IndiNivesh Best Sectors Stocks Post 2014

8/12/2019 IndiNivesh Best Sectors Stocks Post 2014

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IndiaNivesh Securities Private Limited

e-mail: [email protected] | Website: www.indianivesh.in

IndiaNivesh Research June 2014

Q4FY14 Results Review


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AUTO SECTOR

Volumes remained subdued (except strong

two wheeler growth) M&HCV and PV

segment on weak demand due to macro

headwinds

Auto companies posted mixed set of numbers. EBITDA margin expandeddue to better product mix , favorable currency movement and softening inraw material prices. However, volumes remained subdued (except strongtwo wheeler growth) due to macro headwinds.

Tata motors showed muted performance due to poor domestic businessperformance. Maruti Suzuki number were below expectation due to higherpromotional spending and compensation paid to dealers owing to exciseduty cut. M&M showed moderation in automobile segment growth whichwas compensated by tractor segment growth

In two wheeler segment, Bajaj Auto and Hero Motocorp EBITDA margin wasabove consensus due to better product mix coupled with higher averagerealization.

In Auto ancillaries, Exide Industries and Swaraj Engines reported Q4FY14numbers (Standalone) above expectations due to higher sales volume andcapacity addition respectively.

Volume likely to pick up due to improved consumer

sentiment | Top Picks: Hero MotoCorp & Bajaj Auto

Source: BSE India (as on 5th June 2014)

EBITDA margin improved due to decrease

in raw material cost and favorable

currency movement.

Sensex VS BSE Auto

1m 3m 12m

BSE Auto 12.0% 18.8% 35.4%

Sensex 11.2% 16.3% 28.2%

IndiaNivesh Research June 6, 2014 | 2Q4FY14 Results Review


3/49

AUTO SECTOR (contd)

Q4FY14 Review

In Q4FY14, growth in top-line was impacted by lower volume which was compensated by higher realization

On the EBITDA margin front, almost all (except Maruti and Hero MotoCorp ) the auto related companies witnessed an

improvement on YoY basis due to lower input cost, favorable product mix and exchange rate.

Though Consolidated EBITDA margin of Tata Motors expanded by 138 bps YoY to 15.6% led by margin expansion by

JLR, consolidated net profit de-grew 1% YoY and 18% QoQ to Rs.39.18 bn (dragged by loss of Rs. 8.1 bn from standalone

business).

Source: Company Filings; Indianivesh Research; * Q3CY13, All standalone numbers except Eicher and Tata Motors

Company Q4FY14 Margin %

Change in

EBITDA margin

(bps) QoQ % Change YoY % Change

Rs. Mn Sales EBITDA PAT EBITDA PAT Q-o-Q Y-o-Y Sales EBITDA PAT Sales EBITDA PAT C o m m e n t s

Ashok Leyland 30,768 1,839 3,634 6.0 11.8 1,094.0 66.0 57.5 -289.8 NA -17.5 -7.2 NA EBITDA margin expanded by better product mix, lower discounts

and operating leverage benefits

Bajaj Auto 49,323 9,314 7,626 18.9 15.5 -324.0 125.9 -3.9 -18.0 -15.7 3.9 11.3 -0.4 Domestic sales was compensated by better exports number

Eicher Motor* 19,242 2,220 1,391 11.5 7.2 161.8 164.8 14.6 33.3 44.5 11.6 30.2 42.0 In line with expectation, 2W perfromed well

Exide Ind 16,130 2,189 1,321 13.6 8.2 263.5 30.6 23.7 53.5 70.4 4.7 7.1 -9.8 Above street expectations due to higher sales volume for both

Automobile and industrial segment coupled with cost control

measures

Hero Moto 65,130 8,942 5,544 13.7 8.5 67.1 -9.8 -5.3 -0.4 5.7 6.0 5.2 -3.4 PAT above our expectation due to lower raw material cost and

higher other income

M&M 110,007 9,066 9,341 8.2 8.5 -485.4 -386.7 4.2 -34.4 - 4.9 -28.6 5.0 Strong performance in tractor segment offset by auto segment

due to merger of MTBL

Maruti Suzuki 121,014 12,475 8,000 10.3 6.6 -212.7 -472.1 11.1 -7.9 17.4 -9.0 -37.6 -35.5 Below our expectation due to higher promotional spending and

compensation paid to dealers owing to reduction in excise duty

Tata Motors 653,171 99,998 39,183 15.3 6.0 -28.6 137.9 2.3 0.4 -18.5 16.6 28.2 -0.7 PAT below street expectation due to poor performance from

domestic business

TVS Motor 21,557 1,387 521 6.4 2.4 43.5 115.1 4.8 12.4 -24.2 21.4 47.9 -259.3 lower other expenses and higher realization boosted EBITDA

margin



4/49

AUTO SECTOR (contd)

Valuation & Outlook

We believe good governance and faster reform would lead to higher employment/ disposable income that will improve consumer

sentiment. This will lead to revival in volume in automotive segment. We expect the new government would have more focus on rural

employment and development. Thus we expect rural market to be a key source of sustained automotive demand in coming years.

Rural demand and new launches would act as a positive trigger for two wheeler and PV segment. In our view, return of the first-time

buyer will be the trend in CY14. Further, marriage season will also drive the demand of 2w. In two wheeler Scooter segment is likely tooutperform Motorcycle M&HCV demand continues to be under pressure due to hike in diesel price and slow down in industrial

activities. We believe long term volume outlook of auto companies remain positive driven by lower penetration rate, new product

launches and exports potential.

Top Pick: We Prefer Hero Motocorp (product lifecycle turning favorable coupled with cost management benefits).Bajaj auto would be

beneficiary of increase in export sales. Exide industries would be benefited from higher capacity utilization due to revival in OEMs

segment demand.

Source: Company Filings; IndiaNivesh Research; CMP-05-06-2014; * CY14E; All consolidated numbers except Ashok Leyland and Hero Motocorp

Company Sales EBITDA PAT Mcap P/E(x) M cap/Sales(x) EBITDA% NPM% ROE % CMP Target Price Current Previous

Name FY16E FY16E FY16E FY16E FY16E FY16E FY16E FY16E FY16E Rs. Rs. Recom. Recom.

(Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs. Mn)

Ashok Leyland 147264 12991 4612 90463 19.6 0.6 8.8 3.1 11.0 34 UR Neutral Neutral

Bajaj Auto 227297 47777 39132 578575 14.8 2.5 21.0 17.2 32.9 1999 2222.0 Buy Buy

Eicher Motor* 37642 8763 6695 193441 29.4 5.1 23.3 17.8 28.9 7140 UR Sell SellExide 84989 13213 8362 126438 0.0 1.5 15.5 9.8 17.2 149 176 Buy Hold

Hero MotoCorp 301613 52027 23310 516542 17.6 1.7 17.2 7.7 42.6 2587 2660 Buy Buy

M&M 937451 119943 63382 741688 11.0 0.8 12.8 6.8 20.1 1204 UR Hold Buy

Maruti Suzuki 487937 53414 30374 719721 23.7 1.5 10.9 6.2 16.4 2383 1980.0 Hold Buy

Tata Motors 3108630 473725 198613 1301746 7.1 0.4 15.2 6.4 23.4 435 UR Neutral Neutral

TVS Motor 101297 6673 3547 62284 17.5 0.6 6.6 3.5 22.2 131 96.0 Hold Neutral



5/49

BANKING & FINANCIAL SERVICES

Healthy Advances and Deposits Growth

Banks from our (INSPL) coverage universe reported 17% y-o-y

average credit growth in Q4FY14, which was above the industryaverage of 15%* y-o-y growth. In the similar line, average Deposits

growth of INSPL banking universe was at 16% y-o-y in Q4FY14 as

compared to industry average of 14%* y-o-y growth.

INSPLs PSBs and private sector banks universe delivered a healthy

loan growth of 17% and 19% y-o-y, respectively. Among all thebanks, Canara Bank and HDFC Bank reported the highest loan

growth of 24% and 26% y-o-y, respectively mainly led by high

growth in retail advances.

Moreover, deposits growth moderated in Q4FY14 as compared to

previous quarter due to closure of concessional swap window forFCNR (B) deposits. INSPLs PSBs and private sector banks universe

reported 16% y-o-y deposits growth. Among all the banks, HDFCBank and BOB reported the highest growth of 24% and 20% y-o-

y, respectively led by high growth in current deposits.

Management of majority of the banks under our coverageindicated that the growth in advances book will be driven by retail

(home, auto) advances in H1FY15E while fresh disbursals to large

corporates will be the least preferred and selective.

BANKING : Improved performance but asset quality

suspects for PSBs | Top Picks: SBI, BOB, Federal Bank &

DCB Bank

INSPL: IndiaNivesh Securities Private Limited; * Outstanding as on Mar. 21, 2014

Advances Deposits

YoY (%) QoQ (%) YoY (%) QoQ (%)

SBI 16 5 16 3

BOB 21 13 20 13

PNB 13 7 15 7 Canara 24 5 18 3

Allahabad 7 1 7 2

Corporation 15 11 16 9

PSU (Avg.) 17 7 16 6

ICICI 17 2 13 5

HDFC Bank 26 2 24 5

Axis 17 9 11 7

Federal -1 4 4 3

DCB 24 11 23 8

Private (Avg.) 19 4 16 5

Industry (Avg.) 17 6 16 6

Source: Company Filings, IndiaNivesh Research

-10

0

10

20

30

SBI

BOB

PNB

Canara

Allahabad

Corporati

PSU(

Avg.)

ICICI

HDFCBank

Axis

Federal

DCB

Private

Industry

Advances Growth YoY (%) Deposits Growth YoY (%)



6/49

BANKING & FINANCIAL SERVICES (contd)

CASA ratio remains stable:

CASA ratio of INSPLs banking universe was almost stable on y-o-y basis(+35 bps q-o-q) and stood at 34.6% in Q4FY14. However, sequentialincrease in CASA ratio led to marginally decrease in the cost of deposits for the banking industry. Private sector banks managed tooutperform their PSBs counterparts as PSBs universe witnessed 25 bpsy-o-y decline in CASA ratio to 32.0% whereas private sector banksreported 25 bps y-o-y increase in CASA ratio to 37.7%.

Healthy NII growth and Stable NIMs:

The NIMs of INSPLs banking universe was almost stable as itcontracted marginally by 1 bp & 7 bps on q-o-q & y-o-ybasis, respectively.

Our private banks universe was successful in increasing their NIMs by15 bps sequentially and stood at 3.8% as compared to 10 bps q-o-qdecline of PSBs.

On the NII front, while Private banks reported a healthy performancewith growth of 17% y-o-y, PSBs witnessed slightly slower growth of14% y-o-y due to elevated asset quality pressures. Within INSPLUniverse, DCB and Allahabad Bank reported highest growth of 36%and 28% y-o-y (due to low base) whereas Corporation Bank reportednegative growth of -3% y-o-y (due to reversal of interest income).

We expect NIMs of PSBs to improve slowly and steadily in FY15E dueto gradual improvement in asset quality. Banks with a stable CASA arebetter positioned to sustain their NIMs.

CASA Ratio (%)

Q4FY14 Q4FY13YoY

(bps)Q3FY14

QoQ

(bps)

SBI 44.4 46.5 -207 43.9 54

BOB 31.8 30.4 138 32.3 -51

PNB 38.3 39.2 -87 40.4 -210

Canara 25.9 25.1 80 24.3 160

Allahabad 31.3 30.7 62 30.8 57

Corporation 20.3 21.7 -135 19.9 44

PSU (Avg) 32.0 32.3 -25 31.9 9

ICICI 42.9 41.9 100 43.3 -40

HDFC Bank 44.8 47.4 -263 43.7 111

Axis 45.0 44.0 100 43.0 200

Kotak Mah. 30.8 26.8 405 30.4 45

DCB 25.0 27.2 -216 24.8 20

Private (Avg) 37.7 37.5 25 37.0 67

Industry

(Avg)34.6 34.6 -2 34.2 35




7/49


NII (Rs mn) NIM (%)

Q4FY14 Q4FY13 YoY (%) Q3FY14 QoQ (%) Q4FY14 Q4FY13 YoY (bps) Q3FY14 QoQ (bps)

SBI 129,028 110,784 16 126,405 2 3.2 3.3 -17 3.2 -2

BOB 31,243 28,140 11 30,571 2 2.3 2.5 -22 2.4 -8

PNB 40,018 37,765 6 42,211 -5 3.2 3.5 -31 3.6 -37

Canara 25,352 20,906 21 22,270 14 2.3 2.4 -13 2.2 6

Allahabad 13,528 10,560 28 13,377 1 2.7 2.3 37 2.8 -8

Corporation 9,075 9,308 -3 10,016 -9 1.9 2.3 -40 2.2 -27

PSU (Total) 248,244 217,463 14 244,850 1 2.9 3.1 -18 3.0 -10

ICICI 43,565 38,032 15 42,551 2 3.4 3.3 2 3.3 3

HDFC Bank 49,526 42,953 15 46,348 7 4.4 4.3 10 4.2 20

Axis 31,658 26,647 19 29,840 6 3.9 3.7 19 3.7 18

Kotak Mah. 6,251 4,798 30 5,456 15 3.7 3.1 63 3.3 41

DCB 913 670 36 831 10 3.6 3.5 7 3.6 4

Private (Total) 131,912 113,099 17 125,025 6 3.9 3.8 12 3.7 15

Industry (Total) 380,156 330,562 15 369,876 3 3.2 3.3 -7 3.2 -1




8/49

Healthy increase in other income:

Non Interest Income growth remained healthy for the entire INSPLBank universe as it reported 25% y-o-y growth. It was mainly due to

significant recoveries from written-off accounts and aided by sale of

advances to ARCs by PSBs. PSBs and private sector banks reported 29%

and 18% y-o-y growth, respectively. However, Corporation Bankreported negative growth of 32% y-o-y due to lower treasury gains and

weak fee income.

Asset quality continued to deteriorate, albeit at a

slower pace sequentially:

PSBs asset quality improved slightly sequentially as many of the PSBs

sold their NPAs to asset reconstruction companies (ARCs) in Q4FY14.However, if we exclude this one time sale to ARCs then the asset

quality of PSBs continue to deteriorate further but at a slower pace.

The private sector banks maintained a better asset quality and

performed relatively better as compared to PSBs.

Gross NPAs of PSBs and private sector banks decreased 10 bps and 30bps sequentially and stood at 4.1% and 1.9%, respectively. Within our

coverage, Corporation Bank reported 34 bps and 17 bps q-o-q increase

in its Gross and Net NPAs to 3.4% and 2.3%, respectively.However, DCB surprised positively with 108 bps q-o-q decline in its

Gross NPA to 1.7%.

Provision Coverage Ratio (PCR) was almost stable sequentially for bothPSBs and private sector banks universe. Overall, PCR of PSBs and

private banks stood at 58% and 77%, as of Q4FY14 respectively.


Other Income (Rs mn)

Q4FY14 Q4FY13 YoY (%) Q3FY14 QoQ (%)

SBI 65,857 41,903 57 55,467 19

BOB 13,263 11,909 11 9,321 42

PNB 13,969 11,762 19 9,384 49

Canara 10,700 10,065 6 8,514 26

Allahabad 4,262 5,245 -19 5,423 -21

Corporation 3,883 5,674 -32 3,386 15

PSU

(Total)111,933 86,559 29 91,495 22

ICICI 29,761 22,082 35 28,010 6

HDFC Bank 20,014 18,036 11 21,483 -7

Axis 22,134 20,072 10 16,444 35

Kotak Mah. 1,784 1,969 -9 1,563 14

DCB 334 331 1 328 2

Private

(Total) 74,028 62,489 18 67,828 9

Industry

(Total)185,960 149,048 25 159,323 17




9/49

Provision Coverage Ratio (%)



During Q4FY14, fresh addition to restructuring books for PSBs andprivate sector banks remained elevated. Amongst our coverage, SBI

witnessed the highest restructuring during the quarter at Rs 76 bnfollowedby PNB at Rs 32 bnand ICICI Bank at Rs 12 bn.

We sense that going forward, given the stress in the economy, the

increase in addition of restructuring advances may continue in H1FY15Efor both PSBs and private sector banks.

Overall, we dont expect any immediate improvement in asset quality

for the entire banking system in H1FY15. However, private sector bankscontinue to maintain better asset quality as they have better credit

standards and their focus on retail lending as compared to their

nationalized counterparts.

GNPA (%)

Q4FY14 Q4FY13 YoY (bps) Q3FY14 QoQ (bps)

SBI 4.9 4.7 20 5.7 -78

BOB 2.9 2.4 54 3.3 -38

PNB 5.3 4.3 98 5.0 29

Canara 2.5 2.6 -8 2.8 -30

Allahabad 5.7 3.9 181 5.5 26

Corporation 3.4 1.7 170 3.1 34

PSU (Avg.) 4.1 3.3 86 4.2 -10

ICICI 3.0 3.2 -19 3.1 -2

HDFC Bank 1.0 1.0 1 1.0 -2

Axis 1.2 1.1 16 1.3 -3

Kotak Mah. 2.5 3.4 -98 2.8 -37

DCB 1.7 3.2 -149 2.8 -108

Private (Avg.) 1.9 2.4 2 2.2 -30

Industry (Avg.) 3.1 2.9 24 3.3 -19

NNPA (%)

Q4FY14 Q4FY13 YoY (bps) Q3FY14 QoQ (bps)

SBI 2.6 2.1 47 3.2 -67

BOB 1.5 1.3 24 1.9 -36

PNB 2.9 2.4 50 2.8 5

Canara 2.0 2.2 -20 2.4 -41

Allahabad 4.1 3.2 96 4.2 -4

Corporation 2.3 1.2 113 2.2 17

PSU (Avg.) 2.6 2.0 52 2.8 -21

ICICI 1.0 0.8 20 0.9 3

HDFC Bank 0.3 0.2 10 0.3 0

Axis 0.4 0.3 8 0.4 -2

Kotak Mah. 0.7 1.0 -24 0.9 -12

DCB 0.9 0.8 16 0.8 14

Private (Avg.) 0.7 0.6 6 0.7 1

Industry (Avg.) 1.7 1.4 31 1.8 -11


62.9 65.559.1 60.1

46.0

52.9

68.672.6

78.084.1

80.5

20

40

60

80

100

SBI

BOB

PNB

Canara

Allahabad

Corporation

ICICI

HDFCBank

Axis

Federal

DCB

Q4FY13 Q3FY14 Q4FY14



10/49

Increase in provisions continued across all the banks:

Net profitability of INSPL banking universe improved marginally by 2% y-o-y only as it was dragged by the 13% y-o-y decrease in

profitability of PSBs. This decrease was mainly on account of 29% y-o-y increase in provisions to Rs 117 bn due to increase in loan loss

provisions and restructured loan provisions. It had a significant impact on the bottom-line of the PSBs. On other hand, net profitabilityof private sector banks universe increased 19% y-o-y due to only 8% y-o-y increase in provisions.

Given the fall in net profits of the PSBs, ROE and ROA has also come down to 8.5% (from 13.1% in Q4FY13) and 0.5% (from 0.8% in

Q4FY13) y-o-y, respectively. However, ROE and ROA of private sector banks increased by 86 bps and 5 bps to 17.1% and 1.7% y-o-y

respectively. Notably, banks with superior ROE / ROA profile include HDFC bank (21.3 %/ 2.0%) and Axis Bank (19.3% / 2.0%) in

Q4FY14.

ROE / ROA (%)



Pre Pro. Profit (Rs mn) Provisions (Rs mn) Net Profit (Rs mn)

Q4FY14 Q4FY13 YoY (%) Q4FY14 Q4FY13 YoY (%) Q4FY14 Q4FY13 YoY (%)

SBI 106,278 77,606 37 58,911 41,810 41 30,408 32,992 -8

BOB 25,640 21,447 20 11,532 15,984 -28 11,573 10,289 12

PNB 31,734 28,517 11 21,387 14,777 45 8,064 11,308 -29

Canara 18,821 16,977 11 10,913 7,524 45 6,108 7,254 -16

Allahabad 8,352 7,673 9 6,393 6,225 3 1,578 1,262 25

Corporation 6,366 9,225 -31 8,245 4,599 79 416 3,555 -88

PSU (Total) 197,191 161,446 22 117,381 90,919 29 58,145 66,659 -13

ICICI 44,535 36,041 24 7,138 4,600 55 26,520 23,041 15

HDFC Bank 37,793 29,627 28 2,861 3,005 -5 23,265 18,898 23

Axis 32,477 27,997 16 5,052 5,954 -15 18,423 15,552 18

Kotak Mah. 4,200 3,645 15 550 932 -41 2,773 2,219 25

DCB 502 430 17 110 89 24 391 341 15

Pvt. (Total) 119,507 97,740 22 15,712 14,580 8 71,372 60,051 19

Ind. (Total) 316,698 259,186 22 133,093 105,498 26 129,517 126,710 2


0.0

0.5

1.0

1.5

2.0

0

5

10

15

20

SBI

BOB

PNB

Canara

Allahabad

Corporation

ICICI

HDFCBank

Axis

Federal

DCB

Average

PSU

Private

ROE (%)-Q4FY14 ROE (%)-Q4FY13

ROA (%)-Q4FY14 ROA (%)-Q4FY13



11/49

Valuation and recommendation:

The earnings growth remained weak for the PSBs (-13% y-o-y growth) in Q4FY14 while the private sector banks fared better in this

period by posting an 19% y-o-y growth in the profit. A sharp increase in the provisions due to asset quality stress, higher opex anddeferred tax provisions affected the profit growth of the PSBs. However, the NII growth was relatively better (up 14% y-o-y for the

PSBs). Private sector banks have outperformed PSBs despite the continued stress in the economy. We dont expect any immediate

improvement in asset quality for the entire banking system. However, with improving capacity utilization rates and revival in stalledprojects, we believe that cash flow of the leverage companies is likely to improve which will result in upgradation of these accountsfrom sub standard to standard assets. Overall, any significant and sustainable recovery in the banking sector depends on overall long

term growth in the economy.

With valuations of stocks in our banking universe being attractive, we maintain our positive/buy stance on some of the PSU Banks.

We maintain Buy rating on SBI, BOB, Federal and DCB whereas sell rating on Allahabad.

Source: IndiaNivesh Research


P/ABV (x) CMP (Rs.) Target

Price (Rs.)FY14E FY15E Latest Recom

SBI 2.1 2.0 2,683 BUY 3,003

BOB 1.1 1.0 891 BUY 1,058

PNB 1.3 1.2 997 HOLD 860

Canara 1.0 0.9 451 HOLD 319

Allahabad 1.2 1.1 138 SELL 77

Corporation 0.9 0.8 365 UR UR

ICICI 2.2 2.0 1,469 HOLD 1,431

HDFC Bank 3.8 3.2 817 HOLD 830.0

Axis 2.1 1.9 1,925 HOLD 1641.0

Federal 1.4 1.3 122 BUY 137.0

DCB 1.4 1.2 72 BUY 81.0

Source: Bloomberg, IndiaNivesh Research; UR: Under Review

SBI

BOB

PNB Canara

Allahabad

Corporation

ICICI

HDFC Bank

Axis

Federal

DCB

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

FY16E P/ABV



12/49

Given the diversified business models of stocks under our coverage, we have discussed them individually.

Max India

Gross Written Premium Income (GWPI) of Life Insurance and Health Insurance business grew 17% and 38%

y-o-y, respectively. GWPI from Life Insurance business contributed 65% of total revenues in Q4FY14.

Gross revenue from Max healthcare increased 19% y-o-y to Rs 3.7 bn and it represents 10% of total

revenues in Q4FY14. Higher avg. occupancy rates (74.3% vs 70.6% y-o-y) and increase in avg. operational

beds (1544 vs 1376 y-o-y) contributed to its healthcare business overall top-line to grow. EBITDA margin

also increased to 8.8% (+184 bps y-o-y).

Consolidated PBT of Max India increased 71% y-o-y to Rs 770 mn mainly due to healthy growth across all

the business segments.

LIC Housing Finance Limited (LICHFL)

Loan book grew 17% y-o-y (+6% q-o-q) to Rs 913 bn primarily led by 18% y-o-y growth in individual loanbook.

Net Interest Income (NII) of LIC HFL increased at a healthy pace of 16% y-o-y to Rs 5.3 bn in Q4FY14.

NIMs also improved by 24 bps q-o-q to 2.4% mainly due to lower cost of funds (calc) by 32 bps q-o-q to

9.4%. Overall spreads on loan book improved by 25 bps q-o-q to 1.45% from 1.21% in Q3FY14.

Overall, net profit increased 17% y-o-y (+13% q-o-q) to Rs 3.7 bn.

Asset quality surprised positively, as both, Gross & Net NPAs decreased 14 and 12 bps q-o-q to 0.7% and

0.4% (vs. 0.8% & 0.5% in Q3FY14).

FINANCIAL SERVICES: Healthy Performance

continues.. | Top Pick: Care




13/49

Credit Analysis and Research Limited (CARE) Despite challenging macroeconomic environment, CAREs income from operations (rating income) increased 20%y-o-y (+41% q-o-q) to Rs 757 mn.

EBITDA increased 17% y-o-y (+58% q-o-q) to Rs 513 mn and superior EBITDA margin of 68% in Q4FY14.

Net profit increased 16% y-o-y (+47% q-o-q) to Rs 413 mn and net profit margin was also healthy at 49.4%.Healthy dividend payout as it declared Rs 10 per share dividend in Q4FY14(Rs 28 per share in FY14).

Bajaj Finance Limited Assets under Management (AUM) grew at a healthy pace of 37% y-o-y (+7% q-o-q) to Rs 241 bn, whiledisbursements increased at a slight faster pace of 38% y-o-y (-7% q-o-q) to Rs 70 bn on a/c of healthy growthacross consumer & SME segments.

NII increased 22% y-o-y (-11% q-o-q) to Rs 5.5 bn. However, NIMs (calc) decreased 217 bps q-o-q (-105 bps y-o-y)to 9.5% mainly due to higher disbursements to low yielding segments.

Overall, net profit jumped 11% y-o-y to Rs 1.8 bn due to higher operating expenses in Q4FY14.

L&T Finance Holdings Limited LTFHs (cons) loan book growth remained healthy as it increased 21% y-o-y (+6% q-o-q). L&T Infra Finance (LTIF)registered 19% y-o-y loan growth, while L&T Finance (LTF) witnessed 14% y-o-y loan growth.

Asset quality (cons) deteriorated further as GNPA and NNPA increased 25/23 bps q-o-q to 2.9%/1.9%respectively.

NIMs surprised positively as it increased by 29 bps and stood at 5.6%. NII increased 24% y-o-y (+22% q-o-q) to Rs5.8 bn.




14/49

Valuation

OutlookOverall, the stock under our NBFC space continue to perform well in Q4FY14. Even in the current challenging

macro environment, LIC housing and Bajaj finance maintained their asset quality whereas L&T finances asset

quality deteriorated due to higher slippages in L&T finance subsidiary. We expect stable asset quality for most of

these NBFCs from current levels and reversals in slippages to commence from H2FY15E.For Max India (insurance player), life insurance premium continued to report healthy growth of 11% y-o-y and we

expect better outlook for growth in insurance business in FY15E as compared to FY14. CARE ratings also reported

healthy numbers in FY14 under the challenging period for the economy. We believe that CARE is well positioned to

take the advantage of economic turnaround and revival in debt market by delivering rapid growth in its ratings

business.

Within our NBFCs universe, we have BUY rating on CARE and Hold rating on LIC Housing, Bajaj Finance, L&T

Finance and Max India.


P/ABV (x) CMP (Rs.) Target Price

(Rs.)FY15E FY16E Latest Recom

LIC Housing 2.0 1.7 337 HOLD 350

Bajaj Finance 2.3 1.9 2,114 HOLD 2,205L&T Finance* 1.7 1.5 75 HOLD 77

Max India* 2.8 2.6 326 HOLD 315

CARE 4.8 4.1 940 BUY 1,014

Source: Bloomberg, IndiaNivesh Research;*Consolidated



15/49

CAPITAL GOODS SECTOR

CG stocks from our coverage in last 1-year

have delivered 33.2% to 155.4% returns vs.

28.2% returns for Sensex

Capital Goods stocks under our coverage have given impressive 33.2-155.4% return in past one year, in comparison to 28.2% returns

for Sensex. Even though ground realty does not warrant the recent rally in Capital goods stocks. It is more of a hope rally, where

investors expect new government to announce reforms, which in-turn would lead to revival in the Capex cycle.

Over 100% run-up at CG & Voltas in last 12 months, is owing to expectations of turn around in the company fundamentals.

Capital (izing) on hopes | Top Pick: Alstom T&D

Source: BSE; IndiaNivesh Research

Cap-Good stocks Vs Sensex

1m 3m 12m

Sensex 12.1% 18.0% 28.2%

Ingersoll Rand 46.6% 82.2% 68.6%

Greaves Cotton 25.8% 77.0% 55.0%

Crompton Greaves 26.5% 62.4% 127.5%

Voltas 36.8% 60.7% 155.4%

BHEL 44.4% 55.7% 35.5%

Kirloskar Oil Engines 19.7% 36.2% 35.9%

Alstom T&D India 13.3% 65.6% 96.9%

Siemens 40.0% 56.3% 65.6%

ABB India 13.6% 32.4% 49.3%

BGR Energy Systems 59.5% 110.6% 33.2%

Thermax 24.5% 28.8% 54.6%



16/49

CAPITAL GOODS SECTOR (contd)

Q4FY14 Results ReviewCompany Q4FY14 Margin % QoQ % YoY %

CommentsRs. Mn Sales EBITDA Adj. PAT EBITDA Adj. PAT Sales EBITDA Adj. PAT Sales EBITDA Adj. PAT

Ingersoll Rand 1,303 162 214 12.4 16.4 (21.2) 305.0 62.8 1.0 759.6 17.0

Slow-down in Air Compressors segment continues to put

pressure on top-line growth (1% y/y growth); 52% y/y

decrease in other expenses led to multi-fold y/y EBITDA

growth; 11.4% decline in Other Income, 82.4% y/y increase

in depreciation expenses, higher effective tax rate restricted

y/y PAT growth to 17.0%

Greaves Cotton 4,305 416 182 9.7 4.2 1.8 (10.8) (53.5) (13.0) (33.2) (52.8)

10.4% y/y decline in Engine revenues, led to 13% y/y decline

in Q4 sales; 6.5% increase in staff expense & 9% increase in

other expenses led to 33.2% y/y EBITDA de-growth; This

when coupled with increase in depreciation & interest

expenses led to 52.8% y/y decline in y/y Adj. PAT

Crompton

Greaves37,665 1,881 638 5.0 1.7 12.4 12.6 2.9 11.2 141.4 152.6

11.2% y/y sales growth in Q4 was driven by 34.5% increase

in International Power Systems; Just 3.5% y/y increase in

raw material expenses led to EBITDA growth; PAT grew

152.6% y/y owing to multi-fold growth in other income;

Order Book at Q4FY14-end stood at Rs 92.9 bn.

Voltas 14,504 929 830 6.4 5.7 30.1 45.3 44.0 (8.9) 20.8 15.0

Despite 11.8% y/y growth across UCP segment, 22.4% de-

growth across EMP segment led to 8.9% y/y top-line de-

growth; 7.9% decline in raw material expenses and 30.1%

decline in purchase of traded goods led to 20.8% increase in

EBITDA; Better operating performance coupled with decline

in interest expenses and lower tax rate led to 15.0% y/y

increase in Adj. PAT; EMPS Order Book at Q4FY14-end stood

at Rs 36.1 bn.

BHEL 1,47,549 24,568 18,446 16.7 12.5 74.4 202.0 165.5 (21.7) (42.8) (43.0)

21.4% y/y de-growth across Power segment led to 21.7% y/y

Q4 top-line de-growth; Higher raw material expenses led

BHEL report 42.8% y/y EBITDA de-growth; This when

coupled with 18.3% y/y increase in interest expenses &

higher effective tax rate led to 43% PAT de-growth; OB

stood at Rs 1,157 bn

Kirloskar Oil

Engines6,323 733 496 11.6 7.8 12.4 2.9 9.7 7.6 (10.4) (16.1)

15.5% and 16.0% y/y revenue growth across Industrials &

Large Engines business segments led to 7.6% y/y top-line

growth; Sharp increase in y/y purchase of traded goods &

3.3% increase in Other exp. led to EBITDA de-growth; In

addition to EBITDA de-growth, 8.1% increase in depreciation

expense & increase in effective tax rate led to 16.1% y/y PAT

de-growth.

Note: GC, I-Rand, BHEL numbers are Standalone; Source: Company filings, IndiaNivesh Research



17/49


Q4FY14 Results ReviewCompany Q4FY14 Margin % QoQ % YoY %

CommentsRs. Mn Sales EBITDA Adj. PAT EBITDA Adj. PAT Sales EBITDA Adj. PAT Sales EBITDA Adj. PAT

Alstom T&D 13,130 1,316 622 10.0 4.7 54.8 82.4 228.7 19.8 17.9 29.2

On back of better project mix and better execution,

company was able to report robust top-line and better

margins. Income from operations grew 19.8% y/y.

Control over other expenses helped Alstom report

17.9% y/y EBITDA growth. Current Order Book stands atRs 64.6 bn.

Siemens 27,063 1,863 883 6.9 3.3 13.1 25.0 35.5 (8.4) 147.3 194.7

20% and 25% decline in Infra/Cities and Energy

segments led to 8% decline in company's Q2SY14

topline. y/y margin improvement across all segment

(except for Infra/Cities segment) led to 147.3% y/y

EBITDA growth. Current Order Book stood at Rs 121.8

bn.

ABB India 18,277 1,257 517 6.9 2.8 (17.1) (15.9) (11.8) (7.7) 17.3 20.0

Lower Order Book at the beginning of year, led to 7.7%

y/y decline in Q1CY14 top-line. Internal cost

optimisation and higher contribution from exports led

to 17.3% y/y EBITDA growth. Except Discreet

Automation segment, all other segments reported

margin expansion on y/y basis. Current Order Book

stands at Rs 78.8 bn.

BGR EnergySystems 8,122 857 191 10.6 2.4 (2.8) (15.9) (37.5) (23.6) (38.2) (64.5)

Poor execution during the quarter led to 23.6% & 64.5%

y/y decline in topline and bottom-line, respectively.

Slower execution also led to 38.2% y/y EBITDA de-growth. Current debt is Rs 20 bn (8.6% less than

previous year). Current Order Book stands at Rs 115.2

bn.

Thermax 13,825 1,339 1,059 9.7 7.5 36.7 47.4 58.9 (5.8) (20.0) (8.2)

3.7% y/y drop in Energy Segment and 15% drop in

Environment segment led to 5.8% y/y decline in topline.

Sharp contraction in environment segment margins led

to 20.0% y/y EBITDA de-growth. Current Order B ook

stands at Rs 61.2 bn.

ABB is Dec year ending co; Siemens is Sep year ending;



18/49


What was recent quarter performance in Capital Goods (CG) Sector?

Q4FY14 performance for companies in Cap Goods sector has been a mix bag.

Power generation companies BHEL,BGR Energy Systems and Thermax have shown y/y decline in topline and bottom line due toslower execution pace, whereas, companies from Power Transmission space like Crompton Greaves, Alstom T&D, Siemens and ABB

have shown better topline and margins (due to better execution). In non-Power Capital Goods space, Air Compressor and Gensets

continued to be under pressure. In Engines space, both, GC and KOEL showed negative performance. Greaves Cotton reported

negative growth owing to weak Auto demand. KOELs de-growth in Engines space was offset up to certain extent by Industrial and

Large Engines segment.

Top-line growth across key sub-sectors:

Power generation companies reported wide range of numbers (from 5.8% de-growth to 23.6% growth); Similarly Power

Transmission sector top-line has shown wide growth range (from negative 8.4% to positive 19.8%).

Non-power companies topline growth have varied from negative 13% to positive 7.6%.

Profitability Analysis

Better operating performance across companies from Power space has led to better profitability growth.

For Non-Power companies, barring GC & KOEL, reported PAT growth on the back of better execution efficiencies.



19/49


Valuation

Outlook

On expectation of reform announcements, we are of view that Capital goods stocks would gain from uptick in capex cycle (inc. ofcommencement of stalled projects). We classify our coverage in to Power & Non-Power Cap-Good stocks.

Power Generation/ Transmission stocks have been under pressure for last few quarters. Whereas, non-power based Cap-Good stocks

in a weaker economy were reporting decent growth on back of higher engine sales (inc. of GC, KOEL). With focus shifting towards

Power sector reforms, we expect stocks from this space to see maximum gains (vs. Non-Power good stocks). As a result, delta would

now turn favorable towards Power Generation/ Transmission stocks (vs. earlier higher multiples enjoyed by Engine based Non-Power

Cap-Good stocks).

Further Compressors players (like I-Rand) would benefit the most for any revival in Industrial Capex cycle.

Note: Consolidated financials; Source: Company filings, IndiaNivesh research

Company NameM-Cap Sales (Rs mn) EBITDA (Rs mn) Adj. PAT (Rs mn) NPM P/E CMP as of

Rating

Price

Target

Rs Mn FY16E FY16E FY16E % FY16E (x) 05-Jun-14 Rs

Ingersoll Rand 20,991 6,539 542 857 13.1% 24.5 667 HOLD 596

Greaves Cotton 25,507 19,605 2,333 1,563 8.0% 16.3 105 SELL 83

Crompton Greaves 1,33,847 1,54,587 11,125 5,218 3.4% 25.7 209 EXIT NR

Voltas 70,975 56,566 3,624 3,111 5.5% 22.8 216 HOLD 167

BHEL 6,37,233 4,22,196 42,642 37,998 9.0% 16.8 260 HOLD 233

Kirloskar Oil Engines 34,628 24,725 3,274 2,153 8.7% 16.1 240 HOLD 223

Alstom T&D 78,696 42,616 4,834 2,453 5.8% 32.1 307 BUY 366

Siemens 3,44,315 1,37,539 13,616 7,080 5.1% 48.6 968 NR NR

ABB India 2,00,932 83,811 7,962 4,129 4.9% 48.7 950 NR NR

BGR Energy Systems 15,764 38,809 4,332 1,490 3.8% 10.6 218 HOLD 216



20/49

CEMENT SECTOR

Cement stocks in last 1-year delivered 19.1-

81.7% returns vs. 28.2% returns for Sensex

In last 3 months top 3 players (ACC, Ambuja & Ultratech) delivered 19.0%-34.2% absolute returns. Mid-Cap stocks

(Mangalam & Prism delivered 101.9-123.1%) outperformed their large cap peers.

Recent run-up across Cement stocks is on expectation of continuation in reforms process. Reform announcements

would benefit Infra & Real Estate sector, which in turn would lead to better cement demand (demand uptick to be

seen from H2FY15E onwards). Realizations are likely to be on northward trend from here-on (recently prices in

South were raised ~Rs 60/bag). On the back of improved top-line growth, there is a case for margin expansion

getting built from here-on.

Cementing Bright Future | Top Picks: Ultratech, Prism

& Mangalam Cement


Sensex Vs Cement stocks

1m 3m 12m

Sensex 11.2% 16.3% 28.2%

ACC 11.1% 19.0% 19.1%

Ambuja Cem. 15.5% 32.2% 31.4%

Ultratech 29.7% 34.2% 38.4%

Mangalam Cem. 65.8% 101.9% 81.7%

Prism Cem. 56.1% 123.1% 59.9%




21/49

CEMENT SECTOR (contd)

Q1CY14/Q4FY14 Results ReviewCompany Q1CY14/Q4FY14 Margin % QoQ % YoY %

CommentsRs. Mn Sales EBITDA

Adj.

PATEBITDA Adj. PAT Sales EBITDA Adj. PAT Sales EBITDA Adj. PAT

ACC 29,671 3,653 3,999 12.3 13.5 10.4 39.1 15.7 2.1 (18.2) (10.3)

0.9% y/y increase in dispatches & 1.2% increase in Avg.

Blended realization led to 2.1% increase in revenues;34.4% y/y increase in raw material costs and 8.5%

increase in freight expenses led to 18.2% y/y decline in

EBITDA;

Amb. Cem. 26,398 5,776 3,983 21.9 15.1 20.5 98.4 98.1 3.7 6.8 16.2

Dispatches & Avg. Blended realization increased 1.7%

& 2.0% y/y, respectively; 3.7% y/y top-line growth

coupled with 2% de-growth across other expenses led

to 6.8% y/y EBITDA growth.

Mangalam

Cements2,137 240 78 11.2 3.7 33.1 nmf 1,531.7 18.1 38.0 (11.3)

Despite 6.8% y/y decline in avg. blended realizations,

26.6% y/y increase in dispatches led to 18.1% y/y

increase in sales; 7.9% and 7.8% y/y decline in Selling,

Distribution & Other expenses led to 38.0% y/y EBITDA

growth;

Prism

Cement15,191 1,140 110 7.5 0.7 33.0 nmf nmf 10.8 12.4 (23.0)

17.8% y/y growth across TBK segment led to 10.8% y/y

top-line growth; Power & Fuel cost savings led to

12.4% y/y EBITDA growth; Despite y/y EBITDA growth,

lower other income and higher interest expenses led

to 23.0% y/y PAT de-growth

Ultratech 58,319 11,430 8,380 19.6 14.4 21.8 49.6 2.3 8.2 (4.7) 100.8

10.8% y/y increase in dispatches & 2.4% decrease in

Avg. Blended realization led to 8.2% increase in top-

line; 12.4% & 14.2% y/y increase in Power & Fuel and

Freight expenses led to 4.7% on y /y EBITDA de-growth.

Note: ACC & Ambuja reported Q1CY14 and Ultratech< Prism & Mangalam reported Q4FY14 results; Source: Company filings, IndiaNivesh research



22/49

CEMENT SECTOR (contd)

Valuation

OutlookDespite higher cost base for cement players in our coverage, larger players (except ACC) reported y/y Adj. PAT

growth, reflecting benefits of tax reversals seen during the quarter.

With new government to continue reforms, we expect demand recovery to be seen from H2FY15E onwards. This

recovery would bring pricing discipline, already some of these signs are indicating the same (recently prices in

South were raised by ~Rs 60/bag). On the back of y/y top-line growth, we expect margin recovery to be seen.

Considering the recent run-up across all cement stocks, Large cap stocks in our view have limited scope for

further re-rating (except Ultratech), as they are trading at higher end of valuation. However, there is still lot of

steam left across mid-cap cement stocks. We continue to maintain our positive view towards our recently

identified mid-cap ideas, Mangalam & Prism Cements.

Amongst cement universe, we maintain our BUY on Ultratech, Mangalam & Prism Cements.

Company Name M-Cap (Rs Mn.)Sales

FY16E/CY15E

EBITDA

FY16E/CY15E

Adj. PAT

FY16E/CY15E

EV/EBITDA

FY16E/CY15E

$ EV/tonne

FY16E/CY15E (x)

CMP (as of

05/06/14)Rating

Price Target

(Rs.)

ACC 269,950 143,733 22,612 13,108 11.2 171 1,438 HOLD 1,476

Amb. Cem. 354,537 113,897 25,242 16,013 12.1 148 230 HOLD 229

Mangalam 5,767 12,983 1,988 979 4.2 43 216 BUY 276

Prism Cem. 36,015 56,178 5,983 1,816 7.0 NA 72 BUY 85

Ultratech Cem. 720,545 246,325 52,738 27,707 9.8 150 2,628 BUY 2,723

Note: NA-Not Applicable (Prism Cement being a diversified business model); Assumed $= Rs 60



23/49

INFRA SECTOR

In last 1-year Infra stocks from our universe

delivered 24.4-156.8% returns vs. 28.2% return

for Sensex

After underperforming for last few years, companies in our infra universe delivered positive 24.4-156.1% returnsin last 12 months. This run-up is owing to expectations of fortune revival of these companies.

On back of expected reforms, investors expect revival in award activity environment. Such revival would arrestconcerns over declining Order Book of Infra companies (L&T & IRB Infra reported y/y growth in Order Book) andlater contribute to top-line growth. Strong execution would lead to absorption of fixed costs and better margins.

Also, expectations of lower interest rate cycle in FY16E is leading to re-rating of these asset developers.

Reforms to drive future growth, leading to re-rating

of the sector| Top picks: JPA & IRB Infra

Source: BSE


Sensex Vs Infra stocks

1m 3m 12m

Sensex 11.2% 16.3% 28.2%

IRB 80.6% 141.6% 79.5%

IL&FS Tran. (ITNL) 49.8% 80.0% 24.8%

R-Infra 51.7% 95.2% 103.8%

Engineers India 29.1% 95.8% 89.9%

L&T 29.2% 47.1% 76.4%

JP Associates 54.8% 90.7% 24.4%

GPPL 34.3% 61.4% 156.1%



24/49

INFRA SECTOR (contd)


Company Q4FY14 Margin % QoQ % YoY %Comments

Rs. Mn (* Rs. Bn) Sales EBITDA Adj. PAT EBITDA Adj. PAT Sales EBITDA Adj. PAT Sales EBITDAAdj. PAT

IRB 8,829 4,420 1,092 50.1 12.4 0.6 1.6 0.6 -6.9 4.5 -29.1

Consol. revenues de-grew 6.9% y/y as Construction revenues de-grew 16.5% y/y;

Shift in sales mix towards high margin Toll business contributed to 4.5% y/y

EBITDA growth; Despite EBITDA growth, higher interest & tax expenses led to

29.1% y/y PAT de-growth; OB at Rs 119.7 bn

IL&FS Tran. (ITNL) 18,293 3,826 1,174 20.9 6.4 -6.9 -21.6 6.9 -5.2 -18.9 -34.2

18.4% y/y decline in Construction income led to 5.2% y/y decline in consolidated

revenues; 66% and 44.5% y/y increase in raw material and other expenses led to

18.9% y/y de-growth across Q4 EBITDA; This when coupled with 21.7% y/y

increase in interest expenses led to 34.2% y/y decline in PAT

R-Infra 46,612 6,279 6,214 13.5 13.3 22.2 6.7 38.0 -23.8 -18.9 -13.0

Decline in EPC & Electricity segment revenues led to 23.8% y/y decline in

revenues; In-line with revenue de-growth, EBITDA also declined 18.9% y/y; EBITDA

de-growth also reflects 39.9% y/y increase in cost of fuel; Sharp 56.2% y/y increase

in other income restricted adj. PAT de-growth to 13.0% on y/y basis; OB declined

to Rs 66 bn

Engineers India 4,948 727 1 ,036 14.7 20.9 17.7 -27.2 -23.3 -3.6 -46.0 -42.7

12.9% de-growth across Consultancy business led to 3.6% y/y revenue de-growth;

Shift in revenues mix towards low margin Turnkey business led to 46.0% y/y

EBITDA de-growth; In-line with EBITDA de-growth, PAT also reported 42.7% y/y

de-growth; OB stood at Rs 39.3 bn

L&T* 201 29 27 14.4 13.6 39.6 73.2 119.5 11.1 36.2 69.2

17.7% & 41.5% y/y growth across Infra & Heavy Eng. segment led to 11.1% y/y

increase in revenues; Change in job mix, efficient execution and prov. write-backs

led to 36.2% y/y EBITDA growth; 27.2% y/y increase in other income and lower tax

rates led to impressive 69.2% y/y PAT growth; OB at Rs 1,712 bn

JP Associates 34,026 8,718 1,004 25.6 3.0 8.4 21.3 -213.2 -11.9 2.8 -18.7

57% y/y de-growth in Real Estate business led to 11.9% y/y decline in Q4

Revenues; 16.1% y/y decline in Operating Expenses led to 2.8% growth in EBITDA;

37.8% increase in interest expenses led to 18.7% y/y decline in PAT

Gujarat Pipavav Port 1,441 794 742 55.1 51.5 12.1 19.0 17.9 26.3 70.4 109.6

16.1% increase in Container Volumes along-with Rs 146 mn of take-or-pay income

led to 26.3% y/y growth in Q4 revenues; 21.3% y/y decline in operating expenses

led to 70.4% EBITDA growth; EBITDA growth coupled with 42.2% y/y decline in

interest expenses led to 109.6% y/y growth in Adj. PAT

Note: GPPL, JP Associates & L&T Standalone Numbers; Source: Company filings, IndiaNivesh research



25/49


Recent quarter performance in Infra Sector?

Same as in the previous quarter, most of the Infra players failed to win any major orders in Q4. Companies with international exposure

such as EIL, L&T reported international order wins. Whereas, pure play Road asset developers (such as IRB & ITNL) won road projects

which gives them better revenue visibility.

Despite challenging environment, diversified geographical as well as sub-verticals mix helped L&T report 0.4% y/y order inflow growth.

Amongst road developers, IRB reported new road project wins. With better order book visibility, ITNL maintained cautious approach

and reported no major order wins. Now, both these developers have large order books, which gives revenue visibility of 2+ years. On

Other hand, R-Infra, JP Associates continue to be impacted by lower Order Book visibility across their EPC businesses.

Excluding L&T, all companies from our coverage universe reported y/y slow-down in EPC segment revenues. Revenue growth across

Road Asset developers was mostly owing to y/y toll hikes, commencement of new projects and less due to traffic growth

Shift in mix resulting from y/y de-growth seen across EPC segment revenues at ITNL, IRB & R-Infra arrested margin decline up to

certain extent.

Stretched working capital & funding of new BOT projects, led to increase in borrowings and as a result interest expenses on y/y basis

increased for most companies in our coverage universe. Except L&T & GPPL, all companies witnessed y/y PAT margin compression.



26/49


Valuation

OutlookDevelopers from our coverage universe were impacted due to weak macro indicators such as slow-down in award activity, delays in

obtaining approvals (leading to slower execution), stretch in working capital cycles (leading to higher interest expense). With new

government at helm of affairs, we expect focus to shift on reforms, which would revive Infra cycle as well as capex spending.Companies with strong parentage, balance sheet strength would benefit the most from any resumption of award activity. With interest

rate cycle to turn southwards (from somewhere ~FY16), we expect highly levered companies (such as JP Associates, ITNL, IRB) to see

bigger gains at profitability level. EPC players (like L&T) and asset light businesses (such as EIL) could benefit from revival in award

activity.

All stocks have seen strong run-up on hope of changes in Industry fundamentals. Unless the eco-system (of the industry) improves, we

expect this hope rally to be unsustainable in long-run. On other hand, in scenario of continuation of reform announcements (this

scenario has stronger possibility), we expect Infra stocks to see further upward movement.

Company Name M-Cap (Rs Mn.)Sales

CY/FY15/16E

EBITDA

CY/FY15/16E

PAT

CY/FY15/16ENPM (%)

EV/EBITDA

CY/FY15/16E (x)

CMP (as of

05/06/14)Rating

Price Target

(Rs.)

IRB 69,531 57,491 25,529 5,971 10.4% 8.4 209 BUY 226

IL&FS Tran. (ITNL) 51,194 76,410 23,840 5,220 6.8% 9.5 208 UR UR

R-Infra 204,777 187,392 36,219 20,212 10.8% 10.6 779 EXIT NR

Engineers India 101,974 21,864 5,267 6,350 29.0% 13.1 303 HOLD 301

L&T 1,556,657 789,016 90,786 61,281 7.8% 17.4 1,679 NR NR

JP Associates 184,295 291,923 101,386 13,992 4.8% 10.4 83 BUY 94

Gujarat Pipavav. 58,061 6,862 3,202 3,040 44.3% 18.1 120 HOLD UR

Note: ITNL no's are FY15E; GPPL is a Calendar year ending co; Source: IndiaNivesh Research, BSE Filings



27/49

IT SECTOR

IT index outperform the Sensex by 9.1% over

last 12M driven by improved demand outlook.

On absolute basis IT Index went up 36.0% in

last 12M led by solid performance.

Tier-I IT companies reported in-line performance & sounded equally positive on future

revenue outlook. TCS, HCLT, TechM and Wipro delivered healthy $-revenue growth.

Despite below average revenue guidance, Infosys sounded positive and expect FY15 to

be better than FY14. Wipros next quarter revenue guidance remains muted but overall

FY15 outlook remain robust. TechM reported leading $-rev growth and also sounded

positive about overall FY15 revenue outlook on back of strong order backlog.

Conference call key takeaway:

TCS: Robust outlook expect $-rev growth ahead of Industry growth.

HCLT: Positive revenue & margin outlook on back of $1 bn of TCV.

Infosys: FY15 $-revenue growth guidance range between 5.6-7.6% Y/Y.

Wipro: Guided $-rev growth in the range of -0.3% to 2.0% Q/Q in Q1FY15.

TechM: Solid deal pipeline on back of existing four prong growth strategy

TechMs Top 10 account grew by 8.6% Q/Q growth, followed by Wipro (+3.7%) and HCLT

(+3.6% Q/Q). However, INFY top-10 account de-grew by 0.4%m Q/Q.

Robust FY15 revenue outlook | Top Picks:

ThinkSoft, TCS, Infosys, Wipro & HCLTech

IT v/s Sensex Return %

1 Months 3 Months 1 Year

IT -4.9 13.1 36.0

Sensex 11.2 16.3 28.2

Companies

QoQ Growth %

$-Revenue Volume Pricing

Infosys -0.4 0.4 -0.8

TCS 1.1 2.6 -1.5

Wipro 2.5 NA NA

HCLT 3.0 NA NA

KPIT 3.6 3.1 0.5

NIIT Tech* 0.2 NA NA

TechM 4.3 4.6 0.3

Average 2.0 2.7 -0.4

Geo-Wise Performance (Q/Q Growth %)

Q4FY14 HCLT INFY TCS Wipro

U.S 0.3 -0.8 -1.6 2.7

Europe 4.6 5.5 6.3 3.9

RoW 11.7 5.0 1.9 1.1

Source: BSE India (as on 5th Jun. 2014)

Source: Company Filings; IndiaNivesh Research



28/49

IT SECTOR (contd)

In mid-tier space performance was mixed-bag: (1) NIIT Tech (+0.2% Q/Q) and Mastek (-6.8% Q/Q) reporting below consensus

performance, and (2) KPIT (+3.6% y/y) and Thinksoft (+2.7% y/y) reporting inline revenue growth performance.

Conference call key take away:

KPIT: On back of strong deal pipeline KPIT guided inline industry performance in FY15E ($-rev growth 12 -14% y/y).

NIIT Tech: Positive outlook on back off robust demand from U.S, BFSI, Travel and IMSspace (12M Exec Order Book +15.1% y/y to $290 mn).

Mastek: Muted FY15 revenue outlook due to anticipated shortfall in revenue ($2.4 mn) from insurance client.

Thinksoft: SQS and TGSL together brings huge capacity expansion along with cross-sellingand up-scaling opportunity.

On back of robust deal pipeline and strong order intake our major Tier-II coverage companies revenue outlook remains strong. Going-

ahead we expect further expansion in NIIT Techs EBITDA margin, as new deal wins are high margin in nature. The revival in Europe &

US should bode well for KPIT.

Source: Company Filings; IndiaNivesh Research Note : * Q3FY14 June ending

Company Q4FY14 Margin % QoQ % YoY %

Rs. MnSales EBITDA PAT EBITDA PAT Sales EBITDA PAT Sales EBITDA PAT

C o m m e n t s

INFY 1,28,750 41,320 29,920 32.1 23.2 -1.2 3.6 4.1 23.2 31.8 25.0Expect upward revision in FY15 revenue guidance

TCS 2,15,511 74,099 53,576 34.4 24.9 1.2 0.5 0.5 31.2 46.4 48.2In-line Performance; Strong FY15 revenue outlook

WIPRO 1,17,036 32,649 22,265 27.9 19.0 3.3 7.6 10.5 21.7 35.1 28.8In-line performance; muted guidance

HCL TECH* 83,490 22,120 16,240 26.5 19.5 2.0 7.4 8.6 29.8 48.0 59.1Software Services segment delivered revenue growth

TECHM 50,581 10,718 6,142 21.2 12.1 3.3 -5.7 -39.2 34.3 39 -3.7Above expectation performance; Solid Deal Pipeline

KPIT 7,001 1,047 613 14.9 8.8 3.3 -0.6 0.9 22.9 13.8 19.8FY15 $-rev guidance of 12-14% in-line with street estimate

NIIT 2,329 131 140 5.6 6.0 -0.3 -8.4 1066.7 5.1 84.5 418.5IT revival could provide respite; patience will pay-off

NIIT Tech 5,885 871 618 14.8 10.5 0.2 -1.8 16.4 9.5 -2.1 9.2In-line performance; expect uptick on margin front



29/49

IT SECTOR (contd)

Sector Outlook On back of improving global economic situation, positive management commentary, moderate valuation and strong order intake we

maintain our positive view on overall sector. Further, revival in discretionary budget, inorganic expansion and diversification in newage IT services could foster revenue growth going-ahead.

Valuation

Source: Company filings; Bloomberg ; IndiaNivesh Research Note: CMP and MCap 5/06/2014

Revisiting the past.....Company CMP Previous Previous Current Current

Name Rs. Target Rating Target Rating

Infosys 2,977 3,630 BUY 3,952 BUY

TCS 2,108 2430 BUY 2,609 BUY

Wipro 500 546 BUY 611 BUY

HCL 1,330 1006 HOLD 1,697 BUY

TechM 1,884 1,868 HOLD 2,151 BUY

NIIT Tech 389 345 HOLD 480 BUY

KPIT 161 145 HOLD 190 BUY

Mastek 181 250 BUY 230 BUY

NIIT Ltd 57 45 BUY 54 BUY

Thinksoft 352 NA NA 494 BUY

Source: IndiaNivesh Research Note: CMP 5/06/2014

Company Mcap P/E (x) P/Sales (x) EV/EBITDA (x) PBV (x) EBITDA % ROE % CMP Current Current

Name Rs. Mn FY16E FY16E FY16E FY16E FY16E FY16E Rs. Target Rating

Infosys 17,09,903 12.6 2.9 8.0 2.6 30.6 21.3 2,977 3,952 BUY

TCS 41,28,998 16.5 3.9 12.8 4.9 29.5 30.2 2,108 2,609 BUY

Wipro 12,34,691 14.5 2.3 9.6 2.6 23.4 20.0 500 611 HOLD

HCL 9,30,632 13.0 2.3 8.7 3.8 24.2 31.9 1,330 1,697 BUY

TechM 4,40,123 11.7 1.8 7.7 2.8 22.1 24.3 1,884 2,151 BUY

NIIT Tech 23,653 7.7 0.9 4.5 1.4 17.3 18.3 389 480 BUY

KPIT 31,424 9.7 1.0 5.6 1.5 17.6 17.5 161 190 HOLD

Mastek 4,017 5.5 0.3 2.1 0.5 10.0 10.0 181 230 BUY

NIIT Ltd 9,413 11.6 0.8 10.0 1.1 8.0 10.3 57 54 BUY

Thinksoft 3,623 9.7 1.3 4.6 2.2 20.5 27.7 352 494 BUY



30/49

OIL & GAS SECTOR

In Q4FY14, oil subsidy burden of

upstream companies stood at Rs. 353.28

bn for the quarter out of which upstream

companies has provided Rs.190.5 bn

(47% of total subsidy) as compensation.

Oil & Gas sector posted mixed set of performance. Benefit of Rupee

depreciation was offset by higher sharing of under recoveries by upstream

companies. Gross under recovery for OMCs stood at Rs. 353.28 bn for thequarter out of which upstream companies has provided Rs.190.5 bn (47% of

total subsidy) as compensation.

ONGC and Oil India reported Q4FY14 PAT number below our estimates due tohigher subsidy burden. However, on operational front ONGC showed significant

improvement as crude oil production grew by 6% QoQ. Though, Cairn India

profitability was boosted by strong production from RJ field, managementguidance of flat production for FY15 weigh on investors sentiment. RILs EBITDA

margin surpassed the consensus on the back of better than expected petchem

and refining margin. GAIL profitability was impacted by lower than expectedmargin in natural gas trading and petchem business.

Benefit of Rupee depreciation was offset

by higher sharing of under recoveries

by upstream companies.

Diesel price hike and proposed natural gas price hike

are positives for the sector | Top Picks:

Reliance, ONGC, GAIL, Cairn India and OIL India

Sensex vs. Oil& Gas Sector

1m 3m 12m

Sensex 11.2% 16.3% 28.2%

BSE OiL & Gas 16.7% 30.6% 33.5%




31/49

OIL & GAS SECTOR (contd)

In Q4FY14, Brent average crude price declined by 2% QoQ/YOY to Rs. USD107.5/bbl due to receding winter demand and

improvement in supply of crude oil boosted by easing of geo-political concerns in Iran.

Upstream companies revenue supported by significant INR depreciation (average at INR 60.1/USD, +14% YoY down 3% QoQ)offset by higher under recovery Q4FY14.

Refiners earning was boosted by jump in GRM. Singapore GRM witnessed 45% QoQ jump to USD 6.2/bbl in Q4FY14 primarily

driven by increased cracks of gasoline, naphtha and partially of middle distillates helped by refinery shutdowns

Petchem margins was mixed. The polymer spreads over Naphtha were up 8-11% in PE/PP while integrated polyester margins

were down 7-9%.

Q4 FY14 Review

Source: Company Filings; IndiaNivesh Research, All standalone numbers except Cairn India

Company Q4FY14 Margin % QoQ % Change YoY % Change

Rs. Mn Sales EBITDA PAT EBITDA PAT Sales EBITDA PAT Sales EBITDA PATComments

Cairn India 50,489 36,831 30,354 72.9 60.1 1.0 2.5 5.2 15.7 27.3 18.4 Strong production growth from RJ f ield booted the profitabi li ty

GAIL 145,672 14,399 9,720 9.9 6.7 -9.2 -37.1 -42.1 16.8 20.1 57.2 Numbers below expectation due to lower than expected

margin in natural gas trading and petchem business

OIL 19,482 4,774 5,656 24.5 29.0 -28.6 -63.0 -37.4 -21.2 -51.1 -26.0 Revenue impacted by lower crude oil Production

ONGC 208,809 91,859 48,889 44.0 23.4 0.1 -12.6 -31.4 -4.3 10.1 44.3 On operational front, crude oil production up 6% QoQ (flat

YoY) to 6.5 MMT

Reliance 951,930 83,310 56,310 8.8 5.9 -8.0 9.3 2.2 13.1 6.5 0.8 EBITDA margin surpassed the consensus on the back of better

than expected petchem and refining margin



32/49

OIL & GAS SECTOR (contd)

Valuation

OutlookIndian oil & gas sector has been heavily dependent on government policies which have been ad-hoc and detrimental to the sectors

health. A reform-oriented government would change the course of the sector and hasten policy reforms. We believethat, governments move to hike diesel prices and increase in natural gas prices are key positive and boost the profitability of

upstream companies from FY15. Likely doubling of gas price, lowering of subsidy to give remunerative oil realization will help drive

earnings growth of ONGC/OIL. Further ONGC marginal field monetization and cairn India s aggressive exploration activity inRajasthan block would benefited from ease in norms resulted in higher domestic production growth in coming years. Favorable

government policies (higher gas prices, faster approvals) to drive valuation of RIL. GAIL would be benefited from higher natural gas

production in country. Ongoing reforms have the potential to transform OMCs to a structural investment. Earnings predictability ofOMCs will improve due to rationalization of subsidy sharing, that will help to save in huge interest cost.

Top PickAmong Oil & Gas space we prefer Reliance, ONGC, GAIL, Cairn India and OIL India due to stable business, strong balance sheet and

low valuations.

Source: Company Filings; IndiaNivesh Research; Bloomberg (CMP-05-06-2014)All consolidated numbers

CompanySales

(Rs. mn)

EBITDA

(Rs. mn)PAT(Rs. mn)

Mcap

(Rsmn)P/E(x) Mcap/Sales(x) EBITDA% NPM(%)

EV/

EBITDA(x)ROE % CMP Target Reco

Name FY16e FY16e FY16e FY16e FY16e FY16e FY16e FY16e FY16e FY16e Rs. Rs. Rs.

Cairn India 209,141 143386 122004 699,051 5.74 3.34 68.56 58.34 4.12 14.38 366 384 BUY

GAIL 775,022 83815 54626 497,243 9.10 0.64 10.81 7.05 7.15 13.57 392 456 BUY

OIL 125,757 63586 42790 344,000 7.85 2.74 50.56 34.03 4.96 18.90 572 720 BUY

ONGC 2,030,930 759031 350877 3,580,472 10.20 1.76 37.37 17.28 4.92 17.27 419 451 BUY

Reliance 4,450,015 475189 261024 3,524,782 13.50 0.79 10.68 5.87 8.82 12.22 1091 1274 BUY



33/49

PHARMA SECTOR

Performance in Q4FY14:

INSPL Pharma universe growth was almost steady at

21.2% y-o-y in Q4FY14, primarily on the back of

healthy growth from exports business. Linked withimplementation of new pricing policy & trade margins

issues, domestic market remained muted at 12.7% y-o-y growth. However there was gradual improvementin growth (11.9% in the previous quarter).US market

maintained growth momentum and our coverage

universe grew 48% y-o-y.

On yearly basis, EBITDA margins increased ~240 bps (

down ~120 bps q-o-q) to 25.9% level.

Aurobindo, Torrent & Shilpa Medicare were topperformer during the quarter.

Mid sized to carry on momentum | Top Picks:

Shilpa Medicare, Cadila Healthcare & JB ChemicalsCoverage Pharma universe growth (%):

Coverage Pharma universe Margins (%):

26.0

29.3

23.9

20.3 21.0

17.6

20.9 21.0 21.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Sales growth (y-o-y in %)

23.2 24.7 24.1 23.8 24.3 22.6 24.6 26.1 25.9

16.3 16.2 15.8 14.9 16.0 15.3 16.018.5 18.8

10.0

15.0

20.0

25.0

30.0

EBITDA Margins (%) PAT Margins (%)

Performance

1 Months 3 Months 1 year

Healthcare -5.6% -4.0% 14.6%

Sensex 11.2% 16.3% 28.2%Source; Bse India (as on 05th June 2014)



34/49

Coverage universes Domestic market trend:

Company wise growth in domestic market in Q4FY14 (%)

Coverage universes US market trend (in %):

Company wise growth in US market in Q4FY14 (%)

PHARMA SECTOR (contd)

1.8

7.99.4 9.5 9.9 10.2

14.5

17.4 17.8

21.3

0.0

5.0

10.0

15.0

20.0

25.0

16.2%

9.3%11.0% 11.9%

12.7%

0.0%

5.0%

10.0%

15.0%

20.0%

-

10,000

20,000

30,000

40,000

50,000

60,000

Mar-13 Jun-13 Sep-13 Dec-13 Q4FY14E

Revenue (in Rs Mn) y-o-y

48.1%

31.6%

56.7%63.3%

48.1%

0.0%

20.0%

40.0%

60.0%

80.0%

-

20,000

40,000

60,000

80,000

100,000

Mar-13 Jun-13 Sep-13 Dec-13 Q4FY14

Revenue (in Rs Mn) y-o-y

16.7 28.2 31.1 36.774.7

129.6

334.8

-50.0

100.0150.0200.0

250.0300.0350.0400.0



35/49

Individual companys performance in Q4FY14


Sources: Company fillings; IndiaNivesh Research

Company

Rs. Mn Sales EBITDA PAT EBITDA PAT Sales EBITDA PAT Sales EBITDA PAT Comments

Ajanta Pharma 3,011 1,024 719 34.0 23.9 2.9 12.5 11.6 20.8 48.8 159.6 Healthy growth across the markets continues.

Aurobindo 23,059 7,430 4,661 32.2 20.2 8.0 15.4 12.6 48.5 209.5 328.4 Robust peformance backed by US (gCymbalta Launch) and

injectable business.Alembic Pharma 4,633 913 613 19.7 13.2 -4.5 -10.7 -7.0 23.0 39.2 40.3 Robust show continues

Biocon 7,233 1,701 1,129 23.5 15.6 3.2 0.3 7.5 14.8 61.8 141.8 Lower R&D expenses boosting profitability

Cadila 19,163 3,742 2,407 19.5 12.6 5.5 26.6 34.2 22.4 22.5 -12.2 US revived, margins improving

Cipla 24,293 4,093 2,207 16.8 9.1 -4.8 -12.4 -9.7 26.7 -3.9 -14.6 Higher staff cost & other expenses, pressurizing margins

Divi's Lab 7,380 2,772 2,111 37.6 28.6 7.4 -4.7 -5.8 13.6 6.4 10.2 Muted current quarter but outlook seems positive

Dr Reddy 34,809 5,630 4,816 16.2 13.8 -1.5 -33.5 -22.1 4.2 -2.9 18.0 Muted quarter manily due to higher R&D expenses, we

remain positive on stock

Glenmark 16,788 3,569 2,359 21.3 14.1 25.0 21.9 15.0 4.8 -2.1 9.1 Inline with estimates, approvals from USFDA would be key

triggers

Ipca Lab 7,398 1,824 1,188 24.7 16.1 -9.2 -16.1 -16.0 12.3 28.2 75.5 Almost inline, seems in better shape to grab the future

JB Chemicals Ltd 2,236 218 252 9.7 11.3 -4.5 -47.0 -51.8 13.1 14.7 33.3 Almost inline, we remain bullish

Jubilant LifeScience 15,516 2,351 564 15.2 3.6 8.7 0.3 -57.6 11.8 0.9 -14.8 Pharma remained muted, LSI is stabilizing

Lupin 30,516 8,080 5,530 26.5 18.1 2.3 10.0 24.6 20.3 32.4 35.5 Inline with estimates, maintain HOLD

Shilpa Medicare Ltd 1,674 355 247 21.2 14.8 8.5 6.3 -13.3 69.9 108.8 96.0 Robust show continues, USFDA approval for Raichur plant

would be key trigger

Sun Pharma 40,436 17,856 15,871 44.2 39.2 -5.7 -9.6 3.7 31.6 41.7 56.9 Inline with estimates, struggling to grow due to higher

base

Torrent 12,070 3,320 2,340 27.5 19.4 21.9 74.7 48.1 50.3 118.4 67.1 Surprising continousely, domestic market at the verge of

long term healthy growth

Total 250,215 64,878 47,014 25.9 18.8 2.4 -2.1 2.2 21.2 33.8 42.4

YoY %Mar-14 Margin % QoQ %



36/49

Key inferences from recent quarter performance.

INSPL Pharma universe's (Shilpa Medicare added & Shasun was removed) top line grew ~21.2% y-o-y (2.4% q-o-q ) in

Q4 FY14 led by healthy performance of ~48% y-o- y growth from US market (partially supported by favorable

currency & exclusivity launches (g Cymbalta)), linked with key launches in last one year. Europe remain critical for

Indian Pharma companies, except Torrents subsidiary in Germany i.e Heumann won few orders & surprisedpositively. Due to JPY depreciation (on y-o-y basis), Japanese market remained muted for Lupin. Cadila withdrew its

operations from Japan. Growth in domestic market was muted related to last 4-5 years average perforamce. But it

improved gradually on sequential basis to 12.7% y-o-y compared to 11.9% in previous quarter. Exports to Brazilian

market also remained muted.

INSPL Pharma universes EBITDA grew 33.8% y-o-y in Q4FY14. Overall EBITDA margins were up by ~240 bps on yearly

basis but down ~120 bps sequentially to 25.9% level. Adjusted net profit of INSPL Pharma universe grew 42.4% y-o- y

(2.2% q-o-q) in Q4FY14.

Most of the big players are struggling to maintain growth on higher base. R&D expenses were up for most of the

players , which impacted their margins during the quarter.

Performance of CRAMS players in our universe remained muted.




37/49

Valuations & Recommendations:


*CMP as on 5thJune 2014

Sources: Company filings; IndiaNivesh Research

Company Name Rs CMP Rs TP Reco FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY15E FY16E

Ajanta Pharma 1,199 1,385 BUY 11,783 13,935 16,466 3,688 4,208 4,989 2,339 2,727 3,262 66.2 77.2 92.3 15.5 13.0

Aurobindo Pharma 647 UR UR 80,385 116,340 130,712 21,328 20,753 19,449 11,729 8,066 10,653 40.2 40.7 36.6 15.9 17.7

Alembic Pharma 242 345 BUY 18,607 22,694 26,585 3,577 4,614 5,593 2,355 3,135 3,824 12.5 16.6 20.3 14.6 11.9Biocon 467 427 HOLD 28,527 33,263 38,970 5,183 7,810 8,883 4,137 3,998 5,033 20.7 21.9 25.2 21.3 18.5

Cadila 925 1,228 BUY 70,601 84,145 98,321 12,001 15,902 19,538 8,036 10,085 12,901 39.3 49.3 63.0 18.8 14.7

Cipla 394 379 HOLD 97,528 112,444 127,742 21,331 22,686 27,520 13,884 12,965 16,433 17.3 16.1 20.5 24.5 19.2

Divis Lab 1,268 1,507 BUY 25,254 31,786 38,011 10,145 13,570 16,400 7,733 10,001 11,962 58.3 75.3 90.1 16.8 14.1

Dr Reddy 2,342 3,006 BUY 132,170 150,048 169,910 25,465 33,909 37,807 21,515 22,044 24,412 126.0 129.4 143.3 18.1 16.3

Glenmark 556 636 HOLD 59,839 68,482 78,605 13,101 14,427 16,649 5,423 8,608 10,054 20.0 31.9 37.3 17.4 14.9

Jubilant Life Science 198 191 HOLD 57,216 62,022 70,639 10,076 10,034 11,701 1,090 2,269 3,288 6.9 14.2 20.6 14.0 9.6

Lupin 949 1,192 BUY 110,866 129,978 153,813 30,028 32,924 39,121 18,364 22,293 26,717 40.8 49.7 59.6 19.1 15.9

Sun Pharma 596 638 HOLD 160,044 184,581 199,976 71,956 78,457 81,584 32,044 58,032 62,928 15.5 28.4 30.4 21.0 19.6

Ipca Lab 815 930 BUY 31,994 37,126 42,176 8,106 8,948 9,889 4,785 6,207 6,900 37.9 48.7 58.2 16.7 14.0

Torrent Pharma 630 758 BUY 40,360 55,329 65,883 9,520 12,707 15,389 6,640 8,314 10,490 39.2 49.1 62.0 15.7 10.2

JB Chemical 143 186 BUY 10,006 11,282 12,734 1,536 1,817 2,113 615 1,559 1,784 7.3 18.4 21.1 7.8 6.8

Shilpa Medicare 418 544 BUY 5,714 7,441 9,421 1,160 1,539 1,978 757 994 1,306 18.9 27.0 36.0 15.5 11.6

EBITDA PAT EPS (Rs) P/E (x)Sales



38/49

Sector Outlook We continue to maintain our view that domestic formulation business is likely to witness revenue CAGR of 13-15% for next 2 -3

years mainly lead by chronic therapies. Increase in affordability, infrastructure & insurance penetration are the key drivers. Newpricing policy impact is likely to be over in the current quarter. Most of the companies have taken appropriate price hike on eligibledrug portfolio in the range of 6-8% (in WPI range) from April -2014 onwards. This price hike on lower base would help to reporthealthy growth going forward.

Inline with our view, complex molecule launches by many big players has started paying dividend in US market. More complexlaunches in the same market are on the cards & key moniterable going forward. Cash rich balance sheet of major players (like, Sun &Lupin ) & ambition of achieving revenue milestones would lead to offshore acquisition by Indian companies. Inline with same, Ciplacompleted acquisition for Medpro SA, Torrent acquired Elder Pharma & Sun proposed to acquire Ranbaxy durig the year.

Regulatory approvals, ramp up in new manufacturing facilities & improvement in productivity would improve efficiencies, for thecompanies like Alembic Pharma, Ipca labs, Shilpa Medicare & Divis lab. In line with our earlier view, R&D expenses linked withcomplex filings are likely to remain at higher level for the companies like DRL, Lupin, Glenamrk etc.

Increasing cost pressure on MNCs would drive Contract Research & Manufacturing Services (CRAMS) & API businesses.

Strategic deals & formation of JVs with Pharma majors would help in expanding wings for Indian companies.

Inline with our earlier view, big pharma players took a gentle pause in H2FY14 due to higher base , higher R&D expenses & lack ofblock buster opportunities. But at the same time, mid sized pharma companies reported healthy growth. We sense that complexfilings in the past & R&D efforts would start to pay dividends from second half of FY15E. Small payers & mainly API players may

continue to surprise positively due to increasing demand worldwide & operating leverage coming into play.

Peferred BUY Shilpa Medicare, Cadila Healthcare & JB Chemicals are our preferred picks..

Concerns Unfavorable currency movement.

Delays in ANDA approvals.

Failure in R&D efforts.




39/49

POWER SECTOR

Sound growth was seen on top line

due to capacity addition and tariff

hike, however bottom line was

impacted by depreciation and

interest cost

Power sector posted a mixed performance in Q4FY14. The rupee dollar movement and

international coal prices were favorable during the quarter leading to lower fuel prices.

Among PSUs, higher coal availability coupled with sustained demand by SEBs is keypositives for NTPC. PGCIL showed strong revenue growth on the back of higher

capitalization of assets while NHPC showed subdued performance due to decline in

volume and one offs due to stoppage of work in its projects Subansiri lower and TLDP 4.

Among IPPs JSW Energy PAT was below estimate led by lower volumes and higher

interest expenses. CESCs EBITDA margin was supported by lower power purchase from

outside along with lower fuel cost. Adani power earnings were boosted bycompensatory tariff while Tata powers earning were impacted due to non recognition

of Rs 10.19 bn revenue towards compensatory tariff. Coal India adjusted PAT was above

expectation due to higher realization.

Strong growth ahead | Top Picks: Tata Power, Power

Grid, RPower, Coal India and NTPC

The rupee dollar movement was

favorable for independent power

producers

Sensex VS Power Sector

1m 3m 12m

BSE power 38.5% 46.0% 33.0%

Sensex 11.2% 16.3% 28.2%




40/49

POWER SECTOR (contd)

Imported coal prices remain weak, ST prices muted: Average Imported coal prices during the quarter) stood at USD 79/ton v/sUSD85/ton in Q4FY13 and USD83/ton in Q3FY13. The short term (ST) prices have remained flat sequentially and range below Rs.

3/unit in Q4FY14.

Appreciation of INR favorable for IPPs: The rupee dollar movement and international coal prices were favorable sequentially for

independent power producers like Tata Power, JSW Energy and Adani power. These companies have higher exposure on imported

coal and large dollar-denominated debt.

Tata power non recognition of compensatory tariff: Tata Power reported numbers (Consolidated) below street expectation.

Revenue for the quarter decreased 2% y-o-y (up 1.7% q-o-q) to Rs 88.4 bn mainly due to non recognition of Rs 10.19 bn revenue

towards compensatory tariff (as per CERC decision) of the past periods for Mundra plant.

Q4FY14 Review

Source: Company Filings; Indianivesh Research, All consolidate numbers except CESC, NHPC, NTPC and Power Grid

Company Q4FY14 Margin % QoQ % Change YoY % Change

Rs. Mn Sales EBITDA PAT EBITDA PAT Sales EBITDA PAT Sales EBITDA PAT Comments

Adani Power 59,965 27,510 25,286 45.9 42.2 43.1 180.3 NA

217.4

NA NA Revenue and net profit boosted by compensatory tariff, however

adjusted number below expectation

CESC 12,460 4,540 2,430 36.4 19.5 3.2 54.9

127.1

-

17.6

-0.7 -5.1 EBITDA margin expanded YoY due to lower power purchase cost

along with lower fuel costCoal India 199,980 51,076 44,342 25.5 22.2 18.1 24.5 13.9 0.5 -16.5 -18.1 Above our expectations due to higher than estimated realization

JSW Energy 20,583 6,913 1,849 33.6 9.0 -4.3 -13.5 -

12.0

-

10.5

-13.1 NA PAT was below consensus due to lower top-line and higher interest

expenses

NHPC 11,228 -3,745 -7,074 -33.4 -63.0 -1.9 -158.1 -372.8 11.1 -161.1 -326.9 Revenue below expectation dragged by lower than expected volume

and one offs

NTPC 210,388 45,426 30,935 21.6 14.7 11.7 -2.4 8.1 21.1 -5.6 -29.7 Revenue grew due to higher production (due to capacity addition)

coupled with higher PAF

Power Grid 39,863 34,032 11,758 85.4 29.5 8.2 9.6 12.8 17.9 19.9 6.0 Above our expectation; Total Revenue increased due to higher

income from transmission business and consultancy income

Rpower 13,587 5,357 2,689 39.4 19.8 -1.0 7.1 0.6 8.9 15.8 1.1 EBITDA margin improved due to lower fuel cost

Tata Power 88,445 18,215 -1,453 20.6 -1.6 1.7 2.0 NA -2.1 -21.7 NA PAT below expectation; Non recognition of compensatory tariff for

Mundra hurt the profitability



41/49

POWER SECTOR (contd)

Valuation

OutlookWhile the capacity addition and the private participation have been encouraging developments in the sector, there have been several

problems plaguing the sector. The inadequate domestic fuel availability and the weak financial condition of the state electricity

boards (which own more than 90% of the distribution in the country) are the key investment deterrents. Most private producersprojects are jeopardized due to non-availability of fuel, both coal and gas. Most power units are operating at below optimal plant load

factors, leading to bleeding profit and loss accounts and debt-laden balance sheets. We expect new government will come up with

policy measures to address the key issues plaguing the growth of power sector and the same could help kick-start the weak

investment cycle. Likely policy actions by new government would be 1)Ensure availability of fuel, both coal and gas. 2) Easing of

environment norms to help in ramp up coal and gas production and 3)Restructuring of SEBs to make them profitable.

Top PickWe prefer utilities with I) Assured regulated business model vs. Merchant and competitive business model, II) Fuel Linkages and lowerdependency on import for coal, III) Strong Balance Sheet and IV) Low Valuation & Low-risk business models. Considering the above

factors our TOP Picks are, Tata power, Power Grid, RPower ,Coal India and NTPC.

Source: Company Filings; IndiaNivesh Research; Bloomberg CMP- 05-06-2014, ALL consolidated except CESC Ltd.

Sales (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn)Mcap

(Rs mn)P/E(x) Mcap / Sales (x) EBITDA% NPM(%) PBV(x) ROE % CMP Target Reco

Name FY16e FY16e FY16e FY16e FY16e FY16e FY16e FY16e FY16e FY16e Rs. Rs. Rs.

Adani Power 199076 69772 6502 182941 27 0.92 35.05 3.3 2.8 9.0 64 50.0 HOLD

CESC Ltd. 64106 15728 7121 77704 9 1.21 24.53 11.1 1.1 13.2 622 NR NR

Coal India 907849 240101 208341 2470330 12 2.72 26.45 22.9 4.5 36.8 391 422 BUY

JSW Energy 92530 29302 10190 134485 13 1.45 31.67 11.0 1.7 13.2 82 NR NR

NHPC 79195 51828 25262 295033 12 3.73 65.44 31.9 0.9 8.0 27 UR NR

NTPC 883935 209348 107765 1356379 13 1.53 23.68 12.2 1.4 11.3 165 190 BUY

Power Grid 210265 180051 66617 665720 10 3.17 85.63 31.7 1.6 14.7 127 136 BUY

Rpower 89011 39784 19735 302673 22 3.40 44.70 22.2 1.4 7.0 108 118 BUY

Tata Power 394477 86767 19057 297509 15 0.75 22.00 4.8 1.7 12.3 110 115 BUY



42/49

REAL ESTATE SECTOR

In last 1-year realty stocks under our

coverage delivered 0.2-30.8% returns vs.

28.2% returns for Sensex

Nesco in last 1-year outperformed Sensex. Nesco and Oberoi Realty delivered 30.8% & 12.7% absolute returns on

a/c of company specific issues.

Oberois performance was impacted due to slow-down in home bookings, lack of visibility on project

launches, whereas, Nesco benefitted from commencement of occupancy at IT Building III. Phoenix Mills stock was

under pressure owing to their levered balance sheet (in a high interest rate environment).

Future hinges on new bookings|

Top Picks: Nesco, ORL & PML

Source: BSE


Sensex Vs Real Estate stocks

1m 3m 12m

Sensex 11.2% 16.3% 28.2%

Oberoi Realty 25.2% 33.2% 12.7%

Phoenix Mills 11.9% 20.8% 0.2%

Nesco 13.6% 27.5% 30.8%



43/49

REAL ESTATE SECTOR (contd)

Recent quarter performance....

Inventory exhaustion of older projects, new projects not reaching threshold level, led to y/y revenue de-growth for

ORL. Higher trading density and rental rates at HSP led to revenue growth for Phoenix Mills; Strong revenues from

Exhibition business and occupancy at IT Building III led to 19.8% y/y revenue growth at Nesco.

Slow-down in ORL top-line led to PAT level de-growth.


Company Q4FY14 Margin % QoQ % YoY %Comments

Rs. Mn Sales EBITDA P AT EBITDA PAT Sales EBITDA PAT Sales EBITDA PAT

OberoiRealty

2,194 1,254 770 57.2 35.1 29.8 39.7 13.2 (27.5) (29.5) (46.9)

39.8% y/y de-growth across revenue from projects led to 27.5% y/y top-

line de-growth; 57.7% and 31.3% y/y increase in other expenses andemployee costs led to 29.5% y/y EBITDA de-growth; Decline in y/y other

income, higher effective tax rate led to 46.9% y/y decline in PAT

Phoenix

Mills787 480 364 61.0 46.2 4.1 (3.5) (3.8) 9.0 0.2 0.7

~9% y/y increase in consumption and higher rentals led to 9.0% y/y

increase in revenues; 66.1% increase in y/y other expenses led to just

0.2% EBITDA growth; this coupled with 53.5% y/y increase in other

income and 7.6% decline in depreciation expenses led to 0.7% y/y PAT

growth

Nesco 516 314 245 60.8 47.5 12.0 (2.8) 14.1 19.8 9.5 2.3

28.9% y/y increase in Exhibition & IT Building segment revenues led to

19.8% y/y top-line growth; 109.5% y/y increase in other expenses

restricted y/y EBITDA growth to 9.5%; however, 24.8%% y/y increase in

depreciation expenses and higher effective tax rate restricted y/y PAT

growth to 2.3%

Note: Phoenix Mills numbers are standalone; Source: Company f ilings, IndiaNivesh Research



44/49

REAL ESTATE SECTOR (contd)

Valuation

Outlook With GDP revival on cards, we expect sentiment towards residential real estate market to improve. On same

lines we expect new launches to be made in Mumbai Residential real estate market in next 3-6 months. On the

back of new launches from Oberoi and existing projects reaching threshold level, we expect performance of

Oberoi to improve from here-on. Already 7 of 11 floors are leased at IT Building III at Nesco, as a result, revenues would increase in FY15E.

Commercial lease rental market has slightly improved at Mumbai, reflected in the lease rental streams of PML

& Nesco.

On the back of predictable stable revenue model, we expect Nesco & PML to report continued growth.

Traction across Worli & Other projects would lead to revenue growth at Oberoi, from here-on.

PML with levered balance sheet should benefit from (1) commencement of debt repayment at individual

MarketCity project levels, and (2) decline in interest rates (possibly in FY16E).

Company NameM-Cap (Rs

Mn.)

Sales

FY15E/16E

EBITDA

FY15E/16E

PAT

FY15/16ENPM (%)

EV/EBITDA

FY15/16E (x)

CMP (as of

05/06/14)Rating

Price

Target

(Rs.)

IndiNivesh Best Sectors Stocks Post 2014

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