Msearch: Annual Presentation 2018MARUTI SUZUKI INDIA LTD Investment Rationale Building strong product portfolio: Maruti has historically built Strong brands and that has resulted to

Msearch: Annual Presentation 2018

WWW.MEHTAGROUP.IN

January 2017

Optimism

Economic Recovery

Inflation

Election’s Outcome

10 Year G- Sec

Domestic Inflows

December 2017

Economic Recovery Accelerating.

Election Results Favorable for NDA.

Domestic Flows Increasing.

Global Growth At 10 Year High.

Nifty 50 +28.74%

Nifty Midcap +49.89%

Nifty Smallcap +54.53%

Indian Market Return 2017

January 2018

Optimism

Economic Recovery

Inflation

Election’s Outcome

10 Year G- Sec

Domestic Inflows

Comforting Factors

Sharp Recovery in Earnings.

Sustainable Inflows.

Last budget before General Elections 2019.

Outcome of the Structural Reforms like Demonetization, GST.

Market Outlook 2018

Volatile Markets.

Returns less than Calendar Year 2017.

Strong Directions.

Many people eager to invest on market correction.

Lots of Stock Specific Opportunity.

Basis Of Our Research

Indentifying Trends – OnGround Research.

Interaction with not only management but also vendors, customers

and other stakeholders.

Not biased towards MarketCap.

Social References.

Investment Ideas 2017-18

PRICES AS ON 22nd JANUARY 2018

S No. NAME SECTOR

MCAP (Rs Cr)

CMP Rs

1 MARUTI SUZUKI INDIA LTD CARS & UTILITIES VEHICLES 281135 9306

2 ICICI BANK LTD BANKS 225627 351

3 SUN PHARMACEUTICAL INDUSTRIES LTD PHARMACEUTICALS 138268 576

4 BHARAT FORGE LTD INDUSTRIAL PRODUCTS 34582 742

5 TATA POWER CO LTD ELECTRIC UTILITIES 24856 92

6 L&T INFOTECH LTD IT CONSULTING & SOFTWARE 19339 1124

7 GODREJ PROPERTIES LTD REALTY 19547 903

8 BIRLA CORPORATION LTD CEMENT PRODUCTS 8942 1161

9 CHENNAI PETROLEUM CORPORATION LTD REFINERIES/ PETRO-PRODUCTS 6360 427


Midcap Ideas 2017-18

S No.

NAME

SECTOR

MCAP (Rs Cr)

CMP Rs

1 GUJARAT STATE FERTILIZERS & CHEMICALS LTD FERTILIZERS 6180 155

2 JINDAL SAW LTD CONSTRUCTION & ENGINEERING 5296 165

3 RADICO KHAITAN LTD BREWERIES & DISTILLERIES 5193 389

4 GRANULES INDIA LTD PHARMACEUTICALS 3521 138

5 JK PAPER LTD PAPER & PAPER PRODUCTS 2601 148

6 J.KUMAR INFRPROJECTS LTD CONSTRUCTION & ENGINEERING 2557 338

7 HIKAL LTD PHARMACEUTICALS 1847 224

8 ZEN TECHNOLOGIES LTD DEFENCE / IT SOFTWARE 1172 131

9 TOURISM FINANCE CORPORATION OF INDIA LTD FINANCIAL INSTITUTIONS 1319 163

MARUTI SUZUKI INDIA LTD

Investment Rationale

Building strong product portfolio: Maruti has historically built Strong brands and that has resulted to

maintain the lion's share of small car and support healthy volume growth. New launch like Brezza,

Baleno and IGNIS have performed better than market expectations.

Uptick in rural demand: Growth is driven by strong volume growth of Baleno and market share gain in

UVs. MSIL’s market share improvement will be fuelled by rural demand recovery and support from new

launches. Maruti plans to easy of waiting period pressure of its top-selling models Baleno and SUV

Brezza, with parent Suzuki ramping up production at the Gujarat plant by adding a second shift from

this month

Eyes toward electric vehicles: Company plans to introduce EVs as soon as market sets to swift from

traditional vehicles to EV segments. It is focusing on hybrid technology, which is a step toward electric

mobility. Li-ion battery plant, which is being set-up by JV between Suzuki, Toshiba and Denso, would

help to reduce cost of hybrids and EVs.

Network expansion: The Gujarat plant will make MSIL’s business asset-light, allowing the management

to focus more on marketing. MSIL has plans to expand its Nexa network for the premium segment to

400 outlets by 2020 from 200 currently.

Financial Overview (Rs Cr) FY 2016 FY 2017 HY 2018

Net Sales 65105 77316 41545

EBIDTA 8888 10358 5963

PAT 5496 7510 4040

EPS 181 248 133.76

Share Holding Pattern

KEY STATISTICS

CMP Rs. 9306

MARKET CAP Rs. 281135

PRICE/BOOK 7.58

PE 37.43

DIVIDEND YIELD 0.80%

52 WEEK L/H 5644/10000

Cars & Utility Vehicles ACCUMULATE

Promoter

56.21%

Public 43.79%

ICICI BANK LTD


Retail loans to lead growth: Retail loan book is expected confidently grow at 15-18%. The proportion of retail in overall loan mix is set to increase from the 53% currently as the bank continues to grow the unsecured credit and personal loans segment driven by focus on cross selling opportunities to existing customers.

Overall corporate book is expected to grow at 6-8% in the current year and FY19 will likely see some acceleration to 10-12% growth as slippages from this book come off. Further, the healthy portion of corporate book continues to grow at 14-15% and is likely to continue these trends. SME book is expected to grow at a faster pace than corporate book. The management is confident of delivering a 15-20% growth in the SME portfolio.

Improvement in the asset quality: ICICI banks Gross NPAs have improved to 7.87% during the quarter, with slippages coming down to Rs. 46740 mn. The continued decline in net NPAs over last two quarters indicates that the management is following a prudent provisioning policy and using exceptional/one-time gains to strengthen the balance sheet by provisioning for stress upfront. There are expectations for stress levels to reduce substantially in the near-term but asset quality performance in form of declining slippages over the last two quarters plus the management commentary on the same seems encouraging.

Monetisation plan on cards: ICICI Bank is open to evaluating monetisation plans to unlock the value in its subsidiaries. It has recently filed DRHP towards the public issue of its securities business. ICICI has no plans to further dilute its stake in its AMC business, where it holds 51%. There are also no plans to sell stake in housing finance subsidiary.


Net Interest Income 21224 21737 11300

PAT 9726 9801 4107

EPS 17.53 17.51 6.41


KEY STATISTICS

CMP Rs. 351


PRICE/BOOK 2.25

PE 26.49


52 WEEK L/H 232/355

Banks ACCUMULATE

Public100

SUNPHARMACEUTICAL INDUSTRIES LTD


Strong product pipeline: SunPharma has acquired DUSA, URL Pharma, Ranbaxy Laboratories and has now become more strong in the US region. The merger of Ranbaxy Laboratories, has made the company now the fourth-largest specialty generics company in the world. Expect these brands to drive future growth. It has 422 approved ANDAs from US FDA, while 136 ANDAs are pending approval and with 15 tentative approvals hence, the company has a rich product pipeline for the US market.

Halol plant inspection: Sunpharma’s largest manufacturing unit at Halol is under USFDA radar. Halol plant has maximum filings for the US. The management indicated site transfer of some critical products from Halol to other locations. The remedial measures for Halol facility have been completed and the management is expecting re-inspection in February 2018. Successful inspection report will help launch of the drugs post FY19 and this will give a boost to the topline.

R&D Expertise: SunPharma ranks as the no. 1 drug maker in the domestic market and has an 8.5% market share in the Rs1140 bn domestic pharma market. In the domestic market, Sunpharma launched 14 new products during the quarter. Strong R&D has helped the company rank no.1 in 11 therapeutic categories. Also the domestic business grow by 11% during the quarter due to restocking by trade on successful GST implementation. With decent management and rich R&D we can expect gradual recovery in the coming quarters.


Net Sales 28269 31578 12858

EBIDTA 19788 10089 2470

PAT 5830 7846 679

EPS 19.60 29 2


KEY STATISTICS

CMP Rs. 576


PRICE/BOOK 3.68

PE 30


52 WEEK L/H 433/728

Pharmaceuticals ACCUMULATE

Promoter,

54.38%

Public, 45.62%

BHARAT FORGE LTD


Government policy boon for the Industrial business: The Make in India policy has led company’s

growth in its industrial segment and has helped to overcome the temporary slowdown in its Heavy

Commercial Vehicle business. Industrials contributed 43% of the domestic revenues FY2017.

Focus on Asset Light Capex Approach: The company has shifted its focus from capacity oriented to

capability oriented approach. The qualified employees help in the development of the company by

developing new product designs and cost effective products that serve for the needs of the clients and

accordingly capex is done.

Direction going forward Across segments: The continuous and increasing focus of company on R & D

will help it to develop high technology and also increase its capacity utilisation which will increase

production across all segments.

Growth momentum to continue: Increasing focus on new verticals like like railways, aerospace,

defence, mining & renewables has been beneficial for the company and is boosting the numbers of the

company. In the past few months, there has been a significant improvement in US Class 8 truck net

order. The growth guidance for Class 8 truck industry is 10-12%.


Net Sales 7001 6598 2516

EBIDTA 1408 1251 663

PAT 675 710 378

EPS 29.15 30.26 11.89


KEY STATISTICS

CMP Rs. 742


PRICE/BOOK 7.43

PE 49.83


52 WEEK L/H 459/750

Industrial Products ACCUMULATE

Promoter 45.75%

Public 54.25%

TATA POWER CO LTD


Steady profitability of renewable business: Tata Power reported steady growth in profitability due to higher emphasis on improving operational matrics. This has helped to improve the performance and has helped receivables to come under control. The recent capacity addition and acquisition of Welspun renewables have also benefited the company by adding up the revenues.

Potential of Asset monetisation: Tata power is taking measures to reduce generation cost through alternate fuel sources and monetisation of non-core investments. These includes asset monetisation of Arutmin mine sale, Monetisation of holding in Tata Communication. All these will lead to post tax savings as the net debt will get reduced.

Mundra Port: Mundra plant is facing losses and these are being offset by the incremental prices in coal. Tata power is net long on higher coal prices. With rising prices Tata power will have significant profits. This is proving beneficial for the company. Also Tata power plans to sell 51% stake in loss making Mundra plant.

Strategic Engineering Division Demerger: Tata power SED is a prime contractor to Ministry of Defence and one of the prominent player. This division caters to defence sector which is expected to get huge orders with Make in India drive of government. Also there are plans to hive off SED division which will unlock huge value for investors which will clear the debt by almost 50%.


Net Sales 37480 27897 14625

EBIDTA 9010 4056 3680

PAT 1067 268 490

EPS 2.73 2.34 1.26


KEY STATISTICS

CMP Rs. 92


PRICE/BOOK 2.02

PE 16.59


52 WEEK L/H 76/102

Electric Utilities ACCUMULATE

Promoter,

33.02%

Public, 66.98,

%

L&T INFOTECH LTD


Robust outlook due to New deals: LTI has won big deals and this momentum will help revenue in 2H18. These deals have made it an exceptional year. It includes a European CPG company selecting LTI as a global SAP MS partner and other is a transformational engagement to provide application development and support services to a leading African bank. Ramp-up in the latter will ensure pick-u in growth momentum going forward. With this, the company is confident of exhibiting industry-leading growth in the year.

Continued strength in verticals to drive growth: A pick-up is expected in Energy & Utilities, led by a ramp-up in recent deal wins. High-tech, Media & Entertainment and Others are also expected to contribute positively during the year. Growth was strong in Digital services, with the company’s Analytics & Digital in Every Account (ADEA) program picking up well. LTI has achieved recognition in several of its new products. Digital now constitutes to 29% of total revenue.

Acceleration in top client growth: LTI’s focus towards its valuable clients has aided strong positioning and superior cash generation. LTI’s growth has been primarily driven by top 20 clients contributing around 76% to its growth. Its deep domain expertise across Manufacturing, Media and Financial Services provides a unique collaboration opportunity and ability to offer joint innovation to its customers. Also thrust on MOSAIC is the new formula for success for LTI’s business.


Net Sales - 6183 3421

EBIDTA - 1207 605

PAT - 938 540

EPS - 55.11 31.61


KEY STATISTICS

CMP Rs. 1124


PRICE/BOOK 5.22

PE 18.44


52 WEEK L/H 653/1229

IT Consulting & Software ACCUMULATE

Promoter,

83.68%

Public, 16.32%

GODREJ PROPERTIES LTD


Leveraging the Brand Name: Godrej name is next to quality in this industry. It has different land bank

strategy like JV with land owners that reduces its land cost and also ties up with developers as a

Development manager which helps it earn 10-11% of revenue for branding, marketing and selling of

the project.

New project pipeline continued the scale up in operations: Financial Year 2017 has been a strong year

for business development. It has added 7 new projects with saleable area of 18mn Sq ft. latest

Bookings were at all-time high of nearly INR 1,500 crore and with their operating cash flow registering

a positive INR 659 crore.

New Government implementations: Godrej have completed the RERA registration of all their projects

in Maharashtra, Karnataka, Chennai, Ahmedabad and NCR. Post implementation of RERA,

opportunities for new project acquisitions are expected to increase, especially for organised

developers.

The combination of GST, the Real Estate Regulatory Act, an improving economic environment, lower

inflation, lower interest rates has led to much better affordability and are expected to revive housing

demand.


Net Sales 2122 1582 741

EBIDTA 137 250 56

PAT 160 207 68

EPS 7.56 9.6 3.12


KEY STATISTICS

CMP Rs. 903


PRICE/BOOK 8.61

PE 86.03

DIVIDEND YIELD -

52 WEEK L/H 322/858

Realty ACCUMULATE

Promoter 74.91%

Public 25.09%

BIRLA CORPORATION LTD



Net Sales 3762 4981 2903

EBIDTA 286 623 355

PAT 168 219 45

EPS 21.78 28.5 5.80


KEY STATISTICS

CMP Rs. 1161

MARKET CAP Rs. 8942

PRICE/BOOK 2.66

PE 74.85


52 WEEK L/H 668/1290

Cement Products ACCUMULATE

Promoter 62.90%

Public 37.10%

Birla Corp recently acquired the entire cement business of Reliance Infrastructure for an Enterprise

Value of Rs. 4,800 crores. This acquisition has provided the company with the ownership of high-quality

assets, taking its total capacity to 15.5 mtpa. After this becomes one of the largest players in the Satna

cluster with 22% market share. It has cement plants in Rajasthan, Madhya Pradesh, Uttar Pradesh and

West Bengal.

New investment to further increase capacity: It is planning to invest Rs 2,400 cr for setting up a 4 mn

tonne clinkerisation unit with a grinding facility at Mukutban in Maharashtra, after the completion of the

new plant, the total cement production capacity of the company would touch 20 mtpa from the present

15.5 mtpa

Cement demand to pick fast as Governments continued focus towards infrastructure development,

affordable housing, smart cities, concrete roads etc is expected to lead. To increased demand for

cement an increase of 38% and 23% in the government’s fund allocation in its annual Budget for the

housing and roads sectors, respectively, to Rs 23,000 cr and Rs 64,900 cr, is expected to boost cement

uptake.

Positive development with respect to Chanderia mining ban may trigger increase in margins: The mining

operation at the Chanderia plant (that is ~25% of total capacity of 15.5 MT) has been suspended since

August 2011 so any favorable outcome could further increase margins to historic levels near 20%.

CHENNAI PETROLEUM CORPORATION LTD


Resid up-gradation project expected to improve GRM: CPCL is implementing a Resid up-gradation project which will cost an INR 31bn. This project will help CPCL to maximise the processing of High Sulfur Fuel Oil and maximise the refinery distillate yield. The distillate yield of the Manali refinery is expected to increase from 72% to 77%. As a part of this Project, a new Delayed Coker Unit is being installed. The commissioning of this project can lead to higher Gross Refinery Margins. The company expects incremental GRM of USD1.5-2/bbl.

Merger with parent the way forward: Volatile crude oil market does not make sense to a standalone company to survive and withstand the cost of operations due to various reasons and the best bet would be to merge with the parent. Factors including costs involved in operational, procurement, taxation, capacity expansion, new products introduction and crude mixation.

BS VI Auto fuel quality: The government has made it necessary for all the refineries to meet BS VI quality norms with effect from 1st April 2020. For complying with this norm the existing diesel hydro-treating unit is being revamped to increase the capacity from 1.8 to 2.4 million tonnes per annum. Further to meet BS VI Petrol norms CPCL has installed a new FCC gasoline desulphurisation unit with 0.6mmtpa. It is being targeted for mechanical completion by June 2019.


Net Sales 34970 40607 20144

EBIDTA 1379 1911 830

PAT 763 1052 330

EPS 51.19 70.62 23.41


KEY STATISTICS

CMP Rs. 427

MARKET CAP Rs. 6360

PRICE/BOOK 1.64

PE 7.34


52 WEEK L/H 324/477

Refineries/ Petro-Products ACCUMULATE

Promoter,

67.29%

Public, 32.71%

GUJARAT STATE FERTILIZERS & CHEMICALS LTD


Firm Capro-Benzene spread: Historically Capro-benzene a major input in chemical business earlier the

spread was at US$825/Mt which has now increased in the range of$900-1000 which will flow down to

increase profitability of chemical industry. Also diversification in industrial product segment by adding

Nylon capacity and melamine capacity will reduce risk of the segment from fluctuations in capro benzene

spread.

GSFC is planning to commission Phosphoric acid plant at Sikka for a cost of INR 12 bn in next 3 years,

this could achieve saving of $100/MT and will also reduce dependency on import.

GSFC faced increase in the raw material prices which decreased its margins but in Q2FY18 prices have

reduced now and will boost operating margins in the coming quarters. The management has guided for

10% growth in topline and 15% PAT CAGR on account of 15% volume growth in fertilizer for FY18.

GSFC expects completion of Melamine plant by FY19 which will add INR 4 bn to the topline. Caprolactum

quality improvement project is expected to be completed in H1FY18. Management expects higher

realization and additional capacity of 3 MT/day from this plant.

Company is planning to install 153 MW windmill and 10 MW solar power plant. GSFC will also get tax

benefit (~24% vs 33%) due to renewable power sources. Recovery in the working capital burden is

expected as Subsidy of INR 7 bn (INR 2 bn paid) is expected by FY18.


Net Sales 6326 5477 2716

EBIDTA 656 489 2640

PAT 416 424 120

EPS 10.44 10.65 3.01


KEY STATISTICS

CMP Rs. 155

MARKET CAP Rs. 6150

PRICE/BOOK 0.91

PE 16.52


52 WEEK L/H 102/166

Fertilizers ACCUMULATE

Promoter 37.84%

Public 62.16%

JINDAL SAW LTD


JSL is the most diversified player in the Indian pipe segment, catering to oil & gas transportation and exploration, water transportation, and sewerage systems. Thus, the company offers its investors opportunity to invest in a range of low-risk business models as against its peers that are mostly focused on a single segment. In addition, the company has received accreditations from various oil and gas majors in the US, Middle East, and South East Asia.

Government initiative in the water sector has led to improvement in the domestic market and demand there is picking up.

JSW Saw is in a sweet spot with good visibility in terms of the order book and healthy order execution. Margins have shown improvement over last quarter and going forward, expect the margins to sustain. On order book, it has healthy order book at present close to about 9 lakh tonne. JSL is in advance stages of getting a few large orders both in the Indian market as well as in the international market.


Net Sales 6143 5932 2723

EBIDTA 5472 5312 388

PAT 367 308 124

EPS 11.48 9.62 3.88


KEY STATISTICS

CMP Rs. 165

MARKET CAP Rs. 5296

PRICE/BOOK 0.94

PE 35.60


52 WEEK L/H 57/179

Construction & Engineering ACCUMULATE

Promoter,

53.59%

Public, 46.41%

RADICO KHAITAN LTD



Net Sales 1543 4868 2865

EBIDTA 188 212 2808

PAT 78 81 54

EPS 5.87 6.07 4.08


KEY STATISTICS

CMP Rs. 389

MARKET CAP Rs. 5193

PRICE/BOOK 4.49

PE 53.76


52 WEEK L/H 107/403

Breweries & Distilleries ACCUMULATE

Promoter 40.43% Public

59.57%

Transformed itself from a major spirits supplier to a large branded products company in the IMFL

(Indian Made Foreign Liquor) space since existence. IMFL accounted for 65% of its revenues in FY17. Its

brands, 8PM whisky, Magic Moments vodka, Contessa rum and Old Admiral brandy, are among the top

selling brands in their category. Premium brands accounted for 44% of its IMFL.

Radico strong sales and distribution network covers 90%in retail outlets with presence in retail and off

trade outlets in the relevant segments in different parts of India. At present it has sales through 55000

retail outlets Today, Radico operates three distilleries and one JV with total capacity of 150 million liters.

It also has 33 bottling units spread across the country.

Worst seems to be behind us in terms of regulation: Supreme Court, which had banned the sale of

alcohol within 500 mtrs of highways in Dec-16, provided some relaxation by allowing states to de-notify

highways within city limits hence De-growth in volumes is likely to halt and expected to pick up FY18

onwards. We believe Tax revenues from alcohol amount to a significant portion of state budgets and

hence it may practically be difficult to ensure total prohibition.

Radico has been focusing on increasing the share of premium products in its portfolio over the last few

years. It has in fact slowly discontinued its lower margin products in some of the markets due to higher

costs lower margins and time consuming process of increasing prices. With the changing

demographics and the company’s focus on premium brands, we expect margins improve going forward.

GRANULES INDIA LTD


New Capacity to lead growth: Granules has plans to expand its API capacity by 40% and PFI capacity by >20% by mid-FY18. This will help it meet growing demand for paracetamol/Metformin/Guaifenesin molecules across the globe. At present, the top five molecules contribute 85% of its total sales. It is the only company in the world with capacity to handle 6MT PFI batch size. This gives GRAN a significant edge over competitors in terms of scale and profitability. There is expected growth of 17-18% over next few years in this business.

Pick up in the Formulation Filings: Granules various ANDA approvals and core business capacity expansion kicking in are the factors that would expand the top line. There is a strong top line growth coming forward on the back of formulations segment starting 2HFY18, with 3 or 4 products expected to be launched over next 12 months. Granules is planning to file 20-22 ANDAs over the next two years, which would take its total ANDA filings to 35 by FY19. Two (Target Action Date) TAD dates in 4QFY18 have provided further visibility on this front. Formulations continued to expand, growing 22.5% YoY. Further there is a possibility of 24% revenue CAGR in the formulations business over FY17-20E.

Margins to scale up: Margins of Granules are further likely to increase with the ramp-up in formulations. The Omnichem JV ramp up is another event that would reflect in net margin improvement from FY20E. The management expects to relieve the bottleneck at its API facility in H2 FY18E. However, increased R&D spending and fresh hiring at the US subsidiary prompts us to forecast only a 200bps EBITDA margin expansion over FY17-20E.


Net Sales 1357 1410 770

EBIDTA 276 299 153

PAT 123 165 77

EPS 5.73 7.52 3.37


KEY STATISTICS

CMP Rs. 138

MARKET CAP Rs. 3521

PRICE/BOOK 3.51

PE 21.26


52 WEEK L/H 102/157


Promoter,

44.94%

Public, 55.06%

JK PAPER LTD


Sector out of woods: Sector has overcome the temporary disruption caused by the demonetization (when growth slipped back to 7.1%) and set to grow by 7.2% this year and 7.7% next year. This will be primarily driven by the government’s infrastructure spending.

Strong distribution reach make a big difference: With a team of 4000 dealers, 191 distributors operating out of 14 depots, hence JK is able to maintain a leadership in the copier segment with a 24% market share and amongst the top two positions in the coated paper and packaging board segments. JK is also actively involved in market expansion outside India, exporting products to more than 40 countries.

Lower raw material costing improve margins: Plantation activities around 200 km of mill area continued to reap positive results, as the landed cost for raw material will be reduced by about 10-11%. Sourcing a higher volume of raw materials from local markets enabled JK to reduce cost of material consumed to 46.2% from about 61% 4-5 years ago. Besides higher sales realization of finished products and a better product mix helps JK to improve operating margin going forward. EBITDA margin 16.6% %, 2015-16 to 20.7% 2016-17.

India accounts for nearly 17 per cent of the global population, it accounts for a mere 4 per cent of the world’s paper consumption, a gap that we believe will narrow.


Net Sales 2770 2881 1303

EBIDTA 395 517 292

PAT 56 172 117

EPS 5.10 11.39 7.05


KEY STATISTICS

CMP Rs. 148

MARKET CAP Rs. 2601

PRICE/BOOK 1.74

PE 12.01


52 WEEK L/H 88/169

Paper & Paper Products ACCUMULATE

Promoter,

49.17, 49%

Public, 50.83, 51%

J.KUMAR INFRAPROJECTS LTD


Execution of projects to scale up: JKIL’s NHAI road project at JNPT was facing execution issues owing to delay in the shifting of utilities, and a ramp up is expected in coming quarters. The company expects tunneling work on Mumbai Metro Line 3 to start in Q4FY18, leading to improvement in execution in H2FY18. Thus we can expect many of the delayed projects such as JNPT and all 3 lines of Mumbai Metro to see a meaningful scale up in execution in the coming quarters.

Reduction in rates to bring benefits: JKIL metro segment contributes 71% to the company’s order book with Mumbai Metro alone contributing 69%. The recent change made in the reduction of Goods and Service Tax (GST) rates from 18percent to 12 percent is going to prove as an advantage for the metro construction companies. There will be a significant reduction in the working capital as fewer funds will be blocked in advance payment of taxes.

Strong Order Book: JKIL has got strong order book, high visibility and steady profitability with light balance sheet makes it an attractive construction company. The sturdy order book is the result of business diversification both in terms of segments and geography in the past three years. The metro rail sector is going to provide sizeable opportunities for the construction companies due to strong pipeline of projects which are in the approval and final stage. Besides strong order book companies light balance sheet will provide a great advantage.


Net Sales 1508 1572 691

EBIDTA 246 249 124

PAT 96 106 49

EPS 14.91 13.95 6.46


KEY STATISTICS

CMP Rs. 338

MARKET CAP Rs. 2557

PRICE/BOOK 1.69

PE 23.84


52 WEEK L/H 181/362

Construction & Engineering ACCUMULATE

Promoter,

43.94%

Public, 56.06%

HIKAL LTD


Hikal operates in the two segments Pharmaceuticals and Crop Protection with revenue breakup of 60%

and 40%, respectively. Both businesses are run independently and have their respective Heads

(presidents). Management targets overall revenue growth of 12-15% for the next 5 years and target to

double revenues in the five years.

Pharmaceutical Segment – projects in various stages of clinical trials, world’s largest supplier of

Gabapentin, serves US, Europe and Japan, augurs a strong future for the company. It is into generic

APIs as well as Contract development and Manufacturing business (CDMO).

Crop Protection – focus is to diversify the product offerings, partner with new clients, introduce

several new products which are under development in R&D that will grow the revenue and increase

profitability in the near future. In the exports front, Europe and Japan are the key markets for Hikal.

R&D - ensures scale up from Lab to Commercialization in both Pharma (few of the products in

development stage to be off patent soon) and Crop Protection (~15% success rate of molecules of

herbicides, fungicides and insecticides going into commercial production) and venturing into animal

health big way.


Net Sales 925 1013 555

EBIDTA 179 193 104

PAT 41 64 29

EPS 5.03 8.13 3.45


KEY STATISTICS

CMP Rs. 224

MARKET CAP Rs. 1847

PRICE/BOOK 3.29

PE 26.82


52 WEEK L/H 191/264


Promoter 68.77%

Public 31.23%

ZEN TECHNOLOGIES LTD


Defence sector offers good opportunity: ZenTech derives 80% of its revenue from Defence, Paramilitary and from state police. The market for defence simulation and training is primarily dependent on the current stock and future acquisition of defence equipment by the country. The simulation training market demand will see a strong growth in the coming years as the defence spending by countries, including India and the need for operational preparedness which has become important can be effectively imparted with simulators.

Entry Barriers high for new players: ZenTech has proven technological superiority and R&D coupled with proven track record has resulted in 95% of Zen’s revenue coming from repeat customers (Ministry of Defence, State and Central police organisation). They have therefore built a formidable reputation and an entry barrier for any player to break. Also the difficulty in understanding complex and stringent procurement process with long procurement cycle makes it more tough for a new player to enter such market.

Robust order book: ZenTech has a strong track record in winning bids. It has recently received its biggest order from Govt of India of 224Cr whereas their total order book consists of 357Cr. Its ability to win such orders proves the fact that their products are highly recognisable and also it suffice the needs of the Govt. Their focus remains strong on overseas market which is their priority and efforts are made for deeper penetrations in those markets to promote Zen simulators through exhibitions and direct sales contacts.


Net Sales 52 61 17

EBIDTA 4 11 -3

PAT 2 7 -4

EPS 0.28 0.93 -0.52


KEY STATISTICS

CMP Rs. 131

MARKET CAP Rs. 1172

PRICE/BOOK 8.46

PE 90.40


52 WEEK L/H 46/158

Defence / IT Software ACCUMULATE

Promoter,

59.44%

Public, 40.56%

TOURISM FINANCE CORPORATION OF INDIA LTD



Net Sales 184 208 110

EBIDTA 165 164 102

PAT 53 70 41

EPS 6.64 8.73 5.1


KEY STATISTICS

CMP Rs. 163

MARKET CAP Rs. 1319

PRICE/BOOK 2.23

PE 17.71


52 WEEK L/H 55/182

Financial Institutions ACCUMULATE

Promoter34.14%

Public 65.86%

TFCI provides all forms of financial assistance for new, expansion, diversification, renovation/

modernization projects in tourism sector services sector and related activities, facilities and services.

Benefits from government initiatives: Indian Travel and tourism industry has huge potential and will

experience growth this year mainly because of the new visa reforms like e visa, medical visa to

encourage medical tourism, the proposed launch of Incredible India 2.0 etc.

Hotel industry is doing well: The company has a target of disbursements at Rs 700 cr for FY18 and that

of sanctions at Rs 1300 cr, which his almost 30% higher than last fiscal. The company has already

achieved 40-45% of target for disbursement and sanctions.

Working on reducing NPA: The Company aims to bring down their gross non-performing assets

(GNPAs) to 3.5% in FY18 from 6.5% in FY17 and the net NPAs to 0% by FY18 end.

World Travel and Tourism Council forecasts that the tourism industry in India is likely to grow at a

much faster rate in India compared to other SouthEastAsian countries. India is one of the biggest

travel and tourism economies in the world and contributes significantly to economic wealth and job

creation. We expect company like TFCI would gain more in line with the industry expectations.


Midcap Ideas 2017-18

SL No NAME RECO PRICE CMP Rs PERFORMANCE AS ON DATE

1 MARUTI SUZUKI INDIA LTD 7872 9306 18.22%

2 BHARAT PETROLEUM CORP LTD 489 478 -2.25%

3 BHARAT FORGE LTD 640 742 15.94%

4 PNB HOUSING FINANCE LTD 1491 1304 -12.54%

5 GODREJ PROPERTIES LTD 634 903 42.43%

6 KEC INTERNATIONAL LTD 302 362 19.87%

7 BIRLA CORPORATION LTD 1006 1161 15.41%

8 BLUE STAR LTD 785 764 -2.68%

9 IRB IFRASTRUCTURE DEVELOPERS LTD 207 239 15.46%

SL No NAME RECO PRICE CMP Rs PERFORMANCE AS ON DATE

1 GUJARAT STATE FERTILIZERS & CHEMICALS LTD 135 155 14.81%

2 FIRSTSOURCE SOLUTIONS LTD 41 43 4.88%

3 RADICO KHAITAN LTD 187 389 108.02%

4 FUTURE ENTERPRISES LTD 51 45 -11.76%

5 HIKAL LTD 249 224 -10.04%

6 HUHTAMAKI PPL LTD 232 343 47.84%

7 SURYA ROSHNI LTD 307 444 44.63%

8 TOURISM FINANCE CORPORATION OF INDIA LTD 140 163 16.43%

9 GODAWARI POWER & ISPAT LTD 118 546 362.71%

Investment Ideas 2017-18

Portfolio Return 12.21%

Portfolio Return 64.17%

Core Management Team

Thank You ! Corporate Office: Mehta Group

903, 9th floor, Lodha Supremus, Dr.E. Moses Road, Worli Naka, Worli, Mumbai 400 018, India

Tel: +91 22 6150 7101, Fax: +91 22 6150 7102

Email: [email protected] Website: www.mehtagroup.in

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