monthly report - nov 2016 new format - kotak …investment strategist november 2016 2 global &...

Investment StrategistNovember 2016

Investment Strategist November 2016 2

GLOBAL & SECTORAL INDICES

Indices As on 28th Oct 2016 As on 30th Sep 2016 % Chg

Sensex 27,942 27,866 0.3%

Nifty 8,638 8,611 0.3%

Dow Jones 18,161 18,308 -0.8%

Nasdaq 5,190 5,312 -2.3%

FTSE 6,996 6,248 12.0%

DAX 10,696 10,511 1.8%

CAC 40 index 4,549 4,448 2.3%

Hang Seng 22,955 23,297 -1.5%

China 3,104 3,005 3.3%

Japan 17,446 16,666 4.7%

Spain 9,201 8,779 4.8%

Italy 17,324 16,401 5.6%

Indices As on 28th Oct 2016 As on 30th Sep 2016 % Chg

CNX midcap 15,841 15,413 2.8%

BSE midcap 13,408 13,167 1.8%

BSE small cap 13,454 12,781 5.3%

FMCG 21,548 21,542 0.0%

Capital Goods 14,874 14,582 2.0%

Banking 22,384 22,046 1.5%

PSU 7,913 7,462 6.0%

Oil & Gas 12,296 11,378 8.1%

Auto 22,168 22,232 -0.3%

Tech 9,995 10,229 -2.3%

Healthcare 16,374 16,181 1.2%

Metal 10,286 9,764 5.3%

Realty 1,552 1,512 2.6%

Change in the Global Indices

Sectoral Indices


MONTHLY FUNDAMENTAL OUTLOOK

Market weakness during last month was led by cross-bordertensions, quarterly results, weak global markets and impend-ing US elections. Globally, two important events - US electionoutcome and Fed rate decision would be keenly watched outfor. There are doubts over oil output freeze as there havebeen conflicts within the Organization of the Petroleum Ex-porting Countries (OPEC) about a planned output cut laterthis year.

Domestically, the focus of markets would be on the final GSTrate(s) along with winter session of parliament. After witness-ing healthy monsoons, markets will watch out for further de-mand uptick in consumables, rural demand revival and en-hanced government capex. Post the 25 bps cut in rates, webelieve RBI may hold rates at its December 2016 meetingwhile watching out for US elections and the US Fed decisionin its December meeting.

Markets are currently trading ataround 16.5x FY18 consensus esti-mates, which is higher than thelong-term average, but lower thanthe top-end of the long term aver-age of 12x - 18x. Several stocks inthe consumer and related sectorsare seeing high growth but arerichly valued. On the other hand,several investment-related sectorsand export-oriented stocks areavailable at reasonable valuations,but are seeing growth challenges.Thus, one should adopt stock-spe-cific approach and take extra carewhile trying to participate in the on-going rally. One must re-calibrate asset allocation in favor of stocks which have sus-tainable competitive advantage and consistent cash flows.We maintain our preference for companies having strongbalance sheets and ethical managements.

With continuous efforts of Government in reviving infrastruc-ture sector, we expect select construction companies andbanks to benefit from the same. We are also positive on se-lect stocks in sectors which could be favourably impacted bythe implementation of GST (Logistics, Auto, Media, BuildingMaterials, Cements, etc), Government spending (Roads andRailways) and rural demand revival (cement, paints, FMCG,etc). Key risks to our recommendation would come from geo-political concerns globally, continued decline in foreign in-flows, sharp currency movements and a spike in oil prices.

Market performance - sector wise (October 2016)

Source: Bloomberg

Benchmark indices - India

Source: Bloomberg

Global events to watchout for -

US elections results and Fedrate hike decision to bewatched out closely

Markets are keenly focusing onthe outcome of US election re-sults, to be held on 8th Novem-ber. Odds have turned in favor ofHillary Clinton post all threepresidential debates. It's all

about 538 Electoral College votes and a candidateneeds at least 270 electoral votes to win. Based on thelatest state and national polls, probability of HillaryClinton winning the presidency is only slightly higherthan Donald Trump.

There is less clarity about what a Clinton or Trumppresidency would mean for the Federal Reserve and theoutlook for interest rates. But Trump has been a vocalcritic of Yellen, raising uncertainty about the centralbank's independence if he were to win the election andappoint a new Fed chairman. Politicizing the Fed is amajor risk which markets would be wary of.

Fed officials have been suggesting that, a Decemberrate hike is possible. In its ensuing meeting in Novemberfirst week, Fed officials may not want to change thestatus quo, given the fact the elections are just six daysafter the Fed meeting. The Fed started this year expect-ing to raise rates four times, and now it is possibly goingto raise just once. It also lowered expectations for nextyear.

A gradual hike in US interest rates will not be a nega-tive for India and other Ems as it would lessen the riskof sharp pullout of funds, which sustaining the confi-dence in the US economy.

Markets are currently trading at around16.5x FY18 consensus estimates, whichis higher than the long-term average,but lower than the top-end of the longterm average of 12x - 18x. One must re-calibrate asset allocation in favor ofstocks which have sustainable competi-tive advantage and consistent cashflows. We maintain our preference forcompanies having strong balance sheetsand ethical managements.

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Bank of England monetary policy will be in focus

All eyes will be on the Bank of England's monetarypolicy committee meeting and quarterly inflation reporton November 3, to see if growth forecasts are revised.There is a possibility that Bank of England may cut inter-est rates to just above zero but there are doubts on fur-ther easing from Europe until early 2017. Much will de-pend on the next inflation report, when it produces newforecasts for the economy based on the latest indica-tors.

China's GDP growth still lower than India's

Chinese economy grew 6.7% YoY during the July-Sep-tember quarter, unchanged from the previous period.The report was bang in line with predictions and re-vealed a steadying pace of expansion as the Chinesegovernment ratchets up spending and as a propertyboom offsets stubbornly weak exports. In its World Eco-nomic Outlook, IMF also kept gross domestic product(GDP) expansion for China unchanged at 6.6% in 2016,which would decelerate to 6.2% cent in 2017. Thus, In-dia would keep its position of the fastest-growing largeeconomy that it snatched from China in 2015-16.

Doubts over oil output freeze

Oil prices had been under pressure despite OPEC agree-ing for an output cut in the last week of September.There have been conflicts within the Organization of thePetroleum Exporting Countries (OPEC) about a plannedoutput cut later this year. Iraq, OPEC's second biggestoil producer, wants to be exempt from the cut, arguingit needs the revenues to fight Islamic State. OtherOPEC-members, including Libya and Nigeria, are likelyto be exempt from cutting production, while Iran andVenezuela and Indonesia are also unlikely to reduce out-put. So it leaves the burden of cut in production on Rus-sia and Arab producers in the Middle East like SaudiArabia, Kuwait and the United Arab Emirates.

Brent Crude (US$/bl)

Source: Bloomberg

In their recent meeting, OPEC members agreed on along-term strategy that was seen as an indication thecartel was reaching a consensus on managing produc-tion. They did not reach any specific terms and sourcessaid that, Iran has been reluctant to even freeze output.The sentiment was also weighed down by further indi-cations of record output from the group, a sign the glut

that has kept a lid on prices is not draining away as fastas the oil bulls would like. The cartel said members' cutswill be finalized at a meeting later this month. In suchcircumstances, we believe that lower prices of oil con-tinue to be positive for Indian economy.

Domestic events to watch out for -

Pre-Budget consultations, GST rate decision andother tax reforms on discussion table

Government is in the process of advancing the UnionBudget by a month and is likely to kick-start budgetconsultations with the industry and consultants fromfirst week of November. In order to streamline the cor-poration tax rate, ministry is reportedly examining thepossibility of reducing the corporate tax rate by 1-2 per-centage points. This is in line with Finance Ministry'splan to bring down the corporate tax rate to 25% bythe end of 2018-19, from 30% at present.

On the indirect tax front, the revenue neutral rate ofGST is also expected to be decided upon in November,most likely before the start of the Winter session of Par-liament from November 16th. Government has proposeda four slab structure for GST - 6%, 12%, 18% and 26%with lower tariff for essential items and the highestbracket for luxury goods. This multi-slab structure islikely to give a certain level of predictability to the rev-enue calculations, along with keeping the inflationaryimplications in check.

Final decision regarding the category of goods in respec-tive slabs of GST is quite meaningful for sectors like lo-gistics, paints, ceramics, plywood, auto etc, where thecompanies are already paying taxes in the range of24% - 40% including VAT / Excise and other taxes.

Rupee/US$

Source: Bloomberg

Winter session of parliament

This time the government has preponed the winter ses-sion of the parliament to get supporting legislationspassed, leaving sufficient time for implementation ofthe GST by April, 2017. Parliament passed the Constitu-tion (122nd) Amendment Bill for GST in August, but ithas to clear the Central GST and Integrated GST billsbefore its rollout from April 1, 2017, as envisaged by thegovernment. Government is of the view that an earlyWinter Session will also be beneficial as the Budget Ses-

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sion is planned to be convened in the last week of Janu-ary. Thus, winter session of the parliament would com-mence from 16th Nov and would end on 16th Dec.

Along with GST, focus of government would also be onlabor reform agenda (Labour Code on Wages) whichseeks to empower the Centre to fix minimum wagesacross all sectors. The code amalgamates four existinglaws relating to wages.

IIP growth (%)

Source: Bloomberg; Note: IIP growth since April 2009 has been recompiledusing new series of WPI

Key macro-trends to watch out for going forward

Further demand improvement amidst cost pres-sures: While demand recovery in key consumptionsectors has been reflected in Q2FY17 results for sev-eral companies, they are maintaining the optimismof further uptick in demand, led by higher disposableincome post full impact of 7CPC recommendationand the a revival of the rural economy. Going ahead,we believe that further uptick in demand and real-izations is important to maintain gross margins ascompanies are already feeling the pinch of higherraw material cost.

Revival in rural economy: According to the firstadvance estimates released by the agriculture minis-try last month, the production of rain-fed kharifpulses is set to rise by 57% to 8.7 million tonnes in2016-17 from 5.5 million tonnes last year. Farmers inmajor pulse-growing states increased planting areaby 37% this year, boosted by ample rains and higherretail prices over the past year. This has also re-sulted in improvement in rural consumption whichhas shown a marked improvement post healthymonsoons with uptick being witnessed in tractorsand two wheelers in last few months. Further revivalin rural economy is expected to bring back the de-mand in cement, plywood, automobile, paints etcwhich had been impacted by poor rural demand inpast two years.

Higher government spending and improved ex-ecution: We have seen that, capacity utilization lev-els for domestic companies are increasing, but weexpect private sector capex to revive over the next3-4 quarters only as these reach optimum levels.Government is trying to fill that void by increasedspending on roads, railways and defense resulting inhigher order books for the related companies. How-ever, further increase in spending is required tomeet the targets set by the government at the be-ginning of current fiscal. Correspondingly, executionrate is also to be keenly watched out for.

FII's turned net sellers for the month

FIIs were net sellers to the tune of Rs.50bn during Oct2016 while they are buyers to the tune of Rs.450 bnYTD CY2016. Mutual funds have remained net buyersfor the month and have bought stocks worth Rs.81 bnduring Oct, 2016 while for CYTD, MFs are buyers to thetune of Rs.221bn. With India being viewed favourablyacross emerging markets, we expect fund flows to con-tinue, barring short term volatility around events like USpresidential elections and Fed meets.

FII & Mutual Fund investment (Rs Cr)

Source: Bloomberg

RecommendationWith continuous efforts of Government in reviving infra-structure sector, we expect select construction compa-nies and banks to benefit from the same. We are alsopositive on select stocks in sectors which could befavourably impacted by the implementation of GST (Lo-gistics, Auto, Media, Building Materials, Cements, etc),Government spending (Roads and Railways) and ruraldemand revival (cement, paints, FMCG, etc). Key risksto our recommendation would come from geopoliticalconcerns globally, continued decline in foreign inflows,sharp currency movements and a spike in oil prices.

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Preferred picks

Domestic Cyclicals / Investment oriented sectors

Sector Stocks

Agri-Products Insecticides India Ltd, Finolex Industries

Automobiles Bajaj Auto, M&M

Building Material Century Ply, Kajaria Ceremics

Capital Goods, Engineering Voltamp, Cummins India, Greaves Cotton, L&T, Engineers India

Cement Shree Cements, India Cements

Construction IRB Infra, NCC, PNC Infratech, KNR Construction

FMCG ITC

Logistics, Transportation Adani Ports, Allcargo, GPPL

Oil & Gas Petronet LNG, Castrol India, MGL, GSPL

Packaging Mold-Tek Packaging

Source: Kotak Securities - Private Client Research

Export oriented / Defensive sectors

Sector Stocks

IT Infosys, NIIT Ltd

Media TV18 Broadcast

Pharmaceuticals Alembic Pharma, Natco Pharma



MONTHLY DERIVATIVE OUTLOOK

Looking Back

Nifty traded in the range of 8500-8800 for entire monthof October. Selling pressure was seen at higher levelswhile strong support at 8500. Stock specific movementwas seen with preference and action seen in the mid-cap space. Front line stocks remained under pressure.

Looking Ahead

Volatility is expected to remain extremely high in thenear term. We have been trading in the range 8500-8800 since the past few weeks and expect a breakoutof the same in the current series.

Metal stocks trade with a positive bias while IT, Banksremain under pressure. Pharma and FMCG continue toconsolidate with buying support seen at lower levels.

Recommendation

Nifty Bull Call spread. Buy 8600 call and sell 8800 call.Premium outflow 75. Max profit 125.

Nifty Options Concentration

Nifty options concentration seen at 9000CE and 8500PE

Nifty Options Concentration

Source: nseindia.com

CE - Call EuropeanPE - Put EuropeanStrike Price - Strike price for the contract

Stock Specifics

SECTOR POSITION STOCK/OPTIONS VIEW RATIONALE

Auto BUY M&M BUY M&M @ 1350-1355 It has been an underperformer,SL 1320 TGT 1420 has found support @1300 levels.

Long additions seen.

Capital goods BUY BEML BUY BEML @ 900 Higher bottom formation seen onSL 870 TGT 960 weekly charts.

For queries and feedback you can e-mail us at [email protected]

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MONTHLY TECHNICAL OUTLOOK

Broader trend of the market, we mean to say the trendfor more than three months looks bullish but mediumterm trend (less than three months) for the market isweakening. It is failing to hold at higher levels. In theprevious expiry (October) the market has tried to re-trace recent sell off between (8970-8543). Nifty hasmade an attempt to retrace up to 8800 but it failed tohold at higher levels and closed again at 8600 aroundthat the nifty is closing since last three expiries.

"We can even call it as a strong sustenance above8550/8500 but the way events are lined up in the com-ing month, sustenance at lower levels suggests us thatbulls are not confident to hold markets at higher levelsand it would help bears if something goes wrong in themarket."

In short ahead of an event Nifty should be on the higherside (8800/8850) so that even if negative news comes,the damage could remain limited. For the current ex-piry, we will focus on two major levels 8570 on a closingbasis and a continuation below 8500. Reduce weaklong positions if nifty closes below 8570.

Below 8500 levels nifty has support at 8480 and at8450. A weekly close below 8450 would drag the senti-ment heavily as in that case it may even fall to 8200.Sharp reversal from 8480 could trap short sellers if niftystarts trading above 8570. Trend will turned up only ifnifty breaks 8750.

Sector Specific: FMCG and Media stocks are availableat decent supports ahead of the major event and oneshould start accumulating them with a medium termview. In deep panic buy metals, infra and cementstocks with a medium term view.

Strategy: Buy 8300 put options if nifty closes below8570 after an event of Fed meeting, which is scheduledon 3rd November. Buy Out of money call options if niftyfalls to 8200/8170 during the month.

NIFTY DAILY CHART

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So urce : www.Sp id erSof twa reInd ia .C o m7 980

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Price

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NSE N if ty [N59 901] 8542. 80, 8 549 .50, 8504. 85, 8 518 .00, 944 627 904 -1 .25%

Dly

13868 8. 90

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17854 3. 75

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848 9. 80

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21889 3. 35

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20 d ays S M A and 50 days S M A

28855 5. 90

29840 7. 05

30828 7. 55

33814 6. 35

NIFTY : 8515

Range : 8450-8570

Resistance : 8540-8570-8615-8665-8720-8750-8810

Support : 8500-8480-8450-8410-8350-8270-8170

BANK NIFTY : 19243

Range : 19140-19530

Resistance : 19430-19530-19590-19630-19670-19740

Support : 19140-19050-19000-18850-18740-18500

TREND WATCH

Nifty Short Term TrendDown (Up above 8750 on a closing basis)

Nifty Medium Term TrendUp (Down below 7900 on a closing basis)

Nifty Long Term TrendUp (Down below 7700 on a weekly closing basis)

MONTHLY SNAPSHOT

Monthly High : 8807

Monthly Low : 8506

Monthly Close : 8626

Change : 0.02%


Stock Weight MCap Current PE (x)(%) (Rs mn) Price FY17E FY18E Comment

(Rs)

Larsen & Toubro 10 1,360,964 1475 25.0 20.8 Order intake has been good in the second quarter Asset sales gaining momentum

Sun Pharma 10 1,802,094 749 25.8 20.4 Sun's Halol plant will be possibly inspected in comingmonths post which (if cleared) will lead to pick up inUS revenues

Rich US pipeline, strong domestic growth as well asattractive valuation makes Sun a prefered buy in the largecap pharma space

M&M 10 801,270 1,305 22.9 19.0 Good monsoons is likely to keep tractor demandrobust in FY17Increased share of tractor revenues will be positive foroverall EBITDA margins

Adani Port 9 619,373 305 18.4 16.2 Volume growth continues to be strong for Adani Port Healthy contribution from subsidiary port projects

TV18 9 77,040 45 28.1 17.6 Strong ratings of Colors bode well for earnings visibilityin entertainment; strong IPO piepline to support businessnews

Valuations inexpensive at 17.6X FY18E PER

EIL 9 90,990 271 22.0 17.0 EIL management shared sharp recovery in business outllokpost Q1FY17 results. Order inflows guidance stands revisedat Rs 35 Bn against Rs 20 Bn earlier. Most of the orders areexpected to be awarded in the PMC division which is a highmargin business for the company.

Kajaria Ceramics 9 97,406 625 30.0 26.0 Likely to benefit from demand uptick and lower gas prices Company is best placed to capture the benefits from GST

implementation and expected GST rates Company's capacity is likely to reach 74MSM by FY17 end.

NIIT 9 13,902 84 18.7 11.1 NIIT’s revenues grew by double–digits YoY (10%) in 2QFY17for the second successive quarter in past 17 quarters andmargins improved 37bps YoY.

NIIT has launched new programs and added new clients inCLS, which should support future growth.

Mold-Tek Packaging 9 6,009 222 19.2 13.8 Mold Tek Packaging stands to gains in the coming yearsfrom the increasing share of IML products, backwardintegration and expansion in to food and FMCG industrywhich would aid the profitability.

PNC Infra 8 31,041 124 15.5 13.6 PNC has robust current order book of Rs 64.7 bn and furthertargets to add another ~Rs 40 bn of orders in the rest of theyear based on robust pipeline of orders specifically in roadspace.

PNC is expected to be a strong contender for grabbingfuture opportunity in road construction from poll boundstates like UP and Punjab

GSPL 8 89,577 159 15.6 14.1 We expect the Company to benefit on account of both1). Higher gas transmission volumes and 2). Expectedupward revision in tariffs.

Rising city gas distribution growth opportunities, potentialshift to gas due to environmental/pollution norms andvolumes from Mundra LNG terminal (FY18 onwards)provides support to long term volumes.

Source : Kotak Securities - Private Client research

ONE MONTH PORTFOLIO - NOVEMBER 2016

NIFTY: 8626

Stock Recommendations

Latest Price Price as Latest Upside/ Latest Mkt EPS (Rs) PE (x) RoE (%) EV/EBIDTA (x)Name of the Company Reco^ as on on latest price (Down- Report Cap

28-Oct Report target^ side) Date (Rs mn) FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E(Rs) (Rs) (Rs) (%)

Agri-Products

Insecticides (India) Ltd BUY 496 467 554 11.7 10-Aug-16 10,247 28.7 39.6 17.3 12.5 13.6 16.5 10.4 8.1

Finolex Industries BUY 449 473 530 18.0 30-Aug-16 55,688 21.4 26.5 21.0 16.9 25.8 27.2 12.9 10.5

Auto & Auto Ancillary

Apollo Tyres ACCUMULATE 202 173 185 (8.4) 11-Aug-16 101,758 21.7 24.7 9.3 8.2 16.6 16.3 5.6 5.3

Ashok Leyland ACCUMULATE 90 83 92 1.8 22-Sep-16 257,278 4.3 5.4 21.0 16.7 20.6 22.0 11.7 9.6

Bajaj Auto Ltd ACCUMULATE 2,857 2,661 2,960 3.6 29-Jul-16 826,787 146.4 168.9 19.5 16.9 31.5 30.4 13.7 11.7

Eicher Motors Ltd # ACCUMULATE 23,930 22,461 23,841 (0.4) 01-Aug-16 646,110 582.6 797.0 41.1 30.0 57.0 50.0 27.2 19.5

Escorts Ltd ACCUMULATE 376 379 410 9.2 28-Oct-16 45,924 15.3 25.6 24.5 14.7 9.5 14.5 15.9 10.1

Gabriel India Ltd BUY 127 98 124 (2.0) 02-Aug-16 18,216 6.0 7.7 21.1 16.4 21.1 23.0 12.0 9.5

Hero MotoCorp Ltd ACCUMULATE 3,345 3,314 3,692 10.4 28-Oct-16 669,000 178.5 199.5 18.7 16.8 40.7 38.0 12.5 10.9

Mahindra & Mahindra ACCUMULATE 1,314 1,449 1,541 17.3 11-Aug-16 809,547 57.1 68.7 23.0 19.1 15.2 16.2 15.6 12.8

Maruti Suzuki India Ltd ACCUMULATE 5,871 5,860 6,236 6.2 28-Oct-16 1,773,072 227.0 283.4 25.9 20.7 23.2 24.0 14.5 11.6

Motherson Sumi Systems Ltd SELL 331 330 298 (10.0) 11-Aug-16 438,111 11.5 14.6 28.8 22.7 31.8 31.6 9.9 7.9

Tata Motors ACCUMULATE 536 504 538 0.5 29-Aug-16 1,699,677 36.9 48.4 14.5 11.1 14.5 16.1 4.8 3.9

TVS Motors SELL 404 412 344 (14.9) 28-Oct-16 191,940 12.5 17.2 32.3 23.5 27.3 29.5 19.9 14.9

Building Material

Century Plyboards (India) Ltd BUY 250 213 242 (3.0) 05-Aug-16 55,514 8.8 10.5 28.4 23.8 30.1 26.9 18.9 14.5

Greenply Industries Ltd ACCUMULATE 289 284 299 3.3 25-Oct-16 34,919 12.0 13.6 24.1 21.3 21.0 19.1 13.5 12.7

Kajaria Ceramics Ltd ACCUMULATE 620 660 706 13.8 21-Oct-16 93,757 20.2 23.5 30.7 26.4 30.2 27.4 16.8 14.3

Supreme Industries Ltd REDUCE 902 903 924 2.4 28-Oct-16 114,554 30.0 38.5 30.1 23.4 28.4 30.0 15.6 12.7

Capital Goods & Engineering

ABB Ltd * REDUCE 1,090 1,063 1,110 1.8 28-Oct-16 230,982 22.1 31.7 49.3 34.4 14.6 18.3 26.3 19.0

AIA Engineering SELL 1,290 1,163 920 (28.7) 16-Aug-16 121,265 49.1 54.1 26.3 23.8 18.9 18.1 16.7 14.9

Bajaj Electricals Ltd ACCUMULATE 260 269 300 15.4 23-Sep-16 25,683 12.3 17.1 21.1 15.2 15.2 18.7 8.9 7.0

Bharat Electronics ACCUMULATE 1,307 1,242 1,350 3.3 09-Aug-16 313,596 66.8 71.9 19.6 18.2 18.3 19.9 14.6 12.5

BHEL REDUCE 139 160 165 18.7 08-Sep-16 340,133 5.3 8.3 26.2 16.7 3.8 5.8 9.0 5.1

Blue Star Ltd ACCUMULATE 551 522 550 (0.1) 20-Sep-16 49,499 15.0 21.9 36.7 25.1 15.4 20.4 22.3 15.8

Carborundum Universal Ltd ACCUMULATE 282 294 320 13.5 10-Oct-16 52,734 9.7 14.5 29.1 19.4 15.3 20.0 13.4 10.2

FUNDAMENTAL STOCK RECOMMENDATION


Crompton Greaves ACCUMULATE 76 82 88 15.8 31-Aug-16 48,762 3.5 5.2 21.7 14.6 4.8 6.7 6.8 5.1

Cummins India BUY 848 850 970 14.4 28-Oct-16 235,010 28.5 32.3 29.7 26.2 24.7 25.0 28.5 24.9

Elgi Equipment Ltd SELL 195 174 130 (33.3) 02-Aug-16 30,810 5.3 7.0 36.8 27.9 14.8 17.2 18.8 14.9

Engineers India Ltd BUY 270 252 335 23.9 25-Aug-16 91,108 12.3 15.9 22.0 17.0 15.0 17.8 17.3 11.1

Greaves Cotton BUY 139 128 160 15.5 28-Sep-16 33,827 8.3 9.1 16.7 15.2 21.9 20.9 10.0 9.0

Havells India Ltd SELL 408 409 400 (1.9) 20-Oct-16 254,478 10.1 12.6 40.4 32.4 34.4 35.8 32.1 26.6

Larsen & Toubro ACCUMULATE 1,482 1,558 1,636 10.4 01-Aug-16 1,367,283 59.3 71.1 25.0 20.8 12.0 13.1 18.7 15.8

Praj Industries Ltd ACCUMULATE 83 81 87 4.8 24-Oct-16 14,700 2.9 4.4 28.6 18.9 7.8 11.2 16.8 9.4

Siemens India * * SELL 1,187 1,295 1,130 (4.8) 08-Aug-16 392,864 29.3 NM 40.5 NM 15.4 NM 26.1 NM

Suzlon Energy RATING SUSPENDED 15 23 NA - 03-Jun-15 22,678 NM NM NM NM NM NM NM NM

Thermax SELL 850 904 807 (5.1) 12-Aug-16 101,150 22.0 26.9 38.6 31.6 8.1 9.4 21.3 18.2

Time Technoplast Ltd ACCUMULATE 98 96 101 3.6 20-Oct-16 20,378 6.7 8.4 14.6 11.6 11.6 12.9 7.1 6.2

Va Tech Wabag Ltd ACCUMULATE 492 585 624 26.7 16-Aug-16 26,097 23.3 31.2 21.1 15.8 12.2 14.5 9.6 7.9

Voltamp Ltd BUY 859 772 950 10.6 17-Aug-16 8,676 51.0 67.0 16.8 12.8 10.0 13.0 12.4 8.4

Voltas Ltd ACCUMULATE 387 346 368 (4.9) 04-Aug-16 127,937 13.1 15.1 29.5 25.6 16.9 16.9 22.1 18.4

Cement

ACC ## SELL 1,514 1,566 1,548 2.3 24-Oct-16 284,346 41.0 70.8 36.9 21.4 8.8 13.7 18.5 12.9

Grasim Industries RATING SUSPENDED 966 908 NA - 12-Aug-16 442,911 64.0 83.2 15.1 11.6 11.2 13.1 5.5 4.1

India Cements BUY 157 126 153 (2.7) 19-Aug-16 48,276 6.1 8.5 25.8 18.5 4.9 6.5 7.0 6.2

Shree Cement BUY 16,850 16,830 19,257 14.3 16-Aug-16 587,056 453.0 615.4 37.2 27.4 25.6 27.0 19.3 14.8

UltraTech Cement ACCUMULATE 3,979 4,009 4,296 8.0 18-Oct-16 1,090,109 117.8 163.1 33.8 24.4 14.6 17.4 18.7 14.0

Construction

IL&FS Transportation Network UNDER REVIEW 113 88 NA - 14-Sep-16 21,953 7.1 8.1 15.9 14.0 3.4 3.8 12.1 12.8

IRB Infrastructure Developers BUY 235 261 308 31.2 26-Sep-16 78,022 18.3 15.0 12.8 15.7 12.4 9.2 7.0 7.1

KNR Construction BUY 761 729 823 8.1 26-Sep-16 21,384 44.0 50.6 17.3 15.0 15.7 15.6 12.1 9.5

Nagarjuna Construction BUY 93 87 106 13.7 26-Sep-16 51,814 4.8 5.5 19.4 16.9 7.6 8.0 8.9 8.2

NBCC (India) Ltd REDUCE 241 253 261 8.4 16-Sep-16 152,940 6.8 9.2 35.3 26.3 25.0 27.9 27.7 18.9

PNC Infratech Ltd BUY 121 121 157 30.1 26-Sep-16 30,947 7.8 8.9 15.5 13.6 13.5 13.5 9.9 7.8

Simplex Infrastructures ACCUMULATE 328 344 367 11.9 07-Sep-16 16,292 21.5 28.2 15.3 11.6 6.7 8.2 6.3 5.6

Education

MT Educare Ltd BUY 138 135 182 32.3 16-Aug-16 5,476 9.1 11.4 15.1 12.1 22.4 23.4 8.2 6.5





FMCG

Colgate Palmolive (India) Ltd REDUCE 971 1,015 1,037 6.8 09-Aug-16 264,112 23.1 27.3 42.0 35.6 56.0 66.2 24.7 21.6

Dabur India Ltd ACCUMULATE 292 297 325 11.5 27-Oct-16 506,801 7.9 9.3 36.9 31.4 28.2 28.2 29.4 24.3

Godrej Consumer Products Ltd REDUCE 1,604 1,591 1,600 (0.2) 01-Aug-16 519,038 40.0 43.2 40.1 37.1 24.2 21.9 27.1 24.3

Hindustan Unilever REDUCE 837 843 861 2.9 27-Oct-16 1,808,028 21.5 23.9 38.9 35.0 124.0 133.3 27.2 24.3

ITC Ltd BUY 243 239 269 10.7 27-Oct-16 2,819,340 9.0 10.3 27.0 23.6 33.1 34.9 17.9 15.4

Marico Ltd SELL 282 299 298 5.8 09-Aug-16 362,701 7.1 8.3 39.7 33.9 37.7 37.9 31.0 27.1

Nestle India Ltd SELL 6,914 7,188 6,600 (4.5) 01-Aug-16 666,604 127.8 150.1 54.1 46.1 37.8 45.4 29.4 25.7

Pidilite Industries SELL 717 734 670 (6.6) 03-Aug-16 364,465 18.4 19.1 39.0 37.6 30.5 26.8 25.7 24.7

Information Technology

Cyient Ltd (Infotech) SELL 488 539 500 2.5 14-Oct-16 54,217 35.0 43.4 13.9 11.2 18.9 19.9 8.3 6.7

Geometric Ltd RATING SUSPENDED 231 240 NA - 26-Oct-16 14,445 20.4 NM 11.3 NM 24.8 NM 4.9 NM

HCL Technologies REDUCE 765 831 864 12.9 24-Oct-16 1,080,180 58.4 65.6 13.1 11.7 17.6 16.8 9.5 8.5

Infosys Technologies BUY 997 1,027 1,184 18.8 17-Oct-16 2,281,119 62.1 69.7 16.1 14.3 22.4 23.4 11.3 9.8

KPIT Technologies ACCUMULATE 143 142 153 6.8 21-Oct-16 27,399 12.7 15.7 11.3 9.1 16.1 17.1 6.1 4.6

Mphasis Ltd SELL 514 538 528 2.8 26-Jul-16 107,246 39.0 42.0 13.2 12.2 13.4 13.5 8.1 7.3

NIIT LTD BUY 85 92 103 20.7 20-Oct-16 14,057 4.5 7.6 19.0 11.2 9.0 18.1 14.1 10.3

NIIT Technologies BUY 408 411 482 18.3 18-Oct-16 23,900 42.5 47.4 9.6 8.6 15.3 15.1 4.0 3.6

Oracle Financial Services Soft REDUCE 3,195 3,369 3,488 9.2 15-Sep-16 267,552 164.3 186.5 19.4 17.1 36.0 36.3 12.9 11.5

Tata Consultancy Services (TCS) REDUCE 2,398 2,329 2,415 0.7 14-Oct-16 4,693,845 132.6 146.4 18.1 16.4 40.0 35.5 13.0 11.3

Wipro Technologies REDUCE 462 499 506 9.5 24-Oct-16 1,131,109 34.7 39.7 13.3 11.6 18.4 19.2 9.2 7.6

Zensar Technologies SELL 919 997 983 7.0 19-Oct-16 39,620 67.9 80.0 13.5 11.5 19.6 19.7 8.0 6.4

Logistics

Adani Port & Special Eco Zone ACCUMULATE 307 310 340 10.8 26-Oct-16 614,574 17.2 19.4 17.8 15.8 22.0 20.3 14.8 13.4

Allcargo Global Logistics BUY 182 190 215 18.4 16-Sep-16 45,751 12.1 13.6 15.0 13.3 12.7 12.7 8.5 7.7

Blue Dart Express SELL 5,050 5,335 5,030 (0.4) 14-Oct-16 119,687 85.1 91.4 59.3 55.3 35.6 29.4 34.5 32.2

Container Corporation of India SELL 1,377 1,467 1,365 (0.9) 11-Aug-16 268,515 47.6 52.5 28.9 26.2 10.6 10.8 20.6 18.6

Gateway Distriparks Ltd BUY 246 268 330 34.2 09-Aug-16 26,552 12.5 15.0 19.7 16.4 11.7 12.9 9.4 8.3

Gujarat Pipavav Port Ltd (GPPL) ACCUMULATE 164 173 190 16.2 21-Sep-16 69,324 5.0 5.5 16.5 29.7 11.2 11.3 15.7 14.4





Media

Dish TV India Ltd BUY 96 94 110 15.0 29-Jul-16 101,772 2.5 4.1 38.3 23.3 NM 54.0 9.3 8.3

Entertainment Network (ENIL) REDUCE 778 722 725 (6.8) 05-Aug-16 37,111 17.5 26.8 44.5 29.0 10.3 14.1 20.7 14.4

HT Media NR 90 - - - - 21,034 NM NM NM NM NM NM NM NM

Hindustan Media Ventures Ltd BUY 302 270 336 11.3 05-Aug-16 22,164 28.4 31.1 10.6 9.7 20.7 18.8 7.7 6.1

Sun TV Network ACCUMULATE 549 482 535 (2.5) 22-Aug-16 216,168 26.6 29.7 20.6 18.5 28.8 29.4 10.4 9.4

TV18 Broadcast BUY 45 43 56 25.6 18-Oct-16 76,266 1.6 2.5 28.0 17.5 6.9 10.1 68.0 39.9

Zee Entertainment Ent SELL 520 515 476 (8.5) 26-Oct-16 508,560 11.8 17.0 44.1 30.6 19.6 20.7 25.9 20.6

Metals & Mining

Hindustan Zinc SELL 253 250 230 (9.0) 21-Oct-16 1,068,372 19.1 20.7 13.2 12.2 18.6 17.8 8.6 7.7

JSW Steel REDUCE 1,657 1,637 1,680 1.4 28-Oct-16 400,497 132.8 154.4 12.5 10.7 12.9 13.1 6.5 6.0

National Aluminium Co REDUCE 53 47 48 (10.1) 14-Sep-16 137,612 2.4 2.9 22.3 18.4 4.8 5.8 8.3 6.7

NMDC Ltd SELL 131 105 83 (36.8) 14-Sep-16 520,565 7.4 7.9 17.7 16.6 9.6 10.0 12.6 11.8

Tata Sponge Iron Ltd SELL 592 637 615 3.9 25-Oct-16 9,118 43.6 53.7 13.6 11.0 7.8 9.0 4.8 3.3

Oil & Gas

Aban Offshore Ltd SELL 267 213 115 (56.9) 16-Aug-16 15,489 NM 30.7 NM 8.7 NM 3.4 9.5 7.6

Cairn India Ltd SELL 226 231 180 (20.2) 24-Oct-16 422,875 14.1 14.8 16.0 15.2 5.2 5.3 5.4 1.7

Castrol India Ltd * * ACCUMULATE 459 435 458 (0.2) 29-Jul-16 226,880 14.3 15.6 32.1 29.4 76.0 71.9 20.7 18.9

Chennai Petroleum Corporation SELL 280 299 235 (16.1) 08-Sep-16 41,720 47.5 52.2 5.9 5.4 27.2 24.0 4.8 4.5

Gujarat State Petronet Ltd (GSPL) ACCUMULATE 158 152 168 6.7 20-Sep-16 88,358 10.2 11.3 15.4 13.9 13.0 13.0 8.2 7.2

Indraprastha Gas (IGL) ACCUMULATE 858 729 790 (7.9) 23-Aug-16 120,078 40.9 42.4 21.0 20.2 21.2 18.7 11.3 10.8

Mahanagar Gas Ltd ACCUMULATE 759 636 675 (11.1) 02-Sep-16 74,989 35.5 39.0 21.4 19.5 21.8 21.8 11.5 10.2

MRPL ACCUMULATE 90 79 87 (3.2) 06-Sep-16 157,505 10.3 11.4 8.7 7.9 26.6 22.9 7.4 5.4

Oil India Ltd ACCUMULATE 416 387 407 (2.2) 07-Sep-16 250,088 33.8 38.6 12.3 10.8 8.5 9.3 5.4 4.8

Petronet LNG ACCUMULATE 388 356 376 (3.0) 07-Sep-16 290,625 17.2 24.8 22.5 15.6 18.4 22.5 11.3 8.3

Packaging

Mold-Tek Packing Ltd BUY 215 197 260 20.8 05-Oct-16 5,961 11.3 15.7 19.0 13.7 20.2 22.6 11.2 8.2

Paints

Asian Paints Ltd SELL 1,070 1,150 1,075 0.5 26-Oct-16 1,026,226 22.0 23.9 48.6 44.8 34.4 33.4 30.4 27.5

Berger Paints ACCUMULATE 259 232 255 (1.5) 04-Aug-16 251,088 5.0 6.0 51.8 43.1 24.6 23.3 31.2 27.3

Kansai Nerolac Paints Ltd ACCUMULATE 379 378 415 9.6 09-Sep-16 204,065 8.1 9.2 46.7 41.2 18.9 20.2 29.3 26.1





Pharmaceuticals

Alembic Pharma ACCUMULATE 677 673 725 7.1 26-Oct-16 127,953 22.5 30.3 30.1 22.3 24.2 26.8 22.3 15.8

Cadila Healthcare Ltd ACCUMULATE 423 388 425 0.5 27-Oct-16 433,025 15.4 18.0 27.5 23.5 24.0 22.8 18.8 16.0

Cipla SELL 575 517 480 (16.5) 16-Aug-16 462,059 19.9 24.6 28.9 23.4 12.7 14.0 17.3 14.7

Dr Reddy's Laboratories Ltd SELL 3,355 3,200 2,770 (17.4) 26-Oct-16 571,021 75.8 138.5 44.3 24.2 10.7 17.5 18.6 13.2

Lupin ACCUMULATE 1,495 1,608 1,750 17.1 10-Aug-16 670,358 71.2 83.1 21.0 18.0 25.9 24.3 13.3 11.2

Natco Pharma Ltd BUY 582 632 750 28.9 11-Aug-16 101,384 23.8 31.2 24.5 18.7 24.2 24.1 16.9 13.0

Sun Pharmaceuticals BUY 744 802 915 23.1 16-Aug-16 1,788,981 29.0 36.7 25.6 20.3 19.8 20.2 15.9 12.2

Torrent Pharmaceuticals SELL 1,413 1,565 1,226 (13.2) 27-Oct-16 238,763 60.5 64.5 23.4 21.9 27.2 24.0 16.3 15.1

Power

NTPC ACCUMULATE 152 164 182 19.4 23-Aug-16 1,256,690 11.3 12.7 13.5 12.0 10.2 10.8 7.8 6.3

Tata Power Company Ltd ACCUMULATE 78 75 82 4.8 24-Aug-16 185,687 6.9 7.2 11.3 10.9 13.0 12.0 7.3 6.5

Real Estate

Phoenix Mills Ltd REDUCE 380 396 404 6.3 16-Aug-16 55,043 11.8 16.3 32.2 23.3 9.3 11.8 9.8 8.7

Shipping

GE Shipping Company SELL 375 368 320 (14.7) 01-Sep-16 56,992 72.6 61.4 5.2 6.1 11.6 9.1 4.0 4.4

Reliance Defence & Engg Ltd ACCUMULATE 59 65 70 18.1 17-May-16 40,954 NM NM NM NM NM NM NM NM

Shipping Corporation of India SELL 68 67 66 (2.9) 09-Jun-16 28,777 11.0 10.2 6.2 6.7 6.9 6.0 5.9 2.6


^ All recommendations are with a 9-12 month perspective from the date of the report/update. Investors are requested to use their discretion while deciding the timing, quantity of investment as wellas the exit.

* Figures for CY16 & CY17** Figures for CY17 & CY18# Figures for CY16 & FY18 (15 month period)## Figures for CY17 & CY18 - September year endingNR Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circum-

stances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.NM Not Meaningful





PREFERRED PICKS - FUNDAMENTAL

ADANI PORT AND SPECIAL ECONOMIC ZONEACCUMULATE

Current Market Price (Rs) 52 Week H/L (Rs) Mkt Cap (Rs mn)307 317 / 169 635782

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 72,558 83,042 95,083Growth (%) 17.7 14.4 14.5 EBITDA 47,560 55,300 62,184EBITDA margin (%) 64.6 66.6 65.4PBT 31,377 36,899 41,796Net profit 28,108 34,619 39,149EPS (Rs) 13.9 17.2 19.4Growth (%) 20.8 23.2 13.1 CEPS (Rs) 19.3 22.9 25.6Book value (Rs/share) 63.0 78.1 95.5Dividend/share (Rs) 2.0 2.0 3.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 22.1 22.0 20.3ROCE (%) 10.8 11.1 11.0Net cash (debt) (188,187) (208,077) (225,979)Net Worcking Capital (Days) 16.9 17.1 18.9

VALUATION PARAMETERS FY16 FY17E FY18EP/E (x) 22.0 17.9 15.8 P/BV (x) 4.9 3.9 3.2 EV/Sales (x) 11.3 10.1 9.1 EV/EBITDA (x) 17.3 15.2 13.8

PRICE PERFORMANCE (%) 1M 3M 6M11.9 32.9 25.7

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company

Last report at Rs.310 on 26 October 2016

Analyst: [email protected]

Target Price (Rs)340

Volume Projections (mn tonnes)

Potential Upside (%)10.7%

1 Year Performance

Share Holding Pattern (%)

Quarterly Breakup of volumes (mn tonnes)

Promoter56.3%FII

23.9%

DII14.3%

Others5.5%

50

110

170

230

290 Adani Port & Special Economic Zone Nifty

INVESTMENT ARGUMENT APZ made major announcements in FY16 including development of a

new port at Vizhinjam, acquisition of Kattupalli port and a transshipment hub at Mundra.

The company intends to focus on container and Liquid cargo whichadds value to APZ as they have higher margins, lower turnaround time and require lesser investment in terms of infrastructure

We estimate the next phase of growth for the company to come from subsidiary ports, especially the ports of Hazira, Dahej and Dhamra ports.

Management estimates healthy SEZ income over FY16 to FY18E on the back of addition of new assets at the port

Management is also making efforts to enhance non-port revenues, taking measures to bring down cost of debt and other cost and have taken cognizance of investor concerns with respect to third party transactions

RISKS & CONCERNS Competition in the port sector could climb significantly, as major ports

increase capacities and as minor ports come up. Slowing economy and trade Slow capex at SEZs

COMPANY BACKGROUND APZ has entered into an agreement with GMB to build, operate and

maintain the port for a period of 30 years till 2031 extendable by another 20 years.

The port is into providing cargo handling services for bulk, crude and container cargo.

SECTOR BACKGROUND Demand for port infrastructure is driven by the 3Cs: coal, containers

and crude.

0.05.0

10.015.020.0

25.0

30.035.0

Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

Mundra Others

0

50

100

150

200

250

FY14 FY15 FY16 FY17E FY18E

Mundra Total



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16E FY17E FY18ESales 14,958 16,386 19,626 Growth (%) (12.7) 9.5 19.8EBITDA 1,600 3,605 5,299 EBITDA margin (%) 10.7 22.0 27.0 PBT 3,921 6,198 7,885 Net profit 2,583 4,153 5,362 EPS (Rs) 7.7 12.3 15.9 Growth (%) (15.3) 60.7 29.1 CEPS (Rs) 8.4 12.9 16.5 BV (Rs/share) 79.1 84.8 94.1 DPS (Rs) 5.0 5.7 5.7 Source: Company, Kotak Securities - Private Client ResearchROE (%) 9.9 15.0 17.8 ROCE (%) 9.8 14.9 17.6 Net cash (debt) 26,238 26,652 30,393 NW Capital (Days) (131.3) (83.9) (84.2)

VALUATION PARAMETERS FY16E FY17E FY18EP/E (x) 35.2 21.9 17.0 P/BV (x) 3.4 3.2 2.9 EV/Sales (x) 4.3 3.9 3.1 EV/EBITDA (x) 40.2 17.7 11.4



Revenue Mix (%)


1 Year Performance


Segment Sales (Rs bn)

Last report at Rs.252 on 25 August 2016

ENGINEERS INDIA LTD Analyst: [email protected]


Promoter59.3%

FII6.6%

DII20.6%

Others13.5%

02468

10121416

FY14 FY15 FY16 FY17E FY18

50

110

170

230 Engineers India Ltd Nifty

INVESTMENT ARGUMENT Engineers India enjoys healthy market share in the Hydrocarbon

consultancy segment. It enjoys prolific relationship with few of the major oil & gas companies like HPCL, BPCL, ONGC and IOC.

Company is well poised to benefit from recovery in the infrastructure spending in the hydrocarbon sector.

We believe that in future, company shall inevitably benefit from MoPNG huge target of nearly Rs 1.2 trillion envisaged for various projects in XII five year plan.

Company has been observing pick up in order inflows/revenue booking in consultancy business space which enjoys healthy margins.

RISKS & CONCERNS Slowdown in domestic Hydrocarbon industry.

COMPANY BACKGROUND A Public sector undertaking. Leading player in domestic market

SECTOR BACKGROUND Hydrocarbon consulting business is a direct leverage on

Hydrocarbon sector. MPoNG has envisaged investments at Rs 1.2 trillion for various projects in 12th five year plan.

Indian Hydrocarbon sector has witnessed substantial capacity addition over the last decade. Refining capacity currently stands at 215 MMT against 62 MMT in 1998.

Refineries14%

Petrochemicals32%

Fertilizers6%

Pipelines19%

Storage Terminals

29%



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 24,528 28,031 32,601 Growth (%) (0.9) 14.3 16.3EBITDA 3,751 4,396 5,242 EBITDA margin (%) 15.3 15.7 16.1 PBT 3,435 3,909 4,842 Net profit 2,336 2,659 3,293 EPS (Rs) 18.8 21.4 26.5 Growth (%) 388.9 13.8 23.9 CEPS (Rs) 22.9 25.6 30.7 Book value (Rs/share) 77.2 89.0 106.0 Dividend per share (Rs) 10.0 7.0 7.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 26.8 25.8 27.2 ROCE (%) 25.0 32.4 36.7 Net cash (debt) (2,017) (1,060) 904 Net Working Capital (Days) 21.2 28.8 40.7


PRICE PERFORMANCE (%) 1M 3M 6M(0.4) (0.5) 26.4

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Industry, Kotak Securities - Private Client Research


FINOLEX INDUSTRIES LTD Analyst: [email protected]


Investment in water supply and irrigation (Rs bn)


1 Year Performance


RoCE and RoE to improve further

Promoter52.6%

FII4.8%

DII7.3%

Others35.3%

50

100

150

200

250

300 Finolex Industries Ltd Nifty

INVESTMENT ARGUMENT Finolex Industries Ltd (FIL) is a leading company in Indian PVC pipes and

fittings industry with 19% organized market share in volume terms. It has strong brand equity and enjoys market leadership in agri segment with 70% of its revenue being contributed by this segment where pipes are used in irrigation.

Government has emphasized on increasing land under irrigation and is focused on improving rural water and sanitation infrastructure, which is positive for pipes’ demand. We believe that, FIL would be a major beneficiary if rural consumption improves on normal monsoon in the current year.

FIL is generating strong cash flows which would be used in meeting its funding requirement and making it debt free.

RISKS & CONCERNS High volatility in raw material prices Disappointment from rural demand

COMPANY BACKGROUND FIL is a leading brand in Indian PVC pipes and fittings market. The

company manufactures and sells PVC pipes, fittings and PVC resin. 73% of its revenue is contributed by PVC pipes and fittings and balance 27% is contributed by PVC resins. The company has 280000 tpa (tonnes per annum) capacity of PVC and 272000 tpa of PVC resins. It is expanding its PVC pipes capacity by 100000 tonnes in the next three years with Rs 1 bn of total investment at its existing plants.

SECTOR BACKGROUND Domestic PVC pipes market at 1.8 mn tonnes is growing at 12-15% CAGR

in volume terms. About 40% of the industry is unorganized. The industry is steadily shifting toward organized players with shift expected to gather pace after the introduction of GST and would be positive for organized players.

0.0

12.0

24.0

36.0

48.0

FY14 FY15 FY16 FY17E FY18E

RoE (%) RoCE (%)

606

1208

2553

1215

2435

5044

0 1000 2000 3000 4000 5000 6000

Xth (2002-2007)

XIth (2007-2012)

XIIth (2012-2017)



ACCUMULATE


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 24,088 27,817 31,695 Growth (%) 10% 15% 14%EBITDA 4,537 5,591 6,371 EBITDA margin (%) 18.8% 20.1% 20.1%PBT 3,577 4,752 5,525 Net profit 2,292 3,211 3,739 EPS (Rs) 14.4 20.2 23.5 Growth (%) 31% 40% 16%CEPS (Rs) 19.0 25.1 28.8 Book value (Rs/share) 58.1 75.4 96.1 Dividend per share (Rs) 2.5 2.5 2.5 Source: Company, Kotak Securities - Private Client ResearchROE (%) 27.5 30.2 27.4 ROCE (%) 33.0 36.4 34.9 Net cash (debt) 1,438 (165) (2,841) Net Working Capital (Days) 45.0 45.0 45.0





KAJARIA CERAMICS LTD Analyst: [email protected]


Revenues (Rs mn)


1 Year Performance


Sales break up (Mn Sq m)

Promoter47.2%

FII24.4%

DII6.2%

Others22.3%

0100200300400500600700 Kajaria Ceramics Ltd Nifty

INVESTMENT ARGUMENT Kajaria ceramics is ideally positioned to capture the increased demand

with its expanded capacity as well as its ongoing capex plan Company is carrying out expansion at several plants and post these

expansions, company’s capacity is likely to reach 74 msm by FY17 We expect company to continue to gain market share vis-à-vis peers led

by improved branding and product mix as well as increased focus on tier 3 and tier 4 cities.

We continue to remain positive on the company on account of expected improvement in volumes going forward. We believe that stock will continue to trade at higher valuations on account of excellent earnings visibility on volume expansion and margin improvement led by lower gas prices coupled with demand revival.

RISKS & CONCERNS Demand slowdown Steep increase in gas prices

COMPANY BACKGROUND Kajaria Ceramics is the second largest player in the organized tile

industry with a pan-India presence and manufactures ceramic tiles, polished and glazed vitrified tiles for wall and floor applications.

With an annual capacity of 57 mn. sq. meters, distributed across seven plants, company caters to the customer's demand through a wide distribution network and nearly 1100 designs. Company also markets international tile brands and has also tied up with Vitra, to market high end bathware and bath fittings in India.

SECTOR BACKGROUND Consumption of tiles has grown at a CAGR of 12% between 2007-13

and has been led by increasing consumerism and urbanization Strong GDP growth, improvement in real estate demand and

replacement demand is likely to drive demand growth going forward

9.39 7.92

5.416.00

1.84 2.21

0

4

8

12

16

Q2FY17 Q2FY16

Imports/outsourced JV Own manufacturing

3438.6 2908

1982.6 2241

612.2 763

01000200030004000500060007000

Q2FY17 Q2FY16

Sanitaryware Imports/outsourcedJV Own manufacturing



ACCUMULATE


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 408,850 458,816 536,081 Growth (%) 5.0 12.2 16.8EBITDA 45,702 51,542 62,084 EBITDA margin (%) 11.2 11.2 11.6 PBT 42,299 46,716 56,240 Net profit 31,675 35,037 42,180 EPS (Rs) 51.6 57.1 68.7 Growth (%) (4.6) 10.6 20.4 CEPS (Rs) 69.6 78.1 92.7 Book value (Rs/share) 353.5 397.2 452.4 Dividend per share (Rs) 12.1 12.0 12.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 15.2 15.2 16.2 ROCE (%) 18.2 18.8 20.6 Net cash (debt) 17,558 28,035 50,101 Net Working Capital (Days) (14.0) (10.0) (10.7)




Tractor Sales Volume (Nos)


1 Year Performance


Auto Sales Volumes (Units)


MAHINDRA & MAHINDRA LTD Analyst: [email protected]


Promoter26.9%

FII31.7%

DII27.0%

Others14.3%

0

100,000

200,000

300,000

400,000

500,000

600,000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

0

50000

100000

150000

200000

250000

300000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

80

100

120

140

160 Mahindra & Mahindra Ltd Nifty

INVESTMENT ARGUMENT In the auto segment, we expect volume growth to moderate to single

digits in FY17. In FY18, we expect demand growth will benefit from full impact of likely rural recovery, launch of petrol variants for XUV500 and Scorpio and new product launch.

Good monsoons is likely to keep tractor demand robust in FY17 and the impact will likely roll over to FY18.

Profit margin for M&M's auto segment is likely to stay subdued. However, tractor business is expected to witness strong margins due to healthy demand recovery. Overall, increased share of tractor revenues will be positive for overall EBITDA margins.

RISKS & CONCERNS Lower than expected performance of new launches Delay in expected pick-up of tractor demand

COMPANY BACKGROUND Mahindra & Mahindra is the flagship company of the Mahindra Group.

M&M is amongst the top names in India automobile industry and market leader in the tractor business.

SECTOR BACKGROUND India’s passenger vehicle industry sold ~3mn vehicles in FY15. While

80% of sales happened in the domestic market, balance 20% were exported. Top five players account for ~80% of industry sales volumes.

Tractor sales in the domestic market, in the past decade, grew by 12.6% CAGR. Domestic tractor demand is dependent on factors like monsoons, crop production, MSP, credit flow, govt schemes (regular and one-time) and the general state of the rural economy



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 2,757 3,019 3,812 Growth (%) (3.3) 9.5 26.3EBITDA 458 553 754 EBITDA margin (%) 16.6 18.3 19.8 PBT 368 468 654 Net profit 241 314 436 EPS (Rs) 8.7 11.3 15.7 Growth (%) 42.8 30.1 39.0 CEPS (Rs) 11.8 14.5 19.4 BV (Rs/share) 46.5 56.2 69.6 Dividend per share (Rs) 3.3 3.3 3.5 Source: Company, Kotak Securities - Private Client ResearchROE (%) 18.7 20.2 22.6 ROCE (%) 18.6 19.9 23.5 Net cash (debt) (251) (247) (239) Net Working Capital (Days) 85 89 83



Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research

Last report at Rs.226 on 2 November 2016

MOLD-TEK PACKAGING LTD Analyst: [email protected]


EBITDA Margin to strengthen


1 Year Performance


IML- share to go up to 60% by FY18E

Promoter42.1%

Others57.9%

0

350

700

1050

1400 Mold-Tek Packaging Nifty

INVESTMENT ARGUMENT Mold Tek Packaging stands to gains in the coming years from the increasing share

of IML, backward integration and expansion in the food and FMCG industry. MTPL was the first company to offer IML technology in 2011, while others were

focusing on screen printing and heat transfer labelling (HTL). IML is a high margin (300-400bps higher) technology compared to the traditional methods.

Emerged as one of the leading manufacturers and suppliers of high quality airt ight and pilfer containers/pails in India with an installed capacity of 28,800 tonnes per annum for paints, lubricants and FMCG (includes Edible Oil) industry.

Going ahead, incremental volume is likely to come from IML, thereby taking a proportion of IML shares in the overall revenue mix to 60% by the end of FY18E from 45% currently

Expect MTPL to continue delivering strong growth in the coming years on the back of integrated facilities and increasing revenue from the high margin FMCG industry. The stock trades at 12.6x/11.9x FY17E/FY18E earnings, and on EV/EBITDA, it trades at 8.2x/8.0x FY17E/FY18E. We init iate coverage with BUY rating.

RISKS & CONCERNS Slower than expected pick-up in edible oil business Slower than expected ramp-up at RAK facilities

COMPANY BACKGROUND Mold Tek Packaging is a leading manufacturer of high quality rig id plastic packaging products (Rigid plastic packaging) and a pioneer is Inject Mold Labelling for lubricants, paints and FMCG industry. MTPL is one of the few companies globally to have completely backward integrated facil ity. It has 7 manufacturing units in India, with an installed capacity of 2,400 tonnes per month and three stock points spread across India to ensure faster supplies. It has recently set up a plant at RAK, UAE.

SECTOR BACKGROUND Rigid Plastic Packaging C ontainer" means any plastic package having a relatively inflexible finite shape or form, with a minimum capacity of eight fluid ounces or its equivalent volume and a maximum capacity of five fluid gallons or its equivalent volume, that is capable of maintaining its shape while holding other products, including, but not limited to, bottles, cartons, and other receptacles, for sale or distribution in the state. As per the management, the current market size of packaging industry is over Rs700 bn, of which Rigid Packaging industry is about Rs212bn, which is expected to grow at 14% in the near future. Management expects flexible packaging industry to likely register ~18% growth rate in the coming years.

0.0

20.0

40.0

60.0

80.0

100.0

FY12 FY13 FY14 FY15 FY16 FY17E FY18E

5.0%

10.0%

15.0%

20.0%

25.0%

500

1,500

2,500

3,500

4,500

FY12 FY13 FY14 FY15 FY16 FY17E FY18E



NAGARJUNA CONSTRUCTION COMPANY LTDBUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 82,634 90,898 98,169 Growth (%) -0.3 10.0 8.0EBITDA 6,756 7,726 8,344 EBITDA margin (%) 8.2 8.5 8.5PBT 2,960 4,047 4,620 Net profit 2,229 2,671 3,049 EPS (Rs) 4.0 4.8 5.5 Growth (%) 99.4 19.8 14.2CEPS (Rs) 6.0 7.0 7.7 Book value (Rs/share) 61.2 65.7 70.7 Dividend per share (Rs) 0.4 0.4 0.4 Source: Company, Kotak Securities - Private Client ResearchROE (%) 6.7 7.6 8.0 ROCE (%) 15.0 14.3 14.6 Net cash (debt) (17,190) (17,276) (16,551) Net Working Capital (Days) 146.0 146.0 146.0




Last report at Rs.87 on 26 September 2016

Analyst: [email protected]


Segmentwise Revenue Break up (%)


1 Year Performance


Order book break up (%)

Promoter20.4%

FII26.6%

DII17.5%

Others35.5%

Roads,building,oil

44%

Water and railways

26%

Irrigation12%

Electrical7%

Internatnal10%

Power1%

0

200

400

600

800 Nagarjuna Construction Company Ltd Nifty

INVESTMENT ARGUMENT Strong order book of Rs 191 bn providing visibility for two years. Order book is well diversified across roads, building, oil & gas (44%),

water & railways (26%), irrigation (12%), electrical (7%) & Int'l (10%). Company maintained it FY17 order inflow target of Rs 120 bn. Order

inflow of Rs 36 bn in Q1FY17 supports this guidance. It is quite optimistic on order inflows from AP/Telangana in water supply, irrigation and building segment.

Company has repaid nearly Rs 1.5 -2 bn worth of high cost debt and this resulted in 26% YoY growth in net profits for Q1FY17. Improved Balance Sheet with gross debt at Rs.18.8 bn as on 30th Jun'16 and debt/equity ratio of 0.54:1.

We expect NCC to post a CAGR of 9% on revenues and 17% on reported PAT over FY16-18E.

We maintain positive bias for the stock and recommend BUY on the stock.

RISKS & CONCERNS Delays in order inflow across verticals may impact revenue growth going

forward Delays in stake sale in road/real estate may keep debt at higher levels

COMPANY BACKGROUND Order book currently is diversified across roads, building, oil and gas,

water and railways, irrigation, electrical, mining, international, metals and power.

SECTOR BACKGROUND Order inflow is likely to increase going forward during the fiscal due to

improvement in macro-economic climate. We expect buildings, water supply, and irrigation to continue to witness increased activity thereby leading to better order inflows.

0

25

50

75

100

FY13 FY14 FY15 FY16

Power Metals InternatnalMining Electrical IrrigationWater and railways Roads,building



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 10,069 11,396 12,688 Growth (%) 5.2 13.2 11.3EBITDA 711 1,003 1,228 EBITDA margin (%) 7.1 8.8 9.7 PBT 73 339 695 Net profit 652 826 1,349 EPS (Rs) 3.9 5.0 8.1 Growth (%) (147.0) 26.7 63.1 CEPS (Rs) 6.9 7.8 11.1 Book value (Rs/share) 48.6 51.8 57.9 Dividend per share (Rs) 1.8 1.8 2.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 8.5 9.9 14.9 ROCE (%) 1.3 8.7 13.2 Net cash (debt) (918) (363) 740 Net Working Capital (Days) 13.6 13.8 10.6


PRICE PERFORMANCE (%) 1M 3M 6M(11.5) 12.6 6.2



NIIT LTD Analyst: [email protected]


Share of non-IT revenues in Skills & Career business (%)


1 Year Performance


Revenue breakup (%)

Promoter34.1%

FII9.1%DII

14.4%

Others42.4%

0

10

20

30

40

50

FY13 FY14 FY15 FY16

50

150

250

350

450

550 NIIT Ltd Nifty

INVESTMENT ARGUMENT The recent performance of NIIT inspires optimism. While 2Q revenue

growth has been muted, we expect the same to bounce back in 2HFY17 and beyond.

The initiatives taken by the new management have led to consistent improvement in revenue growth and earlier-than-expected benefits on margins.

We are optimistic about the growth in CLS as well as on the S&C business.

RISKS & CONCERNS A slower-than-expected recovery in the global economy could impact

revenue growth of NIIT. Steep rupee appreciation v/s major global currencies may impact the

financials of NIIT.

COMPANY BACKGROUND NIIT was set up in 1981 to meet the HR challenges of the IT industry.

Today, it is one of the world’s leading talent development companies offering learning solutions to Individuals, Enterprises and Institutions across 38 countries.

The company offers training courses in diverse areas like IT, Business Process Outsourcing, Banking, Finance and Insurance, Executive Management Education, and Communication and Professional Life Skills.

SECTOR BACKGROUND IT services exports are expected to grow by 10% - 12% in FY17. Indian companies provide services to several Fortune 500 companies. Banking & Financial services sector accounts for the largest revenue share

and USA is the largest geography for the industry

-

10.0

20.0

30.0

40.0

50.0

60.0

FY13 FY14 FY15 FY16

Skills & Career Institutional Corporate



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 10,521 10,351 12,191 Growth (%) NM (1.6) 17.8 EBITDA 1,056 1,164 1,916 EBITDA margin (%) 10.0 11.2 15.7 PBT 1,957 2,829 4,643 Net profit 2,047 2,730 4,356 EPS (Rs) 1.2 1.6 2.5Growth (%) 30.5 33.4 59.6 CEPS (Rs) 1.4 1.8 2.8Book value (Rs/share) 22.3 23.8 26.3 Dividend per share (Rs) - - - Source: BARC, Note: Imp. Stands for impressions in the headline aboveROE (%) 5.5 6.9 10.1 ROCE (%) 5.5 7.0 10.2 Net cash (debt) 200 2,191 5,588 Net Working Capital (Days) 74 100 113


PRICE PERFORMANCE (%) 1M 3M 6M(6.3) 12.9 15.2



TV18 BROADCAST LTD Analyst: [email protected]

Target Price (Rs)56

Contribution to EBITDA (FY17E)


1 Year Performance


Top 10 Hindi GEC (Urban) Week 41, 2016(Imp., mn)

Promoter60.3%FII

8.9%

DII7.3%

Others23.5%

50

100

150

200

250 TV18 Broadcast Ltd Nifty

NVESTMENT ARGUMENT TV18 owns one of the most attractive bouquets in the Indian TV

Broadcasting industry (news operations, 50% ownership in entertainment/ infotainment operations via JVs), and valuation (mkt. cap ~Rs 70Bn) versus peers (Zee Entertainment ~Rs 520 Bn, Sun TV ~Rs 200 Bn) indicates significant scope for appreciation.

Strong performance in entertainment channels’ ratings points to strong earnings ahead: Colors, the flagship channel of Viacom18, has emerged as the #1 Hindi GEC in several weeks of 2016; regional channels too bringing in strong performance. IPO pipeline being strong is a positive signal for business news performance. Additionally, near-term earnings will benefit from political advertising (UP elections). We expect strong earnings growth with EBITDA CAGR of 47% between FY16-FY18E.

The company is likely to report strong earnings as and when the negative impact of recent launches fades (2HFY17). Valuations are attractive, at 17X FY18E PER (>40% discount to Zee Entertainment). Our price target implies PER of 22X FY18E.

RISKS & CONCERNS Ratings performance of key channels is the key risk.

COMPANY BACKGROUND TV18 Broadcast is amongst the largest TV broadcasting companies in

India, with presence in news as well as entertainment. The company has a 50:50 JV with Viacom ("Viacom18) which operates,

among others, Hindi GEC Colors. TV18 has bought a 50% stake in ETV entertainment channels (other than Telugu) and 100% stake in ETV News channels.

SECTOR BACKGROUND Indian TV Broadcasting is a Rs 540 Bn industry, with Rs 175 Bn in

advertising revenues. The sector is positively exposed to digital addressability, which should bring benefits to broadcasters/ platform providers.

- o/w Standalone Operations

28%

- o/w Viacom 18

(50%)60%

- o/w ETV Entertainme

nt (50%)7%

- o/w ETV News

5%

-

100

200

300

400

500

StarPlus

Colors SET LifeOK

ZeeTV

SonySAB

&TV ZeeAnmol

SonyPal

StarUtsav



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 5,633 6,376 7,131 Growth (%) 9.0 13.2 11.8EBITDA 374 468 565 EBITDA margin (%) 6.6 7.3 7.9 PBT 593 717 807 Net profit 440 528 624 EPS (Rs) 43.6 52.2 61.8 Growth (%) 58.0 19.9 18.2 CEPS (Rs) 49.5 57.7 68.2 Book value (Rs/share) 464.9 490.8 534.9 Dividend per share (Rs) 12.5 14.0 15.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 9.7 10.8 11.8 ROCE (%) 9.7 10.8 11.9 Net cash (debt) 2,214 2,629 2,879 Net Working Capital (Days) 135.5 116.5 112.4




Last report at Rs.772 on 17 Aug 2016

VOLTAMP LTD Analyst: [email protected]


Transformer mix in Revenue (%)


1 Year Performance


Order backlog (Rs mn)

Promoter47.5%

FII28.9%

DII11.3%

Others12.3%

0

1,000

2,000

3,000

4,000

5,000

Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16

Power50%

Distribution32%

Dry type18%

50

110

170

230

290 Voltamp Ltd Nifty

INVESTMENT ARGUMENT One of the consistently profitable company in the transformer

manufacturing space The company is seeing strong demand for transformers from the Solar

power sector Gross margins have improved in recent times thanks to weak copper prices Adequate room for production ramp-up as capacity utilization is at ~ 65%. Strong balance sheet with no debt and cash surplus of Rs 2.2 bn, a rarity in

the mid-size transformer industry

RISKS & CONCERNS Industry continues to reel under overcapacity due to an influx of foreign

players in the market Price competition is very intense

COMPANY BACKGROUND The company was established in 1963 at Vadodara. The Exec Chairman is

Mr L H Patel, a technocrat and who has worked earlier with Siemens and Bharat Bijlee. The CEO and MD is Mr KS Patel, who has a rich experience of 26 years in Voltamp as member of top management team.

SECTOR BACKGROUND The slowdown in power industry began few years back has largely

continued which is impacting capacity utilization and price realization because of keen competition amongst organized sector manufacturers owing to overcapacity in industry.

In addition to this, the entry of Chinese Manufactures since few years and continuation of addition of capacity by Multinational Companies in over-crowded industry, has also lead to margin under pressure


Fundamental Desk

Technical Desk

Shrikant Chouhan

Derivatives Desk

Sahaj Agrawal

RESEARCH TEAM

Dipen ShahIT, Economy

Sanjeev ZarbadeCapital Goods, Engineering

Teena VirmaniConstruction, Cement

Arun AgarwalAuto & Auto Ancillary

Ruchir KhareCapital Goods, Engineering

Ritwik RaiFMCG, Media

Sumit PokharnaOil and Gas

Amit AgarwalLogistics, Paints, Transportation

Meeta Shetty, CFAPharmaceuticals

Jatin DamaniaMetals & Mining

Pankaj KumarMidcap

Nipun GuptaInformation Technology

Jayesh KumarEconomy

K. KathirveluProduction

Amol Athawale

Malay Gandhi Prashanth Lalu


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