JM Financial India Conference - Key Takeaways PDF

JM HEADER
8 TH JM FINANCIAL
INDIA CONFERENCE
2019
CO
NFE
TAK REN
EAW CE
AYS
JM Financial Institutional Securities Limited

JM Financial India Conference – Key Takeaways 18 November 2019
Table of Contents
Contents Page No.
Panel Discussion : Doubling Farmer’s Incomes 4
Auto and Auto Ancillaries 5

Bajaj Auto
Maruti Suzuki
Hero Motocorp
Apollo Tyres
Escorts
Ceat Ltd
Banks 9
HDFC Bank
Kotak Mahindra Bank
ICICI Bank
DCB Bank
Federal Bank
NBFC 13
L&T Finance
M&M Financial Services
PNB Housing Finance
Shriram Transport Finance
Bajaj Finserv
Manappuram Finance
Asset Management Companies 16
Reliance Nippon Life Asset Management
HDFC Asset Management Company
Cement 17
Ambuja Cement
Dalmia Bharat
Consumer Staples 19
Hindustan Unilever
Marico Ltd
Tata Global Beverages
Westlife Development
Bajaj Consumer Care Ltd
Chemicals 24
Phillips Carbon Black
Exchanges 25
CDSL
BSE
MCX
JM Financial Institutional Securities Limited Page 2

Contents Page No.

IT Services 27
Tata Consultancy Services
Wipro
Tech Mahindra
L&T Technology Services
NIIT Technologies
Zensar Technologies
eClerx
Internet 31
Info Edge
Indiamart
Dream11
Inudstrials 34
Bharat Electronics
Metals & Mining 35
Jindal Steel & Power
JSW Steel
Media & Telecom 37
Zee Entertainment
GTPL Hathway
INOX
Tata Sky Ltd
Tikona Infinet Ltd
Panel discussion on streaming video
Midcap Companies 41
Havells India
Greenpanel Industries
Mahindra Logistics
Blue Dart Express
Pharmaceuticals 45
Alembic Pharma
Torrent Pharma
Strides Pharma Science
PharmEasy
Power, Utilities & Infrastructure 48
Larsen & Toubro
Tata Projects
JSW Energy
Torrent Power
CESC
Soft Bank Energy
Infrastructure : Speaker Series: Vinayak Chhatterjee 53
Real Estate 54
Oberoi Realty
Sunteck Realty
Textiles 55
Trident
Welspun India

PANEL DISCUSSION - DOUBLING FARMERS' INCOMES
Panel: Dr. Ritu Verma: Co-founder – Ankur Capital

Tauseef Khan: CEO & Co-founder - Gramophone
 Mixed outlook on near-term rural income: Kharif 2019 started on a very weak note but
sowing caught up in the end (flat YoY); however, rains in later months (Sep-Nov’19)
have led to a meaningful impact on the quality and quality of kharif crop output and
consequently on near-term farm income. However, high reservoir levels indicate a
strong optimism among farmers for the next “few” crops, and therefore rural cash
flows should improve in the upcoming Rabi season. On non-farm income (two-third of
rural income) , factors such as formalisation, higher regulatory requirements (GST etc.),
along with weak credit flow are likely to keep the growth under pressure in the near
term.
 Doubling of farm income may also require “high” food inflation: Farmers’ incomes can
potentially double in the target period set by the government (FY16-FY23) but would
also “require” higher food inflation. The focus of agri-related policy at present is on
improving and increasing crop production, but unless agri-prices witness a sustained
pick-up, the aim of doubling income could be difficult to achieve in the target period.
The government also needs to work on removing trade restrictions on agri-products,
reduce ad-hoc policy responses (stock-holding limits, ban on exports); steps which
discourage entry of large scale organised players into the agri-related businesses.
 Structural changes underway: Indian agriculture is witnessing few trends such as – (a)
steady shift towards horticulture from field crops (production already ahead of food-
grains in the past five years) which smoothens the income pattern over the year, (b)
increasing adoption of branded and quality agri-inputs, (c) initial signs of adoption of
digital and broad-band by the farming / rural communities.
 Encouraging signs of digital adoption by the farming community: Though agri-tech is

still in its early stages, initial signs of adoption are encouraging and as an example, the
gramophone app has been used by more than 0.3mn farmers over the last three years.
Initial feedback has indicated improvement in crop output by up to 40% for the farmers
following the scientific and timely instructions from the app; and encouraged by the
responses, the company will be expanding its foot-print across multiple states in north
and eastern India in the next few quarters.
 Implementation of schemes remains patchy: The feedback on ground has been positive
on infrastructure-led development in rural India – expansion of rural roads,
improvement in electricity access and quality of power received at the agri-household.
However, the implementation of many agri-related schemes / plans (farm loan waivers,
subsidy schemes, crop insurance, soil health cards etc.) remains patchy and incomplete.
Hence there is a need for radical improvement in execution of the policies for a better
outcome.
 About the panellists
- Tauseef Khan is an agri-tech entrepreneur and founder of Gramophone.inc. a

tech-based company headquartered at Indore, Madhya Pradesh. Gramophone provides a
technology-enabled platform to enable multiple services to farmers - from crop advisory,
diagnostics to agri-input retail. The aim of the company is to remove information
asymmetry which is prevalent in the agriculture ecosystem.
- Dr. Ritu Verma, is the co-founder and managing partner of Ankur Capital, a social
impact fund. Ankur Capital has made investments in the last three years across sectors
including in agriculture, healthcare etc.

Automobiles
Bajaj Auto | BJAUT IN (BUY – TP INR 3,400)
 Demand environment: While the on-ground situation is still fragile, a pick up in sales
during the festive season was led by pent-up demand. The festive season is a bigger
draw in rural areas, as a result of which entry variants fared much better. Current dealer
inventory stands at c.30 days (lowest since Feb’18). Customer reaction to high-priced
BS6 products next to an existing BS4 product needs to be seen.
 BS6 transition: Entry level bikes will become relatively expensive, impacting its demand.
However, the wedding season during December / January will support sales to some
extent. BJAUT will launch BS6 products in Feb’20. Financing will play a crucial role
during the transition. While financiers may allow lower down payment schemes and
increase the tenure of the loan to cushion the impact of transition, a full recovery of the
BS6 cost to only take place during the festive season of next year. Unlike the ABS
transition, BS6 will not change the look and feel of the vehicle. As a result, the
customer will not be able to see any perceptible difference even after paying a higher
price. The biggest challenge is for OEMs to ensure that the drivability of vehicle does
not deteriorate following the BS6 transition. Heavy discounting during transition is only
possible if one OEM bets big on pre-buy and goes into excess production or if one OEM
tries to gain billing market share.
 Strategy: The company strategy will be focused on volumes with a target of c.24%
market share in domestic motorcycles. The purpose of Pulsar 150 Neon is served giving
way to Pulsar 125cc which has a cost advantage by being in the 125cc segment and
misses the ABS requirement in 150cc bikes. Also, as long as demand for Discover
continues, it will remain in production. As far as Qute goes, the company is working
with Uber over the last 3 months and it is available in Bangalore. BJAUT will also
increase the fleet here and plans to launch an EV variant of Qute in time. On E-Chetak,
the company has no big volume expectations as the battery cost remains high. It is
launched to make sure that BJAUT has a foot in the door and if electrification happens
it remains at the forefront of it. On Triumph, R&D collaboration has started. By 2022,
we can expect to see Triumph made in India for domestic and exports.
 Commentary on CV: Improvement on mid-single digit growth is a possibility with drivers

like Bihar announcing c.INR 1 lac subsidy for every 3W registered. On BS6, transition of
a cargo 3W is much easier than a cargo SCV, as the engine design of 3W is simpler.
This can likely lead to SCV customers shifting to Cargo 3Ws. CNG-fication of passenger
3Ws to continue. BJAUT has c.90% market share in CNG 3Ws.
 Export markets: Among the export markets, Nigeria, Bangladesh, Colombia and
Philippines all are performing well. Egypt will get back on track in Nov-Dec’19 but at a
subdued level. The decline in crude did not impact sales of 2Ws in Nigeria, as 2W there
are used as taxis. For Africa, Chinese 2W OEMs have set-up investments on EV, as
opposed to ICE 2Ws. Now, Chinese players compete with Indian 2Ws to arrive at the
same price point and quality but are unable to do so due to lack of scale.
 Commentary on margins: BJAUT believes that margins have bottomed out and should
improve hereon. However, if Nigeria grows higher than anticipated, margins might be
under pressure owing to Boxer (a low margin product).

Maruti Suzuki | MSIL IN (BUY – TP INR 7,650)

 Demand environment: Rural sales were higher than urban sales during Oct’19. Also,
first time buyers stood at c.50%. It is difficult to comment on the PV recovery and we
will have to wait for 3 more months. The PV slowdown is aggravated due to weakness
in rural, slowdown infra activities, impact from road tax increase. The company strategy
during downturn was focused on cost reduction efforts. This includes reduction in fixed
cost and each business vertical was asked to cut their budgets. The company has very
small BS4 inventory and discounts at the entry level, diesel and BS4 variants will
continue. Dealer financing issues are unlikely to be hurt going ahead. The company
does not see any major customer shift towards the used car market. Top 10 cities
roughly contribute c.50% of the volumes. However, the key sales driver for MSIL are
states with very low penetration. They need to bounce back from the slowdown.
Management is aware of competition and upcoming models will interest customers.
The company continues to remain focused on ,market share that is an important
parameter.
 BS6 / new models: In the case of MSIL 8 out of 12 models are already BS6. MSIL does
not see major headwinds going forward. It is still working on the 1.5L diesel engine.
Going forward, an MPV with Toyota is planned and will be made at the Toyota plant. A
slew of new model launches especially in the SUV segment are planned spread over the
next couple of years. OE sale to Toyota are at an arm’s length with reasonable margins.
MSIL is also working on hybrids and is also hoping for a reduction on GST on hybrids. It
is crucial that pricing of a strong hybrid is very crucial and should not be too far off from
a diesel vehicle in order for it to be successful. Strong hybrids are usually 25-30% more
fuel efficienct.
 Mobility solutions: MSIL plans to create a business structure to address mobility

solutions especially for metro cities. Sales to Ola / Uber form c.2% of MSIL’s total sales.
In FY19, however sales to Ola / Uber fell c.30%YoYand their replacement cycle is 3-4yrs
 Commentary on margins: As volume recovers, margins can bounce back by c.300bps.

The product mix has a play of about 50bps. In FY20, the company couldn’t take price
hikes but could pass on the BS6 cost. MSIL expects to reduce import content from
c.10% to 5%. On royalty, 2/3rd of the models have already moved to an INR-based
royalty structure. Going forward, MSIL is looking to become completely neutral to
exchange rate fluctuations. Hybrid and CNG models can compensate for ASP impact
from lower share of diesel vehicles.
Hero Motocorp | HMCL IN (BUY – TP INR 3,100)

 Demand environment: A lot of uncertainties kept the demand in check during the past
few months. However, as expected, the festive season witnessed YoY growth. For
HMCL, retail sales grew by mid-to-high single-digit led primarily by the motorcycle
segment and rural demand. Festive-to-festive growth for motorcycles was in the
double-digits. Dealer inventory is now at a comfortable level of 30days, as per the
management. As against the general understanding of prevailing high discounts, for
HMCL, total discounts were at similar levels as for the same period last year. Finance
schemes also supported retails; finance penetration has been gradually inching upwards
from around 33% during the demonetization period, to 40% last year, and during the
recent festive period was higher than 50%. In terms of regional split, North and East
regions performed well. Slower urban market is visible on sluggishness in the scooter
segment. Overall response to the festive season was promising and does not look that it
was only led by pent-up demand and will fizzle out soon after. If that was true, after
the initial phase of festive response, sales should have seen some moderation. However,

it started slow and picked a stronger momentum by Diwali. Rural recovery, pre-buy
before BS6 transition and marriage season are likely to support sales during 2HFY20.
 Dealer Inventory: Post festive, dealer inventory stands at 5 weeks. Usually, HMCL has 1
week more inventory than its other peers. This is due to sub-dealer carrying an
additional level of inventory.
 BS6 transition: 2W industry witnessed multiple rounds of price increases including

insurance related and safety features like ABS/CBS. This has led to downtrading in the
market. This phenomenon is likely to continue as the industry is yet to transition to BS6
products. The price hikes are likely to lead to customers opting for value-for-money
products which are easy on pocket. The argument that entry level bikes/scooters will see
a higher % jump with respect to price may not hold true. Recently launched BS6
Splendor is expensive by almost INR 8,000 vis-à-vis its similar BS4 version. This can
st
stimulate a pre-buy before the transition (1 Apr’20). Now that the company has
introduced the product, customer reaction would be a key factor to monitor.
Apollo Tyres | APTY IN (BUY – TP INR 240)

 Demand environment: 2QFY20 was a tough quarter as OEMs were realigning
production to correct the channel inventory. It seems that the worst is behind us as
inventories are now under check and production schedules can gradually normalise
going forward. During 2Q, PCR replacement demand grew in double-digits and has
slightly improved further in Oct’19. TBR continues to outperform TBB segment. TBR
replacement grew by mid-single digit during 2Q while TBB witnessed low single-digit
decline. Impact on topline was majorly due to the OE segment and reflected in the
overall segment mix as share of OE sales declined from 30% during the previous
quarter to 20% during 2Q.
 Commentary on margins: RM benefit would be a significant tailwind during 2HFY20.

RM basket is likely to see a reduction of 2-3% during the second half of the year. In
Europe, Audi and Daimler have already given an approval for supplies and discussions
with BMW are in an advance stage. Benefits from an increase in production at the
Hungary plant will start reflecting from FY21 onwards. Driven by higher sales and
utilisation, the management is targeting double-digit EBITDA margins for the EU
business in the next 1-2year.
 Capex: The company has indicated for a slight moderation in its capex plan. As a result,
ramp-up of the AP plant will now happen in phases. Phase-1 and Phase-2 will each
have a capacity of 7,500 PCR and 1,500 TBR pd. However, the plant commencement
date still remains 1QFY21. Capex guidance for FY20/21 stands at c.INR 23bn and c.INR
13bn (lower by c.INR 4bn in each of the years). Europe capex has been moderated from
€40mn to €25mn.
Escorts | (Not Rated)

 Demand environment: The declining sales trend is gradually getting arrested quarter by
quarter. From sharp negative growth during 1QFY20, the industry may close the year
with a small positive growth during 4QFY20. From the General Elections at the
beginning of the year to a pause on subsidies, followed by weakness in construction
activity; all have impacted tractor sales. However, with a satisfactory monsoon, the
company is looking forward to a favourable next year. FY20 industry growth is expected
to be -5%. The company’s market share during FY19 stood at 11.8%. It expects to end
FY20 with a market share gain of 80bps. The improvement is in market share in line

with the broader company strategy to reach 15% market share in the next 2yrs.
Similarly, export sales aspirations over the next 2yrs stand at 8,000-10,000 units p.a.
from the current rate of c.4,500 units. The upcoming emission regulations in 2020 for
>50hp tractors are unlikely to impact demand as the share of sales of this segment is
limited to single-digit.
 Update with collaboration with Kubota: Manufacturing JV to have a capacity of 50,000

units. Production is expected to commence from Jun’20. Phase-1 investment was done
in FY19 while phase-II investment of INR 0.6bn is planned during FY20. Network
sharing with Kubota global channel will begin with the first batch of exports starting
from Nov’19. Joint development of new products is under discussion.
CEAT | CEAT IN (BUY – TP INR1, 100)

 Demand environment: The domestic OE segment was particularly weak during 2QFY20.
A volume decline was partially offset by growth in exports and flat replacement sales.
The company plans to ramp-up the share of TBR to TBB from 40:60 to 50:50. It expects
a gradual revival in OE demand from 4QFY20 onwards, alongside the planned ramp-up
in Halol TBR capacity. A reduction in raw material cost by 1-2% during 2HFY20 will aid
margin expansion. There have been multiple new order wins in both PV and 2W
segments with Maruti Spresso, Renault Kwid (refresh)/Triber, Hyundai Grand i10 Nios,
Bajaj Pulsar125, Suzuki 125cc Access/Gixxer 150cc and Yamaha models. Sales to these
models will reflect in the following quarter. While TBB share will continue to decline,
ramp-up in TBR sales will drive truck / bus mix higher from 33% to 35% in the overall
mix.

Banks
HDFC Bank | HDFCB IN (BUY – TP INR 1,425)
 HDFC Bank is gearing up for the next leg of branch additions; it plans to add 600-700
branches per year, stepping up from the run-rate of c.195 per year over FY16-19.
Management wants to take the branch network to 7,500-8,000 in the next 3 years
(from 5,103 currently), which will make it second only to SBI.
 The credit-to-deposit ratio of the banking system is currently c.75-77%, however, in

many pockets of rural and semi-urban India, this ratio is c.25-30%. Management
believes these geographies provide ample opportunities to tap deposits.
 HDFC Bank is the largest bank for payments in India. However, India has very low MDR
rates (especially after Demonetization) as a result of which the unit economics of the
merchant acquiring business are not favourable in the country.
 However, HDFC Bank views the acquiring business as an opportunity to grow its current
account (CA) business. As of FY19, the bank has c.1 million merchant acquiring touch-
points. Management plans to double this to c.2 million by FY20 and c.v4million by
FY21.
 The bank currently employs a workforce of c.8,000 for the distribution of farm loan
credit (KGC loans), and c. 6,000 for the microfinance SHGs (SLI Initiative). It plans to
leverage this channel for the distribution of other key products (two-wheeler, gold
loans, personal loans etc.). The banks plans to add c.100,000 village-level-entrepreneurs
(VLEs) to distribute its retail our products in tier 5/6 towns and rural India.
 The new distribution channels (CSCs and VLEs) will only assist the bank in lead-
generation. The credit evaluation process will remain the same as for other retail loans.
c.130,000 CSCs have been networked from system point of view. c.40,000 of these
were up and running by end-2QFY20.
 This festive season, HDFC Bank decided to bunch up all its offers under a common
umbrella. In previous years, the bank had different festive offers for different product
lines. This time, the bank decided to pursue it under a common brand umbrella (Festive
Treats). The value proposition here was that the bank would finance all of a customer’s
financing requirements during the season – be it two-wheelers, mobiles, ACs, durables
etc. The bank has seen good traction on consumer loans during the festive season.
 Festive season discounts/cashbacks – The larger chunk of these discount-related costs

are borne by the vendors/manufacturers. Management was clear that the bank is not
‘buying’ customers – the bank continues to make more than its threshold RoEs in these
businesses, despite the discounts.
Kotak Mahindra Bank | KMB IN (BUY – TP INR1,650)

 Kotak Mahindra Bank has guided to maintain NIMs above 4.3% aided by a) better
pricing power due to reduced competition and benefits in funding cost due to its strong
CASA acquisition. KMB will continue with its strategy of tweaking buckets where the
6% SA interest rate is offered. Management indicated that the “6% SA rate” branding
helps KMB’s customer acquisition engine.
 KMB will continue to growth on the CASA front even as it now stands at 54% (industry
leading). The bank plans to adjust term deposits rates to maintain desired level of
deposits. Further, management indicated that while market share gains from PSUs to
privates continue on loans and term deposits, movement of CASA market share has
been slow – given its stickier nature.
 Management guided for ‘mid-teens’ loan growth in FY20E. Corporate loan demand is
expected to remain muted as private capex stays subdued. Management alluded to
opportunities to cherry-pick corporate loans in the current environment, aided by a
decline in competitive pressures. KMB remains cautious in the unsecured loans
segment. Although KMB is still growing in this segment, management indicated that it
has tightened internal parameters. Management further stated that it remains cautious
on the CV segment given the slowdown. KMB is also going slow on the business
banking front given that the segment is still recovering from the impact of
Demonetization and GST implementation.
 KMB is currently at a cost-income ratio of c.45%– management indicated that it is

looking to reduce the cost-income ratio, driven by the benefits of thrust on digital.
 On promoter stake dilution – The bank awaits an update on the next hearing with
respect to promoter stake dilution, which is scheduled in Jan-2020.
ICICI Bank | ICICIBC IN (BUY – TP INR530)

 Management stated that corporate demand is looking weak, especially from the private
sector. Capacity utilisations are not at levels where one can expect to see significant
capex.
 On external benchmarking of rates for retail loans, management indicated that after
recent rate cuts, interest rates under the new regime have come down to where they
were during the MCLR regime. Further on difference in SBI and ICICI rates,
management stated that the bank will wait and see how the rate cycle plays out.
 ICICIBC indicated it is not averse to lending to NBFCs. However, management indicated

that the bank has restricted incremental lending to large established NBFCs or small
NBFCs which have recently raised equity or have a large parent backing.
 Management acknowledges that ICICBC might not have done enough on growing the
unsecured loans portfolio in the past. It had stopped disbursement in this segment in
2008, after the GFC. The bank restarted lending to this segment only in FY12 and has
been gradually expanding the loan book under tight controls. Loans are largely to
salaried ICICIBC customers (who are cross sold these loans). Earlier, the bank was not
actively looking to cater to new-to-bank customers in this segment. However, there has
been a shift in strategy lately with the new partnership with Amazon for credit cards.
 The bank has been seeing some challenges in the personal loans, especially since new
lenders (banks/NBFCs) have entered this segment. However, portfolio quality still is
healthy while pricing has come off slightly. Management indicated that portfolio quality
will depend upon the customer segment which is targeted. It indicated that ICICIBC has
sufficient opportunity to target its own qualifying customers and need not lower
targeted segment quality for incremental growth.
 On HDFC Bank festive offers: Management indicated that though ICICIBC also offers
festive discounts, it is on a limited scale.
 Management continued to guide for credit cost of 1.2-1.3% for FY20E taking into
account recoveries from some large accounts. In case recoveries do not happen in
FY20E it expects credit costs to stay close to 2.0%. Management reiterated their
targeted RoE of 15% by June-20 quarter.

 On Subsidiaries:
- ICICI Home Finance – Management indicated that the sale plan is off. Bank has recently
re-energised this subsidiary and hired new people and plan to scale up the loan book.
Further, management indicated that there are no plans of IPO in near term.
- ICICI Securities – Management stated that ICICIBC needs to reduce its stake by 3-4% to
get to 75% level.
- Insurance subs – Bank’s stake is already near 51%. Hence, there are no near-term plans
for monetising any further stake.
DCB Bank | DCBB IN (HOLD – TP INR 220)

 Core business of SME/mortgage is expected to grow at 15-16%. Management
indicated that while the bank is still looking to double its loan book in the next 3.5
years, it will not be worried if it takes 4 years based on the operating environment.
 Management stated that there are visible pressures in cash flows for SMEs in certain
segments. Stress levels have not come off even with the various new government
regulations. Management indicated that credit monitoring has gained further
importance and DCBB is witnessing higher rejection rates while onboarding new SMEs.
The bank has strengthened its in-house collection team and it now stands c.600 people.
 DCCB has been focusing on increasing granularity of deposits. The bank has reduced
top 20 depositors’ contribution (largely driven by co-operative banks) to total deposits
from 14.9% as on Mar-18 to 12.0% by Mar-19 and further to c.9% by Sep-19.
 Management indicated that it targets to reduce its cost-to-assets ratio to 2.1-2.2%

from 2.5% currently. It feels this will be possible once benefits start accruing from large
investments made by the bank on the technology front.
 Management indicated that c.65-70% of fresh NPAs for DCBB are generally upgraded
in the next 12 months. Further, quantum of security receipts has now reduced to
c.INR340mn - largely due to cash recoveries.
 DCBB is not looking for a capital raise at least for the next 12 months. The bank
consumes around 35-40bps for credit RWAs per quarter. Thus, it is expected to
consume capital of maximum 1% in 2HFY20 which will bring capital ratio to 11.6%
which, they believe, is comfortable.
 The bank has taken full impact of DTA reversals due to change in tax rates in 2QFY20
and incrementally tax rate will c.26%.
 On the transaction with ADCB, the bank indicated that there is no large-ticket exposure
since ADCB’s exposures were restricted to c.INR 550mn due to capital limits. DCB is in
the process to see which exposures it will like to retain on its balance sheet.
Management indicated that while it has seen a reduction in the loan book from the
time the deal was announced, it is not particularly worried on exposures. The c.INR 6bn
deposit base of ADCB is likely to be retained.
Federal Bank | FB IN (BUY – TP INR 110)

 Management continues to focus on an RM-led customer acquisition strategy – both in
retail and corporate banking, which has started paying dividends in the recent past. The
bank has identified that the sweet spot for FB on the corporate front comprises
corporates with revenues to INR 5bn-10bn. The RM model helps secure salary

accounts/working capital lending relationships along with the primary term-lending

relationship for FB.
 FB has linked its savings account interest rate to the repo rate. Management believes
this will aid FB in sustaining NIMs going forward.
 Management expects FB to continue to outpace system credit growth (15-18% loan

growth guidance by FB) – however, a large delta over system credit growth may not be
expected, as management remains cautious in cherry-picking growth.
 On retail lending, the focus is directed towards mortgages, personal loans and CV
loans. Management indicated that FB may look to acquire a small NBFC-MFI (INR 20-
30bn AUM) sometime in the future.
 CV loans are currently being extended to large fleet operators only, currently. FB is not
in the business of lending to single truck owners currently, nor in used CV financing.
 Management expects to scale up new branches at the run-rate of 20-25 per year going
forward. Business growth will largely be led by the RM-driven model, as this has worked
well for the bank in the recent past. Management targets to scale up the CASA ratio by
2ppt per year going forward.
 On current MD & CEO, Shyam Srinivasan’s tenure: RBI had given a 1-year extension to
Mr. Srinivasan in Oct-19, although the Bank’s board had recommended an extension of
tenure for up to 3 years. The Board and Mr.Srinivasan are agreeable to him continuing
at the post for 3 years. Mr. Srinivasan will re-apply for the extension of his tenure 3-4
months before his current tenure ends (which is in Oct-20). In case this is not approved
by RBI, the bank will look for a suitable candidate to replace him.
 80% of the current workforce for FB is unionised. However, management believes that
the organisational power of the union has weakened considerably under Mr.
Srinivasan’s leadership.
 IDBI Federal Life Insurance – the decision to monetise this asset will be driven by
valuations. Merchant bankers are in place and the stake sale has been initiated by IDBI.

NBFC
L&T Finance | LTFH IN (BUY – TP INR 110)
 Focus on personal loans and used tractors segments: Management will not chase
growth, impacting asset quality. LTFH has a 10-12% market share in 2W and would like
to increase it while keeping its market share in micro-loans at the same level. It will
focus on a cross sell of Personal Loans - pilot was launched in Sep-19. All these are
done digitally. They will also focus on used tractors.
 Presence mainly in urban areas for developer loans: In developer loans, they will be
present in the top 6 cities (INR 158bn) and in retail housing they will be in the top 23
cities and manage others from here. So, their operations will be mainly in urban areas.
Their main criteria for lending are:
1) Developer categories (A, B, C or D)
2) Category (affordable, luxury, etc)
3) Stage of construction
4) Project evaluation
 Concentration risk: They have lent to 60 developers out of which the Top 10 comprise <
40% of loans. Their concentration risk limit for developer loans is 17.5% of overall
book; it is currently at c.15.7%. The NPA is negligible in this book -- 5-6 accounts are
into corrective action (including Supertech). For a stressed account (Supertech), all its
projects are doing well due to its early warning system (EWS). Its exposure will reduce
from INR 8bn to INR 5bn in the next 1-2 quarters.
 In the housing segment, competition has subsided in the last 1 year, disbursements
were very low. Going forward, government interventions will help in the recovery of the
sector. In LAP, they have tightened their lending criteria.
M&M Financial Services | MMFS IN (BUY – TP INR 400)
 Tractor sales: Management is not very pessimistic about the agriculture sector. The
Minimum Support Price (MSP) announcement has been satisfactory, so cash flow should
be protected, albeit delayed. Also, crop output would be delayed to November-end and
the cash would come to hand in January’20, thereby delaying payment towards
liabilities.
 CV sales have been weak and will take more time for recovery owing to excess capacity
because of axel norms, slow macroeconomic, slow mining activity, etc. However, LCVs
sales were modest because they have not been impacted by the mentioned factors. UVs
sales were very strong in October. Going forward these parameters may contribute to
the recovery: 1) Government's push to release stuck payments will lead to liquidity /
cash in the system 2) Lower base will also provide optically positive growth 3) Launch of
new projects.
 AUM growth to be 15-16% for FY20: For MMFS, September was challenging and
below normal (40-50k contracts); October was better, retail volume picked up (> 70 k
contracts); November can have a spillover effect on bookings done during the festive
month, so December will be a key monitorable and will be a real reflection of
sustainable recovery. 3QFY20 should have good positive disbursement growth though
this is not clear for 4QFY20. Overall, MMFS should have an AUM growth of 15-16% for
FY20.

 Yields have corrected for all the borrowing instruments (100 bps lower) and are pre-
crisis level. Bond markets have become shallow because mutual funds are not
participating actively. Meanwhile, NBFCs have revisited their strategy - reduced short-
term borrowing. MMFS has also reduced short-term borrowings from 12% of liabilities
to 6%. Offshore borrowings have opened up. Also, focus is on reducing operating
expenses.
 Asset quality guidance: 2H trend shows improvement in asset quality. The management
expects the same for FY20. In FY21, NPA may come down to 5%.
PNB Housing Finance | PNBHOUSI IN (BUY – TP INR 650)
 In a structural shift, larger players are moving to the national level e.g. Godrej Properties
is expanding in north India and doing well. These larger developers are also doing Joint
Development Agreement (JDAs) and taking over projects. They are however, getting
money at a slightly higher rate. In a strategic change, end-consumers prefer to buy
near-completion projects over initial-level ones. Recently announced, the Alternative
Investment Fund (AIF) is a good move. However, its execution is still to be reviewed. A
developer generally needs INR 1-1.5bn for completion.
 Retail segment has been slowing down; wholesale stable after decline: In the last few
quarters, there has been a slowdown is on the retail side. In the Retail segment, the
festive season was lower than the expectations. PNB HF has reduced disbursements. It
has a granular book - only 20 accounts with an average ticket size of INR 150mn (nil
NPA in these), the rest are small ticket loans. In individual housing loans, 79% are for
near completion / completed properties. In 2QFY20, retail NPA stood at 0.84% while
LAP NPA was at 0.93%, due to macroeconomic factors and seasoning of the book. In
the LAP book, the average ticket size is INR 4.7mn and an LTV of 50%. In the
Wholesale segment, the condition has been tepid, however there has been no further
slowdown. Five accounts for a total of INR 9.1bn are at various stages of curing and
may cure before Mar-2020.
 Capital raise: PNB HF is looking to raise up to INR 20bn before Mar’20.
 Guidance for FY20: The management expects disbursement in 3Q and 4Q at similar

levels to 2Q (INR 50 bn and 126 bn in 1H). AUM is likely to grow at c.15% YoY while
the leverage should be at the same level as 2Q. Operational expenses are likely come
down from c.0.6% in 2QFY20. Credit cost can be seen at 60 bps. Spreads (Pure play)
are likely to be at 200-210 bps.
Shriram Transport Finance | SHTF IN (BUY – TP INR 1,200)
 Commercial vehicle (CV) cycle has matured: In CV, there's not much pain. This time CV
sales behaved maturely i.e. sales have been 30-40% down as the economy is slowing
down. 80% of CV sales is for consumption materials while the remaining 20% is for
industrials.
 Maharashtra and Tamil Nadu (TN) have remained weak: Geographically, south India is
very strong: 42% of the book (13% each for Andhra and TN), West: 33%, North: c.
15% and East: 10%. For them, Maharashtra and TN have witnessed very slow business
in the last 3 yrs.
 Cost of Funds is likely to decline - Management believe liability issues are more serious
than asset issues. Their 80-85% liabilities are back to normal - only bond market has still
some issues. Their cost of fund is 9.1-9.2% and should come down 20 bps in next 2-3

quarters. They have cut LTV 4-6%. Accordingly, LTV is now 65-70%, depending on
various parameters.
 Asset quality: Credit cost is 2.1%, 50% of this is the waiver they give to customers. 26-
27% customers have 30-90 days past due (DPD) and 9% customers have 90 DPD. Their
branches are also responsible for delinquencies e.g. c. 40% of salaries of personnel in
branches are linked to delinquency rates.
Bajaj Finserv | BFIN IN (BUY – TP INR 10,000)
 Tactical approach to crop insurance: The non-life insurer aims to participate

opportunistically in the crop insurance market whilst keeping gross exposure capped at
BAGIC’s total industry market share which stands at around 6.5% as of FY19. Crop
insurance is the second largest product category with a 26% share of gross premiums
as of 1HFY20 preceded only by retail motor (36% share). The company is relying on
government support, cash-before-claims payout model, interest penalties on delayed
payments, reinsurance support and a multi-year approach to make the business PAT
accretive.
 Axis Bank tie-up plugs the last remaining gap in BALIC’s distribution setup: During
2QFY20, BALIC signed a corporate agency agreement with Axis Bank as their third life
insurance partner. With over 4,280 branches, only 4.1% life insurance penetration
within existing savings accounts base and the ability to generate over INR 20bn in
annual new business APE, the Axis Bank partnership will plug the hole in BALIC in the
form of a large retail bank as a distribution partner. The management is confident of
doing NBV positive business via this channel.
Manappuram Finance | MGFL IN (BUY – TP INR 185)
 Gold loan business: Sustainable growth rate in gold loans guided at 10-12%. However,
growth in FY20E would be higher than guidance, on account of strong traction seen in
Q2 (gold loans up 20% YoY) led by gold tonnage increase of 10-12% YoY and rise in
gold prices. The management indicated that 80% of gold loans are to repeat
customers. Non-South branches have been aiding traction in gold loans. Kerala is 6% of
gold AUM while Tamil Nadu is ~9%. Online gold line now accounts > 40% of total
gold loans. This also benefits company in terms of doing analysis of customer’s
transactions, which allows for offering of unsecured loans to good customers.
 Non gold business: Management addressed queries with regard to its non-gold
business, especially towards MFI segment. It indicated that MFI business is performing
well in terms of growth and asset quality. The compensation in this segment is based on
collections and not on disbursements. Fund raising in MFI division would happen in next
fiscal i.e FY21E. Currently, it is present in 350 districts. Average ticket size in MFI is ~INR
23000. ~11-12% of MFI AUM comes from West Bengal. Company is cautious and has
put stringent checks in the east so as to not lend to an over leveraged customer.
In relation vehicle finance segment, management expects it to be the third major driver
of growth. GNPAs are estimated to remain below 3% ahead.
Going ahead, company intends to divide the book equally between Gold and Non-Gold
business without losing focus on its core business of gold loans.
 Guidance: The management said the company did not face any major liquidity concerns
as it was able to get funds from all the sources. To raise c. USD300 mn in the next one
month through MTN programme. Overall, it would raise ~$750 mn. Consolidated loan
book growth to be >20% YoY going ahead. Operating leverage benefit in gold
business to continue to accrue on account of reduction in security related costs. Gold
loan branch expansion would be ~2-3% of the existing branches. Dividend payout
estimated to be maintained at 20-25% range.

Asset Management Companies

Reliance Nippon Life Asset Management | RNAM IN (BUY – TP INR 320)
 RNAM is now a subsidiary of Nippon Life Insurance (NLI) of Japan (75% equity
ownership in RNAM). Nippon Life is a 130-year old company which is among the
Fortune 500 (Rank 125 in 2019), and Japan’s largest life insurer with total assets over
USD 700bn, with a core operating profit of c.USD 7bn.
 Market opportunity – The AMC industry currently manages an AUM of c.INR 25trn of
MF assets. About 45% of this is institutional money while the rest is split between retail
and HNI segments. RNAM has previously been strong in the retail segment – with retail
AUM contributing 26% of its AUM vs 20% for the industry. Going forward,
management expects the retail segment growth to be strong under the new brand –
while it is also optimistic of gaining back share in the institutional segment.
 RNAM’s distributor base is granular and no single distributor contributes more than 5%
of overall AUM. The largest distributor for RNAM is NJ India. RNAM has conducted
extensive training programmes across small towns to educate distributors (IFAs) on the
new Nippon India Mutual Fund brand and the initial feedback on brand acceptance has
been positive so far.
 ETFs: RNAM is the second largest player in this segment with a market share of c.19%
(INR 279bn AUM). When RNAM acquired Goldman Sachs’ ETF business the AUM was
c.INR 70bn (2016).
HDFC Asset Management Company | HDFCAMC IN (BUY – TP INR 3,175)

 HDFCAMC is now the market leader across actively managed equity and liquid
segments with market shares of 15.5% and 18.9% respectively while it is placed
second in debt segment with market share of 13.4%.
 Management expects to sustain current core operating profitability at 40bps of AUM in

the near term. Over the medium-term this may drift towards 38-40bps, as the top-line
yields get gradually diluted due to the full-trail commission model.
 Management acknowledged that most operating costs for the AMC are fixed in nature,
which provides operating leverage for HDFC AMC. c.35% of employee costs are
variable in nature.
 Management believes that active asset management has a large runway for growth in
India – the current contribution of ETF assets to total MF industry AUM is c.6% (INR
1.5trn). This too is largely driven by EPFO (which contributes ~55% of industry ETF
AUM) and the CPSE ETFs. Hence retail participation remains low in passive funds. In
India active managers still generate alpha, and further yields in passive funds are low so
distributors don't have much incentive to sell these products
 HDFC AMC has been more successful in passing on the impact of the TER cut to the
distributor (~85% passed on), whereas for the rest of the industry this would be in the
range of 60-70%. Distributor revenue had grown at a faster pace than the industry
AUM growth in the last 3 years (before TER cut), and it has only corrected recently. The
distributor’s economics still remains viable, according to the company.
 Direct plan contributes 20% of equity AUM, while now contributing 24% of flows.
Hence, management expects the share of direct plan AUM to continue to increase for
the industry, as well as HDFCAMC. In terms of profitability, in the new full-trail regime,
there is no meaningful difference in profitability between direct and regular plan AUM.

Cement
Ambuja Cement | ACEM IN (BUY – TP INR 240)
 Expansion to help conserve market share; expansion capabilities available across plants:
Ambuja / ACC has within themselves a total expansion of c.11MTPA, which is on course
to be commissioned by CY21. For the first phase of expansion currently underway for
Ambuja (3.1MTPA clinker; 1.8MTPA grinding), equipment has been ordered and
delivered on time. Total capex for the expansion is expected to be c.INR 25.5bn which
will be spent over CY19-20. Incrementally, setting up of greenfield capacity has been a
challenge for the industry on account of land acquisition getting more and more
difficult. Ambuja has brownfield capabilities across all its plants except at Ambujanagar.
Further, management has expanded into ancillary products like construction chemicals
and RMC through inorganic expansion.
 Incremental cost levers: Management expects power / fuel costs to come down by INR
100 / t with increase in the usage of AFR (target of 15-16% of overall fuel requirement
vs. 5% usage currently at company level) and coal from Gare Palma coal block (target
to reach 20% of the overall requirement in East). Further, the impact of decline in
petcoke prices will be completely visible in CY20.
 Merger with ACC on hold: Merger with ACC has been put on hold on account of
changes in the MMDR regulations which mandates the acquiring company to pay
royalty on the limestone.
 Other details: i) Management foresees no issues with limestone availability in its plants;
ii) Ambuja is open to evaluate inorganic opportunities available in the market; iii) Sales
mix YTD has been as follows: North – 34%, Central – 9%, East – 22%, West – 32%
and South – 3%; iv) Going forward management will look at brownfield expansion in
East and West.
Dalmia Bharat | DALBHARA IN (BUY – TP INR 1,350)
 4-5% industry growth in FY20; 6-8% industry CAGR in long term: Management
expects the industry to post a growth of 4-5% in FY20, despite slowdown in 1H. Retail
demand has remained intact despite headwinds in 1H. For next 4-5 years, annual
demand growth is expected to be in 6-8% range driven by housing (Government
housing and IHB segment) and government infrastructure projects. East is expected to
be the high growth region (8-9% CAGR expected over next five years) primarily on
PMAY projects (40% concentrated in East) and infrastructure projects. c.20-25MTPA of
expansion over the next two years is expected to be absorbed to a great extent on
demand improvement (clinker utilisations of >90% currently will remain upwards of 75-
80%).
 7.8MTPA expansion to help tap demand growth; target of 50MTPA by FY25: Dalmia is
in the process of expanding capacity in east by 7.8MTPA through a mix of greenfield
and brownfield projects. i) 3.1MTPA brownfield expansion in Rajgangpur (Mar’20); ii)
2.25MTPA brownfield grinding expansion in West Bengal (Mar’20); iii) 0.8MTPA
brownfield grinding expansion in Bokaro (Mar’20); iv) 2.25MTP brownfield grinding
expansion in Kapilas (Mar’21) and; v) 2.5 greenfield grinding expansion in Bihar
(Mar’21). The expansion will entail a capex of INR 32bn of which INR 6.5bn has been
spent in FY19, INR 13bn is expected to be incurred in FY20 and INR 10-11bn is
expected to be spent in FY21. Management expects to reach a target capacity of
50MTPA by FY25 (open to inorganic opportunities). The company has brownfield
capabilities in south and north eastern plants. Dalmia prefers entry into newer markets
through inorganic expansion as setting up ancillary support such as sales/dealer network
takes time. Management is exploring inorganic opportunities in north along with the
existing greenfield project (time line of 5-6 years; currently at land acquisition stage)

 Other details: i) Demand has been affected in AP / Telangana over cancellation of

infrastructure projects. However, the company has been shielded from demand
fluctuations as it has limited exposure to the region; ii) Price hikes in October have been
completely rolled back in east, however, in south prices are still higher by INR 10-15 /
bag in Nov’19 (vs.Oct’19); iii) Slag prices had reached a peak of INR 1,500-1,600 / t,
which are currently at sub-INR 1,000 / t levels; iv) Premium cement is 14% of trade
segment sales. PSC and PCC are 30% and 15% of the total sales; v) Company will incur
an incremental capex of INR 7.5bn for Murli. It is waiting for reinstatement of mining
leases (delay on formation of state government in Maharashtra); vi) Management
expects 6% demand growth for the company in FY20; vii) Gross debt is expected to
peak out at INR 58bn and net debt to EBITDA will be maintained at <2x level.

Consumer Staples
Hindustan Unilever | HUL IN (HOLD – TP INR 2,080)
 Consumer demand remains weighed down by stress, owing to liquidity issues and
weather disruptions: Management’s tone is still cautious towards the demand
environment. It indicated that: 1) Consumers are curtailing spending as incomes remain
under stress; 2) weather disruptions are also playing spoilsport and a delayed winter
could impact demand for seasonal products; and 3) small distributors manage several
businesses and are facing liquidity issues that may not come from the FMCG business
but impact their ability to invest. Liquidity constraints are not worsening but not getting
better either.
In this context, the right strategy for the soaps business would be to pass on the
incremental benefits from lower RM pricing to consumers through price-offs. The best
approach would be to give value to consumers rather than to trade. The premium soaps
segment is doing well but popular soaps needs to be fixed. Some price cuts are only now
landing in the market and have been largely done with (not expecting any more actions
here). The actions on price cuts take some time to land in the market as earlier
inventories need to be cleared (price increases are comparatively easier in that sense).
With such actions, volume growth is expected again in the popular segment but would
take some time.
 Execution on physical supply chain, strong existing trade relationships and partnership
with various fintech companies should help capture better consumer-level data: HUL is
of the view that digitising Kirana stores would serve its own interests and is partnering
with various fintech companies to do so. Building relationships is not about merely
placing a gadget at stores; dealing with a complex physical supply chain is equally
important and HUL believes it is best-placed in this regard given its vast experience. All
these factors, combined with its better understanding of retailer and consumer needs,
would go a long way in helping the company maintain its superior positioning in the
FMCG space.
Modern trade still remains largely a Tier 1 and 2 phenomenon and its penetration would
exert some pressures on the business’ working capital through increased receivables.
Several standalone stores are also transforming into quasi-MT formats with self-service,
alleys for shoppers, etc. but are still not completely organised like large supermarkets.
The emergence of various channels and formats is making the simple FMCG business
more complex and increases the importance of execution strength overall.
 Pace of premiumisation changes across categories as it depends on infrastructure

availability: HUL cited the example of liquid detergents, where premiumisation was
possible in a big way only once market penetration of washing machines increased.
Even detergents that are considered highly penetrated have low penetration on a
monthly-use basis and so the opportunity to increase consumption remains rather high.
Comparatively, premiumisation in the Beauty & Personal Care segment does not require
any such changes and is therefore easier. It is also important to choose the correct
format to drive premiumisation. For example, HUL is currently promoting its ‘Simple’
anti-perspirant brand only through e-commerce channels.
 Various possibilities on the utilisation of tax savings; M&A also remains a part of the
company’s strategy:
- Price cuts are not the only way to pass on benefits from the recent cut in the
corporate tax rate. Other options include improving product quality or driving market
development. Importantly for HUL, the benefits from a tax cut would be partly offset
by giving up incentives in the recently-set-up Assam factory. The tax rate cut also
enables factory consolidation.

- M&A remains a part of the company’s strategy, but the possibilities lie in Beauty and
Personal Care and Food & Refreshment (F&R) segments and not so much in Home
Care. Within F&R, it is looking at categories where HUL (or Unilever) has internal
capabilities such as dressings, spices and condiments. It is not considering segments
such as biscuits and staples.
- Management said it is seeing some inflation in the Home Care segment as crude
prices have edged up.
- In Oral care, the Close-up brand is in good shape and Ayush has done well in South
India. However, Pepsodent remains a challenge and there is no short-term solution.
- FMCG is expected to be the first to rebound once the macro environment improves.
Marico Ltd | MRCO IN (BUY – TP INR410)
 Hair-oil category seeing downtrading; pricing interventions required: During times of

pressures on income, the hair oil category is prone to downtrading; this has been
evident since the start of the year. Consumers are downtrading to loose coconut oil in
South India while in the North, consumers are downtrading to cheaper mustard oil.
Pricing intervention for Parachute coconut oil is slated for 3Q to help improve volume
growth. There has been no pricing intervention in VAHO. The company has resorted to
price-offs and not price cuts on account of high volatility in copra prices, which makes it
difficult to predict pricing trends.
Nihar Shanti Amla is gaining market share from loose mustard oil in North India.
Management said volume growth of 6-8% in 2HFY20 would be a good outcome.
 Near double-digit volume growth achievable over the medium term: Marico is looking
at new products in hair nourishment, skin care and packaged foods categories. New
products helped deliver 2.5-3% incremental volume growth in FY18, which rose to 4%
in FY19. The company expects base business to drive 6-7% volume growth and new
products are expected to add 2-3%; this would help drive total volume growth of 8-
10%.
 The company has seen success in the oats category and is currently clocking sales of INR
1.5bn. The next leg of growth here would come from distribution expansion. The
product caters to the Indian palate and management said it is looking to introduce
regional variants.
 Looking to gain scale in Kaya skin care. It currently has products largely catering to
facial care and it is trying to broaden the application through new product launches.
The idea here is to capture the “masstige” segment and reach INR 2.5bn in 4-5 years. It
is paying a significant royalty to Kaya Ltd.
 International Business - focus is on Vietnam, Middle East and Bangladesh: The company
has a portfolio of shampoo, shower gels and deodorants in the male grooming segment
in Vietnam, which presents a good growth opportunity as it has stable macros and
currency with a large youth population. The company expects healthy growth from this
geography. Vietnam also has a good operating margin structure.
Bangladesh is already delivering healthy growth rates and its operating margins are
higher than India’s. Liquidity issues have impacted UAE and South Africa but the
company has introduced two new products in the Middle East to help improve growth
rates.
 ETR expected at 25%; dividend payout at 75%: 1) Marico is expecting an overall

effective tax rate of 25% (consolidated) but domestic profits would be taxed around
22%. The tax rate in the international business is expected to be higher. 2) The dividend

payout is expected to be at 75% as large acquisitions are not very likely. The company is
currently focusing on organic growth.
Tata Global Beverages Limited | TGBL IN (BUY – TP INR325)
 Capitalise on the huge domestic tea opportunity: TGBL’s management highlighted that
the domestic tea market is a huge opportunity as a large part of the market is still
dominated by the unorganised players. This would be capitalised by increasing its
distribution network. The company admitted that the existing distribution was
traditional but now steps have been taken to digitise it. Currently, 80% of sales comes
from 20% of distributors. The western region will remain a key focus area where
weighted distribution is less than 30% because of the prevalence of ‘Society’ branded
tea in Maharashtra and Wagh Bakri in Gujarat over Tata Tea. Overall, weighted
distribution of 53% is not enough to be a market leader. The focus will be to scale it up
to 80%.
 Newly-acquired Tata Chemicals’ consumer business to help broad-base portfolio: TGBL

aims to become a total-FMCG company by entering multiple product categories; this
would be partially aided by the recent acquisition of Tata Chemicals’ consumer
business. The acquired portfolio includes:
- Salt: A 3.5mn MT market, of which Tata Salt accounts for 1/3. Management said the
problem lies on the supply side and not demand. The company is therefore
expanding capacities to fulfil demand and expects to clock 10% CAGR here.
- Pulses: An INR 1.5tn market with brand penetration of mere 1-2% (c.INR 20bn).
There is a huge opportunity in this category and the companies would aim to grow at
20-25% over the next 5 years and gain 20% market share in this category.
- Spices: An INR 180bn market growing in the mid-teens. The category is dominated by
the top 5 players (such as Everest and MDH) who hold 50% of the total market
among them. Currently, spices are distributed to only 50,000 outlets. The company
will look at both organic and inorganic strategies to drive growth in this category. It is
targeting an INR 10bn business for this brand over the next 5 years.
- Packaged foods: The company launched khichdis and chilas, which are high-margin
businesses and the initial response has been encouraging. The company believes
these new launches can act as great disruptors and aims to achieve INR 5bn turnover
over the next 5 years.
 Change in top management: There has been a significant revamp at the top
management in terms of board members and divisional heads. The company has hired
talent from top companies to head different departments and drive growth.
 Capital allocation issues addressed: Management clearly mentioned that there will not
be any further investment in international geographies other than what is required in
the normal course of business. The domestic market will be the key focus area and the
game-changer. The debt taken for international acquisitions has been entirely repaid.
 Starbucks – pace of store expansion to accelerate: Starbucks is slated to continue to

expand by entering new cities and launching new stores. The pace of store expansion is
also expected to accelerate as management said it aims to add 40-45 stores in the
current fiscal (vs. 30 in the previous fiscal). It is also planning to expand to cities such as
Lucknow, Jalandhar and Jaipur. The business is expected to become PBT positive this
year (FY20) and is already cash positive.
Westlife Development | WLDL IN (BUY – TP INR450)
 Delivery is helping create new occasions; cannibalisation to dine-in limited: Globally, the
impact of delivery has so far been limited for QSR and there is not much of a shift here.
Delivery is in fact creating new eat-out occasions for consumers; these were earlier

missed-opportunities and to that extent have helped expand the market. Consumers’
preference for convenience is also helping the market. Rapid growth in delivery in
recent times is also because of a low base.
With aggregators, McDonalds has an advantage as waiting times are standardised while
in other restaurants, these can be very volatile. The challenge remains to ensure
relevance in the minds of consumers. The company also does not sponsor any offers
from aggregators.
 McCafe seeing healthy growth in older stores and is now a part of the business:
McCafe continues to see strong response from consumers and has witnessed growth
across older stores as well. It is now a standard part of restaurant design and has 70%
penetration. McCafe is being included in older stores that need reimaging, and
complete penetration is expected by FY22. McCafe is not expected to have a
standalone or kiosk format.
Management expects McCafe and McDelivery to together constitute c.INR 8bn of the
INR 20bn-25bn turnover envisaged over the next 3-4 years.
 Pace of openings to remain around 25-30 stores per annum; cash is not the constraint:
The company has mapped real estate and will continue to use a cluster-based approach
for expansion. Leases are generally signed for 20 years and identifying the right
property and location remain key drivers. The expansion pace would remain at 25-30
stores per annum and the size of restaurants would be 3500-4000 sq ft. Fund
requirements have never been a constraint for store openings till date. Management
would also consider splitting stores if the transaction goes beyond a certain pre-defined
number. Refurbishment of stores takes place every 5-6 years and requires a capex of
only INR 1mn-2mn.
Currently, the South and West regions have a potential of 600-650 McDonalds stores,
which is also expected to grow over time.
 North & East opportunity depends on the acquisition price: There are currently 150
stores operating in the North and East but these require significant investments on
reimaging and McCafe additions. Management said it would be interested only if the
offer price is sufficiently attractive.
Bajaj Consumer Care Ltd | BAJAJCON IN (BUY – TP INR360)
 Investment behind A&P to be the key focus area: Bajaj Consumer’s management
highlighted its clear focus on upping A&P spends to drive growth. The company
currently has a 10% market share in the total hair oil space and management aims to
double it over the next 4-5 years by investing aggressively on marketing spends at the
cost of margins (would not mind sacrificing 4-5ppt of margins). However, a decline in
margins would be temporary as the company would benefit from operating leverage as
the revenue base increases. The company will also not shy away from using M&As in
the hair oils space to drive growth. Higher A&P spends and creating a war chest for
M&A would entail some cuts in the dividend payout ratio.
 Increasing direct coverage to gain better understanding of consumer trends: Prior

Demonetization, BCCL’s direct coverage stood at a mere 4% of total distribution. It
currently stands at 12% and the company aims to bring it up further to 20% over the
next few years. Direct coverage helps in better understanding of consumer trends and
gives more insights on a customer’s buying preferences, which will help the company
cater faster and better to consumer needs. While direct coverage demands a good
amount of investment in the form of higher distribution costs, it would yield good
results over the long run.

 No further promoter pledges on BCCL shares: BCCL’s promoters recently sold a 22%
stake in the company to repay personal debt and have released all pledges on the
shares of BCCL. Promoter shareholding after the stake sale stands at 38%.
 Investment in real estate to build own office premises: The company currently operates
from leased premises via multiple locations. It is now planning to move to owned
premises, which will entail capital outflow of c.INR 600mn in the form of civil
construction and interiors over the next 2-3 years. Outlay in the first year is expected to
be INR 250mn-300mn.

Chemicals
Phillips Carbon Black Ltd | PHCB IN ( NR )
 Company background:
- India’s largest Carbon Black company (by capacity): PCBL has a capacity of c. 0.571
th
MMTPA, making it the largest Carbon Black Company (by capacity) in India and the 7
largest globally (by sales).
- …with c.73% of global carbon black supply going to tyres: Globally, c. 73% of Carbon
Black is used in automobile tyres. PCBL makes Carbon Black from crude oil derivative
(Carbon Black Feed stock). Low and stable crude oil price has made CBFS based
production competitive against Chinese manufacturers who typically use Carbon Black
Oil (which is derived from Coal Tar).
- Capacity expansion to drive near-term growth: PCBL has recently added c. 56,000 TPA
capacity at Mundra and is in the process of adding c. 32,000 TPA capacity for specialty
carbon black at Palej. The addition of 32,000 TPA would increase capacity to 0.603
MMTPA. PCBL also has plans to further increase the capacity through a greenfield
expansion of c. 0.15 MMTPA
 Recent Developments:
- Automobile slow-down impact: With the recent slowdown in the automobile sector and
tyres being the largest sector consuming Carbon Black, there was an impact on Phillips
Carbon Black also. However, PCBL could increase exports and offset the impact of
automobile slowdown. Hence the overall sales volume still remained at c. 35,000 TPM,
with some slightly lower volume in Sep’19.
- Greenfield project from internal accrual: PCBL had considered expanding capacity by
0.15 MMTPA though greenfield means. However, given the slowdown, PCBL decided
not to rush into the expansion and therefore, the greenfield expansion will now be
commissioned over 2-3 years using internal accruals.
- Specialty carbon black capacity expansion to aid margins in FY21: Specialty carbon black
grades have EBITA margin of c. 3x the margin of normal grade carbon black. PCBL is in
the process of expanding capacity of specialty grade carbon black at Palej by c. 32,000
TPA. This line is expected to be commissioned by FY20. Hence, if the project is executed
as planned, FY21 / FY22 growth could be led by weighted average EBITDA / ton margin
improvement on back of higher sales of specialty grade. Subsequently, in FY23/FY24, the
greenfield capacity expansion could drive volume growth.

Exchanges
CDSL | CDSL IN (BUY – TP INR 322)
 1H revenue growth driven by growth in annuity business and new government project;
higher costs adversely impact margins: 1HFY20 revenue growth was driven by growth
in a) annual issuer charges, and b) new GoI project on investor queries partly offset by
decline in transaction charges, online data charges and IPO / corporate action charges.
Margin compression in 1H was driven by increase in costs – employee and other
expenses. Employee cost is likely to remain high led by salary base revision.
Income/expense from new GoI project may taper going forward.
 Annual issuer charges due for revision: CDSL charges c.INR 5 / debit transaction from
DP and INR 11 / folio from dematerialised companies as annual issuer charges. The tariff
is regulated by SEBI. As per the company, annual issuer tariff is due for upward revision.
 Diversification into high growth services to drive earnings: The company is focusing on
new growth avenues of commodity repository, academics and dematerialisation of
unlisted public companies. Currently, CDSL is not charging for academic records. MHRD
has formed a committee to decide on the pricing of academic services. Premier
institutions such as IIT / IIM have joined CDSL to have their academic records in e-form.
The company believes that new initiatives can potentially contribute c.40% of revenue
going forward.
 Other KPIs: CDSL has 600+ depository participants with c.0.8mn beneficiary accounts.
Incremental market share in demat is 74%. The company has c.19.9mn KYC records as
on Sep’19, 5.4 lakh e-insurance accounts and 1,000+ warehouse service providers.
BSE | BSE IN (Not rated)
 Weak capital markets lead to a slowdown in the Equity Cash/IPO Segment: 2QFY20
witnessed a decline in the cash equity revenue due to a significant loss of value of mid
and small caps. The IPO market also remained subdued during the quarter leading to a
sluggish growth. BSE marginally increased listing fees for the exclusive stocks during the
quarter, while pricing remains competitive for Common stocks.
 Mutual funds driving strong revenue growth: BSE’s mutual fund platform witnessed
c.60% growth in daily orders received in 1HFY20 along with a significant increase in the
number of distributors. BSE expects significant growth opportunity in the mutual fund
segment.
 Interoperability leading to increased scope for F&O: Interoperability which was started in
July 2019 has significantly increased efficiency of order execution and has reduced
margin requirements. BSE believes this will provide significant benefit in the F&O
segment which is currently dominated by NSE.
 Multiple new ventures to drive growth: INX, a pet project of PM Modi, started by BSE
has been witnessing good volume growth, despite making losses currently. BSE recently
launched a commodity derivative segment and is gaining good traction in the
agricultural commodities. BSE is also venturing into the Insurance business through a JV
with Ebix. BSE believes these new ventures will drive the topline going ahead.

MCX | MCX IN (Not Rated)
 Expect 15-20% topline growth: MCX expects a 15-20% topline growth in the near
future primarily driven by new initiatives. While the core commodities will move broadly
in-line with GDP growth, the company expects each new initiative (4-5 new initiatives)
to add 2-3% revenue growth implying 15%+ revenue growth. MCX is now focusing
on adding banks as members to gain access to already existing bank’s customer base.
MCX is promoting commodity-based companies to use commodity derivatives to hedge
their commodity exposure. MCX does not see interoperability coming soon in
commodities as the delivery of commodities could be challenging.
 Considering purchase of source code/self-developing software: Software forms the

largest portion of costs for MCX. It currently pays a volume-driven variable fee for its
software along with fixed costs, amounting to c.INR 500mn. MCX is considering
developing in-house software or buying the source code for the existing service
provider. MCX highlighted that the initial outlay and the migration could be
challenging.
 Competition from BSE and regulatory changes are the key challenges: While NSE has a
very small exposure to commodities, BSE is the major competitor of MCX. Change in
regulation can be a risk to the exchange.

IT Services
Tata Consultancy Services | TCS IN (HOLD – TP INR2,040)
 Incremental headwinds in the retail vertical: TCS highlighted deal closures in retail
(c.15% of revenue) were weak in October vs. 2QFY20, especially for product-led deals.
The softness is broad-based and poses an incremental headwind for 3QF20.
 But other verticals, including BFSI, are holding well: Deal signing in BFSI (31% of
revenues) remains healthy but is not reflecting in the reported financials due to a ‘leaky
bucket’ – non-renewal of expiring projects due to cost cuts or business restructuring by
the clients – especially in large banks in Europe and capital markets in the US that
remain fragile. However, insurance and regional / small banks in North America
continue to grow. Among other verticals, telecom and manufacturing are seeing
demand acceleration growing well despite some softness in Europe.
 Pricing risks have gone up: TCS suspects internal challenges in one of the large
competitors could lead to pricing competition in the market though as of now, it has
not seen any abnormality. TCS has been gaining market share vs. competition,
especially in Europe.
 …But TCS is the confidence of margin defence: TCS highlighted annual wage hike –
the key cost-head – presumes a natural offset of wage inflation by INR depreciation.
TCS has been disciplined in both the quantum of salary hikes and promotions to ensure
consistency and predictability. It has been rationalising its employee pyramid and
controlling sub-contracting costs, both of which are long-term margin levers.
Wipro | WPRO IN (HOLD – TP INR270)

 Demand outlook is soft is BFSI: Wipro (WPRO) is seeing softness in BFSI due to weak
spend by European banking and capital market clients and completion of certain large
digital transformation projects. This is true for its top client as well -- a global bank
where there has been a slowdown in the start of the next phase of a digital program
that WPRO has been working on.
 … But broadly strong in other verticals: Communications (excluding India business) is

witnessing strong growth and WPRO is seeing initial signs of a recovery in both
manufacturing and healthcare (excluding the HPS business) verticals.
 Deal pipeline is healthy: WPRO is seeing a robust pipeline and the momentum of the
order book in 2QFY20 was better than 1QFY20 as some of the deals that faced delayed
signing in 1Q were signed in 2Q.
 Focus on keeping margins in a narrow band: WPRO is investing in creating additional

capabilities on the domain and solution architecture side. However, it remains prudent
in driving cost efficiencies in the operations + increasing the use of automation to limit
volatility in margins.
Tech Mahindra | TECHM IN (BUY – TP INR890)

 Enterprise business – back on the growth curve? Tech Mahindra (TECHM) attributed the
weakness in the segment in recent quarters (0.7% CQGR over 3QFY19-2QFY20) to
softness in the auto sub-vertical (c.400mn annual run-rate), mainly in Pininfarina, the
auto design firm acquired in 2016, where the revenue contracted by 1/3rd from the
peak over the last four quarters due to global trade conflicts; there has been a minor
impact on the organic clients as well. TECHM believes the drag bottomed out in
2QFY20 and incremental impact should be minimal. It expects enterprise to grow in the
mid-single-digit in FY20 and accelerate to 8-10% in FY21 driven by BFSI (strong deal
wins) and TME verticals. It also expects the QoQ volatility in the healthcare vertical to

reduce as the share of managed services grows (USD 100mn deal in 2QFY20; 2-3
additional deals are under discussions).
 Telecom – AT&T deal / 5G to drive FY21: The ramp-up in the AT&T deal (USD 1bn
incremental revenues over 6.5 years) should help drive 8-10% constant currency (CC)
growth over FY20-21. TECHM expects 5G impact to get more visible from 2QCY20. It
has partnerships with all the major OEMs (Nokia, Ericsson and Samsung) that have been
selected by major US TSPs for 5G network roll-outs. TECHM expects initial deals as
subcontracts from the OEMs for network services (the erstwhile LCC business) to be
followed by direct IT deals.
 But margin management could get trickier: TECHM expects FY20 EBIT margin to be
around 12.5%, down 250 bps YoY. 3QFY20 margins are likely to be affected by AT&T
deal transition costs though TECHM is hopeful of getting support from the seasonal
recovery (pyramid+retail / BPO revenue growth+normalisation of transition costs in
previously signed large deals). Margins should recover in 4Q due to lower incremental
drag from AT&T and seasonal leverage in Comviva. This should help achieve an EBIT
margin of 13% in 4QFY20 (12.4%, -255bps YoY for FY20). TECHM aspires to get back
to FY19 levels (15%) by FY21 helped by a recovery in portfolio companies (c100bps)
and normalisation of deal transition costs (c.50bps) even as efficiency gains and
traditional levers (right-shoring/pyramid) help absorb the annual wage hike impact.
See our note Picking up momentum dated 9th Nov. 2019 for a more detailed discussion.
L&T Technology Services | LTTS IN (BUY – TP INR1,750)

 Client-specific headwinds have affected the near-term momentum: L&T Tech Services
(LTTS) attributed the slower growth in 1HFY20 specifically to the telecom & hi-tech
vertical were specific clients decided to terminate programs due to a business
restructuring or macro challenges. Ex-telecom / hi-tech, USD revenue grew 22% YoY in
1HFY20. Divestment of a business by a telecom client for which LTTS was the primary
outsourcing services provider had an impact of c.30mn annualised run-rate, closure of
certain programs by two semiconductor clients was an incremental headwind in
2QFY20. LTTS does not see any incremental decline in the vertical in 3Q. The delayed
signing of a large auto deal has weighed down the 3QFY20 outlook (expects a muted
quarter) even as LTTS is hopeful of a closure during the quarter. Typically, gaps between
project end the next project start in the client has a USD 10-15mn revenue impact each
year that needs to get back filled.
 Deal pipeline is strong. LTTS is seeing the build-up of large deals in the pipeline and deal
sizes have increased on a YoY basis. Even in the telecom/hi-tech vertical, it won 4 deals
in 2QFY20; there are incremental 5 deals in the pipeline including 2 in advanced stages.
LTTS considers any deal that has the potential to give USD 5mn incremental revenues in
a year as a large deal.
 Margin outlook is stable: LTTS is working to ensure limited margin volatility. While it
expects that a pick-up in deal execution could lead to higher onsite and hence drag
margins in 4QFY20, it is confident of other levers to mitigate the impact. LTTS
highlighted 60% of the employee base is vertical-agnostic and hence fungible. This
enables high utilisation.
 LTTS is exploring new growth areas: LTTS sees autonomous and electric cars (CASE) and
offshore software product development for independent software developers (ISVs) as
potential areas for organic investments and acquisitions. It has also created a subsidiary
in China to cater to the demand from the Chinese operations of their global clients.

NIIT Technologies | NITEC IN (BUY – TP INR1,510)

 Business fundamentals are strong: NIIT Tech (NITEC) emphasized the limited impact of
macro factors on its business so far given its small share of clients’ IT spends. NITEC is
focused on gaining market share both in the existing accounts as well as new accounts.
It highlighted the increase in the quarterly run-rate of fresh order booking to USD
150mn+ (USD 350mn in 1HFY20) over the last 8 quarters since the new leadership
team has taken charge vs. sub-USD 120mn in the earlier period. Similarly, it has added
c.10 new clients every quarter over the last 8 quarters vs. less than 5 on an average in
the prior period. That said, it expects QoQ growth in 3QFY20 to be modest due to
seasonal factors (furloughs / lower billing days). Growth challenges in a large BFSI client,
highlighted in 1QFY20, are likely to continue though, the decline has stabilised.
 The Brexit impact is likely to be limited: NITEC’s exposure to the UK market is largely
centred on travel & transport, and insurance (in BFSI). It emphasised it has not seen any
softness in demand in these sectors so far and expects no change at least in the near-
term.
 Confident on margin management: NITEC is comfortable of maintaining EBITDA margin

at 18% even as it continues to invest in capabilities addition at the back-end and in
presales augmentation, advisory relationships and sales incentives at the front-end.
Zensar Technologies | ZENT IN (BUY – TP INR270)

 Demand environment is stable: Zensar (ZENT) indicated the demand environment is
stable though retail is likely to remain soft for some more time. It has been trying to
shift into financial services and technology verticals and explore other sub-verticals
within Retail such as retail technology and CPG vs. its traditional focus on big-box
retailers that have been the worst affected by the growing dominance of online players.
It highlighted cloud infrastructure services are still underpenetrated (<30%) in its Top20
clients and ZENT sees this as a potential growth area. Also, so far, it has not seen any
impact of Brexit on its UK operations (c.13-14% of revenues). However, it does see the
risk of tariff-conflict affecting its business from the technology vertical (c.50% of
revenues).
 Near-term challenges persist... It attributed the optically weak revenue growth in

2QFY20 to right-shoring in previously signed large deals and the completion of a large
cloud transformation deal in a top-10 client, ahead of deadlines. It expects the impact
of furloughs to be normal in 3QFY20.
 …as deal decision-making has been weak: ZENT conceded the deal signing in 2QFY20
(USD 120mn) was below its typical quarterly run-rate of USD 150mn+. It attributed it to
delayed decision making in deal closures, especially in Retail and BFSI.
 Business reorganisation ahead of MVS divestment: ZENT is reorganising its US

operations to house the non-core MVS business into a spate legal entity. It expects the
process to complete over the next 2-3 months.
eClerx | ECLX IN (HOLD – TP INR1,100)

 Structural headwinds persist: eClerx (ECLX) has been seeing a contraction in certain
services in each of its three business segments – content management (in Digital),
derivative operations (in BFSI) and contact centre interaction quality monitoring (in the
cable business segment) – due to growing adoption of automation. These three services
are still 1/3rd of the consolidated revenues and thus could remain in the near-term.
Overall, ECLX emphasised its growth should be benchmarked with the business process
management (BPM) industry growth which has been c.5% over the last few years and
not the relatively faster growing IT Services.

 However, there are emerging drivers of growth: ECLX identified analytics, KYC and
dispatch services as the three service areas that are growing ahead of corporate average
and could potentially be the growth drivers over the medium-term. However, these
combined are still c.20% of revenues which limits their optical impact.
 However, new services have a different margin profile: Analytics has a higher onsite
delivery component (but it is relatively lower for KYC and still lower for dispatch).
Margins in the recent quarters have also been affected by investments made in CLX (in
areas such as augmentation of CGI capabilities) and Fayetteville centre. EXCLX believes
the investments in CLX are now over and expects margins to stabilize and potentially
expand. Similarly, Fayetteville was EBITDA positive in 2QFY20 and ECLX is hopeful of it
being EBIT positive by 4QFY20. The center is currently at 80% revenue capacity and
serves only two clients as of now in the cable business.
 Key challenges: ECLX sees developing the right size of, and right-skilled sales force as
the key business challenge. While it has been investing in creating such sales capacity, it
believes it remains an area of a potential investment. Besides that, the short-term nature
of projects – which exposes ECLX to the risk of work dropping off at a short notice – is
another challenge. It has been focusing on securing larger deals where while the
direction is positive, the magnitude is still small.

Internet
Info Edge | INFOE IN (BUY – TP INR2,500)
 Recruitment solutions growth driven by strong hiring trends in IT: Info Edge considers
itself an organised, non-government job exchange in the country. The company’s
recruitment vertical derives 42-43% of its revenue directly / indirectly from the IT sector.
Hiring trends in IT which were subdued around two years ago have now rebounded,
with hiring activity now up around 20% YoY in recent months (this can be confirmed
from the company’s Jobspeak index released every month). However, non-IT hiring
trends remain weak due to the economic slowdown with BFSI sector the most affected,
with Mumbai based companies the most affected. Consequently, the overall growth
trend might be slightly impacted in the near term. The company also mentioned that it
continues to aggressively invest in technology related investments (data science, artificial
intelligence and machine learning) to improve the user experience of both recruiters and
job seekers.
The company continues to get 6-7% YoY realisation growth, which is a mix of various
factors i) direct price increases (although less frequent) ii) indirect price increases
(reduction of quotas) iii) cross selling and up selling of products
The company believes its closest competitor in the recruitment vertical is Indeed, a job
aggregator, who was very aggressively spending till about a year back. On the other
hand, the company considers Linkedin a passive (job seekers are not extremely active)
and niche competition, who is not much of a threat as yet.
Company continues to develop its offerings in blue collar space and premium hiring.
However, the management believes any significant revenue accretion from these
offerings will only start after 5+ years.
 Offline to online movement and brokers continue to drive growth in 99acres in a tough
underlying market: The company primarily earns its revenue from builders and brokers
who advertise residential properties for sale / rent on its platform. The company does
not charge any amount to property seekers and individual property owners as well, as it
believes they help in improving the content and traffic on its platform.
The company mentioned that the underlying residential real estate market has been
weak for 99acres since 2010. Despite this, the vertical has been able to report strong
growth on the back of strong offline to online shift in advertising spends by builders.
Consequently, new project launches are very critical from the company’s perspective. Off
late since new project launches have slowed down, the company has seen a significant
increase in share of broker revenue.
The company has spent around INR 2-2.5bn in 99acres over the last 10-12 years and
considers this vertical to be still under investment phase. The vertical currently operates
close to breakeven.
In terms of competition, the company is the market leader with 45-50% traffic share.
Other competitors include Magic bricks, Nobroker and Housing.com.
 Aggressive investments in Jeevansathi to continue in the near term: The company

primarily operates in the northern and western markets under these verticals. It is the
third largest player overall in India and has been aggressively acquiring customers
through marketing spends and lower product pricings. Company expects spend levels
to remain high in the near term due to continued competitive intensity and its brand
building efforts.

 Investee companies: The company has made several small investments across a range of
startups. These investments were made at an early stage with plans to monetize them
later on.
Indiamart | INMART IN (Not Rated)
 Business Model: The company mentioned that it runs a catalogue driven model instead
of just listings. It helps improve the connect rate of potential buyers with suppliers either
through Indiamart managed telephone numbers, email/SMS or by submitting a generic
request in the form of an RFQ (which is then shared by Indiamart only with suppliers
capable of delivering the product/service). Around three-fourth of this process is
automated. The company is not engaged in logistics related services.
The company charges suppliers for RFQ’s and priority listings through multiple pricing
plans. Entry level plans are for INR 30,000 per year while platinum and enterprise plans
can go up significantly higher. Around two-third of the suppliers on the company’s
platform are engrossed in annual or multi-year contracts. Buyers are not charged.
Paying supplier renewal rates are around 60-70% in the first year which then increases
to 90% second year onwards. Weighted average renewal rate is around 80%.
 Impact of economic slowdown on the company: Indiamart has noticed a slowdown

starting in 2Q when there was a decline in traffic. While the company’s revenue has not
been impacted much as yet, customer acquisitions have been slow. Overall, while gross
acquisitions remain high, the company is also noticing an increase in customer churn in
the recent periods. This can also be noticed in the decline in deferred revenue growth
from ~35% to ~27% in 2QFY20.
 ESOP: The ESOP program was started in 2010 and around 600 employees are eligible.
Currently, 80% of ESOP are distributed among top 40 employees.
 Stake purchase in Vyapar: Vyapar is a mobile-based accounting software with easy to

use interface. Indiamart has bought a 26% stake in the company for around INR 312mn
(valuation of INR 1.2bn). Vyapar currently has revenue of INR 15mn. More importantly
the company has engagement with more than 500,000 monthly active users. Indiamart
has no intent to take control of Vyapar and will look for cross selling and up selling
opportunities over the next few years through it.
 What’s next? Indiamart remains confident of delivering 25% YoY growth in revenue
over the next 2-3 years with improvement in margins (expects around 20% YoY
increase in costs, mainly on account of employee expenses). A major chunk of this
growth is likely to come from volume growth while average revenue per paying user is
likely to be dependent on mix change and price increases (where transmission is slow).
Dream11| (Not Rated)
 Company profile: Dream11 is India's Biggest Sports Game with 70mn+ users playing
Fantasy Cricket, Football, Kabaddi, Basketball, Hockey & Volleyball. In April 2019,
Dream11 became the first Indian gaming company to enter the 'Unicorn Club'. A
Series D funded company, Dream11 was founded in 2008 by Harsh Jain and Bhavit
Sheth. Kalaari Capital, Think Investments, Multiples Equity, Tencent and Steadview
Capital are the marquee investors in Dream11.
 Sports Partnerships: Dream11 is the Official Fantasy Game partner of the The Board of
Control for Cricket in India (BCCI), VIVO Indian Premier League (VIVO IPL), International
Council of Cricket (ICC), VIVO Pro Kabaddi League (PKL), Hero Indian Super League
(ISL), National Basketball Association (NBA), Abu Dhabi T10, Mzansi Super League
(MSL), Hero Caribbean Premier League (CPL), International Hockey Federation (FIH), Big
Bash League (BBL), European Cricket League (ECL), European T20 Slam, Karnataka
Premier League (KPL), Pro Volleyball League (PVL) and the T20 Mumbai League. While
MS Dhoni is Dream11's brand ambassador, in 2019 Dream11 signed up with 17 other
prominent cricketers including Rohit Sharma and AB Devilliers.
 Addressable market: Anyone who is a sports fan, is an addressable user for Dream11.
Fantasy Sports helps convert passive viewers to active sports fans. A recent study shows
that 37% of fantasy sports players consume more than 6-8 hours of real-life sports
content per week to stay updated with knowledge on players and match conditions
(source: Fantasy Sports - Measuring its impact on actual sports consumption, IFSG and
Neilsen). In India, there are over 800 million sports viewers, and of those about 300
million are viewing sports online. By 2020, the company expects 80 million sports fans
to be playing on Dream11. Further, there is an organic ecosystem getting built around
Dream11. There are 200+ Apps on the Playstore, multiple physical coaching centers
across India that provide tips, tricks and training to users to improve their skills and get
the maximum out of the Dream11.
 Revenue model and profitability: Dream11 offers 'freemium model' where users have
the option to choose from free-to-play or pay-to-play contests. In pay-to-play contests,
users pay an entry fee to enter the contest. The average ticket size of pay-to-play
contests is INR 35. About 90% of Dream11's users play in the free contests. Dream11 is
an ad free platform.
 Key Challenges: Fantasy sports have been played worldwide for 50+ years, yet it was an
alien concept for the Indian market. Launching fantasy sports in India for the first time
in 2008 (after Super Selector had shut down around 2001) meant that Dream11 had to
hard-sell the concept to potential hires, investors, and most importantly, users.
Dream11 experimented with formats before they finally found a product that would
resonate with sports fans in India and was legally accepted. The tipping point for the
industry came when Dream11's format of fantasy sports was declared legal by the
Indian courts. Keen to ensure robust growth of the industry and aware of the need to
self-regulate, Dream11 founded the Indian Federation of Sports Gaming (IFSG) -India's
first & only self-regulatory industry body formed to protect the user interests and create
standardised best practices for the sports gaming industry.

Inudstrails
Bharat Electronics | BHE IN (HOLD – TP INR115)
 Maintained FY20 sales guidance at INR 130bn: Management maintained its FY20 sales
growth guidance of 8% as several large projects – including LRSAM – are expected to
be ramped up in 2HFY20. While its order book has seen a sharp increase (24% CAGR)
in the past 4 years, management expects long-term sales growth to be maintained at
10-12% as several projects are long-gestation in nature. While new pricing guidelines
are expected to dent operating margins by 150-200 bps, management aims to maintain
its PBT margins at 10% in the near term.
 Order inflows to pick up in FY21; targeting annual inflows of INR140-150bn: YTD

inflows have been strong, but the absence of any large project in the near term may
restrict FY20 order inflows to INR 120bn-140bn range. However, order inflows may pick
up from FY21 and are expected to be maintained at INR140bn-150bn.
 Ramp up in manufacturing facilities: Bharat Electronics is embarking on a sharp capex

ramp-up journey as it is slated to commission new manufacturing facilities in Anantapur
for RF seekers (900 acres), Machalipatnam for electro-optics (53 acres), Devanhalli for
satellite integration (32 acres), Ibrahimpatnam for electronic warfare systems (120 acres)
and 10 regional product support centres. Besides this, the company has also signed a
MoU with Tamil Nadu Explosives to utilise its manufacturing facilities for its foray in to
the explosives and detonators space. Overall, the annual capex is expected to be
maintained at INR 6.5bn-7bn per annum over the next 4 years.
 Diversification in new areas: The company expects diversification in multiple new areas
to help maintain its future growth; this includes smart cities, satellite integration, solar
panels, detonators and exports. While exports contribute less than 2% of sales
currently, it has opened offices in several countries including Vietnam, Myanmar, Sri
Lanka, Oman and the African region and expects the share of exports to reach 10% of
sales.
 Smart cities and servicing income can be medium-term revenue drivers: Servicing
income has jumped from INR 5.3bn in 1HFY19 to INR 6.7bn 1HFY20 and management
aims for 20% CAGR over the next few years as the armed forces target increased
outsourcing of equipment repairs. Its smart cities order book stands at INR 40bn
currently and revenue from smart cities can improve to 15-20% of total sales over
FY22-23. Margins in the initial years are expected to be lower than the company
average due to high fixed costs such as development of software, but incremental
orders can be booked at higher margins, thus improving margins to the company
average in the long term.

Metals & Mining

Jindal Steel & Power | JSP IN (HOLD – TP INR 160)
 Macro environment continues to remain soft: Recent consolidation in the industry has
seen the exit of several small players, which has helped JSPL. The exit of small players
when prices are low provides a natural support to the price level. Steel prices declined
further in Oct’19, but there is a gradual reversal in the trend with few integrated players
raising prices. Autos and white goods are the worst hit.
 Value added products drive revenue growth for JSPL: JSPL was less affected due to the
slowdown as revenues are directly linked to the infrastructure spend by the government.
Overall, JSPL grew better than peers due to adequate orders in rails and heat treated rails.
In terms of product mix, JSPL has 30-35% plain vanilla products while the rest are value
added products. JSPL was also able to offset softer domestic demand by higher exports.
 Power business hit by prolonged monsoon: JSPL’s power business was softer during the
quarter due to two main reasons: 1) Lower availability of coal due to monsoons and 2)
Higher supply of hydro power. JSPL however, expects the power business to be back to
normal in the coming quarters.
 Working capital managed effectively: JSPL received a sizeable amount in export pre-
payments which form a major part of their Other Current Liabilities of INR 8bn. JSPL
expects the pre-payment to continue on rolling basis. Excluding export prepayments, the
company has still managed to bring down its working capital days.
 Debt repayment on track: JSPL has a sizeable debt to be repaid in 2HFY20, with a major
part of it coming from a loan in Mauritius (c. USD 153mn), due on 31Mar’20. While JSPL
is confident that its cash flows will cover the loans, its repayment plans are likely to be
supported by sale of assets in Botswana. The company believes 2x to be a sustainable net
debt to EBITDA, which could go up to 3x levels during downturns.
JSW Steel | JSTL IN (BUY – TP INR265)

 Steel price correction impacts profitability, demand pickup expected in 2H: JSW Steel’s
EBITDA/t declined to a nine-quarter low in 2QFY20 at INR 6.5k as realisation declined
sharply (INR 4.8k/t QoQ). JSW has revised downward its FY20 volume guidance by 3% to
15.5mn ton on account of weakness in 1H. The company expects demand to pick up in
2H. As per JPC data, current inventory build-up with steel mills is c.12.5-13mn tonnes vs
c.7.5 mn tonnes 15 months ago. Part of the inventory build-up is in anticipation of higher
demand in 2H. Pricing remained sluggish for the steel industry in the last 6 months. JSW
recently increased steel pricesby INR 500/t and INR 750/ for longs and flat, respectively.
 Infra and capital goods to drive demand: JSW’s major demand comes from Infra and
capital goods while some part of it is from autos and white goods. While JSW sees a
slight pick-up in demand in 2H for infra and capital goods, it believes autos will continue
to remain weak. Exports from China have reduced c.50% in 3 years due to strong
consumption in China.
 Raw material tailwinds to accrue in Q3 and Q4: The company expects benefit of lower RM
costs to kick in from 3Q. Coking coal consumption cost is expected to decline to USD 25-
30/t in 3Q. Domestic iron ore prices have been stable in the last 2 months but the
company expects prices to be under pressure.
 Expansion projects on track: The company has revised downward the FY20 capex by
deferring capex of INR 47bn (mainly downstream) to next year. The cumulative capex over
FY18-21E stands at INR 487bn. However, INR 70bn remains uncommitted which the
company may defer to FY22. The expansion plans are on track to a) augment steel
capacity at Dolvi from current 5mtpa to 10 mtpa by Mar’20, b) expansion at CRM1
complex at Vijayanagar (0.95mtpa) completed in 1HFY20 and c) downstream facilities
at coated products division. Cost saving projects includes a) 8mtpa pellet plant by Mar’20

and b) 1.5mtpa coke oven battery in FY21.Other highlights: India has FTA with 13
countries and GOI stance of backing out from RCEP is a positive for the steel industry. The
company expects Italy operations to breakeven in 4QFY20. Ohio operations breakeven is
expected at 50-60% utilisation (currently at 15% utilisation)

Media and Telecom

Zee Entertainment Enterprises | Z IN (BUY – TP UR)
 Promoter pledges: Promoters (Essel Group) are working on a clean-out trade that would
free up the ZEEL stock from all pledges and encumberances. After this intended stake
sale, promoters are likely to have 5-7% shareholding, but they expect to retain
managenent control. While management had indicated a March 2020 deadline for
resolution of promoter share pledges, the internal goal of Essel Group is to complete
such a stake sale before end of 2019.
 Ad revenue growth: Zee delivered ad revenue growth (c.2% yoy) in 2QFY20, whereas
overall TV ad spends declined 4-5% yoy (ex-news and sports). This is despite an
approximately 5 pps loss in ad growth rate, due to the of removal of FTA channels from
the Freedish DTH platform.
 Subscription revenue growth: Post FY20, the management has guided that domestic
subscription growth will revert to low-teens. Subscription growth will be driven by the
launch of new channels, monetisation of customers that are yet to pay, and re-pricing
of existing channels.
 Viewership share: Current all-India viewership share in entertainment segment (ex-

sports) stands at 18.7%. In most of the markets, viewership share is at 90-95% of the
pre-NTO levels. All language genres, except Tamil and Telugu are performing well ;
viewership share seems to have plateaued in Tamil, while in Telugu, Zee has witnessed
some market share erosion. Zee is planning to launch a Punjabi GEC, and three movie
channels (Tamil, Kannada, and Bhojpuri languages).
 Digital / streaming business—ZEE5: The sompany is on track to producing more than 72

shows this year on Zee5—45 shows were produced in the first half. Digital content cost
is 3x-5x on a per hour basis vis-a-vis linear TV programming. However, in absolute rupee
terms, investments in digital are still a fraction of TV investments. Total paying
subscriber base (B2C + B2B2C) is in single-digit-million at present. Zee is working on
automatic payment renewal authorization, which they believe would increase the paid
subscriber base and reduce the churn.
 Other takeaways, miscellaneous: A large part of the content inventory is in movies.

Movie rights for which advance payments have been made will be available in CY20
and in CY21. The company aims to be OCF-positive by FY21.
GTPL Hathway [GTPL IN] (BUY – TP INR270)
 Video business: NTO (New Tariff Order) has resulted in a reset of the video or cable TV
business. There was some subscriber loss in the wake of NTO implementation towards
the end of last fiscal, but most of these subscribers have been slowly returning. GTPL
has the lowest MSO/LCO share in the industry (25:75 split), and management believes
this can be changed favorably in the future, resulting in higher net ARPUs. Current
ARPUs, gross of LCO-incentives, is upwards of INR130. The company also believes that
the regulatory uncertainties are not over, and TRAI would come up with modifications
to NTO, if any, by December-end. Management indicated that there has been no
incremental demand for a la carte channels post the recent channel price reductions, as
the market is still driven by bouquets. Collection efficiency is at 93-94% compared to
industry average of 90%. GTPL is targeting a collection efficiency of 98%. CATV
subscriber churn is at 0.3% per month, which would come down further.

 Broadband: GTPL is bullish on broadband business—with both ARPUs and customer

additions picking up. They believe that the key trigger for an increase in broadband
ARPU would be an increase in wireless broadband tariffs, and as such, the recent
increase in 4G pricing would help them raise broadband tariffs over time. GTPL is
targeting fiscal year-end broadband subscriber base of 375,000-400,000.
 Dividend and other topics: The board has decided to wait for TRAI’s final
recommendations on changes to NTO, before taking a call on increased dividends.
Regarding partnership with Jio, they are yet to finalise their respective areas of
operation for broadband, and the management indicated that this process could take
several more months. Management also indicated that Jio may supply Android STBs for
DEN, Hathway and GTPL to seed in their respective markets.
INOX [INOL IN; Not Covered]

 Screen growth: At present, Inox has >900 signed screens in the pipeline, a majority of
which are in north India, where INOX has a relatively weak presence at present. India is
grossly under-screened with merely eight screens per million of population compared to
37 for China and 126 for the USA.
 Ad revenues: Advertising deals are typically based on the number / volume of minutes.
Very few deals are struck that require a minimum occupancy ratio in the theatre. Deals
could be either long-term or short-term (spot) deals. Long-term deals are typically for a
year whereas short-term or spot deals are typically for a couple of weeks. The rates for
spot deals are further categorized as average / blockbuster / mega-blockbuster rates.
Short-term deal periods are usually locked-in, irrespective of the movie’s performance.
At present, long-term deals account for less than 50% of the short-term deals. Post a
subdued Q2, October has been a very good month for ad revenues, both in terms of
number of advertisers as well as yield / pricing.
 Impact of streaming or OTT video: The window of exclusivity, currently at eight weeks,
protects movie-exhibition revenues. Currently, 60% of a movie’s revenue is theatrical,
and in management’s view, no producer would want to jeopardize it by allowing an
OTT-release first. Further, there are few other out-of-home entertainment options in
India apart from the movies.
 Online booking and convenience fees: Roughly 50% of INOX’s gross ticket collection is
through the online channel (across aggregators and INOX website). Contribution of
special or discounted ticket deals in online bookings is negligible at present, but the
company is planning to ramp up on such deals. The convenience fee charged across all
platforms is same at 10%.
 Other takeaways, miscellaneous: Even in Tier 2 and Tier 3 cities, there are segments of
the audience who expect a better movie experience. Management feels that given the
demand from and expectations of such customers, they can profitably cater to Tier 2
and Tier 3 cities, in spite of the competition from smaller players such as Digiplex and
NY Cinemas.
Tata Sky Limited [TSL; Not Listed]

 Impact of NTO on DTH operators: NTO has completely changed the pricing environment
and put the onus of pricing on the broadcasters. DTH operators now act as commission-
agents for distributing or passing on the content. All DTH operators have adopted the
new accounting norms to reflect this reality. Pricing has gone down for very high ARPU
customers, whereas it has gone up for low ARPU customers. DTH operators have gained
post NTO implementation.

 The ‘Binge’ product: The Binge hardware is an Amazon Fire Stick that works only for
active Tata Sky satellite-TV subscribers. Binge is an initiative to ring-fence the high ARPU
customers. Customers must subscribe to a linear TV package, in order to use Binge—
thus, Binge cannot be used as a standalone product. No upfront cost is charged for the
stick, but the monthly rental for Binge is INR249 (including GST) and includes free
access to premium streaming apps like Hotstar, Sun NXT, Eros Now and Hungama Play,
besides 5,000 titles from the Tata Sky Video-on-Demand. Binge subscribers can directly
see content across multiple apps, which is a major USP of the platform.
 Other initiatives: Tata Sky broadband facilities are available only for premium
subscribers. The company provides broadband facilities to only the premium subscribers,
and only in localities where it is assured of meaningful subscriber acquisition. Currently,
the cost per home pass is less than INR 2,000 as they lease the necessary fibers. The
ONT cost is currently INR 3,000 per unit, which is subsidized for subs that are above a
certain ARPU threshold.
Tikona Infinet Limited [Not Listed]

 Company profile: Tikona is a provider of fixed broadband services over unlicensed Wi-Fi
spectrum in the 2.4 GHz and 5.8 GHz bands. Its current subscriber base is 430k and the
average usage per subscriber stands at 160 GB. Tikona is present in 25 cities, and the
management believes that there is sufficient demand in these 25 cities. The company is
adding 25k subscribers each month. Annual revenue run rate is around INR 3.2bn with
an EBITDA margin of about 25%. The business is FCF positive (defined as EBITDA less
capex including growth capex), but the quantum of FCF is not large enough currently to
drive accelerated growth in customer base.
 Free Wi-Fi hotspots project: Tikona is the largest hotspot provider in Mumbai with
1,100 hotspots. Hotspots are provided in association with Facebook (internet.org);
Tikona receives upfront cash payment to deploy the hotspots. 20,000 people currently
use Tikona hotspots at the Mumbai airport each day.
 Other details: Tikona has contracts for four smart cities at present. 90% of Mumbai is
under Tikona coverage and the company uses 5.8 GHz and 2.4 GHz unlicensed
spectrum bands. There are 275 permanent employees with additional 1,200 sales and
marketing personnel who are outsourced
 Can 5G be deployed for home broadband? Currently, in the 3.6 GHz spectrum band,
the amount of spectrum that is available per player is 100 MHz, which is very little for
home broaband. This spectrum can be used only to decongest the mobile networks.
Although sufficient spectrum for broadband can be provided in the 26 GHz and 28 GHz
band, the range of such spectrum would be restricted to 500 meters, thus, necessating
a large number of small cells. These small cells would further require 300-400 MHz of
back-haul spectrum or an extensive network of fibers connected to the small cells—all
these are major challenges in using 5G for fixed broadband

Panel discussion on streaming video (participants from Voot and Shemaroo)

 State of digital advertising : Digital advertisement has now reached a certain scale
where sectors like FMCG, BFSI have started advertising on digital medium, especially on
the streaming platforms. A mature / popular TV channel runs ads at 105% capacity
utilisation, whereas utilization in digital is currently at 30-40%. While AVOD
(Advertisement Video on Demand) traffic is growing at 50% YoY, ad rates are falling
10% every year due to excess capacity. However premium ads that can target specific
audience continue to generate premium ad rates. Advertisers prefer larger OTT players
due to assured brand safety. As per Voot, their AVOD platform should start becoming
profitable soon. Market would continue growing as current base of 450mn smartphone
users (including Jio Phones) may end up at 700-800mn over the next 3-4 years
 Triggers for OTT consolidation in India: Currently, streaming video consumption

accounts for only 10% of the total video consumption in India (rest is linear TV
consumption). Streaming can potentially grow to 25%, which is still some time away, at
which point consolidation may get triggered. As per the panelists, there are 8-10
players who are yet to launch their platforms in India, and this could also act as a trigger
for consolidation. Post consolidation, the industry would move to a segmented model,
where each platform caters to a specific audience. Panelists do not think that telcos
would enter into content ownership in any significant way.
 Originals vs library: Original content, as per the participants, is essential to retaining

customers on OTT platforms. As per various surveys, approximately 55% of the people
have identified original content as the primary reason for continuing with an OTT
platform. Library content is used predominantly to increase consumption time on the
platform. Originals can also redirect subscribers to related library content, thus having a
snowball effect on total consumption.
 Miscellaneous: Unlike TV, where BARC is the only source of information for viewership
statistics, OTT players can themselves track viewership statistics at a granular level. Thus,
OTT players have very little incentive to colloborate and appoint an independent body or
third party to measure viewership statitstics.

Midcap Companies
Havells India | HAVL IN (BUY – TP INR730)
 Demand environment remains weak: Havells indicated that infrastructure and real
estate-dependent products growth (switchgears, cables and wires) remains weak while
electrical appliances continue to grow at a steady pace. Professional luminaires are
somewhat weak (for office, PSU, corporates; orders have dried up in the past 6
months), consumer luminaires are growing at a healthy pace. However, a price
correction will offset the volume and hence result in muted growth in lighting segment.
Separately, there has not been much change in competitive intensity in case of
switchgears. Fans have grown in line with the market in 2QFY20 (i.e. no market share
loss) while appliances have grown at much faster rate than ECD category growth due to
relatively lower base.
 Lloyd performance impacted due to a confluence of events, great potential over the
long term: Since the acquisition in 2017, Havells has undertaken several strategic
initiatives in Lloyd business including a) brand repositioning (from mass to premium), b)
distribution rejig (from volume based dealer selling to multi-channel), c) uniform pricing,
and d) complete outsourcing (largely imports) to in-house manufacturing (new facility
commissioned in 2QFY20 and will cater to 60-70% of requirement in FY21). This
coupled with certain external events such as a) rise in customs duty, b) USD-INR
exchange volatility (INR 64 to INR 72 per USD), c) changes in star rating, and d) sudden
price drop by market leaders resulted into a strong headwinds for Lloyd’s AC sales (flat
to negative in past two quarters vs strong growth in listed peers). However,
management believes that these are short term hiccups and remain confident about
outcome of these strategic initiatives over long term. On the other hand, entry of
Chinese players and technology changes has resulted in significant contraction in LED
Panel business in past 2 quarters. However, the company maintains its belief a) offering
entire portfolio (LED panels will complement AC, washing machine, and refrigerators) to
its distribution channel and b) plans to manage the sourcing more dynamically (just in
time) and hence will remain present in this segment. its plans to launch refrigerator in
4QFY20.
 Management bandwidth is not compromised due to Lloyd: Havells follows SBU

(Strategic Business Unit) culture in the company wherein head of the SBU (Lloyd is one
of them) is responsible for the unit P&L. Most of the new product ideas come from
channel partners, which are carefully evaluated by the SBUs and executed accordingly.
As a result, the company does not believe Lloyds’ performance has compromised its
focus on its other businesses.
 Cost controls to help protect profitability: Given the macro headwinds, the company
has started to work on the cost control front wherein it aims to cut down on human
resource cost as well non-essential costs through effective use of technology. As a
result, it hopes that profitability of the company protected in the current difficult macro
environment.
Greenpanel Industries | GREENP IN (HOLD – TP INR160)
 Oversupply in the MDF industry: The Medium Density Fibreboard (MDF) industry in India
has a total capacity of 14 lakh cbm, of which 9 lakh cbm is in north India and 4.5 lakh
cbm in south India. The total MDF demand in India is 9 lakh cbm, which is leading to an
oversupply. Though the pace of capacity additions has slowed down, Rushil Décor is
coming up with a new MDF plant in south India by FY21and Century Ply is planning a
new MDF plant in north India by FY22. India imports c.25% of its MDF demand from
Malaysia, Thailand, Vietnam, Sri Lanka etc. Unorganised presence is very minimal in the

MDF industry, but few small plants with a capacity of 50,000 – 60,000 cbm has come
up with a small capex of c.INR 0.5bn. Key competitive advantages in the industry is raw
material procurement efficiency, lower logistics cost and finding the right end-consumer
markets.
 Commercial MDF demand improves: Management has highlighted that commercial

MDF demand has improved drastically in the past 6 months, and they are optimistic
about this segment in future as well, as residential demand continues to be sluggish on
the back of weak real estate. Greenpanel has got the entire MDF distribution network
as part of the demerger process and has built its own network for plywood. Greenpanel
currently has c.600 dealers and plans to double its distribution strength over the next 3
years.
 MDF prices likely to be stable going forward: MDF prices were facing a sharp decline
due to the high competitive intensity as the players were trying to cut prices in order to
gain market share. MDF prices seem to have stabilised in 2QFY20, and the Greenpanel
management has decided they will not reduce MDF prices further as it is just adding to
the stress. Greenpanel MDF and Century MDF prices are at par, while Action MDF is
c.1-2% cheaper than Greenpanel. Management has highlighted that export realisations
are causing a dent on overall financial performance, but they need to continue exports
in order to improve capacity utilisation and meet fixed overheads.
 Company will focus on cost rationalisation to improve margins: Management has

highlighted few key initiatives that will lead to cost saving: a) The company will focus on
high utilisation which will help to lower power and fuel costs, b) company is in talks
with an Israel-based resin manufacturer that will help lower resin and chemical costs, c)
company is in talks with farmers to help them procure saplings that will in turn help to
reduce the cost of wood for the company.
 ADD on MDF imports may be finalised by FY20 end: Cheaper MDF imports are creating
a hurdle in the south for the MDF market as it is closer to the ports. Thick MDF imports
are c.8-10% cheaper than domestic MDF and thin MDF is c.25% cheaper than
domestic MDF, leading to pressure on south India MDF realisations. The government
has started its investigation for anti-dumping duty on cheap MDF imports in Nov’19,
and the management is hopeful that the duty will get finalised by end-FY20.
Mahindra Logistics | MAHLOG IN (Not Rated)
 Warehousing has a long runway for growth: In the post-GST era, the shift from smaller
unorganised warehouses to large scale tech-driven warehouses is playing out as a)
storage space can be optimised, b) fewer stock points to manage, and c) efficiency in
stock management due to high automation and abortion of boundary restrictions
across the country. MLL offers warehousing services along with various value added
services as part of the integrated logistics solution which differentiates it from the
traditional warehouse players. MLL currently has c.15.7mn sqft of warehouse area
under management and it plans to add 1mn sqft in FY20 (c.0.4mn sqft has been added
FYTD).
 Asset light model and digitisation are the key USPs: MLL operates on a completely
asset light business model. It partners with the transport operators (c.1500 vendors) for
vehicles and takes large warehouses on lease from industrial infrastructure developers.
Asset light model empowers the company with scalability, which indeed helps in
reducing the ill-effects of business slowdown. Digitisation helps MLL in designing
efficient tailor-made supply chain solutions for clients across diverse industries. High
level of digitisation coupled with continuous investment in technology will help MLL in
improving the network optimisation along with value-added service capabilities which
will prove to be margin accretive going forward.
 Growth in non-Mahindra non-auto impressive; Bulk undergoes some change: MLL is

expected to benefit from the requirement of large scale automated warehouses by
MNCs and FMCG companies. It believes that many companies will eventually shift to
3PL players in the long run in order to drive efficiencies across the supply chain. MLL is
continuously adding clientele in FMCG, pharma and e-commerce verticals. Revenues
from consumer, pharma and e-commerce clients have grown by more than 20% YoY in
1QFY20 despite challenging macro scenario. Currently the non-Mahindra business is
transportation-centric with c.25% of warehousing and value-added services in FY19,
which the company aims to take to c.40% over the coming years. In the bulk business,
MLL has lost a large business of a particular client (though some of the other services
retained) and hence dragged non-Mahindra segment performance in 1QFY20, though
it was partially offset few clients. The management is positive on the segment going
forward.
 Tax cut augurs well for manufacturing activity: MLL believes that large industrial / FMCG
players will be the key beneficiaries of the recent tax cut, and the benefit should give a
push to industrial / manufacturing activity in the country. Even MLL’s profitability will
get a boost as they are paying tax at 35% as of now. The company has certain deferred
tax assets pertaining to its subsidiaries, and the management is evaluating its
accounting treatment.
 MLL stands strong with its vendors: In India, more than 50% of the transport fleet
owners have less than 5 trucks. In the current slowdown scenario, the fleet owners and
vendors are under severe stress due to a) weak demand scenario, b) lower transit times
in the post-GST era leading to lower compensation, c) negative operating leverage due
to low volumes, d) prospective increase in vehicle cost in BS-VI and e) monthly EMIs for
the owned vehicles. While MLL is facing few delays in payments from its clients, it is
paying its vendors on time as it recognises the issues faced by them and hence
continues to support them in current difficult environment (though it does not provide
any advances).
Blue Dart Express | BDE IN (Not Rated)
 Pick-up in demand scenario will boost air / ground logistics: Blue Dart (BDE) mainly
functions in three segments, namely, air, ground and e-commerce. BDE’s main business
is air and ground logistics, which forms the major part of the revenue. Management has
highlighted that once the demand scenario picks up, air and ground logistics will do
very well in all the product categories. Margins in the B2B business has come down
from 13% to 9% currently, while margins in e-commerce logistics remains low (c.4-
5%). Blue Dart works in an efficient and integrated manner, where all the modes of
transport work together with the integrated shipment. BDE is in a sweet-spot to gain
from the improvement in business scenario as it has all infrastructure in place.
Management believes that both the air and ground segments will grow, but ground will
have a much higher growth due to improvement in road infrastructure, reducing
paperwork, improved vehicle technologies, reducing lead times etc.
 Document logistics is the key USP of Blue Dart: Blue Dart operated in document, non-
document and airport to airport logistics. The BFSI sector is a key demand generator for
document logistics. The document segment is very profitable for Blue Dart, and it is the
market leader with c.80-85% market share. Key documents which the company
manages are credit / debit cards, cheque books, welcome kits, mortgage documents,
passports, educational certificates etc. As these documents are highly confidential,
customers prefer going with a trusted logistics partner i.e. Blue Dart.
 BDE has moved away from non-profitable businesses: BDE has reduced its pincodes
coverage from 16,000 pincodes earlier to 14,000 pincodes currently (India has total
pincodes of c.19,000), as few pincodes were not profitable. Blue Dart covers c.75-80%
population of the country. Margins in e-commerce logistics is quite low (c.4-5%)
because of which company has not grown its e-commerce arm aggressively and
reduced its revenue mix from c.25% earlier to c.17% now. Management believes that
there is a huge opportunity in the e-commerce segment, and as the free cash burners
will tune down in the next few years, it will be a level playing field for all the logistics
companies.
 Unorganised share to reduce: Currently, c.60% of the logistics industry in India is

unorganised. As the compliances are stepping up in India, it will be incrementally very
difficult for the unorganised players to resort to tax evasions. Management believes that
as goods and services tax (GST) and e-way bill implementation is strengthening, the
unorganised segment will lose its share to the organised sector, and consolidation will
come into play.
 Other matters: The company will incur capex of c.INR 0.5bn in FY20, out of which INR
0.3bn will be for the aviation business (overhauling of machines). Total debt will remain
c.INR 5.2-5.3bn over the next 3-4 years.

Pharmaceuticals
Alembic Pharma | ALPM IN (BUY – TP INR 760)
 Domestic formulations showing signs of revival: Domestic volume growth is clearly

showing signs of revival. October was a strong month given the unseasonal rains
(especially on the acute front). The impact of the withdrawal of stockist promotions
initiated in 1QFY20 will normalise by the end of FY20 with primary sales expected to
start delivering double-digit growth by 1QFY21. Trade generics/other disruptive forces
like e-pharmacies/Jan Aushadhi are not meaningful threats but they are watching the
space closely.
 Sustained launch momentum in India: India will be a part of incremental launches with
25-30 SKUs expected to launch every year. The MR count currently stands at 3800 with
no new MRs added in the last 2 years. PCPM is still very less with lot of scope for
improvement.
 US growth not a challenge at this point: The US is a more complex story - sub 200 mn
USD top line lends itself to driving growth but the movement you are north of 500 mn
USD - challenges emerge. Regulatory compliance, nimble supply chain and strong
customer relationships have been the key success factors in US. Expect consolidation
with non-serious players exiting in the near-term. Buyers now seek reliable supply and
levy heavy failure-to-supply penalties. USD 50 mn per quarter is now the new floor in
US. Pricing in sartans has held on with no meaningful erosion in other products. The
new facilities coming on stream will start contributing meaningfully from H2FY22 with
the bulk of the capacity to be exploited in FY23.
 Quality of FDA audits improving: The heightened FDA scrutiny/activism in India is not
out of line with what USFDA is doing globally with generics; activism has increased but
is not country-specific. The FDA has now moved to Quality by Design (QbD) which is
built into its regulatory guidance.
Torrent Pharma | TRP IN (BUY – TP INR 1830)
 Domestic growth outlook intact: Domestic formulations will deliver double-digit growth
this year with 3 big-ticket launches lined up for H2FY20. Torrent’s market share in key
therapies in e-pharmacies is either at par or better than that in IPM.
 Strategy for domestic tail brands: Discontinued some low-margin, low-value products,
which aided an improvement of 100 bps in Gross margin. 72-73% Gross margin should
be sustainable going forward.
 US post-R&D still in the black: While facility issues have come up, US remains a smaller
piece of the overall business. Given its sustained focus on plain vanilla generics in the
face of portfolio rationalisation by larger generic players in the US, Torrent is well-
positioned to exploit opportunities arising from supply disruptions. The Bio-Pharm
facility, currently under a temporary shutdown, will come on stream and start
contributing meaningfully in FY21. The facility will manufacture unit-dose liquids, which
is a fast-growing market and offers high realisations. Expect a 12-15 month timeline for
the resolution of Indrad & Dahej and in the process of hiring an FDA-approved
consultant from US.
 Balance sheet to become stronger: Net debt/EBITDA stands at 2.1. A large part of
capital allocation will be made towards debt repayment. With the upcoming
repayments in H2, expect Net debt/EBITDA to fall below 2.

Strides Pharma Science | STR IN (BUY – TP INR 545)
 Focus on sustaining the high growth trajectory in US: US is on track to meet the full-
year guidance of USD 225 mn. The business is now getting consistency back with no
seasonality in the portfolio and the portfolio being built through 15-20 vertically
integrated products. US front-end has grown by 4x in the last year and now accounts
for c.70% of US sales. US front-end should account for 100% of sales 2 years out.
 Multi-pronged growth strategy for US: 10-15 products with USD 15-20mn in sales will
form the core of the US portfolio with another 75-odd products delivering c. USD 2-
3mn in EBITDA. c. 30 approved products are yet to be commercialized. The acquisition
of a USFDA-approved soft gelatin capsule manufacturing facility in Florida, its re-entry
into the sterile injectables market through Stelis Biopharma and the investment in the
OTC business will all aid incremental growth in US.
 Operating leverage gains clearly visible: US business achieves breakeven at USD 130mn
and net of Gross margin, a large part of it goes to EBITDA. The margins in other
regulated markets are even better with EBITDA of c. USD 20mn expected by Q4FY20
from these markets.
 Debt situation now manageable: Net debt (incl. INR 5,000mn to be received from
Apotex within 3 years) stood at INR 9980mn. The biggest cash requirement is US
working capital. Capex is expected to remain modest at c. USD 15mn. At c. INR
6,000mn EBITDA run-rate, the objective is to generate free cash and reduce debt by c.
INR 2,000mn.

Pharmaceuticals
PharmEasy | Speaker : Dr. Dhaval Shah, Co-founder .
 Industry Overview: India currently has more than 8,50,000 independent pharmacy retail
stores which account for c.98% of the total drug sales. E-pharmacies account for the
remaining 2% of the Indian pharma market (IPM). Deep discounting, increasing internet
penetration and rising incidence of chronic diseases have fuelled the growth of e-
pharmacies in India. The e-pharmacy market is currently USD 0.4bn and is expected to
grow at a CAGR of over 60% to USD 2.7bn by 2023 (Source: EY). The four major
players in the Indian e-pharmacy market include 1mg, PharmEasy, Netmeds and
Medlife.
 About PharmEasy: PharmEasy is one of the latest entrants in the burgeoning e-

pharmacy space. Founded in 2015 by Dharmil Sheth and Dr. Dhaval Shah, PharmEasy
has a pan-India presence and caters to 1000+ cities and 20,000+ pin codes. PharmEasy
also offers at-home sample collection for diagnostic tests, tele-consultations and
subscription-based healthcare services. PharmEasy now employs over a 1,000 people
and has raised c. USD 100mn from marquee investors including Bennett Coleman,
Bessemer Venture Partners and Orios Venture Partners. PharmEasy has adopted a
market-place based model and caters to both B2C and B2B customers.
 About the speaker: Dr. Dhaval Shah is an MBBS from Rajiv Gandhi Medical College and
an MBA from XLRI Jamshedpur. He co-founded PharmEasy with Dharmil Seth, an MBA
from IMT Ghaziabad, in 2015.
 On the scope for innovation: Inefficiencies exist primarily in three sectors- health,
agriculture and education. Healthcare services and delivery is one of the few sectors
where innovation has not happened. Lack of a database and a proper methodology to
collect data are some of the challenges in providing accessible healthcare services.
 Challenges facing the industry: The biggest challenge to ensuring quality is that 99% of
the pharmacy stores in India do not have ‘track & trace’ or a digital inventory system
which severely impedes quality control and post-distribution quality checks or product
recalls. With 99% of prescriptions being paper-based and 98% of all medical stores
issuing handwritten invoices, there is no digital trail of medical records and sales.
Availability issues plague the current pharmacy industry with fill rates at less than 25%
in Tier 2/ Tier 3 cities. There is no healthcare standard to test the efficacy of drugs.
 Opportunity for e-pharmacies: With low fill rates and no trade terms being offered to
distributors, supply chain margins of 30%-35% were up for grabs. This is where
PharmEasy entered and in doing so, changed the way pharmacies operate in India.
However, profitability would not come at the cost of manufacturers.
 Current scale of operations: Since its inception, PharmEasy has reached 5mn
households with 1.5mn digital prescriptions being fulfilled every month. PharmEasy has
95%-97% fill rates with open catalogues and no pre-decided inventory. PharmEasy’s
turnaround time stands at 17 hours. Its proprietary platform is the largest digital
network of clinics and provides a platform to doctors and manufacturers to reach out to
more patients. The PharmEasy group (incl. Ascent Health) is the 3rd largest procurer of
medicines in India (ex GoI and Apollo Hospitals) with complete ‘Track & Trace’ so that
any manufacturer can recall its product within 30 minutes.
 Acute vs. chronic share: Most of the medicines sold are under the chronic and sub-
chronic therapies (c.70%). PharmEasy defines chronic as a medicine which is bought 5
times a year or more, with the rest being acute. Increasing acute as a percentage of
overall sales looks challenging due to inherent time & logistics constraints. Tie-ups with
retailers who have good inventory / stock management as well as a good geographical
presence would help in increasing acute sales.

Power Utilities & Infrastructure

Larsen & Toubro | LT IN (BUY – TP INR 1,700)
Strong bid pipeline:
 Management reiterates that there exists a c.INR 5.25trn of bid pipeline in 2H FY20
comprising of a) c. INR 3.3trn in infrastructure split between roads, runways (mainly
state roads), city flyovers, water supply and treatment (with 5 year O&M and SCADA)
and Irrigation (c. INR 1trn), b) c. INR 1trn from heavy civil engineering spread between
high-speed trains, metros, Ports and hydro power plants, c) INR 0.8trn from
transportation, d) c. INR 0.8trn from T&D with c. 50% of international orders, e) c. INR
0.2trn from power generation.
 In 1QFY29, c.93% of OIs came from the private sector and PSU’s while international
orders came to the rescue in 2QFY20. Management reiterates their FY20 OI guidance of
c.INR 10-12% increase translating into c.INR 1.6trn of ex-services OIs of which L&T has
secured c. INR 678bn OIs in 1HFY20. Thus, L&T needs c. INR 921bn of OIs in 2HFY20
from the c. INR 5.25trn order basket i.e. 18-20% of the opportunity.
 WC stress remains: Increased working capital (WC) levels seen in 1HFY20 are from
higher payable days as L&T continues to support its vendors, given shortage of credit in
the market. Management highlights higher bank guarantee (BG) charges for smaller
players resulting in erosion of margins.
 Outlook on macros: Management believes that L&T’s business is largely driven by public
(govt/PSU) orders now vs. private orders earlier with muted private sector spend. Private
sector capex is expected to revive only once Capacity utilization (CUF) levels cross c.80%
vs. c.74% in 1QFY20 (RBI link). Factoring c.1.5-2% of annual improvement in CUF, L&T
expects revival in private sector capex in next 2-3years. While tax rate cut can help
improve foreign direct Investment (FDI) but may will help improve the industry CUF’s.
Business mix:
 Airports remain the torchbearer of PPP spends, though L&T continues to stay away from
any asset heavy investments including airports/Hybrid Annuity Mode (HAM) road
projects.
 Buildings & factories (B&F) division was performing well earlier on increasing spend of IT
companies which is now muted. However, public sector buildings, healthcare,
education etc. have been doing well.
 Also, metallurgy & material handling (MMHS) business was doing well earlier on high
steel plant orders but is muted now with a fall in turnover from c.INR 70bn about 5
years ago to c. INR 30bn now.
 In the road sector, management believes incremental ordering will be on expressways

with significant participation from states. L&T has stopped bidding for NHAI orders as a
developer; it continues to bid for railway EPC orders where traction has been healthy.
 While T&D ordering has been good due to spending on Saubhagya, with rural
electrification almost completed this will taper off. However next wave of capex in T&D
is expected from green energy orders.
 Hydrocarbon ordering is expected to grow well more refinery capex, though fertilizer
capex is muted.
 Defense capex to private sector continues to remain muted.

 Water segment is seeing a strong momentum as c.13-14% of L&T’s OB comes from this
segment. While c.30% of state capex is into this segment.
 Real estate continues to be weak with progress only on small ticket flats while high
priced flats are slow.
 L&T had a five-year strategy plan (FY17-FY22) to increase services revenue given higher
margins / RoEs and perpetual cash flows vs. cyclical low margin EPC orders. L&T may
relook at financial services in their FY21 strategy plan
Other Commentary:
 E&A sale is likely to be complete by FY20 end. L&T doesn’t have any large M&A plans in
near future and hence there are chances of a higher dividend payout. Net of taxes E&A
sale is expected to result in cash inflow of c. INR 110bn, while the company normally
reserves c. INR 70bn as contingency cash at parent level.
 Given the complex engineering involved in designing a power plant, the current power
OB may contribute to sales only from FY21.
 L&T has stopped all construction works in Andhra Pradesh (AP) which form c. INR
100bn of its OB. While there are some outstanding bills these are backed by advances
in both AP & Mumbai Coastal road.
Tata Projects | (Not Rated)
 Tata Projects (TPS) operates mainly in a) industrial EPC, b) core infra water – civil
construction, c) urban infra metros / bridges and services (PMC). TPS is a pure-play EPC
player with focus on asset-light model.
 The current OB stands at c. INR 0.5trn with limited exposure to roads while BDD chawl
re-development at c. INR 70bn is the largest order.
 TPS had secured c. INR 100bn of OIs in 1HFY20 vs. a full year target of c. INR 200bn. (c.
INR 240bn in FY19). They have adopted a strategy of profitable growth and choose not
to chase growth at the cost of higher working capital levels and leverage.
 Pre-Qualification (PQ) expense forms only c.1% of TPS’s OB and hence management
believes the margins may go up from c.6% (EBITDA) seen in FY19.
 Bidding strategy / pipeline: TPS choose not to participate in projects <c. INR 5bn projects
and highlight strong bid pipeline from Bullet train, Oil & gas, water segment while T&D
may be challenging with fall in Powergrid Capex. While they have a JV with Daewoo for
the Trans-harbor link, it may also tie-up with domestic and International firms for
technology front on other key projects.
 Debt / DFCC challenges: TPS’ has a net D/E at c.1.5x, with debt largely on account of
DFCC cost over-runs. TPS has handed over 1 project while 2 more are under-
implementation. Management plans to complete the project soon and thereby reducing
the debt once claims are paid back.

JSW Energy | JSW IN (HOLD – TP INR 80)
 Existing capacity: JSW has c.82% / 8% of its existing capacity tied-up through a mix of
LT/ST mix PPAs including c.925MW of intra-group PPA (c. 315MW in its Vijay Nagar
plant + 610 MW in Ratnagiri).
 GMR Kamalanga acquisition: The plant has c. 3.7MTPA FSA with Mahanadi Coal fields
(MCL) and another 1.5MT under Shakti coal with signed PPAs and outstanding debt of
c.INR 40bn. A recent APTEL order (link) in favor of the projects should result in wiping
off the c.INR 1.5bn/year of fuel under-recovery. Additionally, management expects to
reduce a) O&M expenses from current levels of 1.4mn/MW to c.INR 0.9/MW which can
add c. INR 400mn to profits and b) interest cost from c.12.5-13% to c.10%.
Management will sign the binding agreement soon and expect to close the deal by Jan-
Feb’19.
 Ind Barath Utkal: JSW is under process of acquiring the plant from NCLT. While the
committee of creditors has approved the plant, NCLT approval is awaited. While the
original project cost was c.INR 40bn for 8700MW, current debt is c. INR 50bn, with U-1
(350 MW) partially commissioned, 50-60% of U-2 constructed. Although U-1 is partially
commissioned, there has not been off-take from the plant given pending PGCIL
transmission charges of c. INR 400mn (which JSWEL will pay to secure the transmission
linkage). The plant has a 543MW PPA with Tamil Nadu at a level tariff of c. INR
4.25/kWh and an 84MW PPA with Orissa GRIDCO at variable Cost (VC). Management
guide for a capex + acquisition cost of c. INR 32.5-33mn/MW.
 Kutehr Hydro Plant: Additionally JSWEL has also commenced construction if its Kutehr
(240MW) hydro-power plant which may incur c. INR 27bn of capex as per management
guidance. Since the hydro project has 54-month construction period cash inflows are
back ended, we have not ascribed any value to this project. We believe JSWEL may
incur c. INR 92.7bn of cash outflow towards the three assets – Kamalanga, Ind Barath
Utkal and Kutehr while management guide for peak Debt/EBITDA of 3.7-3.8x (vs. c.
2.95x now) by Mar’20 before reducing again.
Torrent Power | TPW IN (Not Rated)
 Gas-based capacity: Torrent power (TPW) has c. 2.73GW of installed gas capacity.
Sugen(1,148MW): has PPA for 65% of its capacity with a cost-pass through, Unosugen
(383 MW): Has recently tied-up for a PPA with Discoms with tariff capped at c. INR
5.6/kWh while its Dgen (1,200MW) plant is stranded currently. With RE pick-up
management believe gas utilities may come into play for peaking power and expect the
union government to come up with the policy on gas pooling soon which can help
TPW.
 SECI III: Bank guarantees have been encashed and thus TPCL doesn’t have any financial
exposure to suppliers as per management. TPCL has asked for an extension in timeline
for the project and management may consider (or) abandon the project depending on
the financial implications.
 SECI V: TPCL is yet to select OEM supplier here and thus it may not be able to complete
the project by SCOD of Jul’20. Management is hopeful of completing the project in
time if they could get 6-9 months of extension. In an unfortunate scenario where the
timelines do not get extended, management guide for a maximum liability of c.INR
230mn due to PPA obligation.
 Other renewable projects: TPW’s SECI-I is downsized to 50MW while management

guide for commissioning its MSEDCL project by next month. Management guide for 14-
15% post-tax RoE (Cash flow IRR) except SECI-III (expect 13% IRR). TPW choose to take
a pause on before bidding for incremental RE projects.

 Transmission: TPW has plans to participate under TBCB with an IRR target of 15% CTU
of interstate (higher for intra state due to high risk) but guide for high competition in
the space.
 Capex: Management guides for c. INR 12.5bn / c.INR 11bn of capex in its distribution /
project (ex-SECI III) businesses for FY20. Additionally management guides for c. INR
15bn / 13bn of annual capex in its distribution / project business which remains the
potential growth opportunity (given a regulated model).
 Outlook: Management expects license / franchise-based distribution models to be bided

out going ahead towards increasing Discom efficiency. However, TPW choose to grow
gradually here and management guides for a maximum of 1 project/yr while they are
confident of working anywhere in India.
 Debt / CFO: Management is confident of surviving the current levels of Cash flow from
Operations (CFO – c. INR 24bn in FY19) which can only go up further with the new PPA
in its Unosugen power plant. TPW has a Consol Debt of c. INR 8.8bn (D/E at c. 0.9x)
with normative debt in its regulated business and Dgen plant (stranded). Thus
management is confident of leverage its balance sheet further for any new
opportunities in the sector with “Quality growth”.
CESC | CESC IN (Not Rated)
 Its Kolkata business has a regulated equity of c. INR 40bn and is expected to incur a
capex of c.INR 5bn, The T&D losses stand at c. 8.96% now vs a threshold of c.14.3%.
However, WBERC is expected to tighten the norms further. Management guides for c.
INR 350-400mn loss with a 1% reduction in T&D loss threshold.
 Of the generation business, Haldia has report c.INR 3bn PAT in FY19 while Dhariwal has
incurred c. INR 930mn loss as management expect the losses to continue at current
levels.
 The franchisee businesses’ of Kota, Bharatpur, Bikaner, Malegaon have together

incurred c.INR 690mn losses in FY19 as management expect the losses to bring down to
c.INR 250-300mn by FY20. Additionally, management guide for c.INR 1bn PAT in
Rajasthan in 3 years while Malegaon could break-even in its first year. Management
guide for an annual capex of c. INR 500-600 in its franchisee businesses.
 Management guide for FY20 PAT to increase by c. INR 4bn over c. INR 12bn reported in
FY19 through a) Breakeven in Chandrapur resulting n c. INR 1.5bn PAT in FY20 vs. c.
INR 1bn loss earlier, b) c. IR 1bn PAT addition from Rajasthan Franchisee, c) Incremental
PAT from its regulated businesses.
Soft Bank Energy | (Not Rated)

 Soft Bank Energy (SBE) has commitment of USD 750mn equity towards c. 5.5GW of
renewable energy (RE) projects of which c.950MW (solar) is operational. Of the balance
capacity that is under-development, c. 325MW is wind power with solar forming the
rest.
 Additionally, SBE also has a portfolio of 1.7GW of RE projects in the US while it is also
executing projects in middle-east.
 Given the current state of state finances, SBE chooses not to bid for State PPAs and is
bidding only for NTPC & SECI.
 However, currently NTPC / SECI bids are seeing limited participation owing to liquidity
constraints for developers while banks are also not comfortable on account of panel
labels although they have a 25 yr performance warranty.

 While dependability of RE is limited for now, SECI is in the process of floating a pilot
battery-based project for 400MW. Management believes with storage, the cost can be
at least c. INR 6-7/kWh and hopes with technological advances, the price may come off
to c. INR 4/kWh in 3-4 yrs.
 While SBE does have exposure to AP, given the exposure is through NTPC/SECI the
counter-party risk is limited and hence limited impact on cash flows / working capital.

Infrastructure
Speaker Series: Vinayak Chhatterjee (Feedback Infra)
Mr. Vinayak Chhatterjee, Co –founder and Chairman Feedback Infrastructure has shared
insights on funding India’s INR 100trn Infrastructure dream. During the process he also
stressed the need for a Development Financial Institute (DFI) and the need for a regulator in
roads & railways for resolution of issues.
 100trn Infra spend linked to USD 5trn GDP: The new government has set in an abotious
target of c. USD 5trn aconomy by FY25 and INR 1,000trn infra spend, which goes hand-
in-hand. For India to become a USD 5trn economy, nominal GDP needs to grow at c.
13% CAGR implying a real GDP growth of c.8-9% + c.5-4% inflation. The gross capital
formation in infrastructure (GCFI) should increase from current levels to atleast 8.5% of
GDP by FY25 which is possible as most countries have reached c.14% levels at their
peak. Thus, India can gradually progress and reach c. INR 100trn of the infra spend by
FY25 with a median / average spend of c. INR 20trn/yr.
 Financing c.INR 20trn/yr: INR 10trn/yr can be funded through a mix of central (c. INR
4.4trn in FY20) and state budgets, borrowings from bilateral / multi-lateral agencies,
borrowings at urban local bodies (Munis), while funding the balance 10 trn/yr is a
challenge. His recommendation is to fund this gap through DFI’s and PPP mode
projects. .
 Structuring and funding the DFI: Given that corporate India is keen to limit itself to
developemnt and construction risks (EPC) and with FII’s keen on taking operational risks
(brownfiled investment) only, the appetitie for PPP mode projects is limited currently. In
this context, a DFI is needed to fund the projects through supply of low-cost funds for
Long-term investment. The DFI could be funded by a) relaxing the fiscal deficity by
0.5% which can yeild c. INR 1trn and b) asset monetisation (c. INR 0.9trn target for
FY20) which can form c. INR 2trn of equity fund base for the DFI which can be leverage
further to create a c. INR 20 trn balance sheet for Infra funding.
 Reviving PPP: Citing the Kelkar committee report on “Revisiting and Revitalissing PPP
model of Infrastructure development”, Mr. Chhatterjee highlightsthe need for a)
Independent sector regulators in road and rail, b) National facilitation commiitteee for
resolution of conflicts as 63% of PPP projects come-up for renegotiation in first 5 years,
c) Bespoke concession structuring for optimal risk-allocation and d) Making re-
negotiation an intrinsic part of long concession agreements among others while
borrowing funds through Municipal bonds (Munis) for funding Urban Infra may be
explored.

Real Estate
Oberoi Realty | OBER IN (BUY – TP INR565)
 Focus on Thane launch: Oberoi continues to focus on developing localities and it is

focused on launching the Thane project in 4QFY20 (potential development of 10-12msf
over the years). The project is expected to be launched at an attractive price (due to the
low cost of land acquisition) and is present at a prime location compared to some of the
other developers. The demand continues to be present in the Thane micro market in the
INR 10-20mn (5x annual income). The mixed-use project has the potential to develop
over INR 60.0bn (receivables of INR 120bn and FSI purchases and construction costs of
INR 60bn) of surplus for Oberoi in the coming years.
 Borivali steady: Currently, c.1,300 flats have been sold out of the 1,700 launched at an
average ticket size of INR 25mn. The micro market remains attractive as the demand
comes from end-users rather than investors. In Borivali the total development potential
remains at 4.5msf of residential, 1.2msf of mall and 0.2msf of hotel. Additionally, a
1.0msf commercial is also planned. The mall is expected to be completed by Nov’20.
The project is running as per expectations.
 Confident on Worli inventory: Three Sixty West currently has inventory worth INR
70.0bn (c.135 units) which is expected to be cleared over the next 3 years. Pricing has
been stable in the Worli micro market and the Oberoi brand would help in selling fully
completed luxury apartments in that micro market.
Sunteck Realty | SUNTECK IN (Not Rated)
 ODC going strong: Sunteck has been early in recognising the potential of Oshiwara
District Center (ODC) and has been successfully been able to launch residential projects
(Avenue 1 / 2) in the region with c.70% of the launched inventory already sold out
(Estimated future operating cash flows of INR 18.9bn). Even on the commercial front,
exit annual rental from the ODC portfolio by FY22 is expected to c.INR 5.5bn (balance
construction cost of INR 17bn)
 Latching on to the affordable housing opportunity: Focused on the MMR region, it

plans to do scale up in the affordable segment using a new brand ‘Sunteck West
World’. Currently, it has entered an asset light JDA model for a 100 acre project at
Naigaon having a saleable area of 12.0msf generating net surplus of INR 22.0bn
 BKC ready inventory: The 3 residential luxury housing projects are c.82% sold (c.
0.29msf of inventory) and are expected to generate INR 19.8bn of cash surplus at an
average selling price of INR c.55,000 per sq ft. Additionally, the BKC commercial
(0.21msf) project can generate INR 3.28bn cash surplus.
 History of spotting opportunities: The management has been able to spot opportunities
early i) BKC land between 2006-2010, ii) ODC land between 2010-2012 and iii)
presently in Naigaon and get good land parcels thereby generating significant cash
surplus over the years.

Textiles
Trident | TRID IN (BUY – TP INR 96)
 Profitability driven by higher export incentives: Trident’s 1HFY20 adj. PAT increased
39.7% YoY to INR 2.3bn, in-line with JMfe. In 2Q, bath volumes increased 13.7%/7%
YoY/QoQ and bed sheet volumes increased 20% QoQ. 1H EBITDA margin increased
280bps YoY to 20.9% driven by a) higher gross margin (led by higher captive yarn
consumption), b) increased export incentives and c) strong profitability contribution from
paper business.
 Increase in capacity utilization to fuel growth: Paper and yarn realization remains low in
domestic market driven by weak market. Realization has been relatively better in Towels
and Bedsheets. Revenue growth will be fuel by increase in bed/bath capacity utilization.
 Sheet utilisation guidance revised downwards: Trident has revised downward bed sheet
CU by 5% to 70% led by weakness in 1HFY19. Trident expects upward trend in 2HFY20.
For the towels segment, it expects a utilization of 60% with a deviation of 5%.
 Yarn and paper remain the Achilles heel: Paper volumes remained weak in 1HFY20 due to
higher imports. Trident expects some recovery in volumes in 2HFY20 but expects the
margins to remain under pressure. Growth in Yarn also remained sluggish due to strong
competition from Pakistani companies which get a duty benefit in the European Market.
Subdued yarn volumes were offset by higher captive utilisation leading to a muted export
growth and loss of market share in European markets. Trident continues to gain market
share in US.
 Future outlook remains positive: Trident expects huge upside in the bed and bath
segment going ahead. Trident expects margin expansion driven by a better capacity
utilization. Captive consumption optionality in Yarn segment provides a hedge against
falling Yarn market. The company is confident of maintaining current dividend policy
along with debt obligations at the current level of cash generation.
Welspun India | WLSI IN (Not Rated)

 Emerging businesses to drive future growth: Welspun expects 30%+ CAGR over the next
3-4 years in its emerging businesses (constituting of flooring, advanced textiles and retail.
The company expects core businesses to continue growing at mid-single digits. The
emerging businesses, however have been dilutive to the margins as the company
continues to invest for topline growth.
 Focusing on new trends and markets: Welspun is working to capture new trends like
organic cotton, which is gaining high traction in western countries. The company sees
agro cotton as one of the fastest growing sub-segments. Welspun is also expanding its
footprint in the high-growth retail segment where currently c.90% of market is
unorganised. In the bedsheet segment, Welspun currently operates in the INR 40-50bn
premium market. The company now plans to expand to a much larger mass market,
thereby providing a strong growth opportunity.
 Flooring business to add significant topline optionality: Welspun has diversified into the
flooring business with market size of INR 350-400bn. Welspun aims to add c.INR 10bn to
its topline in the next 3-4 years from its flooring division. While the domestic distribution
network is already set-up, Welspun soon plans to enter into US market.
 Stepping up efforts in branding: The company is furthering the process of establishing

‘Welspun’ as an umbrella brand for all its products. Welspun has now roped in Amitabh
Bachchan as brand ambassador which has helped gain significant traction. Overall,
Welspun continues to spend c.1-1.5% of its revenue on marketing expenses.
 Balance sheet remains strong: While Welspun maintains a stable 25% payout ratio,
deleveraging remains in focus. The company has minimal growth capex plans going
forward with maintenance capex at c.50% of depreciation of INR 4bn. Welspun targets
to be debt free by end of FY23.
APPENDIX I
JM Financial Inst itut ional Secur ities Li m ited

(formerly known as JM Financial Securities Limited)
Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com
Definition of ratings
Rating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.
Sell Price expected to move downwards by more than 10%
Research Analyst(s) Certification
The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:
All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.
Important Disclosures
This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.
JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading
memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary
action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the
investor.
JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional
clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,
brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing
offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies)
covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from
the company(ies) mentioned in this report for rendering any of the above services.
JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell
the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,
or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in,
it may have potential conflict of interest at the time of publication of this report on the subject company(ies).
Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or
more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.
The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling
debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.
The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations,
2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered
under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this
report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.
While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This
report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.

The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of
any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right to
make modifications and alterations to this statement as they may deem fit from time to time.
This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction.
This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or
other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject JM Financial Institutional
Securities and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be
eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of
and to observe such restrictions.
Persons who receive this report from JM Financial Singapore Pte Ltd may contact Mr. Ruchir Jhunjhunwala (ruchir.jhunjhunwala@jmfl.com) on +65 6422 1888 in
respect of any matters arising from, or in connection with, this report.
Additional disclosure only for U.S. persons: JM Financial Institutional Securities has entered into an agreement with JM Financial Securities, Inc. ("JM Financial
Securities"), a U.S. registered broker-dealer and member of the Financial Industry Regulatory Authority ("FINRA") in order to conduct certain business in the
United States in reliance on the exemption from U.S. broker-dealer registration provided by Rule 15a-6, promulgated under the U.S. Securities Exchange Act of
1934 (the "Exchange Act"), as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission ("SEC") (together "Rule 15a-6").
This research report is distributed in the United States by JM Financial Securities in compliance with Rule 15a-6, and as a "third party research report" for
purposes of FINRA Rule 2241. In compliance with Rule 15a-6(a)(3) this research report is distributed only to "major U.S. institutional investors" as defined in Rule
15a-6 and is not intended for use by any person or entity that is not a major U.S. institutional investor. If you have received a copy of this research report and are
not a major U.S. institutional investor, you are instructed not to read, rely on, or reproduce the contents hereof, and to destroy this research or return it to JM
Financial Institutional Securities or to JM Financial Securities.
This research report is a product of JM Financial Institutional Securities, which is the employer of the research analyst(s) solely responsible for its content. The
research analyst(s) preparing this research report is/are resident outside the United States and are not associated persons or employees of any U.S. registered
broker-dealer. Therefore, the analyst(s) are not subject to supervision by a U.S. broker-dealer, or otherwise required to satisfy the regulatory licensing
requirements of FINRA and may not be subject to the Rule 2241 restrictions on communications with a subject company, public appearances and trading
securities held by a research analyst account.
JM Financial Institutional Securities only accepts orders from major U.S. institutional investors. Pursuant to its agreement with JM Financial Institutional Securities,
JM Financial Securities effects the transactions for major U.S. institutional investors. Major U.S. institutional investors may place orders with JM Financial
Institutional Securities directly, or through JM Financial Securities, in the securities discussed in this research report.
Additional disclosure only for U.K. persons: Neither JM Financial Institutional Securities nor any of its affiliates is authorised in the United Kingdom (U.K.) by the
Financial Conduct Authority. As a result, this report is for distribution only to persons who (i) have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii)
are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, (iii) are outside
the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial
Services and Markets Act 2000) in connection with the matters to which this report relates may otherwise lawfully be communicated or caused to be
communicated (all such persons together being referred to as "relevant persons"). This report is directed only at relevant persons and must not be acted on or
relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will
be engaged in only with relevant persons.
Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of the
securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities or as
a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only under an
exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable
securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which such offer or
sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities commission or
similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities
described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you based on your
representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a “permitted client” as
such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under no circumstances is the
information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as being tailored to the
needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their affiliates and authorized
agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the
information contained herein.

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Contents Page No.

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PANEL DISCUSSION - DOUBLING FARMERS' INCOMES

Panel: Dr. Ritu Verma: Co-founder – Ankur Capital

 Encouraging signs of digital adoption by the farming community: Though agri-tech is

 About the panellists

- Tauseef Khan is an agri-tech entrepreneur and founder of Gramophone.inc. a

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 Commentary on CV: Improvement on mid-single digit growth is a possibility with drivers

JM Financial Institutional Securities Limited Page 5

Maruti Suzuki | MSIL IN (BUY – TP INR 7,650)

 Mobility solutions: MSIL plans to create a business structure to address mobility

 Commentary on margins: As volume recovers, margins can bounce back by c.300bps.

Hero Motocorp | HMCL IN (BUY – TP INR 3,100)

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 BS6 transition: 2W industry witnessed multiple rounds of price increases including

Apollo Tyres | APTY IN (BUY – TP INR 240)

 Commentary on margins: RM benefit would be a significant tailwind during 2HFY20.

Escorts | (Not Rated)

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 Update with collaboration with Kubota: Manufacturing JV to have a capacity of 50,000

CEAT | CEAT IN (BUY – TP INR1, 100)

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 The credit-to-deposit ratio of the banking system is currently c.75-77%, however, in

 Festive season discounts/cashbacks – The larger chunk of these discount-related costs

Kotak Mahindra Bank | KMB IN (BUY – TP INR1,650)

 KMB is currently at a cost-income ratio of c.45%– management indicated that it is

ICICI Bank | ICICIBC IN (BUY – TP INR530)

 ICICIBC indicated it is not averse to lending to NBFCs. However, management indicated

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DCB Bank | DCBB IN (HOLD – TP INR 220)

 Management indicated that it targets to reduce its cost-to-assets ratio to 2.1-2.2%

Federal Bank | FB IN (BUY – TP INR 110)

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accounts/working capital lending relationships along with the primary term-lending

 Management expects FB to continue to outpace system credit growth (15-18% loan

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1) Developer categories (A, B, C or D)

2) Category (affordable, luxury, etc)

M&M Financial Services | MMFS IN (BUY – TP INR 400)

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PNB Housing Finance | PNBHOUSI IN (BUY – TP INR 650)

 Capital raise: PNB HF is looking to raise up to INR 20bn before Mar’20.

 Guidance for FY20: The management expects disbursement in 3Q and 4Q at similar

Shriram Transport Finance | SHTF IN (BUY – TP INR 1,200)

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Bajaj Finserv | BFIN IN (BUY – TP INR 10,000)

 Tactical approach to crop insurance: The non-life insurer aims to participate

Manappuram Finance | MGFL IN (BUY – TP INR 185)

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Asset Management Companies

HDFC Asset Management Company | HDFCAMC IN (BUY – TP INR 3,175)

 Management expects to sustain current core operating profitability at 40bps of AUM in

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Dalmia Bharat | DALBHARA IN (BUY – TP INR 1,350)

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 Other details: i) Demand has been affected in AP / Telangana over cancellation of

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 Pace of premiumisation changes across categories as it depends on infrastructure