 3.5 1.0 1.5
PC Jeweller 9 (0) 23 100 11.0 9.4 7.5 1.3 1.1 0.9 3.8 8.0 7.3 0.9 1.1
Pidilite Industries 2 5 (2) 51 39.5 28.3 24.6 6.3 5.5 4.7 0.1 1.7 2.2 0.7 0.9
Speciality Restaurants 4 9 (22) (2) 22.0 15.5 11.0 2.1 1.8 1.5 (4.9) (0.3) 0.3 0.6 0.8
Tata Global Beverages 7 (2) (15) (14) 12.0 11.8 10.1 1.2 1.1 1.0 2.6 3.5 3.7 1.9 2.2
Titan Co. 8 1 (14) (9) 27.2 25.3 21.4 2.6 2.4 2.1 0.9 4.3 2.3 0.8 0.9
KIE FMCG universe 3 (0) (5) 13 27.1 23.4 19.8 5.3 4.9 4.3 1.7 2.4 2.9 1.2 1.4
KIE universe (ex-ITC) 0 (5) (6) 20 31.5 26.2 21.9 4.8 4.3 3.8 1.5 2.2 2.7 1.1 1.4
Sensex 5 (4) (6) 3
Dividend yield (%)
CAGR - (2015-17E), %
Mkt cap. EPS (Rs) EPS Growth, % PER (X)
EV/Sales (X) FCF yield (%)Price performance (%)
Upside /
(downside)
(%)
EV/EBITDA (X)
Page 47
Consumer Products India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 47
Exhibit 6: Consumer sector P/E rich at 30X One year forward P/ E based on consensus estimates (X)
Source: Bloomberg, Company, Kotak Institutional Equities
Exhibit 7: Consumer sector (ex-ITC) is trading at 37X One year forward P/E based on consensus estimates (X)
Source: Bloomberg, Company, Kotak Institutional Equities
Exhibit 8: P/E multiples are fairly high for the earnings profile One year forward PE (based on consensus estimates)
Source: Bloomberg, Company, Kotak Institutional Equities
Exhibit 9: P/E multiples are fairly high for the earnings profile One year forward PE (based on consensus estimates)
Source: Bloomberg, Company, Kotak Institutional Equities
5
10
15
20
25
30
35
40
Sep-9
5
Sep-9
6
Sep-9
7
Sep-9
8
Sep-9
9
Sep-0
0
Sep-0
1
Sep-0
2
Sep-0
3
Sep-0
4
Sep-0
5
Sep-0
6
Sep-0
7
Sep-0
8
Sep-0
9
Sep-1
0
Sep-1
1
Sep-1
2
Sep-1
3
Sep-1
4
Sep-1
5
5
10
15
20
25
30
35
40
45
Sep-9
7
Sep-9
8
Sep-9
9
Sep-0
0
Sep-0
1
Sep-0
2
Sep-0
3
Sep-0
4
Sep-0
5
Sep-0
6
Sep-0
7
Sep-0
8
Sep-0
9
Sep-1
0
Sep-1
1
Sep-1
2
Sep-1
3
Sep-1
4
Sep-1
5
10
20
30
40
50
60
70
Sep-0
6
Sep-0
7
Sep-0
8
Sep-0
9
Sep-1
0
Sep-1
1
Sep-1
2
Sep-1
3
Sep-1
4
Sep-1
5
Nestle Dabur Asian Paints
ITC HUL GCPL
-
10
20
30
40
50
Sep-0
6
Sep-0
7
Sep-0
8
Sep-0
9
Sep-1
0
Sep-1
1
Sep-1
2
Sep-1
3
Sep-1
4
Sep-1
5
Marico TitanColgate GSK Consumer
Page 48
India Consumer Products
48 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 10: FMCG sector/several stocks trading at 10-65% premium to 5 year average except ITC, TGBL and Titan One year forward PE based on consensus estimates (X)
Source: Bloomberg, Company, Kotak Institutional Equities
Exhibit 11: Relative valuation (to Sensex) – Premiums have inched up in most stocks vs. historical averages except ITC, TGBL and Titan One year forward Premium to Sensex based on consensus estimates (X)
Source: Bloomberg, Company, Kotak Institutional Equities
HUL ITC Nestle Colgate GSKCHL APNT GCPL Marico Dabur Titan TGBL Britannia Pidilite Sector
Average P/E
3-Yr 35.4 27.6 47.0 38.0 33.8 36.6 32.9 29.0 31.2 33.1 23.1 23.8 32.6 30.8
5-Yr 31.8 26.3 44.1 34.3 30.7 33.3 29.5 28.7 29.2 31.1 21.6 23.9 28.4 28.8
10-Yr 28.6 24.0 35.8 28.1 23.6 26.7 27.7 25.7 26.5 28.3 18.9 24.7 24.4 25.7
Current P/E 36.0 22.8 48.6 38.5 33.7 38.7 33.1 33.4 35.1 30.8 15.9 39.5 38.7 29.6
Current Prem/Disct to Avg
Prem/Disc to 3-Yr Avg 2 (17) 3 1 (0) 6 1 15 13 (7) (31) 66 19 (4)
Prem/Disc to 5-Yr Avg 13 (13) 10 12 10 16 12 16 20 (1) (26) 65 36 3
Prem/Disc to 10-Yr Avg 26 (5) 36 37 43 45 20 30 32 9 (16) 60 59 15
5 Year Variables
Median 31.2 26.5 41.3 33.2 31.2 32.9 30.8 28.1 28.9 29.3 22.1 22.5 27.0 29.1
Average 31.8 26.3 44.1 34.3 30.7 33.3 29.5 28.7 29.2 31.1 21.6 23.9 28.4 28.8
STD 5.9 2.4 7.0 5.6 4.6 5.2 5.0 3.5 4.0 5.2 3.4 6.2 7.3 2.9
Max 44.0 31.7 64.5 44.9 42.9 45.0 37.5 37.7 37.8 44.2 28.0 43.2 45.8 35.2
+1 STD 37.6 28.7 51.1 40.0 35.3 38.5 34.5 32.2 33.2 36.2 25.0 30.2 35.7 31.8
Min 23.0 21.0 34.6 25.2 24.5 24.4 20.4 22.9 23.1 22.6 15.0 15.6 17.4 22.8
-1 STD 25.9 23.8 37.1 28.7 26.2 28.0 24.5 25.1 25.2 25.9 18.1 17.7 21.2 25.9
Vs. Current P/E
Median 15 (14) 18 16 8 18 7 19 21 5 (28) 76 43 2
Average P/E 13 (13) 10 12 10 16 12 16 20 (1) (26) 65 36 3
Max (18) (28) (25) (14) (21) (14) (12) (11) (7) (30) (43) (8) (15) (16)
+1 STD (4) (21) (5) (4) (5) 0 (4) 4 6 (15) (36) 31 8 (7)
Min 56 9 41 53 38 59 62 45 52 36 6 154 122 30
-1 STD 39 (4) 31 34 29 38 35 33 39 19 (12) 123 83 15
HUL ITC Nestle Colgate GSKCHL APNT GCPL Marico Dabur Titan TGBL Britannia Pidilite Sector
Average Relative P/E
3-Yr 2.2 1.7 2.9 2.4 2.1 2.3 2.1 1.8 1.9 2.0 1.4 1.5 2.0 1.9
5-Yr 2.0 1.7 2.8 2.2 1.9 2.1 1.9 1.8 1.8 1.9 1.4 1.5 1.8 1.8
10-Yr 1.8 1.5 2.2 1.8 1.5 1.7 1.7 1.6 1.6 1.7 1.2 1.5 1.5 1.6
Current Relative P/E 2.4 1.5 3.3 2.6 2.3 2.6 2.2 2.2 2.4 2.1 1.1 2.6 2.6 2.0
Current Prem/Disct to Avg
Prem/Disc to 3-Yr Avg 10 (11) 13 10 8 14 8 25 22 2 (26) 81 30 4
Prem/Disc to 5-Yr Avg 21 (8) 18 19 17 24 19 24 28 6 (22) 77 46 9
Prem/Disc to 10-Yr Avg 35 2 46 47 54 57 29 40 43 18 (9) 72 74 24
5 Year Variables
Median 2.0 1.6 2.8 2.2 1.9 2.1 1.9 1.8 1.8 2.0 1.3 1.4 1.7 1.8
Average 2.0 1.7 2.8 2.2 1.9 2.1 1.9 1.8 1.8 1.9 1.4 1.5 1.8 1.8
STD 0.3 0.2 0.4 0.4 0.3 0.3 0.4 0.3 0.2 0.2 0.2 0.4 0.4 0.2
Max 2.5 2.2 3.6 2.8 3.0 2.6 2.6 2.3 2.4 2.4 1.9 2.7 2.6 2.2
+1 STD 2.3 1.9 3.1 2.5 2.2 2.4 2.2 2.1 2.0 2.2 1.6 1.9 2.1 2.0
Min 1.3 1.3 1.9 1.5 1.4 1.5 1.3 1.4 1.5 1.5 1.0 1.0 1.2 1.4
-1 STD 1.7 1.4 2.4 1.8 1.6 1.8 1.5 1.6 1.6 1.7 1.1 1.1 1.4 1.6
Vs. Current Relative P/E
Median 20 (7) 15 19 21 22 19 22 29 5 (20) 85 51 7
Average P/E 21 (8) 18 19 17 24 19 24 28 6 (22) 77 46 9
Max (5) (29) (9) (8) (25) (2) (14) (2) - (14) (43) (1) - (11)
+1 STD 3 (19) 4 2 1 8 (0) 9 16 (5) (33) 43 21 (2)
Min 81 19 71 76 60 77 70 63 57 37 2 156 110 42
-1 STD 46 7 36 43 38 46 48 44 43 21 (5) 132 85 23
Page 49
For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Small players report higher growth
Overall APE (individual and group business) for private players was up 10% yoy in September
and 17% YTD. LIC reported 2% decline leading to 3% growth for the overall industry. Among
large players, growth was driven by SBI (up 32%) and MetLife (up 47%). Small players like
Canara HSBC (up 46%), DHFL Pramerica (up 29%), India First (up 32%) and Tata AIA (up
123%) reported high growth. Most large players were weak: Bajaj was down 50%, Birla down
18%, ICICI up 13%, HDFC up 5% and Max up 9%.
Individual business premium growth crashed in September 2015
Individual APE growth for private players crashed in September 2015 to 5% from 22% in the
past two months and 15% in the preceding five quarters (exhibit 2). Most large players
reported declines: Bajaj Allianz was down 51%, Birla SL 26% and Reliance Life 19%. ICICI
Prudential Life which was the fastest growing player was flat yoy; HDFC Life was flat as well.
Met Life (up 50%) and SBI (up 32%) were among the fastest growing. Max Life was steady at
8% yoy. LIC reported 10% decline, higher than 3% decline reported in August 2015. Industry
participants indicated that both unit-linked and traditional had slowed down during September.
Key highlights of select players
Gradual growth moderation at ICICI Prudential Life: 38% in 1QFY16, 23% in July 2015,
15% in August 2015 and 1% decline in September indicate that unit-linked mobilizations
are gradually weakening. ICICI’s ticket size has moderated 11% though it is still significantly
higher than that of the industry (`90,074 as compared to `25,000-40,000 mostly for private
players and `11,153 for LIC). ICICI in turn focused on its group business; its market share in
the group business increased to 9.9% from 3.3% mom. Consequently, ICICI reported 13%
overall APE growth during the month.
Trends at HDFC have been a bit volatile. HDFC reported flat volumes mom in the individual
segment as compared to 53% growth in August 2015. Unlike ICICI, its ticket size has
declined to `36,506 from `49,527 yoy.
Max Life reported 8% growth in individual APE in September 2015. This was steady mom.
On the back of 10% decline in 1QFY16, 2QFY16 provides some comfort though it is not very
encouraging. With steady share of group business, Max reported 9% growth in overall APE
during the month. YTD Max is flat as compared to 17-25% growth for ICICI and HDFC and
49% growth for SBI.
SBI Life gained 33% growth in individual APE, leading to similar growth in overall APE; YTD
SBI is up 49%. About half of this seems to be driven by higher ticket size (up 25% yoy to
`30,730).
Insurance India
Individual APE growth slows down. The insurance industry reported 3% APE growth
in September 2015 as private players were up 10% yoy. Some of the small players were
strong while larger players betrayed weakness. Group business reported high growth
but individual business APE crashed to 5% yoy from 22% yoy in the past two months.
SBI was strong, ICICI and HDFC were flat, Max reported moderate growth while Bajaj
and Birla continued to decline.
OCTOBER 16, 2015
UPDATE
BSE-30: 27,010
QUICK NUMBERS
Individual APE
growth down to 5%
yoy
ICICI and HDFC Life
flat yoy in
individual APE
Max reported 8%
growth in individual
APE
Page 50
India Insurance
50 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Bajaj Allianz Life has reported consistent decline in individual APE during last three
months following high (19%) growth in 1QFY16. The decline in the past two months has
been massive (down 43-51%yoy). Its ticket size is also down 32% yoy despite that fact
that the share of unit-linked policies has increased and loss of its banking partner
(Standard Chartered) is reflected in the base. The company expects to scale up its micro
insurance business in 2HFY16; this business can drive about 10% of its APE.
Birla Sun Life has consistently reported decline in individual APE. Overall APE was down
18% in September and 14% YTD. Its ticket size is however volatile: up 20% mom but
down 26% yoy.
Canara HSBC Oriental has reported 25% growth in average ticket size to `65,985; its
ticket size is the second largest after ICICI Prudential Life’s and much higher than that of
most other private players (`25,000-40,000). Higher ticket size may reflect business from
HSBC. Canara HSBC has reported 20% APE growth YTD and 46% in September 2015.
Exhibit 1: Adjusted life insurance premium collections moderated in September 2015 to 10% for private sector March fiscal year-ends, 2016 (Rs mn)
Source: IRDA, Life council
Individual
yoy
growth
(%) Group
yoy
growth
(%) Total
yoy
growth
(%) Individual
yoy
growth
(%) Group
yoy
growth
(%) Total
yoy
growth
(%)
Aegon Religare 134 (23) — 134 (23) 554 (8) — 554 (8)
Aviva 133 (43) 19 1,198 152 (35) 817 (33) 80 (38) 897 (34)
Bajaj Allianz 447 (51) 63 (41) 509 (50) 2,238 (27) 815 35 3,052 (16)
Bharti Axa 271 3 15 56 286 5 1,406 (1) 75 49 1,481 1
Birla Sunlife 607 (26) 114 67 722 (18) 2,535 (23) 659 62 3,194 (14)
Canara HSBC 402 39 27 356 430 46 1,722 15 138 183 1,861 20
DHFL Pramerica 136 28 40 31 176 29 721 23 246 50 967 29
Future Generali 81 (15) 6 275 87 (10) 362 (12) 63 365 425 (0)
HDFC Life 2,591 (1) 253 140 2,844 5 12,824 15 1,188 45 14,012 17
ICICI Prudential 3,966 (1) 595 1,554 4,561 13 21,186 21 1,138 199 22,324 25
IDBI Federal 359 19 6 137 366 20 1,350 24 44 257 1,394 27
India First 149 36 69 26 219 32 628 14 487 0 1,115 1
ING Vysya 480 8 11 2,897 491 10 1,988 7 27 1,052 2,015 8
Kotak OM 867 76 109 32 976 70 3,288 87 487 60 3,775 83
Max Life 1,937 9 22 36 1,959 9 7,919 (0) 115 31 8,033 0
MetLife 848 50 7 (58) 854 47 3,732 43 36 (17) 3,769 42
Reliance Life 811 (19) 47 (26) 858 (20) 4,004 (24) 490 (18) 4,494 (24)
Sahara 11 9 — 11 9 46 (19) — 46 (19)
SBI Life 3,307 32 149 32 3,456 32 13,348 48 1,020 69 14,368 49
Shriram Life 302 22 20 24 322 22 1,486 77 100 76 1,586 77
Star Union Daichi 292 (34) 5 3 297 (34) 1,220 (5) 184 365 1,404 6
Tata AIA 400 131 6 (38) 406 123 1,704 118 49 61 1,754 116
Private players 18,530 5 1,585 113 20,115 10 85,077 15 7,441 50 92,517 17
LIC 16,566 (10) 4,428 39 20,994 (2) 84,905 (11) 27,297 34 112,202 (3)
Total Premium 35,096 (2) 6,013 53 41,109 3 169,982 0 34,738 38 204,720 5
Sep-15 FY16 YTD
Page 51
Insurance India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 51
Exhibit 2: Private sector volume growth in individual business crashed during September 2015 YoY growth in adjusted individual business premium, March fiscal year-ends, 2013-2015, FY2016YTD (%)
Source: IRDA, Life council
Exhibit 3: Mixed trends in ticket size Average policy size in individual non-single segment, Sep 2014, August 2015 and Sep 2015 (Rs)
Source: Company, Kotak Institutional Equities
2013 2014 2015 1QFY16 Jul-15 Aug-15 Sep-15
Bajaj Allianz (6.1) (18.5) (22.6) 18.9 (30.4) (43.7) (51.5)
Birla Sunlife (12.5) (18.9) (11.8) (24.2) (15.9) (22.8) (25.6)
HDFC Standard Life 15.3 (24.2) 25.0 8.6 14.7 53.2 (0.5)
ICICI Prudential 17.5 (1.7) 41.3 38.9 22.3 15.5 (1.1)
KMOM (3.1) 1.2 32.8 108.0 77.0 73.2 76.2
Max NY 0.4 16.9 10.2 (10.9) 13.0 7.4 8.6
MetLife 11.5 2.8 23.4 33.7 56.2 46.4 50.5
Reliance Life (11.3) 14.6 7.3 (33.8) (9.1) (19.2) (19.1)
SBI Life 13.3 17.7 11.0 28.7 75.9 81.4 32.4
Private sector 1.8 (3.6) 15.8 14.8 22.4 22.0 4.9
LIC (4.1) (3.4) (26.3) (11.9) (17.9) (2.4) (9.7)
Total (2.0) (3.4) (10.4) (1.3) (0.4) 9.7 (2.2)
Sep-14 Aug-15 Sep-15 YoY (%) MoM (%)
Aegon Religare 36,375 25,317 30,744 (15) 21
Aviva 42,934 44,398 39,693 (8) (11)
Bajaj Allianz 35,182 22,951 23,889 (32) 4
Bharti Axa 38,377 41,384 45,012 17 9
Birla Sun Life 33,362 20,543 24,663 (26) 20
Canara HSBC Oriental 52,960 68,821 65,985 25 (4)
DHFL Pramerica 22,415 30,757 28,146 26 (8)
Future Generali 30,311 36,814 37,800 25 3
HDFC Life 49,527 39,529 36,506 (26) (8)
ICICI Prudential 67,749 100,650 90,074 33 (11)
IDBI Federal 30,256 29,603 29,096 (4) (2)
IndiaFirst 13,504 20,473 20,177 49 (1)
Exide Life 29,377 24,720 22,035 (25) (11)
KMOM 37,104 38,691 39,267 6 1
Edelweiss Tokio 36,479 35,044 34,462 (6) (2)
Max Life 36,554 41,750 44,710 22 7
PNB Metlife 31,764 33,743 39,326 24 17
Reliance 25,473 24,889 26,003 2 4
Sahara India 4,173 8,933 7,382 77 (17)
SBI 24,649 29,280 30,730 25 5
Shriram 14,918 12,472 13,211 (11) 6
Star Union 40,360 36,215 38,561 (4) 6
Tata AIA 34,712 40,104 40,008 15 (0)
LIC 11,308 10,407 11,153 (1) 7
Page 52
India Insurance
52 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 4: Private players marginally lost market share in individual business Trend in adjusted individual business market share, March fiscal year-ends, 2013-2015, 2016YTD (%)
Source: IRDA, Life council
Exhibit 5: Inflows in equity mutual funds were steady Movement of funds to equity schemes of mutual funds, 1QFY15-2QFY16 (Rs bn)
Source: AMFI
2013 2014 2015 1QFY16 Jul-15 Aug-15 Sep-15 YTD
YTD private
players
Bajaj Allianz 2.6 2.2 1.9 1.3 1.3 1.3 1.3 1.3 2.6
Birla Sunlife 2.2 1.8 1.8 1.5 1.4 1.3 1.7 1.5 3.0
HDFC Standard Life 6.7 5.2 7.3 6.8 7.9 8.9 7.4 7.5 15.0
ICICI Prudential 7.0 7.2 11.3 11.7 13.5 14.4 11.3 12.4 24.9
Max Life 3.2 3.9 4.8 4.4 4.2 4.7 5.5 4.6 9.3
Met Life 1.2 1.3 1.8 2.1 2.3 2.0 2.4 2.2 4.4
Reliance Life 2.1 2.5 3.0 2.3 2.6 2.4 2.3 2.3 4.7
SBI Life 5.1 6.2 7.7 5.9 9.6 8.7 9.4 7.8 15.7
Private sector 37.9 37.9 48.9 46.0 52.6 53.7 52.6 50.0 100.0
LIC 62.1 62.1 51.1 54.0 47.1 46.0 47.1 49.8 —
Inflows
New
schemes
Existing
schemes Total Redemptions Net inflow AUMs
1QFY15 21 254 275 175 100 2,108
2QFY15 31 367 398 160 238 2,476
3QFY15 58 280 338 175 162 3,195
4QFY15 44 382 426 206 220 3,451
Apr-15 6 148 154 48 106 3,451
May-15 13 128 140 101 39 3,652
Jun-15 1 178 179 123 57 3,723
1QFY16 20 454 474 272 202 3,723
Jul-15 1 137 138 61 77 3,936
Aug-15 11 156 166 92 75 3,827
Sep-15 0 125 126 54 71 3,865
2QFY16 12 418 430 207 223 3,865
Page 53
Insurance India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 53
Exhibit 6: ICICI Prudential Life and HDFC Life have a high share of unit-linked business Contribution of various products to new business premium, March fiscal year-ends, 2012-2015, 1QFY16 (% of total)
Source: Company, Kotak Institutional Equities
Private sector increases share in single business; ICICI up in group business
In the light of challenges in the individual non-single business, private players shifted focus
to single and group businesses.
The share of single premium for private players increased to 41% of premium in
September 2015 as compared to 34% in August 2015 and 29% in 1QFY16 (exhibit 7).
ICICI Prudential Life reported the maximum shift to single business (62% of premium
versus 30% in August 2015).
ICICI Prudential Life sharply increased its market share in group business to 10% from
3.3% mom. Overall private players lost market share in group business: 26% in
September 2015 from 29% in August 2015 (exhibit 8).
2012 2013 2014 2015 1QFY16
Bajaj Life
Unit linked policies 9 10 9 21 16
Participating policies 28 52 55 23 20
Non participating policies 62 38 36 56 65
Birla SL
Unit linked policies 60 43 38 40 35
Participating policies 0 0 31 42 51
Non participating policies 40 57 31 18 14
ICICI Prudential Life
Unit linked policies 57 61 67 85 86
Participating policies 18 7 18 13 11
Non participating policies 25 32 15 2 2
HDFC Life
Unit linked policies 56 61 49 62 68
Participating policies 43 37 36 21 16
Non participating policies 1 2 15 17 15
Max Life
Unit linked policies 12 10 22 28 22
Participating policies 76 75 67 58 63
Non participating policies 11 15 11 14 14
SBI Life
Unit linked policies 47 37 33 NA 33
Participating policies 25 25 33 NA 35
Non participating policies 28 38 33 NA 32
Page 54
India Insurance
54 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 7: Share of single premium in overall business increased for private players Share of single premium to total premium, March fiscal year-ends, 2009-2015, FY2016YTD (%)
Source: IRDA, Life council
Exhibit 8: Private players lost market share in group business Market share in group business, March fiscal year-ends, 2009-2015, FY2016YTD (%)
Source: IRDA, Life council
We prefer Max Life and HDFC Life
We like life insurance players that deliver high RoEV.
We like the business of Max Life; the life business contributes 75% to Max India (ADD, TP
`570). With control over its cost-overruns, we believe Max Life will continue to deliver
improvement in RoEV over the medium term. The company reported 11% RoEV in
FY2013, 16% in FY2014 and 17-18% (normalized) in FY2015.
HDFC Life added 6% to the SOTP of HDFC (BUY, TP `1,410). An optimum product mix
(62% UL, 21% par and 17% non-par) has ensured superior post-overrun NBAP margins
(18% in FY2015) and 17% APE growth in FY2015 (13% in 1QFY16). Consequently,
HDFC Life reported 22% operating RoEV in FY2015 and 19% in FY2014. We believe that
HDFC Life is well placed to deliver 18-20% RoEV over the medium-term.
Exhibit 9: We value insurance companies at 1-2.3X EV Key highlights, March fiscal year-ends, 2017E
Source: Kotak Institutional Equities estimates
2009 2010 2011 2012 2013 2014 2015 1QFY16 Jul-15 Aug-15 Sep-15
Bajaj Allianz 11 19 33 32 34 38 44 55 42 37 39
Birla Sunlife 2 1 3 4 1 3 2 1 2 2 5
HDFC Life 12 16 18 22 30 42 47 46 44 50 51
ICICI Prudential 7 4 28 16 13 13 14 19 12 30 62
Max Life 14 11 14 18 19 21 25 28 28 29 25
Reliance Life 15 7 25 21 14 5 5 5 6 6 7
SBI Life 15 11 55 66 49 41 40 29 30 45 37
Private sector 11 11 30 31 29 30 31 29 30 34 41
LIC 66 67 58 51 61 65 71 74 84 70 73
Total 44 47 49 45 51 56 59 61 72 57 62
2009 2010 2011 2012 2013 2014 2015 1QFY16 Jul-15 Aug-15 Sep-15
Bajaj Allianz 1.6 2.1 2.0 1.9 3.4 2.4 2.8 2.3 1.3 1.8 1.0
Birla Sunlife 1.9 2.4 1.0 1.4 1.8 1.4 2.0 2.2 1.2 2.8 1.9
HDFC Standard Life 1.1 1.8 1.3 1.9 2.6 2.5 3.8 3.1 1.8 4.9 4.2
ICICI Prudential 8.2 4.1 5.7 4.2 3.2 0.6 0.9 1.3 0.4 3.3 9.9
Max Life 0.2 0.3 0.3 0.4 0.4 0.3 0.4 0.4 0.2 0.4 0.4
Reliance Life 1.0 1.9 0.9 0.8 0.6 1.3 1.5 0.9 0.5 5.3 0.8
SBI Life 11.5 9.2 6.5 6.5 5.5 3.1 3.1 4.3 1.5 4.1 2.5
Private sector 28 25 20 20 21 17 21 20 11 29 26
LIC 72 75 80 80 79 83 79 80 89 71 74
Embeded
value
New business
value SV/NBV
Structural
value
Appraisal
value
Value per share
of parent
Operating
RoEV AV/ EV
(Rs bn) (Rs bn) (X) (Rs bn) (Rs bn) (Rs) (%) (X)
Bajaj Allianz 109 2.3 0.2 0.5 110 458 8.6 1.0
HDFC Standard Life 116 7.4 15.7 116.2 232 83 18.3 2.0
ICICI Prudential Life 168 9.2 12.1 111.0 279 32 15.4 1.7
Max Life 69 4.7 19.0 89.0 158 427 18.7 2.3
SBI Life 96.6 4.5 19.7 89.2 186 16.4 15.5 1.9
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Insurance India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 55
Exhibit 10: Sharp rise in RoEV in FY2015 RoEV, March fiscal year-ends, 2012-2015 (%)
Source: Company, Kotak Institutional Equities estimates
Exhibit 11: High investment variance boosted RoEV Movement of embedded value, March fiscal year-end, 2015 (Rs bn)
Source: Company, Kotak Institutional Equities
Exhibit 12: Expenses overruns remain high for most players Pre and post-overrun margins, March fiscal year-end, 2015 (%)
Source: Company, Kotak Institutional Equities
2012 2013 2014 2015
RoE RoE RoE RoE Operating RoEV
Bajaj Life 6 12 2 22 8
Birla SL 0 (8) (12) 1 NA
Max Life 15 2 16 19 21
HDFC Life 14 22 20 26 22
ICICI Prudential Life 12 17 8 16 12
Notes:
(a) RoEV is return on embedded value.
(b) Max Life followed EEV metodology till FY2014 and MCEV methodology in FY2015.
(c) ICICI Prudential Life reported RoEV in FY2015; previous figures are estimates.
Bajaj
Allianz Birla SL HDFC Life
ICICI Prudential
Life
Max
Life
Opening EV 76.0 32.0 69.9 117.8 44.4
New business value 1.8 1.0 7.4 6.4 4.6
Unwinding 5.5 NA 6.1 11.7 4.0
Operating variance 1.0 NA (0.3) 2.1 1.2
Assumption change 0.7 NA NA 1.6 NA
Expense overrun (2.6) NA (1.5) (3.7) (0.4)
Investment variance 10.6 NA 4.6 15.1 2.5
Economic assumption change — NA 3.5 (4.2)
Capital infusion — — (1.7) (9.8) (4.0)
Closing EV 93.0 33.0 88.0 137.0 52.4
RoEV (%) 22 1 26 16 18
Operating RoEV (A-%) 8 22 15 21
Methodology followed MCEV TEV MCEV IEV MCEV
Notes:
(a) Excludes investment variance and capital infusion.
Bajaj
Allianz Birla SL HDFC Life
ICICI Prudential
Life
Max
Life
Pre-overrun NBAP margin calculation
APE 9.9 7.7 31.9 47.4 19.7
NBV 1.8 1.1 7.4 6.4 4.6
NBAP margin (%) 18.1 14.1 23.2 13.6 23.4
Post-overrun NBAP margin calculation
APE 9.9 7.7 31.9 47.4 19.7
NBV (0.8) (2.9) 5.9 2.7 4.2
NBAP margin (%) (8.3) (37.7) 18.5 5.7 21.5
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September 2015: Result calendar
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Mon Tue Wed Thu Fri Sat Sun
12-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 18-Oct
Infosys DCB Bank Hindustan Unilever D.B.Corp Reliance Industries CRISIL
TCS TV18 Broadcast LIC Housing Finance The South Indian Bank
19-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct 25-Oct
GRUH Finance ACC Bajaj Auto Cadila Healthcare Asian Paints Godrej Consumer
HCL Technologies Bajaj Finserv Bajaj Holdings Bharti Infratel L&T Finance Holdings
Hindustan Zinc Biocon Cairn India Cholamandalam
Orient Cement Container Corporation HDFC Bank Rallis India
Petronet LNG Dew an Housing Finance Idea Cellular
SKS Microfinance Federal Bank Indiabulls Hous
UltraTech Cement Hero MotoCorp Indiabulls Real Estate
Jyothy Laboratories IRB Infrastructure Developers
Mphasis JSW Steel
Mahindra & Mahindra Financial
Mahindra CIE Automotive
Wipro
26-Oct 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 1-Nov
Bharti Airtel Axis Bank Amara Raja Batteries Bharat Forge Ajanta Pharma GlaxoSmithKline Pharma
HDFC Coromandel International Ambuja Cements Colgate Palmolive (India) Apollo Tyres IDFC
DishTV Dabur India Crompton Greaves Bharat Electronics J K Cement
PI Industries JSW Energy Dr. Reddy's Laboratories Century Textiles Carborundum Universal
Lupin Emami ICICI Bank
Thermax Grasim Industries Karnataka Bank
TVS Motor Company Gujarat Pipavav Port Titan Company
Vedanta Kotak Mahindra Bank
MRF
SKF India
Supreme Industries
Torrent Pharma
2-Nov 3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 8-Nov
ABB Ashok Leyland Jubilant Foodw orks Godrej Industries Britannia Industries
Berger Paints Godrej Properties Tata Steel GlaxoSmithKline Consumer
PVR Info Edge
Tech Mahindra Mahindra & Mahindra
The Ramco Cements
Union Bank
9-Nov 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 15-Nov
BPCL Shree Cement
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S
Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) ADVT-3mo
Company Rating 15-Oct-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn)
Automobiles
Amara Raja Batteries SELL 993 620 (37.5) 169,574 2,615 171 24.1 27.1 30.0 12.2 12.2 10.8 41.1 36.7 33.1 23.7 20.5 18.0 10.0 8.3 6.9 0.4 0.5 0.6 26.9 24.7 22.8 6.0
Apollo Tyres BUY 191 250 30.7 97,376 1,502 509 21.6 24.3 25.5 1.6 12.7 4.7 8.9 7.9 7.5 5.2 5.1 5.1 1.9 1.6 1.3 1.0 1.2 1.3 22.9 22.1 19.3 9.4
Ashok Leyland ADD 95 95 - 270,358 4,170 2,846 0.9 3.5 5.6 150.7 281.2 62.0 104.6 27.4 16.9 28.9 15.0 10.6 5.3 4.7 4.0 0.5 1.1 1.8 5.4 18.1 25.5 25.1
Bajaj Auto BUY 2,451 2,750 12.2 709,137 10,937 289 109.0 135.1 152.6 (2.8) 23.9 13.0 22.5 18.1 16.1 17.1 14.7 13.0 6.6 5.6 4.7 2.1 2.2 2.5 31.1 33.3 31.7 13.1
Balkrishna Industries BUY 662 800 20.8 63,988 987 97 48.9 55.1 58.5 (0.4) 12.6 6.3 13.5 12.0 11.3 8.0 7.1 6.4 2.8 2.3 1.9 0.4 0.4 0.4 22.7 21.1 18.6 0.7
Bharat Forge ADD 885 1,070 20.9 206,093 3,179 237 32.1 33.5 43.6 53.0 4.2 30.1 27.6 26.4 20.3 15.6 14.6 11.7 6.1 5.2 4.3 0.4 0.7 0.9 24.9 21.2 23.2 17.2
Eicher Motors SELL 18,311 10,100 (44.8) 497,008 7,665 27 227.1 396.3 500.8 55.9 74.5 26.4 80.6 46.2 36.6 44.2 26.6 20.6 19.7 14.2 10.4 0.3 0.2 0.2 26.9 35.7 32.9 23.7
Exide Industries REDUCE 151 150 (0.6) 128,223 1,978 850 6.4 7.4 7.9 12.1 15.1 6.9 23.5 20.4 19.1 14.1 12.2 11.2 3.2 2.9 2.6 2.1 1.7 1.7 14.0 14.8 14.5 4.1
Hero Motocorp BUY 2,564 3,000 17.0 512,009 7,897 200 127.2 154.2 183.3 20.5 21.2 18.9 20.2 16.6 14.0 15.2 12.5 10.5 7.8 6.6 5.5 2.3 3.0 3.6 41.7 42.8 42.9 16.3
Mahindra CIE Automotive BUY 264 310 17.4 85,387 1,317 323 7.4 8.4 13.0 - 12.2 55.4 35.5 31.6 20.4 22.6 14.3 10.4 4.5 3.9 3.3 — — — 12.6 13.2 17.6 1.4
Mahindra & Mahindra ADD 1,275 1,290 1.2 791,800 12,212 569 54.3 61.6 69.1 (19.9) 13.5 12.3 23.5 20.7 18.4 17.4 14.7 13.1 3.6 3.2 2.9 1.2 1.2 1.4 16.8 16.6 16.6 23.9
Maruti Suzuki BUY 4,377 5,000 14.2 1,322,325 20,394 302 122.9 191.6 251.4 33.4 56.0 31.2 35.6 22.8 17.4 19.7 13.5 10.9 5.6 4.7 3.9 0.6 0.9 1.1 16.6 22.3 24.5 38.4
Motherson Sumi Systems SELL 252 220 (12.7) 333,194 5,139 1,323 7.3 9.1 12.5 8.2 24.5 36.8 34.4 27.6 20.2 11.4 9.7 7.3 10.0 8.1 6.4 0.8 1.1 1.5 30.9 32.4 35.5 20.2
Tata Motors BUY 381 490 28.5 1,232,866 19,015 3,395 41.7 36.6 53.5 (5.4) (12.3) 46.2 9.1 10.4 7.1 4.2 4.6 3.7 2.3 1.7 1.4 0.5 - - 23.3 18.8 21.3 59.8
WABCO India ADD 7,075 7,700 8.8 134,202 2,070 19 63.6 117.5 173.5 2.7 84.7 47.7 111.2 60.2 40.8 64.9 37.9 25.8 15.6 12.7 10.0 0.1 0.2 0.2 14.9 23.2 27.3 1.1
Automobiles Attractive 6,553,541 101,076 4.4 12.3 30.7 20.4 18.1 13.9 10.1 9.4 7.6 4.4 3.6 3.0 0.9 1.0 1.2 21.8 19.7 21.3 260.2
Banks/Financial Institutions
Axis Bank ADD 499 620 24.3 1,185,837 18,289 2,371 31.0 36.7 42.2 17.3 18.1 15.2 16.1 13.6 11.8 — — — 2.6 2.3 2.0 0.9 1.1 1.3 17.8 18.0 17.9 69.7
Bajaj Finserv ADD 1,747 1,720 (1.5) 277,944 4,287 159 106.3 121.5 139.5 10.3 14.3 14.8 16.4 14.4 12.5 — — — 2.5 2.0 1.7 0.8 0.8 0.8 16.7 15.7 15.0 2.3
Bank of Baroda ADD 180 190 5.6 414,518 6,393 2,449 15.3 18.2 25.2 (27.3) 18.5 38.9 11.7 9.9 7.1 — — — 1.1 1.0 0.9 1.8 2.1 2.9 9.2 10.7 13.3 29.1
Bank of India ADD 143 190 33.3 112,887 1,741 793 25.7 31.4 44.5 (39.5) 22.3 41.8 5.6 4.5 3.2 — — — 0.4 0.3 0.3 3.5 4.3 6.1 6.3 8.3 10.5 9.3
Canara Bank REDUCE 302 320 6.0 163,848 2,527 515 56.9 47.6 66.6 7.6 (16.4) 40.0 5.3 6.3 4.5 — — — 0.5 0.4 0.4 3.5 2.9 4.1 8.8 7.3 9.4 16.8
Cholamandalam ADD 617 730 18.3 96,307 1,485 155 30.2 33.7 41.8 18.8 11.7 24.0 20.4 18.3 14.8 — — — 3.6 2.7 2.3 0.8 0.9 1.1 17.4 16.7 16.8 0.6
City Union Bank BUY 89 110 24.1 53,030 818 597 6.6 7.0 8.2 3.5 6.3 16.4 13.4 12.6 10.8 — — — 2.0 1.7 1.5 1.2 1.3 1.5 16.7 14.7 15.1 0.9
DCB Bank SELL 92 100 8.5 26,119 403 282 6.9 5.3 3.6 14.7 (23.7) (32.0) 13.3 17.4 25.6 — — — 1.6 1.5 1.4 — — — 14.8 9.3 5.8 3.4
Dewan Housing Finance BUY 235 285 21.3 68,553 1,057 291 47.6 27.6 33.4 14.8 (41.9) 20.8 4.9 8.5 7.0 — — — 1.5 1.3 1.2 2.4 1.3 1.5 16.7 15.9 16.6 7.4
Federal Bank BUY 64 83 28.2 110,451 1,704 1,713 5.9 6.4 7.8 19.7 8.5 22.0 11.0 10.1 8.3 — — — 1.4 1.3 1.1 1.9 2.0 2.5 13.7 13.4 14.6 4.6
HDFC BUY 1,295 1,410 8.9 2,042,620 31,504 1,575 40.4 53.4 55.6 15.6 32.3 4.1 32.1 24.2 23.3 — — — 6.6 6.0 5.5 1.1 1.7 1.8 21.2 24.7 22.7 53.3
HDFC Bank ADD 1,084 1,150 6.1 2,730,099 42,107 2,507 40.8 50.6 59.6 15.3 24.2 17.7 26.6 21.4 18.2 — — — 4.4 3.8 3.3 0.7 0.9 1.1 19.4 19.0 19.3 25.2
ICICI Bank BUY 286 400 39.7 1,663,029 25,649 5,798 19.3 20.8 23.3 13.5 7.8 12.3 14.9 13.8 12.3 — — — 2.1 1.9 1.7 1.7 2.2 2.4 14.5 14.3 14.6 63.7
IDFC BUY 61 205 235.8 97,315 1,501 1,593 10.7 (3.8) 5.3 (10.1) (135.8) 239.3 5.7 (15.9) 11.4 — — — 0.6 0.5 0.5 4.3 (2.0) 0.9 10.5 (4.3) 12.0 18.3
IIFL Holdings BUY 193 225 16.3 60,249 929 310 14.4 16.8 19.2 54.0 16.1 14.7 13.4 11.5 10.1 — — — 2.3 1.9 1.6 1.6 0.0 0.0 20.1 19.3 18.5 1.0
IndusInd Bank ADD 958 1,040 8.6 566,842 8,742 589 33.9 37.5 46.9 26.5 10.7 25.1 28.3 25.5 20.4 — — — 5.3 3.2 2.8 0.4 0.5 0.6 19.7 16.3 15.0 18.2
J&K Bank ADD 90 125 38.4 43,800 676 485 10.5 17.5 18.4 (57.0) 67.3 5.0 8.6 5.2 4.9 — — — 0.7 0.6 0.6 2.3 3.9 4.1 8.7 13.2 12.6 0.7
Karur Vysya Bank BUY 429 580 35.2 51,868 800 122 37.5 53.5 61.9 (6.5) 42.9 15.6 11.5 8.0 6.9 — — — 1.2 1.1 1.0 3.0 3.1 3.6 12.0 14.5 15.1 0.7
L&T Finance Holdings ADD 69 80 15.9 118,840 1,833 1,750 5.0 4.9 5.7 43.0 (1.7) 16.4 13.9 14.2 12.2 — — — 1.9 1.6 1.4 1.1 0.9 0.8 13.9 12.3 12.7 5.3
LIC Housing Finance ADD 491 525 6.9 247,865 3,823 505 30.0 36.7 44.5 15.2 22.3 21.2 16.3 13.4 11.0 — — — 3.2 2.7 2.3 1.1 1.3 1.6 18.8 19.8 20.4 18.4
Magma Fincorp ADD 90 120 33.3 21,310 329 236 8.8 8.6 11.4 22.3 (2.1) 33.0 10.3 10.5 7.9 — — — 1.3 0.9 0.8 0.9 1.0 1.9 10.7 10.1 11.3 0.2
Mahindra & Mahindra Financial BUY 232 320 37.9 131,982 2,036 564 14.8 14.6 18.7 (6.2) (0.8) 27.8 15.7 15.8 12.4 — — — 2.3 2.1 1.9 1.8 1.6 2.1 15.5 13.9 16.0 5.3
Max India ADD 548 570 4.1 146,208 2,255 266 10.5 10.5 13.9 100.4 0.4 31.9 52.1 51.9 39.4 — — — 4.4 3.5 3.0 1.3 1.3 1.7 8.8 7.5 8.1 2.3
Muthoot Finance BUY 182 250 37.7 72,285 1,115 397 16.9 18.8 23.9 (19.5) 11.3 27.3 10.8 9.7 7.6 — — — 1.4 1.3 1.2 3.3 3.1 4.0 14.3 14.0 16.2 0.7
Oriental Bank of Commerce ADD 146 200 37.0 43,763 675 300 16.6 44.6 58.2 (56.4) 169.0 30.5 8.8 3.3 2.5 — — — 0.3 0.3 0.3 2.3 6.1 7.9 3.7 9.4 11.3 6.3
PFC ADD 242 320 32.2 319,450 4,927 1,319 45.2 49.8 47.5 10.0 10.3 (4.7) 5.4 4.9 5.1 — — — 1.0 0.9 0.8 3.8 4.1 4.0 20.0 18.9 15.8 8.9
Punjab National Bank REDUCE 137 155 12.9 269,700 4,160 1,855 16.5 24.7 28.5 (10.6) 49.5 15.3 8.3 5.6 4.8 — — — 0.7 0.6 0.5 2.4 3.6 4.1 8.5 11.6 12.1 13.3
Rural Electrification Corp. ADD 259 350 35.2 255,703 3,944 987 53.3 64.4 59.6 12.3 20.9 (7.4) 4.9 4.0 4.3 — — — 1.0 0.9 0.7 4.1 5.3 4.9 23.1 23.3 18.4 9.2
Shriram City Union Finance REDUCE 1,840 1,720 (6.5) 121,290 1,871 66 84.7 99.0 118.2 (3.9) 16.9 19.4 21.7 18.6 15.6 — — — 2.9 2.6 2.2 0.6 0.6 0.7 15.8 14.6 15.3 0.9
Shriram Transport ADD 998 1,050 5.2 226,463 3,493 223 55.5 64.2 79.0 (2.1) 15.8 23.1 18.0 15.5 12.6 — — — 2.4 2.1 1.9 1.0 0.9 1.1 14.1 14.6 15.8 7.3
SKS Microfinance ADD 450 420 (6.7) 57,046 880 126 14.9 20.1 27.7 130.8 34.6 37.7 30.1 22.4 16.3 — — — 5.4 4.4 3.4 — — — 25.0 21.6 23.7 15.9
State Bank of India BUY 249 310 24.5 1,932,543 29,806 7,566 17.5 20.5 24.9 20.3 16.9 21.3 14.2 12.1 10.0 — — — 1.5 1.3 1.2 1.4 1.5 1.6 10.6 11.4 12.5 65.8
Union Bank ADD 178 170 (4.6) 113,264 1,747 687 28.0 33.6 47.3 4.8 19.8 41.0 6.4 5.3 3.8 — — — 0.6 0.5 0.5 3.4 3.5 4.9 10.1 11.6 14.4 16.8
YES Bank ADD 759 860 13.3 317,909 4,903 418 48.0 51.8 60.8 7.0 7.9 17.4 15.8 14.7 12.5 — — — 2.7 2.4 2.1 1.2 1.3 1.5 21.3 17.3 17.7 48.4
Banks/Financial Institutions Attractive 14,160,935 218,407 8.6 17.2 18.3 15.6 13.3 11.2 2.0 1.8 1.6 1.4 1.6 1.8 12.9 13.3 14.0 550.2
Dividend yield (%) RoE (%)Price/BV (X)
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S
Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) ADVT-3mo
Company Rating 15-Oct-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn)
Cement
ACC SELL 1,371 1,450 5.7 257,446 3,971 188 45.7 49.9 82.7 (2.3) 9.2 65.7 30.0 27.5 16.6 19.3 16.2 8.7 3.1 3.0 2.7 1.7 1.7 1.7 10.7 11.2 17.0 6.7
Ambuja Cements SELL 210 210 0.2 325,355 5,018 1,550 8.5 6.6 9.9 28.0 (22.4) 49.9 24.6 31.7 21.2 16.2 18.5 12.3 3.0 3.1 2.9 1.5 2.0 2.0 12.7 9.6 14.0 9.9
Dalmia Bharat BUY 691 782 13.2 56,110 865 81 1.1 30.3 69.9 208.9 2,580.8 130.8 611.9 22.8 9.9 25.1 8.1 5.4 1.8 1.7 1.5 0.3 0.3 0.3 0.3 7.7 15.9 0.4
Grasim Industries ADD 3,636 4,350 19.6 333,995 5,151 92 190.8 235.7 331.4 (10.0) 23.5 40.6 19.1 15.4 11.0 8.7 6.1 4.0 1.4 1.3 1.2 1.1 1.1 1.1 7.8 9.0 11.6 3.6
India Cements REDUCE 84 90 7.0 25,834 398 307 (0.1) 4.8 8.8 97.2 4,539.1 83.5 NM 17.6 9.6 7.7 7.4 5.8 0.8 0.7 0.7 - 2.5 2.5 (0.1) 4.2 7.2 5.2
J K Cement BUY 627 785 25.1 43,858 676 70 18.1 12.1 49.9 63.9 (33.3) 313.8 34.7 52.0 12.6 16.6 11.9 7.3 2.7 2.6 2.2 0.6 0.8 0.8 7.5 5.1 19.2 0.3
JK Lakshmi Cement BUY 376 400 6.3 44,285 683 118 14.8 14.4 27.6 54.6 (2.5) 91.7 25.5 26.2 13.6 16.7 11.5 7.7 3.3 3.0 2.5 0.5 0.5 0.5 13.1 12.0 19.9 0.9
Orient Cement BUY 175 200 14.3 35,852 553 205 9.5 10.6 18.2 92.8 11.4 71.6 18.4 16.5 9.6 15.8 11.7 6.6 3.7 3.1 2.4 1.0 1.1 1.1 21.6 20.5 28.5 0.2
Shree Cement SELL 11,678 7,768 (33.5) 406,826 6,275 35 132.5 247.1 402.7 (40.2) 86.4 63.0 88.1 47.3 29.0 30.7 20.7 13.7 7.7 6.7 5.5 0.2 0.2 0.2 9.2 15.2 20.9 2.2
UltraTech Cement SELL 2,953 2,500 (15.3) 810,335 12,498 274 73.5 78.7 129.4 (6.0) 7.1 64.5 40.2 37.5 22.8 21.4 18.4 12.4 4.3 3.8 3.3 0.3 0.3 0.3 11.2 10.7 15.5 14.8
Cement Cautious 2,339,895 36,089 (0.4) 15.9 61.9 33.9 29.2 18.0 16.5 13.0 8.6 3.1 2.8 2.5 0.7 0.8 0.8 9.0 9.7 13.9 44.3
Consumer products
Asian Paints REDUCE 870 800 (8.1) 834,550 12,871 959 14.8 19.8 22.9 15.8 33.7 15.5 58.7 43.9 38.0 36.9 28.0 24.2 17.6 14.6 12.3 0.7 0.9 1.1 32.4 36.4 35.1 17.0
Bajaj Corp. BUY 420 520 23.7 62,016 956 148 14.9 17.9 20.3 23.7 20.0 13.7 28.2 23.5 20.7 24.8 19.9 16.4 12.7 11.4 10.1 2.7 2.1 2.9 43.6 51.0 51.7 1.1
Britannia Industries ADD 3,179 3,500 10.1 381,361 5,882 120 45.2 72.5 93.4 37.1 60.3 28.8 70.3 43.8 34.0 43.5 29.0 22.2 30.6 21.7 15.6 0.5 0.8 0.9 53.0 57.9 53.3 12.0
Colgate-Palmolive (India) REDUCE 907 1,000 10.3 246,691 3,805 272 20.6 23.0 27.9 13.9 12.1 21.3 44.1 39.4 32.5 29.7 25.5 20.5 32.0 27.2 22.5 1.4 1.7 1.9 81.6 74.7 75.9 7.9
Dabur India ADD 272 315 15.9 477,504 7,365 1,757 6.0 7.7 8.9 15.0 29.5 15.0 45.5 35.1 30.5 36.5 28.6 24.9 14.2 11.4 9.3 0.7 1.0 1.1 34.9 36.1 33.7 6.8
GlaxoSmithKline Consumer REDUCE 6,006 6,300 4.9 252,586 3,896 42 138.8 164.0 186.1 (13.5) 18.2 13.5 43.3 36.6 32.3 31.5 25.7 21.8 12.0 10.2 8.8 0.9 1.1 1.2 29.7 30.1 29.2 1.2
Godrej Consumer Products ADD 1,225 1,400 14.3 417,102 6,433 340 26.3 34.5 42.2 17.7 31.2 22.4 46.6 35.5 29.0 31.8 24.8 20.4 9.7 8.1 6.7 0.4 0.6 0.7 22.1 24.8 25.4 5.2
Hindustan Unilever REDUCE 792 790 (0.2) 1,712,810 26,417 2,164 17.4 19.4 22.3 5.8 11.4 15.0 45.5 40.8 35.5 32.5 28.4 24.3 46.0 40.5 36.9 1.9 1.9 2.1 107.5 105.5 108.9 21.5
ITC ADD 349 360 3.0 2,804,457 43,254 8,132 11.5 12.8 14.5 7.4 11.4 13.6 30.5 27.3 24.1 19.8 18.1 15.7 9.2 8.3 7.4 1.8 2.0 2.3 28.4 28.6 29.4 34.0
Jubilant Foodworks SELL 1,555 1,400 (10.0) 102,047 1,574 66 16.9 24.5 35.3 10.0 45.0 44.4 92.2 63.6 44.0 39.6 28.5 20.8 15.9 13.2 10.5 0.2 0.2 0.3 18.6 22.7 26.7 7.2
Jyothy Laboratories NR 312 - (100.0) 56,534 872 181 5.8 8.3 10.4 47.0 45.1 24.9 54.2 37.4 29.9 31.6 23.5 19.5 7.2 6.5 6.6 1.3 1.3 1.3 19.6 23.7 27.1 0.8
Manpasand Beverages BUY 422 500 18.4 21,140 326 50 8.0 11.1 16.8 46.1 38.6 52.3 53.0 38.2 25.1 34.7 18.1 13.6 11.1 3.5 3.1 0.3 0.4 0.6 20.9 13.8 13.0 -
Marico REDUCE 400 440 10.1 257,808 3,976 645 8.9 11.5 13.3 21.2 29.6 15.1 44.8 34.6 30.1 29.6 22.9 20.1 14.1 11.4 9.3 0.6 1.0 1.1 36.1 36.5 34.1 3.1
Nestle India REDUCE 6,207 5,800 (6.5) 598,404 9,229 96 122.1 121.3 157.1 6.7 (0.7) 29.5 50.8 51.1 39.5 28.7 29.1 22.7 21.1 19.8 17.2 1.0 1.0 1.5 47.9 42.6 49.1 7.2
Page Industries SELL 14,102 10,000 (29.1) 157,287 2,426 11 175.7 232.2 294.9 27.5 32.1 27.0 80.2 60.7 47.8 49.8 38.4 30.3 40.7 29.4 20.8 0.5 0.6 0.6 58.0 56.2 51.0 3.9
PC Jeweller BUY 424 480 13.1 75,983 1,172 179 21.1 24.1 30.3 3.3 14.1 25.8 20.1 17.6 14.0 11.0 9.4 7.5 3.8 3.2 2.7 0.8 0.9 1.1 20.6 19.9 21.2 2.2
Pidilite Industries REDUCE 580 525 (9.4) 297,191 4,584 513 10.1 13.7 16.0 13.4 35.8 16.5 57.4 42.3 36.3 38.2 27.4 23.7 13.1 10.9 9.2 0.5 0.7 0.9 24.5 28.1 27.4 3.2
Speciality Restaurants REDUCE 155 155 0.2 7,267 112 47 2.0 3.0 4.8 (50.0) 47.8 60.2 76.9 52.0 32.5 22.0 15.5 11.1 2.4 2.3 2.1 0.6 0.6 0.8 3.1 4.4 6.7 0.1
Tata Global Beverages BUY 135 150 11.4 84,945 1,310 631 5.4 6.2 7.3 (1.0) 14.8 16.8 24.8 21.6 18.5 12.0 11.8 10.1 1.5 1.5 1.4 1.7 1.9 2.2 6.0 7.0 7.9 3.8
Titan Company REDUCE 353 320 (9.3) 313,344 4,833 888 9.3 9.6 11.4 10.1 3.2 19.1 38.0 36.8 30.9 27.2 25.3 21.4 10.2 8.6 7.3 0.7 0.8 0.9 29.4 25.3 25.4 6.5
United Breweries SELL 901 700 (22.3) 238,229 3,674 264 8.4 12.3 15.9 (1.6) 45.8 29.5 107.0 73.4 56.7 43.4 33.7 28.1 13.1 11.4 9.8 0.1 0.2 0.3 12.6 16.6 18.6 2.5
United Spirits BUY 3,131 4,000 27.7 455,050 7,018 145 (11.7) 40.4 84.8 (30.6) 445.0 110.0 NM 77.5 36.9 82.0 35.5 21.4 50.4 22.4 12.0 0.1 0.3 0.5 (8.6) 40.0 42.3 9.2
Consumer products Cautious 9,854,308 151,985 9.2 20.9 19.4 43.4 35.9 30.1 28.1 23.8 19.8 13.3 11.4 9.8 1.2 1.4 1.6 30.7 31.8 32.6 156.4
Energy
Aban Offshore RS 238 — — 13,891 214 58 89.5 87.2 80.4 6.7 (2.5) (7.8) 2.7 2.7 3.0 6.4 6.1 6.1 0.2 0.2 0.2 3.6 2.5 2.5 11.0 8.9 7.8 9.3
BPCL ADD 893 950 6.4 645,787 9,960 723 70.3 82.4 80.5 25.2 17.1 (2.3) 12.7 10.8 11.1 8.2 7.0 6.9 2.9 2.4 2.1 2.5 2.6 2.5 24.3 24.4 20.5 22.8
Cairn India RS 160 — — 299,695 4,622 1,875 34.9 20.5 20.8 (46.5) (41.1) 1.1 4.6 7.8 7.7 2.9 4.2 3.3 0.5 0.5 0.5 5.7 4.4 4.4 11.2 6.4 6.3 6.5
Castrol India SELL 436 430 (1.4) 215,653 3,326 495 9.6 12.8 13.9 (3.8) 33.5 8.5 45.4 34.0 31.4 29.5 22.3 20.6 43.4 40.9 38.4 1.7 2.4 2.5 76.0 123.7 126.2 2.4
GAIL (India) BUY 325 400 23.1 412,065 6,355 1,268 26.1 20.2 25.9 (20.0) (22.6) 28.0 12.4 16.1 12.6 10.0 10.6 8.4 1.4 1.3 1.3 1.8 1.8 2.3 11.8 8.6 10.3 7.0
GSPL ADD 126 145 15.4 70,782 1,092 563 6.5 8.1 9.5 (13.4) 26.0 17.1 19.5 15.5 13.2 8.7 7.6 6.6 2.0 1.8 1.7 1.0 1.6 2.4 10.5 12.1 13.0 1.8
HPCL REDUCE 785 870 10.8 265,958 4,102 339 80.6 90.5 88.6 57.7 12.3 (2.1) 9.7 8.7 8.9 7.9 6.2 6.1 1.7 1.5 1.3 3.1 3.5 3.4 17.6 18.1 15.9 24.2
IOCL ADD 403 450 11.6 978,708 15,095 2,428 17.2 44.5 44.7 (29.0) 159.0 0.3 23.5 9.1 9.0 12.4 5.8 5.2 1.4 1.3 1.2 1.6 3.7 3.7 6.2 15.1 13.7 18.2
ONGC BUY 260 320 23.0 2,225,711 34,328 8,556 21.8 28.4 32.3 (29.6) 30.0 13.8 11.9 9.2 8.1 4.7 4.0 3.5 1.2 1.1 1.1 3.7 4.0 4.8 10.5 12.9 13.7 18.4
Oil India BUY 442 550 24.4 265,672 4,098 601 41.8 51.4 55.4 (15.8) 23.2 7.7 10.6 8.6 8.0 6.9 5.1 4.7 1.3 1.2 1.1 4.5 4.5 5.0 12.1 14.2 14.2 2.6
Petronet LNG ADD 188 220 17.2 140,738 2,171 750 9.7 10.5 13.5 2.6 7.5 28.8 19.3 17.9 13.9 11.9 11.2 9.2 2.5 2.2 2.0 1.1 1.6 2.1 16.5 14.3 15.3 2.0
Reliance Industries ADD 904 1,080 19.5 2,657,602 40,989 3,236 70.2 75.5 84.6 3.2 7.6 12.0 12.9 12.0 10.7 11.0 9.8 7.5 1.4 1.2 1.1 1.0 1.1 1.4 11.0 10.8 11.0 51.7
Energy Attractive 8,192,260 126,351 (16.8) 18.4 9.1 12.0 10.2 9.3 7.5 6.3 5.4 1.3 1.2 1.1 2.4 2.8 3.1 10.8 11.8 11.9 166.9
Dividend yield (%) RoE (%)Price/BV (X)
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S
Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) ADVT-3mo
Company Rating 15-Oct-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn)
Industrials
ABB SELL 1,129 750 (33.6) 239,287 3,691 212 10.8 15.7 24.0 29.2 45.6 52.9 104.7 71.9 47.0 43.3 32.7 25.1 8.5 7.8 6.9 0.3 0.3 0.3 8.3 11.3 15.6 1.2
BHEL SELL 212 170 (19.7) 518,402 7,995 2,448 5.8 7.4 13.5 (59.0) 28.2 82.2 36.5 28.5 15.6 20.1 14.1 6.7 1.5 1.5 1.4 0.5 0.7 1.4 4.2 5.2 9.0 16.2
Crompton Greaves ADD 181 200 10.5 113,441 1,750 627 2.9 2.4 8.1 (24.7) (17.6) 234.1 61.6 74.8 22.4 20.9 21.2 13.2 3.0 2.9 2.6 0.4 0.4 0.5 4.9 3.9 12.3 7.3
Cummins India REDUCE 1,054 875 (17.0) 292,224 4,507 277 27.1 27.7 35.0 25.1 2.4 26.2 38.9 38.0 30.2 39.1 33.8 25.9 10.1 9.1 8.1 1.3 1.3 1.7 27.5 25.2 28.4 4.3
Kalpataru Power Transmission ADD 267 290 8.5 41,035 633 153 7.8 10.4 15.5 (1.5) 32.3 49.8 34.1 25.8 17.2 10.9 8.5 7.4 1.9 1.7 1.6 0.6 0.6 0.6 5.6 7.0 9.7 0.4
KEC International ADD 148 160 8.0 38,088 587 257 6.3 7.7 13.1 89.4 22.8 70.9 23.7 19.3 11.3 11.3 8.2 6.2 2.9 2.5 2.1 0.6 0.8 1.3 12.8 14.0 20.6 2.4
L&T ADD 1,561 1,820 16.6 1,452,298 22,399 930 35.1 49.3 71.6 (28.2) 40.6 45.1 44.5 31.6 21.8 23.0 19.9 15.7 4.0 3.8 3.4 1.0 1.1 1.2 9.3 12.3 16.3 52.4
Siemens SELL 1,375 750 (45.4) 489,505 7,550 356 17.5 19.4 24.2 182.1 11.0 25.0 78.7 70.9 56.7 46.5 41.9 34.1 10.1 9.2 8.4 0.7 0.4 0.5 13.5 13.6 15.5 7.5
Thermax REDUCE 854 850 (0.5) 101,789 1,570 119 21.8 29.0 31.5 5.4 33.1 8.6 39.3 29.5 27.2 22.5 18.5 16.9 4.7 4.3 3.8 0.8 0.9 0.9 12.4 15.2 14.9 1.1
Voltas ADD 276 315 14.0 91,440 1,410 331 10.2 10.7 13.5 51.1 4.7 26.2 27.0 25.8 20.5 22.0 21.8 16.5 4.3 3.9 3.5 0.8 1.0 1.2 17.2 15.9 17.9 9.8
Industrials Cautious 3,377,509 52,092 (26.0) 28.0 51.2 46.0 35.9 23.8 24.4 20.6 15.3 3.7 3.4 3.1 0.8 0.9 1.1 8.0 9.6 13.2 102.6
Infrastructure
Adani Port and SEZ ADD 329 340 3.3 681,343 10,508 2,084 11.1 14.4 18.8 33.0 30.0 30.1 29.6 22.8 17.5 21.8 16.0 12.7 6.4 5.1 4.1 0.4 0.5 0.6 23.7 24.9 25.8 22.8
Ashoka Buildcon BUY 166 210 26.5 31,067 479 188 5.1 3.0 4.7 (16.4) (40.7) 54.8 32.4 54.5 35.2 13.6 10.3 8.6 2.3 1.7 1.6 0.9 0.9 1.2 6.2 3.5 4.7 0.6
Container Corporation ADD 1,489 1,520 2.1 290,385 4,479 195 53.7 49.3 60.8 6.4 (8.2) 23.2 27.7 30.2 24.5 20.4 19.9 15.7 3.8 3.5 3.2 0.9 0.8 1.0 14.3 12.1 13.6 6.3
Gujarat Pipavav Port ADD 194 195 0.6 93,691 1,445 483 7.5 8.3 10.2 150.4 10.8 23.2 26.0 23.4 19.0 22.4 18.8 15.4 5.2 4.2 3.6 — — 1.1 22.6 20.0 20.5 2.8
IRB Infrastructure BUY 254 295 16.0 89,374 1,378 351 15.4 17.6 20.4 18.2 13.7 16.2 16.5 14.5 12.5 9.0 9.0 7.7 2.0 1.9 1.7 1.5 1.5 1.5 13.7 13.4 14.1 7.8
Sadbhav Engineering BUY 317 345 9.0 54,290 837 172 7.1 8.5 14.4 22.8 20.3 69.2 44.7 37.1 21.9 21.6 18.3 13.1 4.0 3.7 3.2 — — — 9.7 10.3 15.6 1.1
Infrastructure Attractive 1,240,149 19,127 26.9 16.4 28.0 27.8 23.9 18.7 17.8 14.5 11.6 4.5 3.9 3.3 0.6 0.6 0.8 16.4 16.2 17.6 41.4
Internet
Info Edge BUY 794 970 22.2 95,769 1,477 120 2.0 7.3 10.8 (75.6) 262.3 48.2 396.1 109.3 73.8 385.6 495.7 85.6 6.7 6.9 6.9 0.1 0.3 0.5 2.3 6.2 9.4 1.1
Just Dial BUY 1,053 1,400 33.0 74,194 1,144 71 19.7 21.1 39.6 14.6 7.2 87.2 53.4 49.8 26.6 39.1 34.5 16.8 11.1 9.8 8.0 0.7 0.7 1.3 23.0 20.8 33.3 10.4
Internet Attractive 169,963 2,621 (22.5) 45.3 73.3 104.3 71.7 41.4 78.4 73.2 31.2 8.1 7.9 7.4 0.3 0.5 0.8 7.8 11.0 17.8 11.5
Media
DB Corp. ADD 306 350 14.6 56,119 866 184 17.2 19.2 23.3 3.2 11.1 21.5 17.7 15.9 13.1 9.7 9.0 7.3 4.4 3.9 3.5 2.5 3.2 4.2 26.0 25.9 28.3 0.3
DishTV BUY 106 125 18.3 112,596 1,737 1,066 0.0 2.1 3.7 102.0 7,043.7 76.4 NM 50.2 28.5 16.5 11.3 9.3 6.8 6.8 6.8 — — — 0.2 13.5 23.8 13.2
Jagran Prakashan ADD 145 145 (0.2) 47,484 732 317 8.0 9.4 10.9 6.6 17.5 16.2 18.2 15.5 13.3 10.2 8.3 7.3 4.1 3.8 3.4 2.8 3.4 4.1 24.2 25.2 26.8 0.4
PVR BUY 849 900 6.0 39,543 610 47 3.6 25.5 34.1 (72.0) 609.7 33.7 236.2 33.3 24.9 22.8 14.1 11.5 9.7 4.6 3.9 0.1 0.3 0.4 3.7 18.6 17.0 5.5
Sun TV Network ADD 369 365 (1.0) 145,299 2,241 394 19.9 22.8 26.2 4.9 14.5 14.8 18.5 16.2 14.1 11.8 10.2 8.7 4.3 4.0 3.7 3.1 3.6 4.1 24.4 25.7 27.1 15.0
Zee Entertainment Enterprises BUY 419 430 2.7 402,188 6,203 961 8.7 9.7 13.0 (5.7) 12.1 33.8 48.4 43.2 32.3 30.8 26.8 20.2 7.3 6.6 5.8 0.9 1.1 1.3 16.2 15.6 19.2 13.4
Media Neutral 803,229 12,388 6.8 27.0 28.8 36.4 28.7 22.3 18.1 14.7 12.0 6.0 5.4 4.9 1.2 1.4 1.8 16.5 18.7 21.9 47.9
Metals & Mining
Coal India ADD 341 410 20.1 2,156,407 33,259 6,316 21.7 24.8 26.6 (9.1) 14.0 7.3 15.7 13.8 12.8 9.4 8.1 7.6 5.0 4.3 3.8 6.1 3.6 3.9 31.1 33.7 31.5 30.3
Hindalco Industries REDUCE 88 70 (20.3) 181,306 2,796 2,065 10.0 1.0 5.9 (19.8) (90.1) 492.9 8.8 88.3 14.9 8.3 8.9 7.2 0.5 0.5 0.5 1.1 1.1 1.1 5.2 0.5 3.1 12.1
Hindustan Zinc BUY 147 200 35.9 621,967 9,593 4,225 19.4 16.7 19.3 17.6 (13.8) 15.4 7.6 8.8 7.6 4.2 4.4 3.0 1.4 1.3 1.2 3.0 3.0 3.0 20.3 15.4 15.9 2.1
Jindal Steel and Power RS 75 - - 68,938 1,063 915 6.9 1.2 3.6 (66.8) (82.7) 199.4 10.9 62.9 21.0 9.3 7.9 6.9 0.3 0.3 0.3 - 2.5 2.5 2.9 0.5 1.6 12.0
JSW Steel ADD 913 1,025 12.3 220,620 3,403 242 75.6 1.2 134.6 14.3 (98.4) 11,120.0 12.1 760.6 6.8 6.2 8.5 4.9 1.0 1.0 0.9 1.3 1.3 1.3 8.1 0.1 13.5 13.7
National Aluminium Co. SELL 40 31 (22.7) 103,347 1,594 2,577 4.7 2.3 2.0 81.3 (50.9) (16.0) 8.4 17.2 20.5 2.8 6.6 7.2 0.8 0.8 0.8 4.4 4.4 2.5 9.8 4.7 3.9 1.2
NMDC SELL 101 93 (7.5) 398,652 6,148 3,965 16.5 10.3 10.3 3.3 (37.8) 0.4 6.1 9.8 9.8 2.8 5.4 5.7 1.2 1.2 1.2 8.5 8.5 8.5 21.0 12.6 12.6 3.7
Tata Steel REDUCE 255 240 (6.0) 247,903 3,823 971 0.0 (0.2) 22.6 (99.9) (763.1) 10,604.4 NM (1,187) 11.3 7.8 7.7 5.9 0.8 0.8 0.7 3.1 3.1 3.1 0.0 (0.1) 6.6 32.2
Vedanta BUY 109 160 46.5 323,893 4,995 3,717 17.1 15.2 17.3 0.8 (10.8) 13.5 6.4 7.2 6.3 4.7 5.9 4.7 0.8 0.6 0.6 3.8 3.0 3.0 8.0 9.6 9.6 18.9
Metals & Mining Cautious 4,323,032 66,675 (10.3) (15.1) 28.7 11.0 13.0 10.1 6.6 7.2 5.8 1.4 1.3 1.3 4.9 3.7 3.8 13.1 10.4 12.4 126.2
Pharmaceutical
Biocon SELL 440 375 (14.8) 88,060 1,358 200 24.8 22.2 24.6 40.5 (10.4) 10.8 17.7 19.8 17.9 13.2 12.6 10.6 2.6 2.0 1.9 1.6 1.8 2.0 15.2 11.5 10.9 4.4
Cipla BUY 671 790 17.7 538,843 8,311 805 14.7 24.6 29.3 (15.2) 67.5 19.5 45.8 27.3 22.9 25.3 16.9 14.5 4.9 4.3 3.8 0.4 0.8 0.9 11.2 16.8 17.6 22.8
Dr Reddy's Laboratories REDUCE 4,207 3,250 (22.8) 717,439 11,065 170 135.6 158.8 161.0 7.8 17.1 1.4 31.0 26.5 26.1 20.2 17.1 16.1 6.4 5.3 4.5 0.5 0.6 0.6 22.8 21.9 18.7 25.7
Lupin REDUCE 2,099 1,700 (19.0) 945,026 14,575 450 53.4 57.0 72.4 30.9 6.7 27.1 39.3 36.8 29.0 25.5 24.3 18.9 10.6 8.5 6.8 0.2 0.4 0.5 30.2 25.7 26.1 41.3
Sun Pharmaceuticals SELL 888 790 (11.0) 2,136,915 32,958 2,406 19.9 26.0 36.3 (27.9) 30.5 39.6 44.6 34.2 24.5 26.7 23.0 17.6 8.1 6.8 5.5 0.5 0.7 1.0 21.3 21.5 24.7 57.9
Pharmaceuticals Cautious 4,426,284 68,267 (2.3) 24.7 26.1 39.6 31.8 25.2 24.5 20.8 16.9 7.3 6.1 5.0 0.4 0.6 0.8 18.3 19.1 20.0 152.1
Dividend yield (%) RoE (%)Price/BV (X)
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Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Source: Company, Bloomberg, Kotak Institutional Equities estimates
Target O/S
Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) ADVT-3mo
Company Rating 15-Oct-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn)
Real Estate
DLF BUY 135 170 26.3 239,891 3,700 1,799 2.8 3.1 3.5 (22.8) 11.7 11.0 48.1 43.0 38.7 13.8 14.7 12.3 0.8 0.8 0.8 2.2 1.5 1.5 1.7 1.9 2.1 24.2
Godrej Properties REDUCE 343 280 (18.3) 68,403 1,055 199 9.6 18.4 18.2 19.1 92.0 (0.9) 35.8 18.6 18.8 36.7 12.7 12.1 3.7 3.2 2.8 0.6 0.7 0.7 10.5 18.3 15.8 1.8
Oberoi Realty BUY 273 345 26.5 92,504 1,427 339 8.8 10.3 14.6 (6.2) 16.1 42.8 30.9 26.6 18.6 20.3 17.2 11.0 2.0 1.8 1.6 0.7 0.7 0.7 6.4 7.1 9.1 1.2
Prestige Estates Projects BUY 218 260 19.3 81,750 1,261 375 8.9 4.0 4.9 (14.4) (55.1) 23.6 24.6 54.8 44.3 11.4 18.7 16.8 2.1 2.1 2.0 0.7 0.7 0.9 9.8 3.9 4.7 1.2
Sobha BUY 314 545 73.4 30,821 475 98 24.3 24.9 32.6 (2.7) 2.7 30.8 13.0 12.6 9.6 8.0 7.3 6.2 1.3 1.2 1.1 2.2 2.2 2.2 10.1 9.7 11.8 1.2
Sunteck Realty BUY 219 420 91.8 13,786 213 60 11.4 25.6 82.9 (54.9) 124.9 224.1 19.3 8.6 2.6 17.5 7.8 2.0 0.9 0.8 0.6 0.1 0.9 0.9 6.5 10.0 26.8 0.2
Real Estate Attractive 527,156 8,130 (13.6) 12.7 36.3 32.6 28.9 21.2 14.5 14.0 10.8 1.2 1.2 1.1 1.1 1.2 1.2 3.7 4.1 5.3 29.8
Technology
HCL Technologies REDUCE 835 875 4.8 1,174,187 18,110 1,414 51.3 55.1 60.5 13.6 7.5 9.8 16.3 15.1 13.8 12.2 10.7 9.2 4.9 3.9 3.2 1.6 1.9 2.2 32.4 28.5 25.5 30.4
Hexaware Technologies SELL 246 230 (6.4) 74,080 1,143 302 10.8 13.5 16.4 (14.4) 25.2 21.0 22.7 18.1 15.0 14.5 12.3 10.2 5.7 5.3 4.8 3.8 3.3 4.0 26.2 30.3 33.6 5.4
Infosys ADD 1,097 1,260 14.8 2,520,552 38,875 2,286 53.9 56.9 66.7 13.5 5.5 17.1 20.3 19.3 16.5 14.9 13.1 10.8 4.9 4.4 3.8 2.0 2.1 2.5 25.9 24.0 24.8 80.8
Mindtree REDUCE 1,404 1,400 (0.3) 117,665 1,815 84 63.7 72.6 83.0 18.7 14.0 14.2 22.0 19.3 16.9 15.3 13.3 10.9 5.9 4.9 4.1 1.2 1.4 1.6 29.4 27.6 26.2 5.1
Mphasis REDUCE 409 390 (4.7) 86,034 1,327 210 32.3 35.7 38.8 119.3 10.6 8.8 12.7 11.5 10.5 7.4 6.7 5.7 1.6 1.5 1.4 3.9 4.4 4.7 12.8 13.3 13.7 1.5
TCS ADD 2,468 2,675 8.4 4,862,524 74,996 1,965 100.3 122.4 140.5 2.8 22.1 14.7 24.6 20.2 17.6 18.9 14.7 12.4 8.4 6.9 5.7 3.2 2.0 2.3 34.8 37.7 35.8 50.9
Tech Mahindra ADD 545 630 15.5 524,643 8,092 865 30.1 33.3 42.0 (6.1) 10.7 26.2 18.1 16.4 13.0 12.1 11.5 8.7 3.8 3.3 2.7 1.1 1.1 1.1 24.3 21.5 22.7 18.6
Wipro REDUCE 577 600 4.0 1,425,376 21,984 2,467 35.1 37.4 41.3 10.8 6.5 10.4 16.5 15.4 14.0 11.3 10.1 8.8 3.5 3.1 2.7 2.1 2.4 2.8 23.0 21.1 20.6 13.3
Technology Attractive 10,785,060 166,340 8.4 12.9 14.5 20.7 18.4 16.0 15.2 12.8 10.8 5.6 4.7 4.0 2.5 2.0 2.3 26.8 25.7 25.2 206.0
Telecom
Bharti Airtel ADD 351 460 31.0 1,404,087 21,655 3,997 15.1 13.7 17.6 122.0 (9.2) 28.4 23.3 25.6 20.0 6.9 6.3 5.3 2.3 2.2 2.1 1.1 0.8 1.3 9.9 8.7 10.7 24.4
Bharti Infratel ADD 399 395 (1.1) 757,529 11,683 1,903 10.5 13.6 16.7 31.0 29.7 22.0 38.0 29.3 24.0 14.7 12.9 11.1 4.5 4.3 4.2 2.8 2.4 3.0 11.4 15.1 17.9 15.4
IDEA BUY 152 220 44.4 548,581 8,461 3,598 8.8 9.1 6.3 48.6 3.6 (31.0) 17.3 16.7 24.2 9.0 7.3 6.3 2.4 2.1 2.0 0.5 0.7 1.0 16.0 13.4 8.5 10.1
Reliance Communications SELL 78 50 (36.0) 194,389 2,998 2,488 2.9 3.7 4.9 (11.7) 30.5 32.2 27.3 20.9 15.8 7.5 7.5 6.8 0.6 0.6 0.6 — — — 2.4 2.8 3.6 11.4
Tata Communications ADD 422 475 12.5 120,341 1,856 285 3.7 2.9 7.7 202.6 (23.4) 168.8 113.0 147.5 54.9 7.8 7.1 6.5 36.8 28.6 18.2 1.1 1.3 1.5 18.8 21.8 40.5 4.2
Telecom Cautious 3,024,927 46,654 74.1 3.0 12.6 25.2 24.4 21.7 8.1 7.3 6.3 2.2 2.1 2.0 1.3 1.1 1.5 8.9 8.8 9.4 65.5
Utilities
Adani Power SELL 29 31 6.0 85,873 1,324 2,872 (4.5) (5.5) 0.0 (340.8) (23.9) 100.9 (6.6) (5.3) 593.0 10.2 10.1 8.1 1.5 2.0 2.0 — — — (20.9) (32.2) 0.3 4.0
CESC REDUCE 574 600 4.6 76,035 1,173 133 15.0 41.8 54.3 (62.0) 179.2 30.0 38.3 13.7 10.6 10.9 6.6 6.1 0.9 0.9 0.9 1.3 1.0 1.1 2.5 6.7 8.3 3.8
JSW Energy ADD 88 84 (4.5) 144,243 2,225 1,640 8.4 10.3 12.9 22.2 21.6 25.4 10.4 8.6 6.8 6.3 6.3 5.0 1.9 1.6 1.3 — — — 19.6 20.1 20.6 3.8
NHPC REDUCE 17 22 27.2 191,523 2,954 11,071 2.3 2.2 2.2 45.6 (5.2) (0.2) 7.5 7.9 7.9 6.0 5.9 5.9 0.6 0.6 0.6 4.6 3.4 3.4 8.7 7.7 7.3 1.2
NTPC BUY 125 150 20.0 1,030,683 15,896 8,245 10.1 11.0 13.2 (21.0) 8.7 19.7 12.4 11.4 9.5 11.4 11.1 9.0 1.3 1.2 1.1 3.0 2.6 3.2 10.0 10.7 11.9 8.4
Power Grid BUY 135 175 29.6 706,526 10,897 5,232 9.6 11.5 14.4 11.3 19.7 25.1 14.1 11.7 9.4 11.1 9.7 8.2 1.9 1.7 1.5 1.5 1.7 2.1 13.8 14.9 16.5 3.3
Reliance Power SELL 48 43 (10.5) 134,786 2,079 2,805 3.7 4.9 5.7 (0.1) 33.9 17.0 13.1 9.8 8.4 17.0 10.1 7.9 0.7 0.6 0.6 — — — 5.1 6.5 7.1 3.7
Tata Power ADD 70 80 14.0 189,865 2,928 2,800 0.5 3.3 4.6 (75.9) 544.8 38.9 136.1 21.1 15.2 8.7 7.0 6.3 1.4 1.3 1.2 1.7 1.7 1.7 1.1 6.4 8.4 3.8
Utilities Attractive 2,559,534 39,476 (11.7) 17.6 29.7 14.7 12.5 9.6 10.3 9.2 7.8 1.2 1.2 1.1 2.1 1.9 2.3 8.4 9.2 11.0 32.0
Others
Astral Poly Technik BUY 431 455 5.6 50,986 786 118 6.4 9.8 14.1 (8.7) 53.0 44.0 67.2 43.9 30.5 31.5 21.5 15.8 8.2 7.0 5.9 0.1 0.2 0.4 16.2 17.3 21.0 0.9
Carborundum Universal ADD 174 200 14.7 32,826 506 188 5.2 8.6 11.7 6.5 64.9 37.0 33.6 20.4 14.9 13.2 10.1 7.8 2.7 2.5 2.2 1.1 1.0 1.3 8.4 12.7 15.6 0.1
Dhanuka Agritech BUY 484 690 42.6 24,197 373 50 21.7 23.0 29.9 16.4 6.1 30.2 22.3 21.0 16.2 17.5 15.6 11.8 5.9 4.9 4.0 1.0 1.0 1.4 29.1 25.2 27.0 0.2
Godrej Industries ADD 364 425 16.7 122,401 1,888 336 12.0 16.8 21.0 21.6 39.8 25.1 30.4 21.7 17.4 34.8 18.4 13.4 3.8 3.3 2.8 0.5 0.5 0.5 13.5 16.2 17.4 2.4
Havells India REDUCE 256 270 5.3 160,113 2,469 624 7.7 8.4 10.4 (6.9) 8.8 24.0 33.4 30.7 24.8 18.2 17.5 14.3 8.8 7.7 6.6 1.2 1.3 1.6 27.5 26.7 28.7 3.4
Jaiprakash Associates RS 14 — — 34,541 533 2,432 (9.3) 0.2 0.8 (66.6) 102.4 247.0 (1.5) 63.6 18.3 10.5 9.2 8.9 0.3 0.3 0.3 0.0 0.0 0.0 (22.0) 0.5 1.9 6.5
Kaveri Seed BUY 475 620 30.5 32,801 506 69 43.8 43.0 58.7 44.3 (1.9) 36.6 10.8 11.1 8.1 9.6 9.1 6.2 4.3 3.4 2.7 1.6 2.3 3.7 47.5 34.5 37.0 5.8
PI Industries ADD 686 750 9.3 93,712 1,445 136 18.0 22.4 29.1 30.8 24.0 30.2 38.0 30.7 23.5 25.4 20.1 15.8 10.4 8.1 6.3 0.4 0.5 0.6 30.9 29.8 30.2 2.0
Rallis India ADD 212 245 15.6 41,218 636 194 8.1 9.3 12.3 3.5 15.0 32.7 26.2 22.8 17.2 15.3 13.2 10.2 5.1 4.5 3.8 1.2 1.4 1.5 20.5 20.8 23.8 1.0
Tata Chemicals ADD 411 510 24.0 104,781 1,616 255 28.9 38.8 44.7 89.5 34.4 15.1 14.2 10.6 9.2 7.9 6.6 5.7 1.9 1.7 1.5 3.0 3.0 3.0 13.2 16.9 17.5 5.7
UPL ADD 476 550 15.4 204,209 3,150 429 26.9 31.5 35.7 10.4 17.1 13.4 17.7 15.1 13.4 9.6 8.8 7.7 3.5 2.9 2.5 1.0 1.0 1.2 20.7 21.1 20.2 14.8
Whirlpool ADD 696 790 13.6 88,246 1,361 127 16.6 19.9 23.7 71.3 20.0 19.1 41.9 34.9 29.3 25.0 20.7 17.6 9.6 7.6 6.3 - - 0.7 25.4 24.2 23.4 1.0
Others 990,030 15,269 (13.3) 186.7 24.1 57.9 20.2 16.3 12.5 10.6 9.4 3.1 2.8 2.5 1.0 1.0 1.3 5.3 13.7 15.2 43.8
KIE universe 73,327,813 1,130,948 (0.9) 14.0 20.5 19.8 17.4 14.4 11.7 10.5 8.7 2.7 2.4 2.2 1.7 1.7 1.9 13.5 13.8 15.0
KIE universe (ex-energy) 65,135,552 1,004,597 3.6 13.0 23.2 21.6 19.1 15.5 12.9 11.8 9.6 3.1 2.7 2.5 1.6 1.5 1.8 14.3 14.4 15.8
Notes:
(a) We have used adjusted book values for banking companies.
(b) 2015 means calendar year 2014, similarly for 2016 and 2017 for these particular companies.
(c) Exchange rate (Rs/US$)= 64.84
Dividend yield (%)Price/BV (X) RoE (%)
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61 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Economy India
Ratings and other definitions/identifiers
Definitions of ratings
BUY. We expect this stock to deliver more than 15% returns over the next 12 months.
ADD. We expect this stock to deliver 5-15% returns over the next 12 months.
REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.
SELL. We expect this stock to deliver <-5% returns over the next 12 months.
Our target prices are also on a 12-month horizon basis.
Other definitions
Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.
Other ratings/identifiers
NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)
and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction
involving this company and in certain other circumstances.
CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.
NC = Not Covered. Kotak Securities does not cover this company.
RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA = Not Available or Not Applicable. The information is not available for display or is not applicable.
NM = Not Meaningful. The information is not meaningful and is therefore excluded.
Kotak Institutional Equities Research coverage universe
Distribution of ratings/investment banking relationships
Source: Kotak Institutional Equities As of June 30, 2015
Percentage of companies covered by Kotak Institutional
Equities, within the specified category.
* The above categories are defined as follows: Buy = We
expect this stock to deliver more than 15% returns over
the next 12 months; Add = We expect this stock to
deliver 5-15% returns over the next 12 months; Reduce
= We expect this stock to deliver -5-+5% returns over
the next 12 months; Sell = We expect this stock to deliver
less than -5% returns over the next 12 months. Our
target prices are also on a 12-month horizon basis.
These ratings are used illustratively to comply with
applicable regulations. As of 30/06/2015 Kotak
Institutional Equities Investment Research had
investment ratings on 166 equity securities.
Percentage of companies within each category for
which Kotak Institutional Equities and or its affiliates has
provided investment banking services within the
previous 12 months.
26.5%
37.3%
19.3%16.9%
3.6%1.8% 2.4%
0.6%
0%
10%
20%
30%
40%
50%
60%
70%
BUY ADD REDUCE SELL
Page 62
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