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IEA Report

16th Feb 2017


KNRCON "NEUTRAL" 16th Feb 2017
KNR is the one of the best and fastest growing company in infra space. Revenue growth in last 3 quarters was 70% above with strong balance sheet
position. Current debt to equity position is 1.06 times. But considering the near-term headwinds of an unstable political condition in a state of
Tamil Nadu, where KNR having a significant share of its current order book. Hence, we are NEUTRAL on the stock.
............................................................ ( Page : 2-5)

BRITANNIA "BUY" 15th Feb 2017


BRITANNIA will keep investing in its direct distribution reach with the plan to add 200000 outlets every year. Management expects volume to be
normal in next 3-6 months going forward and guided mid single digit volume growth after normalization . For the protection of margins, the
company is planning to increase prices by 6-7% in FY18. Considering managements proactive approach towards maintaining margin, thrust on
expansion of direct distribution reach and improving general market conditions we maintain `BUY rating on BRITANNIA with a target price of Rs
3700. ............................................................ ( Page : 6-8)

GODREJCP "BUY" 14th Feb 2017


Going forward, managements initiatives for expanding direct reach will not only strengthen the brand further but also improve Market share in
less penetrated market. Management indicated that there is more headroom for margin improvement from international business in medium to
long term . Considering strong innovation pipeline, companys thrust on EBITDA growth better than sales growth and expectation of improvement
in international business, we still hold positive view on GODREJCP and recommend BUY with a target price of Rs 1760.
...................................................... ( Page : 9-11)

ASHOKLEY "BUY" 13th Feb 2017


Going forward, We assume that the upcoming emission norms BS-IV to BS-VI, improvement in demand from infrastructure segment and
government's initiative to develop defense products in the country can be volume boosters for the company in FY17. Ashok Leyland is also working
towards a renewed thrust in the international markets, with network expansion and dedicated products. We expect that the company will maintain
a healthy ROE of over 20% going ahead. We maintain 'BUY' on Ashok Leyland considering the huge growth potential going ahead for a target price
of Rs.110. ...................................................... ( Page : 11-13)

HEROMOTOCO "BUY" 10th Feb 2017


We expect improvement in demand scenario in the domestic market after the demonetization, upcoming marriage season, increasing finance
penetration in rural & semi-urban areas and seventh pay commission payout will drive the volumes and implementation of cost cutting initiative
LEAP to boost margins further by 100 bps going ahead. It has a healthy dividend payout of 54%, which provides a cushion to the investors to invest
in the company for long term. The company is trading at 7 times of FY17 expected book value with a RoE of 36%. We maintain "BUY" rating on this
stock with a target price of Rs.3830. ........................................................ ( Page : 14-16)

IRB "BUY" 9th Feb 2017


Encouraging traffic growth in Q3FY17 and strong recovery in economic activity nullify the demonetization impact. Most of the project has seen
improvement in traffic especially in a western part of the country. We expect 5-6% traffic growth in near term. Recent development (regarding
Mumbai Pune express) does not change our growth estimate. We continue to expect 11% revenue growth in FY17E and robust 40-45% revenue
growth in FY18E. The introduction of InvIT will help IRB to grow higher. Hence, we maintain BUY rating on the stock with unchanged target price of
265/- . ...................................... ( Page : 17-21)

DRREDDY "Neutral" 8th Feb 2017


Management expects that global business to gain traction from FY18 on the back of currency stabilization in emerging markets geographies, stable
macro economics and institutional business launches. In Q3FY17, company commercialized 2 In-licensed products from the strategic collaboration
with Amazon. Remediation process at Srikakulam, Mriyalguda and Duvvada facilities are over and the management expects inspection at these
facilities are expected in Feb/ Mar-17. Considering near term uncertainties we recommend NEUTRAL rating in this stock with a target price of Rs
3325. ......................................... ( Page : 19-21)
Narnolia Securities Ltd IEA Edition No.- 957
NEUTRAL
KNR Construction 16-Feb-17

Result Update KNR has reported healthy revenue growth of 75% YoY to Rs. 382 Cr
CMP 177 compared to Rs. 218 Cr but lower than our expectation. Lower executions
Target Price NA on Madurai road project due to delay in some approval hurt the revenue
growth. EBITDA for the quarter has clocked 23.8% growth YoY to Rs. 58 Cr
Previous Target Price
as against Rs. 47 Cr in Q3FY16. During the quarter KNR has signed share
Upside NA purchase agreement for sale of the equity stake in two annuity BOT project
Change from Previous and correspondingly impaired Rs. 11 Cr as impairment in value of an
investment. Hence, it resulted in negative growth in bottom line.
Market Data
Delay in approval will hurt Revenue Growth:-
BSE Code 532942
NSE Symbol KNRCON Currently, KNR executes 2 major projects in state of Tamil Nadu namely (i)
52wk Range H/L 201/85 Madurai -Ramanathpuram and (ii) Dindigul-Bangalore. Tamil Nadu
Mkt Capital (Rs Cr) 2414 government has kept some approval for the project due to current instable
political situation. In Q3FY17 execution on Mudurai project has come down
Av. Volume 46337
by 9% QoQ due to delay in approval and management expect it to continue
Nifty 8725 for one and half month going ahead. Dindigul Bangalore project was
delayed due to tree cutting permission. However the project has started, but
Stock Performance considering the current situation we expect slow execution going forward.
1Month 3 Month 1 Year Management has guided to close year with 1300 Cr top line, which implies
Absolute 2.3 17.0 93.8 subdued revenue growth in Q4FY17.
Rel.to Nifty -2.4 8.6 67.7
Eyeing on HAM Model:-
Share Holding Pattern%
3QFY17 2QFY17 1QFY17 Initially, KNR was not interested in HAM model but considering the higher
Promoters 58% 58% 61% competitive intensity and decreasing opportunity in EPC space, now
Public 42% 42% 39% management is willing to take up HAM projects. This decision will open up
new opportunity in infra space but subsequently it will increase burden on
Other 0% 0% 0%
the balance sheet. Current net debt is Rs. 149 Cr and 624 Cr on Standalone
Total 100% 100% 100% and consolidated books respectively

Company Vs NIFTY
Outlook and Valuation
180 KNRCON NIFTY
160 KNR is the one of the best and fastest growing company in infra space.
140
Revenue growth in last 3 quarters was 70% above with strong balance
sheet position. Current debt to equity position is 1.06 times. But considering
120
the near-term headwinds of an unstable political condition in a state of Tamil
100 Nadu, where KNR having a significant share of its current order book.
80 Hence, we are NEUTRAL on the stock.
60
Financials Q3FY17 Q2FY17 Q3FY16 YoY % QoQ %
40
Sales 382 373 218 75% 2%
EBITDA 58 56 47 23% 4%
Net Profit 31 44 34 -9% -30%
Sandip Jabuani EBIDTA% 15.1% 15.0% 21.3% (620) bps 1 bps
sandip.jabuani@narnolia.com PAT % 8.0% 11.7% 15.6% (760) bps (370)bps
Narnolia Securities Ltd 2
Please refer to the Disclaimers at the end of this Report
Q3FY17 Result Update :-

KNR reported robust revenue growth of 75% YoY to Rs.382 cr as against Rs.219 Cr. This was the straight 3rd quarter
where KNR has achieved 70% plus revenue growth
EBITDA has clocked 23.8% of growth to Rs.58 cr as against Rs.47Cr in corresponding period last year led by higher
revenue growth. However EBITDA margin decline by 620 bps YoY to 15.1% on account 14.80 Cr of higher other operating
income reported in Q3FY16.
Profit after tax has down by the 9.8% YoY to Rs. 31 Cr as compared to Rs. 34 Cr in Q3FY16 due to 11 cr of impairment in
investment.
Order book as on 31st Dec 2017 stands at Rs. 4238 Cr (Rs. 3607 Cr in Roads & Highways and Rs.632 Cr in Irrigation).

Concall/ Managment Intreviwe Update :-


Strong Order pipeline:- bidding 2 HAM projects tune of Rs1000 Cr in Karnataka and EPC projects in Maharashtra
Management expect top line of 1300 Cr and 1500 Cr in FY17 and FY18 respectively.
Hubli hospet project facing land related issue. NHAI has acquired 70% land till date but in dilemma to give appointment date or
not. Management is keen to take project at current status to avail 80 IA benefit.
Tamil Nadu government has kept some approval for Madurai project due to unstable political situation.
Tax rate :- 10-11% in FY17 and FY18
Toll Collection:- 8.5 9 lakh/day at Muzaffarpur Barauni and 10.5 11 lakh/day at Walayar BOT project
Capex requirement of 100 Cr in FY18
50% of the Tamil Nadu projects is from State authority
Planning to securities to ongoing BOT projects (Walayar & Muzaffarpur Barauni)

About the Company:-


KNR constructions Limited ( from know written as "KNRCL" ) is an ISO 9001:2000 Certified company and listed in Bombay
StockExchange Limited (BSE) and National Stock Exchange of India Limited (NSE). KNRCL is a multidomain infrastructure
project development company providing (EPC) engineering, procurement and construction services across various fast growing
sectors namely roads & highways, irrigation and urban water infrastructure management. Our project execution strength primarily
is in road transportation engineering projects namely construction and maintenance of roads, highways, flyovers and bridges
wherever integral to the projects undertaken.

Significant experience and Strong track record in timely execution of Projects:-

Timely completion
capabilities will help
KNR construction to
grow higher in
competitive
scenario, comapny
earn bonus of 6Cr on
early completation of
Penchalakona
Yerpedu project.

Narnolia Securities Ltd 3

Please refer to the Disclaimers at the end of this Report


Strong order book provides good Revenue visibility (In Rs. Cr)

Roads & Highways Irrigation

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-

Strong Operating Margin


EBITDA % PAT %

30%

25%

20%

15%

10%

5%

0%

Walayar BOT peoject


Provisional Completion Certificate for 100% of Project length has been issued for KNR infuse Rs.90 cr and Rs. 130 Cr
the project on 31st in walayar project respectively in
October
Caters 2015
to commercial traffic towards Kochi Port and Kochi International Q2FY17 and H1FY17. Out of this
Container Transshipment Terminal. The project road serves as an arterial link to promoter put Rs. 40 Cr and
balance part was funded by parent
most of the important southern cities such as Salem, Erode, Coimbatore, Trissur,
company. Current toll Collection is
Palakkad, Kochi, Alappuzha, Kollam, Thiruvananthapuram and Nagercoil 10.5-11 lakh/day
Current Debt is Rs.213 Cr and Toll collection for 9 months is Rs.28.97 Cr

Muzaffarpur - Barauni BOT peoject


Provisional Completion Certificate for 75% of Project length has been issued for the
project on 3rd June
2016
Muzaffarpur is an important place for wholesale cloth trade and the largest city of
Current Toll collection is 8.5-
northern Bihar while Barauni city is situated on holy river Ganga and also an 9lakh/day.
important industrial city of Bihar having major industrial units such as IOC refinery,
Barauni Thermal Power Plant, Hindustan Fertilizers Corporation and Barauni Dairy

Narnolia Securities Ltd 4

Please refer to the Disclaimers at the end of this Report


Financials Snap Shot
INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Net Revenue 895 931 995 1358 EPS 21 25 45 25
Other Income 17 13 42 29 Book Value 217 280 248 272
Total Revenue 912 944 1038 1387 DPS 1.2 1.2 1.2 0.6
EBITDA 131 127 174 226 Payout (incl. Div. Tax.) 5% 5% 3% 3%
EBITDA Margin (%) 15% 14% 18% 17% Valuation(x)
Depreciation 59 55 48 98 P/E 0.8 3.4 2.3 6.9
EBIT 73 72 126 128 Price / Book Value 0.1 0.3 0.4 0.6
Interest 18 13 56 79 Dividend Yield (%) 6.88% 1.38% 1.16% 0.38%
PBT 72 71 112 78 Profitability Ratios
Tax 7 0 -21 8 RoE 10% 9% 18% 9%
Tax Rate (%) 9% 0% -19% 11% RoCE 7% 5% 9% 9%
Reported PAT 60 70 126 70 Turnover Ratios
Dividend Paid 3 3 3 2 Asset Turnover (x) 0.6 0.5 0.5 0.6
No. of Shares (In Cr) 3 3 3 3 Debtors (No. of Days) 31 43 49 49
Inventory (No. of Days) 27 28 30 21
Creditors (No. of Days) 32 30 44 44
Net Debt/Equity (x) 0.85 0.91 0.66 0.66

BALANCE SHEET CASH FLOW


FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 28 28 28 28 OP/(Loss) before Tax 72 71 112 78
Reserves 583 760 669 728 Depreciation 59 55 48 98
Net Worth 611 788 697 756 Direct Taxes Paid 24 33 5 9
Long term Debt 343 672 631 502 Op. before WC Change 147 145 214 255
Short term Debt 50 88 106 173 CF from Op. Activity 239 66 256 258
Deferred Tax 0 0 0 0 Non Current Investment 0 0 0 0
Total Capital Employed 954 1460 1328 1268 Capex 512 548 258 167
Net Fixed Assets 858 1343 1263 1333 CF from Inv. Activity (485) (549) (254) (167)
Capital WIP 2 4 7 0 Repayment of LTB 278 342 12 (129)
Debtors 75 110 135 194 Interest Paid 18 14 57 79
Cash & Bank Balances 57 44 45 102 Divd Paid (incl Tax) 3 3 3 2
Trade payables 78 75 119 173 CF from Fin. Activity 276 462 2 (142)
Total Provisions 57 42 71 87 Inc/(Dec) in Cash 31 (21) 3 (52)
Net Current Assets 117 174 260 306 Add: Opening Balance 19 50 29 45
Total Assets 1454 2012 2051 2367 Closing Balance 50 29 33 -7

Narnolia Securities Ltd 5

Please refer to the Disclaimers at the end of this Report


BUY
BRITANNIA 15th Feb. 2017

Company Update Improvement in general business after demonetization


CMP 3220 BRITANNIAs number for Q3FY17 is largely in line to our estimates. Sales
Target Price 3700 for this quarter grew by 6%in spite of headwinds of demonetization.
EBITDA remained flat to Rs 313. Cr. Gross margin declined by 193 bps
Previous Target Price 3700
YoY but management has restricted decline of EBITA margin to 74 bps
Upside 15% YoY which is commendable considering inflationary environment. The
Change from Previous NA company clocked approx. 2% of volume growth in the core business on the
back of larger direct distribution coverage. It has also strengthened its
Market Data market share in Q3FY17. BRITANNIA will keep investing in its direct
distribution reach with the plan to add 200000 outlets every year.
BSE Code 500825 Management expects volume to be normal in next 3-6 months going
NSE Symbol BRITANNIA forward and guided mid single digit volume growth after normalization . For
52wk Range H/L 3575/2523 the protection of margins, the company is planning to increase prices by 6-
Mkt Capital (Rs Cr) 38,643 7% in FY18. Considering managements proactive approach towards
maintaining margin, thrust on expansion of direct distribution reach and
Av. Volume(,000) 166
improving general market conditions we maintain `BUY rating on
Nifty 8,792 BRITANNIA with a target price of Rs3700.
Result Update(Q3FY17)
Stock Performance
1M 3M 12M Sales grew by 6% YoY to Rs 2355 cr led by pricing growth of 5.5-6% in
Absolute 9.6 4.7 22.0 Q3FY17.EBITDA remained flat in this quarter to Rs 313 cr. Gross margin
declined by 193 bps YoY to 39.8% led by inflation in flour (12%),Sugar
Rel.to Nifty 4.9 -1.3 -4.0
(40%), palm oil (20%) and milk(19%) in Q3FY17.EBITDA margin declined
by 74 bps YoY to 13.3%. PAT margin declined by 13 bps YoY to 9.4%.PAT
Share Holding Pattern-% for this quarter grew by 5% YoY to Rs 220 cr.
3QFY17 2QFY17 1QFY17
Promoters 50.7 50.7 50.7 Concall Highlights(Q3FY17)
Public 49.3 49.3 49.3
Market will be back to normal in 3 to 6 months.
Others -- -- -- In next to 2-3 months the company will restart pricing action in different
Total 100 100 100 SKU. The company is planning to 6 to 7% price hike in FY18.
Capex: Rs 350-400 cr Capex in next 18 months which includes plants,
company is putting up in Maharashtra and other places but excluding dairy
Company Vs NIFTY
business.
130 BRITANNIA NIFTY Management expects similar type of volume growth in Q4FY17.Expects to
125
clock mid single digit volume growth after demonetization effect ease off.
120
115
Tax rate: 31% for next quarters than it will resume to normal levels.
110 The company is looking to launch a new category of product.
105
100
Rs,Cr
95 Financials 3QFY17 2QFY17 (QoQ)-% 3QFY16 (YoY)-%
90
85
Sales 2355 2456 -4% 2220 6%
80 EBITDA 313 339 -8% 311 0%
Net Profit 220 234 -6% 211 5%
EBITDA% 13% 14% (53 Bps) 14% (74 Bps)
Rajeev Anand PAT% 9% 10% (17 Bps) 9% (13 Bps)
rajeev.anand@narnolia.com

Narnolia Securities Ltd 6


Please refer to the Disclaimers at the end of this Report
Concall Highlights(Q3FY17)

Wholesale and rural was impacted.


The companys effort of expansion of direct reach is paid off. BRITANNIA has lower dependency on whole sale among other
FMCG players.
Volume growth in the core business remained approx. 2% and company gained market share in Q3FY17.
The company witnessed inflation in Flour (12%), Sugar (40%), Palm oil (20%) and Milk (19%) in Q3FY17.
Pricing action has been limited due to impact of demonetization in Q3FY17.
Dairy subsidiary businesss Bottom line impacted negatively due to high milk prices and normal tax rate.
International business is facing headwinds.
Middle East business is showing serious down trend.
The company is focusing on Rusk and Cake business. The company has put up one line in Tamil nadu factory for value added
Rusk manufacturing.
BRITANNIA is looking to set up factory in Nepal in 2017. The company is also assessing opportunities in Africa. The company is
fully concentrating on international business in Next 2years.
BRITANNIA is setting up manufacturing hub in Maharashtra which will house some of Innovation and new product lines other
than serving the demand requirement of base business. It will also serve as hub for dairy business.
Other expenses: company will maintain other expenses at level of 19.62%(Q3FY17 level).
Net Sales and PAT(in cr.)
3000 300
Sales(in cr) PAT(in cr)
270
2500 250
234
219 219 220
211
2000 200
190 190
167
1500 150
137
108 114
1000 98 101 100
89

500 50
1552

1756

1793

1812

1787

1975

2033

2064

2019

2209

2220

2211

2197

2456

2355

0 0

EBITDA and PAT(%)


18.0%

16.0%
14.3% 14.7% 14.0% 14.4%
13.7% 13.8%
13.2% 13.3%
14.0% 12.3%
12.0% 11.1% 10.8%
9.9% 10.0% 9.5%
9.2% 9.3% 9.5% 9.4% 9.5% 9.4%
10.0% 8.9% 8.9% 8.6%
8.1%
8.0% 6.4% 6.8%
5.8% 5.6% 5.6% 5.9%
6.0%

4.0% EBITDA margin PAT margin


2.0%

0.0%
1QFY142QFY143QFY144QFY141QFY152QFY153QFY154QFY151QFY162QFY163QFY164QFY161QFY172QFY173QFY17

Narnolia Securities Ltd 7

Please refer to the Disclaimers at the end of this Report


Financials Snap Shot
INCOME STATEMENT RATIOS
FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Revenue 8679 9352 10448 11681 EPS 67 71 69 77
Other Income 100 117 127 170 Book Value 147 190 232 278
Total Revenue 8779 9469 10575 11851 DPS 20 24 23 25
COGS 4999 5609 6426 7149 Payout (incl. Div. Tax.) 30% 33% 33% 33%
GPM 42.4% 40.0% 38.5% 38.8% Valuation(x)
Other Expenses 2117 2113 2375 2656 P/E 40 45 46 42
EBITDA 1227 1279 1256 1439 Price / Book Value 18.1 16.9 13.9 11.6
EBITDA Margin (%) 14.1% 13.7% 12.0% 12.3% Dividend Yield (%) 0.8% 0.7% 0.7% 0.8%
Depreciation 113 126 148 244 Profitability Ratios
EBIT 1113 1153 1107 1195 RoE 45.6% 37.5% 29.9% 27.6%
Interest 5 5 4 4 RoCE 61.6% 49.8% 39.4% 35.6%
PBT 1208 1266 1230 1361 Turnover Ratios
Tax 392 411 399 442 Asset Turnover (x) 3 2 2 2
Tax Rate (%) 32.4% 32.4% 32.4% 32.4% Debtors (No. of Days) 7 9 7 7
Reported PAT 806 855 831 920 Inventory (No. of Days) 32 35 32 32
Dividend Paid(including dividend
231 tax) 339 329 364 Creditors (No. of Days) 31 30 30 30
No. of Shares 12 12 12 12 Net Debt/Equity (x) 0 0 0 0

BALANCE SHEET CASH FLOW STATEMENT


FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Share Capital 24 24 24 24 OP/(Loss) before Tax 1,198 1,266 1,230 1,361
Reserves 1742 2259 2758 3313 Depreciation 113 126 148 244
Net Worth 1766 2283 2782 3337 Direct Taxes Paid 403 411 399 442
Long term Debt 41 33 26 18 Oper. Prof. bef. WC change 1,229 1,396 1,379 1,609
Short term Debt 86 86 86 86 CF from Op. Activity 961 823 1,027 1,142
Deferred Tax 0 0 0 0 Non Current investments (211) - - -
Capital Employed 1807 2316 2807 3356 Capex (251) (269) (572) (270)
Net Fixed Assets 924 1068 1491 1517 CF from Inv. Activity (705) (446) (747) (765)
Capital WIP 90 90 90 90 Repayment of LT Borrowings (1) - - -
Debtors 171 231 212 234 Interest Paid (5) (5) (4) (4)
Cash & Bank Balances 88 113 53 55 Divd Paid (incl Tax) (231) (339) (329) (364)
Trade payables 742 769 859 960 CF from Fin. Activity (248) (351) (341) (376)
Total Provisions 509 595 716 858 Inc/(Dec) in Cash 8 25 (60) 2
Net Current Assets 175 291 114 387 Add: Opening Balance 43 88 113 53
Total Assets 3457 4101 4840 5672 Closing Balance 51 113 53 55

Narnolia Securities Ltd 8

Please refer to the Disclaimers at the end of this Report


BUY
GODREJ CONSUMER PRODUCTS LTD 14th Feb. 2017

Company Update
Recent Update
CMP 1553
Target Price 1760 GODREJCPs management is hopeful of better FMCG industry growth in
Previous Target Price 1760 FY18. Implementation of GST will lead to improvement in GDP by 1.50 to
2% considering every things being equal. After the headwinds of
Upside 13% demonetization, management is expecting better industrys performance in
Change from Previous NA FY18 supported by a pro-growth budget with adequate government
initiatives. For GODREJCP, management expects strong performance in
Market Data Q4FY17. Management has indicated that recovery after demonetization is
better than expected with approx. 2% of secondary sales growth.
BSE Code 532424 Management is looking for investment in market of Myanmar to expand its
NSE Symbol GODREJCP international footprints.
52wk Range H/L 1710/1138
Mkt Capital (Rs Cr) 52,895 International Business
Av. Volume(,000) 199
Nifty 8,805 Indonesian business posted flat YoY constant currency (CC) growth for
Q3FY17. HI growth impacted due to seasonality and relatively higher
Stock Performance competitive intensity. Africa business (including Strength of Nature)
delivered a strong CC growth of 54% with temporary decline of 160 bps
1M 3M 12M
margin driven by currency depreciation. For Latin American business, CC
Absolute -1.6 7.3 30.8 growth remained robust 24%. Europe business delivered strong CC growth
Rel.to Nifty -6.3 1.2 4.6 of 16% in Q3FY17.
Outlook and Valuation
Share Holding Pattern-%
3QFY17 2QFY17 1QFY17 Company's resilient performance in spite of tough demand scenario and
company's thrust on innovation gives us confidence about better growth
Promoters 63.3 63.3 63.3
going forward. Although Indonesian business was subdued in this quarter but
Public 36.7 36.7 36.7 company has improved Market share in home insecticide (HI) segment and
Others -- -- -- grew double digit in non HI. Management sees better traction from
Total 100 100 100 Indonesian business next year. Going forward, managements initiatives for
expanding direct reach will not only strengthen the brand further but also
improve Market share in less penetrated market. Management indicated that
Company Vs NIFTY there is more headroom for margin improvement from international business
140 GODREJCP NIFTY in medium to long term. Considering strong innovation pipeline, companys
thrust on EBITDA growth better than sales growth and expectation of
130
improvement in international business, we still hold positive view on
120 GODREJCP and recommend BUY with a target price of Rs 1760.
110
Rs,Cr
100 Financials 3QFY17 2QFY17 (QoQ)-% 3QFY16 (YoY)-%
90 Sales 2486 2439 2% 2286 9%
80 EBITDA 517 466 11% 455 14%
Net Profit 352 318 11% 368 -4%
EBITDA% 21% 19% 169 Bps 20% 91 Bps
Rajeev Anand PAT% 14% 13% 111 Bps 16% (194 Bps)
rajeev.anand@narnolia.com
Narnolia Securities Ltd 9
Please refer to the Disclaimers at the end of this Report
Concall Highlights(Q3FY17)
Positive growth in Dec and build momentum from here. Confident to outpace industry growth going forward.
Indonesian business: Management is hopeful for better growth from Indonesia next year.
African business grew by double digit. Facing headwind in terms of currency devaluation in Nigeria. Management is planning to
localize production facility in CY17.
Management is confident of EBITDA growth ahead of the sales growth.
After demonetization, recovery is much faster than what was expected. It will be back to normal in couple of months.
A&P Expenses will be in the range of 11% of the sales.
Modern Trade (MT) grew by 33% in this quarter.
Going forward, the company will maintain innovation, launch new products, intensify introduction on LUP(Lower Unit Pack),
expand direct reach and work for brand building.
Soap volume growth will be better in Q4FY17 than Q3FY17.
Major Margin Drivers GCPL: Product portfolio, Launch of premium products and cost cutting measure.
International Business( Volume growth): Indonesia(3.5%), Africa( early double digit),Latin America (dip ),Europe( early double
digit). Approx. 66% of growth from International business came by volume.
Gained market share in Cinthol.

Net Sales and PAT(in cr.)


3000 400
Sales(in cr) 368 PAT(in cr)
352350
2500
310 318
290 300
2000 277
252 244 250
222
1500 200
157 150
1000
117
100
500
1889

2060

2236

2092

1988

2197

2286

2269

2123

2439

2486

50

0 0

EBITDA and NPM (%)


25% EBITDA Margin% PAT Margin%
20.8%
19.9% 19.8%
19% 19% 19.1%
20% 18% 17.9%
16% 16% 16%
14% 14%
15% 13% 13% 13% 13%
12%
12%
10%
10% 8%
6%
5%

0%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Narnolia Securities Ltd 10

Please refer to the Disclaimers at the end of this Report


Financials Snap Shot
INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Revenue 7602 8276 8968 9610 EPS 22.3 26.6 32.9 38.5
Other Income 63 92 67 66 Book Value 110.9 126.6 149.7 179.7
Total Revenue 7665 8368 9035 9675 DPS 5.8 6.2 6.9 7.2
COGS 3555 3842 3846 4194 Payout (incl. Div. Tax.) 26% 23% 21% 19%
GPM 53.2% 53.6% 57.1% 56.4% Valuation(x)
Other Expenses 2149 2293 2523 2520 P/E 38 30 44 38
EBITDA 1150 1365 1639 1894 Price / Book Value 7.7 6.4 9.7 8.1
EBITDA Margin (%) 15.1% 16.5% 18.3% 19.7% Dividend Yield (%) 0.7% 0.8% 0.5% 0.5%
Depreciation 82 91 103 139 Profitability Ratios
EBIT 1068 1275 1536 1755 RoE 20.1% 21.0% 22.0% 21.4%
Interest 107 100 100 141 RoCE 19.9% 20.1% 20.4% 17.0%
PBT 1024 1266 1503 1679 Turnover Ratios
Tax 210 272 317 370 Asset Turnover (x) 0.9 0.9 0.9 0.7
Tax Rate (%) 20.5% 21.5% 21.1% 22.0% Debtors (No. of Days) 34 35 46 52
Reported PAT 760 907 1119 1311 Inventory (No. of Days) 111 102 124 130
Dividend Paid 199 211 235 245 Creditors (No. of Days) 59 48 42 42
No. of Shares 34 34 34 34 Net Debt/Equity (x) 0.4 0.5 0.5 0.7

BALANCE SHEET CASH FLOW STATEMENT


FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 34 34 34 34 OP/(Loss) before Tax 1,024 1,266 1,503 1,680
Reserves 3741 4277 5064 6083 Depreciation 82 91 103 139
Net Worth 3775 4311 5098 6117 Direct Taxes Paid (238) (257) (336) (370)
Long term Debt 1590 2023 2449 4227 O.Profit. befor WC changes 1,162 1,400 1,678 1,960
Short term Debt 111 147 182 207 CF from Op. Activity 1,129 1,005 839 1,179
Deferred Tax 5 3 2 2 Non Current investments 34 34 34 34
Total Capital Employed 5366 6334 7547 10344 Capex (133) (190) (208) (2,109)
Net Fixed Assets 1736 1732 1780 3750 CF from Inv. Activity (495) (1,214) (495) (2,410)
Capital WIP 167 225 41 0 Repaym. of LT Borrowings
Debtors 711 805 1118 1356 Interest Paid (113) (119) (119) (141)
Cash & Bank Balances 705 894 746 931 Divd Paid (incl Tax) (199) (211) (225) (245)
Trade payables 1234 1087 1037 1106 CF from Fin. Activity (633) (12) (187) 1,416
Total Provisions 80 124 100 115 Inc/(Dec) in Cash 1 (221) 157 185
Net Current Assets 652 230 624 1244 Add: Opening Balance 624 625 404 746
Total Assets 8325 9142 10153 13059 Closing Balance 625 404 561 931

Narnolia Securities Ltd 11

Please refer to the Disclaimers at the end of this Report


BUY
ASHOK LEYLAND LTD. 13-Feb-17

Result Update
CMP 93 The commercial vehicle giant has posted Rs.4431 crore of net revenue with
Target Price 110 a growth of 7.7% YoY in the 3QFY17. M&HCV volumes grew by 9%YoY on
account of increased infra activity in the country. LCV volumes declined by
Previous Target Price
3% due to the vast presence in rural areas, which were affected most by
Upside 18% demonetization. Realization also declined by 2%QoQ to Rs.1349300
Change from Previous - because of higher discounts in the industry. Discounts have gone up to
Rs.300000 per unit from Rs.225000-250000 per unit but further price
Market Data increases will net off this effect. M&HCV segment market share stood at
33.7% (+370bps YoY) during the quarter despite the demonetization issue.
BSE Code 500477 Exports revenue grew by 11%QoQ to Rs.388 crore for the quarter. The
NSE Symbol ASHOKLEY company has a healthy order book of export orders. Hinduja Foundries
52wk Range H/L 113/74 Limited (HFL), which fulfills casting requirements of Ashok Leyland, has also
shown EBITDA positive for consecutive second quarters. Management
Mkt Capital (Rs Cr) 26,452
anticipates that in two years time the HFL will be accretive to Ashok Leyland.
Av. Volume 1201241 Recently, Ashok Leyland opened a new assembly plant in Bangladesh as it
Nifty 8,794 aims to make further inroads into the neighboring countries.

Stock Performance
1Month 3Month 1Year
3QFY17 Result Highlights

Absolute 9.9 6.4 14.6 Revenue stood Rs.4431 crore with a groowth of 8%YoY on account of
Rel.to Nifty 5.2 0.4 -11.4 6%YoY growth in Volumes and 2%YoY growth in realization in 3QFY17.
EBITDA margin contracted by 60 bps YoY due to 80bps rise in commodity
Share Holding Pattern-% prices during the quarter.
3QFY17 2QFY17 1QFY17 PAT margin declined by 120 bps to 4.1% due to forex loss of Rs.64 crore
Promoter 50.4 50.4 50.4 during the quarter.
Public 49.6 49.6 49.6
Outlook
Others -- -- --
Total 100.0 100.0 100.0
Going forward, We assume that the upcoming emission norms BS-IV to BS-
VI, improvement in demand from infrastructure segment and government's
Company Vs NIFTY initiative to develop defense products in the country can be volume boosters
130
ASHOKLEY NIFTY for the company in FY17. Ashok Leyland is also working towards a renewed
125 thrust in the international markets, with network expansion and dedicated
120 products. We expect that the company will maintain a healthy ROE of over
115 20% going ahead. We maintain 'BUY' on Ashok Leyland considering the
110 huge growth potential going ahead for a target price of Rs.110.
105
100 Rs. In crore
95
90
Financials 3QFY17 2QFY17 3QFY16 QoQ YoY
85 Sales 4431 4622 4114 -4% 8%
80 EBITDA 454 536 449 -15% 1%
Jul-16
Feb-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16

Nov-16
Apr-16
Mar-16

Net Profit 180 294 217 -39% -17%


EBIDTA% 10.3% 11.6% 10.9%
Naveen Kumar Dubey PAT % 4.1% 6.4% 5.3%
naveen.dubey@narnolia.com
Narnolia Securities Ltd 12
Please refer to the Disclaimers at the end of this Report
ASHOKLEY

Investment Arguments

The country would be moving to BS-IV norms in April, 2017 and a significant amount of pre-buying expected, especially in the
fourth quarter of FY17. Ashok Leyland's subsidiary, Albonair, holds a significant potential moving forward because Albonair does
exhaust emission systems, selective catalytic reduction emission systems which are necessary for being BS-IV compliant.
Export is only 12% of total volumes, therefore the company is targeting the African and Middle East countries to expand its
export contribution by setting up own assembly plants in these countries under the company's global expansion project. The
exports is an important part of Ashok Leyland's strategic intent to globalise its product portfolio and derisk itself from supplying
only into India.
The management expects its defence business to log four-fold jump in revenues at over Rs 2,000 crore in next five years as it
gears up to provide an entire range of mobility solutions, including missile carrying vehicles to the armed forces. Ashok Leyland is
the largest supplier of logistics vehicles to the Indian Army.
The management has focused approach towards its core commercial vehicle business. We expect that the company will be
benefitting from recovery in the M&HCV demand and its EBITDA margin will expand on account of operating leverage. The
company is also working on to reduce its debt and generate more cash to fulfill its future expansion requirements.

Concall Highlights

Management expects Q4 to be promising due to the implementation of BS-IV norms.


Capex for FY17 is Rs.500 crore and for FY18 in the range of Rs.500-750 crore.
If there is economic growth in the country CV industry will move ahead. Going ahead we see CV industry to grow about 12-15%
annually.
33.7% market share in M&HCV space and in south region overall market share is 51%.
Domestic truck business contributes 50-55 percent of total revenue.
Some cost pressure would be in 4QFY17 becasue of rising commodity prices.
Net debt stood at Rs.1520 crore.
Price increase of 4% in truck and bus segment in 4QFY17..
Ashok Leyland have acquired 100% ownership of the JVs, we will continue to be associated with Nissan for the technology of
the existing Dost, Partner, and Mitr models.
The management is focusing on to improve profitability and ROCE of the company going ahead.
Defence Revenue to be close to around Rs 1,500 crore by FY18.

M&HCV volume and growth trend

M&HCV Growth YoY

40000 71% 80%


35246
35000 29840 70%
60%
30000 26262 44% 25346 25,284 50%
64% 23232 24025
25000 21489 34% 40%
18207 18279 40% 27%
20000 30%
14908 14%
15000 12% 9% 20%
0% 10%
10000
0%
5000 -15%
-10%
0 -20%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Narnolia Securities Ltd 13

Please refer to the Disclaimers at the end of this Report


ASHOKLEY

Financials Snap Shot


INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Net Revenue 11,487 15,341 20,659 21,850 EPS (1) 0 4 4
Other Income 92 189 152 171 Book Value 15 16 18 20
Total Revenue 11,579 15,530 20,811 22,021 DPS - 0.5 1.1 1.1
COGS 8,138 10,443 13,558 14,312 Payout (incl. Div. Tax.) 0% 112% 30% 30%
GPM 71% 68% 66% 66% Valuation(x)
Other Expenses 1,581 1,845 2,396 2,513 P/E -38.4 73.2 9.2 9.1
EBITDA 422 1,517 2,932 3,151 Price / Book Value 1.6 2.2 2.0 1.7
EBITDA Margin (%) 4% 10% 14% 14% Dividend Yield (%) 0.00% 1.53% 3.23% 3.24%
Depreciation 530 580 524 519 Profitability Ratios
EBIT (108) 937 2,408 2,633 RoE -4% 3% 21% 19%
Interest 805 872 968 1,194 RoCE -1% 9% 19% 20%
PBT (821) 254 1,592 1,610 Turnover Ratios
Tax (68) 172 528 534 Asset Turnover (x) 0.7 0.8 0.9 0.9
Tax Rate (%) 8% 68% 33% 33% Debtors (No. of Days) 43.9 32.2 26.8 26.8
Reported PAT (164) 134 1,071 1,077 Inventory (No. of Days) 69.2 54.8 55.5 55.5
Dividend Paid - 150 316 318 Creditors (No. of Days) 82.4 73.3 52.4 50.0
No. of Shares 266 285 285 285 Net Debt/Equity (x) 1.4 1.4 1.5 1.3

BALANCE SHEET CASH FLOW STATEMENT


FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 266 285 285 285 OP/(Loss) before Tax (300) (42) 1,627 1,610
Reserves 3,723 4,227 4,708 5,466 Depreciation 530 580 524 519
Net Worth 3,989 4,511 4,992 5,751 Direct Taxes Paid (97) (112) (545) (534)
Long term Debt 5,491 6,219 7,597 7,217 OP before WC changes 195 1,725 2,431 3,322
Short term Debt 1,264 827 1,093 874 CF from Op. Activity (104) 496 (952) 2,605
Deferred Tax 411 510 536 536 - - - -
Total Capital Employed 9,480 10,731 12,589 12,968 Capex (408) (251) (212) -
Net Fixed Assets 7,087 6,060 5,894 5,871 CF from Inv. Activity (377) (126) 552 (652)
Capital WIP 270 166 162 162 Repayment of Long Term Borrowings
(1,586) (1,996) (2,362) (380)
Debtors 1,381 1,354 1,515 1,603 Interest Paid (499) (803) (316) (1,194)
Cash & Bank Balances 113 905 1,758 1,600 Divd Paid (incl Tax) (187) - (154) (318)
Trade payables 2,592 3,082 2,966 2,993 CF from Fin. Activity 461 381 1,246 (2,111)
Total Provisions 256 599 1,081 1,069 Inc/(Dec) in Cash (20) 751 846 (158)
Net Current Assets 400 522 1,016 1,035 Add: Opening Balance 127 106 858 1,758
Total Assets 17,534 19,525 22,963 23,157 Closing Balance 106 858 1,718 1,600

Narnolia Securities Ltd 14

Please refer to the Disclaimers at the end of this Report


BUY
Hero Motocorp Limited 10-Feb-17

Result Update
Results in-line; with stable EBITDA margin
CMP 3264
Target Price 3830 Hero Motocorp posted 3QFY17 results in-line with our expectation. Net
Previous Target Price 3179 revenue de-grew by 12%YoY to Rs. 6365 crore in 3QFY17. Volumes
Upside 17% declined by 13%YoY because of demonetization issue during the quarter.
Rural areas have witnessed severe hit due to currency crunch which
Change from Previous 20%
accounts for 60% of the Hero Motocorp volumes. Motorcycle sales were
down by 15% in the month of November and December. Realization stood
Market Data flat because the company took price hike during the quarter. In the month of
BSE Code 500182 January, Hero sold 487000 vehicles with a growth of 48% MoM which
NSE Symbol shows a sharp recovery in the demand. Management expects high single
HEROMOTOCO digit growth for the first half and better second half of next financial year in
52wk Range H/L 3740/2440 volume terms. LEAP, the cost cutting initiative, has supported the company
Mkt Capital (Rs Cr) 65,185 to post EBITDA margin over 16% despite rising commodity prices.
Av. Volume 37142
3QFY17 Results Update
Nifty 8778
>>Revenue declined by 12% YoY to Rs.6365 crore in 3QFY17 because of
Stock Performance 13%YoY decline in volumes.
1Month 3Month 1Year >>Gross margin improved by 270 bps YoY to 35.1% driven by cost cutting
Absolute 6.6 3.8 26.5 initiative LEAP and lower commodity price benefit.
Rel.to Nifty 0.7 0.8 6.3 >>EBITDA margin expanded by 130 bps YoY by lower advertising and
promotional expenses.
Share Holding Pattern-% >>PAT margin improved by 115 bps YoY due to higher other income during
3QFY17 2QFY17 1QFY17 the quarter.
Promoter 34.6 34.6 34.6
Outlook and Valuation
Public 65.4 65.4 65.4
Others -- -- -- We expect improvement in demand scenario in the domestic market after
Total 100.0 100.0 100.0 the demonetization, upcoming marriage season, increasing finance
penetration in rural & semi-urban areas and seventh pay commission payout
will drive the volumes and implementation of cost cutting initiative LEAP to
Company Vs NIFTY
boost margins further by 100 bps going ahead. It has a healthy dividend
150
HEROMOTOCO NIFTY payout of 54%, which provides a cushion to the investors to invest in the
140 company for long term. The company is trading at 7 times of FY17 expected
130 book value with a RoE of 36%. We maintain "BUY" rating on this stock with
a target price of Rs.3830.
120

110
Rs. In crore

100
Financials 3QFY17 2QFY17 3QFY16 QoQ YoY

90
Sales 6365 7796 7224 -18.4% -11.9%
EBITDA 1080 1369 1131 -21.1% -4.5%
80
Net Profit 772 1004 793 -23.1% -2.7%
Jul-16
Feb-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16

Nov-16
Apr-16
Mar-16

EBIDTA% 17.0% 17.6% 15.7%


Naveen Kumar Dubey PAT % 12.1% 12.9% 11.0%
naveen.dubey@narnolia.com
Narnolia Securities Ltd 15
Please refer to the Disclaimers at the end of this Report
HEROMOTOCO
Investment Arguments
Improving demand scenario after demonetization impact- 2 wheelers industry have shown strong recovery after the cash
crunch issue. Hero itself posted 48%MoM growth in January sales numbers. Certain parts of South and West India have not
recovered till yet but we expect domestic market to fully recover by February end.
Increasing finance penetration- We expect that the increasing penetration of finance in the urban as well as in rural areas
aided by favorable interest rates will support the demand going ahead.
Focus on premium segment- HMCL has increased its R&D expenditure to develop technologically advanced in house
products. R&D team will focus on premium products where Hero has minimal presence and this segment has huge growth
potential. Hero has only 6% market share in this segment.
Cost cutting initiative to drive margins up- LEAP, the cost cutting initiative of Hero Motocorp has supported company to post
better margins despite rising commodity pressure. Management is targeting approx. 90 bps saving from this program in FY17.

Healthy dividend payout- Hero Motocorp is a debt free and cash rich company. It has a healthy dividend payout of 54%, which
provides cushion to the investors to invest in the company for long term.
Seventh Pay commission to boost demand- We expect approx.4.7mn government employees will be benefited in this
seventh pay commission pay-out. This will improve the living standard and will drive urban and rural demand for two wheelers
going forward. We expect as a market leader Hero can be bigger beneficiary after the implementation of 7th pay commission.

Concall Highlights

Management expects good single digit growth for first half and better second half for next financial.
Capex guidance for FY17: Rs 1200-1500 crore and Rs.1000-1100 crore for FY18.
Rs.350-400 crore of capex for Andhra Pradesh plant in FY18.
Rs.2000 crore of capex in FY18 for phase-II & III of Halol Plant, If the robust demand comes in.
Price hike in Janauary 2017 in the range of Rs.500-1500 covering rising commodity prices and BS-IV compliance.
EBITDA margin guidance above 15% in FY17.
Target of Rs.255 crore benefit from cost cutting program LEAP in FY17.
Other income for FY17 would be higher by 8-9 percent on an average.
The tax benefit for plants in Rajasthan and Gujarat will last for 7 years; and the benefit is restricted to the extent of investment
Scooters to continue outpace motorcycle growth going forward in FY17. Market share is 14%.
Dealer Inventory remained at 6-7 weeks.
Effective tax rate for FY17 will be slightly higher than FY16
Advertising and Promotion expenses stood 2.4-2.5% of total sales.

Plant Details
Plant Location Capacity
Haridwar 3060000
Gurgaon 2340000
Dharuhera 2340000
Neemrana 450000
Halol 1800000

Gujarat Plant- capacity expansion will include an initial capacity of 1.2 million (mn) units (phase 1: 0.75 mn units by Q3FY17;
phase 2: 0.45 mn units by FY17 end) & a final addition of 0.6 mn (phase 3) by FY18 beginning.
The Haridwar operations currently contribute towards 38% of HMCLs volumes. Once the excise benefits expire in FY18 end,
there will be a 100 bps impact on the EBITDA margins.
Narnolia Securities Ltd 16

Please refer to the Disclaimers at the end of this Report


HEROMOTOCO

Financials Snap Shot


INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Net Revenue 25,275 27,538 28,614 28,807 EPS 105 118 155 172
Other Income 444 492 389 531 Book Value 282 328 398 477
Total Revenue 25,720 28,030 29,003 29,338 DPS 76 70 84 93
COGS 18,230 19,715 19,313 19,096 Payout (incl. Div. Tax.) 72% 59% 54% 54%
GPM 28% 28% 33% 34% Valuation(x)
Other Expenses 2,576 3,147 3,575 3,442 P/E 22 22 19 20
EBITDA 3,539 3,497 4,382 4,853 Price / Book Value 8 8 7 7
EBITDA Margin (%) 14% 13% 15% 17% Dividend Yield (%) 3% 3% 3% 3%
Depreciation 1,107 540 447 571 Profitability Ratios
EBIT 2,432 2,956 3,935 4,282 RoE 37% 36% 39% 36%
Interest 12 12 12 6 RoCE 43% 45% 49% 44%
PBT 2,864 3,437 4,312 4,806 Turnover Ratios
Tax 758 943 1,262 1,377 Asset Turnover (x) 2 3 2 2
Tax Rate (%) 26% 27% 29% 29% Debtors (No. of Days) 13 18 16 16
Reported PAT 2,103 2,365 3,094 3,429 Inventory (No. of Days) 13 16 14 14
Dividend Paid 1,519 1,402 1,682 1,864 Creditors (No. of Days) 33 38 36 36
No. of Shares 20 20 20 20 Net Debt/Equity (x) 0.0 0.0 0.0 0.0

BALANCE SHEET
FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Share Capital 40 40 40 40 OP/(Loss) before Tax 2864 3329 4312 4806
Reserves 5,583 6,500 7,913 9,477 Depreciation 1107 540 447 571
Net Worth 5,623 6,540 7,953 9,517 Direct Taxes Paid (649) (1000) (1104) (1377)
Long term Debt 24 12 146 146 Op before WC 3557 3586 4508 5330
Short term Debt - 88 84 85 CF from Op. Activity 2963 2250 3796 3981
Deferred Tax - - 228 228 Purchase of investment (9) 1354 26973 (142)
Total Capital Employed 5,647 6,552 8,099 9,663 Capex (941) (1156) (1708) (1151)
Net Fixed Assets 3,102 3,671 4,689 5,270 CF from Inv. Activity (1618) 12 (2286) (1780)
Capital WIP 855 719 653 653 Repayment of Borrowings
Debtors 921 1,372 1,282 1,291 Interest Paid (12) (11) (11) (6)
Cash & Bank Balances 120 216 179 510 Divd Paid (incl Tax) (1403) (2219) (1682) (1864)
Trade payables 2,291 2,855 2,792 2,811 CF from Fin. Activity (1414) (2231) (1561) (1870)
Total Provisions 1,594 801 884 890 Inc/(Dec) in Cash (69) 32 (50) 330
Net Current Assets 1,135 1,481 1,999 2,790 Add: Opening Balance 135 66 155 179
Total Assets 10,122 10,654 12,672 14,212 Closing Balance 69 98 104 510

Narnolia Securities Ltd 17

Please refer to the Disclaimers at the end of this Report


Maintain BUY
IRB Infrastructure Developers Ltd. 9-Feb-17

Result Update Recent Update :-


CMP 235 Recently, the group of the social activist had advocated stopping toll
Target Price 265 collection on Mumbai-Pune Expressway, which contributes ~28% of the IRB
Previous Target Price 235 toll collection revenue. It was the relevant concern but MSRDC the awarding
authority of the project has scrapped the appeal raised by activist and stated
Upside 13%
that IRB Infrastructure is liable to collect toll as per the concession
Change from Previous 13% agreement.

Market Data IRB has collected Rs. 2880 Cr till November 2016 against the projection of
BSE Code 532947 Rs. 2869 Cr on Mumbai-Pune Expressway. But as per the concession
NSE Symbol IRB agreement, IRB has right to collect toll till August 2019. There is no such
clause in concession agreement to terminate the contract. Hence, it will not
52wk Range H/L 266/177
change our revenue estimate.
Mkt Capital (Rs Cr) 8,208
Av. Volume 287591
Nifty 8769
Strong Performance, nullify Demonetization Impact :-
Stock Performance IRB has reported better number than our expectation in Q3FY17. Net sales
1Month 3 Month 1Year grew by 5.8% YoY to Rs. 1411 Cr as compared to Rs.1333 Cr in the
Absolute 8.9 10.1 -0.5 corresponding quarter previous year despite of demonetization which led to
suspension of toll collection for 23 days. But on the contrary, average daily
Rel.to Nifty 2.4 6.1 -17.6
toll collection for December month (from 3rd Dec to 31st Dec) has grown by
3% to 7.79 Cr compare to 7.53 in October month. Total income from toll
Share Holding Pattern-% collection grew by 16% YoY (including 150 Cr of claim against toll loss during
3QFY17 2QFY17 1QFY17 the suspension of 23 days) compared to Q3FY16. While EPC revenue has
Promoters 57% 57% 57% grown by 3% YoY to Rs. 834 Cr. Things are improving faster post the
Public 43% 43% 43% demonetization and management has envisaged 5-6% traffic growth in next 3-
6 months which provides strong recovery in toll collection. We expect robust
revenue growth in EPC segment based on healthy order book (3.45x of TTM
construction revenue).

Company Vs NIFTY Actual toll collection for the Q3FY17 was Rs. 517 Cr and company has raised
130 a claim of Rs. 150 Cr for the revenue loss during the suspension period.
IRB NIFTY
120 Revenue and profitability loss on the state highways will compensate in cash
110 by the respective state authorities but NHAI compensates only for interest
100 and O&M expenses incurred during the period in cash for national highways.
90 Principal and profitability on national highways will compensate by way of
80 extension of the concession period.
70 In Rs. Cr
60 Financials Q3FY16 Q2FY17 Q3FY17 YoY (+/-) QoQ (+/-)
50 Sales 1333 1291 1411 6% 9%
40
EBITDA 688 709 743 8% 5%
PAT 170 142 184 8% 30%
EBIDTA% 51.6% 54.9% 52.7% 110 bps (220) bps
Sandip Jabuani PAT 12.7% 11.0% 13.1% 40 bps 210 bps
sandip.jabuani@narnolia.com
Narnolia Securities Ltd 18
Please refer to the Disclaimers at the end of this Report
Investment Argument:-
Robust construction revenue visibility:-
Currently, 5 projects are under construction and in next 8-10 months time period another 3 projects in Rajasthan namely
Gujarat/Rajasthan, Kishangarh - Udaipur and Kishangarh - Gulabpura will come under execution. Order book stands at Rs. 12011
Cr i.e. 3.45x of TTM EPC revenue. All the projects are well on track and management confident to complete projects on time.
Current on-going projects will drive the revenue growth and we expect revenue growth of 40-45% in FY18E.

Strong Recovery in Toll Collection:-


IRB has witnessed encouraging traffic growth post the demonization. Average daily toll collection in month of December has
grown by 3% to Rs. 7.79 Cr compared to Rs. 7.53 Cr in month of October. IRB's most of the operation road projects are in
western part of the country which is seeing good recovery in traffic movement. Management expects 10-12% growth in BOT
revenue including 5-6% traffic growth.

InvIT will unlock Value:-


IRB has filed DRHP (Draft Red Hiring Prospectus) for its InvIT with SEBI and company is in an advanced stage to get approval.
IRB expect it to launch before March 2017. IRB is in the process to raise Rs. 4300 Cr through InvIT IPO. These proceed will be
utilized for the debt reduction and for the future projects.

Concall Highlights :-
Traffic growth is encouraging despite demonization.
December toll collection is up by 3% compare to October month.And management expect 5-6% traffic growth in next 3-6 months
Suspension of toll collection led to low depreciation and amortization as the company follows revenue pattern based policy.
One of the road projects reported 10% reduction in traffic growth due to demonization.
IRB is pre- qualified for the 11738 Cr worth of projects.
Q4FY17 will be much more promising than Q3FY17 in terms of traffic growth.
IRB has raised claim of Rs.150 Cr as toll collection was suspended for the 23 days.
Sufficient cash surplus for funding equity requirement of on-going and up-coming projects
Equity requirement is Rs.1700 Cr including 3 new projects over period of 4 years. ( Rs.170 cr in FY17, 500 cr each in
FY18,FY19 and FY20)
No major impact of demonization on EPC segment.
Work on Udaipur to Rajsthan/Gujarat border project will start from April, on Kishangarh Udaipur- Ahemdabad from June and
recently won project Kishangarh Gulabpura by October
Current average toll collection of 30lakh/day on Agra- Ethwah
IRB has received 139 Cr grant in Yedeshi Aurngabad during the quarter and it will complete before monsoon.
Waiting for SEBI approval for InvIT and expect to launch it before March 2017.

Outlook and Valuation :-


Encouraging traffic growth in Q3FY17 and strong recovery in economic activity nullify the demonetization impact. Most of the
project has seen improvement in traffic especially in a western part of the country. We expect 5-6% traffic growth in near term.
Recent development (regarding Mumbai Pune express) does not change our growth estimate. We continue to expect 11%
revenue growth in FY17E and robust 40-45% revenue growth in FY18E. The introduction of InvIT will help IRB to grow higher.
Hence, we maintain BUY rating on the stock with unchanged target price of 265/-

Narnolia Securities Ltd 19


Please refer to the Disclaimers at the end of this Report
Quartely Performance 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Net Sales 883 964 990 1,109 1,149 1,333 1,537 1,517 1,291 1,411 6% 9%
Other Operating Income - - - - - - - - - -
Net Sales 883 964 990 1,109 1,149 1,333 1,537 1,517 1,291 1,411 6% 9%
Contarct Site Exp 193 240 239 273 314 488 597 553 379 447 -8% 18%
RM Cost 75 75 103 126 138 64 51 76 82 85 31% 3%
COGS 268 314 341 399 452 552 648 629 461 532 -4% 15%
Employee Expenses 50 45 53 48 60 57 81 64 60 67 17% 11%
Other Expenses 42 49 25 33 32 36 68 50 60 69 89% 14%
Total Expenditure 360 408 420 480 544 646 797 743 582 667 3% 15%
EBITDA 523 555 571 629 605 688 740 774 709 743 8% 5%
Depreciation 180 179 172 202 203 226 222 221 227 180 -20% -21%
EBIT 343 377 399 427 402 461 517 553 482 563 22% 17%
Intreset 227 237 251 235 240 264 327 328 340 339 28% 0%
PBT 145 169 176 220 192 229 225 256 176 254 11% 45%
Tax 23 35 40 55 43 61 73 74 33 70 15% 109%
PAT 122 133 138 165 150 170 151 182 142 184 9% 30%

Margin Profile YoY (+/-) QoQ (+/-)


Gross Margin 69.60% 67.38% 65.53% 63.99% 60.65% 58.57% 57.86% 58.54% 64.28% 62.31% 374 (197)
EBIDTA 59.2% 57.6% 57.6% 56.7% 52.7% 51.6% 48.1% 51.0% 54.9% 52.7% 110 (220)
EBIT 38.9% 39.1% 40.2% 38.5% 35.0% 34.6% 33.7% 36.5% 37.3% 39.9% 530 260
PAT 13.8% 13.8% 14.0% 14.9% 13.0% 12.7% 9.8% 12.0% 11.0% 13.1% 40 210

Opearting Matrix YoY% QoQ%


Construction Order 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Ongoing BOT Projects 4,254 3,776 3,219 8,136 7,503 6,675 5,810 4,818 5,634 4,826 -28% -14%
Construction yet to comm. 5,402 5,403 7,551 2,133 2,133 8,828 2,133 2,133 3,987 5,436 -38% 36%
9,656 9,178 10,770 10,269 9,636 15,503 7,943 6,951 9,621 10,262 -34% 7%
BOT Projects in O&M 1,932 3,776 1,861 1,847 1,832 1,818 1,803 1,788 1,773 1,750 -4% -1%
Total 11,587 12,954 12,631 12,116 11,468 17,321 9,746 8,739 11,394 12,011 -31% 5%

Toll Collection at Major Projects YoY% QoQ%


Munbai- Pune 136 147 149 160 146 162 165 188 173 137 -15% -21%
Surat - Dahisar 131 145 147 151 145 156 162 161 148 111 -29% -25%
Tumkar Chitradurga 45 47 48 50 49 51 51 53 50 40 -22% -20%
Baruch - Surat 45 49 48 49 45 49 50 49 47 37 -25% -21%
Ahem.-Vadodra (NE-1) 35 42 43 44 37 53 86 88 83 69 31% -16%
Jaipur - Deoli 24 27 29 33 26 29 32 32 27 22 -24% -16%
Pathankot - Amritsar - 8 21 23 22 27 27 29 28 24 -12% -15%
Thane- Bhiwandi Bypass 17 19 19 20 19 20 21 20 19 15 -24% -19%
Omalur Salem Namakkal 19 21 19 19 18 17 21 20 19 15 -11% -22%
Talegaon Amravati 10 11 12 12 10 12 13 13 12 10 -15% -13%

Narnolia Securities Ltd 20

Please refer to the Disclaimers at the end of this Report


Order Book
Order book Book to bill

20,000 17,321 20

15,000 12,954 12,631 15


11,587 12,116 11,468 11,394 12,011
9,746
10,000 8,739 10

5,000 5

- -
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Order Book break up project wise

Yedeshi Aurangabad
6% 4%
9%
2% Kaithal Rajasthan Border
12% 2%
Solapur Yedeshi
Sindhudurg Airport
Agra Etawah
15% 17%
Gulabpura -Chittorgarh
Udaipur -Gj Border
O & M Contracts
17% 16% Kishangarh Gulabpura
Goa Kundapur

Revenue Mix

Narnolia Securities Ltd 21


Please refer to the Disclaimers at the end of this Report
Financials Snap Shot
INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Net Revenue 3732 3847 5130 5694 EPS 14 15 18 18
Other Income 121 113 124 119 Book Value 107 124 137 151
Total Revenue 3853 3960 5254 5812 DPS 6 5 5 5
EBITDA 1754 2212 2661 3041 Payout (incl. Div. Tax.) 42% 30% 26% 26%
EBITDA Margin (%) 47% 57% 52% 53% Valuation(x)
Depreciation 477 707 853 935 P/E 7 15 13 15
EBIT 1277 1505 1807 2106 Price / Book Value 1 2 2 2
Interest 756 931 1063 1346 Dividend Yield (%) 6% 2% 2% 2%
PBT 642 686 868 878 Profitability Ratios
Tax 182 144 232 246 RoE 13% 12% 13% 12%
Tax Rate (%) 28% 21% 27% 28% RoCE 9% 10% 10% 10%
Reported PAT 459 543 636 633 Turnover Ratios
Dividend Paid 194 164 164 164 Asset Turnover (x) 0.2 0.1 0.1 0.1
No. of Shares 33 35 35 35 Debtors (No. of Days) 1 0 7 7
Inventory (No. of Days) 59 73 55 55
Creditors (No. of Days) 40 22 22 22
Net Debt/Equity (x) 2.64 2.48 2.62 2.68

BALANCE SHEET CASH FLOW


FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 332 351 351 351 OP/(Loss) before Tax 642 686 868 878
Reserves 3228 4009 4476 4942 Depreciation 477 707 853 935
Net Worth 3561 4361 4827 5293 Direct Taxes Paid 232 216 312 246
Long term Debt 9398 10804 12652 14192 Op. before WC change 1749 2216 2719 3159
Short term Debt 897 631 1189 1189 CF from Op. Activity 1656 1823 2342 2104
Deferred Tax 22 19 16 16 Non Current Investment 0 1 0 0
Total CE 12959 15165 17479 19485 Capex 3002 2311 3161 2261
Net Fixed Assets 13041 36599 39169 40494 CF from Inv. Activity (2743) (2295) (3175) (2261)
Capital WIP 48 80 78 78 Repayment of LTB 888 794 1140 0
Debtors 6 5 104 115 Interest Paid 740 1317 1435 1346
Cash Balances 1501 1580 1559 0 Divd Paid (incl Tax) 194 78 254 164
Trade payables 408 234 305 339 CF from Fin. Activity 1274 474 667 30
Total Provisions 289 219 169 324 Inc/(Dec) in Cash 186 2 (165) (127)
Net Current Assets 879 477 510 1349 Add: Opening Balance 257 443 445 1559
Total Assets 15712 39393 42181 42046 Closing Balance 443 445 279 1432

Narnolia Securities Ltd 22

Please refer to the Disclaimers at the end of this Report


Neutral
DR.REDDY'S LABORATORIES LTD 8th Feb 2017

Company Update Dr. Reddy has reported revenue of Rs. 3707 Cr (decline by 7% YoY) in
CMP 3066 Q3FY17 from Rs. 3967 Cr in Q3FY16. Revenue from Global generics
Target Price 3325 segment declined by 9% YoY led by the lower contribution from North
Previous Target Price 3815 America and Venezuela. Revenue from US business has come down by
15% YoY on account of increased competition and pricing pressure. Delay
Upside 8%
in new launches and erosion in base business is a major area of concern
Change from Previous -13% in US business. During the quarter, company launched 5 new relatively
small products in the US market and management expects meaningful
Market Data launches in US market in coming fiscal.
BSE Code 500124 Business Highlights
NSE Symbol DRREDDY
52wk Range H/L 3689/2813 Sales from US business stood at ~Rs. 1659 Cr. in Q3FY17 vs Rs. 1942
Mkt Capital (Rs Cr) 50762 Cr. in Q3FY16. Limited meaningful launches in 9M FY17 coupled with
pricing pressure in 1HFY17 in key products has led to muted growth in US
Av. Volume(,000) 26.83
business in FY17.
Nifty 8768
Revenue from the Europe Business declines by 10% to Rs. 215 Cr in
Stock Performance Q3FY17 vs Rs. 193 Cr in Q3FY16.
1M 3M 12M In this quarter Domestic business grew to Rs. 595 Cr. from Rs. 580 Cr.
Absolute 3.6 5.6 5.0 Revenue from the Emerging Business declines by 7% to Rs. 595 Cr in
Rel.to Nifty -3.3 -14.0 -8.6 Q3FY17 vs Rs. 640 Cr in Q3FY16.
During the quarter, 16 DMFs were filed globally of which 1 was filed in
Share Holding Pattern-% US.Cumulative number of filings as on 31 Dec. 2016 was 782.
3QFY17 2QFY17 1QFY17 Net Debt/Equity is 0.31 as on 31 dec 2016.
Promoters 26.8 26.7 25.6
Public 73.2 73.3 74.4 Business Highlights
Others
Total 100.0 100.0 100.0 Management expects that global business to gain traction from FY18 on
the back of currency stabilization in emerging markets geographies, stable
Company Vs NIFTY macro economics and institutional business launches. In Q3FY17,
125
company commercialized 2 In-licensed products from the strategic
DRREDDY NIFTY
120
collaboration with Amazon. Remediation process at Srikakulam,
115
Mriyalguda and Duvvada facilities are over and the management expects
110 inspection at these facilities are expected in Feb/ Mar-17. Considering near
105 term uncertainties we recommend NEUTRAL rating in this stock with a
100 target price of Rs 3325.
95 in(Rs Cr) 2012 2013 2014 2015 2016
90
85
Sales 9815 11896 13415 15023 15698
80 EBITDA 2431 2720 3251 3494 3921
Jul-16
Feb-16

Sep-16
Jan-16

Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16
Mar-16

Net Profit 1301 1527 1963 2336 2151


EPS 77 90 115 137 126
Aditya Gupta ROE 26% 24% 25% 24% 18%
aditya.gupta@narnolia.com
Narnolia Securities Ltd 23
Earnings Call Highlights of Q3FY17

During this quarter 5 relatively small products were launched. Management does not expect any benefit from meaningful launch
in Q4 but expects to launch 15+ launches in FY18.
Working Capital increases by ~Rs. 400 Cr due to new product inventory build-up and increase in receivables in some
geographies
R&D expenditure for the quarter is ~Rs. 498 Cr representing 13.4% of revenues.
Management expects 15 new launches in FY18 (including 4-5 meaningful launches).
Substantially ramped up R&D productivity and filed 9 ANDAs in this quarter and with this cumulative filing at the end of FY17
will be 25.

Business Overview
The Company is organized into the following businesses which are reportable segments:
Pharmaceutical Services and Active Ingredients: This segment includes active pharmaceutical ingredients and intermediates, also
known as active pharmaceutical products or bulk drugs, which are the principal ingredients for finished pharmaceutical products.
Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages are fixed in a form
ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes
contract research services and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the
specific customer requirements.

Global Generics: This segment consists of finished pharmaceutical products ready for consumption/ use by the patient, marketed
under a brand name (Branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations
(generics). This segment includes the operations of the Companys biologics business.

Proprietary Products: This segment consists of the Companys differentiated formulations business, New Chemical Entities (NCEs)
business, and the dermatology focused specialty business operated through Promius Pharma.

Others: This includes the operations of the Companys wholly-owned subsidiary, Aurigene Discovery Technologies Limited, a
discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation and
which works with established pharmaceutical and biotechnology companies in early-stage collaborations, bringing drug candidates
from hit generation through Investigational New Drug (IND) filing.

Narnolia Securities Ltd 24


Please refer to the Disclaimers at the end of this Report
Update on ongoing US FDA matters

Key Risk to Target Price


Key Momentum For
Upside Risk Downside Risk
Stock
Clearance of Form 483
issues at Srikakulam API Regulatory delays
facility Margin improvement despite
affecting key US
increase in R&D
launches

Launch of key products Stabilisation of emerging market


like gCopaxone, economies/currency, mainly
Adverse foreign
gNexium, etc Russia/CIS (12% of sales)
exchange fluctuation

R&D investment breakup (FY16)

Generics Proprietary products Biologics R&D costs increasing.

3%
DRReddy remains committed to investing
14%
aggressively in R&D, to help build a robust
pipeline of complex generics and products
with significant entry barriers lending
83% competitive advantage over the long run.

R&D guidance is around 12% of sales as


About the Company per planned scale up in development
activities
Dr. Reddys is one of the largest Indian generic companies in the world with presence in more than 40 countries. USA is its
largest market and contributes more than 40% of its revenues. It has one of the largest portfolios among Indian generic players
and has enabled it to become a prominent generic player in the US. Russia and India are the two other key geographies, where it
has significant presence. Apart from strengths in developing niche generic products, vertical integration into APIs has enabled it
to become a global generic powerhouse. It operates 16 manufacturing bases (10 USFDA approved) and is actively supported by
an extensive R&D programme. It also has one of the deepest pipelines of biosimilars amongst leading global generic companies,
addressing global brand sales of USD30bn.The key therapeutic focus is on gastro-intestinal, cardiovascular, diabetology,
oncology, pain management, anti-infective and paediatrics.

Narnolia Securities Ltd 25


Please refer to the Disclaimers at the end of this Report
Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue 11896 13415 15023 15698 EPS 90 115 137 126
Other Income 150 170 274 269 Book Value 375 462 578 687
Total Revenue 12046 13585 15297 15967 DPS 16.0 17.5 21.1 23.4
COGS 3454 3261 3712 3541 Payout (incl. Div. Tax.) 18% 15% 15% 19%
GPM 29% 24% 25% 23% Payout
Other Expenses 2751 2944 2995 4805 P/E 19.6 22.2 25.4 24.0
EBITDA 2720 3251 3494 3921 Price / Book Value 4.7 5.5 6.0 4.4
EBITDA Margin (%) 23% 24% 23% 25% Dividend Yield (%) 1% 1% 1% 1%
Depreciation 550 648 760 971 Profitability Ratios
EBIT 2169 2603 2734 2950 RoE 24% 25% 24% 18%
Interest 100 127 108 82 RoCE 28% 26% 24% 23%
PBT 2219 2646 2900 3137 Turnover Ratios
Tax 638 683 563 524 Asset Turnover (x) 0.88 0.84 0.81 0.78
Tax Rate (%) 29% 26% 19% 17% Debtors (No. of Days) 98.0 90.0 100.0 97.0
Reported PAT 1527 1963 2336 2151 Inventory (No. of Days) 67.0 66.0 62.4 60.0
Dividend Paid 272 298 359 399 Creditors (No. of Days) 29.6 24.3 21.1 22.0
No. of Shares 17 17 17 17 Net Debt/Equity (x) 0.2 0.3 0.1 0.1

BALANCE SHEET CASH FLOW STATEMENT


FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 85 85 85 85 OP/(Loss) before Tax 2165 2646 2900 2675
Reserves and surplus 6284 7780 9768 11616 Depreciation 550 648 760 971
Shareholders' funds 6369 7865 9853 11701 Direct Taxes Paid -555 -714 -546 -710
Long term Debt 1266 2076 1432 1069 OP before Wc 3228 3689 4554 4775
Total Borrowings 3165 4136 3617 3341 CF from Op. Activity 1378 1970 2524 4048
Non Current liabilities 193 299 492 404 Current investments -1156 -2509 -3701 -5516
Long term provisions 51 56 78 95 Capex -756 -1083 -1532 -1388
Short term Provisions 674 816 1144 1195 CF from Inv. Activity -1446 -1694 -2265 -1942
Current liabilities 3760 3730 4636 4565 Repayment of Debt 0 1010 0 0
Total liabilities 13487 16030 18598 20010 Interest Paid -126 -116 -109 -92
Net Fixed Assets 4616 5280 5906 7227 Divd Paid (incl Tax) -272 -298 -359 -411
Non Current Investments 0.40 0.40 145.60 146.00 CF from Fin. Activity -157 -24 -433 -1701
Long term Loans & Advances 149 232 418 519 Inc/(Dec) in Cash -225 251 -174 405
Current assets 8527 10326 11877 11820 Add: Opening Balance 746 611 757 154
Total Assets 13487 16030 18598 20010 Closing Balance 520 862 583 559

Narnolia Securities Ltd 26

Please refer to the Disclaimers at the end of this Report


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Road | Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com,
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