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  • Resea rch Te

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    October 2013

    India Strategy

  • Contents

    1. Automobiles 2-13 Ashok Leyland 6 Bajaj Auto 7 Eicher Motors 8 Exide Industries 9 Hero MotoCorp 10 Mahindra & Mahindra 11 Maruti Suzuki India 12 Tata Motors 13

    2. Capital Goods 14-24 ABB 17 BHEL 18 Crompton Greaves 19 Cummins India 20 Havells India 21 Larsen & Toubro 22 Siemens 23 Thermax 24

    3. Cement 25-36 ACC 29 Ambuja Cement 30 Birla Corporation 31 Grasim Industries 32 India Cements 33 Jaiprakash Associates 34 Shree Cement 35 UltraTech Cement 36

    4. Consumer 37-52 Asian Paints 40 Britannia Industries 41 Colgate Palmolive 42 Dabur India 43 GSK Consumer 44 Godrej Consumer Products 45 Hindustan Unilever 46 ITC 47 Marico 48 Nestle India 49 Pidilite Industries 50 Radico Khaitan 51 United Spirits 52

    5a. Financials - Banks 53-74 Axis Bank 59 Bank of Baroda 60 Bank of India 61 Canara Bank 62 Federal Bank 63 HDFC Bank 64 ICICI Bank 65 Indian Bank 66 IndusInd Bank 67 ING Vysya Bank 68 Kotak Mahindra Bank 69 Oriental Bank 70 Punjab National Bank 71

    State Bank 72 Union Bank 73 Yes Bank 74

    5b. Financials - NBFC 75-84 Bajaj Finance 77 HDFC 78 IDFC 79 LIC Housing Finance 80 M & M Financial Services 81 Power Finance Corporation 82 Rural Electricfication 83 Shriram Transport 84

    6. Healthcare 85-102 Biocon 90 Cadila Healthcare 91 Cipla 92 Divi’s Laboratories 93 Dr Reddy’s Labs. 94 GSK Pharma 95 Glenmark Pharma 96 IPCA Laboratories 97 Lupin 98 Ranbaxy Labs. 99 Sanofi India 100 Sun Pharmaceuticals 101 Torrent Pharma 102

    7. Media 103-113 D B Corp 107 Dish TV 108 HT Media 109 Jagran Prakashan 110 PVR 111 Sun TV Network 112 Zee Entertainment 113

    8. Metals 114-125 Hindalco 117 Hindustan Zinc 118 Jindal Steel & Power 119 JSW Steel 120 Nalco 121 NMDC 122 Sesa Goa 123 SAIL 124 Tata Steel 125

    9. Oil & Gas 126-141 BPCL 130 Cairn India 131 GAIL 132 Gujarat State Petronet 133 HPCL 134 IOC 135 Indraprastha Gas 136 MRPL 137 Oil India 138

    ONGC 139 Petronet LNG 140 Reliance Industries 141

    10. Real Estate 142-154 Anant Raj Industries 147 DLF 148 Jaypee Infratech 149 Mahindra Lifespaces 150 Oberoi Realty 151 Phoenix Mills 152 Prestige Estate Projects 153 Unitech 154

    11. Retail 155-161 Future Retail 158 Jubilant Food 159 Shoppers Stop 160 Titan Industries 161

    12. Technology 162-176 Cognizant Technology 166 HCL Technologies 168 Hexaware Technologies 169 Infosys 170 KPIT Cummins 171 Mindtree 172 MphasiS 173 Persistent Systems 173 TCS 174 Tech Mahindra 175 Wipro 176

    13. Telecom 177-186 Bharti Airtel 183 Bharti Infratel 184 Idea Cellular 185 Reliance Communication 186

    14. Utilities 187-200 CESC 191 Coal India 192 Jaiprakash Power Ventures 193 JSW Energy 194 NHPC 195 NTPC 196 Power Grid Corp. 197 PTC India 198 Reliance Infrastructure 199 Tata Power 200

    15. Others 201-206 Bata India 201 Castrol India 202 Multi Commodity Exchange 203 Sintex Industries 204 United Phosphorus 205 V-Guard Industries 206

    Note: All stock prices and indices for Section C as on 27 September 2013, unless otherwise stated

    Section A: India Strategy - The Trilemma! ................................................................................. A1-56

    Section B: 2QFY14 Highlights & Ready Reckoner ..................................................................... B1-12

    Section C: Sectors & Companies .............................................................................................. C1-206

  • A–1October 2013

    India Strategy | The Trilemma!

    BSE Sensex: 19,727 S&P CNX: 5,833

    The Trilemma INR direction | Elections outcome | Sector preferences

    INDIAN EQUITIES: CY13 YTD return are flat, zero returns over 6 years  2013 has been a year of flat markets. The 10-year CAGR up to 2012 is 19%, (2003-

    2013: 13%) despite a flat markets for the last 6 years. Over the last 4 quarters, markets have been very range-bound.

     Technology, Telecom, Healthcare, Cement continue to be top performers for 2013.  At 19,400, the BSE Sensex P/E is at 8% discount to LPA (12-month forward) and

    Sensex P/B at 17% discount to LPA (12-month forward).  Market cap to GDP at 56% is well below the averages and is closer to the lows of

    last decade.  FIIs continue to be buyers in 2013YTD worth USD13.4b; however DIIs are big sellers

    to the tune of USD 8.3b.

    2QFY14 PREVIEW: The dollar divide | Aggregate PAT up 3%; Nifty USD- denominated PAT up 19%, others down 5%  We expect MOSL Universe of 140 companies (ex RMs) to report aggregate 2QFY14

    PAT growth of 3% YoY. This is an improvement over 2% YoY de-growth seen in 1QFY14. 2HFY14 performance is expected to be even better with PAT growth of 11-12% YoY.

     The sharp 13% YoY depreciation of the INR vis-à-vis the USD is expected to boost PAT growth of USD-denominated sectors such as Technology, Healthcare and Metals.

     Within Nifty, USD-denominated companies' PAT is expected to grow 19% YoY, whereas others' PAT is expected to decline 5% YoY.

     Expect Sensex 2QFY14 PAT to grow 5% YoY.  Within Sensex, top 5 PAT growth companies are: Tata Steel (loss to profit), Maruti

    (+110% YoY), Dr Reddy's (+39%), Sun Pharma (+36%) and TCS (+30%). Top 5 PAT de- growth companies: BHEL (-57% YoY), Bharti (-54%), State Bank (-35%), Tata Power (-34%) and Jindal Steel (-31%).

     FY14/15 Sensex EPS is downgraded 3-4% (from Jun-13 estimates).  FY13-15 Sensex EPS CAGR stands at 11% v/s 14% a quarter ago.

    India Strategy

    FY08-13 EPS CAGR at 7%; expect rebound in FY13-15

    216 236 272 348

    450 523 718

    833 820 834 1,024

    1,123 1,190 1,289

    1,476

    FY 01

    FY 02

    FY 03

    FY 04

    FY 05

    FY 06

    FY 07

    FY 08

    FY 09

    FY 10

    FY 11

    FY 12

    FY 13

    FY 14

    E

    FY 15

    E

    FY01-13A: 15% CAGR

    FY01-15E: 15% CAGR

    FY01-08:

    21% CAGR

    FY08-13:

    7% CAGR

    FY13-15E: 11% CAGR

  • A–2October 2013

    India Strategy | The Trilemma!

    ELECTIONS: The game-changing juggernaut | Forthcoming State elections may well be a gauge of the national mood  State elections - gauge of national mood: During Nov-Dec'13, assembly elections

    will be held in 5 states of Rajasthan, Madhya Pradesh, Chattisgarh, Delhi and Mizoram aggregating 73 of 543 Lok Sabha seats (13% of total seats). The assembly elections assume significance because the results could be a referendum for the General elections highlighting the national mood.

     Decoding the election trends: Our analysis of elections led us to some interesting findings and perspectives:  Seat share can be disproportionate to vote share: The data on seats won

    percentage to vote share percentage suggests that parties have won less seats in a particular year despite its vote share remaining the same. This suggests that the margin of victory is slender in many seats (more than 35% seats were won with less than 5% margin victory in 2009 general elections).

     Higher voter turnout – an indicator of a change in government?: The past 10 general election trends suggest that a voter turnout of 60% or above has resulted in a change in government (barring 1984 which Congress won due to sympathy wave on assassination of former Prime Minister, Ms. Indira Gandhi).

     What could be the odds of an NDA government: Based on the opinion polls and predictions, odds favor anti-incumbency. We analyse possible scenario which could drive an NDA government. Association with allies and their performance remains a key monitor to watch.

     Markets - build-up pre-elections; sharp reactions post elections: Markets sees some build-up prior to the elections. However, it witnesses sharp reactions post the election results. Normally, a decisive voting in favour of a party is positively

    2QFY14 performance of MOSL Universe by sector – Seculars do, cyclicals undo SECTOR Sales EBITDA PAT PAT Delta EBITDA Margins (no. of companies) Sep-13 YoY % Sep-13 YoY % Sep-13 YoY % Share % Share % Sep-13 YoY bp

    High growth sectors 3,350 16 798 22 444 16 55 264 23.8 111

    Technology (9) 504 31 140 39 98 29 12 92 27.8 154

    Health Care (13) 227 24 52 20 34 17 4 21 22.7 -83

    Media (7) 39 17 11 19 5 15 1 3 29.3 48

    NBFC (8) 85 21 80 19 52 14 6 27 94.3 -217

    Consumer (13) 324 12 69 15 46 13 6 23 21.2 58

    Metals (9) 1,143 11 216 18 90 13 11 44 18.9 102

    Private Banks (8) 143 19 116 17 66 12 8 30 80.5 -138

    Auto (8) 885 14 115 26 53 11 7 23 13.0 121

    Med/Low growth sectors 628 5 160 5 89 8 11 29 25.4 2

    Retail (4) 62 -1 6 -3 2 9 0 1 9.4 -19

    Utilities (10) 567 5 154 5 87 8 11 28 27.2 -7

    PAT de-growth sectors 2,928 10 638 0 277 -14 34 -193 21.8 -213

    Oil Excl. RMs (9) 1,758 15 276 6 170 -1 21 -10 15.7 -134

    Real Estate (8) 45 11 16 7 6 -6 1 -2 36.3 -156

    Telecom (4) 353 9 111 11 12 -7 2 -4 31.4 72

    Cement (8) 166 -1 30 -20 14 -31 2 -26 18.1 -442

    Capital Goods (8) 333 -5 32 -22 18 -32 2 -36 9.5 -215

    PSU Banks (8) 274 6 173 -6 56 -33 7 -115 63.3 -850

    Others (6) 52 11 9 8 4 -2 0 0 16.6 -50

    MOSL Excl. RMs (140) 6,958 12 1,604 10 815 3 100 100 23.0 -40

    Sensex (30) 4,777 12 986 12 509 5 NA NA 20.6 6

  • A–3October 2013

    India Strategy | The Trilemma!

    STRATEGY: Navin Agarwal (Navin@MotilalOswal.com) | Rajat Rajgarhia (Rajat@MotilalOswal.com)

    ECONOMIST