Ambit Economy Strategy

Economy & Strategy
THEMATIC
Exit the fantasy, enter the reality

As the fantasy of a secular bull market fades, we cut not just our FY16
GDP growth estimate from 7% to 6.8% (driven largely by a drop in
industrial growth) but also our end-FY16 Sensex target from 32K to 28K.
We further highlight that there is a high risk of the Sensex dropping to
as low as 22K, as the odds appear to be in favour of a continued yuan
devaluation. The combination of a enfeebled banking system, a sliding
real estate sector and a PM determined to reset the way the Indian
economy works makes India a risky investment destination. To mitigate
this risk, we recommend that investors focus on financially robust,
market leading franchises which are trading at sensible valuations.
We cut our FY16 GDP growth estimate
We downgrade our GDP growth estimate for FY16 from 7% YoY to 6.8% YoY (vs
7.3% YoY recorded in FY15). The downward revision in our GDP growth
estimate comes on the back of the events unfolding in China. China is the
worlds largest exporter, and with the growing likelihood of a significant
devaluation in the yuan, Indian promoters are rethinking their modest capex
plans. This is likely to result in a further decline in private investment growth,
which in turn will bring down the industrial and services sector growth rate.
More details are given in Exhibit A.
We cutting our end-FY16 Sensex target to 28K
Over the course of the past year, we have cut our Sensex target twice from
36,000 initially (in November 2014) to 32,000 (in May 2015) primarily on the
back of a cut in our bottom-up earnings estimates. Through these cuts, we kept
the trailing Sensex P/E target unchanged at 20x on the premise that the
structural positives emanating from the current dispensations three key resets
(click here for our March 2015 thematic) will improve Indias long-term growth
rate. However, we see risks of a delayed economic recovery emanating from
additional headwinds such as: (a) a major real estate price correction; (b) a
banking system blowup, and (c) the NDAs inability to expedite economic
reforms. Thus, we are forced to revisit and revise our trailing Sensex P/E
multiple from 20x to 18x. This, combined with our bottom-up FY16 EPS estimate
of Rs1550 (9% YoY growth on the actual FY15 EPS of Rs1430), leads us to our
new end-FY16 Sensex target of 28,000, implying 7% upside.
August 28, 2015

Exhibit A: We expect GDP growth of
6.8% YoY in FY16
FY15
FY16
(old)
FY16
(new)
Agriculture
1.5%
3.2%
3.2%
Industries
5.6%
5.4%
5.1%
10.6%
9.1%
9.0%
4.3%
3.7%
2.3%
7.3%
7.0%
6.8%
Services
Memo item:
Investments
GDP at MP
Source: CEIC, Ambit Capital research; Note: GDP

at MP refers to GDP at Market Prices
Exhibit B: Our top high quality BUYs

Mcap
(US$ mn)
Upside
(%)
ITC
39,587
21
Coal India
34,623
17
Lupin
12,949
15
Power Grid Corp
10,687
27
IndusInd Bank
7,694
20
Page Inds
2,457
15
PI Inds
1,425
20
Mahindra CIE
1,345
24
Bata India
1,087
21
879
19
Company Name
City Union Bank
Source: Bloomberg, Ambit Capital research
High risk of the Sensex sliding to 22K

With a high likelihood of the Chinese central bank embarking on a continued
devaluation of the yuan, the Indian stockmarket stands exposed to: (a) Indian
products losing their competitiveness to their Chinese counterparts; and (b)
rising risks to Indias $0.5tn of foreign currency debt. Such a scenario could be a
catalyst for more pullbacks in the Sensex with the trailing P/E multiple likely to
drop to 14x (as seen in the Lehman crises), implying a Sensex level of 22,000.
Investment implications
Even after the 6% fall over the past nine days, there are no rational grounds for
claiming that the Sensex has bottomed out. As Prime Minister Modis resets bite
deep into the Indian economy, we expect GDP growth to slow down and we
expect earnings growth to remain weak. In fact, as retail flows wane, the
support system propping up the Sensex is likely to give away. Hence, the only
way to invest in such a market is to focus on high-quality franchises which are
available at reasonable valuations. Our tenbaggers and coffee can portfolios
continue to deliver exemplary results in this regard. More specially, ten high
quality BUYS from our sector leads are given in Exhibit B.
Analyst Details
Saurabh Mukherjea, CFA
Tel: +91 22 3043 3174
saurabhmukherjea@ambitcapital.com
Gaurav Mehta, CFA
Tel: +91 22 3043 3255
gauravmehta@ambitcapital.com
Prashant Mittal, CFA
Tel: +91 22 3043 3215
prashantmittal@ambitcapital.com
Sumit Shekhar
Tel: +91 22 3043 3229
sumitshekhar@ambitcapital.com
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Economy & Strategy
CONTENTS
Corporate performance is unusually weak. 3
The disconnect between earnings growth and GDP growth....5
We downgrade our GDP growth estimates for FY16 to 6.8% YoY.........................7
We cut our Sensex target from 32K to 28K.................................................................9
Investment implications..14
- ITC (BUY): Solid franchise at inexpensive valuations.. 17
- Coal India (BUY): Best large-cap reform play. 17
- Lupin (BUY): Earnings momentum unperturbed. 18
- Power Grid Corporation (BUY): A clear winner...... 18
- IndusInd Bank (BUY): A differentiated assets franchise for uncertain times...19
- Page Industries (BUY): Revenue growth of >25% YoY likely from 2QFY16.. 19
- PI Industries (BUY): Speciality chemicals champion. 20
- Mahindra CIE (BUY): Fruits of adoption.. 20
- Bata India (BUY): Ongoing strategic initiatives aid growth revival21
- City Union Bank (BUY): A stable ship for rough waters.. 21
Appendix22
August 28, 2015
Ambit Capital Pvt. Ltd.
Page 2
Economy & Strategy
Corporate performance is unusually weak

Even though the Indian equity market has seen significant inflows (especially from
retail investors), this confidence appears to be misplaced in light of the underlying
performance exhibited by corporate India. The initial phase of the current market
upmove that began in September 2013 was accompanied by an uptick in revenues
and earnings growth; however, this trend has reversed for the worse in the last three
quarters.
Exhibit 1: Rising retail inflows despite waning corporate performance
150
1,800
120
1,750
90
1,700
60
Net MF equity inflows* (Rs bn, LHS)
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
1,600
Jul-14
Jun-14
1,650
May-14
30
Consensus FY16E EPS for Sensex (Rs, RHS)
Source: Bloomberg, AMFI, Ambit Capital research; Note: Using standalone EPS estimates for HDFC for historical
comparison; MF stands for Mutual Funds; *assumes 60% of balanced allocation as equity
The last time corporate India had such a poor performance in terms of revenue and
profit growth was during the 2008 financial crisis, the year that had seen the Sensex
drop by more than half of its peak. Today, however, in spite of such an abysmal
performance, Indian equities have remained afloat, helped by retail investor
optimism. In contrast, over the past six months, FII equity flows into India have dried
up (average monthly outflows of Rs20bn from FIIs vs average monthly inflows of
Rs60bn from MFs over the last six months).
Retail investor optimism looks

misplaced in light of weak
corporate performance
14%
50%
12%
40%
10%
30%
8%
20%
6%
10%
4%
0%
-10%
-20%
GDP growth(%)
60%
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Revenue growth (YoY)
Exhibit 2: BSE Sensex revenue growth*
2%
0%
Revenue growth (YoY)
GDP growth
Source: Ambit Capital research, Bloomberg. Note: GDP growth as per the old series until the Mar2011 quarter; thereafter, the new series is use.* Sensex revenue
numbers are sourced from Bloomberg and include Banking and Financial services net revenues (Net interest income, Trading profit, Commissions and fees earned
and Other operating income).
August 28, 2015
Page 3
Economy & Strategy
14%
80%
12%
60%
10%
40%
8%
20%
6%
0%
-20%
4%
-40%
2%
-60%
0%
Earnings growth (YoY)
GDP Growth(%)
100%
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Earnings growth
Exhibit 3: BSE Sensex EPS growth
GDP growth
Source: Ambit Capital research, Bloomberg; Note: GDP growth as per old series until the Mar2011 quarter; thereafter, the new series is used; these numbers have
been sourced from Bloomberg and are NOT adjusted for extraordinary items
As we have repeatedly highlighted since our March 2015 thematic (Modi hits the
reset button), corporate and economic performance in India will remain weak for a
longer time than consensus expects as Prime Minister Modi seeks to fundamentally
change the way the Indian economy works.
As a quick recap, we believe that the PM is engineering the following three resets: (1)
shift Indias savings landscape away from physical assets towards the formal financial
system, (2) disrupt the model of crony capitalism, and (3) redefine Indias subsidy
mechanism.
Although these resets are structurally positive, they are likely to adversely impact GDP
growth in FY16. The short-term pain in GDP growth will be driven by: (1) alterations
in the subsidy regime, which will adversely affect rural/semi-urban consumption and
construction activity; (2) crony capitalists refusal to begin capex activity, as they see
reduced scope for supernormal profits under Modi; and (3) Modis attack on black
money, leading to a crack in land & real estate prices, which will adversely impact
lenders balance sheets. More details regarding the impact of these resets can be
found in the We cut our Sensex target from 32K to 28K section of this note.
The three resets have only just started biting, with an unprecedented rural slowdown
(explained in detail in our February 2015 rural thematic), a multi-city pullback in real
estate prices (explained in detail in our 14th July 2015 thematic) and a near absence
of private sector capex. Consequently, the pain in the reported EPS growth numbers is
likely to continue over the next few quarters in spite of falling commodity prices. As
this happens, the key force that has kept the Indian markets afloat for the last few
months, i.e., the Indian retail investors optimism, will wane, thereby leaving the Nifty
susceptible to more downside pressure.
August 28, 2015
Page 4
Economy & Strategy
The disconnect between earnings growth

and GDP growth
The relationship between earnings growth of corporates and GDP growth has broken
down over the past three years. Whilst GDP growth was 6.6% YoY in real terms for
3QFY15 and 7.5% YoY in real terms for 4QFY15, the earnings growth of the Sensex
companies contracted by 1% YoY in 3QFY15 and 42% YoY in 4QFY15. However, the
correlation between corporate earnings and GDP growth broke down in 3QFY13 and
beyond (whether we consider the old GDP series or the new one) (see the exhibit
below).
The relationship between earnings

growth of corporates and GDP
growth has broken down over the
past three years
The graph in the exhibit below shows the rolling ten-quarter correlation between the
earnings growth of Sensex companies and real GDP growth. Similar trends were
observed for BSE200 and BSE500.
Exhibit 4: The rolling ten-quarter correlation between corporate earnings and real
GDP growth broke down in 3QFY13
80%
60%
40%
20%
10/2012
06/2012
02/2012
10/2011
06/2011
02/2011
10/2010
06/2010
02/2010
10/2009
06/2009
02/2009
10/2008
06/2008
02/2008
10/2007
06/2007
02/2007
10/2006
06/2006
02/2006
-20%
10/2005
0%
06/2005
Correlation between earnings

growth and GDP growth
(rolling 10 quarters)
100%
Source: Bloomberg, CEIC, Ambit Capital research
Consequently, in the old GDP series (FY05 base), earnings growth and GDP growth
shows a strong positive correlation whilst no such correlation exists in the new GDP
series (see the exhibits below).
Exhibit 5: There is a positive correlation between GDP
growth and earnings growth in the old GDP series
R = 0.5713
80%
40%
0%
0%
5%
10%
15%
-40%
-80%
Source: Bloomberg, CEIC, Ambit Capital research. Note: Data ranges from
1QFY16 to 2QFY15
August 28, 2015
30%
20%
10%
0%
-10% 0%
5%
10%
-20%
-30%
-40%
-50%
Real GDP growth

(YoY, in %)
R = 5E-06
40%
BSE 30 earnings growth
(YoY change, in %)
120%
BSE 30 Earnings growth
(YoY, in %)
Exhibit 6: which breaks down in the new GDP series
Real GDP growth

(YoY change, in %)
1QFY13 to 4QFY15
Page 5
Economy & Strategy

Similar trends were observed in Gross Fixed Capital Formation (GFCF) as well.
However, the positive correlation between real GFCF growth and corporate earnings
growth broke down as early as 2QFY12 (as compared to the correlation between
GDP growth and corporate earnings which broke down in 3QFY13).
The positive correlation between

real GFCF growth and corporate
earnings growth broke down as
early as 2QFY12
Exhibit 7: The ten-quarter correlation between corporate earnings and real GFCF
growth broke down in 2QFY12
80%
60%
40%
20%
0%
-20%
-40%
06/2005
10/2005
02/2006
06/2006
10/2006
02/2007
06/2007
10/2007
02/2008
06/2008
10/2008
02/2009
06/2009
10/2009
02/2010
06/2010
10/2010
02/2011
06/2011
10/2011
02/2012
06/2012
10/2012
Correlation between earnigs

growth and GFCF growth
(rolling 10 quarters)
100%
Source: Bloomberg, CEIC, Ambit Capital research
Consequently, in the old GDP series (FY05 base), earnings growth and GFCF growth
shows a strong positive correlation whilst no such correlation exists in the new GDP
series (see the exhibits below).
Exhibit 8: There is a positive correlation between GFCF and
earnings growth in the old GDP series
R = 0.4223
80%
40%
0%
-10%
0%
10%
20%
30%
-40%
20%
0%
-10%
-80%
-5%
0%
5%
10%
-20%
-40%
-60%
Real GFCF growth

(YoY, in %)
Real GFCF growth

(YoY change, in %)
1QFY16 to 2QFY15
August 28, 2015
R = 0.0015
40%
BSE 30 earnings growth
(YoY change, in %)
BSE 30 Earnings growth

(YoY, in %)
120%
-20%
Exhibit 9: which breaks down in the new GDP series
1QFY13 to 4QFY15
Page 6
Economy & Strategy
We downgrade our GDP growth estimate

for FY16 to 6.8% YoY
In our note dated May 19, 2015 (click here for the note), we had cut our GDP growth
estimate for FY16 from 7.5% YoY to 7% YoY, as we believe that the three resets that
PM Modi has engineered will result in lower investments and hence lower industrial
and services sector growth. Secondly, as highlighted in our note dated July 14 (click
here for the note), a broad-based real estate pullback has already created a threat to
investment growth, as construction activities account for 50% of total GFCF in India.
We now downgrade our GDP growth estimate for FY16 from 7% YoY to 6.8% YoY (vs
7.3% YoY recorded in FY15). The downward revision in our GDP growth estimate
comes on the back of the events unfolding in China.
China is the worlds largest exporter, and with the likelihood of a significant
devaluation in the yuan growing (see the next section of this note), Indian promoters
are rethinking their capex plans (which were pretty modest to begin with). This is
likely to result in further decline in private investment growth. Thus, in our GDP
model we have assumed that the crisis factor (see the exhibit below for details) will
be medium due to events unfolding in China instead of low as assumed earlier.
This will have a bearing on investment growth which in turn will bring down the
industrial and services sector growth rate.
We downgrade our GDP growth

estimate for FY16 from 7% YoY to
6.8% YoY (v/s 7.3% YoY recorded
in FY15)
Exhibit 10: Assumptions underlying our FY16 GDP forecast

Explanatory Variable
Key assumptions for FY16
Rainfall adjustment factor
The quantum and quality of rainfall in India has a bearing on farm sector growth given that Indias
farm sector remains largely rainfall-dependent. Given that the Indian Metrological Department
(IMD) expects the south-west monsoon in CY15 to be 93% of the Long Period Average (LPA) i.e. 7%
below normal, we have built in a marginally-deficient rainfall in FY16.
Minimum support price (MSP) for paddy
MSPs offered by the Government ahead of the harvesting season affect farmers incentive to sow a
crop. Typically, higher the MSP, greater is the incentive to produce a crop. The paddy MSP plays a
critical role in determining agricultural output in India, as it accounts for 40% of Indias total
agricultural produce.
Policy rate
This variable has a bearing on investment growth in India albeit to a low extent.
Crisis factor
The extent of equity market returns in India has historically had a bearing on Indias investment
growth rate, as India is a capital-scarce economy. In a bid to build this effect into our model
(whereby investment growth in India comes under pressure whenever equity market conditions
deteriorate), we use an objective rule to determine its value, namely if Sensex returns in a particular
financial year are less than 5% then the crisis factor is given a value of 1. In all other years, the
crisis factor is maintained at 0. We assume the crisis factor to be medium in FY16, as we believe
the events unfolding in China will drag domestic investments.
Credit offtake
As credit offtake and investments are positively correlated, slower credit growth adversely impacts
investments in an economy. Our banks team expects credit offtake to be recorded at 12% YoY in
FY16.
Advanced economies growth rate
As 90% of export demand for IT and ITES comes from the EU and the US, the growth rate in the
advanced economies affects the Indian services sector. We expect advanced economies to grow at
an average of 2.4% YoY in CY16, as projected by the IMF.
Source: Ambit Capital research
August 28, 2015
Page 7
Economy & Strategy
Downside risks to GDP
The Chinese implosion will drag down domestic investments: We expect

investment growth to be recorded at 2.3% YoY in FY16 (vs our earlier estimate of
3.7% YoY and 4.3% YoY in FY15), as the crisis factor explained above weighs
down on domestic investments (see the exhibit below). If the situation in China
worsens, we will have to increase the crisis factor to high in our model and
thus trigger a further reduction in investment growth.
Lower investment growth adversely affects industrial sector growth, which
in turn results in lower Services sector growth: Given that investment growth
i.e. the extent of capacity expansion undertaken by an economy affects industrial
growth and given that services sector growth itself is a function of industrial sector
growth, the cut in investment growth affects both industrial as well as services
sector growth (see the exhibit below).
Below-par monsoons could adversely impact agricultural growth in FY16:
The Indian Metrological Department (IMD) has predicted that the south-west
monsoon is likely to be 7% below the Long Term Average (LTA). Whilst we are not
yet factoring in a full-blown drought, we trim our farm sector growth forecast to
reflect the high probability of a less-than-ideal monsoon in FY16. It is critical to
note that the south-west monsoons account for more than 90% of the total
rainfall that India receives and even today 67% of Indias farm sector is largely
rainfall-dependent.
Exhibit 11: We expect GDP growth in FY16 to be recorded at 6.8% YoY

Growth
(YoY change, in %)
FY13
FY14
FY15
FY16
(old est.)
FY16
(new est.)
Change FY16 (old)

vs FY16 (new)
Agriculture
1.7%
3.8%
1.5%
3.2%
3.2%
0bps
Industry
2.3%
4.4%
5.6%
5.4%
5.1%
-30bps
Services
8.0%
9.1%
10.6%
9.1%
9.0%
-10bps
Memo Item: Investment
-0.3%
3%
4.3%
3.7%
2.3%
-140bps
GDP at MP
5.1%
6.9%
7.3%
7.0%
6.8%
-20bps
Source: CEIC, Ambit Capital research; Note: GDP at MP refers to demand-side GDP i.e. GDP at Market Prices
August 28, 2015
Page 8
Economy & Strategy
We cut our Sensex target from 32K to 28K

In our 19th May 2014 note, we had moved from using a trailing Sensex P/E of 17x,
the ten-year average for the Sensex then, to 20x, on the premise that with a decisive
mandate for the BJP in the 2014 General Elections, the Indian economy was entering
its fourth wave of economic expansion. The first three years of the previous three
cycles have accounted for more than two-thirds of all returns generated by the Sensex
in the past 30 years with a return CAGR of ~33%. Further, an analysis of valuations
in the first three years of the two most recent waves reveals that whilst in the 19911994 recovery period, the trailing Sensex P/E remained north of 20x throughout, the
P/E in the 2004-2006 recovery period averaged at about 18.5x.
Over the course of the past year, we have cut our Sensex target twice as we have
become better aware of the design and implications of the PMs three resets
(discussed earlier in the note). Even as our Sensex target moved from 36,000 initially
(in November 2014) to 32,000 (in May 2015), the cuts resulted primarily from a cut
in our bottom-up earnings estimates. Through these cuts, we kept the trailing Sensex
P/E target unchanged at 20x on the premise that the structural positives emanating
from the current dispensations three key resets should improve the long-term
economy fortunes of India.
However, our base case now also features added headwinds for the economy, forcing
us to revisit the trailing FY16 Sensex P/E multiple. These additional factors are:
A major real estate correction: In our note published on 14 July 2015, we

highlighted how we are seeing a broad-based real estate pullback, with prices
correcting in most tier-1 and tier-2 cities alongside sharp drops in transaction and
new launch volumes. The drivers of this slowdown are a mix of supply-side factors
(banks have pulled back lending to developers) and demand-side factors (the
Black Money Bill has created fear amongst speculators). The result is not just a
drop in demand for building materials and challenges for lenders with big
mortgage, LAP and housing finance books, but also a generalised slowdown in
GDP growth, as the sector which drives 50% of Indias capex and 30% of its jobs
conks off.
The risk of a delayed economic

recovery is increasing, as economy
faces additional headwinds
10% 9%
9%
Mulshi, Pune
Jayanagar,
Bengaluru
Dwarka, Delhi
NoidaGreater
Noida
Mahalaxmi,
Mumbai
Mambalam,
Chennai
Girgaon, Mumbai
0%
Chennai ECR
8%
7%
5%
4%
3%
Navrangpura,
Ahmedabad
12% 12%
Hazratganj,
Lukhnow
16%
Nipania, Indore
18% 17% 17%

16%
Bachupally,
Hyderabad
24%
Greater Noida
Fall in real estate prices

(YoY change, in %)
Exhibit 12: Fall in real estate prices across Indian cities (Apr14 - Apr15)
Source: PropTiger, magic bricks, Ambit Capital research
Banking system blowup: The risk of a blowup in the Indian banking system
seems to be rising, with the only notable policy response being a feeble
recapitalisation plan of US$10.7bn which will be spread over four years (our
Banks team says that more than 5x this sum is required to fix the problem).
Stressed assets continue to rise in the real estate sector (14% of system assets),
the power sector (9% of system assets), the steel sector (5% of system assets) and
the infrastructure sector (6% of system assets), implying that over one-third of the
banking systems assets are in stressed sectors.
August 28, 2015
Page 9
Economy & Strategy

Exhibit 13: Rising trend of stressed assets in the banking system
Gross NPA (%)
Standard restructured (%)
12
10
6.3
4.8
6
3.3
6.5
6.7
2.2
2.8
3.2
4.0
4.6
2.3
2.4
4.6
2.3
FY13
FY14
FY15
1QFY16*
5.2
FY12
3.2
4.2
FY11
3.9
5.8
FY10
2.5
5.4
FY09
1.1
7.0
FY08
11.3
8.5
11.1
9.8
Source: RBI, Company filings, Ambit Capital research * estimated numbers
The NDAs inability to expedite economic reform through the Parliament:

Over the past year, the NDA has not been able to expedite meaningful structural
reforms. The much-needed amendments to the 2013 Land Acquisition Act have
been dropped and the passage of the GST constitutional amendment has been
delayed (click here for our detailed 10th August 2015 note on how the NDA
dropped the ball on land reforms and click here for our detailed 20th August 2015
note on how the NDA has misunderstood and overhyped GST). Labour reforms
do not seem to have been thought through clearly and the situation in the power
sector (with respect to the discoms receivables) continues to deteriorate.
We believe that these factors are likely to delay the economic revival that formed the
basis of our rationale to assign a 20x multiple to our FY16 Sensex estimate. In the
light of these risks, we scale down the Sensex P/E multiple to 18x, in line with the
historical (last ten-year) average.
This, combined with our bottom-up FY16 EPS estimate of Rs1550 (9% YoY growth on
the actual FY15 EPS of Rs1430) leads us to our new end-FY16 Sensex target of
28,000, implying 7% upside from the current level. (Our previous Sensex target of
32K and previous FY16 Sensex EPS estimate of Rs1600 were first published in our
15 May 2015 note.)
forcing us to revisit and revise

our trailing Sensex P/E multiple
from 20x to 18x
According to Bloomberg, the consensus Sensex EPS estimate for FY16 is Rs1650,
implying 15% EPS growth (vs the 2% EPS growth seen in FY15).
Note that the FY15 EPS of Rs1430 has been arrived at after removing one-offs from
the reported numbers. The actual reported EPS number (before adjustments) is much
lower at Rs1350. Whilst we cannot forecast one-offs and extraordinary items, as
economic conditions deteriorate further, we believe that these one-offs will keep
recurring as Indian promoters are likely to be keen to share their personal losses
with minority shareholders. For instance, promoters are likely to pass on personal
losses on account of FX hedges, speculative trading and real estate investments to
their shareholders through the reported corporate numbers and these items in turn
are most likely to feature as other income (losses).
The positive catalysts that could lead the Sensex to drift up to 28K by the end of
FY16 appear to be: (a) Passage of the GST constitutional amendment through
Parliament in September; (b) A potential victory for the NDA in the Bihar elections
(results likely to be announced in November); and (c) A rate cut by the RBI in 4QFY16
(which has been factored in our GDP growth model).
August 28, 2015
Page 10
Economy & Strategy

Exhibit 14: Sensex historical trailing Price to Earnings ratio
30
25
30,000
25,000
20
20,000
15
10
15,000
10,000
P/E ratio (LHS)
10 Yr Average P/E (LHS)
Mar-15
Jul-14
Nov-13
Mar-13
Jul-12
Nov-11
Mar-11
Jul-10
Mar-09
Nov-09
Jul-08
Mar-07
Nov-07
Jul-06
Mar-05
Nov-05
Jul-04
Mar-03
Nov-03
Jul-02
Nov-01
5,000
Mar-01
5
0
Sensex (RHS)
That said, we believe that there is a high risk that the Sensex will slide further over
the next six months based on the situation in China.
In our 5th November 2014 note we wrote, More than any other major economy,
China has been, and will continue to be, adversely impacted by the BOJs policy of
competitively devaluing the yen and these reducing Chinas competitiveness. This sort
of revaluation of the RMB is the last thing that China needs given its stagnant
manufacturing sector and its overburdened banking sector. Given that it has been
backed into a corner, it is hard to see what else the Communist Party can do other than
to embark upon a program to devalue the RMB. Such a step is likely to send
shockwaves around the world because it will be a clear acknowledgement that the
Chinese economy is far weaker than the 7% GDP growth headline figure. Indian
equities are likely to get dragged down by this shockwave, perhaps by as much as
10%.
Continued yuan devaluation poses

high risk to Indian stock markets
Now that the Chinese central bank has begun what would appear to be a
programme of devaluing the currency under the garb of letting it float within a wider
band, we reiterate the point we made on 5th November 2014, i.e., the Indian
stockmarket stands exposed as products (steel, aluminium, chemicals, auto
ancillaries, 2Ws, etc) start losing competitiveness to their Chinese counterparts.
When the Chinese devalued their currency in the mid-1990s to trigger the South East
Asian crisis, India was a reasonably insulated economy, with low levels of foreign
currency debt. Now the roles have been reversed the South East Asian countries
have throttled back on foreign currency debt whilst India has loaded up on the same.
Indias foreign currency debt now stands at US$0.5bn. In fact, Indias total external
debt has grown at an average of 14% YoY during FY05-15 as compared to an
average of 3% YoY recorded during FY91-04 (see the exhibit below).
Exhibit 15: Indias total external debt has grown at an average of 14% YoY during
FY05-15
FY15
FY14
0%
FY13
5%
0
FY12
100
FY11
10%
FY10
200
FY09
15%
FY08
300
FY07
20%
FY06
400
FY05
25%
FY04
500
Total external debt (USD billion, Left scale)

Total external debt (as % of GDP, Right scale)
Source: RBI, Ambit Capital research.
August 28, 2015
Page 11
Economy & Strategy

Moreover, the share of short-term debt in Indias total external debt has increased
from an average of 6% during FY90-04 to an average of 19% during FY05-15 (see
the exhibit below).
Exhibit 16: Share of short-term debt in Indias total external debt has increased from
an average of 6% during FY90-04 to an average of 19% during FY05-15
Share in total external debt
(in %)
120%
80%
40%
FY90
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
0%
Long term
Short term
Source: RBI, Ambit Capital research
Hence, a further devaluation of the yuan (which to us appears to be a high

probability event considering that neither fiscal nor monetary policy has been able to
revive the Chinese economy) looks likely to be a catalyst for more pullbacks in the
Sensex going forward.
So how far can the Sensex fall when panic sets in? We saw during the Lehman crisis,
the Sensex trailing P/E (on an average) can go as low as 14x. Such a multiple implies
a lower bound on the Sensex of 22,000. Hence, whilst the fair value for the Sensex as
of end-FY16 is 28,000, there is a high risk of the index sliding to 22,000, as the
Chinese find themselves left with no other option but to devalue the yuan again.
and can lead to Sensex sliding to

levels as low as 22,000
Exhibit 17: Sensex trailing P/E ratio during the 2008 financial crisis
22
20
18
16
14
12
10
Mar-09
Feb-09
Feb-09
Jan-09
Dec-08
Dec-08
Nov-08
Oct-08
Sep-08
Sep-08
Aug-08
Jul-08
Jul-08
Jun-08
May-08
May-08
Apr-08
Mar-08
Mar-08
Feb-08
Jan-08
Sensex trailing PE
August 28, 2015
Page 12
Economy & Strategy

Technical note
We have found in the past that a number of clients tend to get confused with our use
of a trailing Sensex multiple vs the generally accepted norm of using a forward
multiple. We apply a trailing multiple to a particular years EPS estimate to arrive at
that years Sensex target. For example, the application of a 18x trailing multiple to
our FY16 EPS estimate of 1,550 leads to our 31 March 2016 Sensex target of 28,000.
An alternate way to arrive at the March 2016 Sensex target would be to apply a
forward multiple but to the FY17 EPS estimate. This, however, would entail
forecasting the Sensex EPS two years out, which, given the current uncertainty
associated with both a clear direction on domestic reform momentum as well as the
ever-changing global climate, will introduce greater forecasting error. We therefore
prefer using EPS forecasts one year out (which we believe is more reliable) and
applying a trailing multiple to it.
Exhibit 18: Sensex target Old vs new
Estimated FY16 EPS=1,600

Trailing target Sensex P/E=20x
Implied Sensex target=32,000
Old
estimated FY16 EPS=1,550

trailing target Sensex P/E=18x
Implied Sensex target=28,000
New
Source: Ambit Capital research
August 28, 2015
Page 13
Economy & Strategy
Investment implications
Even after this weeks fall, there are no rational grounds for claiming that the Indian
stockmarket has bottomed out. As Prime Minister Modis resets bite deep into the
Indian economy, we expect economic growth to slow down and we expect corporate
earnings growth to remain weak. In fact, as retail flows wane, the support system
propping up the Sensex is likely to give away. Hence, the only way to invest in such a
market is to focus on high-quality franchises which are available at reasonable
valuations. Our tenbaggers and coffee can portfolios continue to deliver exemplary
results in this regard.
That quality investing is the most obvious and perhaps the only way to ride out this
period of turbulence is a point we have often made in the past.
To quote from our 4 March 2015 (click here) note,
To play out this period of flux, investors are better-off focusing on quality franchises.
Investing in well-managed companies with clean corporate governance and an
efficient capital allocation track record has historically served investors well to generate
healthy return in both upcycles and downcycles. In the current context, this approach
should work particularly well. Both our Coffee Can portfolio and our Ten baggers
portfolio have been modelled on this philosophy and we point investors towards these
as a lower drawdown way of participating in this Indian resurgence.
The 12 May 2015 (click here) note on our Good & Clean portfolio had echoed the
same message,
A weak macro, the Governments push against crony capitalism and black money,
and rich valuations of second-rung names (making drawdown risk more prominent in
these pockets) should continue to keep the environment conducive for quality to
prosper over the foreseeable future.
Performance of our Coffee Can portfolio
In our 17 November 2014 (click here) note, we had introduced the Coffee Can
Portfolio, which is ideal for investors who have the ability to hold stocks for long
periods of time (ideally, for ten years). The Coffee Can Portfolio was built using the
following two key filters that demonstrate efficient capital allocation: (1) sales growth
of at least 10% per annum in each of the last ten years; and (2) RoCE of >15% every
year for the past ten years. On a back-tested basis, left untouched for a decade, this
portfolio, coupled with the power of compounding, has generated returns that were
substantially higher than the benchmark. Even on a live basis, since inception, our
Coffee Can portfolio has delivered 13.3% returns on an absolute basis (and 15.5%
relative to the BSE500 Index).
Exhibit 19: Performance of our Coffee Can portfolio published on 17 November 2014
Ticker
Company
ITC IN Equity
ITC
HDFCB IN Equity HDFC Bank
HCLT IN Equity HCL Tech
AXSB IN Equity Axis Bank
APNT IN Equity Asian Paints
GCPL IN Equity Godrej Consumer
MRCO IN Equity Marico
BRGR IN Equity Berger Paints
PAG IN Equity
Page Inds.
IPCA IN Equity IPCA Labs
GRHF IN Equity Gruh Finance
BIL IN Equity
Balkrishna Inds.
CUBK IN Equity City Union Bank
ECLX IN Equity eClerx
VGRD IN Equity V-Guard Inds
MUNI IN Equity Mayur Uniquoters
Overall average
BSE500 index
Outperformance
Price
Mcap ADV - 6m
Performance
(US$ mn) (US$ mn) 14-Nov-14
27-Aug-15
39,624
44.4
369
326
-12%
38,960
28.3
930
1,022
10%
19,469
32.6
805
913
13%
18,351
62.4
477
509
7%
12,435
17.7
672
855
27%
6,450
3.6
979
1,249
28%
4,011
6.4
330
410
24%
2,202
1.3
179
209
17%
2,459
3.2
9,663
14,540
50%
1,483
3.5
684
775
13%
1,345
1.6
233
244
5%
923
1.3
691
630
-9%
879
1.2
91
97
7%
794
0.8
1,294
1,720
33%
413
0.3
910
909
0%
296
0.4
423
422
0%
13.3%
10,752
10,522
-2.1%
15.5%
August 28, 2015
Page 14
Economy & Strategy

Performance of our Ten-bagger portfolio
Our ten-bagger portfolio (click here for the latest version) again is premised on the
same underlying philosophy of investing in firms with clean managements and
efficient capital allocation. The portfolio construction is based on our greatness
framework that looks for firms with relentless improvement in financial performance
over long periods of time (usually six years). This portfolio is ideal for conventional
buy-and-hold investors with a 1-3-year horizon.
Since inception on 5 January 2015 click here), the latest iteration of this portfolio, i.e.
ten baggers 4.0, has delivered 4.9% returns on an absolute basis (and 8.1% relative
to the BSE500 Index).
Exhibit 20: Performance of our Tenbaggers portfolio published on 5 January 2015
Mcap ADV - 6m
(US$ mn) (US$ mn)
Ticker
Company
TCS IN Equity
TCS
76,468
ITC IN Equity
ITC
Price
Performance
2-Jan-15
27-Aug-15
48.2
2,579
2,575
0%
39,624
44.4
368
326
-12%
TTMT IN Equity
Tata Motors
16,480
48.9
506
334
-34%
HCLT IN Equity
HCL Tech
19,469
32.6
803
913
14%
IDEA IN Equity
Idea Cellular
8,286
17.0
160
152
-5%
IPCA IN Equity
Ipca Labs.
1,483
3.5
727
775
7%
ECLX IN Equity
eClerx Services
794
0.8
1,324
1,720
30%
COAL IN Equity
Coal India
34,656
27.2
382
383
0%
BATA IN Equity
Bata Inds
1,088
4.3
1,320
1,116
-15%
LPC IN Equity
Lupin
12,961
45.9
1,432
1,900
33%
EIM IN Equity
Eicher Motors
7,726
34.4
15,082
18,772
24%
SKB IN Equity
GlaxoSmith CHL
3,914
1.4
5,900
6,139
4%
BRIT IN Equity
Britannia Inds
5,353
9.4
1,879
2,942
57%
TRP IN Equity
Torrent Pharma.
4,118
3.1
1,193
1,605
35%
MRF IN Equity
MRF
2,631
8.1
38,192
40,908
7%
BRGR IN Equity
Berger Paints
2,202
1.3
226
209
-7%
PAG IN Equity
Page Industries
2,459
3.2
12,420
14,540
17%
TVSL IN Equity
TVS Motor Co.
1,632
8.4
267
227
-15%
MTCL IN Equity
Mindtree#
1,690
4.3
1,299
1,330
2%
WIL IN Equity
WABCO India
1,924
1.0
4,661
6,690
44%
SI IN Equity
Supreme Inds.
1,139
0.7
597
592
-1%
PI IN Equity
P I Inds.
1,426
2.4
550
689
25%
PSYS IN Equity
Persistent Sys
829
2.3
937
683
-27%
MCHM IN Equity
Monsanto India
697
1.4
2,926
2,664
-9%
KJC IN Equity
Kajaria Ceramics
817
1.3
618
678
10%
ASTRA IN Equity
Astral Poly
813
0.8
387
453
17%
FNXC IN Equity
Finolex Cables
566
0.8
269
244
-9%
SF IN Equity
Sundram Fasten.
529
0.3
195
166
-15%
GDPL IN Equity
Gateway Distr.
553
1.4
350
336
-4%
VST IN Equity
VST Inds.
350
0.2
1,940
1,494
Overall average
BSE500 index
-23%
4.9%
10,866
10,522
Outperformance
-3.2%
8.1%
More specifically, our sector leads have provided more details on ten high-quality
stocks on which Ambit has a BUY stance. These stocks are: Mahindra CIE, PI
Industries, ITC, Page Industries, Bata India, Lupin, Power Grid Corporation, IndusInd
Bank, City Union Bank and Coal India.
August 28, 2015
Page 15
Economy & Strategy

Exhibit 21: : Key metrics for our ten high-quality BUYs
ADV 3m
(US$ (US$
mn) mn)
Mcap
EPS CAGR
P/E (x)
P/B (x)
(%)
FY12- FY15FY16E FY17E FY16E FY17E
FY15 FY16E FY17E FY15 FY16E FY17E
15
17E
CMP
TP
Up
(Rs)
(Rs)
(%)
FY14 FY15
326
395
21
36.5 33.6
32.2
33.1
34
34
15
12 26.0
23.8
20.8
8.5
7.6
6.8
362
425
17
22.5 19.0
19.5
18.5
34
31
(2)
12 16.7
15.1
13.3
5.7
4.6
3.7
1,900
2,186
15
25.9 28.0
23.3
24.8
28
31
48
31 35.5
30.2
20.8
9.6
7.6
5.8
135
171
27
5.9
6.0
6.8
7.2
16
17
11
24 13.8
11.1
9.0
1.8
1.6
1.4
859
1,030
20
1.8
1.8
1.9
2.0
17
16
25
22 25.3
22.2
17.0
4.4
3.0
2.6
2,457
4.4 14,540 16,650
15
41.9 41.6
46.1
51.3
59
62
30
36 82.7
61.4
44.6 41.9
32.1
24.2
1,425
2.9
825
20
23.9 26.3
27.7
31.9
30
33
40
34 38.1
30.3
21.2 10.5
8.1
6.1
BUY
1,345
1.3
275
340
24 (12.1) 10.7
12.1
17.5
16
20
N/A
42 36.8
28.0
18.2
5.3
4.6
3.7
BUY
1,087
4.1
1,116
1,351
21
17.5
22.1
17
22
(1)
28 35.9
37.7
25.9
7.0
6.2
5.3
879
0.9
97
115
19
1.5
1.5
15
16
(1)
15 14.6
13.3
11.1
2.1
1.9
1.7
Company
Name
Rating
ITC
BUY
39,587
32.6
Coal India
BUY
34,623
31.7
Lupin
BUY
12,949
46.4
Power Grid
Corporation
BUY
10,687
4.2
IndusInd Bank
BUY
7,694
13.9
Page Inds
BUY
PI Inds
BUY
Mahindra CIE
Bata India
City Union Bank BUY
689
RoCE (%)
26.2 18.1
1.4
1.5
RoE (%)
Source: Company, Ambit Capital research
August 28, 2015
Page 16
Economy & Strategy
ITC
BUY
Solid franchise at inexpensive valuations
Stock Information
Indias total cigarette volume consumption has remained unchanged in

FY12-14; however, a 15% excise hike CAGR over FY13-16 and poor
implementation of anti-cigarette regulations have resulted in: (a) increase in
the proportion of illegal cigarettes as a percentage of total cigarette sales
from 14% in FY10 to 20% in FY15, (b) a 10% YoY decrease in tobacco excise
collection for FY14, and (c) increased threat of oral cancer due to shift of
consumption from legal cigarettes to chewing tobacco. Over 1993-2000, the
UK faced a similar situation of rising proliferation of illegal cigarettes due to
high taxation, which eventually led to moderation of excise duty on
cigarettes. We expect a similar sequence of events to unfold in the Indian
market. ITCs CMP already factors in the worst-case scenario of -6%/16%
volume/excise duty CAGR over FY15-20.
At CMP of Rs321/share, the market ascribes ~Rs220/share to the cigarette business.
Our reverse-DCF for the cigarettes business suggests that this valuation factors in 6%/16% volume/excise duty CAGR over FY15-20. Whilst global cigarette businesses
trade at a 10-20% discount to their FMCG peers, ITC is currently trading at a ~45%
discount to HUL. At our TP of Rs395/share, ITC would trade at an implied FY16/17E
P/E of 29.3x/25.7x, a ~17% discount to our implied multiple for HUL. We expect
positive catalysts to emerge from 2HFY16, helped by a weak base and higher
consumer demand. Given inexpensive valuations coupled with our expectation of a
moderation in the Governments stance on cigarette excise duty going ahead, we
reiterate our BUY stance on ITC with a TP of Rs395/share.
Bloomberg Code:
ITC IN
CMP (Rs):
326
TP (Rs):
395
Mcap (Rs bn/US$ bn):
2,613/39.5
3M ADV (Rs mn/US$ mn):
2,156/32.6
Stock Performance (%)

1M
3M 12M
YTD
Absolute
(8)
(12)
Rel. to Sensex
(6)
(7)
Estimates summary
FY15
FY16 FY17
Revenues (Rs bn) 365.1 402.9 460.6

EBITDA Marg (%)
36.9
35.5
35.3
EPS (Rs)
12.0
13.1
15.0
Analysts
Rakshit Ranjan, CFA
rakshitranjan@ambitcapital.com
Tel: +91 22 3043 3201
Ritesh Vaidya, CFA
riteshvaidya@ambitcapital.com
Tel: +91 22 3043 3246
Coal India
BUY
Best large-cap reform play
Stock Information
The new Governments efforts to improve domestic coal availability have led
to a sharp uptick in CILs production growth (increased to 7% in FY15 and
11% in 4MFY16 from 1.6% over FY10-14). Improved pace of environmental
clearances, improving co-ordination with the state governments and partial
completion of three critical railway lines by FY17-18 make us believe that CIL
is likely to achieve 9-10% offtake growth CAGR over FY15-20E. CILs utility
characteristics (lack of downside risks to realisations for 90% of volumes and
operating leverage as volume growth improves) make it the best large-cap
reform play in India (although the proposed 10% government stake sale is
likely to remain an overhang in the near term). The stock is currently trading
at an FY17E P/E of 12.3x (vs the historical average of 12.7x).
Key catalysts: (a) Offtake volume growth to sustain at 8.8% CAGR over FY15-17E vs
1.6% over FY10-14 on the back of faster grant of clearances and project execution;
(b) Auction of linkages to the non-regulated sector in 1QFY17; and (c) Better visibility
over the next year on partial completion of the three railway lines by FY17-18E. Key
risks to our stance: (a) weaker-than-expected power demand growth if SEB
financing issues are not resolved soon; (b) lower-than-expected e-auction
realisations; (c) lack of price hikes in the long term; and (d) utilisation of cash for noncore purposes.
Bloomberg Code:
COAL IN
CMP (Rs):
362
TP (Rs):
425
2,286/34.6
2,092/31.6

1M
3M 12M
YTD
Absolute
(15)
(6)
(6)
Rel. to Sensex
(10)
(1)
(1)
Estimates summary (Rs mn)

FY15
FY16E
FY17E
Revenues 720,146
768,456 870,683
EBITDA
173,354
183,496 203,401
EPS (Rs)
21.7
24.0
27.3
Analysts
Parita Ashar, CFA
paritaashar@ambitcapital.com
Tel: +91 22 3043 3223
August 28, 2015
Page 17
Economy & Strategy
Lupin
BUY
Earnings momentum unperturbed
Stock Information
As Lupins approval rates are starting to improve (monthly product approvals

of ~65 as compared to ~40 in March), the company is best positioned among
Indian pharma companies to benefit from the GDUFA programme. Lupin has
~160 ANDAs pending approval and is likely to launch 30 products vs its
guidance of 15-20 products in FY16 (17 final approvals already YTD). Lupin
will evolve into a broad-based complex generics player over the next 2-3
years, as it monetises its complex ANDA pipeline in the US. The next leg of
evolution would be into a semi-innovator, with a 70/30 or 80/20
generic/branded revenue mix. Lupin remains the most-competitive firm on
our 5R framework and the managements aspirational target of US$3.75bn4bn in organic revenues for FY18E, with PAT of US$750mn-800mn, is
achievable. Led by 150 product approvals in the US (including limited
competition product portfolio of Gavis) through GDUFA will drive 25%
revenue and 30% net profit CAGR over FY15-18E.
Lupin is trading at 20x FY17E EPS and we believe valuations will sustain at current
levels, given: (a) Earnings growth momentum we expect 30% net profit CAGR over
FY15-18E due to GDUFA timelines resulting in large product approvals in FY17-18E;
(b) Investments in longer-term growth drivers the company is investing in
biosimilars and NCEs for India, differentiated products like complex injectables,
ophthalmics and dermatology, biosimilars in Japan and respiratory in the US and
Japan; and (c) high visibility of earnings through large pipeline in the US and growth
acceleration in India. Whilst FY16E could potentially be a lower growth year, higher
visibility on the FDAs actions on the GDUFA front would likely support the stock
price. The management has reinforced our view on the GDUFA goals being met and
has indicated that it has the capability and bandwidth to launch 100-120 products
(ex-Gavis 65 ANDAs pending approval) in the US in the next three years.
Bloomberg Code:
LPC IN
CMP (Rs):
1,900
TP (Rs):
2186
855/12.9

1M
3M 12M
17
47
33
Rel. to Sensex
22
13
49
38
Estimates summary (Rs mn)

FY16E
FY15
Revenues
EBITDA
36196
43459
60113
EPS (Rs)
53.4
61.4
86.7
Analysts
Aditya Khemka
adityakhemka@ambitcapital.com
Tel: +91 22 3043 3272
Paresh Dave, CFA
pareshdave@ambitcapital.com
Tel: +91 22 3043 3212
A clear winner
Stock Information
Attractive valuations: PGCILs current valuation of 1.6x FY16E P/B is at a marginal

premium to its five-year 1-year forward average of 1.5x. The valuation is reasonable
in the context of PGCILs strong competitive advantages derived from execution and
access to funding, a regulated RoE model and a 21% earnings CAGR over the next
three years. Rising capitalisation rate (closer to capex) will remain the key catalyst.
August 28, 2015
FY17E
127700 151837 195495
BUY
Ample visibility beyond FY16 as well: Increasing spends on additional

transmission lines (20% cumulative increase in transmission lines to be added in 13th
Five-year Plan vs 12th Five-year Plan) and higher cost per line (higher spend on
advanced technology such as smart grids and gas-insulated sub-stations) lead us to
believe that the investment plan of Rs1tn in the 13th plan is understated. Its execution
capabilities remain unmatched, evidenced by project awards of more than Rs350bn
on the behest of SEBs. Even in competitive bidding projects, the companys superior
execution and lower cost of funding will ensure it remains the leader.
YTD
Absolute
Power Grid Corporation

Capitalisation to increase in 2Q/3QFY16: PGCILs capitalisation declined 7% YoY
in 1QFY16 to Rs45bn, but this is likely to accelerate through FY16 on the back of
commissioning of the Rs120bn Bishwanath CharialiAssam transmission line in
2Q/3QFY16; capitalisation until the middle of August was already at Rs25bn. Strong
momentum in the power T&D segment in an otherwise sanguine investment cycle has
been highlighted by multiple industry participants during the 1QFY16 earnings
season and we expect the momentum to continue. PGCILs vendors highlight its
increased focus on execution. We build in FY16 capitalisation of Rs293bn (up 35%
YoY).
3,068/46.4
Bloomberg Code:
PWGR IN
CMP (Rs):
135
TP (Rs):
171
705/10.7
279/4.2

1M
Absolute
Rel. to Sensex
3M 12M
YTD
(4)
(6)
(2)
(1)
Estimates summary (Rs bn)

FY15
FY16 FY17
Revenues
172
EBITDA margin
86%
87%
87%
9.8
12.1
15.0
EPS (Rs)
213
253
Analysts
Nitin Bhasin
nitinbhasin@ambitcapital.com
Tel: +91 22 3043 3241
Page 18
Economy & Strategy
IndusInd Bank
BUY
A differentiated assets franchise for uncertain

times
Stock Information
IndusInd Bank (IIB) is a premium CV lender with unmatched reach and a unique
business model. An entrenched relationship-based lending leads to superior yields
and asset quality. At a time when competition in banking sector is set to heat-up over
medium to long-term horizon, with entry of large number of payment banks, small
finance banks and eventual on-tap universal bank licensing, we believe, an asset
franchise with nonreplicable competitive advantages, such as that IndusInd Bank has
in its vehicle financing business, will command significant premium. Vehicle finance is
34% of IndusInd Banks loan book, of which core CV/CE is 22% of total loans. In
1QFY16, the CV book saw growth improving to ~18% YoY (7% QoQ) after
stagnation in the last two years. Growth in fixed rate vehicle finance book bodes well
for the banks overall risk adjusted margins, which would further get a boost in an
easing rate cycle.
Taking advantage of its strong profitability, IIB has had an accelerated network
expansion and the number of branches has more than quadrupled in five years and
CASA as a percentage of total borrowed funds has risen from 20% (FY10) to 27%,
currently. A comparison with retail liabilities scale-ups by other new generation banks
shows that IIB can also build a best-in-class liability franchise, supported by: (1) a
stable rate of new branch opening; and (2) its credible branch expansion and sales
strategy.
At Rs866, the stock is currently trading at 3.0x FY16E BV and 22.7x FY16E EPS. Post
the recent capital raise, tier-1 now stands at >15%. Reflecting this capital raise, we
expect an average RoA of 1.8% and RoE of 16% over FY17-18E and an EPS CAGR of
22% (FY15-17E).
Bloomberg Code:
IIB IN
CMP (Rs):
859
TP (Rs):
1,030
1M
3M 12M
(9)
(0)
49
Rel. to Sensex
(4)
50
12
Estimates summary
FY15 FY16E FY17E
NII
34.2
43.5
55.5
PAT
17.9
22.8
29.8
EPS (Rs)
33.9
38.7
50.6
Analysts
Ravi Singh
ravisingh@ambitcapital.com
Tel: +91 22 3043 3181
Revenue growth of >25% YoY likely from 2QFY16
Stock Information
Valuations and view: Despite an exceptionally weak macro environment, Page has
delivered 30%/27% revenue/EPS growth YoY in FY15. We expect 27% revenue
growth in FY16 and 30% revenue CAGR, 36% EPS CAGR, 48% RoCEs and a high
dividend payout ratio of 55-60% over FY15-21E. Our three-stage DCF gives a fair
value of Rs16,650 (~25% upside), implying a multiple of 50x FY17E EPS. The stock is
currently trading at 56x/41x FY16/17E EPS.
August 28, 2015
YTD
Absolute
BUY
Key near-term and medium-term triggers include: (1) Revival in growth rates
which have improved meaningfully in 2QFY16 vs the growth reported in 1QFY16; (2)
Benign input costs and hence the management expects gross margin expansion to
continue in the coming quarters; (3) Enhancement of its IT systems (real time in 34 months) which will track real-time distributor sales, performance of the sales team,
MIS across SKUs, and online stock ordering by distributors/EBOs; and (4) Kidswear
re-launch in 3QFY16: Page will launch ~15 SKUs in the Kidswear segment
(kidswear accounts for ~20% of the innerwear market) in 3QFY16, with an intention
to expand the product range over time.
915/13.8
Page Industries
Growth momentum of Page Industries is likely to sustain over the long term,
as: (a) long-term competitive advantages around backward-integrated
manufacturing (delivering a high-quality product at affordable prices),
aggressive approach towards distribution expansion and a highly
aspirational brand recall for Jockey remain intact , (b) tailwinds from low
penetration levels for mid-premium innerwear aid volume growth, and (c)
competitive threats to Pages leadership are low in a large growing
opportunity, as peers lack control on distribution and manufacturing with
poor aspirational connect.
508/7.7
Bloomberg Code:
PAG IN
CMP (Rs):
14,540
TP (Rs):
16,650
Rs162/US$2.5
Rs293/US$4.4

1M
3M 12M
YTD
Absolute
101
24
Rel. to Sensex
102
28
Ambit Estimates (Rs bn)

FY15 FY16E FY17E
Revenues
EBITDA Marg (%)
EPS
15.4
19.6
26.0
3.2
4.2
5.6
175.7
236.8
325.9
Analysts
Rakshit Ranjan, CFA
Tel: +91 22 3043 3201
Aditya Bagul
adityabagul@ambitcapital.com
Tel: +91 22 3043 3642
Page 19
Economy & Strategy
PI Industries
BUY
Speciality chemicals champion
Stock Information
PI has emerged as the best hybrid business model to capitalise on the rising
specialty chemicals exports opportunity plus the underpenetrated agri inputs
sector. PI has built a strong business model by focusing on in-licensing for
unique pesticides and capitalising on the complementary CSM opportunity
(60% of revenues). The less-appreciated drivers of PIs success in CSM are: (a)
decade-plus perseverance/investments for building credibility with global
innovators; (b) propositions built around capabilities and not cost savings;
and (c) agility in long-duration contract pricing.
Bloomberg Code:
PIs domestic business (40% share) has a differentiated approach of in-licensing new
molecules from global innovators, thus providing it with superior growth rates, better
margins, and increased pull effect for its products. In the CSM business (60% of
revs), PI has perfected the model by building strong relationships with global
innovators through flawless execution of 18 commercialized molecules, clean record
on IP protection and establishment of manufacturing facilities of global standards.
We build in 26% FY15-17E CAGR in CSM revenues, due to: (a) healthy order book
growth of 38% YoY in 1QFY16 to US$600mn (3.2x last 12-month revenues), (b) ontrack commissioning of two plants in Jambusar, for which capacities are tied up, and
(c) improvement in farmer sentiments globally post a difficult CY14/CY15. Also, its
focus on specialty products and improved farmer/channel connect should keep
domestic revenue growth (18% in FY15-17E) ahead of its peers. Our EPS estimates
build in 34% EPS CAGR over FY15-17E along with ~30% RoCE. Our 12-month
forward TP of Rs825 implies 25x FY17E EPS. The stock is currently trading at 29x/20x
FY16/FY17 EPS.
PI IN
CMP (Rs):
689
TP (Rs):
825

1M
Absolute
Rel. to Sensex
3M 12M
51
33
53
38
Estimates summary
FY15
Revenues (Rsmn)
FY17
19,403 23,506 29,384

19.2
20.0
21.8
EPS(Rs)
18.1
22.7
32.5
Analysts
Ritesh Gupta, CFA
riteshgupta@ambitcapital.com
Tel: +91 22 3043 3242
Stock Information
August 28, 2015
FY16
EBITDA Marg (%)
Fruits of adoption
Valuation: Our target price of Rs340/share implies 11.5x FY17 EBITDA, 30%
discount to Bharat Forge due to lower margin/return ratios. We do not build in
potential benefits from: (1) merger of CIEs global forging business, (2) introduction of
aluminium/plastics products in MCIE, and (3) MCIE becoming a hub for CIEs Asian
aspirations. Key risks: Sharp Europe slowdown, weak launches from M&M.
YTD
11
BUY
India business transformation on track: MCIEs India business revenues are likely
to recover from 2HFY16 onwards (up 11% for FY16) underpinned by M&Ms new
launches (including three new products). Customer/product diversification remains on
track, with new products (fuel tank assembly, cargo body) finding a place in M&Ms
recent launch (Jeeto) and with significant progress with few Western OEMs. We
continue to expect new customer/new product contribution of 22% to India business
revenues by FY20.
195/2.9
Mahindra CIE
CIE Automotive, a mid-sized global auto component player has been built
around acquiring and turning around sub-scale entities. It is one of the few
auto-component companies to have consistently sustained double-digit
margin even during the FY09 crisis. These are underpinned by CIEs intense
cost focus through decentralised plant management and best-in-class
production processes. Since CIE took over, Mahindra Forgings Europes
(MFEs) margin has improved to 8.0% vs 2.8% in FY14. With CIE now focused
on optimising product/process/location in the next phase, MFEs margin
(14.0% in FY17) would move closer to that of CIEs European plants (15.0%).
94/1.4
Bloomberg Code:
PI IN
CMP (Rs):
275
TP (Rs):
340
89/1.3
84/1.3

1M
3M 12M
YTD
Absolute
29
64
29
Rel. to Sensex
34
66
34
Estimates summary
FY15
FY16 FY17
Revenues (Rsmn) 55,694 59,41167,306

EBITDA Marg (%)
EPS(Rs)
9.6%
7.5
12.4% 14.1%
9.8
15.1
Analysts
Ashvin Shetty, CFA
ashvinshetty@ambitcapital.com
Tel: +91 22 3043 3285
Page 20
Economy & Strategy
Bata India
BUY
Ongoing strategic initiatives aid growth revival
Stock Information
Bata enjoys long-term competitive advantages around: (a) product quality, (b)
superior retail execution with the ability to retain talent at the store level, and (c) a
well-entrenched store network. Positive catalysts for the stock over the next 12-24
months include improvement in revenue growth momentum led by implementation of
several key initiatives (stated below).
Key catalysts: (1) E-commerce initiative: The creation of a separate team for the
online business will help introduce a separate line of ~500 SKUs which would be
exclusively sold online and through Batas mobile app; (2) Introduction of brand
store for Power: The company intends to launch the first Power EBO in Delhi next
month with many more stores to follow. The EBO would include footwear, accessories
and garments under the Power brand name; (3) Success of the loyalty
programme: The company has garnered ~4mn customers in its loyalty programme
in 6 months since the loyalty programme went live. The company plans to leverage
on the customer data base to implement targeted advertising and promotions in
order to drive revenue growth; and (4) Walt Disney characters in the Kids range:
The company entered into a 5-year exclusive contract with Walt Disney to use its
characters in its kidswear segment. These products will have a distinct identity from
the bubble gummers range.
Bloomberg Code:
BATA IN
CMP (Rs):
1,116
TP (Rs):
1,351
Rs72/US$1.0
Rs269/US$4.1

1M
Absolute
Rel. to Sensex
3M 12M
7
(11)
(15)
12
(10)
(10)
Ambit Estimates (Rs bn)

FY15 FY16E
Revenues
25.1
30.1
3.3
3.1
4.3
31.1
29.6
43.0
EBITDA Marg (%)

EPS
FY17E
26.9
With the challenges around supply chain behind and with the various ground-level
initiatives put in place by the management, we expect ~12% revenue growth in
1HFY16 amidst a weak macro environment and 17% CAGR over FY15-18E. With
network-size-related expenses of rentals and >50% of employee costs (equivalent to
~25% of revenues) being relatively fixed in nature, we expect Batas 17% revenue
CAGR to translate into EPS CAGR of ~29% in FY15-18E. We reiterate BUY with a TP
of Rs1,351 (33% upside) and an implied P/E multiple of 31x FY17E. The stock is
currently trading at 34x/24x FY16/17E EPS.
Aditya Bagul
Tel: +91 22 3043 3642
City Union Bank
BUY
A stable ship for rough waters
Stock Information
City Union Bank has one of the best long-term track records of balancing growth,
profitability and asset quality (15 years average loan growth of 25% YoY with average
RoA/RoE of 1.5%/22% and credit costs of <50bps). Compared with many of its peers,
CUBK has remained focused on a small-ticket, granular franchise on the assets side,
geared towards MSME/trade loan. MSME/agro/trade account for ~67% of the banks
loan book and corporate loans are just 9% of loan book (vs 30-35% average for its
peers).
The banks assets-side business is based on long-term-relationship-based customised
banking to its MSME/trade/self-employed customer base in its home geography. The
bank also has benefits from its presence in Tamil Nadu, (the most industrialised state
in South India with relatively better credit opportunities). The low cost liabilities have
not been a key focus for the banks and the organisational culture is geared towards
assets-side relationships to manage superior yields and asset quality. This reflects in
the banks lower CASA (~19%), and hence higher cost of funds (~7.0%), which is
more than offset by high loan yields (~13.0%) and low credit costs. On liabilities,
beyond CASA, retail term deposits form the back-bone of deposit base and reliance
on wholesale funding is miniscule. Conservative lending (enforcing sole banking
relationships and almost fully collateralised lending) has led to superior asset quality.
Further, with a strong tier-1 of 15.3% and investment in its network/systems, the
bank is also well placed to accelerate loan growth, if the external environment
improves. At Rs91, the stock is trading at 1.8x FY16E BVPS, at a premium to small
regional banks, but at a significant discount to new generation private sector banks,
despite equally impressive track records in earnings growth.
August 28, 2015
YTD
(3)
Analysts
Rakshit Ranjan, CFA
Tel: +91 22 3043 3201
Bloomberg Code:
CUBK IN
CMP (Rs):
97
TP (Rs):
115
58/0.9
62/0.9

1M
Absolute
Rel. to Sensex
3M 12M
YTD
(3)
(4)
23
24
Estimates summary
FY15
FY16E
FY17E
8.1
9.2
10.7
PAT
4.0
4.3
5.2
EPS (Rs)
6.6
7.3
8.7
Rs bn
NII
Analysts
Ravi Singh
Tel: +91 22 3043 3181
Page 21
Economy & Strategy
Appendix
14%
12%
10%
8%
6%
4%
GDP growth
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Revenue growth
Exhibit 22: BSE 200 revenue growth
2%
0%
Revenue growth
GDP growth
Source: Ambit Capital research, Bloomberg. Note: GDP growth as per the old series until the Mar2011 quarter; thereafter, the new series is use.* Revenue
14%
30%
12%
25%
20%
10%
15%
8%
10%
5%
6%
4%
0%
-5%
-10%
Revenue growth
GDP growth
35%
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Revenue growth
Exhibit 23: BSE 500 revenue growth
2%
0%
GDP growth
Source: Ambit Capital research, Bloomberg. Note: GDP growth as per the old series until the Mar2011 quarter; thereafter, the new series is use.* Revenue
14%
60%
12%
10%
40%
8%
20%
6%
0%
-20%
-40%
4%
GDP growth
80%
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
EPS growth
Exhibit 24: BSE 200 EPS growth
2%
0%
EPS gowth
GDP growth
August 28, 2015
Page 22
Economy & Strategy
14%
60%
12%
40%
10%
20%
8%
0%
6%
-20%
4%
-40%
2%
-60%
0%
EPS growth
GDP growth
80%
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
EPS growth
Exhibit 25: BSE 500 EPS growth
GDP growth
August 28, 2015
Page 23
Economy & Strategy
Institutional Equities Team

Saurabh Mukherjea, CFA
CEO, Institutional Equities
(022) 30433174
saurabhmukherjea@ambitcapital.com
Research
Analysts
Industry Sectors
Nitin Bhasin - Head of Research
E&C / Infra / Cement / Industrials
(022) 30433241
Desk-Phone E-mail
nitinbhasin@ambitcapital.com
Aadesh Mehta, CFA
Banking / Financial Services
(022) 30433239
aadeshmehta@ambitcapital.com
Abhishek Ranganathan, CFA
Midcaps
(022) 30433085
abhishekr@ambitcapital.com
Achint Bhagat, CFA
Cement / Infrastructure
(022) 30433178
achintbhagat@ambitcapital.com
Aditya Bagul
Consumer
(022) 30433264
Aditya Khemka
Healthcare
(022) 30433272
adityakhemka@ambitcapital.com
Ashvin Shetty, CFA
Automobile
(022) 30433285
ashvinshetty@ambitcapital.com
Bhargav Buddhadev
Power Utilities / Capital Goods
(022) 30433252
bhargavbuddhadev@ambitcapital.com
Deepesh Agarwal
Power Utilities / Capital Goods
(022) 30433275
deepeshagarwal@ambitcapital.com
Gaurav Mehta, CFA
Strategy / Derivatives Research
(022) 30433255
gauravmehta@ambitcapital.com
Karan Khanna
Strategy
(022) 30433251
karankhanna@ambitcapital.com
Pankaj Agarwal, CFA
(022) 30433206
pankajagarwal@ambitcapital.com
Paresh Dave, CFA
Healthcare
(022) 30433212
pareshdave@ambitcapital.com
Parita Ashar, CFA
Metals & Mining / Oil & Gas
(022) 30433223
paritaashar@ambitcapital.com
Prashant Mittal, CFA
Derivatives
(022) 30433218
prashantmittal@ambitcapital.com
Rakshit Ranjan, CFA
Consumer / Retail
(022) 30433201
Ravi Singh
(022) 30433181
Ritesh Gupta, CFA
Midcaps Chemical / Retail
(022) 30433242
riteshgupta@ambitcapital.com
Ritesh Vaidya, CFA
Consumer
(022) 30433246
riteshvaidya@ambitcapital.com
Ritika Mankar Mukherjee, CFA
Economy / Strategy
(022) 30433175
ritikamankar@ambitcapital.com
Ritu Modi
Automobile
(022) 30433292
ritumodi@ambitcapital.com
Sagar Rastogi
Technology
(022) 30433291
sagarrastogi@ambitcapital.com
Sumit Shekhar
Economy / Strategy
(022) 30433229
sumitshekhar@ambitcapital.com
Utsav Mehta, CFA
Technology
(022) 30433209
utsavmehta@ambitcapital.com
Sales
Name
Regions
Sarojini Ramachandran - Head of Sales
UK
Desk-Phone E-mail
Dharmen Shah
India / Asia
(022) 30433289
dharmenshah@ambitcapital.com
Dipti Mehta
India / USA
(022) 30433053
diptimehta@ambitcapital.com
Hitakshi Mehra
India
(022) 30433204
hitakshimehra@ambitcapital.com
Krishnan V
India / Asia
(022) 30433295
krishnanv@ambitcapital.com
Nityam Shah, CFA
USA / Europe
(022) 30433259
nityamshah@ambitcapital.com
Parees Purohit, CFA
UK / USA
(022) 30433169
pareespurohit@ambitcapital.com
Praveena Pattabiraman
India / Asia
(022) 30433268
praveenapattabiraman@ambitcapital.com
Shaleen Silori
India
(022) 30433256
shaleensilori@ambitcapital.com
Pramod Gubbi, CFA Director
Singapore
+65 8606 6476
pramodgubbi@ambitpte.com
Shashank Abhisheik
Singapore
+65 6536 1935
shashankabhisheik@ambitpte.com
+44 (0) 20 7614 8374 sarojini@panmure.com
Singapore
USA / Canada
Ravilochan Pola - CEO
Americas
+1(646) 361 3107
ravipola@ambitpte.com
Production
Sajid Merchant
Production
(022) 30433247
sajidmerchant@ambitcapital.com
Sharoz G Hussain
Production
(022) 30433183
sharozghussain@ambitcapital.com
Joel Pereira
Editor
(022) 30433284
joelpereira@ambitcapital.com
Nikhil Pillai
Database
(022) 30433265
nikhilpillai@ambitcapital.com
E&C = Engineering & Construction
August 28, 2015
Page 24
Economy & Strategy

ITC LTD (ITC IN, BUY)
Aug-15
Jun-15
Apr-15
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
450
400
350
300
250
200
ITC LTD
Coal India Ltd (COAL IN, BUY)

500
400
300
Dec-14
Feb-15
Apr-15
Jun-15
Dec-14
Feb-15
Apr-15
Jun-15
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-14
Oct-14
Oct-14
Aug-14
Aug-14
Aug-14
Jun-14
Jun-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
200
100
0
COAL INDIA LTD

Lupin Ltd (LPC IN, BUY)

2,500
2,000
1,500
1,000
500
Aug-15
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
LUPIN LTD
Power Grid Corp Of India Ltd (PWGR IN, BUY)

200
150
100
50
Aug-15
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
POWER GRID CORP OF INDIA LTD

August 28, 2015
Page 25
Economy & Strategy

Indusind Bank Ltd (IIB IN, BUY)
Aug-15
Jun-15
Apr-15
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Aug-12
Oct-12
Dec-12
1,200
1,000
800
600
400
200
0
INDUSIND BANK LTD

Page Industries Ltd (PAG IN, BUY)

20,000
15,000
10,000
5,000
Aug-15
Jun-15
Apr-15
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
PAGE INDUSTRIES LTD

PI Industries Ltd (PI IN, BUY)

800
600
400
200
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
PI INDUSTRIES LTD
Mahindra CIE Automotive (MACA IN, BUY)
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
350
300
250
200
150
100
50
0
Mahindra CIE
August 28, 2015
Page 26
Economy & Strategy

Bata India Ltd (BATA IN, BUY)
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
1,600
1,400
1,200
1,000
800
600
400
200
0
BATA INDIA LTD

City Union Bank Ltd (CUBK IN, BUY)
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
120
100
80
60
40
20
0
CITY UNION BANK LTD

August 28, 2015
Page 27
Economy & Strategy

Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>10%
SELL
<10%
NO STANCE
We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW
We will revisit our recommendation, valuation and estimates on the stock following recent events
NOT RATED
We do not have any forward looking estimates, valuation or recommendation for the stock
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Ambit Economy Strategy

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Economy & Strategy

Exit the fantasy, enter the reality

August 28, 2015

Source: CEIC, Ambit Capital research; Note: GDP

Exhibit B: Our top high quality BUYs

Power Grid Corp

City Union Bank

Source: Bloomberg, Ambit Capital research

High risk of the Sensex sliding to 22K

Economy & Strategy

August 28, 2015

Ambit Capital Pvt. Ltd.

Economy & Strategy

Corporate performance is unusually weak

Net MF equity inflows* (Rs bn, LHS)

Consensus FY16E EPS for Sensex (Rs, RHS)

Retail investor optimism looks

Revenue growth (YoY)

Exhibit 2: BSE Sensex revenue growth*

Revenue growth (YoY)

August 28, 2015

Ambit Capital Pvt. Ltd.

Economy & Strategy

Exhibit 3: BSE Sensex EPS growth

August 28, 2015

Ambit Capital Pvt. Ltd.

Economy & Strategy

The disconnect between earnings growth

The relationship between earnings

Correlation between earnings

Source: Bloomberg, CEIC, Ambit Capital research

August 28, 2015

Real GDP growth

Exhibit 6: which breaks down in the new GDP series

Real GDP growth

Ambit Capital Pvt. Ltd.

Economy & Strategy

The positive correlation between

Correlation between earnigs

Source: Bloomberg, CEIC, Ambit Capital research

Real GFCF growth

Real GFCF growth

August 28, 2015

BSE 30 Earnings growth

Exhibit 9: which breaks down in the new GDP series

Ambit Capital Pvt. Ltd.

Economy & Strategy

We downgrade our GDP growth estimate

We downgrade our GDP growth

Exhibit 10: Assumptions underlying our FY16 GDP forecast

Key assumptions for FY16

Rainfall adjustment factor

Minimum support price (MSP) for paddy

Advanced economies growth rate

Source: Ambit Capital research

August 28, 2015

Ambit Capital Pvt. Ltd.

Economy & Strategy

Downside risks to GDP

The Chinese implosion will drag down domestic investments: We expect

Exhibit 11: We expect GDP growth in FY16 to be recorded at 6.8% YoY

Change FY16 (old)

Memo Item: Investment

August 28, 2015