FOREWORD

The Equity Research Cell and Indian Institute of Foreign Trade brings to you the sectoral report on the Indian Economy,

for Q4’16. Published on a quarterly basis, this sectoral report is unique in many ways. Firstly, the report is prepared

by a bunch of the brightest students in the country. Well researched and well read, these students have left no stone

unturned in mining the relevant details which lead to valuable insights. Secondly, it is circulated amongst the

dignitaries of Trade Winds, and amongst other bright minds in the country, across the top B schools.

ABOUT THE REPORT

The report will cover a paraphernalia of industries that affect the economy. There will be the usual culprits, vis-à-vis

consumer goods, capital goods, FMCG, metals and mining, oil and gas, healthcare, power, media etc. The report will

be giving the reader a bird’s eye view of these sectors. Also, the current quarter results will be put under the scanner.

The companies’ prospects relative to the economy will also be assessed. The sectoral report is based on sound holistic

and fundamental analysis conducted by some of the brightest minds in the batch of 2016-18.

So as India braces itself for an exciting year and an even exciting decade ahead of it, the Equity Research Cell at IIFT is

excited to announce the launch of the sectoral report on India for the quarter ended March’16.

Hope our magazine provides you a wonderful reading experience.

TABLE OF CONTENTS

S.No TITLE PAGENO.

1 INDIA MACROECONOMIC OVERVIEW 1-2

2 AUTOMOBILE SECTOR ANALYSIS 3-5

3 BANKING SECTOR ANALYSIS 6-8

4 ARTICLE- NEGATIVE INTEREST RATES 9

5 FINANCIAL SERVICES AND INSURANCE SECTOR ANALYSIS 10-12

6 FMCG SECTOR ANALYSIS 13-15

7 IT-ITES SECTOR ANALYSIS 16-18

8 ARTICLE- BLOCKCHAIN 19-21

9 MEDIA SECTOR ANALYSIS 22-24

10 METAL SECTOR ANALYSIS 25-27

11 OIL AND GAS SECTOR ANALYSIS 28-30

12 PHARMA AND HEALTHCARE SECTOR ANALYSIS 31-33

13 POWER SECTOR ANALYSIS 34-36

14 REALTY SECTOR ANALYSIS 37-39

15 TELECOM SECTOR ANALYSIS 40-42

16 ARTICLE- BREXIT 43-46

1

Q4 FY 15

REVIEW

Macroeconomic Outlook Q4 16

Source: MOSPI

0

1000

2000

3000

4000

5000

6000

Apr-15 Jul-15 Oct-15 Jan-16

India GDP Growth in %

-6

-4

-2

0

2

4

6

8

10

12

IIP Growth in %

65

66

67

68

69

01-01-16 01-02-16 01-03-16

Performance of Rupee Vs US Dollar

Source: Reserve Bank of India

1500

2500

3500

4500

5500

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

Dec

-15

Feb

-16

USD

in M

illio

n

FDI Investment

India GDP Growth

The Indian economy, against the backdrop of declining global commodity prices, subdued

growth, volatile financial market and fluctuating exchange rate, showed resilience and

continued its growth. It gained momentum at the end of the fiscal year as it grew by 7.9 per

cent in March quarter backed by the farm and manufacturing sector which grew by 2.3 and 9.3

percent respectively, to consolidate India's position as the fastest growing major economy with

a five-year high growth rate of 7.6 per cent for the full fiscal.

Sectoral Returns

The Index of Industrial Production (IIP) reduced from 2.8 per cent last year to 2.3 per showing

that factory output continued to fall primarily because of below par performance of the mining

sector and a decline in production of capital goods by 2.9% (Source:IBEF.org). The industry

groups like electrical machinery, basic metal, food products and beverages, machinery and

equipment pulled down the growth of manufacturing sector by 1.2%. Even the stock market

NIFTY saw a decline due to the unrest in global markets especially due to the fall in the Chinese

equity and fall in the exports of India.

Performance of Rupee:

Rupee saw a decline in the FY 2015-16 and was at its lowest in 3 years since September 2013

due to global economic slowdown, with China devaluing Yuan affecting all the markets around

the world, decrease in the fall of crude oil as US would be spending less on crude, further

strengthening Dollar. Further, India’s exports contracted for straight 17 months which also had a

downward effect on the rupee.

FDI Inflows

Government's effort to improve ease of doing business and relaxation in FDI norms across

sectors such as defense, PSU oil refineries, telecom etc. are yielding results as India received $40

billion in FDI with services sector attracting the highest FDI equity inflow of US$ 6.9 billion,

followed by the computer hardware and software sector (US$ 5.9 billion). Singapore at US$

13.69 billion, followed by Mauritius (US$ 8.35 billion), USA (US$ 4.19 billion), Netherlands (US$

2.64 billion) and Japan (US$ 2.61 billion) were the largest source of FDI in India.

Imports & Exports

This year was one of the hardest for Indian exports. Export to all major exporting destination like

Saudi Arabia, China, US and Singapore shrunk. Merchandise exports showed an unprecedented

year-on-year decline of 17.2% attributed to decline in commodity prices and sluggishness in the

Chinese economy, besides a global slowdown. India’s export destinations The cumulative

exports for FY16 stood at a five-year low of $261 billion. Manufactured goods, with the highest

share in exports, have fallen by 8.0% due to the decline in the exports of iron and steel by 36.5%

(Source: CMIE). Petroleum and crude oil products too have had a detrimental effect as their

export diminished by 49.4%.

2

Q4 FY 15

REVIEW

Macroeconomic Outlook Q4 16

India’s imports were no different as they declined by 15.3 per cent against last year to $379

billion. Import of petroleum crude and products contracted by a whopping 40.52% owing to

slide in the crude oil prices in the international market. Imports from China, with the largest

share of imports and Saudi Arabia, the major oil seller to India, have declined too. The levels of

exports are the lowest since 2010-11. However, the decline in imports has been steeper as

compared to the drop in exports, thereby decreasing the trade deficit to a record low of $5

billion.

Inflation

Inflation saw a sharp decline for a brief period owing to a decline in global crude oil and

commodity prices, sluggish domestic demand conditions and softening food inflation. Of these,

the biggest contributor to the decline in the consumer price inflation (CPI) was food prices. But

while nearly all food components saw a decline in inflation, pulses inflation saw the sharpest

spike in a decade. Fast-tracking solutions to improve agriculture yields, and reducing the

stickiness in non-food inflation are the two challenges facing the RBI's medium-term inflation

target of 4%. Some of the factors that have supported the decline in food inflation are more

likely to have a transitory effect and the impact could wane, going forward.

Unemployment

The Modi government has been proactive in trying to find ways to reduce unemployment by

launching several schemes such as Skill India to match the needs of the market to the skills of

the people. It is also trying to generate employment by establishing an entrepreneurial culture

and providing digital infrastructure to empower people and help them in being the part of

solution to solve the problem of unemployment.

Forex Reserve

India’s foreign reserves touched USD 360 billion by end of March 2016, which is only USD 18

billion over the previous year’s level. Hard dollar mop-up was only USD 10.2 billion in the

financial year. This is in part due to central bank having to draw upon the reserves buffer to

contain rupee volatility and slow the unit’s one-sided descent in times of extreme external

volatility.

Future Outlook

With the global economy still struggling in the aftermath of the global financial crisis of 2008, the

Indian economy has emerged as one of the bright spots. An accommodative FDI policy, stable

monetary and fiscal policy and continuous effort by the government towards improving India’s

ease of doing business rankings can establish India as the next manufacturing hub. The economy

is expected to grow by at least 7.5 % for the next 5 years reach US $5 trillion (current market

price) by 2022. Implementation of GST itself can increase the economic growth by 1-2%. The skill

development programs along with digitalization and start up schemes will generate new

avenues for employment and provide the necessary skills to people which would further propel

India’s growth.

Source: CMIE

200300400500600

India's Imports Exports(in $ Billion)

Exports Imports

MOSPI

0123456

Inflation Rate

6500

7000

7500

8000

04-01-16 04-02-16 04-03-16

Nifty50

Source: Reserve Bank of India

330

340

350

360

370

Foreign Exchange Reserve (in USD Billion)

3

AUTOMOBILE Q4 16

Company Name 12m Q4 FY16

Tata Motors (30.8) (1.27)

Maruti Suzuki India Ltd

2.79 (19.76)

Mahindra and Mahindra

0.41 (5.45)

Bajaj Auto 21.67 (2.54)

Hero MotoCorp Ltd

11.97 11

Holding Period Return (in %)

Relative Performance of S&P BSE100

and S&P BSE AUTO

Market Share by Volume (FY15)

3%14%

80%

3% CommercialVehicles

PassengerVehicles

TwoWheelers

ThreeWheelers

Exports Growth

-20.00% -10.00% 0.00% 10.00% 20.00% 30.00%

2012

2013

2014

2015

2016

Two Wheelers Three Wheelers

Commercial Vehicles Passenger Vehicles

Introduction

The Indian automobile industry is one of the largest markets in the world and accounts for more

than 7% of the country’s GDP. In the previous financial year, more than 30% of the small cars

globally sold were made in India. The leading segment is Two-Wheelers with more than 80% of

the market share. India also exports significantly with a YOY growth of over 18%. The

Government of India approved 100% Foreign Direct Investment in this sector under the

automatic route which is expected to further boost the sector.

Recent Sector Developments

The automobile sector attracted Foreign Direct Investments worth US$14.32 billion during a

fifteen-year period between 2000 and 2015. Keeping in mind the growing demand, several

automobile manufacturers have invested heavily in the last year. Listed below are some of the

major initiatives undertaken by the Government of India to further promote this sector and also

some of the major investments by private players.

With the Make in India initiative, the Government plans to make manufacturing a critical

component of national economy and growth. This was highlighted in the Auto Mission Plan

(AMP) 2016-26 as the passenger vehicle market is expected to triple to 9.4 million units in a

decade

The Union Minister of Road Transport, Highways & Shipping recently announced plans of

setting up an independent Department of Transport which would comprise industry experts

to quickly resolve disputes and issues relating to various specifications, standards in

addition to exports

To further boost the adoption of environment friendly vehicles vis-à-vis Hybrid, Electric and

CNG based, the Government has formulated a scheme under the National Electric Mobility

Mission 2020

Automotive major Ford has plans to manufacture engine families in India by 2017 which will

be powering 270,000 vehicles globally thus increasing India’s visibility in this sector

Honda Motorcycle and Scooter India (HMSI) opened the world’s largest scooter

manufacturing plant in Gujarat with the option to scale up production to 1.2million units

per annum by 2016

General Motors hopes to invest $1 billion by 2020 to increase the production capacity of its

Maharashtra plant from 130,000 to 220,000 units per annum

Various other global automobile manufacturers such as Mercedes Benz, Isuzu, MV August

among others have plans to or already have invested in India to set up assembly units,

capacity augmentation plans, and R&D

Future Outlook

The Indian Automobile industry has a bright future going ahead with not just the domestic

demand going up but also international market participation and penetration going higher

This sector has the potential to generate a staggering 65 million jobs and over US$ 300

billion in revenues within the next decade thus contributing more than 12% to the country’s

gross domestic product

There is a great scope for divesting from a conventional fuel only manufacturing industry to

one based on alternative fuels which in turn help in creating novel avenues for growth and

some much needed innovation in the country

Source: SIAM

Source: MoneyControl

Source: SIAM

4

AUTOMOBILE Q4 16

Company Name

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-O-Y (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

Tata Motors

Revenues 80684 67778 19 72739.21 10.92 Strong Land Rover helps to triple Q4 Profit

Volkswagen and TATA in talks to make small cars combined

EBITDA 12461 9250 34.71 9606.27 29.71

PAT 5177 1717 201.5 3507.54 47.6

Maruti Suzuki

India Ltd.

Revenues 14929.5 13272.5 12.48 14767.7 1.10 Company benefitted from robust volume sales of new models

Maruti Suzuki Baleno sales poised to cross 75000 units

EBITDA 2471.2 2484.2 (0.52) 2201.6 12.25

PAT 1133.6 1284.2 (11.73) 1019.3 11.21

Mahindra &

Mahindra

Revenues 11577.59 9963.99 16.19 11500.63 0.67 Commercial vehicles and commercial equipment showed marginal improvement

Due to poor monsoon, the tractors segment witnessed a slight decline

EBITDA 1166.64 1026.56 13.65 1393.8 (16.30)

PAT 583.73 550.56 6.02 807.99 (27.76)

Bajaj Auto

Revenues 5602.64 4890.61 14.56 5799.62 (3.40) Strong domestic sales which grew by 26% YOY due to success of new products such as Vitara Brezza and Baleno

Weakened export in Q4 due to low demand in markets like Africa

EBITDA 1410.25 992.08 42.15 1370.94 2.87

PAT 949.33 621.62 52.72 901.49 5.31

Hero MotoCorp

Ltd.

Revenues 7385.23 6695.19 10.31 7174.16 2.94 Higher realizations on YOY and QOQ basing on favorable product mix and surge in spare part sales

Major headwinds in exports due to global crude oil price slump and dollar availability

EBITDA 1278.25 776.21 64.68 1224.1 4.42

PAT 814.16 476.53 70.85 795.81 2.31

5

AUTOMOBILE Q4 16

STOCK RECOMMENDATION: HERO MOTOCORP LTD. - BUY

Hero ended the previous financial year consolidating a 39% market share in the domestic two wheeler market

Benefited from the low commodity prices during the global slump, Hero achieved its highest profit of Rs 3,132 crore in FY16

and margins near 16%

In spite of the subdued volume and weak presence in popular scooter segment, investors still bet heavily on the company

driving the stock price to a new high in the past fortnight

The prospect of a good monsoon could trigger a revival in the subdued rural market. This is particularly good news for Hero as

one in every two motorcycles sold in rural market is by Hero

Hero is launching its first in-house development in motorcycles, Splendor iSmart110 after a gap of five years since its split

with Japanese maker Honda

Hero’s manufacturing facility in Colombia became operational in September last year and the facility in Bangladesh will start

production in this year

The company has paid dividends twice during the financial year 2015-16 adding to a better investor sentiment

We recommend a buy at the current price level of Rs.3200 with a target of Rs.3800 for one year

0

20000

40000

2012 2013 2014 2015 2016

Net Sales (Rs. Cr.)

Net Sales

0

2000

4000

2012 2013 2014 2015 2016

PAT (Rs. Cr.)

PAT

0

100

200

2012 2013 2014 2015 2016

EPS

EPS

0

2000

4000

2012 2013 2014 2015 2016

Equity Dividend Rate (%)

Equity Dividend Rate

Source: MoneyControl

Source: MoneyControl

Source: MoneyControl Source: MoneyControl

Source: MoneyControl

D

DIVIDEND DIVIDEND

DIVIDEND

6

Q4 FY 15

REVIEW

BANKING Q4 16

Company Name 12m Q4 FY16

HDFC 4.45 (5.22)

SBI 28.96 (13.54)

ICICI (7.76) (10.019)

Kotak Mahindra (0.912) (1.0252)

Axis Bank (21.40) (1.27)

Holding Period Return (in %)

SS

Source: RBI Tech Sci Research

64

0

75

9 10

26

10

64

12

06

14

52

16

02

15

70

16

05

17

83

,18

39

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

GROWTH IN MONEY SUPPLY(US$ B ILL ION)

Source: RBI Tech Sci Research

41

3

49

5

59

7 81

9

85

7

97

7

11

74

13

42

13

13

13

49

14

79

14

15

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

GROWTH IN DEPOSITS(US$

B ILL ION)

Introduction

The Indian banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign

banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative

banks, in addition to cooperative credit institutions. The Indian banking sector’s assets reached

US$ 1.8 trillion in the end of FY14 from US$ 1.3 trillion in FY10, with 70 per cent of it being

accounted by the public sector. As per the Reserve Bank of India (RBI), India’s banking sector is

sufficiently capitalized, well-regulated and money supply and deposits are growing. The financial

and economic conditions in the country are far superior to any other country in the world.

Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and

have withstood the global downturn well. Indian banking industry has recently witnessed the

roll out of innovative banking models like payments and small finance banks. As per as a BCG

report, the Indian Banking sector has the potential to become the third largest by 2025.

Recent Sector Developments

The Indian Government is considering merging the 26 public sector banks into 6 mega

lenders.

To reduce the burden of loan repayment on farmers, a provision of ₹ 15,000 crores (US$ 2.2

billion) has been made in the Union Budget 2016-17 towards interest subvention.

The RBI has given in-principle approval to 11 applicants to establish payment banks. These

banks can accept deposits and remittances, but are not allowed to extend any loans.

India’s first small finance bank called the Capital Small Finance Bank has started its

operations by launching 10 branch offices in Punjab, and aims to increase the number of

branches to 29 in the current FY 2016-17.

Lok Capital, a private equity investor backed by US-based non-profit organization

Rockefeller Foundation, plans to invest up to US$ 15 million in two proposed small finance

banks in India over the next one year.

Growth Drivers

Ministry of Finance has planned to inject ₹5,000 crores (US$ 734 million) in eight public

sector banks in order to boost their capital.

India's largest public sector bank, State Bank of India (SBI), has opened its first branch

dedicated to serving start-up companies, in Bengaluru.

Global rating agency Moody's has upgraded its outlook for the Indian banking system to

stable from negative based on its assessment of five drivers including improvement in

operating environment and stable asset risk and capital scenario.

Future Outlook

Indian banks are increasingly focusing on adopting integrated approach to risk management.

Banks have already embraced the international banking supervision accord of Basel II. According

to RBI, majority of the banks already meet capital requirements of Basel III, which has a deadline

of March 31, 2019. Most of the banks have put in place the framework for asset-liability match,

credit and derivatives risk management. Although in the short term the banks are continued to

be plagued by the bad debt and Non-performing assets, it will be the fifth largest banking

industry in the world in 2020, according to a KPMG report.

7

Q4 FY 15

REVIEW

BANKING Q4 16

Company Name

Financials Q4FY16 (in ₹ Cr.)

Q4FY15 (in ₹ Cr.)

Y-OY (in %)

Q3FY16 (in ₹ Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

HDFC Bank

Revenues 18,862.61 15,570.13 21.14 18,283.31 3.16

1. Its market Cap is around 316,000

crore rupees. 2. Gross NPAs was around 0.97 of total

loans. 3. HDFC has beat major European

banks on the basis of market cap, up to rank 5 from 14 as per as the last year.

EBITDA 5734.91 4721.95 21.45 5735.86 (0.016)

PAT 3374.22 2806.91 20.02 3356.84 0.51

State Bank of

India

Revenues 53526.97 48,616.41 10.10 46,731.01 14.54

1. Its market Cap is around 178000

crore rupees. 2. Gross NPAs was 7.10% of total

loans. 3. SBI plans to merge its five associate

banks with itself. The merger will create a giant entity with an asset base of ₹ 37 lakh crore.

EBITDA 14,191.90 12759.76 11.22 9,597.92 47.86

PAT 1,263.81 3742.02 (66.22) 1,115.34 13.31

ICICI Bank

Revenues 18,590.86 16234.73 14.51 17,562.95 5.85

1. Its market Cap is around 152900

crore rupees. 2. Gross NPAs was 4.72% of total

loans. 3. ICICI has set up credit monitoring

group to improve monitoring of credit and provide early warning of loans.

EBITDA 7,107.50 5468.29 29.97 6559.80 8.35

PAT 701.89 2922 (75.98) 3018.13 (76.54)

Kotak Mahindra

Bank

Revenues 4,947.32 3249.08 52.26 4,843.86 2.13

1. Its market Cap is around 140000

crore rupees. 2. Kotak Mahindra Bank's consolidated

net profit doubled, helped by the base effect of last year's when it made extraordinary provisions related to the purchase of the erstwhile ING Vysya.

EBITDA 1,194.15 860.73 27.92 1,205.21 (0.91)

PAT 695.78 527.14 31.99 634.72 9.62

Axis Bank

Revenues 13,592.97 12384.39 9.75 12,531.11 8.47

1. Its market Cap is around 130400

crore rupees. 2. Gross NPAs was 1.68% of total

loans. 3. Insurance industry behemoth LIC

and Axis Bank have entered into a tie-up to sell the former’s products.

EBITDA 4398.53 4012.88 9.61 3985.06 10.44

PAT 2,154.28 2180.59 (1.20) 2,175.30 (0.96)

8

Q4 FY 15

REVIEW

BANKING Q4 16

STOCK RECOMMENDATION: HDFC - BUY.

Source: moneycontrol.com

1. Earnings per Share: -

HDFC has relatively high Earnings Per Share(EPS), as it has one of the lowest NPAs. This will ensure greater profitability of HDFC in the

future, which will make it an attractive target for investors when it will have to raise capital to adhere to Basel III norms

2. Return on Equity: -

This parameter is of paramount interest to international investors. Among the top five banks, HDFC has the highest return on equity

of more than 20%, which is more than 25% than its nearest competitor.

3. Net profit per share: -

Among the competitors HDFC has the highest net profit per share. Its value, around 50 is significantly higher than that of others,

which are around 10-20.

4. Price to Earnings Ratio: -

Valued a bit on the higher side as compared to the SENSEX or the CNX Nifty, it has P/E ratio of 28 for the quarter, making it a healthy

banking organization. Fundamentals are strong, and one could see a high growth for the company ahead.

5. Capital Adequacy Ratio: -

It has a capital adequacy ratio of around 17, which although is comparable to other private sector banks, but is far greater as

compared to public sector banks, which are languishing at around 9-12%.

6. Miscellaneous: -

While the above factors do demonstrate a solid growth for HDFC, other factors like high holding value returns, year on year growth of

20%, and the fact it is the largest bank in the third largest economy of the world, with the nearest competitor at half of its market

capitalization, and still a private entity with lowest percentage of non-performing assets does boost its credibility among the

investors. Also it is the most highly rated by analysts, as 93% of them tracked by Bloomberg have a buy rating on the stock.

HDFC SBI ICICI Kotak Axis

EPS 44.43 12.98 16.75 11.42 34.59

0

10

20

30

40

50

EPS

HDFC SBI ICICI Kotak Axis

ROE(%) 20.78 6.89 11.19 8.72 15.46

0.00

5.00

10.00

15.00

20.00

25.00

ROE (%)

HDFC SBI ICICI Kotak Axis

P/S 48.64 12.82 16.72 11.39 34.51

0

10

20

30

40

50

60

P/S (Net profit/Share)

We recommend a buy at current price levels of 1248, with a target price of 1350

Price

9

NEGATIVE INTEREST RATES AND ITS IMPACTS By Sameer Sood and Vikram Bharadwaj, IIFT, 2016-18

After the 2008 financial crisis, there is no other question in finance world that has raised more curiosity among investing class than “Negative Interest Rates”. The interest rate which has been lowered into the negative territory by the policy makers is the most basic rate in any economy is the rate at which the central bank will be lending electronic cash to a commercial bank on an overnight basis, the interest that the commercial bank needs to pay to the Central Bank on the money borrowed is based on this interest rate. This is one of the basic tools, which any central bank has to control the monetary policy or the money supply in the economy. In any economy all functioning commercial banks have accounts with the Central Bank. So, when a Commercial Bank borrows money from the Central Bank it has to pay interest in return. If any commercial bank has excess reserves it will be paid an interest in return by the Central Bank, which makes perfect sense, but when this situation reverses and the commercial bank has to pay to the Central Bank to park excess reserves, we witness a situation of Negative Interest Rates. Many Central Banks including Sweden, Switzerland, Denmark, ECB and recently BOJ have slipping their interest rates into red. The logical question, which arises here, is that how come banks have so much excess reserves lying with them. The answer to this question is Quantitative Easing (QE). Many central bankers deployed QE as a monitory tool after the 2008 crisis, latest by European Central Bank (ECB) and Bank of JAPAN (BOJ). Quantitative Easing is a large-scale bond buying open market operation by the Central Bank. But the focus remains how does a Central Bank implements negative interest rates in the system.. Central Bank makes the electronic balances in those accounts shrink, which is witnessed by a deposit of €10,000 today becoming €9,999.92 tomorrow. The impact of such a negative rate is that it pushes down short-term rates, which provides an economic boost by expanding credit and results in weakening the currency of the economy. The short-term interest rates actually go down because when the Central Bank cuts the overnight interest rates, these overnight rates drag down other rates: the rate one bank will pay another for a one-month loan, a three-month loan and a one-year loan and so on. Negative rates also spur banks and other investors to buy - short-term government’s debt and this drags down the yields on these government bonds. Rates for financing in the capital markets – i.e. a company sets its yields bonds to investors—are linked to the yields on government debt considering this insight all other things being equal, they go down when government-debt yields go down. The effect of negative interest rates on the economy has not been very convincing, there haven’t been sharp turnarounds in the countries that have tried negative rates and it is yet to be seen that strong economic benefits can be achieved using negative interest rates. Negative Interest Rates heavily affect banks profitability for a simple reason that they can’t charge their customers a negative rate for keeping cash with them as investors might prefer to keep cash rather, keeping cash is like depositing money at 0% rate but it is still better than losing money with a negative rate. This affects banks primary business of lending and borrowing money. In theory, negative interest rates should be able to reduce borrowing costs for companies and households and drive-up demand for loans and credit. In reality, the risk involved with it can have serious repercussions. If banks make more customers pay to hold their money, that cash could well go under the mattress, robbing the banks of a crucial source of funding and perhaps even triggering a bank run. Even if that doesn't happen, when banks absorbs the costs of negative rates on their profit and loss, it decreases the profitability, and might make them even less willing to lend. Two years into the experiment, it is still too early to say with surety if negative interest rates will work, If more central banks use negative rates as a stimulus tool, the policy might ultimately lead to a currency war of competitive devaluations.

10

FINANCIAL SERVICES & INSURACE Q4 16

Company Name 12m Q4 FY15

Bajaj Finserv 21.57 (14.38)

Bajaj Holdings & Investment

11.53 (11.45)

L&T Finance (0.71) (2.53)

Muthoot Finance

(13.77) (1.06)

Reliance Capital (13.90) (15.75)

Holding Period Return (in %) Source: Moneycontrol

RELATIVE PERFORMANCE

Relative performance of CNX Nifty and

Bajaj Holdings & Investment

Mutual funds AUM

Source: www.ibef.org

Break-up of non-life insurance market

Source: IRDA Annual Report, TechSci

Research

Introduction

Financial services consist of banking institutes, non-banking financial institutes, mutual funds

(MFs), pension funds, and insurance companies etc. which conduct financial transactions. With

SEBI announcing various measures aimed at increasing penetration and strengthening

distribution network of MFs we can expect rapid growth in this sector in the coming years.

India’s pension sector has a potential to cross US $1 trillion by 2025. If we look more closely at

insurance sector in India, it is the biggest insurance market in the world and is a very

appropriate place to invest in the forthcoming years. Last year, the cap of FDI in insurance sector

has been moved from 26% to 49%. According to ASSOCHAM, over 12,000 crores of investments

are ready to flow into India’s insurance sector in 2016.

Recent Sector Developments/Growth Drivers

India’s insurance industry aims to increase the market penetration levels to 5% by 2020. It is expected that CAGR (Compound Annual Growth Rate) of 12-15 % over the next five years can be seen in insurance industry.

According to a report from investment bank MAPE Advisory Group and consulting firm MXV due to rise in usage of mobile wallets and insurance services online financial services in India is expected to be a Rs 15,000-crore market by 2020, up about 15 times from Rs 1,063 crore in 2014.

Bhartiya Krishi Bima Yojana encompassing various features like livestock insurance, insurance cover for agriculture implements such as tractors and pump sets, student safety insurance and life insurance is about to be launched by government of India.

Total SIP accounts crossed the 1 crore mark in April and the average monthly SIP flows have also risen to about Rs 3,000-3,500 compared with Rs 2,500 a year ago, according to market experts. Mutual funds in the country are showing lucrative developments in 2016.

Statistics from the Association of Mutual Funds of India and Crisil have shown that mutual fund houses added 12.61 lakh folios in the April-June quarter, which is up 2.65% over January-March.

Suraksha Bandhan Drive launched by government issues the sale of gift cheques to bolster Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

$2billion market is available for the reinsurance market in India. It is a great opportunity for reinsurance companies who want to set up a full-fledged business in India.

General insurance industry premium collection stood at Rs 96,401 crore, up almost 14 per cent in the recently concluded fiscal.

Future Outlook

Unified Payments Interface (UPI) which was launched in April 2016 aims at cashless India by making use of Aadhar and biometrics technology. If we can make people realize the ease in going cashless a huge surge in growth of financial services sector can be witnessed.

With implementation of seventh pay commission recommendations and start up economy growth, savings in middle class families will rise. Attracting these savings towards mutual funds and insurances will give a boost to financial services sector in future.

11

FINANCIAL SERVICES & INSURACE Q4 16

Company Name

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-OY (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

Bajaj Finserv

Revenues 84.84 79.56 6.64 30.43 178.80 For FY16, Bajaj Finserv posted

consolidate net profit of Rs 1,863 crore as against Rs 1,690 crore in FY15, showing a growth of 10 per cent.

During the year, the company became a Core Investment Company (CIC) under the regulations of the Reserve Bank of India.

EBITDA 74.41 65.96 12.81 17.12 334.64

PAT 67.48 43.8 54.06 10.2 561.57

Bajaj Holdings & Investment

Revenues 587.08 82.13 614.82 74.29 690.25 The Company received interim

dividends from group companies and other corporates.

The subdued equity markets lowered the returns on equities. Hence profit on sale of investments, stood at 114 crore in FY16 v/s 214 crore in FY15.

EBITDA 576.92 75.18 667.38 65.09 786.34

PAT 555.93 41.76 1231.25 45.27 1128.03

L&T Finance

Revenues 37.30 198.31 (81.19) 211.31 (82.35)

Company’s net profit for FY16 rose 16 per cent to Rs 857 crore from Rs 855 crore in FY15. Total income grew to Rs 7,471 crore in FY16 from Rs 6,337 crore in the previous year.

Loans and advances grew 22 per cent to Rs 57,831 crore at the end of March 2016 from Rs 47,232 crore in FY15.

EBITDA 27.22 189.48 (85.63) 201.80 (86.51)

PAT 16.17 190.08 (91.49) 197.12 (91.80)

Muthoot Finance

Revenues 1433.40 1088.54 31.68 1126.39 27.26 The company acquired a 19.50

per cent consideration in Chennai-based microfinance company Belstar Investment and Finance.

The company has invested Rs 44.91 crore in Muthoot Homefin, which is into affordable housing.

EBITDA 1053.60 811.46 29.84 865.97 21.67

PAT 265.22 165.19 60.55 186.67 42.08

Reliance Capital

Revenues 1343 1332 0.83 889 51.07 The Group's total income has

increased to Rs 9,998 crore for the year ended March 31, 2016 from Rs 8,929 crore year ago, a company statement said.

As on March 31, 2016, the net worth of the company stood at Rs 15,390 crore.

EBITDA 1207 1105 9.23 800 50.88

PAT 526 481 9.36 167 214.97

12

FINANCIAL SERVICES & INSURACE Q4 16

STOCK RECOMMENDATION: BAJAJ HOLDINGS & INVESTMENT - BUY

Revenue PAT EPS

(Source:Moneycontrol, Economic Times)

In the last five financial years revenue of the Bajaj holdings & Investment is continuously increasing. The revenue has been increased

by 115.22% in last 5 financial years.

Earnings per share of the Bajaj Holdings & Investment have shown continuous increment in last 5 financial years, EPS increased by

123.92% since financial year 2011-12. Among top 5 financial services companies Bajaj Holding & Investment is the only company

whose EPS is continuously increased in last 5 financial years.

Same as Revenue and EPS, Bajaj Holdings & Investment experienced upward trend in net profit in last 5 financial years. Since FY

2014-15 Bajaj Holding & Investment is experiencing highest net profit among top competitors.

P/E ratio of the Bajaj Holdings & investment is 9.08 and industry P/E ratio is 29.55 which indicate strong buy recommendation.

Bajaj Holdings & Investment has 31.49% and 39.16% strategic stakes in Bajaj Auto Ltd (BAL) and in Bajaj Finserv Ltd (BFS). BAL is

India’s largest manufacturer of two and three wheelers. BFS on the other hand is financial services company which has highest

market capital in financial service sector in India.

In the latest stock exchange filing dated 31 March 2016, Bajaj Holdings & Investment reported 42%, such large promoter holding in

stocks ensures safety to the retail investors.

0

1000

2000

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4000

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6000

FY 1

1-1

2

FY 1

2-1

3

FY 1

3-1

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FY 1

4-1

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6BajajFinserv

BajajHolding

L&TFinance

MuthootFinance

RelCapital

0

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BajajFinserv

BajajHolding

L&TFinance

MuthootFinance

RelCapital

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BajajFinserv

BajajHolding

L&TFinance

MuthootFinance

RelCapital

42%

23%

17%

11%

6%

1%

Percentage share holding

Promoters

General Public

Foreign Instiutions

Others

Financial Institutions

NBFC & Mutual Fund

13

Q4 FY 15

REVIEW

FMCG Q4 16

First Forecast vs Actual Rainfall (% of LPA))

99

96 9895

99 98 9693

106

98

77

102 101

92

106

88 86

70

80

90

100

110

08 09 10 11 12 13 14 15 16

YEAR

First Forecast Actual monsoon

Holding Period Return (in %)

COMPANY 12M Q4

FY2016

ITC 1.53% 0.11%

GCPL 29.21% 2.67%

HUL 0.87% 1.88%

DABUR -4.98% -9.08%

NESTLE 16.42% -0.30%

Relative performance of CNX Nifty

and CNX Bank

SOURCE: Booz and Company, Dabur, Ac Nielsen,

TechSci Research

Introduction

FMCG is the 4th largest sector in the India economy which has grown at 11 percent over the last decade and is expected to grow at a compound annual growth rate (CAGR) of 14.7% touching US$110.4 billion in revenues by the year 2020. The rural FMCG market is anticipated to grow at a CAGR of 17.7 % to US $100 billion by 2025 which is way above the industry average growth rate of 14.7%.Food products are the leading in this segment, accounting for 47 percent of the overall market followed by Personal care and fabric care which account for 22 percent and 16 percent market share respectively. The Indian growth story is based on a consumption based model wherein consumption accounts for 57% of the GDP, in this regard FMCG sector contributes a large share in the Indian growth story. Around two third of the total revenue is generated from urban population and rest is generated from rural population, with urban market reaching a matured stage most of the revenue growth is expected to come from increase in rural demand. Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the consumer market.

Recent Sector Developments The Government of India's policies and regulatory frameworks such as relaxation of license

rules and approval of 51 per cent foreign direct investment (FDI) in multi-brand and 100 per cent in single-brand retail are some of the major growth drivers for the consumer market.

The trends in recent monsoon forecast predict rainfall to be above average (106% of long term

average). This is going to have a direct impact on the rural income, driving sales which would

have a positive impact on the topline of FMCG companies.

The Indian economy is the fastest growing large economy in the world and it is expected to grow at a rate of 7.5% (as per the predictions of IMF). A blossoming economy with increased employment rate and increased disposable income has resulted in a shift in the purchasing trend of consumers from essential to premium products. In response, firms have started enhancing their premium products portfolio.

Future Outlook The prospects of passing of GST seem to be bright with 5 hours of dedicated discussion on the

intricacies of the bill in the monsoon session of parliament. The sheer efficiency of the GST

which if designed in such a way that credit does not stick to the business but is passed on to the

value chain would benefit the FMCG industry.

The FMCG sector as a whole is keenly looking out for the proposed GST rate, if they are too high

then they would have to be passed on the consumers which might lead to demand erosion.

– DABUR CEO, Sunil Duggal

In last year's Budget, the NREGA allocation was increased by Rs 5,000 crore. A higher increase

in the current Budget will be especially useful for rural consumption. Acceleration and clear

roadmap on the Direct Benefits Transfer programme will also be helpful in putting disposable

cash in the hands of the rural poor, which can aid bottom-of-the-pyramid consumption.

Implementation of the Pay Commission report and one rank one pension will increase the

disposable income of the consumers this can lead to a strong surge in urban consumption spend

increasing FMCG sales.

In the last Budget, it was announced that there will be a reduction in corporate tax over the

next four years, from 30 per cent to 25 per cent, which is a positive for FMCG companies paying

close to peak tax and will compensate in some cases where indirect tax exemptions are going

away.

The government is looking for doubling of farmers income by 2020, in this regard a slew of

reforms have been initiated like increasing the minimum support prize, insuring crops at a low

premium under the Pradhan Mantri Fasal Bima Yojana, issuing of soil health card and increased

spending on Pradhan Mantri Krishi Sichai Yojna. This can have a cascading effect on increase in

rural demand.

14

Q4 FY 15

REVIEW

FMCG Q4 16

Company Name

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-OY (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

GCPL

Revenues 2082.61 1931.52 7.82% 2353.54 (11.51%) At BOD meeting in July 2016 it approved the scheme of amalgamation of Godrej Consumer Products Mauritius and Godrej Consumer Products US Holding with Godrej Consumer Products and their respective shareholders.

It recently acquired two companies Strength of nature and Canon Chemicals.

EBITDA 366.99 328.9 11.58% 431.66 (14.98%)

PAT 265.57 236.28 12.40% 322.95 (17.77%)

ITC

Revenues 10127.93 9663.15 4.81% 9854.66 2.77% ITC announced that the Company on 29 July 2016 issued and allotted 1,04,59,420 Ordinary Shares of Rs. 1/- each, upon exercise of 10,45,942 Options by Optionees under the Company's Employee Stock Option Schemes.

IT announced that A. V. Girija Kumar has ceased to be an Additional Non-Executive Director of the Company.

EBITDA 6148.33 6049.67 1.63% 5571.54 10.35%

PAT 2378.91 2361.18 0.75% 2652.82 (10.33%)

HUL

Revenues 7873.77 7955.46 (1.03%) 8157.51 (3.48%) Hindustan Unilever announced that the Committee of the Board in its Meeting held on 15 June 2016 has allotted 23,763 Equity Shares of Re. 1/- each under ESOP.

The company has decided to change its reporting standards This change complies with the IND AS segment reporting principles, and the reporting therefore will be made effective from 01 April 2016, which will be reflected in the quarterly results for the quarter ending 30 June 2016.

EBITDA 1621.34 1595.99 1.59% 1490.81 8.76%

PAT 1113.54 1018.08 9.38% 971.40 14.63%

DABUR

Revenues 1459.35 1429.21 2.11% 1515.74 (3.72%) Dabur India forays into fizzy drinks market with Real VOLO.

Dabur India has received reaffirmation of ratings for credit facilities of the Company from CRISIL.

DABUR India announced that its wholly owned subsidiaries - DABUR (UK) and DABUR International have incorporated a new subsidiary namely, DABUR Pars in Iran on 31 May 2016.Accordingly, it has become a step down subsidiary of DABUR India.

EBITDA 392.26 291.97 34.35% 340.13 15.33%

PAT 287.15 212.94 34.85% 248.77 15.43%

NESTLE

Revenues 2337.49 2541.95 (8.04%) 1986.73 17.66% Board of Nestle India recommends dividend of Rs 12 per equity share subjected to approval of shareholder.

NESTLE says to collaborate with Samsung to explore nutrition science.

Nestle stocks reach pre-Maggi ban level.

Nestle Purnima partners on contest for pet care startups.

With an EBITDA of 44.37% and PAT of 41.38% the financials of the company for coming quarters look strong.

EBITDA 513.36 584.98 (12.24%) 355.59 44.37%

PAT 259.00 320.28 (9.13%) 183.19 41.38%

15

Q4 FY 15

REVIEW

FMCG Q4 16

STOCK RECOMMENDATION: ITC – BUY

EFFICIENCY ANALYSIS - ITC has the highest Net and Operating margins amongst its peers.

VALUATION ANALYSIS - PAT and EBITDA have been increasing throughout the last 5years

Liquidity and Credit Analysis The FMCG major's free cash flow (FCF) grew 14 percent annually in FY16 driven by a sharp drop in capex. Standalone capex fell from Rs 2500 crore to Rs 1700 crore driven by lower capex in cigarettes and hotels.

Current Ratio ITC’s average current ratio over the last 5 financial years has been 1.82 times which indicates that the company is comfortably placed to pay for its short term obligations.

Long term Debt to Equity Ratio ITC’s average long term debt equity ratio over the 5 financial years has been 0.00 times which indicates that the company operates with negligible level of debt and accordingly is placed well to withstand economic slowdowns.

Interest Coverage ratio ITC’s average interest coverage ratio over the last 5 financial years has been 521.63 times which indicates that the company can

meet its debt obligations without any difficulty.

ITC GCPL HUL DABUR NESTLE

NPM % 17.99 17.23 14.44 15.51 11.25

0

5

10

15

20

PER

CEN

TAG

E

NPM %

ITC GCPL HUL DABUR NESTLE

OPM % 29.78 23.86 22.32 21.72 22.3

0

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40

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CEN

TAG

EOPM %

FY12 FY13 FY14 FY15 FY16

PAT (Rs. Cr.) 6,322.39 7,693.58 8,990.62 9,765.63 10061

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

PAT (Rs. Cr.)

FY12 FY13 FY14 FY15 FY16

Total Income from Operations(Rs. Cr.)

26,551.79 31,627.54 35,317.08 38,834.81 39427

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

Total Income from Operations (Rs. Cr.)

ITC has performed better against NIFTY. ITC has shown a

decrease of 0.37% as compared to 2.62 drop in NIFTY

due to market slowdown.

Credit Suisse has maintained outperform rating on ITC Cigarette business performance in March quarter FY16

(which contributes 43 percent to total revenue) was the best in 11 quarters.

The company’s dividend pay-out ratio for FY16 stood at 85%, marking the decade’s highest level.

We recommend a Buy at current market levels of INR 253, with a target price of INR 285.

16

IT & ITES Q4 FY 16

Overview

India is the world's largest source for the information technology (IT) industry, accounting for approximately 67 per cent of the US$ 124-130 billion market. The industry employs about 10 million workforces. India's cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US, continues to be the mainstay of its Unique Selling Proposition (USP) in the global sourcing market. The IT industry has also created significant demand in the Indian education sector, especially for engineering and computer science. The Indian IT and ITeS industry is divided into four major segments – IT services, Business Process Management (BPM), software products and engineering services, and hardware. IT-BPM sector which is currently valued at US$ 143 billion is expected to grow at a Compound Annual Growth Rate (CAGR) of 8.3 per cent year-on-year to US$ 143 billion for 2015-16. The sector is expected to contribute 9.5 per cent of India’s Gross Domestic Product (GDP) and more than 45 per cent in total services export in 2015-16. Recent Sector Developments

The Government of India has launched the Digital India program to provide several government services to the people using IT and to integrate the government departments and the people of India.

India and the US have agreed to jointly explore opportunities for collaboration on implementing India's ambitious Rs 1.13 trillion (US$ 16.58 billion) ‘Digital India Initiative’.

The Government of Telangana has begun construction of a technology incubator in Hyderabad—dubbed T-Hub—to reposition the city as a technology destination.

Apple Inc. plans to set up its first technology development centre outside the US in Hyderabad with an investment of US$ 25 million, which is expected to create 4,500 jobs

Future Outlook

India is the topmost offshoring destination for IT companies across the world.Having

proven its capabilities in delivering both on-shore and off-shore services to global

clients, emerging technologies now offer an entire new gamut of opportunities for top

IT firms in India. Social, Mobility, Analytics and Cloud (SMAC) are collectively expected

to offer a US$ 1 trillion opportunity. Cloud represents the largest opportunity under

SMAC, increasing at a CAGR of approximately 30 per cent to around US$ 650-700

billion by 2020. The social media is the second most lucrative segment for IT firms,

offering a US$ 250 billion market opportunity by 2020. The Indian e-commerce

segment is US$ 12 billion in size and is witnessing strong growth and thereby offers

another attractive avenue for IT companies to develop products and services to cater

to the high growth consumer segment.

Company Name 12m Q4 FY16

TCS 5.59 3.31

INFOSYS 3.02 11.11

WIPRO (3.02) (1.68)

HCL (21.40) 0.35

TECH MAHINDRA

(6.94) 0.37

Holding Period Return (in %)

Relative performance of CNX Nifty

and CNX IT

http://www.moneycontrol.com/indian-indices/cnx-it-19.html

Segment wise domestic revenue

trends

deity.gov.in

Industry Revenue Trends

Source: Diety.gov.in

17

IT & ITES Q4 FY 16

Company Name

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-OY (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

TCS

Revenues 28,448.60

24,219.80

17.46

27,364.00

3.96

Strong growth led BFSI, Retails and Manufacturing

Clients in $100M+ band up by 3

7 large deals won around 6 verticals

Digital revenues at 15.5%

EBITDA 7,906.80

7,065.30

11.91

7,747.00

2.06

PAT 6,341.20

5,905.90

7.37

6,109.50

3.79

INFOSYS

Revenues 16,550.00

15,902.00

4.07

13,411.00

23.41

Investments in mergers and acquisitions, large key deal wins and reshuffle in top management are the main reasons behind the increase in profit after tax.

EBITDA 4,220.00

3,959.00

6.59

3,449.00

22.35

PAT 3,597.00

3,465.00

3.81

3,097.00

16.14

WIPRO

Revenues 13,632.40

12,142.00

12.27

12,860.50

6.00

Buyback proposal for purchase of 40 million shares

Decline in financial services due to impact in European market, while energy, natural resources and utilities vertical were impacted due to fall in oil prices.

EBITDA 2,483.60

2,455.60

1.14

2,387.40

4.03

PAT 2,254.30

2286.5

(1.41)

2,243.00

0.50

HCL TECHNOLOGY

Revenues 4,612.21

4385.95

5.16

4,471.42

3.15

EBIT margin impacted by Chennai floods and investments in tools, software and assets.

Growth should be driven by IMS and engineering services

EBITDA 2,006.91

1926.37

4.18

2,051.30

(2.16)

PAT 1,675.45

1564.74

7.08

1,653.60

1.32

TECH MAHINDRA

Revenues 6,883.70

6,116.80

12.54

6,701.10

2.72

Numbers better than Bloomberg estimates Salary hikes and inclusion of Lightbridge Communication Corp expected to weigh on profitability

EBITDA 1,161.30

936.70

23.98

1,135.90

2.24

PAT 895.90

472.00

89.81

759.30

17.99

18

IT & ITES Q4 FY 16

STOCK RECOMMENDATION: TCS-BUY

TCS remained the most profitable company in the Indian IT services industry

Tata Consultancy Services' fourth-quarter profit beat expectations and its revenue was in line, TCS revenue

rose sequentially to Rs 28,449 crore while net profit rose to Rs 6,341 crore.

Net addition during the quarter was 9,152 employees, indicating strong growth oriented goals of the company.

In terms of markets, growth was well distributed with North America growing 10.8 per cent, Europe by 12.9 per cent and United Kingdom by 8.3 per cent in constant currency terms.

TCS core portfolio performed strongly in a seasonally weak fourth quarter, driven by strong volumes-led growth in BFSI, retail and manufacturing sectors indicating good growth for the coming period.

Banking and financial services, which account for about 41% of the company's revenue, grew 3.2% sequentially in constant currency.

TCS digital services contributed 15.5% of its revenue. The company also crossed $1 billion in revenue from the India market.

Operating margins were an industry benchmark at 26.4 per cent for the year 2015-16, well within the company’s target range of 26-28 per cent.

In FY16, the company’s total dividend payout was Rs.43.50 per share including Rs.27 per share proposed as final dividend.

There are several reasons as to why the investors should BUY the TCS stock like:

We recommend a BUY at current price level of INR 2593 with a target price of INR 2775

19

BLOCKCHAIN: A NEW DISRUPTION? By Harshita Solanki, IIFT, 2015-17

Since the past few years, there has been a lot of buzz surrounding the word “Bitcoin”, as it gained traction in the international

community as an alternate mode of transacting between parties. However, with the news of Mt. Gox falling and the silk route

trade, people became a bit sceptical over the usage of this currency and slowly we saw their focus shifting from bitcoin towards

the underlying technology behind it – what is called blockchain.

Let us first understand what blockchain is. Simply speaking, it is a method of storing a large data set in blocks, with every block

containing a fixed number of entries and each block is timestamped and linked to the previous block to form a chain of

transactions. In this way it forms a digital ledger of transactions. It also has the following attributes which differentiates it from the

rest –

(Source: The Wall Street Journal)

Distributed ledger – All the participants in a network (also referred to as nodes) can share this digital ledger among

themselves. Anytime a change occurs in the ledger all the nodes are informed about it

Secure – Blockchain uses complex cryptography to ensure that the data entered is not tempered with. Also, once a data

is entered into a blockchain it is extremely difficult to change or remove it

No need for central authority – For any transaction that happens, all the nodes in the network, which have copies of the

existing blockchain, have to evaluate and verify the transaction. Once it is approved, only then is the transaction added to

the blockchain. This process makes the requirement of a central authority to validate the transactions redundant

Public/Private – There are different type of blockchains prevalent today. Bitcoin, for example was a public and permission

less ledger, which means that anyone can view the blockchain and make contributions to it. On the other hand we also

have permissioned blockchains, where only few people are allowed to access the blockchain

Consensus mechanism – For every blockchain, there are a set of rules called consensus mechanism, which are used to

verify and agree on a transaction, For bitcoin blockchain, the mechanism used was called “proof-of-work”, where people

called “miners” used to run complex algorithms using cryptography and significant computing power to verify the

transactions. In return the miners get fixed number of bitcoins for their effort and time. This method might be different

for permissioned blockchains

20

Blockchain certainly has a lot of unique features to offer but why is it being talked about so much? The answer to that question

lies in one simple offering of blockchain – removing the need of an intermediary for validating transactions. Think about it,

anytime you want to enter into a transaction, you need some party to verify that the party on the other side has enough

resources to complete the transaction and vice versa. The third party could be banks, clearing houses, trusted middlemen,

payment websites (like Paytm etc.), and the government and so on, the list is huge. Now imagine that this complex web has found

a substitute – a decentralized mechanism where everyone knows what is happening and can verify the party that you are

transacting with, blockchain is essentially making this possible.

People sometimes use the terms bitcoin and blockchain interchangeably, but these two means very different things. Bitcoin was

one application using blockchain, we now days see alternate use of blockchain as well – altcoins being one of them.

Another misconception that people have is that the only industry getting affected by blockchain will be the financial industry.

While it is true that the financial space will face significant impact, a lot of other industries are also projected to see a lot of

changes with the coming of blockchain. A brief description of the same –

Banks and financial services - With the clear threat of blockchain to industries such as clearing houses, it is no surprise

that banks and financial institutions are the first one to invest in studying this technology (more than $1 billion), forming

consortiums (such as R3) and investing in blockchain start-ups (Nasdaq Inc., Citi Ventures, Visa Inc. and others put $30

million last September into Chain Inc.) to have the first mover advantage. It has been predicted that this technology can

have a cost savings of up to $20 billion for the financial industry by 2020, as per an analysis done by Santander

InnoVentures

Art and Diamonds – It is difficult sometimes to establish ownership when it comes to expensive items – such as art,

antiquities and diamonds. Fraud usually occurs in the entire documentation process, and this problem is being addressed

using blockchain. Allianz Accelerator, is working with a blockchain start-up to generate a serial number for each diamond

and track its movement from the mine till the time the diamonds are sold. This helps in generating an ownership history

for every diamond and this information could also be checked by the authorities as well as the buyer

Media business – Companies are using blockchain to form “smart contracts”, which are agreements which are set to

execute themselves, given that certain conditions are met. News companies can use it to ensure that a reader pays for

the news he/she reads and could also be used to prevent the widespread piracy in the music industry. As an example,

Imogen Heap released a new single album using a music blockchain.

Pharma and Health – Here blockchain is used to ensure that an individual’s records remain secure, also people can select

which personal data they want their doctor to see, some doctors have said that in future this data may be traded like

money. Pharma companies on the other hands, can track their products across their supply chain and ensure that the

products are not tempered with

Food and Drink – Farmers can use blockchain to monitor the growth of their crops, right till they are harvested and

transported. Another example is Coca –Cola which is working with a blockchain start-up to monitor vending machines

and making them cashless

Insurance - Some insurance companies are working with blockchain to make the process of processing and handling

claims efficient by monitoring each stage, also we might be seeing new, innovative insurance models coming up in the

future.

21

All the above examples are a testimony to the fact that blockchain has the potential to change the world around us, which is why

this technology revolution is getting compared to the 1994’s – when internet came into being. Though blockchain is facing its own

set of challenges, the prominent among them being that it is the Wild West, no proper regulatory framework has been established

around this technology, although various governments have started to research and understand this technology. Also, a lot of

consensus building will be required among the different stakeholders, all of which have their own systems in place, if they all are

to be convinced to come aboard a common platform. Security and privacy issues will also be present, especially in the financial

sector and the details need to be worked out for the same.

But the challenges aside, blockchain offers us a platform where we can bring a change in a lot of processes happening on a day to

day basis, cutting down costs and improving efficiencies. It will be exciting to see what all changes this technology brings and how

it shapes our future going ahead.

22

Media Q4 16

Company Name 12m Q4 FY15

Zee Entertainment

24.34 (8.10)

Sun TV Network 13.13 2.00

DB Corp Ltd (13.20) (2.39)

Jagran Prakashan Ltd

48.03 (1.17)

Eros International

Media Ltd

(59.18) (0.38)

Holding Period Return (in %)

Relative performance of CNX Media and CNX Nifty

FDI INFLOWS INTO I&B SECTOR

Source: Department of Industrial Policy and Promotion.* FY 16

figures are indicated data till September 2015.

0.61.3

1.82.2

2.93.6 3.7 4 4.3

0

1

2

3

4

5

FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16*

Cumulative FDI inflows into Information and Broadcasting from

April 2000 (US$ billion)

SUBSCRIPTION AND TV ADVERTISEMNET REVENUE

Source: KPMG Report 2015 & 2014, TechSci ResearchNote: F-

Forecast

67.83% 69.30%

32.17% 30.70%

FY15 FY19F

Subscription Revenue TV Advertisement

Introduction

Over the years, much has been said about India’s demographic dividend. Add to the fact that its vast population is in constant need of entertainment, be it any form, shape or size, and you find that the Media Industry in India generates revenue in spades. In India, the Media industry is estimated toorth over $17 billion in 2014. Growth rate is being touted at an immense 13.98% CAGR during 2014-18, taking the entire industry to $3.7 billion by the end of 2018. India’s broadcasting industries is one of the most expansive in the world, with 800 satellite television channels and around 250 FM channeled ls. The Indian film industry, which now allows 100% FDI, generated revenues of $2.24 billion in 2014 and chu out more than 1,600 films in the same year

Recent Sector Developments/Growth Drivers

Introduction of the GST would address the issue of cascading and dual taxation impact on Indian media industry as suggested in a recent report published by Deloitte.

The Government of India has increased FDI limit from 74 per cent to 100 per cent in cable and DTH satellite platforms.

The customs duty on wood in chips or particles for manufacture of paper, paperboard and newsprint has been reduced to 0 percent from 5 per cent.

Approval of the model Shops and Establishment Act, aimed at generating employment prospects by allowing cinema halls, restaurants, shops, banks and other such workplaces to remain open round the clock.

Initiatives such as digitising the cable distribution sector to attract greater institutional funding and granting industry status to the film industry for easy access to institutional finance.

Approval for Audio-Visual Co-Production Agreement between India and the Republic of Korea and to complete internal ratification procedure. Cooperation between the film industries of the two countries will not only promote export of Indian films but would also act as a catalyst towards creating awareness about India and its culture.

The radio industry after the Phase III auction of 839 radio channels in 294 cities, is expected to bring in an estimated US$ 390 million in revenue to the government. With over 800 frequencies up for auction in third- and fourth-tier towns, radio is likely to match the reach of print.

Future Outlook

The revenue from advertising is expected to grow at a CAGR of 13 per cent and will exceed Rs 81,600 crore in 2019 from Rs 41,400 crore (US$ 6.14 billion) in 2014.

Internet access has surpassed the print segment as the second-largest segment contributing to the overall pie of M&E industry revenues.

Television and print are expected to remain the largest contributors to the advertising pie in 2018 as well. Internet advertising will emerge as the third-largest segment, with a share of about 16 per cent in the total M&E advertising pie.

The film segment which contributed Rs 12,640 crore in 2014 is projected to grow steadily at a CAGR of 10 per cent on the back of higher domestic and overseas box-office collections as well as cable and satellite rights.

Digital advertising is expected to lead the CAGR with 30.2 per cent, followed by radio with 18.1 per cent.

Animation and VFX, and television are expected to register a CAGR of 16.3 per cent and 15.5 per cent respectively, followed by growth rates of gaming (14.3 per cent), music (14.0 per cent), films (10 per cent) and OOH with 9.8 per cent expected CAGR.

Within TV, subscription revenues are expected to be three times more than advertising revenues, by 2018.

Growth in the regional reach of print and radio shall provide opportunities to further improve the advertisement revenue.

23

Media Q4 16

Company Name

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-OY (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

ZEE Entertainment

Revenues 1,531.6 1,347.1 13.7 1,595.1 -4.0 1. The company expects to recover sports revenue of about Rs 40cr as the dispute with Doordarshan has been deposited in the court now. 2. The Board has recommended a dividend of Rs 2.25 per equity share of Re. 1 each 3. The company has acquired a 49% stake in Fly BY Wire, which is engaged in the business of providing aircraft and chartering services

EBITDA 413.6 270.8 52.7 430.2 -3.9

PAT 260.6 230.8 12.9 275.0 -5.2

Sun TV Network

Revenues 574.1 552.4 3.9 568.1 1.1 1. Sun TV, which has been the undisputed numero uno in the Tamil market, has been able to maintain its dominance in Kannada markets where it claims 25%+ market share. 2. The launch of rural rating by BARC was a shot in the arm for Sun TV as it emerged as a No. 1 TV channel across India.

EBITDA 440.4 428.1 2.9 432.2 1.9

PAT 215.6 214.1 0.7 218.4 -1.3

Revenues 472.5 241.5 95.7 449.1 5.2 1. Jagran being the market leader in UP continues to benefit from a larger share of the incremental ad pie.

Jagran Prashasan Ltd.

EBITDA 89.5 58.4 53.3 68.2 31.2 2. It forms 7.3% of the overall print ad revenues, up from 7.0% in FY15. 3. Jagran has 31 radio stations post its

PAT 53.4 35.8 48.9 51.7 3.1 phase III outlay of Rs 62.6 crore. Radio City already had a presence in 20 circles with either No. 1 or No. 2 positions in its operating circles

Revenues 4891 4589 6.6 4043 20.97 1. The company will now shift its focus towards driving ad volume, as its strategy to drive yields has seemingly paid off

DB Corp Ltd. EBITDA 1808 1739 4.0 1264 43.04 2. Radio business continues to perform well, primarily driven by festival season and government‐related ad spend

PAT 1135 1051 1.6 1068 80.7 3. All the key markets demonstrated healthy growth, except Punjab

Revenues 472.5 241.5 95.7 449.1 5.2 1. Eros has entered into partnerships with

three Chinese film companies to explore joint opportunities

Eros International

Media Ltd.

EBITDA 89.5 58.4 53.3 68.2 31.2 2. Movie selection right four out of top eight box office releases in Q1FY16 3. 64 of seven were high budget movies

PAT 53.4 35.8 48.9 51.7 3.1

24

Media Q4 16

STOCK RECOMMENDATION: ZEE

ENTERTAINMENT ENTERPRISES LTD -

BUY

Returns of Zee Entertainment enjoy higher peaks and shallower

dips than the market returns

Zee Entertainment’s Gross Revenue from Operations experiences a

year on year growth over the past 5 years.

Zee Entertainment Ltd. has been enjoying increasing profits

o

v

er

th

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

Revenue From Operations [Gross]

Revenue FromOperations [Gross]

0

200

400

600

800

1000

Equity Div.

Net Profit

Q4 operational performance above estimate:

EBITDA grew 53% year on year, and beat analyst estimates by

17% due to higher revenues from advertising. However, Zee’s

PAT margins failed to fully capitalize on the gain due to higher

depreciation.

Subscription Revenue:

Reported revenue grew 16% year on year to Rs. 1530 crores.

Almost 30% of year on year ad revenue growth was one of the

main factors for the boost in revenue. Subscription revenue

grew by 16% year on year to a little under Rs. 600 crore. Out of

this, domestic revenue contributed Rs. 490 crore and

international revenue contributed Rs. 110 crore. However,

international revenue experienced higher growth rate of 35%

as opposed to domestic growth rate of 15%.

Advertisement Revenue: Advertisement growth was mainly a function of market share

gains. International ad revenue grew by 40% from the previous

quarter to Rs. 110 crore.

Increased International Focus: Zee Entertainment appointed Mr. Amit Goenka as the CEO of

its International Broadcast Business. Since then, Zee has

significantly increased focus on the international front. It

launched Zee.One, a dedicated Bollywood movie channel in

Germany. It also launched an ad-based video on demand

platform OZEE during the last quarter of FY 2015-16. It also

launched a movie channel in Philippines.

Conclusion: During the year, sports losses are expected to increase slightly,

due to greater number of India cricket days. However, strong

ad growth is expected to continue due to increase in number

of viewers gained.

Reasons for Buy recommendation:

25

METAL SECTOR Q4 16

Company Name 12m Q4 FY16

JSW Steel 39.9 23.6

Tata Steel 2.2 25.1

Hindalco (31.8) 3.9

SAIL (34.8) (10.4)

NALCO (18.1) (4.1)

Holding Period Return (in %)

Introduction

India is the third-largest steel producer in the world. In FY 2015-16, India produced 91.46

million tonnes (MT) of finished steel. India imported 9.32 MT of steel while exported 5.59 MT.

During FY 11-15, import of steel grew at a compounded annual rate of 9.01 per cent, whereas,

exports increased at a CAGR of 11.32 percent. In FY 2015-16, the consumption of finished steel

grew to 76.99 MT while the CAGR increased to 5.74 per cent during FY 08-15. The steel sector

contributes 2% to the GDP of the nation and provides 6 lakh jobs in the country.

India is the second largest aluminum producing and third largest aluminum consuming country in the world. India’s share in world aluminum consumption has increased from 3 % in 2008-9 to 7 % in 2014-15.

Recent Sector Developments/Growth Drivers

Recent Sector Developments (Steel)

Due to near-stagnant demand for steel globally, and in particular in China, major global steel producers are pushing steel products into the Indian market, leading to a surge in steel imports. The Indian steel industry with higher borrowing and raw material costs and lower productivity is at a comparative disadvantage. The government has taken the following measures:

Reduction in customs duty on plants & equipment.

Imposed anti-dumping duties for stainless steel imported from China, Malaysia and South Korea.

100 per cent FDI through the automatic route is allowed in the Indian steel sector.

Minimum import price has been imposed on a number of steel products.

The government hiked the export duty on iron ore to 30 per cent ad valorem on all varieties of iron ore (except pellets).

Recent Sector Developments (Aluminum)

Customs duty on aluminium increased to 7.5% from 5%

Clean environment cess doubled to Rs. 400 per tonne

Export duty on bauxite reduced to 15% from 20%

Future Outlook

Driven by rising infrastructure development and growing demand for automotives, steel consumption is expected to reach 104 MT by 2017.

Market value of Indian steel sector is expected to reach USD95.3 billion by FY16.

Ministry of Steel forecasts production levels of finished steel at 115.3 MT by FY17.

India is expected to become the second-largest producer of steel by 2016.

Foreign investment of nearly USD40 billion committed in the steel sector.

Major public and private companies, including Tata Steel, SAIL and JSW Steel, are expanding their production capacity. Steel production is expected to reach 200 mtpa by 2020 compared to 91.46 mtpa in 2015.

The government has stepped up infrastructure spending in steel sector from the current 5 per cent of GDP to 10 per cent by 2017.

A long term perspective is to achieve steel producing capacity of 300 mtpa by 2025.

NALCO had developed a prototype of a rail wagon with aluminum body to accelerate the use of metal. These ventures would help in achieving India's commitment to reduce emissions by 20 to 25 per cent to below 2005 levels by 2020.

The share of exports in domestic production of aluminum would rise marginally to 44-45% by 2019-20 from 42% in 2014-15

26

METAL SECTOR Q4 16

Company Name

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-O-Y (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

JSW Steel

Revenues 9567.17 11143.46 (14.1) 7364.82 29.9 BUY

Increased steel production capacity by 26% to 18mtpa

Margins are estimated to improve on benign raw material costs – primarily iron ore – and operating leverage from higher volumes.

EBITDA 1955.53 1729.4 13.1 (4623.35) (142.3)

PAT 367.09 188.73 94.5 (4142.22) (108.9)

Tata Steel

Revenues 10647.98 10857.92 (1.9) 9146.74 16.4 HOLD

Topline & PAT declined YOY Imports from China and

global iron ore prices continue to be a challenge

EBITDA 1962.48 1703.53 15.2 1541.27 27.3

PAT 676.6 814.09 (16.9) 452.82 49.4

Hindalco

Revenues 8871.66 9601.63 (7.6) 8400.38 5.6

BUY

Average cost of production of aluminium declined

Operating profit increased by 37.6% YOY

EBITDA 1370.57 931.38 47.2 921.68 48.7

PAT 356.33 159.53 123.4 40.46 780.7

SAIL

Revenues 11545.07 11885.76 (2.9) 9043.71 27.7 SELL

Topline declined YOY

Loss at operating level, decline in other incomes and surge in interest and depreciation

EBITDA (949.99) 1209.12 (178.6) (1276.89) (25.6)

PAT (1230.93) 334.22 (468.3) (1528.73) (19.5)

NALCO

Revenues 2030.15 2111.73 (3.9) 1812.73 12.0 HOLD

PAT declined YOY.

Alumina production was up 30% YoY to 556kt

Sales were up 22% YoY to 372kt.

EBITDA 394.44 738.5 (46.6) 313.81 25.7

PAT 207.94 354.87 (41.4) 133.49 55.8

27

METAL SECTOR Q4 16

STOCK RECOMMENDATION: HINDALCO - BUY

Long Term Outlook:

Indian economy is expected to grow at over 7.5% in FY16 and FY17. This would result in aluminum demand growth on account of

stronger consumption and investment.

The government's thrust on power sector that went through a challenging phase bodes well for aluminum industry as power sector is a strong demand driver for aluminum consumption in India.

In short term, Chinese supply is expected to continue to impact Rest of the World demand-supply dynamics adversely. However in

long term, overall the demand supply scenario for primary aluminum globally looks encouraging as demand continues to be robust

with expectations of around 6% growth.

Hindalco’s strong cost positioning in aluminum and support from domestic coal cost are key positives.

Hindalco’s average primary aluminum cost of production declined from USD2,346/ton in 4QFY15 to USD1,737/ton in 4QFY16, a saving of ~USD600/ton due to benefits from operating leverage, falling cost of coal and operating efficiencies.

Improved performance of primary aluminum segment of Hindalco on the back of higher volumes and margins. Operating profit

increased by 37.6% YOY and operating margin increased by 4.4% and stood at 13.5%.

I recommend a buy at current price levels of INR 133.55, with a price target INR 169.

28

Q4 FY 15

REVIEW

OIL AND GAS Q4 16

Company Name 12m Q4 FY15

Reliance Industries Ltd

26.71 3.42

ONGC Ltd. (9.88) (30.00)

IOCL (6.14) 6.84

BPCL (4.28) 11.31

GAIL (4.28) (8.36)

Holding Period Return (in %)

BOX NO. 2

Relative performance of BSE Oil &

Gas vs BSE Sensex

Box No. 3

Box No. 4

Introduction

Oil and gas sector is one of the key sectors of any economy and plays a pivotal role in influencing

and defining the other sectors. It contributes about 15% to India’s GDP. In FY14, imports

accounted for more than 80 per cent of the country’s total oil demand. In June 2015, total oil

imports were valued at US$ 8.7 billion. The country's natural gas pipeline network is spread over

14760.6 km in 2016. Presently, domestic production accounts for more than three-quarters of

the country’s total gas consumption.

Recent Sector Developments/Growth Drivers

A number of policy reforms have been taken by the Government to remove obstacles to

investment and incentivize oil and gas sector on the lines of ease of doing business,

minimum government maximum governance and promote Make¬in-India initiative

Two world class gas hydrate reservoirs have been discovered in ultra-deep waters of KG

basin under national gas hydrate progamme-2, which has opened up new avenues for

alternative resources

To encourage private players and global oil companies, Income generated from storage and

selling of Crude Oil in Strategic crude oil reserves has been exempted from Income Tax

There is a thrust on developing gas based economy by connecting major cities with green

highways, which will have vehicles running on CNG and LNG with adequate re¬fuelling

stations

Despite being a net importer of crude oil, India has become a net exporter of petroleum

products by investing in refineries designed for export, particularly in Gujarat. Backed by

new oil fields, domestic oil output is anticipated to grow to 1 MBPD by FY16

Completion of national gas grid by construction of another 15,000 km of gas pipeline

network, which is currently under various stages of implementation. Several industries are

increasing consumption of natural gas in operations

Future Outlook

With Make In India initiative the government is looking towards further strengthening this

sector with various policy reform and investment initiatives as follows:

Government is looking for monetization of 67 discovered small fields through international competitive bidding

Additional strategic storage of crude oil for 12.5 MMT at 4 locations viz. Chandikol (3.75MMT), Padur (2.5 MMT), Rajkot (2.5 MMT) & Bikaner (3.75MMT) in Rajasthan

Plan to connect 326 cities with city gas distribution network by 2022. In order to promote use of natural gas, priority for allocation of domestic gas was accorded to PNG/CNG segments for meeting 100% demand and faster roll out of PNG connections and CNG stations

With India developing gas-fired power stations, consumption is up more than 160% since 1995. Gas consumption is likely to expand at a CAGR of 21% during FY08–17

Increase in India's refining capacity to reach 256.55 MMTPA by 2019-20 after completion of projects under taken by a number of refineries which are currently under various stages of implementation

Source: Moneycontrol.com

Source: ibef.org

Source: Moneycontrol.com

Source: ibef.org

29

Q4 FY 15

REVIEW

OIL AND GAS Q4 16

Company Name

Financials Q4FY15 (in Rs Cr.)

Q4FY14 (in Rs Cr.)

Y-OY (in %)

Q3FY15 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

Reliance Industries

Ltd.

Revenues

59671

67470

(11.56)

68261

(12.57)

RIL had a build-up in inventory towards the end of last quarter and was able to liquidate that inventory at better prices

Middle distillates account for nearly 45% of the company’s product slate and they performed better than others

EBITDA

13017

11692

11.33

13732

(5.21)

PAT

6867

6448

6.50

7306

(6.01)

ONGC Ltd.

Revenues

16385

21647

(24.31)

18498

(11.42)

ONGC Videsh raises US$ 1 billion from international markets

On standalone basis crude oil

production from ONGC

operated fields has been 22.26

MMT in FY15 against production

of 22.25 MMT during FY14

EBITDA

6501

8747

(25.68)

5867

10.80

PAT

4416

3935

12.22

2649

243.39

IOCL

Revenues

80450

93830

(14.26)

83462

(3.61)

IOCL plans to invest Rs 43,000 crore for implementation of various petrochemical projects in the next four years

There is a huge potential for energy sector on account of CPCL merger with IOCL which is likely to happen in near future

EBITDA

4535

9046

(49.87)

1190

(20.77)

PAT

1236

6285

(80.33)

3057

(59.56)

BPCL

Revenues

44197

51346

(13.92)

46667

(5.29)

BPCL picks up 21 per cent stake in Fino PayTech for Rs 250 crore

BPCL is expanding its operations to Kochi refinery

EBITDA

4184

5078

(17.61)

2718

(53.94)

PAT

2549

2853

(10.66)

1489

71.19

GAIL

Revenues

11732

14271

(17.80)

13452

(12.79)

GAIL India Ltd is in talks with Russia's Gazprom to delay and renegotiate a 20-year gas purchase deal undercut by low spot prices

Gail officials went on state visit to revive the Sindri fertilizer factory

EBITDA

1260

439

187.02

13732

1.29

PAT

770

511

50.68

664

15.96

30

Q4 FY 15

REVIEW

OIL AND GAS Q4 16

STOCK RECOMMENDATION: RELIANCE INDUSTRIES LTD.

1. Operating Parameters: Operating income of Reliance Industries ltd. is decreasing. The main reason is the falling prices of

oil. Oil prices will likely pick up in the beginning of 2018. Operating profit of Reliance is increasing even though the

operating income has decreased which is a positive sign for reliance. Operational performance of the refining segment

was much better and refining and petrochemical units could see better times ahead

2. Earnings per share: Currently, one RIL share trades at about 11 times its estimated earnings per share for this fiscal year.

News flow on the telecom launch will be an important measure to track and so will developments on commissioning of

downstream expansion projects

3. Return on Net Worth: Return on net worth of RIL is declining because of falling crude prices and hence, lesser revenue.

RIL consolidated net profit of 7,113 crore in the first quarter of 2016 fiscal was up 18.1% from the corresponding period

last year.

248,170

329,904360,297

390,117

329,076

233,158

38,126.00 33,619.00 30,787.00 30,877.00 31,602.00 40,139.00

0.00

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

Mar ' 11 Mar ' 12 Mar ' 13 Mar ' 14 Mar ' 15 Mar ' 16

Operating Parameters - Reliance Industries Ltd.

Operating Income

Operating Profit

61.9761.26

65.05

68.02

70.21

56

58

60

62

64

66

68

70

72

Mar ' 11 Mar ' 12 Mar ' 13 Mar ' 14 Mar ' 15

Earnings per share

EPS

13.88

12.29

11.66

11.15

10.51

Mar ' 11

Mar ' 12

Mar ' 13

Mar ' 14

Mar ' 15

0 5 10 15

Return on net worth

Source:

money.rediff.com

Source: money.rediff.com Source: money.rediff.com

We recommend a HOLD at current price levels of INR 1016, with a target price of INR 1200

31

Q4 FY 15

REVIEW

PHARMA AND HEALTHCARE Q4 16

Company Name

12m Q4 FY16

Sun Pharma -20% 1%

Lupin -26% -19%

Dr Reddy -14% -3%

Aurobindo Pharma

22% -14%

Cipla -28% -21%

Holding Period Return (in %)

10000

10200

10400

10600

10800

11000

11200

11400

11600

11800

12000

6400

6600

6800

7000

7200

7400

7600

7800

8000

NIFTY INDEX NIFTY PHARMA

Source: Frost & Sullivan, LSI Financial

Services, Deloitte, TechSci Research

Source: Dept. of Pharmaceuticals, PwC,

McKinsey, TechSci Research

612

30

55

2005 2013 2015 2020F

Revenue of Indian Pharmaceutical Sector (US$ billion)

Introduction

The Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest

in terms of value. Branded generics dominate the pharmaceuticals market, constituting nearly 70

to 80 per cent of the market. India is the largest provider of generic drugs globally with the Indian

generics accounting for 20 per cent of global exports in terms of volume. Of late, consolidation

has become an important characteristic of the Indian pharmaceutical market as the industry is

highly fragmented.

India enjoys an important position in the global pharmaceuticals sector. Presently over 80 per

cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immuno Deficiency

Syndrome) are supplied by Indian pharmaceutical firms.

Healthcare has become one of India’s largest sectors - both in terms of revenue and employment.

Healthcare comprises hospitals, medical devices, clinical trials, outsourcing, telemedicine,

medical tourism, health insurance and medical equipment. The Indian healthcare sector is

growing at a brisk pace due to its strengthening coverage, services and increasing expenditure by

public as well private players.

India's competitive advantage lies in its large pool of well-trained medical professionals. India is

also cost competitive compared to its peers in Asia and Western countries. The cost of surgery in

India is about one-tenth of that in the US or Western Europe.

Recent Sector Developments/Growth Drivers

National Dialysis Services Programme to be initiated to provide dialysis services in all district

hospitals to accommodate the increasing demand for dialysis session

A new health protection scheme for health cover up to Rs 1 lakh (US$ 1,470) per family

A unique initiative for healthcare 'Sehat' (Social Endeavour for Health and Telemedicine) has

been launched at a government run Common Service Centre (CSC) to empower rural citizens

by providing access to information, knowledge, skills and other services in various sectors

through the intervention of digital technologies and fulfilling the vision of a ‘Digital India’.

Government of India's decision to increase Foreign Direct Investment (FDI) in existing

pharmaceuticals companies to 74 per cent is expected to boost Mergers and Acquisitions

(M&As) and Private Equity (PE) investments in the pharmaceuticals sector in the country.

The Government of India plans to incentivise bulk drug manufacturers, including both state-

run and private companies, to encourage ‘Make in India’ programme and reduce

dependence on imports of Active Pharmaceutical Ingredients (API), nearly 85 per cent of

which come from China.

Future Outlook

The Indian pharmaceutical market size is expected to grow to US$ 100 billion by 2025, driven

by increasing consumer spending, rapid urbanisation, and raising healthcare insurance

among others.

During 2008-20, the healthcare market is expected to record a CAGR of 16.5 per cent.

Telemedicine market in India is valued at US$ 7.5 million currently and is expected to grow at

a CAGR of 20 per cent to reach US$ 18.7 million by 2017

Speedy introduction of generic drugs into the market to remain in focus and is expected to

benefit the Indian pharmaceutical companies.

CAGR: 16.%

32

Q4 FY 15

REVIEW

PHARMA AND HEALTHCARE Q4 16

Company Name

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-O-Y (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

Sun Pharma

Revenues 7634.16 6157.05 23.99 7082.11 7.79

Sun Pharma acquired Ranbaxy & became No.5 among generic pharma companies

The limited functionality at Halol plant due to US FDA decision is limiting the company to grow its Top Line

EBITDA 2485.36 1276.08 94.77 2388.24 4.07

PAT 1961.90 1189.28 64.96 1818.46 7.89

Lupin

Revenues 4181.16 3078.15 35.83 3555.82 17.58

Lupin PAT increased sharply on account of strong US sales

Company is focusing on inhalation, biosimilars and complex injectables

EBITDA 1369.96

804.13

70.36

933.29

46.78

PAT 807.08 547.01 47.54 529.75 52.35

Dr. Reddy’s Lab

Revenues 3773.4 3870.44 (2.50) 3967.9 (4.90)

PAT fell sharply because of Venezeula Write-of

Revenue remained almost flat

EBITDA 566.7

611.96

(7.40)

758.2

(25.26)

PAT 116.7 514.47 (77.31) 585.6 (80.07)

Aurobindo Pharma

Revenues 3746.8 3162.1 18.5 3495.5 7.2 US formulations contributed 44% to total revenues witnessed 24% growth due to new launches in oral & injectable & growth in Nastrol business

EU business has been profitable largely due to increased focus, product pruning, cost efficiency

EBITDA 902.92

662.83

36.22

829.88

8.80

PAT 561.44 403.35 39.4 534.65 5.2

Cipla

Revenues 3266.54 3092.69 5.6 3106.55 5.1

The company had several one-offs that hit the company's operations

The company is working on exiting some markets & changing its European Business from Direct to consumer to B2B

EBITDA 273.7

568.85

(107.8) 533.01

(97.74)

PAT 80.87 259.66 (68.9) 343.2 (76.38)

33

Q4 FY 15

REVIEW

PHARMA AND HEALTHCARE Q4 16

STOCK RECOMMENDATION: SUN PHARMA- BUY

Deals Country Rationale

Issuance of Epilepsy Drug License United States

To increase foothold in US Market for Epilepsy

New Drug Launch Europe First company to launch ready-to-administer oncology drug

Acquired 14 brands from Novartis Japan Entry into Japan

Distribution agreement with AstraZeneca

India Distribution services agreement in India for brand “Oxra” & “Oxramet”® (brands of

dipagliflozin, used for diabetes treatment)

New products in skincare United States

To boost skincare product growth in US Market

About the company

Portfolio of more than 2000 products across the world

47 manufacturing sites & presence in more than 150 countries across the world

Capabilities across dosage forms like injectable, sprays, ointments, creams, liquid, tablet, capsule

Segments operational in specialty products, branded generics, complex generics, pure generics & APIs

Largest generic dermatology company with 48% revenues coming from US. Wide basket of 572 ANDAs filed & 413 approved ANDAs

across multiple therapies

26% revenue from India with 8.8% market share

Key Deals & rationale

Acquired 14 brands from Novartis to enter Japan.

Distribution Agreement with AstraZeneca for brand “Oxra” & “Oxramet” – used for diabetes treatment for sale in India.

Sun Pharma Ranbaxy Merger leading to 5th largest global speciality Generic pharma company, Number 1 company in India & strong positioning in emerging Markets.

Acquired Insite Vision Inc & GSK’s Opiates business for vertical expansion of controlled substance business.

Key Insights

Re inspection at Halol plant & possible approval by FDA could boost supplies to US

Guided sales growth of 8% to 10% across its global business

Sun Pharma posted net sales of Rs 7414 crore, growing at 21% over the same quarter in the previous year. The company recorded net profit of Rs 1714 crore, a jump of 92% over the previous year quarter, mostly coming at the back of its one-off exclusivity from imatinib, the blood cancer drug branded Gleevec by Novartis

Synergy benefits of Ranbaxy, increased footprint in japan to stem growth in sales

The boost in stock value around May 2016 was due to impressive top line results of Taro pharmaceutical, a subsidiary of Sun Pharma. It is therefore expected that the stock price would rise once the parent complies fully with FDA US & grabs market share in emerging markets

700

750

800

850

900

Monday, February1, 2016

Tuesday, March 1,2016

Friday, April 1,2016

Sunday, May 1,2016

Wednesday, June1, 2016

Friday, July 1,2016

Pri

ce (

in IN

R)

Time

Share Price vs Time This graph shows that

Sun Pharma is going

bullish again.

The increase in stock

price can be attributed

to drug launch in

Europe and issuance of

epilepsy drug license

for US Market.

We recommend buy at current price level of 829, with target price at 1320

34

Q4 FY 15

REVIEW

POWER Q4 16

Company Name 12m Q4 FY15

NTPC (12.791) (11.37)

POWER GRID (4.27) (1.94)

NHPC 21.11 14.76

TATA POWER (16.15) (4.93)

Reliance Infra 20.614 (9.826)

Holding Period Return (in %)

Relative performance of CNX Nifty

and CNX Bank

Developments: Achievement & Growth

in Electricity Generation

Source: Ministry of Power

Year Target Achievement % of Target % of Growth

2012-13 930.0 912.1 98.1 4.0

2013-14 975.0 967.2 99.2 6.0

2014-15 1023.0 1048.7 102.5 8.4

2015-16 1137.5 1107.8 97.4 5.6

2016-17* 289.4 296.5 102.5 9.0

Coal60.8%

Nuclear21.0%

Hydro 15.3%

Renewable Energy Sources 13.0%

Gas8.4%

Diesel…

Installed Capacity 275 GW(JUN'15)

SOURCE: http://www.ibef.org/industry/power

Overview

India is the third largest producer with a production of 1031 TWh, the fourth largest consumer

and has the fifth largest installed capacity in the world. A capacity addition of 88.5 GW is

targeted till 2017 (with an investment of about USD 250 Billion) and an additional 100 GW till

2022.

Central institutions like NTPC and the State Electricity Boards (SEBs) continue to dominate the

power sector in India. India has adopted a blend of thermal, hydel and nuclear sources with a

view to increasing the availability of electricity. Thermal plants account for about 66% of the

total power generation capacity in India, followed by hydro-electricity (16% share). The rest

comes from nuclear and other renewable energy sources (RES). The sector is faced by shortage

of funds with state owned entities running into losses year after year. Also, India’s average loss

in transmission and distribution is about 2.5 times that of world average indicating the

inefficiencies of the infrastructure. However, with 100% FDI now being allowed in the sector,

one can certainly expect the sector to grow. There has been an inflow of almost USD 9 billion

over the years accounting for 4% of India’s total FDI. There has also been a steady CAGR in

installed capacity with renewable energy sources (RES) growing at the fastest pace (18.7%).

Recent Sector Developments/Growth Drivers

In view of future power demand, the sector is witnessing a major push from the Government of

India with initiatives like capacity installation, launch of UDAY etc being undertaken. The growth

drivers for the power sector in the coming years are:

Increase of Capacity installation and reduction in transmission losses: A significant amount of capacity is stranded owing to the non-availability of gas. Rising

demand and falling domestic production has pushed the share of imported gas to 40% of the

current consumption in India. Also average transmission and distribution losses (T&D) exceed

25% of total power generation compared. India's T&D losses are almost 2.5 times the world

average. So we have to heavily invest in creating infrastructure for both.

Major Policy initiatives to streamline power generation and distribution: Implementation of National power portal-Centralized system to capture online data

regarding generation and distribution agencies. Ujjwal Discom Assurance Yojana-Introduced

for Financial turnaround of Debt laden power distribution companies. Integrated power

development scheme-Strengthening of sub-transmission and distribution networks in urban

areas. National Electricity fund-Set up to provide subsidies to State power utilities and

Discoms to improve infrastructure in distribution sector.

Future Outlook

Capacity Addition To reduce the energy deficit, India needs to rapidly increase its pace of capacity addition.

India will require a generation capacity of 415 to 445 GW to fulfill its power requirement of

315 to 335 GW.

Energy Efficiency

Adding capacity alone will not suffice. Concrete measures to enhance energy efficiency is

the way to go forward. The existing energy efficiency drives by the government like Street

Lighting National Programme (SLNP) need to be strengthened to address the bottlenecks

Renewable Focus

Renewable energy has been emerging as a sustainable source of power. Investments in RE

capacities are required to achieve the ambitious target of 175 GW by 2022. Also improved

long distance transmission is required to maintain the quality of such electricity.

35

Q4 FY 15

REVIEW

POWER Q4 16

Company Name

Financials Q4FY15 (in Rs Cr.)

Q4FY14 (in Rs Cr.)

Y-OY (in %)

Q3FY15 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

NTPC

Revenues 18112.62 19314.58 (6.63) 17413.31 3.86

Better than expected other income due to dividend from group companies

Improved profitability owing to lower fuel cost

Announces incorporation of JV company-Hindustan Urvarak and Rasayan

EBITDA 3987.00 3257.90 18.28 3230.00 18.98

PAT 2720.35 2944.03 (8.22) 2492.00 8.39

Power Grid Corp

Revenues 5961.49 4909.56 18.41% 5504.83 8.3% Major increase in revenue was due to consulting income

Rose to 52 week high due to Q4 earnings

Board is considering accords for 11 different investment proposals which will surely affect the stock prices

EBITDA 5295.24 4264.79 22.60% 4893.85 8.2%

PAT 1599.05 1412.48 21.04% 1613.12 (O.87%)

NHPC

Revenues 1961.78 2175.34 6.76% 1774.47 10.56% Raised debts by 900 crores and also goes for OFS to reduce government’s stake.

It is further considering to raise debts by 4500 crores.

Signed MoU with BHEL for undertaking of Hydro power projects overseas.

EBITDA 777.42 1053.90 (26.23) 994.98 (21.86)

PAT 104.08 644.51 14.86% 388.02 (73.18%)

Tata Power

Revenues 2157.14 2411.21 (10.53) 2277.14 (5.26) Generation capacity increased by 5% Y-O-Y basis

Tata Power Renewable energy wins 100 MW solar projects in Karnataka

Got winning order from BSF for thermal imaging systems

Tata Power overseas JV started production giving rise to prices

EBITDA 738.31 833.32 (11.53) 932.75 (20.84)

PAT 51.72 213.37 (75.76) 199.02 (74.01)

Reliance Infra

Revenues 2781.47 2801.83 (0.731) 2400.67 13.69 Reliance power’s Tilaiya UMPP in

Jharkhand terminated their Power Purchase Agreement and got reimbursement of 714 crores

The APTEL ordered Sasan Power to compensate 1050 crores which was upheld in late March giving rise to share price

EBITDA 832.21 389.02 53.25 430.43 48.27

PAT 728.95 449.97 38.27 541.48 25.71

36

Q4 FY 15

REVIEW

POWER Q4 16

STOCK RECOMMENDATION : RELIANCE INFRA – BUY

Source: Economic Times

Source: Economic Times

6.5

7

7.5

8

8.5

Mar'11

Mar'12

Mar'13

Mar'14

Mar'15

Dividend Per Share

Dividend PerShare

0

5

10

15

20

Mar'11

Mar'12

Mar'13

Mar'14

Mar'15

Net Profit Margin(%)

Net ProfitMargin(%)

Reliance Infra’s stock has continuously performed well in BSE Power

Index. In last one month this stock has been bullish. It has seen a

growth of 20%.

The figures have also been good. This is reflected in quarterly PAT

growth of 25.71%. It’s earnings per share has shown a consistent

positive since last quarter.

Reliance Infra’s Board has been consistently providing incremental

dividends to its shareholders.

Recent news is that Brookfield, world’s second largest holder of

alternative assets, is expected to invest 8,000 crore in Reliance Infra’s

assets. This shows its good reputation amongst international

investors and has been leading the growth in price per share for

Reliance Infra.

While in power sector most of other players like Tata Power, NTPC,

NHPC have shown declining profits Y-o-Y basis. Reliance Infra is one

of the few companies performing well in this sector, even

outperforming the BSE index.

Its stock is expected to perform well in near future on the

background of good profits, positive sentiments and high EPS.

Hence we recommend a BUY

Source: Equitymaster

We recommend a buy at current price levels of 606, with a target price of 720

37

REALTY Q4 16

Company Name 12m Q4 FY16

DLF (25.66) (3.82)

Oberoi Realty (13.62) (10.55)

Godrej Property 15.23 (12.21)

Prestige Estate (37.74) (10.70)

Phoenix Mills (14.45) (9.57)

Holding Period Return (in %)

Source: Bloomberg Database

Relative performance of CNX Realty and

CNX Nifty

Source: www.moneycontrol.com

Market Size of Real estate in India (USD

billion)

India’s Infrastructure Investment (USD

billion)

Introduction

The real estate, one of the most globally recognised sectors, is the second largest employer after agriculture in the Indian context and is slated to grow at 30 percent over the next decade. The Indian real estate market has become one of the most preferred destinations in the Asia and is expected to touch US$ 180 billion by 2020. The real estate sector comprises four sub sectors - housing, retail, hospitality, and commercial. The housing sector alone contributes 5-6 per cent to the country's Gross Domestic Product (GDP). In the period FY08-20, the market size of this sector is expected to increase at a Compound Annual Growth Rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. India had the strongest activity in office leasing space in Asia and accounted for half of Asia’s total office leasing in third quarter of 2015, with Delhi being the most active market. According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.19 billion in the period April 2000-March 2016.

Recent Sector Developments and Growth Drivers

Stronger transactions volume expected in the second half of FY16-17, judging from the

current deal pipeline

With REITs opening up, a host of domestic developers will likely to divest stakes in their

leased portfolios.

Real Estate (Regulation and Development) bill expected to be passed soon by the

parliament.

India’s economic growth along with growing urbanization is driving the demand for both

commercial and residential real estate. Government initiatives such as various urban

development policies and programmes (e.g., JNNURM) are expected to contribute to

enhanced urbanisation.

The number of foreign tourists arriving in India increased at a CAGR of 7.1 per cent during

2007–25E. The growing inflows from tourists is expected to provide a fillip to the

hospitality sector in accordance with the increased provisions in the latest union budget.

Increased FDI and PE investments in the realty sector would further boost its growth. SEZs

are also emerging as an extension of the real estate business. 100% FDI has been

permitted in real estate projects within SEZs.

Government policies such as ease in housing finances, housing for economically weaker

sections, increased FDI, widening the scope of real estate market and land acquisition bill

have further served as a growth driver for the industry.

Future Outlook

India still remains an under-served economy in terms of infrastructural requirements. Until

2014, Indian real estate sector was poorly regulated, fragmented and highly inefficient.

However, since then, we’ve witnessed a slew of policy and regulatory measures taken by the

incumbent govt. This year will see this sector moving from investor-driven to end user driven

cycle. Growth in Indian economy will see favorable reflections in real estate sector as well.

Source: IBEF Report on Real Estate sector in India

Source: KPMG Report on Real Estate sector in India

CAGR = 15.2%

38

REALTY Q4 16

Company Name (stand-alone)

Financials Q4FY16 (in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-OY (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

DLF

Revenues 1596.8 1275.25 25.21 347.13 360

The promoters are likely to infuse Rs. 10,000 crore into the company, which will result in a significant reduction in debt and revive the long subdued sentiment in the market.

Blackstone has started inching closer to DLF in the commercial real estate portfolio but DLF has a very strong positioning in the rental segment, thereby, standing unabated.

EBITDA 996.15 890.53 11.86 (40.23) 2576.13

PAT 1088.94 489.34 122.53 (239.49) 554.69

Oberoi Realty

Revenues 241.79 219.81 10 702.32 (65.57) Goregaon Garden City Phase-3

launch to drive FY17E volume. ORL ventures into commercial, residential, retail, social infrastructure and hospitality.

With another 20.61 million sq. ft in the making, the company has aggressive plans for upcoming projects in various parts of Mumbai and other regions.

EBITDA 146.9 126.39 16.22 295.71 (50.32)

PAT 112.23 77.99 43.9 186.33 (39.76)

Godrej Property

Revenues 118.18 162.57 (27.3) 156.82 (24.64) Managements strong focus on

business development, implementing efficient organizational processes to enhance monetization and timely optimization of capital structure.

Well positioned to achieve self-sustainable growth ahead.

EBITDA 50 55.45 (9.82) 73.17 (31.66)

PAT 3.1 12.96 (76.08) 24.31 (87.24)

Prestige Estate

Revenues 701.45 742.58 (5.53) 572.01 22.62 PEPL remains a preferred play on

Bangalore real estate.

FY17 guidance comprises 15-25% growth in presales, 10% growth in collections and 30-35% growth in rentals on the back of new completions, as capex cycle would continue.

EBITDA 124.01 211.31 (41.31) 143.63 (13.66)

PAT 59.89 113.78 (47.36) 64.85 (7.65)

Phoenix Mills

Revenues 116.55 106.68 9.25 116.2 0.3 Successful re-pricing would be the

key to drive momentum. Re-pricing, deleveraging and asset setting key triggers.

Hotel operations remain strong with steady occupancy of 75%. Revenue was up 24% YoY, with healthy margins of 38%.

EBITDA 86.27 77.31 11.59 85.48 0.92

PAT 16.19 (47.93) (133.78) 45.32 (64.27)

39

REALTY Q4 16

Stock Recommendation

Oberoi Realty – Buy

Long Term Outlook:

The recent Q4FY16 results have been on the muted side, both revenue and profits showing reasonable increase

With implementation of 7th pay commission, real estate sector will gain from rise in salaries and pensions of government

employees, up to 20% jump expected in realty sector stocks in the next 6-8 months

Company’s new operating cycle has started with huge success of Mulund, JVLR and Borivali projects, which speaks

volumes about company’s brand equity, attractiveness of its product offerings and strength of future cash flows

Management’s strategy to monetize its assets till it recovers its cost and holding the balance inventories to maximize

profitability has resulted in matured unsold inventories in place

The company has passed an enabling resolution to issue equity worth up to Rs. 750 crore and NCDs worth up to Rs. 1500

crore

Launch of Oberoi Exotica will act as a key catalyst and higher asset turnover will drive better performance and increased

return on equity

Recommendation:

The company has a quality land bank, healthy balance sheet, management bandwidth for project execution and strong

projected sales growth through new launches

With good cash visibility, conservative valuations and steady launch pipeline, Oberoi realty is expected to remain strong

through FY17, with a potential upside from land purchases and favorable macro-conditions

We maintain a positive outlook on the stock with the RoE/RoCE expected to improve to 15%/21% by FY17

Source: www.moneycontrol.com

Relative performance of CNX Nifty and Oberoi Reality

Source: Dion Global Solutions Ltd.

EBITDA, PBT and PAT (in Rs. Crore)

We recommend a BUY at current price levels with a target price of INR 340

41

Q4 FY 15

REVIEW

TELECOM Q4 16

Company Name 12m Q4 FY16

Bharti Airtel (11.93) 3.02

Idea Cellular (41.69) (23.17)

Reliance Communications

(17.70) (44.78)

Tata Communications

(9.17) (12.44)

MTNL (5.85) (21.16)

Holding Period Return (in %)

Source: TRAI

0

500

1000

1500

FY11 FY12 FY13 FY14 FY15 FY16

Telephone Subscribers(in millions)

TelephoneSubscribers(inmillions)

Source: DIPP

10589.27

12552.19 12856.06 14163.01

17058.03 17717

0

5000

10000

15000

20000

FY11 FY12 FY13 FY14 FY15 FY16

Cumulative FDI inflows(USD million)

Introduction

India is the world's second-largest telecommunications market, with over one billion subscribers. The wireless segment (97.46 per cent of total telephone subscriptions) dominates the market. It is also the second largest country in terms of internet subscribers. India’s telecommunications market is expected to experience further growth, powered by increased non-voice revenues and higher penetration in rural market. Telecom penetration in the nation's rural market is expected to increase to 70 per cent by 2017. The emergence of an affluent middle class is triggering demand for the mobile and internet segments. Rise in the security level of mobile transactions, along with the availability of affordable smartphones, is expected to boost growth of transactions conducted via phones.

Strong policy support from the government has been crucial to the sector’s development. FDI cap in the telecom sector has been increased to 100 per cent from 74 per cent. Between FY 07-16, India’s telephone subscriber base expanded at a Compound Annual Growth Rate (CAGR) of 19.5 per cent to 1,022.61 million and tele-density to 80.98.

Recent Sector Developments/Growth Drivers

Telecom sector’s growth drivers are higher real income and changing lifestyles, growing

young population and increasing MOU and data usage.

The telecom sector benefits from policy support such as reduction in license fee, relaxed

FDI norms and encouragement to firms to expand to rural areas.

The most significant recent developments in wireless communication include BWA

technologies such as WiMAX and LTE

In 2015, Airtel launched its 4G services in 296 cities across the India

In 2015, BSNL started its first 4G Wireless Broadband Internet Service- WiMax

Reliance Jio, has launched 4G services across pan- India as on December 2015

The Telecom Regulatory Authority of India (TRAI) has launched public consultations on

‘Complaints/Grievance Redressal in Telecom Sector’ on July 28, 2016. The public

consultation document presents an overview of the existing consumer grievance

mechanisms and its efficacy, the mechanisms in place in other countries and within India in

other sectors of similar size and its impact, as well as various areas that need improvement.

India on July 26, 2016 asked Bangladesh to utilize the services of Indian companies in

executing telecom projects in the neighboring country. Indian companies have also offered

to share technology and to impart skill training.

Future Outlook

Telecom penetration in the nation’s rural market is expected to increase to 70 per cent by

2017.

The government of India has introduced Digital India program under which all the sectors

such as healthcare, retail, etc. will be connected through internet.

The rural tele-density is expected to reach 70 per cent by 2017 and 100 per cent by 2020

from 48.66 per cent as of September 2015.

Internet penetration is expected to grow steadily and is likely to be bolstered by

government policy.

Public cloud services in India generated USD730 million by December 2015. India public

cloud services market is expected to reach USD1.9 billion by 2019.

Telecom equipment market was estimated to be USD20 billion in 2015-16. It is anticipated

to reach USD30 billion by 2020.

42

Q4 FY 15

REVIEW

TELECOM Q4 16

Company Name Financials Q4FY16

(in Rs Cr.)

Q4FY15 (in Rs Cr.)

Y-O-Y (in %)

Q3FY16 (in Rs Cr.)

Q-O-Q (in %)

Key Highlights & Outlook

Bharti Airtel

Revenues 24983.10 23039.80 8.43% 24103.40 3.65% Robust QoQ and YoY growth

resulting from strong India and Africa Numbers

DTH and other Products showed growth, leveraging on telecom business

EBITDA 9135.70 8112.30 12.62% 8461.20 7.97%

PAT 1237.50 1073.90 15.23% 1009.60 22.57%

Idea Celluar

Revenues 9483.85 8422.51 12.60% 9009.69 5.26% Launched 4G services with plans to venture in Digital content services and Digital Wallet to increase revenue

Low PAT attributed to higher amortization and interest charges for renewal and broadband spectrum

EBITDA 3616.03 3250.90 11.23% 3128.52 15.58%

PAT 575.63 941.77 (38.88%) 764.21 (24.68%)

Reliance

Communications

Revenues 5617.00 5694.00 (1.35%) 5277.00 6.44%

Spectrum sharing with Reliance Jio shall bring in additional revenue in future

Launch of 4G services might help increase subscription base

EBITDA 1657.00 1976.00 (16.14%) 1782.00 (7.01%)

PAT 154.00 9.00 1611.11% 198.00 (22.22%)

Tata Communications

Revenues 5145.41 4815.52 6.85% 5099.50 0.90% Data segment grew at 17% CAGR over FY10-16, one of the major reason for revenue growth

Negative Net worth due to impairment of Neotel Goodwill and Tata Teleservices Investments

EBITDA 766.49 786.53 (2.55%) 759.83 0.88%

PAT (205.89) (177.85) (15.77%) 21.89 (1040.57%)

MTNL

Revenues 835.80 876.42 (4.63%) 770.77 8.44% Revenues continue to decline YoY, but PAT increased significantly due to other income

Operating and Administrative Expenses continued to rise coupled with rising depreciation irrespective of falling revenue.

EBITDA (214.20) (2.73) (7746.15%) (199.17) 7.55%

PAT 174.58 (595.11) (129.34%) (704.93) 124.77%

43

Q4 FY 15

REVIEW

TELECOM Q4 16

STOCK RECOMMENDATION: BHARTI AIRTEL - HOLD

Founded in 1995 with headquarters at New Delhi, Bharti Airtel is amongst the top 4 service providers globally with operations in 20 countries.

In India, Bharti Airtel’s product portfolio include Wireless Voice and Data services, Fixed Line Services, High Speed Broadband, Mobile

Commerce, IPTV and DTH services.

Announcing an Rs.600 Billion investment in comprehensive network transformation, Airtel plans to penetrate the existing market,

building smart and dynamic communication architecture. This shall result in organic growth and rising Revenues and Profits in the

coming future.

Robust Revenues were reported at Rs.24983.2 crore as against Rs. 23039.8 previous year reporting a YoY growth of 8.43% beating

the Dalal Street expectations of Rs.24549.4 crores

Reduction in access and interconnect costs resulted in expansion of Wireless EBITDA margins reporting a better-than-expected

EBITDA margins rising by 151 BPS QoQ. Support from African business continued with a rise EBITDA Margin of 80 BPS QoQ where rise

in EBITDA Margin from Indian business stood at 170 BPS

Even after reporting a consolidated exceptional loss of Rs.300 crore, Airtel managed to beat the Dalal street expectations of PAT

Rs.1004.5 crores by reporting a consolidated PAT of Rs.1237.5 crores, posting robust QoQ growth of 22.57%

Africa business also showed support with 18% QoQ growth in total data usage. Management have faith in the Africa Business story

expecting better Revenue figures in future pushing the Net Profit upwards.

Cash flows from operations remained almost unchanged at Rs.338 Billion as compared to Rs.339 Billion previous year. However a

slight one--time decline in cash flows from operations is anticipated in the next year for increase in working capital for its African

Businesses. However, sound cash flows and reserves are anticipated in the foreseeable future.

Airtel continued its strong performance in DTH Sector and while other SBUs like Wynk and Airtel Money showed progress. Airtel

launched Micro Financing with Airtel Money in Malawi.

India Business revenue might take a slight hit in the coming future due to stiff competition and price slashing expected from Reliance

Jio after its launch, however the Dalal Street expects Airtel to continue on its growth story.

25%

19%

17%

10%

29%

Market Share - Wireless Subscriber Base

Airtel

Vodafone

Idea

Reliance

others

Source: TRAI

Y/E March FY15 FY16 FY17E* FY18E*

Sales (Rs Bn) 921 966 1,053 1,142

Adj PAT (Rs Bn) 60 47 57 69

Con. EPS (Rs) - - 14.4 17.4

EPS 15 11.6 14.3 17.2

Change YoY (%) 130.6 -22.2 22.4 20.7

P/E (x) 24.9 32 26.1 21.7

RoE (%) 9.8 7.4 8.6 9.5

RoCE (%) 10.5 10 9.6 11

EV/E (x) 7 6 5.6 4.8

DPS (Rs) 3.9 1.4 4 4

Source: *Consensus Broker Estimates, Axis Capital

We recommend a HOLD rating at current price levels of Rs. 362 with a target of Rs.374,

Expected EPS of 14.4 and expected P/E of 26.1

44

UK AFTER BREXIT

On 23rd June 2016, in a historical decision taken by the British citizens led to the exit of Britain from European Union,

popularly known as Brexit. With 52% of the votes in favor of leaving EU has pushed the UK’s political and economic situation

into unknown paths of consequences.

This is not the first instance when UK tried to leave EU. In 1975, United Kingdom held a referendum on whether the UK

should remain in European Economic Community or not and due to the difference of opinion within the ruling party it did

not happen. Since then attempts had been made to withdraw UK from EU but none succeeded. In 2013, the then Prime

Minister of UK David Cameron announced that the referendum would take place before the end of 2017 and on 22 February

2016, in the speech to the House of Commons he announced the referendum date of 23 June 2016. Article 50 of the Treaty

on European Union lays down the process of UK’s withdrawal from the European Union.

Britain’s Economy is one the most open to the world. For firms investing in UK meant access to the single market of Europe.

Foreign firms earned around 70 billion euro by their investments in Britain. This is equivalent to 10% of all the profits made

by top 500 European companies. But it is now expected that inflow of FDI in UK would slow down and many companies are

preparing to shift their business center from London to elsewhere. The hardest hit sectors are manufacturing sector and

financial sector.

Manufacturing activity which accounts for 10% of UK GDP, fell even more rapidly in the wake of the Brexit vote than first

expected, according to the July’s survey snapshot of the sector. Chartered Institute of Procurement & Supply (CIPS) said that

in July its Purchasing Managers’ Index stood at 48.2, below the 50 point that separates growth from contraction – and also

below the 49.1 “flash” estimate that it produced on 22 July. The reading implies the fastest rate of contraction in UK

manufacturing activity since February 2013.

Brexit threatens carmakers’ access to European export markets. Two-thirds of all vehicles produced in Britain are exported to

the EU, and mass-market models, sold with slender margins—such as those made by Toyota, Nissan and Honda—are most

vulnerable to currency swings or any future tariffs. By contrast, firms that are headquartered in London for cultural, legal and

tax reasons, but that have little exposure to the British economy and do not use Britain as an export hub—companies such as

SABMiller, a brewer, or ArcelorMittal, will not be much affected by recession and the falling pound.

Source: market economics

45

Many financial firms and insurers rely on the EU’s ‘passporting’ regime to sell their services across the bloc while basing most

of their staff and operations outside the euro zone in London. European government officials have warned that British-based

firms could lose their ‘passports’ if the country opts to leave, a move that would force them to shift some operations to the

likes of Frankfurt, Paris or Dublin if they wanted to continue serving EU clients. Some experts claim that leaving the EU could

destroy 10,000 jobs in the financial services industry. The ripple effect it may have might even be worst for companies that

have business links to Europe; Brexit could affect an additional 285,000 jobs in the sector too.

Given the above cons of Brexit, once can see pros of Brexit too. The UK pays more into the budget than it gets back. Leaving

the EU would result in an immediate cost saving, as the country would no longer contribute to the EU budget. Last year,

Britain paid in £13bn, but it also received £4.5bn worth of spending, so the UK's net contribution was £8.5bn. What's harder

to determine is whether the financial advantages of EU membership, such as free trade and inward investment outweigh the

upfront costs.

After Brexit, UK would be able to build competitive economy outside the EU. The recent past of EU tells us that there has

been a very unstable political situation in EU with Greece crises and other major economies facing volatility in their markets.

After Brexit UK would be able to live in a stable and venerable democracy.

Immigration was a key problem for UK. Under EU law, Britain cannot prevent anyone from another member state coming to

live in the country. The result has been a huge increase in immigration into Britain, particularly from eastern and southern

Europe. According to the office for National Statistics there are 1.7 million Europeans and 1.93 million workers from outside

the EU. China and India are the biggest source of foreign workers in the UK.

46

The effect of leaving the EU on British jobs depends on a complex interplay of the factors above: trade, investment and

immigration. If trade and investment falls now the UK has voted for Brexit, then some of these jobs would be lost – but if

they rose, then new jobs would be created. A drop in immigration would, all else being equal, mean more jobs for the people

who remained, but labor shortages could also hold back the economy, reducing its potential for growth.

The biggest and the most important effect of Brexit was on pound. As soon as the results started to come in, the pound

started to plunge. From around $1.50 before the polls closed, the pound dropped to $1.45, then $1.40, and then to $1.34, its

lowest level since 1985. It was the worst day for sterling since the currency floated in the early 1970s. The shock was also

reflected in equity markets, both within and outside Britain. The Nikkei 225 average in Tokyo has dropped 8%. The pound’s

fall reflects the idea that UK assets need to be cheaper to attract international investment. The UK current account deficit of

7% needs financing. A fall in the pound helps exporters. But businesses may decide to take the benefit of higher profits

rather than by cutting prices and increasing their market share.

Although UK’s government has taken all the measures to tackle the Brexit effects. It is feared that the world is entering into a

recessionary period post Brexit, but the world still need to feel the real consequences of Brexit.

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SENIOR COORDINATORS:

NAME PHONE NO. EMAIL ID

Mansi Dixit +91 9560262972 mansi_d17@iift.edu Sreekanth KN +91 8147236246 sreekanth_d17@iift.edu

JUNIOR COORDINATORS:

NAME PHONE NO. EMAIL ID

Kaushal Mahajan +91 7838184103 kaushal_d18@iift.edu Sameer Sood +91 9752494116 sameer_d18@iift.edu

EDITORS:

NAME PHONE NO. EMAIL ID

Anushree Mundhra +91 9953053926 anushree_d18@iift.edu Manisha Dang +91 9711686890 manisha_d18@iift.edu Atman Pandya +91 9819402142 atman_d18@iift.edu

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