InvestorsEye-May26_16

7/25/2019 InvestorsEye-May26_16

1/21

investors eye stock update

Sharekhan May 26, 2016 Home Next1

Visit us at www.sharekhan.com May 26, 2016

Registered Ofce: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station,Kanjurmarg (East), Mumbai 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE: INB/INF011073351 / BSE-CD ; NSE:

INB/INF/INE231073330 ; MSEI: INB/INF261073333 / INE261073330 ; DP: NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMS-INP000000662;Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX-00132 ;(NCDEX/TCM/CORP/0142) ; NCDEX SPOT-NCDEXSPOT/116/CO/11/20626 ; For any complaints email at [email protected] ; Disclaimer: Client shouldread the Risk Disclosure Document issued by SEBI & relevant exchanges and Dos & Donts by MCX & NCDEX and the T & C on www.sharekhan.combefore investing.

Index

w Stock Update >>Ashok Leyland

w Stock Update >>Bajaj Auto

w Stock Update >>Info Edge (India)

w Stock Update >>Bajaj Finserv

w Stock Update >>Finolex Cables

w Stock Update >> Kewal Kiran Clothing

w Stock Update >>Thermax

wViewpoint >> Cummins India


2/21



Key points

w Q4FY2016 results broadly in line; exceptional item drags PAT: For Q4FY2016, AshokLeyland Ltd (ALL)s top line at Rs5,955.3 crore was up 32% YoY, driven primarily bya strong volume growth of 34% in the MHCV segment. Realisation per vehicle grewmarginally by 2% led by price hikes. The EBITDA margin at 12.6% improved sharply by250BPS YoY owing to soft commodity prices and lower employee cost and was broadlyin line with estimates. However, exceptional loss of Rs379.2 crore (Rs420.9-crore loss onprovision for dimunition in value of investments in JV/subsidiaries and Rs41.6-crore gainon sale of long-term investment) dragged the protability. Adjusting for the exceptionalloss, the PAT at Rs456 crore was in line with our estimate of Rs449 crore.

w Robust double-digit volume growth to sustain:The MHCV segment exhibited a buoyanttrend in FY2016 and the momentum is expected to continue over the next one to twoyears. Improved eet operator economics (due to soft fuel prices and interest rates),pick-up in the mining and infrastructure projects are likely to aid volume expansion

for MHCVs. Despite the strong growth in the last two years, the industry is still belowthe peak volume levels reported in FY2011 indicating sustained double-digit demandover the medium term. Further, ALLs dealer network expansion in non-south regionsand new launches in the intermediate commercial vehicle (ICV) segment would aidmarket-share gains for the company as well. Also, ALL has been gaining traction in thedefence business with the company recently winning 11 out of the 12 orders it bid for.ALL has identied defence as the core business area and is aiming to increase the shareof defence from the current 4% to 10% over the next four to ve years. We expect ALLsrevenues to grow at 16% CAGR over FY2016-18E.

w Margins to expand given the operating leverage:ALLs margins are likely to expandover the next two years given the operating leverage due to robust double-digit MHCVgrowth. With the raw material prices inching up, the input costs would go up whichwould be more than offset by operating leverage due to robust double-digit volumegrowth and the ability to take price increases. The OPM is expected to expand by120BPS over the next two years.

w Maintain Buy with an unchanged PT of Rs120:ALLs industry leading volume growthin the MHCV segment has enabled it to garner 4.2% incremental market share inFY2016. Strong visibility on the top-line growth due to positive outlook for the MHCVindustry coupled with ALLs efforts to expand network in the non-south region and newproduct launches in the ICV segment augur well for ALL. Favourable product mix andoperating leverage would enable ALL to improve its margins. Further, a major impactof provisioning for diminution in value of investments in subsidiaries/JV has been donein FY2016 and no major write-offs are expected in the near future which would cleanup the balance sheet and improve the return ratios. Though ALL has taken an enablingresolution for issue of fresh equity, however there are no rm plans for fund raisinggiven the healthy cash ow generation, low capex requirement and comfortable debt/equity ratio, thus restricting any dilution. We have broadly maintained our estimates forFY2017 and FY2018 and re-iterated our Buy rating on the stock with an unchanged pricetarget of Rs120.

Results Rs cr

Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Net sales 5,955.3 4,505.7 32.2 4,085.3 45.8

Operating prot 753.1 457.1 64.8 429.7 75.3

OPM (%) 12.6 10.1 BPS 10.5 BPS

Depreciation 117.7 110.1 6.9 108.7 8.3

Interest 60.2 88.2 -31.7 66.6 -9.5

Other income 32.0 37.2 -14.2 25.9 23.5

PBT 607.1 296.1 105.1 280.3 116.6

Tax 150.8 58.0 159.9 75.2 100.6

Adjusted PAT 456.3 238.0 91.7 205.1 122.4

Exceptional items -379.3 -8.0 - 0.0 -

Reported PAT 77.0 230.0 -66.5 198.6 -61.2

Recurring EPS 1.6 0.8 0.7

Company details

Price target: Rs120

Market cap: Rs29,640 cr

52-week high/low: Rs112/63

NSE volume:(No of shares)

1.1 cr

BSE code: 500477

NSE code: ASHOKLEY

Sharekhan code: ASHOKLEY

Free oat:(No of shares)

141.2 cr

Shareholding pattern

Price chart

Price performance

(%) 1m 3m 6m 12m

Absolute -8.0 9.0 6.2 41.3

Relativeto Sensex

-6.1 1.9 8.2 53.2

Ashok Leyland Reco: Buy

Stock Update

Robust volume growth to sustain; maintain Buy with an unchanged PT Rs120 CMP: Rs104

Promoters50%

Institutions10% Corporate

Bodies4%

Foreign25%

Public andOthers

11%

60

70

80

90

100

110

120

May-15

Sep-15

Jan-16

May-16


3/21



Domestic MHCV grows 30% in FY2016; double-digit

growth likely for FY2017 as well:Buoyed by lowered

fuel prices and rm freight, rates the domestic medium

and heavy commercial vehicle (MHCV) truck segment

posted a strong volume growth of 32% for FY2016 while

the MHCV bus segment grew by 19% for FY2016. With the

key economic indicators (industrial activities) expected

to remain positive for the next one to two years coupled

with pick-up in mining and infrastructure projects, the

demand is likely to remain buoyant in FY2017. In addition

to this, the benign interest rate scenario and soft fuel

prices would aid volume growth in the future. Further,

governments proposal to scrap vehicles older than 10

years (so to curb pollution levels) could signicantly

boost the MHCV segments volumes, if approved by

the cabinet. Consequently, the MHCV segment is likely

to sustain a strong demand and register a double-digit

growth in FY2017.

ALLs volume growth

MHCV industry growth

ALLs segmental market share

(30)

(20)

(10)

0

10

20

30

40

50

60

0

10,000

20,000

30,000

40,000

50,000

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Overall Volumes YoY chg %

-10%

0%

10%

20%

30%

40%

50%

0

20000

40000

60000

80000

100000

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

Q2FY

16

Q3FY

16

Q4FY

16

MHCV Truck Vo lumes (LHS) % Ch an ge Yo Y (RHS)

0%

10%

20%

30%

40%

50%

60%

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

MHCV Truck Bus

Visibility on top-line growth provides comfort: ALL

reported a sharp improvement of 41% year on year (YoY)

in the MHCV volumes for FY2016 leading to a market-

share gain of 4.2%. New product launches and higher

dealer penetration particularly in the non-south regions

has helped ALL register a strong overall performance.

Going ahead the demand undercurrent for the MHCV

segment is likely to remain buoyant given the pick-

up in the mining activity and rm industrial activities

coupled with pre-buying due to implementation of the

new emission standards effective from April 1, 2017.

Likely introduction of the scrappage policy for vehicles

older than 10 years could be an inection point for ALLs

revenue growth. We expect the revenues to grow at a

compounded annual growth rate (CAGR) of 16% over

FY2016-18E.

Defence to be the next growth opportunity:ALL has

been gaining traction in the defence business with thecompany recently winning 11 out of 12 orders it bid

for. The company is enhancing the product offerings for

defence by introducing ammunition carrying vehicles as

well. ALL has identied defence as the core business area

and is aiming to increase the share of defence from the

current 4% to 10% of the revenues over the next four to

ve years.

Operating leverage to aid margins expansion: Benign

raw material cost scenario across FY2016 helped ALL

to post a record improvement in the margins with the

operating prot margin (OPM) at 11.5%. The raw material

cycle particularly of steel prices have begun to inch up

pointing at a reversal of the commodity prices, thus

leading to increase cost. However, a strong growth

in the top line due to a positive demand outlook and

ability to take price increase (ALL indicated it could

take 1-3% to price increases which would pass on the

entired commodity price increase) would lead to margin

improvement. We expect ALLs OPM to expand by 120

basis points (BPS) between FY2016-18.


4/21



Valuation

ALLs industry leading volume growth in the MHCV

segment has enabled it to garner 4.2% incremental

market share in FY2016. Strong visibility on the top-line

growth due to positive outlook for the MHCV industry

coupled with ALLs efforts to expand network in the

non-south regions and new product launches in the ICV

segment augur well for ALL. Favourable product mix

and operating leverage would enable ALL to improve

its margins. Further, a major impact of provisioning for

diminution in value of investments in subsidiaries/JV has

been done with in FY2016 and no major write-offs are

expected in the near future which would clean up the

balance sheet and improve the return ratios. Though ALL

has taken an enabling resolution for issue of fresh equity,

however there are no rm plans for fund raising given the

healthy cash ow generation, low capital expenditure

(capex) requirement and comfortable debt/equity ratio,

thus restricting any dilution. We have broadly maintained

our estimates for FY2017 and FY2018 and re-iterated our

Buy rating on the stock with an unchanged price target

of Rs120.

Valuations Rs cr

Particulars FY14 FY15 FY16 FY17E FY18E

Net sales 9,943.4 13,562.2 18,821.6 22,006.4 25,621.0

Growth (%) -20.3 36.4 38.8 16.9 16.4

EBIDTA 116.9 1,026.6 2,166.0 2,672.3 3,250.2

OPM (%) 1.2 7.6 11.5 12.1 12.7

Adj PAT -476.3 233.9 1,112.7 1,497.8 1,917.2

Growth (%) -421.5 NA 375.8 34.6 28.0

FD EPS (Rs) -1.8 0.8 3.9 5.3 6.7

P/E (x) NA 126.6 26.6 19.8 15.4

P/BV (x) 6.2 5.8 5.3 4.8 4.4

EV/EBITDA (x) 269.9 30.6 14.6 11.7 9.5

RoCE (%) -3.0 7.4 20.7 25.2 29.5

RoE (%) -10.7 4.6 19.9 24.5 28.2

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.


5/21



Key points

w Operationally in-line quarter; lower other income leads to prot miss:For Q4FY2016,Bajaj Auto Ltd (BAL)s results were in line with our estimates on the operating front.Revenues grew by 14% YoY to Rs5,411 crore primarily led by a 12% volume growth. A robust24% volume growth in the domestic motorcycle segment led by new launches more thanoffset the weakness in motorcycle exports which declined by 3%. Further, realisationper vehicle grew by 2% led by favourable currency realisation (BAL realised Rs67.5 perdollar in Q4FY2016 as against Rs65.5 per dollar in Q4FY2015 on exports) and richerproduct mix (increased proportion of premium bikes). The EBIDTA margin improved by360BPS YoY to 21.3% (in line with our estimates of 21.9%) led by soft commodity pricesand richer product mix. The EBIDTA at Rs1,152 crore met our expectation. However,lower other income at Rs124 crore (declined by 20% YoY) led to a miss on the protfront. The net prot at Rs803 crore was below our estimate of Rs879 crore.

w Domestic motorcycle industry to recover in FY2017; new launches to lead to market-share gains:After a at motorcycle industry in FY2016 due to poor rural sentiments,the domestic motorcycle industry is poised for a recovery in FY2017. A good monsoon

forecast has led to improvement in the rural sentiments. The industry is likely to recorda 6-7% growth in FY2017. Also, BAL is likely to outgrow the motorcycle industry giventhe new launches. FY2017 is likely to see the full impact of recent launches (Avengerand CT 100). Also, BAL plans to introduce a new Platina(targeting the entry segment)and a new 400cc Pulsar(sport segment). It also plans to launch a refreshed version ofPulsarwhich is likely to lead to market-share gains for BAL. We expect BAL to register a15% growth in the domestic motorcycle industry in FY2017.

w Exports market weak; have guided for almost double-digit decline in FY2017:BALexports volumes (forming about 45% of the overall volumes) are likely to remain underpressure. The weakness in the oil prices have led to the currency depreciation of keymarkets of BAL (Africa, Egypt, Argentina) making the imports costlier. Further, thecountries are also plagued with lack of availability of dollar given the deterioratingbalance of payments position. Also, demand in another key market, Sri Lanka, has beenaffected by increase in the import duties which has signicantly increased the vehicleprices thereby affecting the demand. The above markets are likely to remain underpressure in the near term with BAL guiding for lower export volumes of 1.6 million inFY2017 as against 1.74 million export units in FY2016.

w FY2016 margins at peak; margins to come under pressure given the increasedcommodity prices, higher marketing expenses and expiry of incentives at Pantnagar:BALs FY2016 margins at 21.1% were at multi-year high gaining from favourable exchangerate movement and downtrend in the commodity prices. However, going ahead themargins are expected to come down given the uptrend in the commodity prices. Also,BALs marketing expenses are likely to inch up given the new product launches andincreased competition. Further, the expiry of incentives at the Pantnagar plant inFY2018 would also exert pressure on the margins going ahead. We expect BALs marginsto come down by 130BPS over the next two years to 19.8% in FY2018.

w Outlook and valuation:BAL is likely to register a healthy double-digit growth in thedomestic motorcycle industry given the improved industry prospects and market-sharegain on the back of new launches. However, the export markets contributing abouthalf of the volumes are likely to decline in double digits given the sharp currencydepreciation in the key overseas markets. Further, margins would also come underpressure given the increase in commodity prices, increased marketing expenses andexpiry of incentives at the Pantnagar plant. We have reduced our FY2017 earningsestimates by 7% to factor in weak exports and margin decline. We have also introducedFY2018E earnings assumptions in our note. We have maintained our Hold rating on the

stock with an unchanged price target of Rs2,600.Results Rs cr

Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)

Total income 5,411.4 4,739.3 14.2 5,564.9 -2.8

EBIDTA 1,151.5 837.8 37.4 1,171.3 -1.7

EBIDTA margins (%) 21.3 17.7 360BPS 21.0 30BPS

Depreciation 76.1 63.8 19.3 74.6 2.0

Interest 0.1 6.3 -99.0 0.1 -14.3

Other income 124.1 154.3 -19.5 199.7 -37.8

PBT 1,199.5 922.0 30.1 1,296.2 -7.5

Tax 396.5 300.4 32.0 394.7 0.4

Recurring PAT 803.1 621.6 29.2 901.5 -10.9

EPS 27.8 23.0 20.6 31.2 -10.9

Company details

Price target: Rs2,600


52-week high/low: Rs2,655/2,133


2.6 lakh

BSE code: 532977

NSE code: BAJAJ-AUTO

Sharekhan code: BAJAJ-AUTO


14.6 cr


Price chart

Price performance

(%) 1m 3m 6m 12m

Absolute -3.2 2.1 1.2 18.9

Relativeto Sensex

-1.1 -4.6 3.1 28.8

Promoters49%

Institutions9% Corporate

Bodies7%

Foreign18%

Public andOthers

17%

Bajaj Auto Reco: Hold

Stock Update

Exports outlook weak; maintain Hold CMP: Rs2,505

2100

2200

2300

2400

2500

2600

2700

May-15

Sep-15

Jan-16

May-16


6/21



Valuations Rs cr


Income 20,149.5 21,612.0 22,687.6 24,434.1 27,805.0

Growth (%) 0.8 7.3 5.0 7.7 13.8

EBIDTA (Rs cr) 4,105.7 4,116.6 4,779.6 4,883.1 5,514.2

OPM (%) 20.4 19.0 21.1 20.0 19.8

PAT (Rs cr) 3,243.3 2,813.7 3,652.4 3,840.7 4,349.3Growth (%) 6.6 -13.2 29.8 5.2 13.2

FD EPS (Rs) 112.1 107.2 126.3 132.8 150.4

P/E (x) 22.4 23.4 19.9 18.9 16.7

P/B (x) 7.8 7.0 6.0 5.2 4.6

EV/EBIDTA (x) 15.7 15.5 13.2 12.3 10.6

RoE (%) 34.8 27.0 30.1 27.5 27.6

RoCE (%) 46.8 40.3 42.5 39.0 39.3



7/21



Key points

w Strong Q4:For Q4FY2016, Info Edge delivered a higher-than-expected revenue growth of18% YoY to Rs204.2 crore, driven by 18.9% growth in the recruitment business (Naukri.com)and 5.6% in 99acres.com. The operating prot margin (OPM) for the quarter improved by833BPS QoQ and was down by 86BPS YoY to 30.5% (ahead of our estimates). The sequentialimprovement in margin was attributed to lower advertising spends (especially in 99acres,due to lower competitive intensity) and improvement in the OPM (280BPS) for Naukri.Excluding exceptional income of Rs29.2 crore in Q4FY2015, the adjusted net income forthe quarter was up by 7.8% YoY to Rs57.2 crore on the back of lower tax provisioning at25.4% (vs 31.1% in Q4FY2015). On consolidated basis, the adjusted net loss was Rs101 crorein FY2016 as compared with adjusted net prot of Rs29.6 crore in FY2015, owing to hugeoperating loss of Rs440 crore for Zomato (before depreciation and tax expenses), thoughthings have started improving at Zomato, as burn rate has come down to less than $2million from $9 million earlier.

w Growth momentum likely to continue for stand-alone business: (1) Recruitment(Naukri)s business sentiment remained stable and its newly launched SaaS-based productcareer site manager has been embraced by the customers. Expect recruitment tosustain the growth momentum in FY2017 on the back of favourable IT markets (~40% ofthe total recruitment revenues) and the overall gross domestic product (GDP) growth;(2) Demand for new homes continued to witness slowdown in the NCR region (50-55%of 99acres revenue) and Hyderabad, while Mumbai and Bengaluru markets remainedslightly better. Though the revenue growth for 99acres.com is expected to be better thanQ4 growth rate (YoY), the management foresees no near-term revival in the advertisingspends in the NCR region. Further, prevailing lower competitive intensity in the northernregion is positive in terms of protability; (3) Operating loss for Jeevensathi increasedto Rs13 crore in FY2016 against Rs4.4-crore loss in FY2015 owing to higher ad spends.However, the management indicated that Jeevansathi reached nearly break-even level inQ4FY2016. Similarly, Shiksha reported a turnaround at its operating level in Q4FY2016 andthe management guided the losses will decline further in FY2017.

w Zomato revenue to double in FY2017, to achieve break-even:Although Zomato reporteda revenue of Rs185 crore (up 91%YoY) in FY2016, its operation loss sharply swelled morethan 3x reaching Rs440.9 crore. The management anticipates the revenue for Zomato willbe in the range of Rs300-350 crore, a growth of ~60-95% YoY. Further, the managementbelieves Zomato will achieve break-even at the end of FY2017 as the current cash burnper month falls in the range of $1.6-1.7 million from earlier $9 million. Zomatos currentcash balance stands at $35 million (more details in Zomato con-call highlights).

w Maintain Buy with a price target of Rs1,000:Given the lower competitive intensity inreal estate space, we expect the overall stand-alone margins to improve further in thenear term, additionally in Naukri, we expect gradual improvement in revenues with astable outlook in overall GDP and job market. Further, improvement in overall nancialsof Zomato after recent restructuring exercise will result in lower cash burns. We havetweaked our overall estimates by 2-3% for FY2017 on the back of strong performancereported in Q4FY2016 and introduced FY2018 estimates. We have maintained our Buyrating on the stock with an SOTP-based price target of Rs1,000.

Results (stand-alone) Rs cr

Particulars Q4FY16 Q4FY15 Q3FY16 YoY (%) QoQ (%)

Net sales 204.2 173.1 173.4 18.0 17.8Network, internet and other direct charges 6.0 5.6 5.9 7.7 2.1

Employee benets expense 89.0 68.7 80.4 29.6 10.6Gross prot 109.3 99.1 87.1 10.2 25.4Advertising and promotion cost 21.2 21.9 27.1 -3.4 -21.9Other expenses 25.8 22.8 21.5 12.9 19.6Operating prot 62.3 54.4 38.5 14.6 62.0Depreciation and amortisation 6.0 3.6 5.4 68.1 10.0EBIT 56.4 50.8 33.0 10.8 70.6Other income 20.3 26.9 21.6 -24.6 -5.9Provision of tax 19.5 23.9 21.4 -18.6 -9.1Adjusted net income 57.2 53.0 33.2 7.8 72.3Exceptional item 0.0 -29.2 11.5Reported net income 57.2 82.2 21.7 -30.4 163.1Adjusted EPS (Rs) 4.7 4.4 2.7Margin (%) (BPS) (BPS)

OPM 30.5 31.4 22.2 -86 833

NPM 28.0 30.6 19.1 -259 886

Company details





0.93 lakh

BSE code: 532777

NSE code: NAUKRI

Sharekhan code: NAUKRI


6.9 cr


Price chart

Price performance

(%) 1m 3m 6m 12m

Absolute -6.2 2.9 -8.0 -1.2

Relativeto Sensex

-4.2 -3.9 -6.3 7.1

Info Edge (India) Reco: Buy

Stock Update

Good quarter, Zomato restructuring will drive lower cash burns CMP: Rs793

Promoters43.1%

Institutions10.1%

CorporateBodies

0.4%Foreign35.8%

Public andOthers

10.7%

650

700

750

800

850

900

950

May-15

Sep-15

Jan-16

May-16


8/21



Valuations (stand-alone) Rs cr

Particulars FY15 FY16 FY17E FY18E

Total revenue 611.6 723.5 854.5 1,024.9

EBITDA margin (%) 29.8 21.8 28.5 31.0

Adjusted net prot 164.7 153.0 209.6 261.1

Adjusted EPS (Rs) 13.6 12.7 17.3 21.6

PER (x) 59.1 63.6 46.4 37.3P/BV 5.8 5.5 5.0 4.5

EV/EBITDA 46.7 55.4 35.7 27.1

RoE (%) 9.9 8.7 10.8 12.0

RoCE (%) 14.5 12.5 15.5 17.2

Dividend yield (%) 0.4 0.1 0.2 0.3

SOTP valuation:

Business segment Stake % Valuation methodology/rational Per share value (Rs)

Recruitment business 100 EV/EBITDA 569.5

99 Acres 100 EV/Sales 58.9

Jeevansathi.com 100 EV/Sales 13.5Stand-alone business (per share) 641.9

Zomato Media Pvt Ltd 46 Based on latest funding, valued at$1bn in the last round of funding

243.5

Other investee company 20.9

Cash Per share 94.2

Total per share 1,000

Highlights of Zomato conference call

Zomato has cut down its business from 23 countries

to 14 countries to reduce the cash burns in these highrisk geographies. The company primarily pulled out its

business from the countries, such as the USA, the UK,

Ireland, Sri Lanka, etc.

The cash burn has reduced to $1.6-1.7 million per month

as compared with $9 million per month early last scal

year

Around 70,000 restaurants are currently listed with

Zomato in India, out of which 6% are paid clients

Currently, the average number of orders stands in the

range of 25,000-26,000 per week. 80% of the total

orders are automated, while 20% orders are placed

through call centers

Management expects the overall online ordering

business will hit protability when the average will

touch 40,000 orders a day

80% of its total orders are being delivered to customers

by the restaurants, while the remaining orders are beingdelivered to customers by Zomato through its logistic

partners

Online delivery business in India contributes 20% of

total Indias revenue, while online delivery business

across the globe contributes 7% of its total revenue; the

company has recently started delivery business in the

Philippines

Food delivery business is currently growing at 30%

month on month (MoM), while advertising revenue is

growing at 10% MoM

The cash & cash equivalents stood at $35 million as of

March 31, 2016

Zomato has 1,900 employees worldwide, out of which

1,250 are in India


9/21



Operating metrics

Particulars Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16

Naukri.com

Number of resumes (m) 38 39 40 41 42 44 45 46

Avg resumes added daily (000s) 12 13 9 10 13 13 11 13

Average no. of resumes modieddaily (000s)

116 135 124 133 166 185 163 195

Number of unique customers (000s) 31 31 31 33 34 34 34 36

Vertical breakup of Naukri.com (%)

IT/ITeS 28 29 28 31 29 29 30 31

BFSI 5 5 5 5 5 5 4 5

Infrastructure 17 17 17 16 16 15 15 14

Jeevansathi.com

Number of proles ever loaded (m) 6.3 6.5 6.6 6.8 7 7.2 7.4 7.6

Avg proles acquired daily 1,486 1,849 1,872 2,050 2,131 2,455 2,241 1,925

99acres.com

Number of listings 772 834 852 964 900 1,042 1,095 1098

Number of paid listings 603 609 588 663 623 728 748 747

Number of paid transactions 18.2 21 19.2 20.7 17.6 24.6 23.7 22.4

Segmental revenues (In cr)

Net sales 145.4 147.5 145.7 172.9 171.8 174.1 173.4 204.2

Recruitment solutions 104.1 107.2 108.4 125.2 124.7 128.2 129.4 148.9

99acres for real estate 22.6 24.5 23.0 30.3 25.3 27.8 25.9 31.7

Other verticals 18.3 15.8 14.3 17.8 21.8 18.1 18.1 23.6

PBIT (in cr) 48.7 40.4 34.3 58.3 24.3 32.7 32.7 64.7


99acres for real estate -4.8 -10.5 -15.0 -7.6 -36.1 -27.2 -21.3 -13.4

Others (including Jeevansathi) -0.3 -2.9 -4.1 -3.6 -3.5 -8.3 -4.8 -0.9

PBIT margins (%) 33.5 27.4 23.5 33.7 14.1 18.8 18.9 31.7


99acres for real estate -20.9 -42.9 -65.2 -25.4 -142.7 -97.8 -82.2 -42.3

Others (including Jeevansathi) -1.6 -18.4 -28.7 -20.2 -16.1 -45.9 -26.5 -3.8

Headcount 3,406 3,681 3,701 3,817 4,049 4,124 4,082 4,220

Deferred revenues (in cr) 150 147 143 175 187 175 173 206

Source: Company, Sharekhan research



10/21



Key points

w Consolidated prot down 26.8% YoY due to change in accounting practices:

Bajaj Finserv reported a 26.8% Y-o-Y decline in its net prot owing to change

in its accounting practices. Earlier till FY2015 the prots from policyholders

account to shareholders account were transferred on an annual basis which

is now done on a quarterly basis. Hence, the sum transferred to shareholders

account was higher than in Q4FY2016 leading to a decline in the overall prot.

The total income however reported a healthy growth of 28.7% YoY.

w General insurance and lending business report healthy performance: Bajaj

Allianz General Insurance Company (BAGIC) posted a good set of numbers as

gross written premium (GWP) was up by 18.1% YoY while the prot growth stood

at 44.4% YoY. Bajaj Finance Ltd (BFL) also reported a strong performance as loan

book growth stood at 37.0% YoY driven by consumer durable nance, personal

and business loans. Bajaj Allianz Life Insurance Company (BALIC) reported

a 58.5% decline in its prot due to change in accounting practices however

shareholders prot excluding transfer from policy holders account grew by

87.3% YoY. The asset under management (AUM) growth was at (up 1.3%) owing

to lack of bancassurance.

w Valuation and outlook: BAGIC has shown good performance after a downfall in

Q3FY2016 owing to Chennai oods and remains one of the top companies in the

general insurance space owing to its strong distribution network, while BALICcould see improvement as the company is looking out for tie-ups with various

banks for bancassurance and revival in life insurance industry could augment its

growth. The lending business, ie BFL, continues to remain robust and we expect

it to be the key driver for overall earnings growth. We have maintained our Buy

rating on the stock with an unchanged SOTP-based price target of Rs2,290.

Results Rs cr


Income from operations 2,467.6 1,917.9 28.7 2,395.2 3.0

Transfer from policy holders account 99.46 487.89 (79.61) 48.64 104.5Other income 0.2 0.8 -81.9 0.0 650.0

Total income 2,567.2 2,406.7 6.7 2,443.9 5.0

Expenses 750.7 603.0 24.5 755.9 -0.7

Operating prot 1,816.5 1,803.7 0.7 1,688.0 7.6

Interest 789.5 602.8 31.0 733.8 7.6

Prot before tax 1,026.9 1,200.9 -14.5 954.2 7.6

Tax 260.1 227.0 14.6 276.0 -5.8

Prot from ordinary activities 766.8 973.9 -21.3 678.2 13.1

Less minority interest 248.9 266.8 -6.7 240.9 3.3

Net prot 518.0 707.1 -26.8 437.3 18.4

Company details





0.5 lakh

BSE code: 532978

NSE code: BAJAJFINSV

Sharekhan code: BAJAJFINSV


6.63 cr


Price chart

Price performance

(%) 1m 3m 6m 12m

Absolute -4.1 8.0 -6.6 24.7

Relativeto Sensex

-2.0 0.9 -4.9 35.1

Bajaj Finserv Reco: Buy

Stock Update

General insurance and BFL post good performance CMP: Rs1,789

Promoter58%

Public42%

1400

1500

1600

1700

1800

1900

2000

2100

May-15

Sep-15

Jan-16

May-16


11/21



BALICMuted business growth: For Q4FY2016, BALIC

showed a muted performance as the GWP growth

remained at at 1.7% year on year (YoY). However, the

new business premium was up by 7.6% YoY, while renewal

premium during the quarter declined by 3.7% YoY owing

to lapsation of limited pay products hence the base to

generate premiums was lower. However, the company

is looking out to approach banks for bancassurance tie-

ups which were the primary reasons for its lacklustre

growth along with overall sluggish life insurance

business environment. The company also expects public

sector banks (PSBs) would go for multiple tie-ups since

Insurance Regulatory and Development Authority (IRDA)

has increased the limit for banks to tie-up with insurers

from three to nine. The company would now focus more

on the individual segment in order to revive its life

insurance business. It has started various activities to

improve its life insurance business like revamping the

agency channel, improving the ticket size and targetingtop 20 to 30 cities where its presence is weak. The net

prot for the quarter was down by 58.5% YoY owing to

change in accounting practices while the AUM growth

stood at 1.3% YoY.

Bajaj Allianz Life Insurance Company

Particulars Q4FY16

Q4FY15

YoY(%)

Q3FY16

QoQ(%)

Gross writtenpremium

2,419.0 2,379.1 1.7 1,225.2 97.4

New business

premium

1,213.0 1,127.0 7.6 538.0 125.5

Renewalpremium

1,206.0 1,252.0 -3.7 687.0 75.5

Policyholderssurplus

99.0 488.0 -79.7 49.0 102.0

Shareholdersprot

133.0 71.0 87.3 191.0 -30.4

Prot/(Loss) forthe year

232.0 559.0 -58.5 142.0 63.4

AUM 44,107.5 43,553.7 1.3 43,361.0 1.7

BAGICProtability and operating metrics improve:

During Q4FY2016, BAGIC reported a good set of numbersafter subdued performance in the previous quarter owing

to Chennai oods. The GWP increased by 18.1% YoY while

net earned premium growth stood at 12.6%, and interest

and dividend income also reported a strong growth of

56.5% YoY. The AUM growth underwriting prot grew by

50% YoY to Rs30 crore after a loss of Rs116 crore due to

higher claims in Q3FY2016. Claim ratio was down by ~1%

for Q4FY2016 while the combined ratio improved to 94.3%

from 95.14% YoY and 108.7% YoY. BAGIC saw a decline in

its operating expense (opex) ratio as the overall growth

picked up while some part of the expense was shared by

its reinsurance counterpart. The management feels the

market for general insurance is still under penetrated

and there is a lot of opportunity for growth. BAGIC is

one of the top general insurers especially in the retail

category with best operating metrics. Any uptick in the

economic activity and vehicle sales would only enhance

the growth prospectus for BAGIC.

Bajaj Allianz General Insurance Company

Particulars Q4FY16

Q4FY15

YoY(%)

Q3FY16

QoQ(%)

Gross writtenpremium

1,730.0 1,465.0 18.1 1,348.4 28.3

Net earnedpremium

1,126.0 999.8 12.6 1,037.0 8.6

Interest anddividend income

277.0 177.0 56.5 211.0 31.3

Prot before tax 257.0 197.0 30.5 95.0 170.5

Prot after tax 208.0 144.0 44.4 68.0 205.9

BFLStrong performance continues: BFL reported

a healthy 36.4% year-on-year (Y-o-Y) growth in its net

prot driven by a strong 37.0% jump in its loan book.

The loan book was driven by various segments like

consumer durable nance, personal and business loans.

The relatively new products like lifestyle nancing,

digital products lending and rural nancing also reported

a robust growth (small book size). The company has the

ability to launch new products, strong risk management

and has unique customer acquisition strategy which

would continue to drive the business growth. The overallasset quality has improved during the quarter as gross

non-performing asset (GNPA) ratio declined to 1.23%

from 1.29% quarter on quarter (QoQ).

Particulars Q4FY16

Q4FY15

YoY(%)

Q3FY16

QoQ(%)

Net interestincome

1,015.3 741.4 37.0 1,222.4 -16.9

Non-interestincome

136.3 91.9 48.4 97.9 39.2

Net totalincome

1,151.6 833.2 38.2 1,320.3 -12.8

Operatingexpenses

506.1 374.9 35.0 549.0 -7.8

Pre-provisioningprot

645.5 458.3 40.9 771.4 -16.3

Provisions 156.5 113.8 37.6 146.2 7.1

Prot beforetax

489.0 344.6 41.9 625.2 -21.8

Tax 174.0 113.6 53.2 216.7 -19.7

Prot after tax 315.0 231.0 36.4 408.5 -22.9

Advances 42,756 31,199 37.0 41,760 2.4


12/21



Valuation and outlook: BAGIC has shown good

performance after a downfall in Q3FY2016 owing to

Chennai oods and remains one of the top companies

in the general insurance space owing to its strong

distribution network, while BALIC could see improvement

as the company is looking out for tie-ups with various

banks for bancassurance and revival in the life insurance

industry could augment its growth. The lending business,

ie BFL, continues to remain robust and we expect it to

be the key driver for overall earnings growth. We have

maintained our Buy rating on the stock with an unchanged

sum-of-the-parts (SOTP)-based price target of Rs2,290.

Valuation

Particulars Stake(%)

Value per share

Life Insurance (1.3x FY16 EV) 74 615

General Insurance (2.8x FY17 BV) 74 505

Bajaj Finance ( 3.7x FY18 BV) 58 1150

Investments 20

Total 2,290



13/21



Key points

w Stellar performance; earnings more than doubled, much ahead of estimates:Finolex Cables Ltd (FCL) reported a whooping Rs83 crore of PAT in Q4FY2016 ascompared with Rs32 crore in Q4FY2015. This was also substantially better thanour as well as Street estimate. In line with our estimate, the revenue remainedat (YoY) at Rs681 crore due to lower realisations (copper price correction hasbeen passed on to consumers) but it witnessed a strong volume growth in bothelectrical (up 12%) and communications (up 20%) segments. The OPM expandedby spectacular 700BPS YoY and the operating prot jumped by 82% YoY to Rs112crore in Q4FY2016. Consequently, PAT jumped by a whopping 160% YoY in thecurrent quarter, also on annual basis earnings grew by more than 40% to Rs249crore.

w Existing business on track but delay in new product lines:During FY2016,the performance of communication business jumped substantially (with

government order in hand) over last year which propelled the overall growth,though the electrical cables business continued a very healthy volume drivengrowth momentum. The prudent working capital management helped thecompany to generate close to Rs300-crore cash from operation which will beinstrumental in further strengthening its already debt-free balance sheet. Whilethe existing business is doing fairly well, recently the company launched fansin the market which could bring incremental revenue marginally in FY2017 andmeaningfully in FY2018. However, the company is still waiting for the approvalof its switchgear facility.

w Revised upward earnings estimate and price target; re-iterate Buy: FCLreported an impressive result in this quarter, which surprised us positively andthe stock could react strongly in the next trading session. We like the sustainedstrong cash ow generation by the company and the ability to deliver a veryhealthy returns ratio. Moreover, the management is fairly condent of healthyvolume growth in future and expects the new product lines like fans andswitchgears will add substantial revenue stream in future. On this backdrop,we have revised upward our earnings estimates by roughly 15-20% for FY2017and FY2018 each and raised our price target to Rs360 (earlier Rs310). We alsore-iterate our Buy rating on the stock.

Results Rs cr


Revenue 681 658 3.4 587 16.0

Operating prot 112 61 82.2 78 42.4

Other income 18 9 95.4 10 84.7Interest 1 3 -57.7 2 -32.3

Depreciation 18 22 -18.5 13 31.5

PBT 111 46 141.6 73 51.9

Tax 27 21 27.7 20 36.5

EO - 23 -

Reported PAT 83 47 77.7 53 57.8

Adjusted PAT 83 32 160.7 53 57.8

Adjusted EPS 5.4 2.1 160.7 3.4 57.8

Margin BPS BPS

OPM (%) 16.4 9.3 708.6 13.4 303.3

NPM (%) 12.2 4.8 736.9 9.0 323.5

Tax rate 24.8 46.9 (2,211.0) 27.6 (280.4)

Company details

Price target: Rs360




79,963

BSE code: 500144

NSE code: FINCABLES

Sharekhan code: FINCABLES


9.6 cr


Price chart

Price performance

(%) 1m 3m 6m 12m

Absolute -2.1 19.5 6.9 15.7

Relativeto Sensex

0.0 11.7 8.9 25.4

Finolex Cables Reco: Buy

Stock Update

Stellar performance; PT revised to Rs360 CMP: Rs305

Promoters37%

FII

5%DIIs20%

Others38%

200

220

240

260

280

300

320

May-15

Sep-15

Jan-16

May-16


14/21



Valuations Rs cr


Net sales 2,359.0 2,449.1 2,461.1 2,682.0 3,036.4

Y-o-Y growth (%) 3.9 3.8 0.5 9.0 13.2

Operating prot 248.2 258.8 338.5 364.8 409.4

OPM (%) 10.5 10.6 13.8 13.6 13.5

Net prot 189.9 175.8 248.8 270.6 301.9Adjusted EPS (Rs) 12.4 11.5 16.3 17.7 19.7

Y-o-Y growth (%) 18.3 (7.4) 41.6 8.8 11.6

PER (x) 24.6 26.6 18.8 17.3 15.5

P/B (x) 4.2 3.7 3.2 2.8 2.4

EV/EBIDTA (x) 14.8 13.8 10.5 9.3 8.2

Div yield (%) 0.5 0.6 0.8 0.9 1.0

RoCE (%) 22.0 19.7 24.5 23.3 22.6

Core RoE (%) 26.9 20.0 28.6 23.2 22.8

RoIC (%) 33.9 34.5 51.3 50.8 48.1

Stellar performance; beats estimates: FCL beat theestimates with a whooping Rs83-crore adjusted prot

after tax (PAT) in Q4FY2016 as compared with Rs32-

crore adjusted PAT in Q4FY2015. The revenue remained

at year on year (YoY) at Rs681 crore due to lower

realisations as the copper price correction has been

passed on to consumers. The strong volume growth

in both electrical (12%) and communications (20%)

segments surprised us positively. The gross prot margin

(GPM) expanded by 930 basis points (BPS) in Q4FY2016

as the company was successful in harvesting the benet

of commodity price correction. The volume growth along

with GPM expansion has driven the protability of thecompany. The operating prot margin (OPM) expanded

by spectacular 700BPS year on year (YoY) to 16.4% in

Q4FY2016 and consequently operating prot jumped to

Rs112 crore in Q4FY2016 as compared with Rs61 crore

in Q4FY2015. The strong operating performance trickled

down to prot after tax (PAT) level which more than

doubled in the current quarter.

On segmental basis, the electrical cables revenue was

at at Rs545 crore in spite of lower copper prices, on the

back of a strong 12% volume growth. With a strong volumegrowth, the prot before interest and tax (PBIT) margin

of the segment expanded by 281BPS to 18% and PBIT

stood at Rs98 crore, 17% higher YoY. The communications

cables segments revenue grew by 18% again on the back

of strong 20% volume growth. Consequently, the PBIT

margin expanded by 600BPS to 14.5% and PBIT more than

doubled YoY to Rs17 crore, on a low base.

Segmental Rs crParticulars Q4

FY16Q4

FY15YoY(%)

Q3FY16

QoQ(%)

Electric cablesRevenue 545.4 551.98 -1 521.1 5Contribution (%) 83 85 90PBIT 98.2 83.8 17 82.3 19Contribution (%) 88 108 (1,935)

BPS

95 (628)

BPSPBITM (%) 18.0 15.2 281 15.8 219CommunicationcablesRevenue 119.0 73.8 61 62.2 91Contribution (%) 18 11 11PBIT 17.23 6.21 177 4.73 264Contribution (%) 15 8 752 5 1,006PBITM (%) 14.5 8.4 607 7.6 687OthersRevenue 26.0 48.7 -47 6.5 303Contribution (%) 4 8 1PBIT -4.65 -13.14 NA -0.64 NAContribution NA NA NAPBITM (%) -17.9 -27.0 NA -9.9 NA

FY2016 performance: During FY2016, the company

benetted from a sharp correction in the commodity

prices and favourable product mix thus delivering a solid

operating and consequently earnings numbers. The top

line however was attish at Rs2,461 crore as volume

growth was off-set by drop in realisation. The OPM of

the company expanded by 320BPS YoY to 13.8% and

the operating prot stood at Rs338 crore, 30% up YoY.

Consequently, the adjusted PAT of the company grew by

42% YoY to Rs249 crore. On the balance sheet side, the

company has repaid around Rs25-crore debt in FY2016and now the total debt on the companys balance sheet

stands at Rs26 crore. The company also managed to

improve its net working capital cycle to 33 days in FY2016

from 42 days in FY2015. Consequently, the company has

generated around Rs300-crore cash ow from operations.

Revised upward earnings estimate and price target;

re-iterate Buy:FCL reported an impressive result in this

quarter, which surprised us positively and the stock could

react strongly in the next trading session. We like the

sustained strong cash ow generation by the company

and the ability to deliver a very healthy returns ratio.Moreover, the management is fairly condent of healthy

volume growth in future and expects the new product

lines like fans and switchgears could add substantial

revenue stream in future. On this backdrop, we have

revised upward our earnings estimate by roughly 15-20%

for FY2017 and FY2018 and raised our price target to

Rs360 (earlier Rs310). We also re-iterate Buy rating on

the stock.



15/21



Key points

w Q4FY2016 result synopsis; Strong performance: For Q4FY2016, driven bystrong volume growth of 17% YoY, Kewal Kiran Clothing Ltd (KKCL) posted arobust 20.9% top-line growth. Despite a sharp increase in overheads (contractualemployee cost, and advertisement & sales promotion), the benign raw materialprices resulted in margin sustenance at 27% for the quarter, while the operatingprot grew by 21% YoY. Lower other income, coupled with increased tax anddepreciation affected the net earnings that grew by 1.8% on a Y-o-Y basis.

w Management remains condent of double-digit revenue growth: In ourinteraction with the management, it sounded condent of the demandenvironment and has started witnessing double-digit growth across regions and

categories. Its strategy of staying away from rampant discounting in the marketplace has started yielding results. It has guided us for a revenue growth ofaround 15% for FY2017, while it expects the revenue growth momentum inmedium term in the range of 15-18%. The company would continue to nurtureand invest in its brands and hence advertisement and promotion expenseswould continue to remain elevated, and hence it expects the annual margin toremain at the current level of 23-24%.

w Strong business, robust balance sheet; maintain Buy: We expect KKCL topost 13.2% revenue CAGR over FY2016-18, with net earnings growing at 19.6%over the same period. The company has robust balance sheet with an overallcash and cash equivalents of Rs183 crore as on March 31, 2016, this constitutesaround 8.5% of its current market cap. We believe that the company with strong

pedigree of brands, transparent management and a robust balance sheet,would continue to trade at premium valuations. Thus, we have maintained ourBuy rating on the stock with a revised price target of Rs2,360.

Results Rs cr

Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Net revenues 126.7 104.7 20.9 95.4 32.7COGS 52.8 46.9 12.8 41.8 26.5Sales (%) 41.7 44.7 43.8Staff cost 11.6 11.9 (2.2) 12.9 (9.9)Sales (%) 9.2 11.3 13.5 (32.1)Selling & administrativeexpenses

15.8 10.6 49.5 15.3 3.2

Sales (%) 12.5 10.1 16.0Other expenses 12.4 7.3 69.1 9.1 36.6Sales (%) 9.8 7.0 9.5 3.0Operating prot 34.0 28.1 21.0 17.2 98.3Interest expenses (net) 0.9 0.5 78.4 0.8 8.3Depreciation & amortization 1.2 0.9 27.5 1.0 16.0PBT 33.6 30.5 10.5 16.2 107.7Tax 11.9 9.0 31.1 5.5 114.3Adjusted PAT 21.8 21.4 1.8 10.7 104.2PAT margin 17.2 20.4 0.1Extra-ordinary item - - -Reported PAT 21.8 21.4 1.8 10.7 104.2EPS 17.7 17.4 1.8 8.7 104.2Gross prot margin 58.3 55.3 302 56.2 206

OPM (%) 26.9 26.9 1 18.0 888

Company details





1,691

BSE code: 532732

NSE code: KKCL

Sharekhan code: KKCL


0.3 cr


Price chart

Price performance

(%) 1m 3m 6m 12m

Absolute -0.6 4.0 -8.5 -16.0

Relativeto Sensex

1.5 -2.8 -6.8 -9.0

Foreign13%

Institutions9%

Non-promotercorporate

1%

Promoters

77%

Kewal Kiran Clothing Reco: Buy

Stock Update

Robust business; maintain Buy with PT revised to Rs2,360 CMP: Rs1,750

1600

1750

1900

2050

2200

2350

May-15

Sep-15

Jan-16

May-16


16/21



Valuations Rs cr


Net sales 367.2 405.1 457.4 517.0 585.8

Growth (%) 21.2 10.3 12.9 13.0 13.3

Adj net prot 67.0 66.3 68.0 84.9 97.3

Yoy change 26.5 (1.1) 2.6 25.0 14.6

EPS 54.4 53.7 55.1 68.9 78.9P/E (x) 32.2 32.6 31.8 25.4 22.2

Book value 235.5 261.9 291.3 328.1 370.2

P/BV 7.4 6.7 6.0 5.3 4.7

EV/EBITDA (x) 18.8 18.6 17.3 13.7 11.8

RoE 24.6 21.6 19.9 22.2 22.6

RoCE 30.9 28.9 28.1 28.4 28.8

Key result highlights

Volume growth drives top-line performance:KKCL

posted a strong 21% growth in the top line, led by

double-digit volume growth for the quarter. Thecompany posted a 17% volume growth while the

blended realisation grew by 3.7% year on year (YoY).

The realisation growth was a combination of excise

duty hike passed on to consumers (imposed in Budget

2016), along with a product mix change.

Brand-wise Lawman posted a stellar 50% year-on-

year (Y-o-Y) growth (albeit at a low base), followed

by Integriti (+21.5% YoY), and Easies (+14.6% YoY).

Brand Killer that constitutes around 48-50% to the

top line grew at a modest 11.4% YoY. Going forward,

the management expects around 15% growth fromthe overall portfolio of brands. Distribution-wise,

MBO continues to be the main distribution mode

(constituting around 51% to the revenue), which grew

at 17.4% YoY. Growth from the e-commerce and large

format stores was strong at 3x and 54% respectively.

GPM improves: Aided by lower commodity prices

(predominately cotton), as Q4 being a summer-led

quarter, the usage of blends reduces and cotton andlinen are largely used as raw materials. Thus, KKCL

witnessed a 302-basis point gross prot margin (GPM)expansion for the quarter from 55.3% in Q4FY2015 to58.3% in Q4FY2016.

Margins sustain despite increase in overheads:Though GPM improved, increase in other xedoverheads (increase in minimum wages for contractualemployees accounted in other expenses), alongwith increase in advertisement spent (to improvebrand reach and salience), nullied the impact ofGPM expansion, thus resulting in at margins on aY-o-Y basis. The operating prot margin (OPM) forQ4FY2016 was at 26.9%, and the overall operating

prot grew by 21% YoY.

Balance sheet remains robust: KKCL continuesto leverage on its brand strength and consumerpull strategy, thus it continues to sell on outrightpurchase method, thereby de-risking itself frominventory risk. The company has a sleek 90 days cashconversion cycle. The company is cash surplus withRs183 crore. The business generates enviable returnshovering around 28% for return on capital employed(RoCE) and 20% return on equity (RoE).

Investments parked in xed maturity paper: The

company has parked its cash and investment intoxed maturity papers, with an annual yield of 9%,with three years maturity. It has parked aroundRs150 crore into this papers, which as per the newaccounting policy would be recognised only on receiptbasis (earlier the same was recognised on accrualbasis). Thus, for the last 24 months there has been noaccounting on other income into the nancials of thecompany. A part of the same investment (around Rs80crore) would mature in Q2 and Q3FY2017 (around that

would provide boost to the earnings in FY2017, while

the rest (around Rs70 crore) would mature in FY2018.

Q4FY2016- Brand-wise revenue mix

Q4FY2016- Channel-wise revenue mix

Killer, 54%

Integriti, 20%

Page 3Lawman, 20%

Easies, 3%Others, 3%

K-Lounge, 24%

MBO, 57%

Large formatstores, 9%

Factory outlet, 3%

Exports, 6%



17/21



Key points

w Weak result in Q4; slippage in revenue affects earnings: For Q4FY2016,Thermax (stand-alone) reported another quarter of weak result, below ourestimate. The earnings declined by 16% YoY to Rs111 crore mainly on account oflower revenue (15% drop YoY) and OPM contraction of 120BPS. The company isgoing through a phase of subdued order inow, given the slower-than-expectedinvestment cycle revival. Though Thermax managed to improve its gross protmargin (GPM) in this quarter, higher other expenses (includes write-off of baddebts to the tune of Rs14 crore) weighed on the OPM in a weak revenue scenario.Consequently, the operating prot declined by 25% but with a sharp drop ininterest cost, the net prot decline was restricted at 16% YoY in Q4FY2016.

w Recovery elusive; softer outlook to continue:During FY2016, the earnings ofThermax declined by 9% YoY, on account of 7% decline in revenue and 109BPSof OPM contraction. However, due to prudent working capital management,it has generated substantially higher cash ow and debts in the subsidiariesare paid off. Further, the management expects loss from subsidiaries to shrinkgoing forward, with better balance sheet. While the efforts by the company arevisible in numbers, the environment remains challenging as investment cyclerecovery is yet to pick up. Consequently, the outlook is likely to remain softerfor some time.

w Revised down earnings estimate, subsequently PT revised down to Rs800but retain Hold:Thermax started the year with a 16% lower order book, butmanaged to close the year with a 7% decline in revenue with better execution.Now, again FY2017 is starting with a 15% lower order book position at Rs3,747

crore. Therefore, we expect weak revenue for FY2017 again, unless the companywins substantially higher orders in the year. On this backdrop, we have reviseddown our earnings estimate by roughly 15% and subsequently revised down theprice target. We believe muted outlook would be an overhang for the stockespecially being at a high valuation. Nevertheless, the company is prepared towithstand the phase and building its base for future growth, backed by strongbalance sheet and technology advantage. Hence, we have retained our Holdrating on the stock with price target revised down to Rs800 (earlier Rs900).

Results Rs cr

Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Net sales 1,293 1,521 -15.0 1,039 24Net raw material 791 1,011 -21.8 640 24

Employee expenses 123 126 -2.6 118 4Other expenses 262 226 15.6 182 43Operating prot 118 157 -24.8 99 20Other income 48 63 -24.0 13 266Interest 0.1 12.4 -99.4 0.2 -60Depreciation 13 15 -12.0 16 -16PBT 152 192 -20.8 96 59Tax 41 60 -31.3 28 48Adjusted PAT 111 132 -16.0 68 64Rep PAT 111 132 -16.0 68 64EPS 9.3 11.1 -16.0 5.7 64Margin (%) BPS BPSOPM 9.1 10.3 (120) 9.5 (37)PATM 8.6 8.7 (11) 6.5 207

Tax rate 27.1 31.2 (416) 29.1 (203)

Company details

Price target: Rs800


52-week high/low: Rs1,144/700


46,911

BSE code: 500411

NSE code: THERMAX

Sharekhan code: THERMAX


4.5 cr


Price chart

Price performance

(%) 1m 3m 6m 12m

Absolute -9.8 -9.3 -20.0 -31.4

Relativeto Sensex

-7.9 -15.2 -18.5 -25.6

Thermax Reco: Hold

Stock Update

Another weak quarter; PT revised down to Rs800 CMP: Rs740

Promoters38.9%

FII

16.0%

DII7.8%

Others14.2%

650

750

850

950

1050

1150

May-15

Sep-15

Jan-16

May-16


18/21



Valuations Rs cr


Net sales 4,302 4,697 4,352 4,066 4,328

Y-o-Y growth (%) (8.3) 9.2 (7.4) (6.6) 6.4

Operating prot 409 471 389 379 412

OPM (%) 9.5 10.0 8.9 9.3 9.5

Adj Net Prot 220 336 306 291 319Adj EPS 18.5 28.2 25.6 24.4 26.8

Y-o-Y growth (%) (37.0) 52.6 (9.2) (4.7) 9.8

PER 56.1 36.8 40.5 42.5 38.7

P/B 6.1 5.5 5.0 4.6 4.2

EV/EBIDTA 23.5 18.8 21.6 21.0 18.9

RoCE (%) 20.3 22.9 17.9 16.2 16.7

RoNW (%) 11.4 15.8 12.9 11.3 11.4

Div yield (%) 0.8 0.9 0.8 0.8 0.8

Q4FY2016 result-Another weak quarter: The weak

order inow scenario in the past has led to a 15% year-on-year (Y-o-Y) decline in stand-alone revenues, which stood

at Rs1,293 crore. Both energy and environment segments

declined by 17% year on year (YoY) however the other

operating income (consists of foreign exchange [forex]

uctuations) grew substantially thus partially arresting

the fall in revenues. On the positive side, the subsidiaries

continued the high revenue growth momentum (up 77%

YoY), on a low base. Thus, subsidiaries managed to mask

the poor performance of stand-alone entity and on the

consolidated basis, Thermaxs revenue was down only 5%

YoY at Rs1,620 crore.

On a consolidated basis, with better revenue traction

in subsidiaries (up 77% YoY), the most of the loss-

making subsidiaries have reduced the losses and have

become earnings before interest, tax, depreciation

and amortisation (EBITDA) positive. The total loss of

subsidiaries amounted to Rs23 crore in Q4FY2016 as

compared with a loss of Rs35 crore in Q4FY2016. As a

mixed bag result of poor performance in stand-alone

entity and better performance of subsidiaries, the

consolidated prot for the company declined by 10%

to Rs88 crore. To sum it up, the weak performance

of the stand-alone entity was partially offset by the

improvement in subsidiaries.

On the stand-alone basis, the gross prot margin (GPM)

improved due to low commodity prices. However, the

other expenses grew substantially due to bad debt write-

offs. Therefore, despite GPM expansion by 500 basis points

(BPS) YoY, the operating prot margin (OPM) contracted

by 120 basis points (BPS) YoY and led to decline in the

operating prot of 25% YoY to Rs118 crore in Q4FY2016.

Below the operating line, the lower interest & tax outgo

restricted prot after tax (PAT) to decline by 16% only toRs111 crore on a stand-alone basis.

Trend in top line

-

20

40

60

80

100

120

140

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Standalone PAT Group PAT

Stand-alone and group performance

FY2016 performance and earnings revision: The stand-

alone FY2016 performance is lower than FY2015 both attop line as well as at the adjusted prot after tax (PAT)

level. The OPM has contracted by 100BPS to 8.9%. Even

the order book scenario has also deteriorated, given a 9%

Y-o-Y drop in order inow. Consequently, at the end of

FY2016, the order backlog is 15% lower on a Y-o-Y basis at

Rs3,747 crore. On the balance sheet side, the company

continues to remain debt free and it also managed to

maintain its net working capital days at 65. On the

consolidated basis, the scenario was better as most of

the subsidiaries which were making losses have now

turning EBITDA positive. Consequently, the consolidated

revenues of the company were up by 4% YoY at Rs5,501

crore and the operating prot margin was also stable at

8.2%. The repayment of debt, reduced nance expenses

and led to an adjusted prot of Rs243 crore, up 21% YoY.

Conference call highlights:

Weak order inow in Q4; likely to remain soft

for some time:Due to the delay in the pick-up of

domestic capital exchange (capex) cycle, the order

book scenario of the company is subdued for past

several quarters and now the stand-alone order book

stands at Rs3,747 crore, down 15% YoY. On segmental

5,699

5,389

5,206

5,016

5,097

4,396

4,275

4,006

3,830

3,747

-3%-6%

-3%

14% 13%10%

19%

-11% -9%-15%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-

1,000

2,000

3,000

4,000

5,000

6,000

Q

3FY14

Q

4FY14

Q

1FY15

Q

2FY15

Q

3FY15

Q

4FY15

Q

1FY16

Q

2FY16

Q

3FY16

Q

4FY16

Order Backlog -Standalone Revenue growth Standalone%


19/21



basis, the energy segments order inows and order

backlog stood at Rs961 crore and Rs3,125 crore

respectively, while for the environment segment it

is Rs216 crore and Rs622 crore respectively. Also, the

management does not see any material changes on

the large-ticket ordering activity. However, small-

and medium-sized order momentum continues to

remain strong and the company is doing quite well

in the space.

Improvement in performance of subsidiaries

continues:The revenue of the subsidiaries has jumped

more than 77% to Rs327 crore and consequently the

overall subsidiaries net loss has also reduced to Rs23

crore in Q4FY2016 from Rs35 crore in Q4FY2015. The

management has guided that, all the subsidiaries

except China are prot before tax (PBT) positive and

even the China subsidiary is EBITDA positive now.

Consequently, the management expects that forFY2017 the total subsidiaries should be contributing

to protability positively.

Revised down earnings estimate, subsequently PT

revised down to Rs800 but retain Hold:Thermax had

started the year with a 16% lower order book, but it

managed to close the year with 7% decline in revenue

with better execution. Now, again FY2017 is starting

with a 15% lower order book position at Rs3,747

crore. Therefore, we expect weak revenue for FY2017

again, since it seems unlikely that the company wins

substantially higher orders in the year. On this backdrop,

we have revised down our earnings estimate by roughly

15% and subsequently revised down the price target.

We believe muted outlook would be an overhang for the

stock especially being at a high valuation. Nevertheless,

the company is prepared to withstand the phase and

building its base for future growth, backed by strong

balance sheet and technology advantage. Hence, we

have retained our Hold rating on the stock with a price

target revised down to Rs800 (earlier Rs900).



20/21

investors eye viewpoint


Key points

w Sharp drop in export business lead to weak result in Q4:Cummins India Ltd (CIL) reported a weak set of numbers

in Q4FY2016. The earnings declined by 14% YoY to Rs164 crore due to subdued revenue and drop in other income.

The revenue declined by 6% YoY as the export business dropped by around 30%. However, the domestic business

is relatively stable. For FY2016, the revenue grew by 7%, backed by 13% increase in the domestic business while

export business declined by 3%. The annual operating performance turned weaker in H2FY2016, though it started

on a strong note at the beginning of FY2016.

w Export outlook turned hazy and rising concern related to change in policy for new products: In addition to

weak Q4, the guidance for FY2017 is also not encouraging. The management indicated that the domestic business

is likely to grow by 8-10% in FY2017 but export business is expected to be at-to-negative next year. Consequently,

FY2017 revenue is likely to grow in mid-to-high single digit only. Whats more, the company indicated that all newexport models would be introduced through its unlisted subsidiary in India (and not the listed Cummins India) and

the listed entity would only earn marketing margins on the new products. This is an unfavourable development for

the listed company (CIL) and negative for minority shareholders.

w Muted earnings outlook and unfavourable policy changes; Exit; removing it from the Wealth Creator Folio

also:Given the muted growth guidance and unfavourable policy changes, CIL would no longer command premium

valuations associated with its pedigree and technological prowess in engines segment. Moreover, the arrangement

to just earn marketing margins on new products would eventually dent its margin prole and return ratios. Hence,

we expect the stock to languish and underperform. We recommend investors to Exit. We are also removing the

stock from the Wealth Creator Portfolio with immediate effect (would recommend a replacement during the

monthly review next week).

w Risk to our call:In case of resistance from minority shareholders, the management might reconsider its policy of

introducing new products through its unlisted subsidiary in India. In the past also, some of the companies have

relented to shareholder pressure and policy reversed decision detrimental to the interest of minority shareholders.

Result Rs cr


Net sales 1,065 1,134 -6.0 1147 -7.1

Net raw material 655 716 -8.6 729 -10.2

Employee Expenses 104 100 4.1 108 -3.9

Other Expenses 136 143 -4.5 139 -1.8

Operating prot 171 175 -2.5 171 -0.1Other Income 51 66 -22.4 57 -9.3

Interest 0.2 0.3 -12.0 0.2 4.8

Depreciation 20.6 19.1 7.8 20.2 2.1

PBT 201.3 222.0 -9.3 207.2 -2.8

Tax 37 32 17.8 29 28.9

Adjusted PAT 164 190 -13.8 178 -8.0

Rep PAT 164 190 -13.8 178 -8.0

EPS 5.9 6.9 -13.8 6.4 -8.0

Margin (%) BPS BPS

OPM 16.0 15.5 57 14.9 112

PATM 15.4 16.8 (139) 15.6 (14)

Tax rate 18.5 14.2 425 13.9 454

Cummins India

Viewpoint

Weak result; concern rising on change in policy for new products CMP: Rs808


21/21

investors eye stock updateSharekhan Stock Ideas

AutomobilesApollo TyresAshok LeylandBajaj AutoGabriel IndustriesHero MotoCorpM&MMaruti SuzukiRico Auto Industries

TVS Motor Banks & FinanceAllahabad BankAxis (UTI) BankBajaj FinanceBajaj FinservBank of BarodaBank of IndiaCapital FirstCorp BankFederal BankHDFCHDFC BankICICI BankIDBI BankLIC Housing Finance

PTC India Financial ServicesPunjab National BankSBIUnion Bank of IndiaYes Bank

Consumer goodsBritanniaEmamiGSK ConsumersGodrej Consumer ProductsHindustan UnileverITCJyothy LaboratoriesMaricoZydus Wellness

IT / IT servicesFirstsource SoluationHCL TechnologiesInfosysPersistent SystemsTata Consultancy ServicesWipro

Capital goods / PowerBharat Heavy ElectricalsCESCCrompton GreavesFinolex CableGreaves CottonKalpataru Power TransmissionPTC India

SkipperThermaxTriveni TurbineVa Tech WabagV-Guard Industries

Infrastructure / Real estateGayatri ProjectsITNLIRB Infra

Jaiprakash AssociatesLarsen & ToubroOil & gas

Oil IndiaReliance IndSelan Exploration Technology

PharmaceuticalsAurobindo PharmaCiplaCadila HealthcareDivis LabsGlenmark PharmaceuticalsIpca LaboratoriesLupinSun Pharmaceutical IndustriesTorrent Pharma

Building materialsGrasimThe Ramco CementsShree CementUltraTech Cement

Discretionary consumption

Century Plyboards (India)Cox and KingsInox LeisureInfo Edge (India)KDDLKKCLOrbit ExportsRaymond

Relaxo FootwearSpeciality RestaurantsThomas Cook IndiaWonderla HolidaysZee Entertainment

Diversied / Miscellaneous

Aditya Birla NuvoBajaj HoldingsBharti AirtelBharat ElectronicsGateway DistriparksMax Financial ServicesPI IndustriesRatnamani Metals and TubesSupreme IndustriesUnited Phosphorus

To know more about our products and servicesclick here.

DisclaimerThis document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain condential and/or privileged material and is not for any type of circulation andany review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any nancial instrument or as an ofcialconrmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently veried the accuracy and completeness of the said data and hence it should not be relied upon as such.While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and afliates) are under no obligation to update or keep the informationcurrent. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and afliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investmentdecision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipientof this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his ownadvisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Afliates of SHAREKHAN may have issuedother reports that are inconsistent with and r each different conclusion from the information presented in this report.This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contraryto law, regulation or which would subject SHAREKHAN and afliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors.Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its afliates or its directors or employees/representatives/clients or their relatives may have position(s), makemarket, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth

h i b f bli ti SHAREKHAN f ti t ti li it f f i t t b ki th i f ti d h i With t li iti f th f i i t h ll SHAREKHAN f it fli t

InvestorsEye-May26_16

Documents

Transcript of InvestorsEye-May26_16