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Y/ E March Sales Adj.PAT Consensus Adj.

EPS Change PE RoE RoCE EV/ EBITDA DPS


(Rs mn) (Rs mn) EPS(Rs) YoY (%) (x) (x) (x) (%) (x) (Rs)
2010 2,037,397 158,976 0.0 48.6 2.2 29.3 12.1 6.8 2.1 6.3
2011 2,658,106 202,109 0.0 61.8 27.1 23.1 13.7 7.2 1.6 6.3
2012E 2,940,061 204,982 0.0 62.7 1.4 22.8 12.6 6.1 0.0 7.0
2013E 2,938,544 205,524 0.0 62.8 0.3 22.7 11.4 5.8 - 0.3 7.0
FINANCIAL SUMMARY (Standalone)




Target Price:

CMP
Potential Upside
Relative to Sector

MARKET DATA

No. of Shares

Market Cap

Free Float

Avg. daily vol (6mnth)

52-w High / Low

Bloomberg

Promoter holding

FII / DII
04 Sep 2012 / TYPE OF REPORT
BUY
Rs 870
16 MAY 2014
Kashyap Pujara, Executive Director - Midcaps
kashyap.pujara@axiscap.in 91 22 4325 1146
Nandan Chakraborty, MD - Institutional Equity Research
nandan.chakraborty@axiscap.in 91 22 4325 1107
2
Investment Summary
In the last 2 elections, 12-month returns AFTER the first day rise/ fall, has been far better for midcaps vs large caps or
even other candidates such as levered stocks, high RoCE (adjusted for valuation), etc.
Over the last 3-5 years, Midcaps have suffered on multiple fronts: weak opportunities, low pricing power, inability to
rectify balance sheet, and hence a vicious cycle of inability to improve talent, clientele, etc.
Midcaps benefit from multiple degrees of freedom as the cycle turns and all of the above brighten, feeding a virtuous
feedback loop. So operating and financial leverage further drive sales & margin growth.
Obviously rerating precedes earnings growth as investors anticipate some of this potent multi-delta. Which can be
very treacherous! Hence we have been careful to choose our best midcap picks in two baskets:
High growth continues, but valuations improve many secular examples
Growth takes off, and other synergistic drivers also thus kick in cyclicals, etc.
But investing in midcaps can be a landmine:
Promoter: Over-ambition eg in capex, acquisitions, beyond organisational bandwidth
Business: Matching of Co cycle vs sector cycle in areas such as capex, market expansion, etc
Timing of valuation improvement: Eg SoTP or holding Co discount narrowing recognised very late in cycle
Keeping the above in mind, we present our top midcap picks:
Secular, liquidity > $2 mn/ day: LIC housing, Just dial, UPL, Eicher, Bata, Page, Apollo Hospitals
Secular, liquidity < $2 mn/ day: Persistent Systems, Godrej Inds, Bajaj Fin, ING, Infoedge, CMC, Supreme, Inds
Cholamandalam Investment, Jyothy labs, Redington, DB Corp, Jagran, Berger paints
Take-off, liquidity > $1 mn/ day: Ashok Leyland, Dish TV, Jain Irrigation, Concor, Cummins
Take-off,, liquidity < $1 mn/ day: Alstom T&D, Oberoi, Tube, Carborundum, Finolex Inds, Prestige Est, Whirlpool, JK Cement





16 MAY 2014
MIDCAP BUYS
Sector Report
3
Secular picks, adequate trading liquidity
Company Mcap
(USD mn)
Avg t rd
3m ($mn)
Price
(Rs)
Sal es PAT Sal es PAT 5yr Avg
ROE
ROE
FY16e
PE (x)
FY16e
Remark
LIC Housing * 2,536 15.6 298 19 20 18 18 21 19 1.5 Mortagages will be a prime
beneficiary of improving per capita
incomes, given relatively low
penetration of housing in India
Just Dial 1,336 15.6 1,128 40 74 25 26 34 24 42 Better economic growth will improve
SME health, driving higher customer
growth and importantly, lowering
churn
UPL 1,965 14.7 272 17 19 12 20 18 22 8 On the back of better capital
allocation (Rs 5.5 bn buyback over
last 2 years and debt reduction) , RoE
likely to sustain above 20%, leading
to PE expansion
Eicher Motors # 2,913 3.3 6,366 23 47 31 62 20 34 17 Good way to play CV recovery and
improvement in discretionary spends
Bata India 1,109 2.9 1,022 16 42 16 19 23 27 23 Improving urban consumer sentiments
to drive consumption. Productivity
initiatives and aggressive expansion to
aid growth.
Page Industries 1,137 2.6 6,036 36 37 26 30 55 57 26 Amongst the fastest growing branded
play with strong pricing power.
Apollo Hospitals 2,205 2.3 939 22 26 19 23 11 14 26 India's largest healthcare company to
continue to grow at 20% revenue
CAGR. Margin improvement as beds
and pharmacies mature
Gwt h FY14- 16 5yr - CAGR (%)
Companies showing cont inuing growt h wit h l iquidit y > $ 2 mn / day
Note: Companies where profit growth trajectory is expected to remain high
16 MAY 2014
MIDCAP BUYS
Sector Report
4
Secular picks, trading liquidity to improve as prices increase
Company
Mcap
(USD mn)
Avg t rd
3m ($mn)
Price
(Rs)
Sal es PAT Sal es PAT
5yr Avg
ROE
ROE
FY16e
PE (x)
FY16e Remark
Persistent Systems 650 1.9 962 23 30 16 17 21 22 11 Differentiated business model - SMAC
(~50% rev, highest IT spend area) and
IP (~20% rev)
Godrej Industries 1,639 1.7 289 19 29 17 28 11 14 18 To maintain 25% PAT growth led (1)
higher growth in Agrovet due to animal
feed and plam oil, and (2) projects
getting executed by Godrej Properties.
GCPL to maintain growth momentum
Bajaj Finance * 1,467 1.6 1,732 42 84 17 21 19 20 1.5 Leveraged play on upturn in retail
consumption and SME business
climate
ING Vysya * 1,943 1.6 609 17 31 15 18 14 12 1.4 Biggest beneficiary of operating
leverage as uptick in demand for
credit will lead to lower C/I ratio and
improvement in return ratios
Info Edge 1,075 1.4 583 16 18 22 25 20 21 30 Improvement in economic growth will
drive material uptick in hiring (75% of
rev ) and real estate activity (15% of
rev )
CMC 720 1.1 1,407 18 19 18 23 27 27 10 Poised to benefit from increase in
domestic IT spend, complementing
strong revenue visibility in the
international markets and strong
parentage- TCS. Highest RoE among
the mid-caps
Companies showing cont inuing growt h wit h l iquidit y < $ 2 mn / day
5yr - CAGR (%) Gwt h FY14- 16
Note: Companies where profit growth trajectory is expected to remain high
16 MAY 2014
MIDCAP BUYS
Sector Report
5
Company
Mcap
(USD mn)
Avg t rd
3m ($mn)
Price
(Rs)
Sal es PAT Sal es PAT
5yr Avg
ROE
ROE
FY16e
PE (x)
FY16e Remark
Redington 579 0.9 86 17 16 14 14 20 18 8 Key beneficiary of revival in corporate
capex cycle, Govt IT spend and
increase in smart-phone penetration
DB Corp 861 0.8 278 14 42 13 12 31 27 13 Well poised to gain with an uptick in
ad revenues, given its trong
positioning across most Hindi-
speaking markets
Berger Paints 1,419 0.6 243 19 26 15 21 24 24 23 Bridging the gap with leader Asian
Paints on product portfolio,
distribution reach and supply chan
initatives. Expect operating margin to
improve from current ~12% to 14-15%
over next few years driven by
improved mix, and operating leverage
Supreme Ind 968 0.5 451 19 29 19 23 38 31 13 Expect 20% revenue growth to
continue with RoE sustaining at 25-30%
Jagran Prakashan 591 0.5 107 15 18 12 15 27 24 11 Strong positioning in existing markets
and profitable expansion in newer
markets to aid growth
Cholamandalam Invst * 702 0.5 290 23 53 16 22 12 19 1.4 Viability of truck operators to increase
with improving IIP and reduce
delinquencies
Jyothy Lab 602 0.5 197 30 21 17 40 12 19 18 Over 34% earnings CAGR over FY14-
17E driven by new management
growth investments. Further, Henkel SA
option to buy 26% stake in FY17
could be trigger for further upside
5yr - CAGR (%) Gwt h FY14- 16
Note: Companies where profit growth trajectory is expected to remain high
16 MAY 2014
MIDCAP BUYS
Secular picks, trading liquidity could improve as prices increase
Sector Report
6
Take-off picks, adequate trading liquidity
Company
Mcap
(USD mn)
Avg t rd
3m ($mn)
Price
(Rs)
Sal es PAT Sal es PAT
5yr Avg
ROE
ROE
FY16e
PE (x)
FY16e Remark
Ashok Leyland 1,144 5.6 25 11 - 20 LP 7 11 17 Complete turnaround play - high
volume growth/high operating
leverage/reducing leverage
Jain Irrigation 680 4.8 89 16 (6) 15 65 13 14 11 Agri thrust will drive better capacity
utilization. New business model is
reducing working capital and
deleveraging balance sheet.
Dish TV 832 3.4 46 27 - 11 LP - - 17 Steady improvement in per sub
economics to aid strong FCF
generation; financial and operating
leverage to benefit
Cummins 2,534 3.0 541 4 7 21 21 29 26 17 Market share and pricing gains on
new emission norms, strong growth in
exports and continuing growth in
spares
Container Corp 3,506 1.8 1,065 8 5 17 16 17 16 16 Key beneficiary of any macro reforms
(GST, DFC/DMIC implementation)
given its strong pan-India presence
and expansion through logistics parks
5yr - CAGR (%) Gwt h FY14- 16
Companies where growt h t ake- off wit h l iquidit y > $ 1 mn / day
Note: Companies where profit growth is expected to take-off
16 MAY 2014
MIDCAP BUYS
Sector Report
7
Take-off picks, trading liquidity could improve as prices increase
Company
Mcap
(USD mn)
Avg t rd
3m ($mn)
Price
(Rs)
Sal es PAT Sal es PAT
5yr Avg
ROE
ROE
FY16e
PE (x)
FY16e Remark
Alstom T&D 1,143 0.8 264 6 (12) 12 53 17 20 22 Key beneficiary of rising proportion of
next gen technologies in PGCIL capex,
strong margin improvement on better
mix
Oberoi Realty 1,220 0.8 220 13 4 50 53 16 14 10 New launches (Worli, Mulund,
Andheri, Goregaon and Borivali) to
drive sales from FY15 onwards. Strong
earnings outlook for FY15-16 due to
revenue recognition from project
Esquire and Oasis.
Finolex Industries 477 0.7 228 10 - 2 21 18 27 11 Business transforming from B2B to
B2C. RoEs to improve to 26% from
20%. Dividend payout at 50% (5%
yield at CMP)
Prestige Estates 1,022 0.6 173 24 20 24 31 12 17 10 Prudent mix of development projects
(cash flow of ~Rs 67 bn over 4-5
years) and annuity assets (rentals of
~Rs 5 bn by Mar '15)
Tube Invst 694 0.6 220 11 28 12 51 13 14 21 Profits of standalone biz and insurance
subsidiary to grow > 2x in 2 years.
Cholamandalam Invst to maintain
growth momentum
5yr - CAGR (%) Gwt h FY14- 16
Companies where growt h t ake- off wit h l iquidit y < $ 1 mn / day
Note: Companies where profit growth is expected to take off
16 MAY 2014
MIDCAP BUYS
Sector Report
8
Take-off picks, trading liquidity could improve as prices increase
Company
Mcap
(USD mn)
Avg t rd
3m ($mn)
Price
(Rs)
Sal es PAT Sal es PAT
5yr Avg
ROE
ROE
FY16e
PE (x)
FY16e Remark
JK Cement 285 0.3 241 14 (22) 29 156 10 13 7 Biggest beneficiary of better demand
led by 50% rise in capacity in
2HFY15. Cement price recovery to
also continue led by improving ex-
South capacity utilisations
Whirlpool of India 508 0.3 237 11 12 10 29 44 20 15 With revival in the economy,
Whirlpool sales likely to grow in
double digits leading to margin
expansion to ~10%, implying high
profit growth and 45-50% RoI , with
significant FCF
Carborundum Universal 450 0.1 142 12 2 13 62 17 17 12 Profit to increase 3x in 3 years on
back of uptick in industrial activity and
S. African subsidiaries turning
profitable
Source: Company, Axis
Note: 1) * For Banking, Sales = Net Income, PE = PB
2) # For Eicher used 4 year CAGR due to absence of VECV JV in CY08
3) LP: Loss to Profit
5yr - CAGR (%) Gwt h FY14- 16
Note: Companies where profit growth is expected to take off
16 MAY 2014
MIDCAP BUYS
Sector Report
9
When Midcaps outpace broader markets
Midcap performance under various phases
GDP surprise
Midcap valns catch up
Source: Bloomberg, Axis Capital
(40)
(30)
(20)
(10)
0
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20
2,000
6,000
10,000
14,000
18,000
22,000
26,000
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
(Index)
(%)
Sensex CNX Midcap Midcap P/D to Sensex (%)
Midcaps do well when: 1) GDP growth surprises and/ or 2) when the broader market has run up and pauses
to catch a breath while mid caps have been languishing for a while
16 MAY 2014
MIDCAP BUYS
Sector Report
10
Post election results in 2004 & 2009, Midcaps outperformed large
caps over a 1-year period
Source: Axis Capital, Bloomberg
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16 MAY 2014
MIDCAP BUYS
Sector Report
Company section
12
Content
Page
Alstom T&D 13
Apollo Hospitals 15
Ashok Leyland 20
Bajaj Finance 21
Bata India 22
Berger Paints 24
Carborundum Universal 27
Cholamandalam Invst 31
CMC 32
Container Corp 33
Cummins 34
DB Corp 37
Dish TV 38
Eicher Motors 39
Finolex Industries 40
Godrej Industries 43
Page
Info Edge 49
ING Vysya 51
Jagran Prakashan 52
Jain Irrigation 53
JK Cement 54
Just Dial 56
Jyothy Lab 58
LIC Housing 60
Oberoi Realty 61
Page Industries 62
Persistent Systems 63
Prestige Estates 64
Redington 65
Supreme Ind 66
Tube Invst 68
UPL 71
Whirlpool of India 73
16 MAY 2014
Sector Report
MIDCAP BUYS
13
Alstom T&D
Technology and cost advantage, favorable demand environment resulting in market share gains, and tripling of
earnings over FY13-16E on margin expansion -- these are just few reasons why we prefer Alstom T&D over T&D
equipment suppliers like ABB, Crompton and Siemens
Alstom T&Ds parent realized the importance of India ahead of peers and started transferring technologies from 2007
Why was India important: In 2007, Alstom T&D (erstwhile Areva T&D) identified India as the fastest growing market in the
world for next gen high voltage transmission equipment such as Gas-Insulated Substations (GIS) and HVDC
First mover advantage: Post technology transfer, Alstom fast tracked localization which has helped the company to lower costs
and gain market share
hence it would take 3-5 years for competitors (ABB, Siemens) to reach the stage where Alstom T&D is currently
What has changed: Next generation technologies & not transformers to drive earnings growth over FY13-16E
PGCIL (50% of addressable market) is reducing its spend on transformers and increasing capex on next gen technologies.
We expect proportion of next gen technologies in PGCILs capex to rise to 70% over FY14-16 from 30% over FY11-13
Next gen technologies fetch 15-18% margin for Alstom T&D due to its low cost local manufacturing and limited competition in
the space (first mover advantage)
Current margin in transformers (26% of Alstom T&Ds revenue) is just 5-7%
Financial summary (CMP: Rs 264)
Y/E
Sal es EBI TDA Adj. PAT Consensus EPS Chg PE RoE EV/E DPS
March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (x) (Rs)
FY13 31,450 2,845 864 - 3.6 (29.5) - 9.7 - 2.1
FY14 35,171 3,572 1,342 - 5.5 52.6 - 12.4 - 2.0
FY15E 38,908 4,371 2,212 6.8 8.6 56.6 30.6 16.6 15.7 1.9
FY16E 44,302 5,399 3,135 9.8 12.2 41.7 21.6 20.2 12.2 1.9
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Alstom T&D India
ENGINEERING
14
Alstom T&D
Demand for next gen technologies to remain strong despite weak GDP
Land acquisition problems driving demand for GIS which requires 1/5th of land vs. conventional AIS systems
Recent grid collapse (in July 2012) resulting in demand for increased grid automation and network management systems
Demand for mass transfer of power and land acquisition problems driving demand for High Voltage Direct Current (HVDC)
Transformers contribution to revenue to gradually decline but worst over for pricing, margin
Chinese and Korean competitors had led to 50% decline in transformer pricing and 10 ppt. fall in margin over FY09-12
Except TBEA, Chinese/ Koreans have now stepped back due to mandatory domestic sourcing norms and weak INR
However, domestic players like ABB, BHEL, Siemens and T&R have now got their products qualified
Despite intense competition, we expect stable pricing/ margin as domestic players are unlikely to adopt irrational pricing
Earnings set to triple over FY13-16E: led by pick-up EBITDA margin expansion from 9% in FY13 to 12% in FY14 on
improving mix led by higher proportion of revenues from HVDC, GIS equipment supply
Balance sheet improvement through debt reduction: Net debt reduced to Rs 3.8 bn as of Mar 14 from Rs 7.6 bn as
of Sep 13 through IPP proceeds and reduction in working capital to 90 days as of Mar 14 from 112 days as of Sep
13.
It has also sold land in Bangalore which would help the company to raise Rs 1.2 bn. This transaction is expected to close in
FY15 and result in further deleveraging of the balance sheet

16 MAY 2014
Alstom T&D India
ENGINEERING
15
Apollo Hospitals: A multi-year compounding story
Apollo Hospitals (Apollo), Indias largest healthcare provider, enjoys a strong presence in South India. 35% increase
in bed capacity over FY13-17E without any equity dilution (Currently at 6,600 beds; to add 2,300 beds by FY17)
Apollo has a secular growth story with a potential to deliver consistent growth and stable EBIT margins. We believe it
enjoys pricing power in the high-end secondary and tertiary care segments which in our view are price insensitive,
focus being on clinical outcomes
Improving operating parameters like average revenue per occupied bed day (Rs 22,000 from Rs 19,000 currently), richer
case mix and higher occupancy
The company has demonstrated shorter gestation periods for new hospitals which are breaking even at EBITDA level
in the second operational year versus industry norm of 3-4 years. Expanding to Tier II cities through Reach model
which entails lower capex
Retail pharmacy business has turned profitable since the past year. Management is focused on improving EBIT margin
to 4-5% from the current 1.5%. The management is looking at unlocking value from the pharmacy business


Financial summary (CMP: Rs 939)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (x) (%) (x) (Rs)
FY13 37,687 2,981 - 21.4 31.3 - 11.3 9.4 - 5.5
FY14E 44,021 3,319 24.6 23.9 11.4 39.3 11.6 9.6 19.9 5.5
FY15E 52,288 4,051 29.7 29.1 22.0 32.2 12.9 10.5 16.8 5.5
FY16E 62,524 5,002 36.3 36.0 23.5 26.1 14.3 11.6 13.5 5.5
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Apollo Hospitals
16
Apollo Hospitals: Company overview
Early mover advantage with ~ 8,500 beds, spread across 51 hospitals across India
Hospital beds owned by Apollo/ JV / subsidiaries 6,600 and remaining 1900 beds are managed
Dominance in South to continue as it is difficult for competition to replicate its scale and goodwill
Largest pan-India pharmacy chain , with over 1,600 pharmacies and ~200 stores expected to be added per year


Revenue : Rs 25 bn
EBIT : Rs 5 bn
Capital Employed : Rs 26 bn
Revenue : Rs 11 bn
EBIT : Rs 169 mn
Capital Employed : Rs 3 bn
Apollo Hospitals FY13
Revenue : Rs 38 bn
EBIT : Rs 5 bn
Hospitals Pharmacy
16 MAY 2014
Apollo Hospitals
17
Expansion to sustain growth momentum
Expansion plans till FY17 in place
Land tied-up and funding in place
Created an eco-system for 15-20% self sustaining
growth
Funded through internal cash flows

4,162
6,472
2,220
2,220
1,888
1,888
0
3,000
6,000
9,000
12,000
FY13 FY17E
(No of beds)
Owned Owned by JV / Associates / Subs Managed
Apollo - scaling up own beds aggressively
( Rs mn) 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
Revenue 12,885 15,515 17,849 21,892 25,401 29,364 36,210 44,335 52,657 58,783
EBIT 2,398 3,075 3,802 4,187 4,987 5,359 6,337 7,759 9,478 10,875
RoCE % 19 21 18 17 19 17 17 17 18 18
Apollos near term expansion plans
Compl eti on
Date
Op. Beds
to be added
Est Cost
( Rs mn)
Capex/ bed
( Rs mn)
Mumbai 650 5, 774
Belapur FY15 350 4,374 12.5
South Mumbai - Byculla FY17 300 1,400 4.7
REACH 325 1, 856
Nellore FY14 200 1,095 5.5
Nashik FY14 125 761 6.1
Chennai 480 8, 956
MLCP FY15 370
Chennai - Main FY15 30 100 3.3
Chennai - South Chennai FY17 175 2,000 11.4
Chennai - Women & Child FY15 60 740 12.3
Chennai - Proton FY17 0 4,200
Chennai (OMR) FY14 45 316 7.0
Chennai (OMR) FY15 170 1,230 7.2
Ot hers 855 4, 932
Vizag FY15 250 1,494 6.0
Patna Phase 1 FY16 240 2,000 8.3
North Bangalore FY15 180 770 4.3
Indore FY15 185 668 3.6
TOTAL 2, 310 21, 518 7. 3
16 MAY 2014
Apollo Hospitals
18
Largest pan-India retail pharmacy play
0
3,000
6,000
9,000
12,000
15,000
18,000
0
400
800
1,200
1,600
2,000
2,400
FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E
(Rs mn)
(Nos)
No of stores Revenue (RHS)
Increase in pharmacy stores leading to higher revenue
FY12 FY13 FY14E FY15E FY16E
No. of st ores 1, 364 1, 539 1, 659 1, 779 2, 029
Rev./ store (Rs/ mn) 7 7 8 8 8
%y-y growth
14.1 10.0 10.0 2.0 2.5
Net Rev. (Rs mn) 8, 606 11, 017 12, 993 14, 248 16, 176
EBI T (Rs mn) 57 169 390 499 728
EBIT Margin (%)
0.7 1.5 3.0 3.5 4.5
EBIT/ Store (Rs) 41,789 109,812 234,959 280,308 358,748
Apollo pharmacy snapshot
Apollo has ~ 1,600 pharmacies stores as on
December-13. It plans to have over 200 pharmacies
annually over the next 2-3 years
Low capital intensity business: The cost of setting up a
typical pharmacy is at ~Rs 11.5 mn, of which
inventory is ~Rs 0.5 mn with negligible working
capital. Inventory turn is over 10x
Currently, mature pharmacies are making EBITDA
margin of 6-7%. Apollo monitors the maturity of all
pharmacies and closes down unviable ones
Pharmacy biz had been a drag on Apollos financials
since it was EBITDA negative. However, since Q3FY11,
the division has convincingly turned profitable. We
expect the division to add to EBITDA on the back of:
Greater proportion of matured stores
Growth from in-house branded generic products

16 MAY 2014
Apollo Hospitals
19
Key financials
Key financials
Rs mn FY12 FY13 FY14E FY15E FY16E FY17E FY18E
Revenue
31, 475 37, 687 44, 021 52, 288 62, 524 73, 629 82, 567
YoY growth 21% 20% 17% 19% 20% 18% 12%
EBITDA
5,131 6,082 6,882 8,322 10,282 12,956 15,113
EBI TDA margin (%) 16% 16% 16% 16% 16% 18% 18%
PAT
2, 193 2, 981 3, 319 4, 051 5, 002 7, 027 8, 795
YoY growth (%) 19% 36% 11% 22% 23% 40% 25%
EPS (Rs)
16 21 24 29 36 51 63
16 MAY 2014
Apollo Hospitals
20
Ashok Leyland
Complete turnaround play
Purest beneficiary of 3 likely events 1) Sharp recovery in the CV cycle; 2) Resultantly positive operating leverage; 3)
Improvement in cash flows which will aid current de-leveraging initiatives.
The impending CV recovery
Current downcycle in MHCVs has been the longest, with >26 months of consecutive de-growth (vs. an average of 15 months
during previous downcycles. This also means that the eventual upcycle (question of when, not if), will be much stronger
than previous ones.
Ashok Leyland is the purest way to play this recovery. We would ignore valuations based on FY16e (EPS of Rs 1.5/sh), due
to scope for humongous growth in FY17 (reckon >100%).
Earnings drivers
In previous CV upcycles, Ashok Leyland has consistently reported margins >10% (current margins -5%). While the current
quarter might still be ve EBITDA, we expect FY15/16/17 margins at 4%/7.8%/9.6% driven by cost cutting initiatives,
lower discounts and positive operating leverage.
With peak capex behind, current debt of Rs 50bn is on course to reduce to ~Rs35bn driven by improving cashflows and
divestment of non-core assets.
Financial summary (CMP: Rs 25)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 124,812 1,442 - 0.5 (75.5) - 3.3 6.8 - 0.6
FY14E 99,657 (5,742) (1.9) (2.2) (498.3) (11.8) (13.7) (3.2) 918.3 0.2
FY15E 112,371 (1,697) (0.1) (0.6) (70.4) (39.9) (4.5) 1.6 24.7 0.5
FY16E 142,822 4,001 1.3 1.5 (335.8) 16.9 10.9 10.0 9.1 0.7
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Ashok Leyland
AUTO
21
Bajaj Finance
Rising affluent population focus area of BAF, Increasing customer base for cross-sell (added 3 mn in FY13).
Continued consumer finance growth(~37% YoY; ~39% share) despite lukewarm consumer durables and 2-wheeler
sales indicates market share gains for the company so far
Addition of digital products in partnership with Samsung and Apple points to strong momentum in consumer
durable business going forward (added record 0.8 mn customers in Q4)
Renewed demand for consumer durables/2-wheelers can potentially result in 50%+ growth observed in the past
Improved business climate for SMEs will create a huge opportunity (~53% share). Company is investing in newer
channels (Direct-to-customer and online) to tap into the SME opportunity
Potential upsides from rural business entry: Company is investing in rural business (~1% currently) by adding 21 new
locations and 100 new spokes in FY15 (break-even expected in FY16)
High CIBIL penetration, robust risk management, and focused collection efforts keep NPAs low (net NPA 0.23%)
Strong profitability ratios: Despite our conservative approach which factors in higher slippages, moderation in
spreads and loan growth, return ratios remain amongst the best (RoE at 20% and RoA at 3.4% in FY15E)
Financial summary (CMP: Rs 1732)
Y/E
PAT EPS EPS chg BV Adj. BV P/E P/BV RoE RoA Net NPA
March (Rs mn) (Rs) (%) (Rs) (Rs) (x) (x) (%) (%) (Rs)
FY13 5,913 118.8 20.8 676 670 14.6 2.6 21.9 3.8 0.2
FY14 7,190 144.4 21.6 802 792 12.0 2.2 19.5 3.4 0.3
FY15E 8,791 176.6 22.3 958 951 9.8 1.8 20.1 3.3 0.2
FY16E 10,555 212.0 20.1 1,146 1,137 8.2 1.5 20.1 3.4 0.2
Source: Company, Axis Capital
16 MAY 2014
Bajaj Finance
BANKS & FINANCIAL SERVICES
22
Bata India
Bata India has been rewarded for its relentless efforts in cutting flab, rationalizing costs, and building brand.
The rewards are many - significantly better capital efficiency and profitability vs. peers, market share gains
and leadership, and most importantly improving brand perception (a sustainable value creator) which now
places Bata as a one-stop shop for fashion and comfort footwear vs. a need-based brand earlier.
As these in-store efforts continue along with aggressive expansion (net store addition of 100 p.a.), we expect
revenue/ earnings CAGR of 17%/ 19% over CY12-15E to drive RoE to >30% in the long term vs. 26%
currently.
Building blocks in place for value creation
Improving predictability
With retail restructuring behind (1% net store CAGR over CY05-11), Bata has aggressively embarked on increasing retail
footprint through large format stores and positioning itself as a one-stop shop for footwear. Net store addition of 100 p.a
(i.e. ~7% CAGR) and average same-store sales growth of 10% will drive 17% CAGR in revenue over next 3 years
Reinforcing sustainability
Portfolio and brand augmentation increase in sales of leather footwear, expanding younger generation/ women customer
base, launch of trendy and fashionable designs at attractive price points and increase in brand investments
Driving entrepreneurial spirit: K-store scheme is a unique push-based initiative with better performance-based incentive for
store managers which has led to rising store productivity, increase in motivation level, and better customer service. In fact,
~75% of incremental stores will come under K-scheme, reaching out to 40% of store base in next 3 years
16 MAY 2014
Bata India
RETAIL
23
Bata India
Driving profitability
Despite increasing competition and aggressive expansion, we believe there still remains scope for margin improvement (100
bps in next 2 years) led by plant modernization, increase in outsourcing, premiumization, scale-led supply chain benefits
and lower employee cost as bulk of incremental expansion through K-scheme. The tail-end risk of increase in royalty charge
has not been factored in our estimates
De-risking business model
Augmenting sales through e-tailing portals (e-bay, Jabong, Flipkart etc) and EBOs (Hush Puppies and Footin)
Extending reach in tier II and III cities (tier I cities is 20% of store base).
Increased outsourcing (61% of sales) offers design flexibility
Valuation
At CMP, the stock trades at 29x/23x CY14E/CY15E EPS of Rs 37/45, which is in line with the our universe of discretionary
peer group. We rate Bata highly on the PSPD (Predictability, Sustainability, Profitability and De-risking) criterion which
reinforces our belief that it is a long term value creator.
Financial summary (CMP: Rs 1022)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
CY12 18,425 1,725 - 26.8 57.0 - 27.1 39.8 - 6.0
CY13E 20,652 2,040 37.2 31.7 18.3 32.2 26.5 38.6 19.4 6.5
CY14E 23,250 2,273 46.6 35.4 11.4 28.9 25.0 36.9 17.2 12.0
CY15E 28,019 2,894 46.5 45.0 27.3 22.7 27.1 40.0 13.6 15.0
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Bata India
RETAIL
24
Berger Paints
Bridging the gap with Asian Paints Portfolio, Distribution and Branding
Portfolio enhancement New launches to strengthen presence in emulsion paints and in particular the premium segment
Distribution efficiency and reach Increased depots for quick order turnaround and building dealer network (~7% p.a.). Numeric
distribution reach is now 55% of Asian Paints, but scaling up rapidly
Brand investment increased by 27% CAGR over last 5 years, now 6% of revenue (~5% for Asian Paints).
Strengthening presence in South and West region gaining market share; acquires Sherwin Williams: South and west region
contribute 50% of revenue vs. industry average of 60% and Asian Paints at 65%. This would change as capacity in south & west region
will increase from 43% to 73% in next 3 years. Sherwin Williams acquisition has strengthened project business in western region and given
a platform for new product launches. Growing ahead of peer group (21% CAGR over FY10-13 vs. 14% for industry) and has gained
market share in last two years.
Margin improvement visible scale benefit, premiumization: Improving sales mix in favor of emulsion paints (~30% of revenue) has
aided 360 bps gross profit margin expansion over last 5 years. Yet EBITDA margin expanded by just 50 bps due to growth and brand
investments. We believe operating margin can improve from 11.7% in FY13 to 14.5% (Asian Paints at 16%) over a period of time with
better revenue mix and operating leverage from scale of operations.
Adequate margin of safety; upside to be driven by earnings momentum : At 24% RoE (can improve to 30-35%) and higher earnings
growth vs. peer group (21% CAGR over FY14E-16E vs. 15% for peers), we believe target P/E of 22x is justifiable. DCF indicates fair value
of Rs 266 based on 15% revenue growth, 200 bps margin improvement and higher asset turn due to lower working capital
Financial summary (CMP: Rs 243)
Y/E
Sal es Adj. PAT Consensus Adj. EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (x) (%) (x) (Rs)
FY13 32,271 2,161 - 6.2 20 - 25 23 - 1
FY14E 36,946 2,477 7.2 7.2 15 34 24 22 20 2
FY15E 42,128 2,961 8.6 8.5 19 28 24 24 17 2
FY16E 49,204 3,635 10.6 10.5 23 23 24 26 14 2
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Berger Paints India
FMCG
25
Bridging the gap with leader
Berger Paints Asian Paints
16,500 30,000
135 180
6% of rev.
Rs 1.8 bn
5% of rev.
Rs 5.2 bn
30% of
revenue
45% of
revenue
Rs 70 mn Rs 505 mn
Dealers
(nos.)
Depots
(nos.)
A&P
spends
Emulsion
paint rev.
share
R&D
spends
Gap analysis and actions taken
25% 38% RoE
Larger number of depots enables quick turnaround time to suppliers and improves reach.
Berger has increased depot strength alongside manufacturing capacity in South & West
region to scale up presence
Portfolio premiumization and reduction in rebates/cash discounts has led to significant
gross margin improvement (360 bps in 5 years). This has been re-invested into A&P
spends (up from ~4% to 6% over last 5 years); 27% CAGR
Berger, a late entrant into premium emulsions category, has sharpened focus by new
launches (3 launches in 5 years) and increasing capacity (increased by 2x in last
5 years and can further double current capacity in next 4 years)
While Berger has increased the level of R&D expenditure over the years (41% CAGR
over 5 years; now at 0.23% of sales) it is still well below that of the leader. We expect
R&D spends to improve over a period of time with scale
Asian Paints high RoE is due to higher margin profile and lower working capital
intensity. We expect Berger to demonstrate improvement on both these factors, leading
to improvement in RoE profile to 30-35% in steady state
Pan-India dealership stands at 35,000 dealers. While Asian Paints reaches almost 85%
of paint dealers, Berger Paints at 45% penetration has more scope for distribution-led
growth. Berger plans to add 1,000 to 1,500 dealers every year to narrow the gap
16 MAY 2014
Berger Paints India
FMCG
26
Berger Paints
Premiumization - Product pricing ladder
Source: Company, Axis Capital
Berger and Asian Paints gain market in last 2 years
Source: Companies, Axis Capital
Berger trades at ~30% discount to Asian Paints and close to its 3-year
discount average
Source: Bloomberg, Axis Capital
Improving gross margin profile has led to higher brand investment
Source: Company, Axis Capital
6.7%
-0.5%
-3.6%
-1.6%
-1.0%
0.7%
0.4%
0.0%
-0.9%
-0.2%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Asian Paints Berger Paints ICI (India) Kansai
Nerolac
Shalimar
Paints
5 year 2 year
Market
Share
52 17 12 16 3
Bison acrylic
distemper
110
Bison emulsion
120
Jadoo
Enamel
160
Rangoli total
care
225
Luxol satin
enamel
240
WeatherCoat
all guard
300
Silk luxury
emulsion
360
Breathe easy
emulsion
390
0
100
200
300
400
(Rs/litre)
4.0
4.5
5.0
5.5
6.0
6.5
30
32
34
36
38
40
F
Y
0
7
F
Y
0
8
F
Y
0
9
F
Y
1
0
F
Y
1
1
F
Y
1
2
F
Y
1
3
F
Y
1
4
E
F
Y
1
5
E
F
Y
1
6
E
(%) (%)
Gross margin A&P (RHS)
0
10
20
30
40
50
F
e
b
-
1
1
A
p
r
-
1
1
J
u
n
-
1
1
A
u
g
-
1
1
O
c
t
-
1
1
D
e
c
-
1
1
F
e
b
-
1
2
A
p
r
-
1
2
J
u
n
-
1
2
A
u
g
-
1
2
O
c
t
-
1
2
D
e
c
-
1
2
F
e
b
-
1
3
A
p
r
-
1
3
J
u
n
-
1
3
A
u
g
-
1
3
O
c
t
-
1
3
D
e
c
-
1
3
Berger Paints discount to Asian Paints Average
16 MAY 2014
Berger Paints India
FMCG
27
Carborundum Universal
Carborundum Universals (CUMI) vision of being a global leader is manifested in its three-pronged strategy viz:
Raw material security: CUMI is transforming itself into a company of global scale while securing its raw materials. The
company has backward integrated itself by acquiring Foskor Zirconia (FZL) & Volzhsky Abrasive Works (VAW)
Low Cost Manufacturing locations: While catering to global markets, the company has strategically housed its production
units at low cost locations. Hence, Russia, South Africa and China have complemented India as manufacturing destinations.
Globally, CUMI is amongst one of the lowest cost producers of Zirconia and Silica Carbide
Proximity to Markets: CUMI has set up marketing subsidiaries at various geographies to increase its local presence. While
designing & manufacturing is at low cost locations, the customer service & installations happen from the respective
subsidiaries
CUMI operates in abrasives (40% of revenue), industrial ceramics (25%) and electro-minerals (35%) and derives
~50% of revenue from overseas. It has manufacturing bases in India, Russia and South Africa
Raw material security providing a fillip
Post the acquisitions of FZL & VAW, CUMI has capacities in excess of what would be required for captive consumption
Value add in EMD leading to margin improvement
Apart from driving economies of scale in the core Electro-mineral Business (EMD; 35% of revenue), CUMI plans to capture
adjacencies by increasing the proportion of value-added products from less than 5% currently to ~30% over the long term
Margin in EMD to inch up as value added products like diesel particulate filters, semi-friables, thermal sprays, manufactured
from low cost feed stock like silica-carbide, start contributing meaningfully
Turnaround at FZL driven by higher capacity utilization of new plant and stabilizing sand prices (FZL net loss in FY14E at Rs
70 mn vs. Rs 270 mn loss in FY13; achieved cash breakeven) and losses at TRI (South African subsidiary) to reduce as
offtake to RHI commences (25% volume commitment) and business gets repositioned to outside customers


16 MAY 2014
Carborundum Universal
28
Carborundum Universal
Diversified customer base with lower client concentration: CUMI has a diversified revenue stream with no single
customer contributing to over 5% of total revenues and no sector contributing to over 10-15% of revenues
High operating leverage: As fixed costs are high across segments, lower volumes impact margin significantly. As
economic environment improves, we expect significant operating leverage to come into play aiding margin growth
We expect overall utilization to rise from the current 60% to ~80% by FY16
CUMIs PAT is expected to double over FY 13 to FY16E. This is due to 450 bps expansion in margin. We expect
FY16 EPS at Rs 12 (FY15E at Rs 8)
Financial summary (CMP: Rs 142)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 19,714 898 - 4.8 (59) - 9.0 8.2 - 1.3
FY14 21,253 821 - 4.4 (9) - 7.6 7.5 - 2.0
FY15E 23,405 1,448 7.6 7.7 76 18.4 12.5 10.7 8.3 2.0
FY16E 27,003 2,163 10.4 11.5 49 12.3 16.7 14.0 6.1 2.0
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Carborundum Universal
29
Abrasives
45%
Ceramics
42%
Electrominerals
13%
Abrasives
41%
Ceramics
25%
Electrominerals
34%
Abrasive
Revenue : Rs 8.1 bn
EBIT : Rs 0.8 bn
Capital Employed : Rs 5.4 bn
Ceramics
Revenue : Rs 5 bn
EBIT : Rs 0.8 bn
Capital Employed : Rs 3.7 bn
Electro-minerals
Revenue : Rs 6.7 bn
EBIT : Rs 0.2 bn
Capital Employed : Rs 5.3 bn
Carborundum Universal FY13
Revenue : Rs 19.7 bn
EBIT : Rs 1.8 bn
PAT : Rs 0.9 bn
Net Revenues FY13 EBIT FY13
Source: Company, Axis Capital
Business overview
16 MAY 2014
Carborundum Universal
30
High operating leverage to drive margin expansion
Management has guided 15-17%
revenue CAGR over FY14-17E





We expect EBITDA margin to improve
to 16.4% in FY16E (12% in FY13) on
back of:
Greater operating leverage as an
economic revival will lead to higher
volume across segments
Higher proportion of value added
products
Turnaround at FZL (South Africa)
0
500
1,000
1,500
2,000
2,500
0
5,000
10,000
15,000
20,000
25,000
30,000
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E
Net Revenues (Rs mn) Adj PAT (RHS; Rs mn)
0%
5%
10%
15%
20%
25%
30%
35%
40%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E
EBITDA (%) Raw-Materials as % of Sales PAT (%)
Revenue and PAT
High level of operating leverage to drive margin expansion
16 MAY 2014
Carborundum Universal
31
Cholamandalam Investment and Finance
Improved business activity, creation of infrastructure and higher rural consumption will lead to higher freight rates and
increased capacity utilization for fleet operators. This will drive superior growth for vehicle finance (74% share)
Higher recoveries and lower slippages for company (GNPA at 1.9 % currently)
Higher growth as CV sales recover strongly after prolonged downturn (last 3 years)
Home equity segment (high yield, high value of collateral at 50% LTV) is expected to continue strong growth(35%+ in
last 2 years). Higher liquidity/appreciation in property prices can lead to even higher growth given small base
NIM can improve in falling interest rate scenario( largely fixed rate loan book).
Securitization to lower cost of funds: 65% of the vehicles financed qualify for priority sector and hence company
intends to use the securitization window for lowering the cost of funds
Earnings growth will be driven by operating leverage (55% branches opened in FY11-13). Efficiencies will further
improve as the company is witnessing number of branches attaining break even as there is increase in number of
cases being handled per employee.

Financial summary (CMP: Rs 290)
Y/E
PAT EPS EPS chg BV Adj. BV P/E P/BV RoE RoA Net NPA
March (Rs mn) (Rs) (%) (Rs) (Rs) (x) (x) (%) (%) (Rs)
FY13 3,065 21.4 37.8 137 136 13.5 2.1 18.1 2.0 0.2
FY14 3,640 25.4 18.7 160 151 11.4 1.9 17.1 1.8 1.1
FY15E 4,545 31.7 24.9 187 177 9.1 1.6 18.3 2.0 1.0
FY16E 5,441 38.0 19.7 220 207 7.6 1.4 18.7 2.1 1.0
Source: Company, Axis Capital
16 MAY 2014
Cholamandalam Investment and Finance
BANKS & FINANCIAL SERVICES
32
CMC

Best placed to benefit from increase in domestic IT spend (esp. PSUs). Domain expertise in Govt vertical : Govt vertical
showcases a promising area. CMC has both domain expertise and competitive edge. It has serviced key Govt entities such as
BPCL, BSNL, Defence, RBI, Election Commission, Indian Railways, ONGC, IOC etc
Differentiators are unique to CMC: (1) well established ecosystem of industry alliances, (2) domain expertise in niche verticals
such as Govt., Energy & Utilities, Shipping, Defense & Space, (3) unique capabilities in Embedded, ITES, Office Automation,
Document Digitization and (4) well executed subcontracting model with fair mix of domestic/exports rev (32:68)
Outlook in high-margin SI and ITeS businesses (76% rev share in Q3FY14) remains strong as increased focus likely in
core Infra Management Services, Systems Integration. Expect core SI/ITeS to post > 20% revenue CAGR over FY14-
16E
TCS (51% stake, 55% rev share) parentage working to its advantage: With joint 'go-to-market strategy, leveraging
TCS' B/S, access to large clients (Passport Seva), growth in high margin international biz, assured annuity revenue
Margins and cash flows to surprise: Potential from margin upsides from offshore (~21% of exports vs. peak levels of
~40%) ), higher revenues from IP-led products. Post capex on SEZ / Kolkatta facility, cash flow generation to be strong
Financial summary (CMP: Rs 1407)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 19,265 2,302 - 76.0 51.7 - 26.8 34.1 - 17.5
FY14 22,119 2,804 - 92.5 21.8 - 26.7 35.6 - 22.5
FY15E 26,458 3,422 108.3 112.9 22.0 12.5 26.8 32.6 9.3 28.2
FY16E 30,794 4,230 128.4 139.6 23.6 10.1 27.3 33.7 7.4 34.9
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
CMC
IT - SERVICES
33
Container Corporation of India (Concor)
Key beneficiary of any macro reforms (GST, DFC/DMIC implementation)
Aggressive expansion in logistics parks/ Private Freight Terminal (PFT) space to help Concor capitalize on its pan-India
presence (63 terminals and 230+ container trains) through better asset utilization and offer greater value added services
Expedited infrastructure push, coupled with an improvement in macro to drive volume uptick across Exim and domestic space
While volume growth during FY10-14 is muted, container volume growth has been in sync with nominal GDP growth
over last 2 decades (CAGR of ~13% over FY95-14)
Higher contribution from value added services to drive profitability
Expected increase in contribution from warehousing, container handling, and other value added services (typically
commanding higher margin) to improve overall operational performance
Lower empty running, higher contribution from double stacking and operating leverage benefits to aid margin expansion
Building capacity for the long term growth
Healthy operating cash flows (Rs 48 bn) will be suffice to fund Concors aggressive capex plans for logistics parks (Rs 30 bn
over FY15E-17E)
While such high capex will keep Concors return ratios depressed in the near term, we expect the benefits of the same to
accrue to the company in the medium term
Financial summary (CMP: Rs 1065)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 44,062 9,697 - 49.7 10.5 - 16.3 19.4 - 11.6
FY14E 50,194 9,866 51.2 50.6 1.8 19.1 14.9 18.4 14.2 12.1
FY15E 57,130 11,248 57.3 57.7 14.0 16.7 15.2 18.9 11.8 13.8
FY16E 68,181 13,208 65.7 67.7 17.4 14.2 16.0 20.0 9.6 16.3
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Container Corp Of India
MEDIA
34
Cummins India
New emission norms to be a game changer for Cummins India: New norms will be a game changer for the MHP and
LHP segments as they will help Cummins to consolidate market share and sell more content to the customers
Cummins to enjoy 20% price increase on gensets, however the cost increase will be limited to 10-15% as it has reduced the
footprint for 60% of product portfolio
New norms will help the company to overcome its cost disadvantage in low HP segment and grow its sales from Rs 4 bn in
FY14 to Rs 6 bn in FY16E
Domestic powergen (35% of revenue) growth now linked to GDP growth then power deficit: Growth in powergen to
be driven by Infrastructure, services and real estate sectors mainly for backup requirements thereby delinking the
growth from power deficit and linking it to new capex
Exports (30% of revenue) ramp up of LHP exports and new models to drive five-fold growth in 5 years: Focusing on
increasing LHP exports to 40% of revenue over next 5 years driven by:
Low HP exports with peak potential of Rs 20 bn (currently Rs 4 bn)
Introduction of Mid HP gensets of up to 330 kVA (exports portfolio to increase from current 140kVA to 330 KVA). Parent to
shift manufacturing of QSB-6 (6 lit engine) and QSL-7 (7 lit engine) from Kent, UK to Cummins India
Cummins India
ENGINEERING
Financial summary (CMP: Rs 541)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (x) (%) (x) (Rs)
FY13 45,894 6,255 - 22.6 20.3 - 28.2 40.9 - 12.9
FY14E 40,745 5,782 21.8 20.9 (7.6) 24.3 23.0 31.5 20.0 11.7
FY15E 49,275 7,087 23.9 25.6 22.6 19.8 25.2 34.5 16.1 12.9
FY16E 59,280 8,434 27.3 30.4 19.0 16.7 26.1 35.3 13.3 12.9
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
35
Cummins India
Distribution business (21% of revenue) to benefit from new emission norms. Outlook for distribution business to improve
driven by
Implementation of new emission norms and transition to electronic-controlled engines would make the customers come back to
Cummins for services than to roadside shops. Also intensity of service to increase post implementation of new norms
Growth in strategic business services solutions and indigenization of parts. The company intends to get into sectors which
have higher usage of gensets such as Railways and Defense
Management working towards maintaining margin: Cummins India has been working on introducing fit-for-market
products and reduction of footprint for 60% of products to save material costs
Expects to maintain margin as the benefits of these cost reduction initiatives will be offset by expected wage hikes and
currency impact. We are factoring in stable margin of 18% over FY14-16
We expect Cummins to report earnings CAGR of 17% over FY14-16 based on (1) 15% growth in domestic powergen
driven by 20% price hike on new emission norms, (2) exports revenue growth of 15-20% aided by pick up in low HP
exports as India is the sole sourcing hub for this segment and introduction of two new models in Mid HP and (3) 15%
growth in spares 15% as the company would add new sectors with higher requirement for spares such as Defense,
Railways and Oil & Gas
Key negatives: Transfer of high HP engines QSK 60 to parents 100% sub, unproductive capex for office building and
technical center for parent, rising competition in high HP engines from Perkins (CAT co.), Export pricing norms reset to
1 year from 3 years and introduction of support charges to parent for services received from parent
Cummins India
ENGINEERING
16 MAY 2014
36
Cummins India: Exports potential equivalent to current sales and PAT
High HP exports: 3 models
V -28, K-38, K-50
Low HP exports: 7.5-140 kVA
(X, S and B series)+
Medium HP exports: 160-330
kVA (transferring two new
models from UK)
Current revenue: Rs 7 bn
Capacity of 25 engines/day
Peak potential: Rs 15 bn
EBITDA margin @ 12%
PBT: Rs 1.4 bn
PAT: Rs 1.0 bn

Current revenue: Rs 4 bn
Capacity of 15,000 p.a for X &
S series and 120,000 for B
series (50% for Cummins India)
Peak potential: Rs 20 bn
Capex of Rs 2.5 bn
EBITDA margin @ 20%
PBT: Rs 4 bn
PAT: Rs 2.6 bn
Current revenue: Nil
Capacity of 45,000 p.a for L
series
Peak potential: Rs 20 bn
Capex of Rs 7.5 bn
EBITDA margin @ 12%
PBT: Rs 2.0 bn
PAT: Rs 1.4 bn
Cummins India export potential
Source: Company, Axis Capital
Exports have peak potential of Rs 55 bn and net profit of Rs 5 bn
Cummins India
ENGINEERING
16 MAY 2014
37
D B Corp
DB Corp (DBCL) has a well diversified geographic reach across most of the Hindi-speaking markets (barring Uttar
Pradesh) with strong positioning (either #1 or #2) in key markets like Madhya Pradesh, Rajasthan and Gujarat
On the back of its superior on-the-ground execution, DBCLs expansion across new territories like Maharashtra and
Bihar has been encouraging
Strong presence across markets has aided DBCL capitalize on growth in local ad spends, thus translating into a
higher-than-industry ad revenue growth for the company
We expect DBCL to continue record healthy ad growth given a) uptick in national ad spends with macro recovery,
coupled with steady local ad spends and b) gradual improvement ad yields across key markets
Strong ad revenue growth, coupled with operating leverage benefits (given lower losses from emerging editions) to
aid healthy earnings growth going ahead
Key risks: Sharp increase in newsprint prices, intensifying competition
Financial summary (CMP: Rs 278)
Y/E
Sal es EBI TDA Adj. PAT Consensus Adj. EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 15,923 3,760 2,181 - 11.9 8 - 22.3 26.6 - 6
FY14 18,598 5,003 3,066 - 16.7 41 - 28.2 33.1 - 7
FY15E 21,253 5,860 3,520 18.9 19.2 15 14.5 28.6 35.6 8.3 9
FY16E 23,738 6,369 3,842 21.9 20.9 9 13.3 27.4 34.9 7.4 9
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
D B Corp
MEDIA
38
Dish TV
Key investment argument
Strong improvement in per subscriber economics
Steep hike in installation prices of Set Top Box (STB) coupled with discontinuation of free-viewing period (excl. South) to
result in lower Subscriber Acquisition Cost (SAC) for Dish TV as well as the DTH industry
This coupled with gradual improvement in its key operating matrix namely (a) churn rate and (b) ARPU to partially nullify the
relative slower sub additions and improve per subscriber economics for Dish TV
Strong cash flow generation on the cards
Given the improved economics, we expect Dish TV to be self-sufficient to fund its subscriber addition plans and expect the
company to generate ~Rs15 bn of free cash flows over FY14E-17E and be debt-free by FY17
Market cap to double over 3 years given operating as well as financial leverage
Expect 0.8 mn net sub additions annually coupled with 5% CAGR in ARPU to drive operating leverage benefits; debt
repayment to aid savings on interest outgo
We expect the stock to double over the next 3 years given the strong benefits of operating and financial leverage
Financial summary (CMP: Rs 46)
Y/E
Sal es EBI TDA Adj. PAT Consensus EPS RoE RoCE PE EV/E EV/Net Sal es
March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) (%) (%) (x) (x) (x)
FY13 21,668 5,794 (1,254) - (1.2) NA NA - - -
FY14E 24,128 5,762 (1,227) (1.0) (1.2) NA NA - 10.1 2.4
FY15E 27,016 6,877 759 0.3 0.7 NA NA 64.9 8.1 2.1
FY16E 29,914 7,822 2,950 1.6 2.8 NA NA 16.7 6.7 1.7
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Dish TV India
MEDIA
39
Eicher Motors
Visibility on long-term Royal Enfield (RE) volumes improves:
While RE volumes seem to be indifferent to the macro environment in the near term (given the high waiting periods), we
believe that an improving macro will aid volume growth CY15 and beyond. Uptick in discretionary spends will drive further
premiumization in the 2 wheeler space.
Margins (already >23% in Q1CY14) have scope for further improvement on (1) Higher utilization at new plant and 2)
Improving product mix (higher share of >500cc bikes). We highlight that the New Continental GT (most expensive bike in
their portfolio) accounts for ~25% of dealer bookings in metros
VECV* Clean way to play CV cycle turn; Engine business remains joker in the pack
While VECV has less scope for earnings delta vis--vis a beaten down Ashok Leyland, it remains a very safe play on the
impending CV cycle recovery given its clean balance sheet/business structure (relative to peers), coupled with superior return
ratios/asset turns.
Engine Business makes VECV a significant part of Volvos global supply chain and provides Eicher a huge technological leap
on their own CVs. More importantly, almost 30% of cash hoard is being deployed in a high RoCE business (reckon >30%
on full operations). Volvo's perceptible affinity for VECV also provides scope for outsourcing opportunities of other
manufacturing processes.
*Volvo Eicher Commercial Vehicle (Eichers stake: 54.4%)







Financial summary (CMP: Rs 6471)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
CY12 63,899 3,243 - 120.1 5.0 - 20.0 22.8 - 20.0
CY13 66,858 3,939 - 145.7 21.3 44.4 20.7 21.8 23.7 30.0
CY14E 83,931 6,394 228.3 236.5 62.3 27.4 27.7 25.9 16.9 40.0
CY15E 114,956 10,348 327.0 382.7 61.8 16.9 34.4 35.0 10.2 50.0
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Eicher Motors
AUTO
40
Finolex Industries
Finolex Industries (Bloomberg: FNXP IN) is set for a perception change. Market is still valuing it as a B2B* player
(10x 1-year fwd PE) vs. peers like Supreme Ind (16x) and Astral Poly Technik (17x) which are B2C* players. The
anomaly will cease to exist as market notices the structural change the company is undergoing Finolex is fast
transitioning to a PVC pipes company from being a predominantly PVC resin manufacturer. The transition (B2B to
B2C) will lead to Finolex capturing incremental margins and narrow valuation gap with peers
The company, its business, and progression
Finolex Industries (Finolex) is a market leader (12% share) in PVC pipes with pan-India distribution and strong brand. It
commenced operations in1980s as a PVC pipe manufacturer and backward integrated in 1990s to make its own raw
material (PVC resin). It has also set up a 43 MW captive power unit to reduce its dependence on grid power making it the
only backward integrated domestic PVC pipe company in India
Learning phase Pre-2008 (10-year PAT CAGR of 5%): Viability of PVC resin plant required substantially higher capacities
compared to Finolex pipes capacity. As a result, majority of revenue was from selling PVC resin (B2B business with asset
turn of ~1.5x) rather than pipes which are sold on the back of strong brand and distribution (B2C business with higher asset
turn of 3-4x)
Focus on integration 2008-2013 (PAT CAGR 14%): Set up 43 MW captive power as grid power became unreliable and
expensive. It scaled up PVC pipes capacity to benefit from backward integration of PVC resin. External sales of PVC resin
kept falling. Over 50% of PVC now being used to make pipes (11% in FY08)
Reaping benefits 2013-2015 (PAT CAGR 20%): Backward integration benefit is finally taking shape and Finolex is now
poised to transition itself to a consumer-focused B2C business from a commodity-based B2B business. This is evident as it is
using raw materials internally to make PVC pipes rather than selling PVC resin externally. Interdivisional transfer of raw
materials has moved up from 11% in FY08 to ~ 60% in FY14. We expect this to further improve to ~ 90% by FY16
Enter 2016: A B2C player with focus on growth



* B2B: Business to Business
B2C: Business to Consumer
16 MAY 2014
Finolex Industries Ltd
MIDCAPS
41
Finolex Industries
Growth and margin comfort with attractive valuation
Volumes: PVC pipes demand is likely to maintain its growth trajectory (11% volume CAGR over FY08-13), driven by strong
demand from agriculture and housing. Incremental asset turns for Finolex to improve as capex only towards pipe expansion
as pipe capacity finally matches its in-house resin capacity. Over 1/3rd of the 1.5 mn ton PVC pipe industry is unorganized
and GST implementation would benefit Finolex. Also, it sells pipes against advances from dealers resulting in zero
receivable days
Margin to expand as Finolex captures incremental margins from PVC pipes
EBIT/ton to improve to Rs 16,000 in FY16 (Rs 13,000 in FY13) as Finolex uses in-house resin to make pipes
Spread can further firm up, as global capacities of its key raw material EDC (ethylene dichloride) is expected to rise
2x over FY16, putting further pressure on raw material prices
Bottomline: RoE to expand to ~30% in FY17 (20% in FY13) and rising FCF to pare down D/E to 0.2x (~ 1x in FY13)
Downside cushion: (1) Dividend payout of 50% expected to continue. Stock at dividend yield of ~ 5% for FY15 and
(2) Underlying assets > market cap
Land: 70 acres of non core land at Pune which company can monetize
Finolex Plasson: Owns 46% in associate company having revenue of Rs 4 bn with 20% EBIDTA margin and zero debt
Port: 1,200 acres of sea front land at Ratnagiri with own cryogenic jetty
Finolex Cables: Owns 15% in listed associate company; implied value of Rs 16/share in Finolex Inds
Financial summary (CMP: Rs 228)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
J une (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 21,448 1,361 - 11.0 81.2 - 19.7 14.0 - 5.5
FY14E 24,530 1,701 - 13.7 25.0 16.6 22.5 19.2 10.3 6.5
FY15E 24,790 1,929 19.1 15.5 13.4 14.6 23.3 21.1 9.4 8.0
FY16E 25,535 2,475 21.0 19.9 28.3 11.4 27.0 26.3 7.5 10.0
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Finolex Industries Ltd
MIDCAPS
42
At an inflexion point
2008
10-yr PAT CAGR 5%
2008-2013
PAT CAGR 14%
2013-16
PAT CAGR 20%
2016
Learning phase
Finolex started as a pipe
company in 1981 and
backward integrated to
PVC resin in 1990s due to
unavailability of PVC resin
PVC resin project cost
escalated by Rs 2 bn to
Rs 7.5 bn in 1991 due to
sharp rupee deprecation
Took 8 years for business
to justify invested capital
Set up 43 MW captive
power as grid power
became unreliable and
expensive
Scaled up PVC pipes
capacity to benefit from
backward integration of
PVC resin. External sales
of PVC resin kept falling
Over 50% of PVC now
being used to make pipes
(11% in FY08)
Finolex is transitioning
from B2B business to B2C
with ~ 90% of PVC resin
being used to make pipes
which are sold on the
back of strong brand and
distribution network
No capex on resin going
forward
Demand of PVC pipes to
remain robust as industry
shifts to PVC pipes vs.
GI/CI pipes, unorganized
players continue to shrink,
and agriculture continues
to drive growth since only
40% of cultivated area is
irrigated
Value unlocking of hidden
assets
Focus on integration Reaping benefits Focus on growth
Source: Company, Axis Capital
FY08 FY13 FY16E
Benefit from integration 11% 54% 87%
Revenue 13, 949 21, 448 25, 028
B2B - External sales of PVC resin 66% 33% 11%
B2C - PVC pipes 34% 67% 89%
EBITDA margin (%) 10.7% 12.2% 15.5%
PAT 712 1,361 2,270
RoE (%) 13.1% 19.7% 24.6%
16 MAY 2014
Finolex Industries Ltd
MIDCAPS
43
Godrej Industries
10x in first 10 years and 10x in next 10 years
Holding company with 45% M-cap CAGR since inception in 2001 driven by (1) 30% CAGR in consolidated earnings and
(2) value unlocking after successfully incubating businesses
In 2010-11, management envisaged another 10x growth by 2020. Trajectory seems to be on track, given 2011-13 profit
growth at 27%
Key strengths: Reputed management, strong brand, high growth consumption driven businesses, history of
profitable monetization of new businesses (Godrej Sara Lee, Godrej Foods, Aadhaar, Godrej Hi-care, etc)
Core business segments centre around urban and rural consumption Consumer through Godrej Consumers (GCPL),
Agriculture through Godrej Agrovet (GAVL), Real Estate through Godrej Properties (GPL), Chemicals in standalone entity, and
urban retail through Natures Basket
Consolidated earnings to double over FY13-15E
GAVLs (unlisted) 30% PAT CAGR to be driven by leadership in high growth animal feed business and better yields from
maturing palm oil plantations (a restrictive monopoly)
Temasek Holdings (PE fund) took 20% stake in GAVL in FY13 (valuing it at Rs 30 bn)
GCPL to maintain 20% earnings CAGR led by focus on 3x3 strategy
GPLs earnings CAGR of 35% to be driven by faster execution and higher margin from new projects

16 MAY 2014
Godrej Industries
MIDCAPS
44
Company overview
GIL (FY13)
(M-Cap ~ Rs 104 bn)
Rev: Rs 72 bn
PAT: Rs 4 bn
Chemical Division
Revenue: Rs 13 bn
PAT: ~ Rs 0.7 bn
Godrej Consumers
(M-Cap ~ Rs 256 bn)
Revenue: Rs 64 bn
PAT: Rs 7.9 bn
Godrej Properties
(M-Cap ~ Rs 36 bn)
Revenue: Rs 10 bn
PAT: Rs 1.4 bn
Note: GIL also derives income from its international trading arm and businesses like Natures Basket
Animal Feed:
75% of revenue
Palm Oil Plantation:
10% of revenue
Agri Inputs:
9% of revenue
Poultry: 49% stake in
JV with Tyson
Revenue: Rs 3 bn
Seeds:
1% of revenue
Godrej Agrovet
Revenue: Rs 31 bn
PAT: ~ Rs 1.6 bn
Project Trees a 40:60 JV
between GIL and GPL
(3.5 mn sq ft of mixed use
development at Vikhroli)
40% stake
60% stake

62% stake 23% stake 64% stake
16 MAY 2014
Godrej Industries
MIDCAPS
45
Agrovet
Business
positioning
Future
prospects

FY13-17E
growth
FY15E RoE

BCG matrix
Successful pan-India
developer
Follows asset light
JDA model
Strong brand name
ensures premium
pricing and lower
cost of debt

Indias leading agri
player across
(1) Animal feed and
(2) palm oil plantations
High entry barriers due
to wide distribution,
R&D, pan-India
manufacturing, and
trusted brand
Low capital intensity
Largest player of
oleo chemicals
Sticky customer
base
Negative
working capital
Niche player in
fresh food and
gourmet stores
Operating
27 stores across
select metros
Dominant market
position in India and in
select international
geographies
GCPL has successfully
combined growth with
smart equity strategy
Capacity ramp-
up to drive
growth
Focus on
specialized
products to
reduce margin
cyclicality
Rev CAGR: 20%
PAT CAGR: ~25%
RoE: 25%
B2C
B2B
Consumer-centric businesses with high growth potential
Rev CAGR: 20%
PAT CAGR: 25%
RoE: 41%
Rev CAGR: 35%
PAT CAGR: 45%
RoE: 18%
Rev CAGR: ~25%
Rev: 12%
PAT: 15%
RoE: ~20%
Access to vast land
bank of group cos
Strong cash flow
visibility based on
portfolio of 84 msf
Margin to improve
on the back of new
projects

Market share gains in
animal feed as yield
conscious farmers shift
to organized players
(10% of overall mkt)
Increasing acreage
and maturity profile of
palm oil plantations to
drive growth
With greater
stores achieving
maturity, we
expect the
division to curtail
its losses
Focus on 3x3 strategy
(3 categories across
3 geographies)
Innovation and brand
building driving market
share gain
Cross pollinating
products across
geographies
Properties GCPL Natures Basket
Chemicals
Source: Axis Capital
16 MAY 2014
Godrej Industries
MIDCAPS
46
A holdco that has created wealth over the years
Since the de-merger of Godrej Soaps into GIL and GCPL in
2001, the company has continued to gain market cap
GIL acquired 22% stake in GCPL over the years (hence
associate company)
GIL has incubated business like GCPL, Properties and
Agrovet which have scaled significantly (30-35% PAT
CAGR) over FY02-13
Profitably hived off business and exited JVs like Aadhar,
Medical diagnostics, Foods, Photo-Me, etc
Incubated business which have been scaled up or hived off, creating a Rs 100 bn M-Cap; 45% CAGR over FY01-13
Value creation by selling out businesses
Profit of Rs 350 mn on sale of Godrej Foods
Sold Godrej Tea
Profit on sale Medical diagnostics division
Sale of Godrej Aadhar
Value creation in Godrej Sara Lee
Sale of Godrej Global Solutions (BPO)
Stake sale of Godrej Agrovet to Temasek valuing the
company at ~Rs 30 bn
2006
2008
2010
2012
Businesses that have displayed over 30% PAT CAGR
420
7,492
FY02 FY13
Smart acquisitions
to be No1 or
No 2 in its
segment
GCPL
40
1,380
FY02 FY13
Listed Godrej
Properties in 2009
valued at
Rs 45 bn
Properties
50
1,000
FY02 FY13E
Largest animal
feed producer and
early mover into
palm oil plantation
Agrovet
45%
M-Cap
CAGR
M-Cap
Rs 100 bn
Rs mn
Rs mn Rs mn
M-Cap
Rs 5 bn
Source: Company, Axis Capital
16 MAY 2014
Godrej Industries
MIDCAPS
47
and more to come as revenue tilts towards high growth segments
Profit potential of Rs 10 bn by FY19E
GILs current revenue mix ~70% of revenue in FY16E from high growth, secular businesses
Source: Company, Axis Capital
RoE set to improve
2x PAT by Agrovet on the back of higher maturity of palm oil
plantations and continued dominance in animal feed
Leveraging on group companys land bank, joint
development and asset light business. Higher execution by
GPL and roll-out of Project Trees at Vikhroli to drive
improvement
GCPLs 3x3 strategy to sustain 25% earnings CAGR over
next few years
On course to achieve its vision 10x10
Chemicals,
22%
Agrovet, 24%
Properties, 12%
Consumer
Products, 18%
Others, 24%
Chemicals,
19%
Agrovet, 29%
Properties, 17%
Consumer
Products, 20%
Others, 15%
Source: Company, Axis Capital
Note: Revenue mix comprises proportionate share of various businesses
Source: Company, Axis Capital
0
2
4
6
8
10
12
14
16
0
1,000
2,000
3,000
4,000
5,000
6,000
FY10 FY11 FY12 FY13 FY14E FY15E FY16E
(%)
(Rs mn)
PAT (Rs mn) RoE (RHS)
16 MAY 2014
Godrej Industries
MIDCAPS
48
SOTP
Holding company discount unwarranted
High standards of corporate governance
Efficient capital allocation
Full pass through of dividends received from GCPL and
Godrej Properties
Value unlocking possible in Godrej Agrovet, seeds business,
and Natures Basket
Excluding holdco discount, our TP stands at Rs 425
1-year fwd P/E
0
10
20
30
40
50
60
M
a
y
-
0
8
A
u
g
-
0
8
N
o
v
-
0
8
F
e
b
-
0
9
M
a
y
-
0
9
A
u
g
-
0
9
N
o
v
-
0
9
F
e
b
-
1
0
M
a
y
-
1
0
A
u
g
-
1
0
N
o
v
-
1
0
F
e
b
-
1
1
M
a
y
-
1
1
A
u
g
-
1
1
N
o
v
-
1
1
F
e
b
-
1
2
M
a
y
-
1
2
A
u
g
-
1
2
N
o
v
-
1
2
F
e
b
-
1
3
M
a
y
-
1
3
Source: Bloomberg, Axis Capital
Source: Axis Capital
SOTP val uat ion: FY16E
GI L 's st ake
(Rs mn)
(Rs/
share)
Comment s
GCPL 50,688 151 GIL's 23% stake valued at 20% discount to our TP of Rs 835
Properties 20,029 60 GIL's 63% stake valued at 20% discount to our TP of Rs 204
Agrovet 28,926 86 GIL's 64% stake valued at 20x FY16E PAT
Chemical business 15,103 45 7x FY16E EBITDA
Project 'Trees' 7,000 21 Valued GIL's 40% stake in the JV
Others 3,000 9 Nature's Basket and other investments
Val ue of Godr ej I ndust r i es 124,746 372
16 MAY 2014
Godrej Industries
MIDCAPS
49
Info Edge
Info Edge a key play on turnaround in economy: With 90% of standalone revenue geared to economy, Info Edge
will significantly benefit from any improvement in economic growth. In an environment of higher economic growth,
kick-start in hiring (75% of revenue) and turnaround in real estate activity (15% of revenue) will lead to material
improvement in revenue growth and drive margin expansion.
Higher losses of investee companies NOT a source of worry
Even as revenue growth of investee companies grew by 56% (on a lower base) to ~Rs 1.7 bn, EBITDA losses widened by
48% to Rs 1.1 bn. This is primarily attributable to Zomato, which is in the midst of investing in expansion to 22 countries.
We are optimistic on the prospects of investee companies as most of them have been gaining scale riding on their
competitive advantages. Valuation also has been looking up for these companies in subsequent rounds of funding - Zomato
is now valued at 3x the investment of Info Edge and Meritnation at 2x the investment
Info Edge will be a key beneficiary of secular shift in advertising from traditional media to online platforms, being a
leader by wide margin in recruitment (Naukri.com) and one of the leaders (among top 3) in the fast growing property
(99acres.com), matrimony (Jeevansaathi.com) and restaurants (Zomato.com) classifieds. Increasing internet
penetration (already starting to hit the J-Curve) is a key driver for the stock
Strong sales force of ~2,000 employees (76% of total employee base) across ~40 cities drives sales efficiencies
across standalone businesses (recruitment, property, matrimonial) and leads to continued strong execution and faster
scale up of business
Solid management: Info Edge management has excellent hang on sector trends and we believe this will enable the
company to develop and execute successful strategies around evolving trends in internet space


16 MAY 2014
Info edge
INTERNET
50
Info Edge
Financial summary (CMP: Rs 573)
Y/E
Sal es Adj. PAT Consensus Adj. EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (x) (%) (x) (Rs)
FY13 4,373 1,315 - 12 (47) - 21 30 - 1
FY14 5,059 1,341 - 12 2 - 19 27 - 3
FY15E 6,150 1,615 14.3 15 20 39 20 29 27 3
FY16E 7,502 2,109 18.6 19 31 30 21 32 20 3
Source: Company, Axis Capital; *Consensus broker estimates
Triggers
Improvement in GDP growth will lead to better than expected earnings growth and re-rating in P/E multiple
Likely improvement in dividend payout (50%+ balance sheet is cash; company continues to generate strong FCFs) as
earnings growth set to resume with economic recovery
16 MAY 2014
Info edge
INTERNET
51
ING Vysya Bank
Traction in corporate loans to support higher fee income growth (mainly driven by transaction banking fees and forex
income)
Retail business growth to be driven by next phase of branch expansion without compromising on cost-income ratio:
~40 new branches p.a (focus on urban locations)
New branches focusing on PSL (esp. Agri & MSME loans)
Relocating legacy branches to high street locations
Banks niche in LAP (SME loans, key driver for profitable growth) to benefit from improved SME climate
Savings Account (SA) franchise to show good traction with bank exploring alternate channels (especially digital
channels) for acquiring new customers (record ~81,000 new savings accounts added in Q4)
C/I ratio to decline by building network in North & West (targeting affluent class, brand positioning as ING)
Well capitalized; operating leverage to kick in: Capital raised in June 2013 is sufficient for ~ 3 years (CAR at
16.8%). Management is targeting for over 15% RoE in next 3 years
Financial summary (CMP: Rs 609)
Y/E
PAT EPS EPS chg BV Adj. BV P/E P/BV RoE RoA Net NPA
March (Rs mn) (Rs) (%) (Rs) (Rs) (x) (x) (%) (%) (Rs)
FY13 6,130 39.4 30.9 291 290 15.5 2.1 14.6 1.2 0.0
FY14 7,188 38.0 (3.5) 368 365 16.0 1.7 12.5 1.2 0.3
FY15E 8,763 46.5 22.2 408 401 13.1 1.5 12.0 1.4 0.5
FY16E 9,993 53.0 14.0 451 444 11.5 1.4 12.3 1.4 0.5
Source: Company, Axis Capital
16 MAY 2014
ING Vysya Bank
BFSI
52
Jagran
Strong presence in Uttar Pradesh (UP) and high readership has enabled Jagran Prakashan (JAGP) to tide over the
macro headwinds and record healthy ad revenue growth
Also, given the change in national political equations and its market leadership in Uttar Pradesh (UP), we expect
JAGP to be the key beneficiary of higher spend on infrastructure and development programs in UP
Encouraging response from circulation expansion in both Madhya Pradesh (MP) and Mumbai for Nai Duniya and
Mid Day respectively augurs well for its medium term growth
Strong positioning in existing markets, coupled with focus on profitable expansion in newer territories (through
multiple acquisitions) will continue to drive profitable growth for JAGP
Given benefits from synergies with JAGP, operational losses from Nai Duniya and Mid Day to remain limited
Tight cost cutting measures to ensure operational leverage benefits to play out
We expect steady uptick in ad revenue growth to drive earnings and PE rerating for the stock. Current valuations
factor in extreme pessimism and hence we do not foresee any significant downside from current levels
Financial summary (CMP: Rs 107)
Y/E
Sal es EBI TDA Adj. PAT Consensus EPS RoE RoCE PE EV/E EV/Net Sal es
March (Rs mn) (Rs mn) (Rs mn) EPS* (Rs) (Rs) (%) (%) (x) (x) (x)
FY13 15,255 2,952 2,551 - 8.1 24.5 18.5 - - -
FY14E 16,723 3,727 2,265 7.0 7.2 30.3 11.4 14.9 9.9 2.2
FY15E 18,785 4,465 2,585 8.1 8.2 23.1 19.2 13.1 8.1 1.9
FY16E 20,890 5,055 2,997 9.3 9.5 23.1 19.2 11.3 6.9 1.7
Source: *Consensus broker estimates, Company, Axis Capital
16 MAY 2014
Jagran Prakashan
MEDIA
53
Jain Irrigation
Sharp improvement in micro-irrigation cash conversion cycle to 230 days (4-year low) in FY14E from 404 days in
FY13 led by cash-n-carry model in Maharashtra and increase in revenue from progressive states and institutional
business. In fact, incremental working capital at current growth is expected at Rs 1 bn p.a. (vs. average of Rs 4.6 bn
p.a. over FY10-14E), thus enabling free cash flow generation of Rs ~12 bn over next 2 years
Growth triggers in place; rupee appreciation to aid margin stability: We build in 19% revenue CAGR (management
expectation of 25% CAGR) in MIS over next 2 years led by (a) drip irrigation being made mandatory on all cash
crops in Maharashtra from June 2015 (estimated market potential of Rs 90 bn from Sugarcane alone), (b) several
states creating opportunities to implement large scale micro irrigation projects and (c) rising inclination of farmers to
adopt MIS given the yield improvement and labor/water shortage issues. Management is guiding for margin
improvement in FY15 vs. our stable outlook
3x increase in profit over next 2 years: Micro irrigation (MIS) revenue visibility has improved with continued growth
in Maharashtra post change in business model and sharp increase in institutional business. This is translating into a
rapid improvement in cash conversion cycle for MIS segment and balance sheet de-leveraging. Thus earnings before
tax are likely to increase by 3x in the next 2 years to Rs 4.8 bn by FY16E, due to reduction in interest burden, as
against EBITDA growth of 15% CAGR over FY14-16E.
Financial summary (CMP: Rs 89)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 49,169 1,132 - 2.5 (74.0) - 5.8 9.3 - -
FY14E 59,017 1,381 3.4 3.0 20.0 29.9 6.2 9.6 9.8 -
FY15E 68,061 2,586 5.9 5.6 87.2 15.9 10.9 10.9 8.4 -
FY16E 77,685 3,768 8.3 8.1 45.7 10.9 14.3 12.7 7.1 -
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Jain Irrigation
MIDCAPS
54
JK Cement
50% expansion in both grey and white cement at an
opportune time
3 mnt expansion in Rajasthan (with grinding unit in
Haryana) expected to come in H1FY15 will cater to
Northern India, a high-growth and no significant
overcapacity region
FY16 EBITDA to rise 3x vs. FY14 levels led by FY14-16
volume CAGR of 20% in grey cement and sustained
strong profitability in white cement business
White cement a high growth oligopoly market in
India (JKCE and UltraTech)
Demand growth of 10% in white cement and 25% in
wall putty
Extremely strong pricing power led by oligopoly market
and strong volume growth
Attractive valuation: Stock trading at EV/ton of USD
40 vs large cap players at USD 120-150
EBITDA to rise 3x by FY16 led by expansions
Source: Company, Axis Capital
0
2
4
6
8
10
FY11 FY12 FY13 FY14E FY15E FY16E
(Rs bn)
Grey White
Financial summary (CMP: Rs 241)
Y/E
Sal es EBI TDA Adj. PAT EPS Chg PE RoE EV/E EV/t on Div Yiel d
March (Rs mn) (Rs mn) (Rs mn) (Rs) YoY (%) (x) (%) (x) (USD) (%)
FY13 29,120 5,578 2,301 32.9 25.3 - 14.3 - 2.7
FY14E 28,280 3,069 391 6 (83) 43 2 10.1 40.0 1.1
FY15E 35,804 5,709 1,736 25 344 10 10 5.0 43 1.4
FY16E 47,231 8,636 2,563 37 48 7 13 4.9 39 2.5
Source: Company, Axis Capital
16 MAY 2014
JK Cement
CEMENT
55
Focus charts
More that 3x rise in capacity since FY04
White cement realization growth is non-cyclical and secular
Source: Company
Source: Company
7.5
2.8
0.8
0.5
0.5
3.0
3.0
0
2
4
6
8
10
12
FY'04 FY'05 FY'07 FY'09 FY'10 FY'15E
(mnt)
7,000
8,000
9,000
10,000
11,000
12,000
13,000
2,900
3,100
3,300
3,500
3,700
3,900
4,100
FY09 FY10 FY11 FY12 FY13 FY14
(Rs) (Rs)
Grey White (RHS)
Locat i on Det ai l s
Gotan (Rajasthan)
Whi t e: 0.6 mnt,
Wal l put t y: 0.5 mnt,
Gr ey: 0.5 mnt
Nimbahera (Rajasthan) Gr ey: 3.3 mnt
Mangrol (Rajasthan)
Gr ey: currently 0.75 mnt,
brownfield expansion of 3 mnt
in progress
Muddapur (Karnataka) Gr ey: 3 mnt
Fujairah (UAE)
Whi t e cement : 0.6 mnt/
gr ey cement : 1.0 mnt
JK Cements geographical presence
Gotan
Nagaur
(Rajasthan)
Nimbahera
Chittorgarh
(Rajasthan)
Mangrol
Chittorgarh
(Rajasthan)
Muddapur
Bagalkot
(Karnataka)
16 MAY 2014
JK Cement
CEMENT
56
Just Dial
Higher economic growth will aid customer additions and importantly, reduce churn
Higher economic growth will translate to improvement in SME health. This has two key implications:
Just Dial will be able to realise higher growth in customers, and
Pricing power will come back, as SMEs will allocate higher budgets for ad spends
Churn, which is currently at 40-45% (and has been so in the last few years) is likely to come down any reduction in churn
will directly help growth in customer base
Success in high potential transaction services (search plus) will be a key re-rating trigger
Just Dial has already soft launched Search plus services, however they will be monetized only from FY16. The
monetization will follow build-up of traffic for these services, which is expected in FY15 (JUST intends to spend Rs 0.6-1 bn in
H2FY15 to market these services)
Successful ramp up of these products will create non-linear revenue streams apart from increasing user engagement and
customer stickiness. JUST is well positioned to enter these verticals as go-to-market can speed up by tapping its established
database of ~12 mn listings
Virtuous cycle (higher number of customers drive searches and vice versa) being constantly strengthened
22% CAGR in customers (paid listings) over FY14-16
~1,000 feet-on-street employees maintain personalized relationships with SMEs, helping acquire new or convert
existing listings to paid; this also acts as a deterrent to competition (both local and global)
Increasing awareness among SMEs on Internets potential for quality lead generation (compared to other media) and
geography diversification (90%+ revenue is from top 11 cities)
Higher user engagement targeted through launch of user reviews, ratings etc
These features will build on the already strong brand image of delivering quick and accurate data to the users
Strengthen JUSTs competitive positioning among other local search/ e-commerce platforms


16 MAY 2014
Just Dial
INTERNET
57
Just Dial
Upside triggers
Traction in JUSTs new products can result in non-linear revenue streams
Getting acquired
International expansion (management indicated unlikely in medium term), and
Higher dividend pay-out




Financial summary (CMP: Rs 1128)
Y/E
Sal es Adj. PAT Adj. EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) (Rs) YoY (%) (x) (x) (%) (x) (Rs)
FY13 3,628 700 10 28 - 26 32 - -
FY14 4,613 1,206 17 72 - 25 25 - -
FY15E 5,786 1,481 21 23 54 24 26 39 -
FY16E 7,166 1,901 27 28 42 24 27 29 -
Source: Company, Axis Capital
16 MAY 2014
Just Dial
INTERNET
58
Jyothy Labs
Portfolio of brand with scalable opportunity
A well diversified portfolio: To strengthen 7 core brands in Home and Personal care categories. In fact acquisition and product
diversification has led to Ujala brand salience reducing from ~40% in FY11 (prior to Henkel acquisition) to ~25% in FY14E.
Straddled across price points: Acquired Henkel brands plug premium portfolio gaps in fabric care and personal care.
Entering into adjacencies: Extended into face wash under Margo brand. Plans to extend into other adjacent categories.
Growing ahead of peer group: Jyothy Labs revenue grew 25% in 9mFY14, largely led by volume.

Building capabilities to re-invest behind brands
From Entrepreneurial set up to Professional team: New management team (15 senior personnel) under CEO Mr. Raghunandan
S (ex-Reckitt MD) has aided in strengthening R&D, rationalizing trade margin, enhancing supply chain efficiency, improving
distribution effectiveness, renovated and re-launched entire product portfolio.
These initiatives has led to ~450 bps expansion in gross margin and 650 bps expansion in EBITDA margin over FY12-14E.
Part of this margin gains is being invested back into brands. This is reflected in A&P spends increasing from ~8% in FY12 to
~12% in FY14. EBITDA margin at 14.3% is close to company guided 14-15% operating margin range.
Henkel exercising stake buy option could re-rate stock
Henkel has an options to buy 26% stake in Jyothy Labs at market determined prices beginning April 2016. The probability
remains high as erstwhile Henkel business has turnaround and the business has been streamlined for Henkel to extend its
global brands into India.
Expect strong earnings growth; Attractive valuation
34% earnings CAGR over FY14E-17E aided by deleveraging plan and growth investments undertaken by new management.
Jyothy Lab is trading at 23x on one year rolling fwd. valuation (vs. its 3 years mean of 27x).
16 MAY 2014
Jyothy Laboratories
FMCG
59
Jyothy Labs
Gaining value market share (except in Maxo) Trading at PE of 23x on one year fwd. PE
Source: Company, Axis Capital Source: Bloomberg, Axis Capital
10
20
30
40
50
J
a
n
-
1
1
M
a
r
-
1
1
M
a
y
-
1
1
J
u
l
-
1
1
S
e
p
-
1
1
N
o
v
-
1
1
J
a
n
-
1
2
M
a
r
-
1
2
M
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-
1
2
J
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-
1
2
S
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p
-
1
2
N
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2
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-
1
3
M
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-
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3
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1
3
J
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-
1
3
S
e
p
-
1
3
N
o
v
-
1
3
1 yr Fwd P/E Mean +1 std dev -1 std dev
69
20
16
72
22
24
74
20
28
0
20
40
60
80
Ujala Maxo Exo*
(%)
FY07 FY10 FY13
Financial summary (CMP: Rs 197)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 11,041 617 - 3.8 41.8 - 9.9 6.6 - 1.6
FY14E 13,355 1,009 6.6 5.6 45.7 35.3 12.8 8.4 22.6 1.7
FY15E 15,780 1,539 10.5 8.5 52.5 23.2 15.8 10.1 18.3 2.2
FY16E 18,387 1,981 12.8 10.9 28.7 18.0 18.7 11.2 15.2 2.5
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Jyothy Laboratories
FMCG
60
LIC Housing Finance
Higher advances growth sustainable without any significant asset quality challenges
Strategy of focusing on Tier II & III cities paying off with LICHF expected to grow advances by ~20% in FY15 (17%-FY14)
Rising competition unlikely to be a threat given LICHFs strong brand identity, large network ,agency force, better processes
One of the best placed entities from asset quality perspective (97% advances in the retail category)
Overall GNPA ratio at 0.7% in FY14; whereas retail asset quality was much better at 0.3% GNPA
Write-back of provisions due to reversal of provisions on teaser loan portfolio and up gradation/ recovery of corporate
NPAs will cushion earnings
Margin profile to improve led by
increase in share of high yielding products (LAP + Developer loans at ~10% from current ~6%) in FY15 and
replacement of bank borrowings (20% from 25%) with lower cost NCDs (current 65%).
LICHF has spent much of FY14 in getting its product portfolio right by launching new products and re-launching existing
products. The strategy is paying off as evident from 34% YoY growth in LAP disbursements in Q4 and pick up in disbursements
in developer loans (4% YoY growth in developer loans compared to de-growth in last 10 quarters).
Financial summary (CMP: Rs 268)
Y/E
PAT EPS EPS chg BV Adj. BV P/E P/BV RoE RoA Net NPA
March (Rs mn) (Rs) (%) (Rs) (Rs) (x) (x) (%) (%) (Rs)
FY13 10,232 20.3 11.9 128 125 13.2 2.2 16.8 1.4 0.4
FY14E 13,172 26.1 28.7 149 144 10.3 1.9 18.8 1.5 0.4
FY15E 15,784 31.3 19.8 174 168 8.6 1.6 19.3 1.5 0.5
FY16E 18,316 36.3 16.0 204 197 7.4 1.4 19.2 1.5 0.4
Source: Company, Axis Capital
16 MAY 2014
LIC Housing Finance
BFSI
61
Oberoi Realty
Favorable developments/ key initiatives in FY14 to yield results from FY15 onwards
Oberoi Realty Ltd (ORL) acquired ~25 acres in Borivali (Mumbai) for ~Rs 11.44 bn to replenish its land bank
Tied up with Ritz Carlton for its Worli project, which will help the company achieve higher realizations (totaling 2.1 msf)
Mulund project was cleared from the forest land issue and is expected to be launched in FY15
Sales volume expected to revive from FY15 onwards driven by new launches (Worli, Mulund, Andheri, Goregaon
and Borivali)
We expect ORL to report strong earnings growth over FY15-16 driven by revenue recognition from project Esquire
(sales of ~Rs 13 bn till Mar 14) and project Oasis (achieved ~55% completion and sales of ~Rs 6 bn till date)
Mix of development and annuity projects provides a hedge
Operational annuity assets yielding Rs 2.6 bn annually
Ongoing development projects (3.6 msf sold out of ~5 msf) to generate ~Rs 93 bn of net cash flows over 3-4 years
Forthcoming projects of ~11 msf with potential to generate ~Rs 120 bn of net cash flows
Financial summary (CMP: Rs 220)
Y/E
Sal es Adj. PAT EPS Chg Net Debt Net wort h RoE RoCE PE PB
March (Rs mn) (Rs mn) (Rs) YoY (%) (Rs mn) (Rs mn) (x) (%) (x) (x)
FY13 10,476 5,049 15.4 9.0 (10,725) 41,621 12.8 14.4 - -
FY14 7,985 3,111 9.5 (38.4) (4,237) 43,964 7.3 9.2 - -
FY15E 16,967 6,878 21.0 121.1 8,261 50,199 14.6 16.1 10.5 1.4
FY16E 17,884 7,295 22.2 6.0 5,544 56,810 13.6 14.1 9.9 1.3
Source: Company, Axis Capital
16 MAY 2014
Oberoi Realty
REAL ESTATE
62
Page Industries
Page Industries is the exclusive licensee of Jockey International (USA) for manufacture and distribution of Jockey brand
innerwear/leisurewear in India, Sri Lanka, Bangladesh, Nepal and UAE. It is also the exclusive licensee of Speedo
International Ltd. for the manufacture, marketing and distribution of the Speedo brand in India
Why we like Page?
Huge unorganized market/Low per capita innerwear spend: Indias per capita innerwear spend at ~USD 2 is 1/4th of the
emerging market average with 50%+ of the market unorganized. Backed by rising modern retail penetration &
premiumisation, we expect the innerwear market to expand 2x to USD 6 bn by FY17E, implying a CAGR of 15%.
Page best positioned to capture growth: Significant brand investment, wide portfolio range, strong back-end infrastructure
and well entrenched distribution network has enabled page to grow at ~3x market growth.
Strong pricing power, proven business model ensure high sustainable returns: Despite volatility in commodity cost and sharp
excise duty increase, Page has shown exemplary pricing power, resulting in stable operating margin,. Equipped with an
asset light business model with GFA turns of 4.5x and sustained high net margin of 12%.
Focus on RoCE to create shareholder value: RoCE/ROE has sustained at 50%/55% over FY11-13. Page has consistently
rewarded shareholders by maintaining strong dividend payout of 50%+.
Growth momentum to sustain: Despite weakness in discretionary, page posted a 40%/30% growth in revenues/profit in
June quarter led by strong growth in premium categories (Bras, leisurewear) which are gaining momentum on the back of
aggressive advertising and product launches. Expect revenue/profit growth of 32%/33% over FY13-15E.
Financial summary (CMP: Rs 6036)
Y/E
Sal es Adj. PAT Consensus Adj. EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (x) (%) (x) (Rs)
FY13 8,635 1,124 - 100.8 24 33 59 55 21 50
FY14E 11,763 1,515 136.0 135.9 35 44 60 59 28 57
FY15E 14,762 1,929 177.5 173.0 27 35 57 59 22 74
FY16E 18,775 2,556 224.7 229.3 32 26 57 61 17 99
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Page Industries
RETAIL
63
Persistent Systems
Strong revenue growth driven by differentiated IP solution and SMAC offerings
CY14 is likely to see increased IT spend around emerging technologies like Social, Mobility, Analytics and Cloud
(SMAC). We believe given its unique business model (SMAC - 50% of rev. and IP: 20% of rev.), Persistent will
deliver industry leading growth with strong margin performance
Outlook for IP Business (20% of revenue) : Management is confident of delivering strong growth driven by traction
in existing deals and potential deal funnel. Persistents strategy is to scale-up IP-led business to 25% of revenue over
next 2 years. CY14 could see new signing in IP Tractions remains
Strategic clients have promising potential: Persistent has identified top 50 clients that have the potential to reach USD
10 mn in next few years. Management has assigned dedicated sales and delivery team to ensure effective mining of
these accounts and the progress on the same has been as per expectations.
Stepping up S&M investments: Management will be increasing their marketing investments (up by ~50-100 bps) to
leverage growth opportunity in IP, Platforms and traditional OPD* segment. We believe these investments will be
absorbed by levers: high gross margins in IP, utilization.
Valuations: We expect PSYS to deliver 18%/ 19% USD revenue growth in FY15E/ 16E (higher than industry).
Differentiation will command a premium
* OPD: Outsourced Product Development
Financial summary (CMP: Rs 993)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 12,945 1,876 - 46.9 32.3 - 20.2 27.2 - 9.0
FY14 16,692 2,493 - 62.3 32.9 - 22.3 29.2 - 12.0
FY15E 19,460 3,019 78.6 75.5 21.1 13.2 22.8 30.6 7.2 15.0
FY16E 22,564 3,406 92.3 85.1 12.8 11.7 21.9 29.5 6.0 18.0
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Persistent Systems
IT SERVICES
64
Prestige Estates Projects
Strong annuity portfolio: Current 5.4 msf of area yields rentals of ~Rs 2.8 bn to reach Rs 5 bn by FY15
Significant scale up in operations: Sales and collections run-rate has increased to ~6 msf (from 1.8 msf in FY11) and
collections to ~Rs 25 bn (from ~Rs 15 bn in FY11) achieved in FY14
Strong cash flow visibility from development assets: Sold ~18 msf of which Rs 55 bn is to be received, leaving ~10
msf worth ~Rs 68 bn. With ~Rs 56 bn of costs, net cash expected is Rs 67 bn over next 3-4 years
High visibility of earnings over FY15-16E from un-booked revenue of Rs 67 bn (3x FY13 revenue)
Bangalore continues to be a preferred play: Residential market in Bangalore has expanded ~40% over last 3 years
Following a more balanced strategy
Launching lesser number of larger format projects in order to curtail execution risk going ahead
Pause in annuity capex post achieving Rs 5 bn of rentals by FY15
May look to distribute 50% of rental income and use only balance for developing future annuity project
May exit annuity assets which have reached their max yield to redeploy into new projects yielding higher returns
Financial summary (CMP: Rs 163)
Y/E
Sal es Adj. PAT EPS Chg Net Debt Net wort h RoE RoCE PE PB
March (Rs mn) (Rs mn) (Rs) YoY (%) (Rs mn) (Rs mn) (x) (%) (x) (x)
FY13 19,476 2,860 8.2 224.5 19,057 27,423 11.7 11.9 - 2.1
FY14E 25,555 3,488 10.0 22.0 23,298 30,073 12.1 11.8 16.4 1.9
FY15E 31,681 4,260 12.2 22.1 23,661 33,311 13.4 12.9 13.4 1.7
FY16E 39,201 5,946 17.0 39.6 18,949 37,830 16.7 15.7 9.6 1.5
Source: Company, Axis Capital
16 MAY 2014
Prestige Estates Projects
REAL ESTATE
65
Redington India
Growth to accelerate across business segments .strong innings ahead
Key beneficiary of likely revival in corporate capex cycle, Govt IT spend (peak: ~22%, currently: ~10-12%) and smart
phone penetration among consumers. Preferred distribution partner for global brands with a wide product range across
vendors
Non-IT verticals (Q3FY14: 19% of consolidated sales) have higher margins and negative working capital cycle like smart-
phones and i-Pads. Non-IT segment to maintain momentum led by Apple products/smart phones in India and Samsung in
Africa. Upsides from potential vendor tie-ups in the pipeline
Strong growth in Apples iPhone business will more than offset the decline in the Blackberry business
Potential sign-ups with Microsoft Surface and Google/Motorola and launch of new products by Apple in India and Middle
East are potential catalysts
Margin likely to remain steady at current levels (Q3FY14: 2.4%) driven by demand pick up. RoE has been steady
despite change in product portfolio. Stake divestment in NBFC to improve Debt/Equity ratio and will facilitate growth
in core distribution business
We expect reversion to mean as growth returns (current P/E: 8x FY16E, 5-year avg PE of 11.5x). Upsides from GST
implementation
Financial summary (CMP: Rs 86)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 241,647 3,231 - 8.1 10.2 - 21.8 17.6 - 0.4
FY14E 274,408 3,362 8.2 8.4 4.0 10.2 19.0 16.5 7.7 0.5
FY15E 310,506 3,809 9.8 9.5 13.3 9.0 18.4 16.4 7.0 0.6
FY16E 355,497 4,364 11.4 10.9 14.6 7.9 17.9 16.1 6.4 0.7
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Redington India
IT SERVICES
66
Supreme Industries
Supreme Industries (SI) is a leading polymer processor in India having four verticals - (1) Plastic piping systems,
(2) Packaging, (3) Industrial, and (4) Consumer products. User industries include Housing, Auto, Agri, Consumer
Durables, Infrastructure, etc.
Why we like Supreme?
Underpenetrated market growing at 11% pa: Indias per capita plastic consumption is among the lowest in the
world, 6.5 kg vs. world average of ~27 kg. Consumption is expected to increase to 20 mn tons by FY20E from 8 mn
tons currently.
Supreme well positioned to ride this growth driven by 1) diversified product range with strong brand equity,
2) significant market share in each product vertical, and 3) pan-India presence with manufacturing across 22
locations and vast distribution network (over 20,000 retailers).
Capex of Rs 10 bn over FY13-17E to double revenue: Supreme is expanding capacities across its product verticals to
meet demand and foray into high margin niche products (composites). Capex would be funded by internal accruals
and monetization of its commercial building Supreme Chambers. We expect ~ 19% revenue CAGR over FY13-16E.
Stable margin despite volatile crude/INR prices: Historically, Supremes' gross margin has been stable at 34-36% due
to (1) ability to pass on prices to customers and (2) Improving sales mix- Share of value-added products increased
from 20% in FY08 to 31% in FY13. We expect gross margin to sustain at ~35%.
Focus on RoCE to create shareholder value: RoCE has been on a rising trend and is set to sustain above 30% over
FY13E-16. Supreme has consistently rewarded shareholders by maintaining strong dividend payout of 30-40%.
16 MAY 2014
Supreme Industries
MID-CAPS
67
Supreme Industries
Revenue Mix (FY13) CFO and RoCE
Financial summary (CMP: Rs 442)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
J une (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY12 29,274 2,417 - 19.0 26.5 - 38.9 35.5 - 5.5
FY13 34,040 2,901 - 22.8 20.1 - 36.9 36.2 - 6.8
FY14E 40,984 3,271 25.0 25.7 12.7 17.2 33.4 32.4 10.2 8.4
FY15E 48,522 3,834 30.9 30.2 17.2 14.6 31.9 33.1 8.5 9.6
Source: Company, Axis Capital; *Consensus broker estimates
Plastic Piping
System
48%
Consumer
Products
9%
Industrial
Products
17%
Packaging
Products
26%
20
25
30
35
40
45
50
0
1,000
2,000
3,000
4,000
5,000
FY09 FY10 FY11 FY12 FY13E FY14E FY15E FY16E
(%) (Rs mn)
Operating cash flow RoCE (RHS)
16 MAY 2014
Supreme Industries
MID-CAPS
68
Tube Investments: Business overview
Tube Investments (TI) is the flagship company of the Murugappa group, with operations spanning across 3 divisions Cycles,
Engineering, and Metal Formed Products. In addition, the company owns 74% of MS Chola general insurance business; has ~
50 % stake in the listed Cholamandalam Finance & Investments Ltd (CIFC) and 70% in Shanthi Gears.

Revenue : Rs 34 bn
EBIT : Rs 2.5 bn
Capital Employed : Rs 25 bn
Revenue : Rs 13 bn
EBIT : Rs 0.9 bn
Capital Employed : Rs 4.3 bn
Revenue : Rs 26 bn
EBIT : Rs 4.5 bn
Capital Employed : Rs 19 bn
Tube Investments (Consol) FY13
Revenue : Rs 74 bn
PAT : Rs 3 bn
FY13
(Rs bn)
Cycl es Engineering Met al Formed
Product s
Sal es 13 15 8
EBIT 0.5 1.1 0.8
RoCE (%) 57 22 16
Standalone Non life Insurance Cholamandalam Finance
16 MAY 2014
Tube Investments of India
MID-CAPS
69
Current value of Fin services at Rs 35 bn = M-cap of Tube at CMP
TI has invested ~ Rs 10 bn in financial services business:
1) CIFC: Rs 6 bn invested with TI holding ~50% stake; valued at ~ Rs 20 bn at CMP of Rs 290 (our Target Price for
CIFC stands at Rs 331)
2) MS Chola General Insurance: Besides abolishment of third party motor pool losses, there are other positives like
industry wide increase in premiums and Chola MS rising focus on the profitable retail segment. ~Rs 4 bn invested for
74% stake in the unlisted Cholamandalam MS Gen Insurance (MS Chola); we value the stake at ~ Rs 13 bn based on
10x FY16E PAT of Rs 1.7 bn. Adjusting for third party motorpool related losses, PAT for FY13 stood at over Rs 1 bn.
Chola MS has the potential to clock over Rs 1.5 bn in PAT FY15 onwards as it focuses on the profitable retail segment
Implying that efficient core engineering business with FY16E revenue of Rs 45 bn available free
Tube Investments is a market leader across its 3 key business segments with FY13 revenue of ~ Rs 34 bn and EBIT of
~ Rs 2.5 bn. RoCE for its core operations are ~25% even in a down cycle (57% for cycles, 22% for engineering
division, and 16% for metal formed). Capex of Rs 4 bn incurred will start contributing to revenue from FY15

Implied Consolidated Proforma Snapshot
Prof orma earni ngs ( Rs mn) FY13 FY14E FY15E FY16E
Revenue 76,216 85,000 97,500 107,500
PAT
2,885 3,600 5,000 7,250
RoE (%) 17% 19% 21% 24%
P/E ( x)
12 10 7 5
P/B (x) 1.8 1.6 1.4 1.1
16 MAY 2014
Tube Investments of India
MID-CAPS
70
Tube Investments SOTP
Core business valued at ~ Rs 17 bn to arrive at our SOTP-based TP of Rs 279
We value core business at Rs 94 /share (10x FY16E Core PAT); financial services at Rs 169/share and Shanthi Gears
at Rs15/ share.
SOTP val uat ion - FY16E (Rs mn) Per share
val ue (Rs)
St andal one Business
Core PAT 1, 746
Multiple assigned (x) 10.0
Val ue of st andal one business 17, 464 94
Chol a I nvst & Fin (CI FC)
Target M-Cap of CIFC 47,366
TI's stake 50%
Holding co discount 20%
Val ue of CI FC 19, 098 102
General I nsurance
PAT 1,701
Multiple assigned (x) 10
TI's stake 74%
Val ue of General I nsurance 12, 589 67
Shant hi Gears 2842 15
Val ue of Tube I nvest ment s 51, 994 279
16 MAY 2014
Tube Investments of India
MID-CAPS
71
United Phosphorus (UPL)
Re-rating likely as management focus shifting to free cash generation (FCF)
Despite being among the top 10 global agro-chemical companies, UPL (United Phosphorus) trades at discount to
comparable peers (local and international). This is due to subdued FCF following multiple acquisitions in the past
Key takeaway from our management interaction is that having acquired global scale, the company is now
increasingly focusing on improving profitability and generating free cash
Market concerns on capital allocation have ebbed after management reiterated in Annual Analyst Meet that cash
generated from business operations is likely to be utilized for further debt reduction and higher dividend payout/
buy back.
Two buybacks in FY13 and FY14 , despite leverage (FY13 D/E of 0.8x) instills confidence
Acquisitions have created economic value; concerns overdone
Despite acquisitions being a drain on FCF in the short term, our analysis indicates they have created economic
value for UPL (as indicated by EVA).
Acquisitions were done to gain access to products and/or markets (distribution and registrations), which are key
entry barriers to the business- UPL has grown 4x faster than the global industry over FY05-13 (27% CAGR vs. 6%)
Financial summary (CMP: Rs 272)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E DPS
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x) (Rs)
FY13 90,092 8,092 - 18.3 38.5 - 18.4 15.9 - 2.5
FY14 105,742 10,589 - 24.7 35.0 - 21.4 18.8 - 2.4
FY15E 118,880 12,877 27.1 30.0 21.6 9.0 22.3 21.9 5.6 4.0
FY16E 132,478 15,291 31.3 35.6 18.7 7.6 22.0 23.2 4.7 4.5
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
UPL
MID-CAPS
72
.UPL
Comfort factors
Global presence reduces cyclicality: UPL derives 80% of its revenue from outside India through its global
distribution platform with competitive manufacturing costs (India accounts for ~50% of global production)

Generics gaining share: Over the last decade, generics have been gaining share (50% in CY11 vs. 30%
in CY01) as cost of developing new molecules is moving up and R&D focus of large inventors is now on
seeds. Further, products worth USD 5 bn are expected to go off patent over next 3 years

Strong entry barriers: Product registration and approval process in crop protection is long and expensive.
A generic player has to conduct field trials again after proving bioequivalence of the generic product to the
innovators original product. Unlike generic pharma companies, generic agro companies have to go
through separate field trials and registration processes for each country and each application
With improving FCF, valuation discount to global and local players should narrow
The stock trades at 11x/9x/8x FY14E/15E/16E EPS (vs.10x avg1-yr fwd PE over FY05-13)
Valuation gap to narrow as RoE improves FY13 onwards (to sustain above 20%), leading to PE expansion
16 MAY 2014
UPL
MID-CAPS
73
Whirlpool
We believe the slowdown in consumer durables over
FY11-14 might be at trough levels and pent up
demand will unfold gradually as growth picks up
Our channels checks are suggesting gradual volume
recovery for consumer durables , FY15 onwards

Over the next 3 years, with revival in the economy,
Whirlpool revenue likely to grow in double digits
leading to margin expansion to ~10%, implying high
profit growth and 45-50% RoI , with significant FCF
Whirlpool is currently focused on four segments-
refrigerators, washers, A/Cs and microwaves. It has
launched new variants for these in select markets
Future focus areas - water-purifiers & kitchen appliances
Whirlpool is focused on margin improvement by:
Improving product mix
Maximizing fixed cost absorption and productivity gains
through economies of scale


Trend in Revenue and EBITDA margin
0
3
6
9
12
0
10,000
20,000
30,000
40,000
50,000
F
Y
0
9
F
Y
1
0
F
Y
1
1
F
Y
1
2
F
Y
1
3
F
Y
1
4
E
F
Y
1
5
E
F
Y
1
6
E
(%) (Rs mn)
Sales EBITDA margin (RHS)
Source: Company, Axis Capital
Revenue to grow at 10% CAGR over FY14-FY16
EPS is expected to improve from Rs 9.4 in FY14E to
Rs 15.6 by FY16E
16 MAY 2014
Whirpool
MISCELLANEOUS
74
Whirlpool
We like Whirlpool due to its focus on profitability and
strong cash generation.
With demand recovery, Whirlpool could generate
average FCF of around Rs 2 bn over FY14-16E. This
could possibly lead to dividend payouts

Key monitorable INR depreciation
Whirlpool Indias import content would be around
35-40% (lower than industry). Sharp rupee
depreciation could exert more pressure on margins

Trend in FCF and RoCE
Source: Company, Axis Capital
0
10
20
30
40
50
60
70
0
500
1,000
1,500
2,000
2,500
F
Y
0
9
F
Y
1
0
F
Y
1
1
F
Y
1
2
F
Y
1
3
F
Y
1
4
E
F
Y
1
5
E
F
Y
1
6
E
(%)
(Rs mn)
FCF RoCE (RHS)
Financial summary (CMP: Rs 223)
Y/E
Sal es Adj. PAT Consensus EPS Chg PE RoE RoCE EV/E
March (Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x)
FY13 31,656 1,278 - 10.1 3.3 - 23.8 31.7 -
FY14E 32,694 1,194 9.0 9.4 (6.5) 23.7 18.1 25.8 10.8
FY15E 35,604 1,611 11.2 12.7 34.9 17.6 20.0 28.7 8.4
FY16E 39,848 1,976 14.1 15.6 22.6 14.3 20.1 28.9 6.4
Source: Company, Axis Capital; *Consensus broker estimates
16 MAY 2014
Whirpool
MISCELLANEOUS
75
Axis Capital Limited
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