Perpetual Long Term Stocks to BUY

01 Bajaj Finance Ltd. (CMP: INR 2,023; Mkt Cap: INR 1,16,940 cr; Target INR 2,700)
Business Overview
Bajaj Finance Limited (BFL) is one of the largest NBFCs with consolidated Assets Under Share Holding Pattern (%)
Management of INR 933bn one of the finest asset quality. BFL among NBFCs is well diversified
with significant presence with Consumer, Rural, SME, Commercial & Mortgage (BFL recently Promoter 55.1
started a housing finance subsidiary). The AUM mix of the company for Consumer, SME;
Commercial; Rural and Mortgage (Including housing Finance) segments are 39%, 13%, 13%,
7% and 28% respectively Public 44.5
Company has customer franchise of 28.28mn and in Q1FY19 disbursed 5.63mn new loans.
Company’s clients are served through 793 urban centres and 693 rural centres with over
69,600+ of distribution points Others –
BFL is the largest 2W financing companies in India and also the largest financier of domestic
sales of Bajaj Auto’s of 2W & 3W. In Q1FY19, BFL has disbursed 198k and 31k loans to 2W &
3W respectively
BFL has started Bajaj Housing Finance Limited, a 100% subsidiary. Company has become fully
operational in Feb. 2018, with all new mortgage business now being done through it. It offers
a full range of mortgage products such as Home Loans, Loan against property and Lease
Rental Discounting to salaried and & self-employed customers and also offers inventory
finance and construction finance to developers. At present, Company has an AUM of INR
72.72bn as of Q1 FY19
Opportunity Size: -
Indexed price comparison
The Indian mortgage penetration is 9.5% of GDP as compared to 22% in China and developed
natation accounts >40%. The opportunity size in consumer business is about INR 4-5% of GDP 400
which is likely to increase and renewed focus on SME sector is likely to augment the loan 350
demand 300
250

(Indexed)
INR Cr FY17 FY18 FY19E FY20E
Net Revenue 6136 8662 12091 15933 200
PPOP 3621 5087 7133 9401 150
Net Profit 1837 2647 3803 5120 100
EPS (INR) 33.6 46.0 65.0 87.4 50
ABV (INR) 173.2 284.6 338.8 415.5 0

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P/E(x) 63.7 46.5 32.9 24.5
P/ABV(x) 12.4 7.5 6.3 5.2
NNPA (%) 0.44 0.38 0.4 0.4
Bajaj Fin Sensex
Advances 60,194 84,033 113383.4 153410
 01 Bajaj Finance Ltd. (CMP: INR 2,023; Mkt Cap: INR 1,16,940 cr; Target INR 2,700)
Investment Hypothesis
BFL has reported a substantial growth in all fronts. Company’s AUM grew 42% CAGR over AUM
FY08-18 to INR 933bn, net interest income (NII) and PAT grew 39% and 62% CAGR over the 1,000
same period. We believe current growth to continue in medium to long term on account of
800
new product launches and increasing presence in semi-urban and rural area

(INR bn)
600
Company has registered considerable control on cost-income (C/I) ratio which is reflecting in
400
steady improvement in RoA. The C/I ratio was 58.1% in FY08 which came down to 41.8% in
FY18 and during the same period RoA improved from 0.9% to 3.9%. We believe, cost of funds 200
will impact the profitability but considerable control over opex will help to maintain the
current RoA 0
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Company has consistently improved the asset quality on back of prudent credit appraisal
mechanism and also proper collection team. Hence, net NPA came down from 7.05% to 0.4%
over FY08-18. We expect, asset quality to remain robust going forward RoA
5.0%
Risks
4.0%
Consumer financing is a long gestation business, hence competition in the segment is very
3.0%
less. There are some players who entered into consumer business recently who can dent the
monopoly which can impact the business 2.0%
1.0%
Consumer financing is an unsecured lending. Hence any unfavourable situation may impact 0.0%
the earning FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

RoAE
Particular P/E (x) P/ABV (x) RoA (%) ROAE (%) 30.0%
25.0%
FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E
20.0%
SCUF 10.3 8.4 1.9 1.6 3.8 3.8 18.1 18.9 15.0%
10.0%
CAPF 11.8 9.3 1.8 1.5 1.6 1.6 15.1 16.3 5.0%
0.0%
BFL 32.9 24.5 6.3 5.2 3.8 3.8 20.8 22.9
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
 02 HDFC Bank Ltd. (CMP: INR 1,965; Mkt Cap: INR 5,34,007 cr; Target INR 2,452)
Business Overview
HDFC Bank is the largest private bank with an assets and loans & advances INR 10.6tn and INR Share Holding Pattern (%)
6.5tn respectively. The distribution network comprises of 4,787 branches and 12,635 ATMs in
~2,691 cities / towns Promoter 25.5
HDFC Bank is consistently gaining market share in advances and deposits. Bank’s market share
in advances and deposits increased to 6.1% and 5.6% from 2.3% and 2.6% in FY06
respectively. We expect the growth momentum to continue, supported by well-balanced loan Public 74.5
mix between wholesale and retail segments, brand equity, professional management,
distribution reach, high CASA, clean book, and focus on profitability
Others –
HDFC Bank is among the top three players in auto loans, personal loans, commercial vehicles,
cash management, and supply chain management
Opportunity Size: -
The Indian banking sector has grown >1.5x of Indian nominal GDP growth over FY05-18. The
total outstanding loans & Advances (NBFC + banks) is about 67-70% of India’s GDP as
compared to more than 100% in other developing and developed nations. Hence, the
opportunity size in lending business is mammoth for a decade

Indexed price comparison

Key financial indicators 150
INR Cr FY17 FY18 FY19E FY20E
Net Revenue 45,435 55,315 66,402 79,297
120
PPOP 25,732 32,624 40,081 48,921
Net Profit 14,549 17,486 22,049 27,597
90
EPS (INR) 56.7 67.3 80.9 101.3
ABV (INR) 344 402.5 537.3 613
P/E(x) 35.7 30.1 25 20 60

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P/ABV(x) 5.9 5.0 3.7 3.3
GNPA (%) 1.0 1.2 1.3 1.3
HDFC Bank Sensex
Advances 5,54,568 6,58,333 8,22,916 10,28,645
 02 HDFC Bank Ltd. (CMP: INR 1,965; Mkt Cap: INR 5,34,007 cr; Target INR 2,452)
Investment Hypothesis Net Profit and Loans & Advances to continue upwards trajectory
RoA is expected to improve on back of the following factors a) cost-income ratio is likely to
come down as digitization plays a key role from client’s acquisition to disbursement; b) credit 7000 60%
20000 35
cost was elevated in last year due to higher Agri slippage which is likely to remain moderate
30 6000 50%
leading to a comparatively lower credit cost
15000 25 5000
40%

INR (in cr)

HDFC Bank consistently witnessed healthy profit growth even in challenging environment. The

(INR bn)
20 4000
Bank’s net interest income (NII) and net profit growth was 26% and 28% respectively over the 10000 30%
15 3000
last 48 quarters on the back of 28% growth over loans & advances. We have projected net 20%
revenue and net profit to grow at 20% and 26% respectively over FY18-20e on back of 25% 5000 10 2000
growth in loans & advances 5 1000 10%
0 0 0 0%
HDFC Bank may look to unlock value by selling stake in its subsidiaries HDB Financial Services

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18

FY08

FY10

FY12

FY14

FY16

FY18
and HDFC Securities. HDB for FY18 reported PAT of INR 9.5bn and Loan book of INR 436bn,
HDFC Securities reported revenue for FY18 of INR 7.9 bn and PAT of INR 3.4 bn. We believe
Net Profit Y-o-Y change Loan & Advances Y-o-Y growth
the bank may divest stake in its subsidiaries in future to unlock value for the bank and
strengthen its balance-sheet
At CMP, stock is trading at 3.2x FY20 ABV with a RoA and RoE of 2.1% and ~18%

Risks RoA to strengthened on back of cost control

Higher than expected delinquencies due to the loan mix and also vulnerable to system-wide
deterioration in the quality of retail assets is the key risk
Valuations de-rating of the stock due to structural changes within the bank (like change in
Cost-Income Ratio(%) RoA (%)
61
management etc) 2.00
51
Peer Comparison 1.80
41
Diluted P/E (x) P/ABV RoAE (%) 1.60
31
FY19E FY20E FY19E FY20E FY19E FY20E 21 1.40
Yes Bank 9.1 6.8 1.6 1.4 19.1 21.8 11 1.20
Axis Bank 19.8 14.0 2.4 2.1 11.2 14.2
1 1.00
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FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18

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FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
HDFC Bank 25.0 20.0 3.7 3.3 17.3 17.4
Kotak Mahindra Bank 29.4 23.7 4.4 3.7 14.5 15.6
 03 IndusInd Bank Ltd. (CMP: INR 1,607; Mkt Cap: INR 96,649 cr; Target INR 2,022)
Business Overview
IndusInd Bank (IIB) is one of the fastest growing private banks with strong presence in Share Holding Pattern (%)
consumer financing. Bank’s loan mix between wholesale and retail stands at 60% and 40% and
in retail major exposure is in CV financing. Bank has an assets over INR 2.2tn with branch Promoter 16.8
strength of 1,410 and 2,285ATMs
IndusInd Bank has reported a robust growth over last few years under the leadership of Mr.
Ramesh Sobti. Bank’s loans & advances grew at 28% CAGR over FY10-18 and PAT increased Public 83.2
34% over the same period. The bank is consistently gaining market share in advances and
deposits. We believe the current growth to continue on back of right mix of assets
Others –
IIB has been consistently reporting a superior asset quality despite 60% exposure to wholesale
and in retail, CV financing constitutes a lion’s share. The robust asset quality is a reflection of
credit appraisal process. The gross NPA of the Bank stood at 1.19% (gross stressed is <1.5%)
and net NPA is 0.5%. We believe bank is likely to continue to report stable asset quality
Opportunity Size: -
The Indian banking sector has grown >1.5x of Indian nominal GDP growth over FY05-18. The
total outstanding loans & Advances (NBFC + banks) is about 67-70% of India’s GDP as
compared to more than 100% in other developing and developed nations. Hence, the
opportunity size in lending business is mammoth for a decade

Key financial indicators Indexed price comparison

INR Cr FY17 FY18 FY19E FY20E 210

Net Revenue 10,234 12,247 14,915 18,460 180

PPOP 5,451 6,656 8,322 10,494

(Indexed)
150
Net Profit 2,867 3,605 4,472 5,703
EPS (INR) 120
47.9 60 74.5 95
ABV (INR) 340 388.5 450.1 533.1 90
P/E(x) 33.1 26.4 21.3 16.7 60

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P/ABV(x) 4.6 4.0 3.5 2.9
GNPA (%) 0.9 1.1 1.3 1.2
Indusind Sensex
Advances 1,13,080 1,44,953 1,84,091 2,30,113
 03 IndusInd Bank Ltd. (CMP: INR 1,607; Mkt Cap: INR 96,649 cr; Target INR 2,022)
Investment Hypothesis
Loans & Advances to continue upwards trajectory
Management has a well-defined strategy for IIB under its fourth planning cycle (FY2017-2020)
to achieve a) loan growth of 25-30%, b) CASA ratio of 40%, c) Revenue growth to exceed 1600 40%
balance sheet return, d) RoRWA of more than 2.4%, e) branch network of 2000 branches and
1400 35%
f) customer base to double to more than 20mn. In all previous planning cycle, Banks has
delivered more than the guidance 1200 30%

IIB is well placed to leverage its position in retail sector on back of its expertise in CV 1000 25%

(INR bn)
financing, merger with Bharat Financial Inclusions is likely to boost NIMs and RoA of the bank. 800 20%
The bank plans to capitalize on the cross-sell opportunities by mining Bharat Financial’s large 600 15%
customer base. The focus areas would be savings accounts, recurring deposits, and
400 10%
partnerships for two-wheeler and home loans
200 5%
We believe, bank would continue to register superior growth combined with stable margins
and credit cost. The bank is likely to continue earnings growth of more than 25% CAGR given 0 0%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
improving retail liabilities and positive synergies on merger with Bharat Financial. The bank
with high RoA and well capitalised position will continue to demand higher valuations Loan & Advances Y-o-Y growth
At CMP, stock is trading at 3.0x FY20 ABV with a RoA and RoE of 1.9% and ~19%

Risks
Higher than expected delinquencies due to the loan mix and also vulnerable to system-wide PAT to continue upwards trajectory
deterioration in the quality of retail assets is the key risk
4000 70%
Valuations de-rating of the stock due to structural changes within the bank (like change in 3500 60%
management etc) 3000 50%
2500

(INR cr)
Peer Comparison 40%
2000
30%
Diluted P/E (x) P/ABV RoAE (%) 1500
1000 20%
FY19E FY20E FY19E FY20E FY19E FY20E
500 10%
Indusind Bank 21.3 16.7 3.5 2.9 17.3 18.8
0 0%
Axis Bank 20.2 14.4 2.5 2.1 11.2 14.2 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

HDFC Bank 24.1 19.3 3.6 3.1 17.3 17.4 PAT Growth (YoY)
Kotak Mahindra Bank 28.7 23.2 3.9 3.4 14.5 15.6
 04 Larsen & Toubro Ltd. (CMP: INR 1,227; Mkt Cap: INR 1,72,080 crs; Target INR 1,603)
Business Overview
Larsen & Toubro (L&T), headquartered in Mumbai, is a technology driven engineering and Share Holding Pattern (%)
construction organization, and one of the largest companies in India's private construction
and engineering sector.
Promoter –
It has additional interests in manufacturing, services, and information technology. A strong
customer-focused approach and the constant quest for top-class quality has enabled the
company attain and sustain leadership in its major lines of businesses over seven decades. Public 100.00
L&T has an international presence, with a global spread of offices. A thrust on international
business over the past few years has seen overseas earnings growing to 18% of total
Others –
revenues.
With factories and offices located around the country, further supplemented by a wide
marketing and distribution network, L&T's image and equity extend to virtually every district
of India
Opportunity Size: -
Central and state governments are loosening their purse strings substantially on roads,
railway, urban infra, defense, power T&D, irrigation and water.

Key financial indicators Indexed price comparison

INR Cr FY17 FY18 FY19E FY20E 180
Revenues (INR Cr) 1,09,311 1,19,683 1,37,741 1,59,317 160
Rev growth (%) 8.1% 9.5% 15.0% 15.7% 140
EBITDA (INR Cr) 11,074 13,571 15,699 18,483

(Indexed)
120
Margin 10.1% 11.3% 11.4% 11.7% 100
EPS (INR Cr) 42.2 51.7 58.0 70.8 80
EPS growth (%) 43 22.4 12.2 22.1 60
P/E (x) 32 26 23 19 40

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P/B (x) 3.8 3.4 3.1 2.7
RoACE (%) 7.1 8.2 8.7 9.6
RoAE (%) 12.6 13.7 13.6 14.7 Larsen Sensex
 04 Larsen & Toubro Ltd. (CMP: INR 1,227; Mkt Cap: INR 1,72,080 crs; Target INR 1,603)
Investment Hypothesis
Cumulatively, Central Government is expected to spend INR 27 lakh cr over the next 5 years
Superior RoE Across Cycles Reflects L&T’s Outperformance
on transportation, urban infra and power T&D. L&T, anchored by its diverse capabilities and 30
26 26
unique positioning, is expected to grab more than INR 3.5 Lakh cr orders from these sectors
(current order-book INR 2.5 lakh cr) 25 22
20
Currently, L&T has INR 2.5 lakh cr of overall order-book and 75% of that are from 20 18 17 18
Infrastructure sector as compared to 45% in FY10. With the growth in revenue from

(%)
15 12 12
infrastructure sector (high margin), overall margin of L&T is expected to improve significantly 11
going forward 10 7 7 7
6
With low investment requirement in subsidiaries and self-sustained growth in developmental 3
5
projects, further investment in subsidiaries will be miniscule and that will improve standalone 0
ROCE by 200 bps over the next two years 0
LT’s stock price has always been a leading indicator of the company’s order-inflow trend. L&T NCC HCC Simplex
Over the past one year, LT’s stock price has corrected 40% and in FY16 overall order inflow is FY01-05 FY06-10 FY11-15 FY15-17
estimated to decline 10%. We believe, with anticipated spurt in order inflow in FY17, the stock
is poised to give positive returns
Risk
Delay in pick up in economic cycle may postponement order-inflow and thereby revenue LT moving into large and more complex orders
growth
Pressure on margins may get expended due to execution challenges 100 60
90 50
80 43 50
70 40
60 32
Peer Comparison
50 30
Diluted P/E (x) Diluted EPS RoCE (%) 40
30 20
FY19E FY20E FY19E FY20E FY19E FY20E 20 7
10
10
Thermax 29.3 21.5 31.3 42.7 18.6 22.4
0 0
Siemens 35.3 31.7 27.2 30.3 17.0 17.6 FY01-06 FY07-10 FY11-15 FY15-18

Total value of large orders (LHS) Average size of top 15 projects (RHS)
 05 Maruti Suzuki India Ltd. (CMP: INR 6,904; Mkt Cap: INR 2,08,567 cr; Target INR 10,054)
Business Overview
Maruti Suzuki India Ltd (MSIL) is the largest passenger vehicle (PV) manufacturer in India Share Holding Pattern (%)
having market share of ~53% currently. Company has dominant position across all the major
segments in PV industry Promoter 56.2
Over the years, MSIL has built largest distribution network across the country which is very
difficult to replicate. Further company has significantly improved its product technology as
well as increase offerings across segments in last few years which has helped to increase its Public 43.8
market share consistently. In last 2 years, MSIL’s market share has increased from 47% in
FY16 to 50% in FY18 and further to 53% in Q1FY19
Others –
Opportunity Size: -
MSIL plans to increase its distribution network to 4000 dealers by 2020 from ~2500 currently,
which will help the company maintain strong hold on domestic market
MSIL has been gradually increasing its product offerings in premium car segment, which is
aiding to scale up in terms of realisation
These strategies will help company to gain not only in terms to volume, but also value

Key financial indicators Indexed price comparison

INR Cr FY17 FY18 FY19E FY20E 250

Revenues (INR Cr) 68,035 79,763 92,587 1,05,414
200
Rev growth (%) 18.2 17.2 16.1 13.9
EBITDA (INR Cr) 10,353 12,062 14,307 16,623 150

Indexed
Margin 15.2 15.1 15.5 10.9
100
EPS (INR Cr) 243.0 256.0 331.8 391.9
EPS growth (%) 50
37.3 5.4 29.6 18.1
P/E (x) 28.4 27.0 20.8 17.6 0

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Jan-17

Jan-18
P/B (x) 6.5 5.7 4.9 4.1
RoACE (%) 30.1 28.9 31.6 31.8
RoAE (%) Maruti Suzuki Sensex
22.2 19.8 22.6 22.6
 05 Maruti Suzuki India Ltd. (CMP: INR 6,904; Mkt Cap: INR 2,08,567 cr; Target INR 10,054)

Investment Hypothesis
Success of new launches and innovative marketing technique like “Nexa
Strong product offerings across all segments in PV industry along with significant success of and Arena” helping to scale up the market share
almost all recent launches in past 2 years has helped MSIL to further scale up its market share 53%
48% 47% 50% 50% 50% 49%
Rising share of premium cars like Baleno & new Swift, Ertiga, Brezza, S-Cross and Ciaz helping 46% 45% 47% 46% 46% 48% 48% 48%
44% 45%
company to gain in terms of realization per unit
Increase in localisation and innovative royalty payment mechanism, where MSIL will start
paying royalty in INR to Suzuki Motor Corporation for all new models launched post “Ignis”
will help company to negate forex fluctuation risk going forward in near term

Q1FY15

Q2FY15

Q3FY15

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Q1FY16

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Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19
Partnership between Suzuki Motor and Toyota comes with significant importance to Maruti
going forward, as it will help the company to get access to Toyotas futuristic powertrain
technologies such as electric vehicles
Rising share of sedans, SUVs and premium hatchbacks helping to push
At CMP stock is trading at 18x of FY20E EPS
realisation (INR per unit) upwards
Risks 550

Thousands
Slowdown in PV demand owing to sharp rise in fuel prices, increase in interest rates macro 450
economic uncertainty 350
Softening of INR 250

Q3 FY12
Q4 FY12
Q1 FY13
Q2 FY13
Q3 FY13
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Q2 FY14
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Q2 FY15
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Q1 FY16
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Q3 FY17
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Q1 FY18
Q2 FY18
Q3 FY18
Q4 FY18
Q1 FY19
Increasing competition

Peer Comparison
Diluted P/E (x) Diluted EPS RoCE (%) Innovative royalty payment policy in INR for new launches to help negate forex
risk and benefit margins
FY19E FY20E FY19E FY20E FY19E FY20E

MSIL 20.4 17.7 338.6 392.0 28.9 31.0

Hero Moto Corp Ltd 15.0 13.8 184.5 201.0 44.0 44.9 5.8% 5.4%
4.5% 4.9% 5.0% 4.7%
3.3% 4.7%
Bajaj Auto 17.7 15.3 152.4 175.5 31.4 33.1 1.8% 2.3%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Ashok Leyland 21.2 15.1 5.6 7.9 28.5 35.0
Royalty as % to Net sales
 06 Sun Pharma Ltd. (CMP: INR 598; Mkt Cap: INR 1,43,468 cr, Target INR 792)
Business Overview
SUN pharma is largest pharmaceutical company in India with 30% of sales coming from Share Holding Pattern (%)
domestic markets and remaining 70% from Exports
In India, the company is ranked No.1 as per IMS sales ranking. In the US, it has a strong Promoter 54.3
presence in complex generics and is directing its R&D spending towards biosimilars and new
products opportunities
Public 45.5
During FY18, the company got adversely impacted by the significant price erosion witnessed
in the US generic pharmaceutical market. We think this phenomenon was transient due to
strong influx of generic competition led by rapid ANDA approvals by the US FDA Others –
However, subsequent impact of further generic competition will not be as significant with the
company having adequate launch pipeline to fuel future growth
Opportunity Size: -
India Pharma market is worth $17 bn as per reported revenue in 2018, expected to grow at
10% CAGR. Global Pharma Market is worth $1200 bn in 2018, expected to grow at 4% CAGR

Key financial indicators Indexed price comparison

INR Cr FY17 FY18 FY19E FY20E 160
Revenues (INR Cr) 30,264 26,065 29,646 33,040 140
Rev growth (%) 8.5 -14.0 13.7 11.4 120
100

(Indexed)
EBITDA (INR Cr) 10,089 5,608 7,000 8,376
80
Margin 31.9 21.1 23.2 24.9
60
EPS (INR Cr) 28.9 13.4 17.5 22.8
40
EPS growth (%) 35.3 -53.0 30.7 29.6 20
P/E (x) 21.4 46.1 35.2 27.2 0

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Jul-18
Oct-17

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Apr-17

Apr-18
Jan-17

Jan-18
P/B (x) 4.0 3.9 3.5 3.2
RoACE (%) 20.3 9.9 11.5 13.5
Sun Pharma Sensex
RoAE (%) 20.2 9.0 10.4 12.1
 06 Sun Pharma Ltd. (CMP: INR 598; Mkt Cap: INR 1,43,468 cr, Target INR 792)
Investment Hypothesis Global Pharma Market
Post Halol resolution, we expect base business will move from $80 mn per quarter to $120 USD (in Bn) 2016 2017 2018 2019 2020 2021 2022
mn per quarter from 2QFY19 onward Chemical Drugs 933 966 1001 1039 1080 1125 1163
Innovative pipeline which include ODOMZO, SISCERA, TILTRA and ILLYA will drive incremental Biologics 220 240 262 288 316 350 388
growth and expect $400 mn peak sales within next 5 years, which will compensate price Original 216 232 249 268 288 313 344
erosion in base generics business
Biosimilar 4 8 13 20 28 37 44
Company will have INR 20,000 cr net cash at the end of FY19E, which can be utilised for Total Market 1153 1206 1263 1327 1396 1475 1551
earning accretive acquisition Growth
Chemical Drugs 4% 4% 4% 4% 4% 3%
Risks Biologics 9% 9% 10% 10% 11% 11%
Company is yet to prove its execution in Innovative drugs Original 7% 7% 8% 7% 9% 10%
Biosimilar 100% 63% 54% 40% 32% 19%
Pricing pressure in US generics market
Total Market 5% 5% 5% 5% 6% 5%
Regulatory compliance related risk

Sales Break Up

APIs, 5%

Peer Comparison
Diluted P/E (x) Diluted EPS ROCE (%)
India, 31%
FY19E FY20E FY19E FY20E FY19E FY20E ROW, 30%

LUPIN 26.0 20.0 35.0 45.0 10.0 10.0

DRREDDY 24.0 18.0 95.0 126.0 13.0 16.0

US, 34%
CIPLA 26.0 21.0 23.0 29.0 12.0 12.0

Sun Pharma Ltd 35.2 27.2 17.5 22.8 11.5 13.5

 07 Tata Consultancy Services Ltd. (CMP: INR 2,103; Mkt Cap: INR 7,88,995 cr; Target INR 2,900)
Business Overview
TCS is one of India's largest and oldest IT companies. With a presence in 42 countries, TCS Share Holding Pattern (%)
boasts a large and diversified client base. TCS’s headcount (including subsidiaries) stands at
400,875 and its revenues for the last twelve months (TTM) stood at INR1,27,800 cr Promoter 72.0
(USD19.6bn)
A portfolio of turnkey services offerings, traction in emerging markets, improving sales and
marketing prowess, and willingness to take multiple big bets (different go-to-market models) Public 28.0
are among the key drivers that should help TCS sustain its hi-growth trajectory in the long run
As India's largest and oldest IT services firm, TCS is well-positioned to benefit from the Others –
growing demand for offshore IT services. Considering its greater experience than peers in
implementing large, complex, and mission-critical projects, the company is a serious
contender for large deals
Opportunity Size: -
According to Gartner, Global IT spending, backed digital initiatives by clients across the
verticals, is expected to grow by 6.2% in CY18 to reach $3.7 tn
Among that, IT services space (both Onsite and offshore) is expected to grow at a higher pace
of 7.4% to reach $1 tn in CY18

Key financial indicators Indexed price comparison

INR Cr FY17 FY18 FY19E FY20E 250
Revenues (INR Cr) 1,18,160 1,23,106 1,42,671 1,59,471
200
Rev growth (%) 8.7 4.1 15.8 11.7
EBITDA (INR Cr) 32,504 32,518 38,679 43,239

(Indexed)
150
Margin 27.5 26.4 27.1 27.1 100
EPS (INR Cr) 67.4 67.1 80 88.3
EPS growth (%) 9.3 0.0 19.2 10.3 50

P/E (x) 32.0 32.2 27.0 24.4 0

Nov-17
Jul-17

Jul-18
Sep-17

Sep-18
Jan-17

Mar-17

May-17

Jan-18

Mar-18

May-18
P/B (x) 9.6 9.5 10.0 9.5
RoACE (%) 42.6 38.5 47.3 52.2
RoAE (%) 32.7 29.3 35.8 39.6 TCS Sensex
 07 Tata Consultancy Services Ltd. (CMP: INR 2,103; Mkt Cap: INR 7,88,995 cr; Target INR 2,900)
Investment Hypothesis
TCS reported highest CC growth in Q1FY19
TCS faced challenging times over last two years mainly due to the headwinds Indian IT 5200 5%
industry was experiencing. However, over last two quarters, the company led the growth path 4%
for the sector 5000
4%
In Q1FY19, TCS reported 4.1% constant currency growth which is highest in last 10 quarters. 4800 3%
Digital business was the main driver of growth and reached at $1.2 bn quarterly runrate in 3%

$ Bn
Q1FY19. The company has $4.9bn of order-book in digital business which offers strong 4600
2%
revenue visibility for FY19E
4400 2%
BFSI, which contributes 30% of TCS’s revenue started growing at higher pace and 1%
management is confident of double digit growth in BFSI segment in near to medium term 4200
1%
The company has strong hiring plans for FY19 which combined with lowest attrition among 4000 0%
peers directing towards better future a head Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19

At CMP of INR 1,968, TCS is trading at 23x of FY19 and 21x of FY20E EPS of INR 80 and INR 88 Revenue CC growth
respectively

Risks Digital revenue shows robust growth

Sharp cross currency movement 1400 26%
Pricing pressure. 1200 24%

1000 22%
Peer Comparison
800 20%

($ Bn)
Diluted P/E (x) Diluted EPS RoCE (%) 600 18%

FY19E FY20E FY19E FY20E FY19E FY20E 400 16%

Infosys 19.8 17.7 36.8 41.2 36.6 43.0 200 14%

Wipro 17.7 15.9 18.5 20.7 17.8 19.6 0 12%

Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19
HCL Technologies 15.2 13.4 71.9 81.2 32.0 33.1
Digital Revenue As % of total revenue
TCS 27.0 24.4 80.0 88.3 47.3 52.2
 08 Ultratech Cement (CMP: INR 3,794; Mkt Cap: INR 1,04,188 cr; Target INR 4,900)
Business Overview
UltraTech’s capacity share increased from 13.6% in FY13 to 19.4% in FY18, making it a market Share Holding Pattern (%)
leader in South, West and Central India and the second largest player in the North and East. It
has also aggressively ramped up its portfolio in the non-grey cement business (White Cement
Promoter 62.0
/ RMC) and is well-poised for growth in these businesses
After the acquisition of Jaypee’s cement plants, UltraTech is close to achieving its stated
objective of 100 mt of installed capacity in India. UltraTech’s strong focus on scale led to a 3x Public 38.0
increase in capacity over FY05-18 to 89mt (in India) from 28mt in FY05
Opportunity Size: - Others –
Off late, the company incurred capex for upgradation and large greenfield capex. This
increased CE/tonne and gross block/tonne by 40% and 44%, respectively, the highest in the
industry
Sharp rise in pet coke mix (85% in FY18 against 74%/34% in FY16/FY13), reduction in lead
distance (albeit marginal), sustained focus on WHRS usage and rationalization of fixed
overheads (down 12% in Q1FY19 vs increase of 10-12% in last 2 years) are the recent cost
saving measures

Key financial indicators Indexed price comparison

INR Cr FY17 FY18 FY19E FY20E 160
Revenues (INR Cr) 23,891 29,790 36,804 42,772 150
140
Rev growth (%) 0.7 24.6 23.5 16.2 130

(Indexed)
EBITDA (INR Cr) 4,968 5,883 7,373 10,037 120
110
Margin (%) 20.7 19.7 20.0 23.4 100
EPS (INR) 96.0 88.1 116.8 185.7 90
80
EPS growth (%) 11.2 -8.0 32.5 59.0
70
P/E (x) 41.0 44.7 33.7 21.2 60

Jul-17

Jul-18
Oct-17

Oct-18
Apr-17

Apr-18
Jan-17

Jan-18
P/B (x) 4.5 4.1 3.7 3.2
RoACE (%) 14.5 12.7 13.1 18.4
Ultratech Sensex
RoAE (%) 11.5 9.7 11.7 16.4
 08 Ultratech Cement (CMP: INR 3,794; Mkt Cap: INR 1,04,188 cr; Target INR 4,900)

Investment Hypothesis
In last 11 quarters, Organic EBITDA/ton has been sustainable at ~INR 900
With net debt-to-EBITDA at 1.8x and a free cash flow generation of INR 40bn, the company
remains well-equipped to capitalize on acquisition opportunities. Jaypee acquisition has
1,300
increased D/E ratio from 0.3x to 0.7x. With this acquisition of INR 161.9bn, the net debt of
1,200
UltraTech increased to INR 124bn. However, free cash flow generation of INR 40bn over
1,100
FY19-20 should help in debt repayment in the ensuing years
1,000
With Pan-India dominance and placement into premium category across all regions (except 900

(INR)
NE), UltraTech is the most levered company to an earnings recovery and its recent shift in 800
focus towards pricing discipline rather than volume growth will help in long-run 700
We build in ~400-500bps higher volume growth than our industry growth expectations – 600
13% in FY19E and 9.2% in FY20E. With improved realization of UltraTech across regions, we 500
expect 14.1% FY18-20E EBITDA CAGR. We do not expect multiples to contract hereon 400

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19
assuming sharp growth in EBITDA. Sustained operational efficiency and capital discipline
from hereon with present scale of operations will keep multiples rich
At CMP, stock is trading at 14.3x EV/EBITDA and $174 EV/tn in FY20E
Risks Acquired capacities has fueled the volume growth to 33% yoy in Q1FY19; (Ex-
Re-investments over and above the Jaypee capacity: Irrespective of the demand scenario, if Jaypee) volume stood at 16.7% which has inched up the utilization level
UltraTech were to invest further for expansion, it will suppress RoCE and lead to a de-rating
Increase in imported pet coke price 20.0 35%
18.0 30%
16.0
25%
14.0
Peer Comparison 20%
12.0
Diluted P/E (x) Diluted EPS RoCE (%) 10.0 15%
8.0 10%
FY19E FY20E FY19E FY20E FY19E FY20E 6.0
5%
4.0
Shree Cement 39.1 23.9 425.6 695.5 17.9 24.1 2.0 0%
0.0 -5%
ACC Ltd 27.4 19.7 55.2 76.4 16.1 20.7

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19
Ambuja Cement 31.8 24.0 6.7 8.9 9.8 12.4

UltraTech Cement 33.7 21.2 116.8 185.7 13.1 18.4 Cement Volumes (mt) Volume Growth (%)
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