May 25, 2017

0%/Exempt items

7%5 percent

14%

12 percent17%

18 percent43%

28 percent19%

GST Rate slab for goods

Source: Media reports

Goods and Services Tax (GST) – Impact on Automobiles & FMCG

Thematic Note

Introduction

The Goods and Services Tax (GST) Council, in its crucial two-day meeting, finalized the most-awaited tax rates for most goods and services. The Council has finalized the tax rates for 1,211 items (except few items like gold, biscuits, footwear, apparel and beedi) by levying a lower rate of 5% on basic goods & services, 12% or 18% for general goods & services, and 28% (plus cess in some cases) for luxury goods & services. Out of total 1,211 items, around 7% of the items will either have zero tax or exempted under GST. Around 14% of the items will be taxed at 5%, around 17% of the items at 12%, around 43% of the items at 18% and rest at 28%. The current bifurcation of goods under GST indicates that the Council has tried to keep GST rates for these items close to their existing rates in most of the goods category.

The GST Council also finalized tax rate for around 500 services and bifurcated in four slabs of 5%, 12%, 18% and 28%. However, the currently exempted categories, including health care, education and travelling in Metro, local trains and for religious travel would continue to be out of the tax net. Rail, Air and Road transport will fall in the 5% tax slab. Hotels with tariff under Rs 1,000 per room per day (prpd) will be exempted from the GST. Hotels with tariff between Rs 1,000 prpd and Rs 2,500 prpd will be taxed at 12% while those with tariffs between Rs 2,500 prpd and Rs 5,000 prpd will attract a GST of 18%. Hotels with tariffs of above Rs 5,000 prpd and all five-star hotels will fall under the 28% category. Non air-conditioned restaurants will attract a tax levy of 12% whereas air-conditioned restaurants will fall in the 18% tax bracket. As per Union Finance Minister Arun Jaitley, although the GST rate of 18% on services is higher than the 15% existing rate, the actual incidence of tax would be lower as service providers would get credit for the taxes paid on the goods used for the provision of services.

Comparison of Current tax structure and tax under GST for Services

Services Current Tax GST

Financial Services 15% 18%

Telecom 15% 18%

Five Star Hotels 15%+ Luxury tax + State tax 18%

AC Restaurants with bars 15% 18%

Non - AC Restaurants 15% 12%

Air Travel Economy 6% 5%

Air Travel Business 9% 12%

Car Aggregators 6% 5%

Space for Ads in News paper 0% 5% Source: Media Reports

Expected benefits of GST

One of the major benefits of GST is likely to be felt if the inflation doesn’t follow a sharp upward trend as

expected by many industry experts. However, as per Revenue Secretary Hasmukh Adhia, inflation is likely to

fall by 2% on implementation of the GST and create buoyancy in the economy. As per Adhia, the rates have

been so fixed that incidence of taxation has either came down (in many cases) or remained at the same level

as compare to current structure. Further he added that, the inflation is likely to come down as the current

indirect tax regime suffers from significant cascading effects, which leads to higher cost of goods and

services and a free flow of credits across movement of goods and services under the GST framework is

likely to bring down the tax cost for businesses. While the GST Council has tried to keep inflation under

control by keeping 81% of the items at 18% or lower tax bracket and closer to their existing rate structure,

further details on GST rate for goods and categories for which rates are not decided will provide clear

picture. We await fine print of GST detailing a complete rate structure to gauge the full benefit of the same.

However, we have tried to outline some of the general benefits to various sectors here on

HDFC Bank Investment Advisory Group

May 25, 2017

A lower tax rate under GST regime as compared to old regime may result in lowering of prices of final goods which in turn may drive the volumes especially for FMCG companies.

The companies may also witness margin expansion post GST on account of operating leverage resulting from expected improvement in volume growth.

Rationalization of price differential between organized and unorganized (including foreign players) players, due to expected level playing field creation post GST, may improve the market share for organized players (like Minda Industries, Exide Industries, Apollo tyres, Supreme Industries) and lead to volume and revenue growth.

With one tax one nation, logistic and freight cost is likely to decline post implementation of GST. The industry experts are highlighting that currently transportation of goods from the factory in one state to warehousing in another state takes ~12 hours of actual travelling time. However, clearance of goods at respective check post takes almost double of this time. Post GST, the goods are likely to be delivered faster which in turn not only likely to reduce the logistics cost for the companies but also it is likely to reduce the wastages in the system (more particularly for FMCG companies).

Share of unorganized sector in India

Sectors Share of unorganized sector

Food Services 97%

Apparel 67%

Plywood 75%

Sanitary ware 35%

Tiles 50-55%

Footwear 50-55%

Light Electric Goods 65%

Pipes (plumbing) 65%

Small Appliances 60%

Paints 30-35%

Batteries (two & four wheeler replacements) 35-40%

Fans 20-25% Source: Media Reports

Sectoral implications

Automobiles

The tax rate under GST regime for automobile sector is more or less at the same levels and as per the

industry expectations. While 1% cess on small petrol cars, 3% cess on small diesel cars and 15% cess on

buses were surprising, low tax rate in some of the categories like two wheelers (entry level segment) and

three wheelers may drive the volumes as benefits may be passed on to consumers. As per industry body

Society of Indian Automobile Manufacturers (SIAM), GST is likely to pave the way for stimulating demand

and strengthening the automotive market in the country. It is likely to pave the way for meeting the vision laid

down in the Automotive Mission Plan 2016-26 of achieving up to USD 300 bn in annual revenue by 2026,

create 65 mn additional jobs and contribute over 12% to India’s GDP.

Comparison of Current tax structure and tax under GST

Category Current GST Cess

Passanger Vehicle

Small Cars (sub 4 Meter length) - Petrol/LPG/CNG 28-30% 28.0% 1.0%

Small Cars (sub 4 Meter length) - Diesel 30-34% 28.0% 3.0%

Mid Sedans, mid SUVs (> 4 Meter, Engine < 1.5 Litre) 45-50% 28.0% 15.0%

Mid Sedans, mid SUVs (> 4 Meter, Engine > 1.5 Litre) 45-50% 28.0% 15.0%

Large Cars (Engine > 1.5 Litre) 50-55% 28.0% 15.0%

Two Wheelers 28-30% 28.0% 0.0%

Two Wheelers >350cc 30-32% 28.0% 1.0%

Three Wheelers 30-32% 28.0% 0.0%

Commercial Vehicle 30-32% 28.0% 0.0%

Buses (10-13 person) 30-32% 28.0% 15.0%

Tractors 12-13% 12.0% 0.0%

Batteries 29-30% 28.0% 0.0% Source: Media Reports

May 25, 2017

View: The rate structure under GST looks neutral to positive for Automobile sector. We remain long term positive on the Indian Automobile industry on the back of pickup in infrastructure activity, lower interest rate, rise in discretionary spending post the implementation of One Rank One Pension and Seventh Pay commission and expectations of normal monsoon which will drive the demand for the industry going forward. In our model portfolio on the Automobile segment, M&M is likely to get benefited due to lower taxes on Tractors, Bajaj Auto due to lower taxes on two wheeler and three wheeler and Tata Motors due to lower taxes on Commercial Vehicles. On the Auto Ancillary space, Minda Industries, Exide Industries and Apollo Tyres are likely beneficiaries of GST due to expected shift from unorganized to organized sectors.

Fast Moving Consumer Goods Segment

The tax rate under GST regime for most of the FMCG sector is less than the current structure as

the GST Council has kept the lower tax slab for mass consumption items in order to keep the

overall inflation under check. Currently, majority of the FMCG companies selling soaps, toothpaste

and value added hair oil pays taxes closer to 23-24% while these categories are classified under

18% tax slab under GST. The paints companies might have to take a price hike as the GST is

higher at 28% for Paints as compared to 23-24% in the current regime. The cigarettes companies

are unlikely to see any negative effect from the GST rates as the new rates are closer to the

current tax structure only. However, alcohol companies are likely to be affected the most from this

as they are kept out of the GST which means they won’t be able to take input tax credit (like tax on

glass bottles and barley) as against in the earlier regime. This is most likely to result in increase in

the cost for alcohol companies and moreover they don’t have pricing power which in turn is likely to

impact the margins for these companies.

Comparison of Current tax structure and tax under GST

Category Current Tax (%) GST (%)

Paints 23-24 28

Toothpaste 23-24 18

Soaps 23-24 18

Edible Oil 8-9 5

Value Added Hair Oil 23-24 18

Cigarettes 28 + Excise depending on

length 28 + Cess (as per length +

Advolerum)

Detergent 23-24 28 Source: Media Reports

View: The rate structure under GST looks positive for majority of the FMCG companies in the sector. With the implementation of GST, the sector is likely to get benefitted due to the shift from unorganized to organized (branded products) sector, rationalizing of taxes and reduction in logistics and transportation cost. Going forward as per Assocham, the FMCG sector is expected to grow at a CAGR of ~20% during 2016-20 and reach ~$104 bn. This is expected mainly due to improvement in penetration levels, rising premiumization and improvement in consumer sentiments. In our model portfolio, ITC is likely to get benefited from GST as there were no change in taxes and thus not enforcing any price hike which may lead to volume growth. Jyothy Laboratories’ weighted average tax is close to ~20% while most of the categories like soaps, household insecticides and Ujala is under 18% slab in GST which would be positive for the company. However, 28% tax rate for detergent was a negative surprise and price hike in the category will be dependent on the market leader’s pricing action.

Please refer to Disclaimer on the next page

May 25, 2017

Bajaj Auto Ltd. CMP*: Rs.2772 Background Bajaj Auto Limited is an India-based manufacturer of motorcycles, three-wheelers and parts. The Company's business segments include Automotive, Investments and Others. The Company's vehicles include two-wheelers and commercial vehicles. Its two-wheelers include Bajaj V, Bajaj V Avenger, Avenger Cruise 220, Pulsar RS 200, Pulsar FOS, Pulsar 200 NS, Pulsar 220, Pulsar 180, Pulsar 150, Pulsar 135 LS Discover, New Discover 125, New Discover 150S, New Discover 150F, Platina 100, Platina 100 ES, CT 100, CT 100 Ninja, Ninja 650R and Ninja 300. Its products also include CT 100B, Boxer BM150X, Avenger 220 Cruise, Avenger 220 Street, Avenger 150 Street, Pulsar AS 150 and Maxima-Cargo. The Company's geographic segments include India and Rest of the world. The Company offers troubleshooting services. The Company's plants include Waluj plant, Chakan plant and Pantnagar plant. The Company's subsidiaries include PT. Bajaj Auto Indonesia and Bajaj Auto International Holdings BV.

Shareholding Pattern (%) on 31 March 2017

Promoter 49.30

Institutions 25.11

Public 25.59

Total 100.00

Valuations and Chart

View: Bajaj Auto’s domestic Motorcycle business continued to reap benefits (gaining market share) owing to change in its strategy to expand “Price” segment and strengthening its presence in “Premium” and “Luxury” segments. Bajaj’s market share is expected to improve further on the back of recent new launches. While the recent announcement on demonetization may have short term implication, we maintain our positive stance on Bajaj Auto considering its focus on increasing market share in domestic market by focusing on the “Premium, Price and Super Sports” segment, enhancing its overseas market, strong R&D capabilities, huge cash and cash equivalent of Rs.109 bn (as on Dec 16) and strong return ratios with ROE of 30% and ROCE of 44%. Currently, we have a Hold rating on the stock and maintain the target price of Rs.2991 at 18x (maintaining earlier multiple) FY18E EPS of Rs.163.4 adding Rs.50 per share for 48% stake in KTM AG of Austria (at 30% holding company discount). Any earning/target price revision would depend on the performance of new launches, improvement in domestic market shares in Motorcycle segment, implementation of GST, rollover to next financials and changes in general business momentum. *CMP as on 24 May 2016

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Daily closing price for last 3 years of Bajaj Auto

Source: Bloomberg

Key Details

52 week H/L(Rs) 3122/2366

Book Value (Rs) YTD 557

FV (Rs) 10

PE (X) (TTM) 19.6

Dividend Yield (%) 1.9

PE (X)

FY16 FY17E FY18E

22.0 19.0 17.0

May 25, 2017

Mahindra & Mahindra Ltd CMP*: Rs.1308 Background Mahindra and Mahindra Ltd (M&M) is having operations in 18 industries that include aerospace, aftermarket, agribusiness, automotive, components, construction equipment, consulting services, defense, energy, farm equipment, finance and insurance, industrial equipment, information technology, leisure and hospitality, logistics. The Company’s business segments include Automotive Segment that comprises of sale of automobiles, spare parts and related services and Farm Equipment Segment (FES), which includes sale of tractors, spare parts and related services. Its subsidiaries include Tech Mahindra Ltd., Mahindra & Mahindra Financial Services Ltd., Mahindra Investments (India) Private Ltd. and Mahindra Investments (International) Private Ltd. etc.

Shareholding Pattern (%) on 31 March 2017

Promoter 26.69

Institutions 57.50

Public 15.81

Total 100.00

Valuations and Chart

View: M&M continues to be a leader in the domestic Tractor industry with ~44% market share. After a series of new launches in FY16, M&M has again started focusing on building a strong product pipeline in both FES and Automotive segment by introducing new product every year starting from FY18. We believe M&M is geared up to take on the competition and to grab the opportunity arising from recovery in auto industry and improvement in rural demand on the back of better agricultural crop sowing and strong government push. Further, by introducing existing vehicle in lower engine capacity category and in gasoline versions, M&M is working on reducing the impact of regulatory concerns over diesel pollution norms. We remain long term positive on the back of new product launches which is likely to drive revenue growth for the company and based on good return ratios of over 20%. We maintain our Buy rating on the stock with the target price of Rs.1586 at 16x (maintaining earlier multiple) FY18E EPS of Rs.78.1 adding Rs.337 as value of subsidiaries at 30% holding company discount. Any earning/target price revision would depend on the performance of new launches, improvement in market share, any regulatory changes, changes in the value of subsidiaries, rollover to next financial year and changes in general business momentum. *CMP as on 24 May 2016

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Daily closing price for last 3 years of M & M

Source: Bloomberg

Key Details

52 week H/L(Rs) 1508/1141

Book Value (Rs) YTD 401

FV (Rs) 5.0

PE (X) (TTM) 26.4

Dividend Yield (%) 0.9

PE (X)

FY16 FY17E FY18E

23.5 20.6 16.7

Tata Motors Ltd. CMP*: Rs.469 Background Tata Motors Ltd. (TTMT) is India's largest automobile company, with operations in the United Kingdom (UK), South Korea, Thailand, South Africa and Indonesia through subsidiaries and associate companies. The Company’s Jaguar Land Rover (JLR) business has significant presence in the UK, North America, continental Europe and China as well as sales operations in many major countries across the globe. It also has an industrial joint venture with Fiat in India. Tata Motors is the country's market leader in commercial vehicles and among the top in passenger vehicles with over 8mn Tata vehicles plying in India.

Shareholding Pattern (%) on 31 March 2017

Promoter 34.73

Institutions 38.59

Public 26.68

Total 100.00

Valuations and Chart

View: TTMT is India's one of the largest automobile company. TTMT has strong presence in domestic CV industry (MHCV market share of ~55%) and holds renowned international luxury car brands like Jaguar and Land Rover (JLR). JLR has been reporting strong volume growth in the US and European market with the strong revival in Chinese market. Going forward, the growth momentum in TTMT’s overall volume performance is likely to continue on the back strong product pipeline in both domestic and JLR business. While the current quarter margins got impacted due to one-time expenses and weak product mix, sustained improvement in margin would be one of the key monitorable for the stock. We remain long term positive on the stock on the back of well diversified global presence, expected new launches in both domestic and JLR business, expected steady growth in domestic CV industry due to expected implementation of Scrappage policy, signs of cyclical recovery in LCV, long term structural drivers and on good return ratios of over 20%. Currently the stock is trading at an attractive valuation given the recent correction and hence we have Buy rating on the stock while maintain the target price of Rs.568 based on the Sum of the parts (SOTP) valuation (JLR (Rs.512/share) + Standalone business (Rs.46/Share) + other subsidiaries (Rs.30/Share) - net automotive debt (Rs.20/Share)). Any earning/target price revision would depend on the performance of new launches, improvement in market share and changes in general business momentum. *CMP as on 24 May 2016

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Daily closing price for last 3 years of Tata Motors

Source: Bloomberg

Key Details

52 week H/L(Rs) 598/382

Book Value (Rs) YTD 200

FV (Rs) 2.0

PE (X) (TTM) 19.8

Dividend Yield (%) 0.0

PE (X)

FY16 FY17E FY18E

14.4 10.1 8.3

Exide Industries Ltd. CMP*: Rs.222 Background Exide Industries Ltd. (Exide) is a manufacturer of lead acid storage batteries for automotive and industrial applications. The Company's business segments include Storage Batteries & allied products, Solar Lantern & Homelights, and Life Insurance business. The Storage batteries & allied products segment manufactures lead acid storage batteries and allied products. The Life Insurance business segment is engaged in life insurance business carried by one of its subsidiaries. The Company sells automotive batteries in the domestic market under brand names Exide, SF and Sonic. The Company markets its industrial batteries to the domestic market, under Exide, SF and CEIL brands, and its international brands for industrial batteries include CEIL, Chloride and Index.

Shareholding Pattern (%) on 31 March 2017

Promoter 45.99

Institutions 33.39

Public 20.62

Total 100.00

Valuations and Chart

View: Exide reported double digit topline growth in FY17 despite the short-term impact of demonetization. Going ahead, the steady demand for Automobile in India especially in passenger vehicle bodes well for Exide’s Original Equipment Manufacturers (OEM) segment. Further, the strong market share in Industrial segments of Solar, Backup Power, Manufacturing and Project sector may drive the volume growth with the expected recovery in industrial capex cycle over the long term. In addition with the implementation of Goods and Services Tax (GST), the company is likely to get benefit due to reduction in the price difference between unorganized and organized sector in the replacement market. The lead prices (key raw material) had inched up significantly in recent past which may put some pressure on margins and would be the key parameter to watch out for in the near term. However, the lead prices have cooled off a bit from their recent highs. Moreover, appreciation in Indian rupee may give some respite to margins in the current year. In addition, the management is working on various cost cutting initiatives and improve the product mix to maintain its margins. We have rolled over our earning for FY19 and have a Buy rating with the revised target price of Rs.266 at 22x (five year average multiple) FY19E EPS of Rs.11.1 and adding Rs.23 per share for the embedded value in Insurance business (as of Sept 2016). Any earning/target price revision would depend on the improvement in margin, changes in market share, implementation of GST and its tax structure, value in Insurance business and changes in general business momentum. *CMP as on 24 May 2016

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Daily closing price for last 3 years of Exide Inds.

Source: Bloomberg

Key Details

52 week H/L(Rs) 249/151

Book Value (Rs) YTD 60

FV (Rs) 1.0

PE (X) (TTM) 27.2

Dividend Yield (%) 1.1

PE (X)

FY16 FY17E FY18E

30.4 27.1 25.3

Apollo Tyres Ltd. CMP*: Rs.221 Background Apollo Tyres Ltd. is in the business of manufacture and sale of tyres. Over the years, the company has grown manifold, establishing its footprint across the globe. The company has manufacturing units in India and the Netherlands. It is also setting up a new manufacturing facility in Hungary. The company markets its products under its two global brands - Apollo and Vredestein, and its products are available in over 100 countries through a vast network of branded, exclusive and multi-product outlets. Recently, the Board of Directors of the Company approved the acquisition of Reifencom GmbH, one of the largest tyre distributors in Germany and has an online presence in six countries.

Valuations and Chart

View: The management sounded positive on both domestic and overseas operations on the volume growth. The demand from European OEM is reviving steadily and it expects improvement in European operations post the commercialization of Hungary plant in Q1FY17. In the domestic market, the management expects reduction in competition intensity from Chinese players leading to improvement in the truck tyre demand, scaling up volumes in new segment (two wheelers) and increasing trend of radialization is likely to drive the volume growth for the company in near to medium term. However, on the margin front, we expect a correction due to uptick in raw material cost. We remain long term positive on the company as it is likely to be better placed to capitalize on the upcoming opportunity arising from expected economic recovery post the commercialization of its expansion plans in India and Europe. We have rolled over our earnings estimate to FY19 and changed our rating to Buy on the stock with the revised target price of Rs.279 at 10x (maintaining earlier multiple) on FY19E EPS of Rs 27.9 per share. Any earning/target price revision would depend on the changes in margin, delay in commercialization in capacity, competition intensity in the domestic market, rollover of earnings to next year, changes in market share and in general business momentum. *CMP as on 24 May 2016

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Daily closing price for last 3 years of Apollo Tyres.

Source: Bloomberg

Key Details

52 week H/L(Rs) 253/139

Book Value (Rs) YTD 143

FV (Rs) 1.0

PE (X) (TTM) 10.3

Dividend Yield (%) 1.3

Shareholding Pattern (%) on 31 March 2017

Promoter 44.15

Institutions 39.45

Public 16.40

Total 100.00

PE (X)

FY16 FY17E FY18E

10.0 10.3 9.8

Minda Industries Ltd CMP*: Rs.557 Background Established in 1958, by Late Shri S L Minda, Minda Industries Limited (MIL) is the flagship Company of UNO MINDA Group and one of the leading suppliers of proprietary automotive solutions to OEMs. The Company is one of the oldest and most respected players in the Indian auto components industry. Headquartered at Manesar, Gurgaon, the Company has 32 plants across India and R&D centres spread across across the globe in six locations. The Company offers a wide range product across different verticals of auto component like Switching systems, Lighting systems, Acoustic systems and Alloy Wheels among others. With more than five decades of existence, the Company has expanded its product portfolio from one product in 1958 to more than 10 products in 2016, thus serving customers across the automotive value chain.

Shareholding Pattern (%) on 3 April 2017

Promoter 67.94

Institutions 14.55

Public 17.51

Total 100.00

Valuations and Chart

View: MIL is a well-diversified auto component company with strong presence in OEM’s Switching (65-70% market share), Lights and Horn (40-45% market share) segment. The company reported strong growth in FY17 on the back of increasing supplies to existing customers and introducing new products (led by consolidation of group companies and setting up new capacity) amid challenging environment due to demonetization. The Company is planning to ramp up its new product’s capacity utilization in order to get the benefits of operating leverage, which would eventually result in margin improvement. In long term, the company is likely to do well on the back of steady growth in overall automobile sector on the back of favourable demographic, expectation of normal monsoon and shift in customers’ buying from Unorganized players to Organized players like MIL. We have rolled over our earnings to FY19. However the stock has witnessed a sharp rally in recent past and hence, currently we have a Hold rating on the stock with the revised target price of Rs.557 based on PE multiple of 16x (maintaining the earlier multiple) FY19E EPS of Rs.34.8. Any earning/target price revision would depend on the performance of subsidiaries, improvement in market share and changes in general business momentum. *CMP as on 24 May 2016

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Daily closing price for last 3 years of Minda Industries

Source: Bloomberg

Key Details

52 week H/L(Rs) 588/214

Book Value (Rs) YTD 119

FV (Rs) 2.0

PE (X) (TTM) 28.7

Dividend Yield (%) 0.2

PE (X)

FY16 FY17E FY18E

40.7 26.3 20.0

Supreme Industries Ltd. CMP*: Rs.1141 Background Supreme Industries Ltd. is engaged in production of plastic products. The Company operates in two segments: Plastics and Construction. The Company offers a wide range of plastic products with a variety of applications in Moulded Furniture, Storage and Material Handling Products, XF Films and products, Performance Films, Industrial Molded Products, Protective Packaging Products, Plastic Piping System, Composite LPG Cylinder and Petrochemicals. The Company’s products include molded furniture, material handling products, petrochemicals F films and products (SILPAULIN), performance films, industrial molded products, protective packaging products, plastic piping system and bathroom fittings.

Shareholding Pattern (%) on 31 March 2017

Promoter 49.70

Institutions 28.93

Public 21.37

Total 100.00

Valuations and Chart

View: While the volume growth in FY17 was below expectation but management improved their guidance for FY18 to 12-15% and expects company to benefit from GST implementation, government reforms like affordable housing for all, doubling of farmer income by 2022 and increased spending on irrigation, drinking water, sewage and drainage networks. Further, the company’s focus on increasing the share of value added products, low per capita consumption of plastic in the country and expected boost in composite LPG Cylinder demand provides huge revenue growth opportunity for the company. We remain positive on the back of strong product mix, consistent earnings growth and healthy ROE of over 25%. We have rolled over our earnings to FY19 and revise our rating to Buy on the stock with the revised target price of Rs.1334 based on PE multiple of 27x (three year average multiple) FY19E EPS of Rs.47 adding Rs.64 for stake in Supreme Petrochem. Any earning/target price revision would depend on the volume and revenue growth for the company, implementation of Goods and Services Tax, change in the value of Supreme Petrochem and changes in general business momentum. #Note: FY16 is a 9months year ending in March 2016 as company changed accounting year to March end from June end. *CMP as on 24 May 2016

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Daily closing price for last 3 years of Supreme Inds.

Source: Bloomberg

Key Details

52 week H/L(Rs) 1213/779

Book Value (Rs) YTD 126

FV (Rs) 2.0

PE (X) (TTM) 33.7

Dividend Yield (%) 1.3

PE (X)

FY16 FY17E FY18E

66.0 33.9 30.1

ITC Ltd. CMP*: Rs.300 Background ITC Ltd. (ITC) is engaged in fast moving consumer goods (FMCG), hotels, paperboards and specialty papers, packaging, agri-business, and information technology. It operating segments include FMCG, hotels, agri business and paperboards, paper and packaging. FMCG businesses consist of cigarettes, cigars, smoking mixtures, and branded packaged foods, personal care products, education and stationery products, lifestyle retailing, incense sticks (agarbattis) and safety matches. The Hotels involve in hoteliering. The paperboards, paper and packaging segment includes paperboards, paper including specialty paper and packaging including flexibles. The Agri business segment includes agri commodities such as soya, spices, coffee and leaf tobacco. Others includes information technology services and filter rods, among others.

Shareholding Pattern (%) on 31 March 2017

Promoter 0.00

Institutions 55.87

Public 44.13

Total 100.00

Valuations and Chart

View: The revenue growth remained muted in ITC’s Cigarette business in Q3FY17 which indicates a flat volume growth and low realization growth that is likely to be impacted by product mix. The muted growth in FMCG (non-cigarette) business was mainly due to squeeze in liquidity condition post demonetization. However the company is able to consolidate its position in some of major categories. While recent regulations on pictorial warning and a contemplated rule on sale of loose cigarette (if implemented) is likely to impact the cigarette volumes in the near term, Over the longer term, we believe Cigarette segment should continue to perform well on the back of healthy margins due to pricing power, focus on selling 64mm cigarette and expected launch of smaller pack size to combat the decline in volumes in the wake of ban on loose cigarette. The company has been aggressively focusing on new launches in FMCG (non-cigarette) business and entering into new markets in order to bring the incremental growth. Currently, we have a Hold rating on the stock. However, we maintain our positive stance on the stock with the target price of Rs.269 at 27x (maintaining earlier multiple) FY18E EPS of Rs.10.0 due to its deep discount compared to peers, cash and cash equivalent of ~Rs.120 bn (September 2016) and strong ROE of close to 30%. Any earning/target price revision would depend on the performance of FMCG business, implementation of GST, any regulatory changes in Cigarette business and in general business momentum and rollover of earnings in the next year. *CMP as on 24 May 2016

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50

100

150

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250

300

350

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

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-15

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-15

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15

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-15

No

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5

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-16

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-16

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-16

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16

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-16

No

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6

Jan

-17

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-17

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-17

Daily closing price for last 3 years of ITC

Source: Bloomberg

Key Details

52 week H/L(Rs) 305/222

Book Value (Rs) YTD 28

FV (Rs) 1.0

PE (X) (TTM) 36.7

Dividend Yield (%) 1.9

PE (X)

FY16 FY17E FY18E

32.6 29.3 26.4

Jyothy Laboratories Ltd. CMP*: Rs.373 Background Jyothy Laboratories Ltd. (Jyothy), a fast moving consumer goods (FMCG) company, was founded by Mr. M P Ramachandran in 1983. Over years, Jyothy has evolved from a single product company into a multi-product company. Jyothy is principally engaged in manufacturing and marketing of fabric whiteners, soaps, detergents, mosquito repellents, scrubber, bodycare and incense sticks. Jyothy has 10 brands under its product portfolio offering including Ujala, Maxo, Exo, Henko, Prill, Margo, Neem, Fa, Mr. White and Check. Jyothy also runs laundry chain through its subsidiary Jyothy fabricare services Ltd.

Shareholding Pattern (%) on 31 March 2017

Promoter 66.89

Institutions 22.97

Public 10.14

Total 100.00

Valuations and Chart

View: Jyothy Lab reported decent volume growth in Q3FY17 amid the challenging environment post demonetization. While the higher contribution from Southern region helped the company in this quarter as North and East are still facing the challenges, the management continued its efforts to making its brand national from local. The company is taking various steps to overcome the demonetization challenges and reiterated its focus on power brands with re-launches and increasing distribution reach. The company will be launching some more brands in high margin segments in the coming years. Given the long term benefits out of demonetization and implementation of GST, consistent volume growth, firm commitment of management to maintain gross margins and steady performance, we have long term positive view on the stock. Currently, we have a Hold rating on the stock with the target price of Rs.370 at 28x PE multiple (maintaining earlier multiple) on FY18E EPS of Rs.13.2. Any revision in target price and earnings would depend on the performance of its power brands, improvement in EBITDA margin, Henkel’s Buyback option, rollover to next financial year, implementation of GST and clarity on its tax structure and changes in general business momentum. *CMP as on 24 May 2016

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50

100

150

200

250

300

350

400

450

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Daily closing price for last 3 years of Jyothy Lab

Source: Bloomberg

Key Details

52 week H/L(Rs) 427/270

Book Value (Rs) YTD 60

FV (Rs) 1.0

PE (X) (TTM) 32.5

Dividend Yield (%) 1.6

PE (X)

FY16 FY17E FY18E

42.9 31.9 28.2

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Rating Expected to

Buy Appreciate more than 10% over a 12 to 15 month period

Hold Appreciate below 10% over a 12 to 15 month period

Under Review Rating under review

Exit Exited out of the Model Portfolio

Rating Interpretation