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KARVY WEALTH MAXIMIZER - MARCH 2018
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Karvy Stock Broking Research is available on Thomson Reuters & Bloomberg (Code: KRVY<GO>)
040 - 3321 6296
vivekr.misra@karvy.com
Vivek Ranjan Misra
KARVY WEALTH MAXIMIZER - JULY 2018
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Wealth Maximizer
July 03, 2018
Wealth Maximizer
Company Name NSE Symbol Sector
Market Cap
(Rs. Bn.)
CMP*
(Rs.)
Target
Price (Rs.)
Upside
(%)
HCL Technologies Ltd HCLTECH Information Technology 1289.7 926 1176 27
ICICI Bank Ltd ICICIBANK Financials 1771.2 275 405 47
Indiabulls Housing Finance Ltd IBULHSGFIN Financials 487.4 1143 1519 33
Larsen & Toubro Ltd LT Industrials 1787 1275 1631 28
Oil & Natural Gas Corp Ltd ONGC Energy 2032.8 158 192 22
State Bank of India SBIN Financials 2314.6 259 334 29
Tata Motors Ltd TATAMOTORS Consumer Discretionary 858.2 269 405 50
Titan Company Ltd TITAN Consumer Discretionary 779.9 879 1058 20
UPL Ltd UPL Materials 315.1 619 934 51
Yes Bank Ltd YESBANK Financials 783.1 340 472 39
*As on Jun 29, 2018, Please CLICK HERE for previous Wealth Maximizer report
KARVY WEALTH MAXIMIZER - MARCH 2018
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MARKET OUTLOOK
We expect that Indian markets will grind higher, though we believe volatility will
remain high which may induce swings in either direction.
Foreigners have been sellers, and this is part of the broader trend. Despite this
India is among the better performing markets halfway through 2018, largely as
domestic investors have stepped in during the sell off.
There are reasons why we remain optimistic:
After a slowdown since middle of 2016, there are clear signs of economic
recovery, the last two quarters signal a turnaround in the economy. GDP growth
has improved over the last three quarters, after a bottom in April-June quarter.
What has been more encouraging is that growth in fixed capital formation has
picked up; in the last quarter it grew at 14.4% YoY. The economic data signal
a turnaround in the capex cycle. This is important as investment demand will
lead to higher earnings growth, especially in cyclical sectors. It takes time to
add capacity; in the meantime higher capacity utilization can help firms improve
margins and ROE. This also opens the door to possible higher earnings growth.
The missing puzzle for Indian equities has been lack of robust earnings growth.
Since 2014, earnings growth has averaged 4% vs historical average of 11%.
However, with capex likely to pick up, corporate earnings are likely to pick up
strongly.
The index has de-rated significantly since the peak of 22x in January 2018.
While by no standards cheap, valuations of Indian markets are more reasonable
now (compared to January 2018) with Nifty trading at a 12 month forward PER
18x, since 2005, Nifty’s average has been 16.2x. At current levels, valuations
are not a constraint for markets to move higher.
We believe that pre-emptive rate hikes by the RBI is a vote of confidence in the
economy and an indication that the economy is on a strong growth trajectory.
The following makes us a bit cautious:
Currency depreciation-Indian markets (like other emerging markets) do well
when the currency strengthens; the current phase of weakness in the Rupee
is a headwind.
Increase in the price of Oil and a possible hike in MSP for Indian farmers in an
election year pose inflationatary risks which in turn increases the risk of more
than anticipated rate increase by the RBI.
Ongoing process of resolution of NPAs in the banking sector.
State elections in 4 states (Mizoram, Rajasthan, Chhattisgarh and Madhya
Pradesh) in the run up to the general elections, which are to be held by May
2019.
Outlook:
Overall, we believe that markets will grind higher though with increased volatility.
Our target for Sensex by end of December 2018 is 37,500 which is 6% higher than
current levels. For December 2020, we believe Sensex will be 40,500 representing
an upside of 14% from current levels.
KARVY WEALTH MAXIMIZER - JULY 2018
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Exhibit: Summary
NSE Symbol Key Growth Drivers Risks to Our Call Investment Argument
HCLTECH
With strong deal momentum exhibited in H2FY18 and large IMS
deals won in FY18 and based on management commentary,
IMS' growth is expected to revive in H2FY19. This along with
positive outlook for Eng R&D services and strong uptick in Mode
2 and Mode 3, future revenue growth is expected to be better.
Revival in IMS fails to take off.
Higher digital investments to affect margins
negatively.
IBM IP partnerships might not deliver
expected outcomes.
Stock price reaction is overdone. The stock is currently trading at historically
high discount levels against other IT companies, which is not justified given
stable margin outlook and industry-leading growth guidance. IMS vertical
which has been lagging till now is expected to revive during H2FY19.
ICICIBANK
Continuous improvement in operating performance led by the
parameters; Loan growth, core fee income, NIMs, & lower credit
cost. Retail shall continue to grow at healthy pace & gain share
in loan mix.
Negative surprise in asset quality. Sharp improvement in ROEs in FY20E led by lower credit cost and
improvement in earnings profile. Valuations are quite attractive at 1.0x FY20E
P/B (EX subsidiaries).
IBULHSGFIN
Focus towards retail lending and shift of liabilities majorly towards
issuing bonds.
Slowdown in real estate sector. Adverse
regulatory changes like changes in NPA
norms, etc.
Cost profile improvement through focus on retail lending and issuing bonds
will improve the margins of the company. The government impetus on real
estate and infra sector will be a strong growth driver.
LT
Robust order book coupled with superior execution capabilities,
focus on core assets and operation Lakshya.
Delay in capex cycle recovery & order
execution.
L&T’s outstanding order book stood at Rs. 2631 Bn from diversified sectors
a book to bill ratio of 1.3x provides revenue visibility. L&T’s divestment
agreement with Schneider Electric shows their intention to focus on core
assets. Improving financials due to optimization strategies.
ONGC
Higher crude oil prices and upcoming gas projects. Rise in crude oil price to adversely impact
margin of HPCL where ONGC has got
51.11% stake.
Buoyancy in crude oil prices, global economy growing at 3.9%.
SBIN
Sustained CASA growth in Retail loans, improvement in Asset
quality and decline in slippage ratio.
Rising bond yields, higher provisioning
and headwinds in realizing the synergies
through merger.
Loan book growth, CASA share in deposits, sustained NIMs of 2.7%,
reducing NPAs and fresh slippages.
TATAMOTORS
Improving commercial vehicle demand.
Higher investment in road infrastructure is expected to sustain
this growth momentum.
Weakness in the European demand may
affect JLR volumes.
Volatility in raw material prices.
Strong improvement in the domestic sales volume growth has led to a
significant increase in the market share.
Investment in newer platforms in the JLR segment is expected to improve
revenue in the next 2-3 years.
TITAN
Entering into International markets and new innovations in
Wedding Jewellery segment to drive growth for Jewellery
Business.
Government regulations on gold
purchases, gold price volatility, competition
from other e-commerce players.
Wedding segment in India accounts for more than 60% of the total jewellery
market. Innovations in wedding segment will help the company to capture
more market share. Titan, with its improving operational efficiencies and
expansion strategies in retail network is moving up the value chain.
UPL
Favourable weather forecasts.
Constructive government policies.
Possibility of price increases should be good for the sector.
Gaining traction in biological nutrition portfolio will further drive
growth for UPL.
Weather patterns.
Pest attacks.
Drought condition.
High Channel inventory.
The management has guided for FY19E revenue/EBITDA to grow at ~12/15%
YoY and EBITDA margins to improve by ~21%. Capex of Rs. 12-14 Bn is
planned for FY19E. This helps to improve the operating performance.
Management also indicated; further rise in raw material costs can be passed
on to customers protect their margins.
YESBANK
Favorable demand environment supported by pick up in the
economy, re-financing opportunities for the stressed asset
resolution, and growing execution capabilities in the retail
segments. Retail liabilities franchise too continue to perform at
a healthy pace.
Margins not keeping up with the strong
growth outlook as the bank grows into
lower risk assets, pick up in the wholesale
cost of funds and liability franchise lagging
behind loan growth.
Apart from the strong operating performance led by strong growth, the
progress towards the target of 60% coverage ratio shall be the key trigger.
Source: Karvy Research
KARVY WEALTH MAXIMIZER - MARCH 2018
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KARVY WEALTH MAXIMIZER - JULY 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 926
Target Price 1176
Upside (%) 27
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 1289.7 / 18.8
52-wk High/Low (Rs.) 1108 / 825
3M Avg.daily value (Rs. Mn)
2229.7
Beta (x) 0.7
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 1392.4
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 59.7
FIIs 24.6
DIIs 7.7
Others 8.0
Stock Performance (%)
1M 3M 6M 12M
Absolute 2 (4) 4 9
Relative to Sensex 1 (11) 0 (5)
Source: Bloomberg
Bloomberg Code: HCLT IN
HCL Technologies Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 408082 475675 505314 574313 629015
EBITDA 87547 103846 114303 130730 142420
EBITDA Margin (%) 21.5 21.8 22.6 22.8 22.6
Adj. Net Profit 73188 85764 87695 94937 103706
EPS (Rs.) 51.9 60.1 62.5 68.2 74.4
RoE (%) 27.6 26.9 25.3 24.0 23.1
PE (x)* 17.9 15.4 14.8 13.6 12.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Attractive Valuations with Stable Fundamentals
Stock Price Reaction Overdone: For FY19, HCL Technologies (HCLT)
guided for a $ revenue growth of 10.5% - 12.5% (CC growth of 9.5% to
11.5%). The 10.5% (at mid-point) $ rev growth is to be contributed equally by
organic and inorganic growth (as per the management in Q4FY18 concall).
The guidance of 5.25% organic growth was slightly below estimates and
lower than industry average. This led to a sharp correction in the stock.
HCLT’s under performance relative to both broader markets and IT index is
overdone. HCLT is likely to surprise positively on the growth front.
IMS likely to bottom out in H2FY19: Our confidence in IMS’ revival
from H2 FY19 stems from a) increasing acceptance of large IMS clients to
move to cloud who were apprehensive hitherto b) signs of revival in non-data
centre IMS business aided by areas like Digital Workplace, Networks and
Cyber Security c) large IMS deal win to build Digital Workplace for a CPG
client, d) other large deals won in H2FY18 are likely to ramp up in H2FY19.
Mode 2 and Mode 3 to drive revenue growth: During FY18,
Mode 2 (Digital) grew 29.4% and Mode 3 (Products and Platforms) grew
68.3%. Both the segments contributed 23.4% of FY18 revenues as
opposed to 18.6% in FY17. Increased focus on non-data centre business
in IMS, newer geographies like Australia, Germany, Canada and South
Africa would compensate weak growth in legacy business. HCLT won 63
transformational deals in FY18 vs 40 in FY17. This should lead to a better
exit rate in FY19.
Valuation and Risks: On a TTM basis, HCLT is currently trading at a
PE of 14.8 and FY20E PE of 12.5. Currently, HCLT is trading at a discount
of 46% to TCS’s PE vs historical average of 25%. We remain constructive
on the stock given industry leading growth rate and stable margins. We
value HCLT at FY20 PE of 15.8 and reiterate “BUY” with a target of
Rs. 1176, an upside of 27%. Sustained weakness in IMS and margin risk
due to higher investments are key downside risks.
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HCLT
KARVY WEALTH MAXIMIZER - MARCH 2018
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Company Background
HCL Technologies is India’s fourth largest IT services company. HCL Technologies helps global enterprise transform
their businesses in the digital age through integrated portfolio of products, solutions, services and IP. HCLT’s products
are built around digital, IoT, AI, automation, infrastructure management and engineering services. HCLT offers these
services through a global network of R&D labs, innovation labs, and delivery centers spread across 39 countries.
HCLT serves leading enterprises across key industries including 250 of the Fortune 500 companies, 650 of the Fortune
2000. HCLT offers integrated portfolio of products solutions and services and IP through Mode 1-2-3 strategy built
around Digital, IoT, Cloud, Automation, Cybersecurity, Analytics, Infrastructure management and Engineering Services,
to help enterprises reimagine their businesses for the digital age.
HCLT has been the Top Employer in the UK for the past 12 consecutive years. HCL’s DRYiCE COPA (Cognitive
Orchestrated Process Autonomics) platform that applies AI to drive enterprise-wide process automation and orchestration
won the Best Innovation in RPA at AI Summit in San Fransisco in 2017.
HCLTECH: Technical View
HCLTECH stock price is consistently moving higher with intermittent price corrections in between. The stock has
made a swing low of 706 in mid of May’16 post which it started recovering and climbed higher. In end of Apr’18
stock made an all time high of 1108, post which it witnessed profit booking from the highs; in the recent price
correction made a swing low near 880 and started recovering from lower levels. Technically, stock price in the
recent correction price found support near its rising trend line adjoined from the major swing low to next higher
swing low. Also, price has well respected its 200- WEMA (Weekly Exponential Moving Average), which is not tested
once in last nine years time frame. Currently it is placed near 815 levels which should act as a strong support if any
price correction. In the month of May’18, price has breached its major 200-DEMA and started hovering below it;
importantly prices remained in a narrow range below it, and in the recent past prices attempted to move above it.
On the momentum setup, 14-period weekly RSI managed to sustain above 40-level in price correction and currently
it is approaching equilibrium level which indicates that oscillator remained in bullish regime and now momentum is
gradually picking up while indicator on daily time frame chart is also started moving above equilibrium level. Going
forward, stock has important support near 870-880 levels, followed by 815-830 levels. On the higher side stock
is likely to find immediate resistance near 960-970 levels, followed by 1040 and above which next stiff resistance
will be near its all time high of 1108 levels, moving above which stock will enter into an uncharted territory towards
1150-1200 mark.
KARVY WEALTH MAXIMIZER - JULY 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 275
Target Price 405
Upside (%) 47
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 1771.2 / 25.9
52-wk High/Low (Rs.) 366 / 255
3M Avg.daily value (Rs. Mn)
6617.7
Beta (x) 1.6
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 6431.5
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 0.0
FIIs 48.1
DIIs 41.6
Others 10.3
Stock Performance (%)
1M 3M 6M 12M
Absolute (5) (1) (12) (6)
Relative to Sensex (6) (8) (16) (18)
Source: Bloomberg
Bloomberg Code: ICICIBC IN
ICICI Bank Ltd
Relative Performance*
Source: Bloomberg; *Index 100
80
96
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128
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-
18
Feb-18
Mar-
18
Apr-18
May-18
Jun-18
ICICIBC
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Interest Income 212240 217373 230258 286737 339104
Net Profit 97263 98011 67774 53265 170848
EPS (Rs.) 15.0 15.0 11.0 8.0 27.0
BVPS (Rs.) 140.0 156.0 164.0 170.0 192.0
P/E (x)* 19.0 18.9 27.5 34.9 10.9
P/BV (x)* 1.5 1.3 1.2 1.2 1.0
RoE (%) 11.4 10.3 6.6 5.0 14.7
RoA (%) 1.6 1.4 0.9 0.6 1.7
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
On the Road to Recovery; No Material Deviation;
Retail Contribution Will Increase
Asset quality, no material deviation: Even though the slippages
increased in Q4FY17, the material portion that includes adversely classified
accounts including the guided stress list remained unchanged. This is positive
for the company as we expect bank to be left with the adversely classified
exposure of Rs. 133.3 bn of which we assess Rs. 100 bn to slip in FY19E.
Also, the RBI review report didn’t impact the asset quality negatively.
Sequential uptick in NIMs aided by structural strengths: The 14
bps increase in domestic NIMs will be led by increase in MCLR and continuing
higher growth in relatively higher yield retail products. Core spreads to increase
in FY19 by 25/30 bps, supported by impact of SA rate cut in mid FY18 and
high CASA ratio, along with lowering drag from NPAs. Also, it will be partially
negated by higher growth within higher rated corporate bucket. Reduction in
overseas book share shall aid the blended NIMs too.
Loan book growth driven by retail loan: Total domestic loans grew
at 15% YoY in 2018 driven by retail. In Q4FY18, Retail loans constituted
57% of the total loan portfolio. Basically, the bank has continued to
leverage its strong retail franchise, resulting in 21% YoY growth in retail
loans. We estimate loan growth at ~15% for FY19E, as stress resolution
and recognition will impact optical growth number. Loan growth to improve
to 19% in FY20E. The bank has decided to manage and contain risk by
leveraging its increase in retail share and much more stringent group
exposure limits in the corporate segment.
Valuation and Risks: We estimate RoAs to improve to ~1.7% in
FY20E from ~0.9% in FY18. We maintain a “BUY” on the stock with TP of
Rs. 405 valuing core banking operations at Rs. 300, 1.9x FY19E P/B and
subsidiaries at Rs. 105 per share. Key risk could be discovery of new
NPAs that can further deteriorate bank’s financials, thus making recovery
difficult.
KARVY WEALTH MAXIMIZER - MARCH 2018
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ICICIBANK: Technical View
ICICIBANK is one of the index heavy weight stock and has peculiar behavior of trading in a phased manner; stock
price generally after a rally for couple of months, retrace back more than a half of the move and again resumes
a trend. In the end of Feb’16, stock price made a major swing low of 164 and started recovering from the lows;
made an all time high of 365.70 in start of Feb’18, where it found resistance, made a double top near that level and
witnessed price correction in last few months. In the recent price correction, stock price retraced near to 50% of
move projected from swing low 164 to an all time high of 365.70. Technically, stock price found support near its
200-WEMA (Weekly Exponential Moving Average) which is currently placed near 263 levels. Currently, stock price is
hovering below 200-DEMA (Daily Exponential Moving Average) and also below its 21 & 50-DEMA. On the momentum
setup, 14-period weekly RSI managed to sustain above 40-level in price correction and currently hovering between
40 & 50- levels, which indicates that oscillator remained in bullish regime and eventually momentum may pick up,
while indicator on daily time frame chart is also hovering below equilibrium level. Going forward, stock has important
support near 258-262 levels, followed by 220 levels. On the higher side, stock is likely to find immediate resistance
near 315-320 levels, followed by 340 and above which next stiff resistance will be near its all time high of 365 levels,
moving above which stock will enter into an uncharted territory towards 380-400 mark. Hence, any dip towards
support levels can be utilized as a buying opportunity for long term investors, considering stock price after correction
to resume its trend in a gradual manner.
Company Background
ICICI Bank Limited provides banking and financial services in India and internationally. It operates through Retail Banking,
Wholesale Banking, Treasury, Other Banking, Life Insurance, General Insurance, and other segments. It provides home,
car, two wheeler, personal, gold, and commercial business loans, as well as loans against securities and loans for new
entities. In addition, the bank offers life, health, travel, car, two wheeler, home, and student medical insurance products;
pockets wallet; fixed income products; investment products such as mutual funds, gold monetization schemes, and
initial public offerings as well as other online investment services. It also provides farmer finance, tractor loans, and
micro banking services as well as other services to agro-traders and processors and agro corporate. Further, it provides
portfolio management, trade, foreign exchange, locker, private and NRI banking and cash management services; family
wealth and demat accounts; commercial banking, investment banking, capital markets and custodial, project and
technology finance, and institutional banking services as well as internet, mobile, and phone banking services.
KARVY WEALTH MAXIMIZER - JULY 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 1143
Target Price 1561
Upside (%) 33
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 487.4 / 7.1
52-wk High/Low (Rs.) 1440 / 1040
3M Avg.daily value (Rs. Mn)
2556.6
Beta (x) 1.2
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 426.6
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 23.5
FIIs 53.9
DIIs 14.3
Others 8.3
Stock Performance (%)
1M 3M 6M 12M
Absolute (6) (8) (5) 4
Relative to Sensex (8) (14) (8) (9)
Source: Bloomberg
Bloomberg Code: IHFL IN
Indiabulls Housing Finance Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Interest Income 38000 48000 57850 81916 100537
Net profit 23000 29000 38470 45463 55639
EPS (Rs.) 60.0 68.8 90.5 106.7 128.9
BVPS (Rs.)* 253.8 286.0 314.7 377.8 443.2
P/E (x)* 12.2 12.7 17.2 10.7 8.9
P/BV (x)* 3.6 3.0 4.2 3.0 2.6
RoE (%) 27.1 25.5 30.1 30.2 31.8
RoA (%) 3.5 3.2 3.3 3.0 2.9
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Strong Growth with Stable Asset Quality
Improvement in cost profile segment: The company intends to
diversify more into retail lending. The company expects the home loans to
contribute 66% of total loan book from 54% currently; also company has
brought down the bank borrowing from 49% in FY16 to 34% level and has
increased the issue of bonds. The company is currently AA+ rated by two
rating agencies (AAA by other two) and would reduce the cost of borrowings
due to shift from bank borrowings to bonds. It has been noted that over last
9 months close to 64% of the borrowings is through issue of bonds.
Steady Loan growth and stable margins: IHFL continues to
diversify in the retail home loan segment which accounted for 54% of loan
book. India Bulls AUM has grown at an average rate of 30% in last 3 years.
Despite this aggressive growth, the company has been very cautious at
bottom line with GNPA at around 80 bps. With GST and RERA issues
being resolved, construction finance book growth has also picked up as
demands have been normalized. Indiabulls stand at a right position to reap
the benefits of developments in real estate sector. Management expects
the book size to reach 4 trillion by 2023.
Strong Structural drivers and Government focus: Under Pradhan
Mantri Awaas Yojana (PMAY), subsidy eligibility cover up to 12 lakh of
home loan reduces home loan rates to 0.30% for mid-income affordable
housing. Budget 2016-17 provided a 100% tax exemption on profits from
construction of affordable housing and would be attracting organized
players. The PMAY projects have been kept out of purview of GST. Service
tax exemption on construction of affordable housing projects will lead to
reduction in prices indeed increasing affordability.
Valuation and Risks: The company fundamentals are on strong footing
and as per consensus, the operating performance will be strong which
derives a valuation of 3.4x price/book value for a target price of Rs. 1561
representing an upside potential of 33%.
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IHFL
Sensex
KARVY WEALTH MAXIMIZER - MARCH 2018
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Company Background
IBHF started operations in 2000 as a Non Banking Finance Company (NBFC). In early 2013, the company was reverse
merged into housing finance company. IBHF is one of the leading housing finance companies in India. The company has
also launched E-Home Loans, one of its kind in the home loan industry. It has credit rating of AAA from CARE and AA+
from CRISIL and is among very few who enjoy such rating from the rating agencies. It has pan India presence with a
strong hold in tier 1 and tier 2 cities. IBHF is one of the largest housing finance companies with AUM of more than 1trn.
IBULHSGFIN: Technical View
IBULHSGFIN is in uptrend and making higher highs and higher lows on weekly charts. The stock is trading under
pressure from couple of trading sessions and fall in the stock has placed the stock below all its major moving
averages. The stock has made all time high around 1440 levels in Jan 2018. Thereafter, the stock has profit taking
which has dragged the stock to the low of 1081 levels. However, the stock found its support and bounced well
but was unable to resume it’s up move. Currently, the stock is trading in the range of 1155-1230 levels. The recent
price action in the stock has given breakdown on daily charts on end of June 2018. The fall in the stock has seen
supportive volume formation on daily charts. The immediate support for the stock is placed around 1080 levels.
Whereas, the resistance is placed at 1275 levels. The stock has retraced 38.20% of retracements levels, drawn
from the life time high of 1440 levels to the low of 1081 levels. The historical price action in the stock reflect that
any meaningful dip in the stock attracts market participants which helps the stock to resume its up move. On
technical setup, the 14 period RSI is trading comfortable on daily and weekly charts which indicates that the price
is in comfortable zone and stock can resume its up move in near term. The bounce above 1275 levels will act as a
fresh trigger for the stock which will enhance our bullish view in the stock and stock may touch it’s all time high and
above in near to medium term. Based on above technical observations, we expect prices to recover and gradually
move higher, over the coming month.
KARVY WEALTH MAXIMIZER - JULY 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 1275
Target Price 1631
Upside (%) 28
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 1787.0 / 26.1
52-wk High/Low (Rs.) 1470 / 1108
3M Avg.daily value (Rs. Mn)
2783.7
Beta (x) 1.1
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 1401.5
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 0.0
FIIs 18.8
DIIs 39.3
Others 41.9
Stock Performance (%)
1M 3M 6M 12M
Absolute (8) (3) 1 12
Relative to Sensex (9) (9) (3) (2)
Source: Bloomberg
Bloomberg Code: LT IN
Larsen & Toubro Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 1000328 1076365 1196832 1351249 1515553
EBITDA 104571 110732 195911 157053 180531
EBITDA Margin (%) 10.5 10.3 16.4 11.6 11.9
Adj. Net Profit 41933 60287 72838 83113 96928
EPS (Rs.) 29.9 43.0 51.9 59.3 69.2
RoE (%) 9.9 12.8 13.9 19.7 22.0
PE (x)* 26.8 24.3 24.9 21.5 18.4
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Builders of the Nation
Focusing More on Core Assets: L&T has entered into a definitive
agreement with Schneider Electric for the divestment of its E&A segment
for a cash consideration of Rs. 140 Bn. The valuation is in line with other
listed peers. The transaction does not include the marine switchgear
and Servowatch Systems (primarily into marine automation) in the E&A
segment. The deal is expected to close in 18 months from 1st May,
2018 and is subject to receipt of the regulatory approvals. The E&A
segment accounted for ~4-5% of consolidated sales in FY18 and ~6% of
consolidated EBITDA and enjoys EBITDA margins in 14-15% range.
Operation Lakshya: L&T’s efforts to successfully implement Lakshya
is visible in its recent performance on multiple fronts. L&T has been able
to improve its net working capital (60 bps) & operating margins (50 bps)
vs FY18. Listing of L&T Finance, IT services and divestment of non-core
assets helps unlock the value in medium to long term.
Robust order book & traction in infrastructure: L&T’s outstanding
order book stood at Rs. 2631 Bn from various sectors at the end of
Mar18, while the order inflow for the year stood at Rs. 1529 Bn. Revenue
recorded for FY18 is Rs. 1199 Bn (49% from infrastructure) vs. Rs. 1100
bn in FY17 with a book to bill ratio of 1.3x. L&T Infrastructure segment
constitutes 74.3% of the order book and 57.1% of its new order inflow
during FY18. Current outstanding order book constitutes domestic orders
of 76.2% followed by Middle East with 16.8%. Robust order book build
up reflects its leadership in the infrastructure & engineering segments and
gives revenue visibility.
Valuation and Risks: L&T’s exposure to various sectors/ geographies
coupled with its excellent execution capabilities and its balance sheet
strength compared to other peers in the sector has resulted in strong
order book build up. The consensus values the company at 24.0x for a
target price of Rs. 1631, representing an upside potential of 28%. Delay in
capex cycle recovery & order execution may pose threat to the call.
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LT
Sensex
KARVY WEALTH MAXIMIZER - MARCH 2018
13
Company Background
L&T is one of Asia’s largest vertically integrated E&C companies and is India’s largest Engineering & Construction
Company with interests in Projects, Infrastructure Development, Engineering & Automation (E&A), Manufacturing,
Fabrication and Construction, IT & Financial Services. L&T has an excellent track record of executing the most complex
projects in diverse sectors like infrastructure, oil & gas, defence, power and others making it the most preferred partner
resulting in repeat orders from the clients. L&T has strong presence in Infrastructure, Power, Metallurgical-material
handling, Heavy Engineering, Electrical & Automation, Hydrocarbon, Development projects, IT, Financial services
and others. It undertakes developmental projects like Buildings & Factories, Transportation Infrastructure, Heavy Civil
Infrastructure, Power, Water & Renewable Energy, Ship Building, Defence, Machinery & Industrial Products. L&T, through
its subsidiaries, associates and JVs operates in Financial services, Infotech, Infrastructure, Hydrocarbon, Manufacturing,
Fabrication and Other Services, etc.
LT: Technical View
Larsen & Toubro Ltd is India’s largest and most respected Engineering & Construction Company. After a brief
consolidation, stock price is attempting to move higher with spurt in volume. In mid of Dec’17, stock price made
a swing low of 1175 post which it witnessed smart recovery towards all time high of 1470 levels clocked in start
of Feb’18. Post the steady rise, stock entered in to a correction mode. After placing swing high of 1425 in mid of
May’18, stock price again corrected sharply in the last month. The stock has made all time high of 1470 levels and
which has dragged the stock to the low of 1261 levels. Thereafter, the stock has bounced well and made the next
immediate high of 1423 levels and unable to sustain at higher levels and seen profit taking. However, the price action
in the stock reflect that, any minor dip in the stock attracts market participants, which helps stock to resume its up
move. In the last three months time frame, stock price remained choppy, managed to sustain above 1260 levels
on the downside, while finding resistance near 1360 levels on the higher side. In the last week of June’18 stock
price breached the said support area, made a swing low of 1206 and quickly recovered next day and closed at
1275 levels, exhibiting buying interest at lower levels. Currently, stock price holds marginally below its major 200-
DEMA, and also holding below its 21 & 50-DEMA. On the weekly technical setup, 14-period RSI found support near
40-levels during recent price correction and on daily time frame chart after testing oversold territory it is turning up
higher. Based on above technical observations, we expect prices to recover and gradually move higher, over the
coming month.
KARVY WEALTH MAXIMIZER - JULY 2018
14
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 158
Target Price 192
Upside (%) 22
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 2032.8 / 29.7
52-wk High/Low (Rs.) 213 / 152
3M Avg.daily value (Rs. Mn)
1164.0
Beta (x) 0.9
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 12833.2
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 67.7
FIIs 0.0
DIIs 18.9
Others 13.3
Stock Performance (%)
1M 3M 6M 12M
Absolute (10) (11) (19) 0
Relative to Sensex (11) (17) (22) (13)
Source: Bloomberg
Bloomberg Code: ONGC IN
Oil & Natural Gas Corp Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 1348162 1414709 3622462 2662359 2735315
EBITDA 405143 420120 568657 707628 723540
EBITDA Margin (%) 30.1 29.7 15.7 26.6 26.5
Adj. Net Profit 180600 201753 219322 308629 313522
EPS (Rs.) 9.4 15.7 17.1 23.8 24.2
RoE (%) 6.8 9.8 9.8 12.9 12.1
PE (x)* 21.4 11.6 10.3 6.6 6.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Higher Oil Prices Augur Well for ONGC
On standalone basis, ONGC produced 22.31 MMT crude oil in FY18’as
against 22.25 MMT in FY17 an increase of 0.3%. Natural gas production
on standalone basis stood at 23.48 BCM as against 22.09 BCM registering
an increase of 6.3%. Value added products production raised to 3.39
MMT in FY18’ from 3.24 MMT in FY17’an increase of 4.6%.Thus, rising
production backed by rising demand creates an ideal condition for the
company to flourish.
OPEC’s agreement on production cut and supply disruptions caused by
economic sanction on Iran have led to cut in crude oil supply. Further,
leading economies of the world are showing sign of traction in their growth.
Thus, contraction in supply of crude oil amidst rise in demand to be key
driver of crude oil price. Higher crude oil price will be positive for ONGC
margin. Nonetheless, higher crude oil price will deteriorate margin of HPCL
wherein ONGC has 51.11% stake. However, merger of HPCL and MRPL
will consolidate downstream business and enhance profitability.
Transparent pricing: ONGC’s crude subsidy burden has significantly
eased following downstream sector reforms. Domestic gas price is now
linked to prices in international hubs which is revised every 6 months. We
believe ONGC will continue to benefit from benign subsidy environment.
Upcoming gas projects: The company has recently started its
commercial production at its onshore gas terminal plant in AP by processing
gas from three offshore wells located in Vashishta and S1 fields in the KG
Basin. The company projects include the KG-DWN-98/2 project which is
being implemented on fast track basis. The first gas project is targeted for
2019.
Valuation and Risks: Synergies in ONGC’s business and likely
consolidation in downstream business with merger of HPCL and MRPL
will ensure uptick in growth for the company. We have valued the stock
at PE 8x of FY20E EPS and have arrived at a TP of Rs. 192 which gives
potential upside of 22%. However, subsidy sharing will be detrimental to
ONGC’s performance.
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ONGC
Sensex
KARVY WEALTH MAXIMIZER - MARCH 2018
15
Company Background
Oil and Natural Gas Corporation having ‘Maharatna’ status, is the largest Crude Oil and Natural Gas Company. It ranks
11 amongst global energy majors. Transparency International has ranked ONGC 26th among the biggest publically
traded global giants. It is the most valued and largest E & P Company in the world, and one of the highest profit making
and dividend paying enterprise. It has two subsidiaries in form of ONGC Videsh Limited (with participation in 41 projects
in 20 countries) and Hindustan Petroleum Corporation limited. The company accounts for ~78% of total oil and ~73% of
total gas production in India. At the end of FY17, ONGC Domestic (Standalone+JV) had 711 mmtoe of proved reserves
and 1114 mmtoe of 2P reserves while OVL had 217 mmtoe of proved reserves and 704 mmtoe of 2P reserves. Its total
production for FY17 aggregated 61.6 mmtoe (Standalone: 44.3 mmtoe, JV: 4.5 mmtoe and OVL: 12.8 mmtoe). The
company has equity investments in E&P blocks in 16 countries.
ONGC: Technical View
ONGC after clocking 212.85 levels on 25th January, 2018 has been continuously falling. The stock has corrected
more than 25% from the said levels, which also happens to be its 52-week high for the stock. It has been observed
that the stock has been hitting 52-week highs in the month of January from the last 2 years, the first one being in
January’17 when the stock clocked a high of 211.80 levels and slipped towards 155 levels in the month of June-
July’17 before heading higher once again towards 212.85 levels in the month of January 2018. The stock once
again is trading around the same 150-155 levels around the same time frame. The stock is expected to consolidate
around the current levels for the month before gradually initiating its up move. Technically, the stock is looking weak
and is trading below its 21/50/100/200-DEMA on the daily and weekly chart, suggesting weakness in the counter
in the near term. Among the indicators and oscillators, the 14-period RSI has given a positive crossover with the
9-day signal line on the daily charts, suggesting support and strength in the stock around the current levels in spite
of all the weakness. The downside in the stock seems to be limited and the immediate support in the counter lies in
the zone of 140-150, sustaining below which the weakness in the stock may drag it towards 125 levels, where its
previous swing low is placed on the month charts clocked in the months of February-March 2016. On the higher
side, the stock may witness resistance in the zone of 170-175 levels, sustaining above which the stock may trade
towards 190-210 levels in the long term.
KARVY WEALTH MAXIMIZER - JULY 2018
16
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 259
Target Price 334
Upside (%) 29
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 2314.6 / 33.8
52-wk High/Low (Rs.) 352 / 232
3M Avg.daily value (Rs. Mn)
5481.9
Beta (x) 1.3
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 8924.6
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 58.9
FIIs 11.2
DIIs 22.3
Others 7.6
Stock Performance (%)
1M 3M 6M 12M
Absolute (2) 4 (16) (5)
Relative to Sensex (3) (3) (20) (17)
Source: Bloomberg
Bloomberg Code: SBIN IN
State Bank of India
Relative Performance*
Source: Bloomberg; *Index 100
The Bank of Choice for a Transforming India…
Sustained CASA growth Driving Deposits Growth: Due to higher
base led by demonetization, the aggregate deposits of SBI grew at a
modest rate of 4.7%. The growth in aggregate deposits is mainly due
to the increase in savings bank deposits, which grew by 7.9% YoY and
deposits from the foreign offices which grew by 17.07%. CASA ratio of the
bank improved to 45.7%.
Retail Loans Drive Credit Growth: The gross advances of SBI grew
at 4.9% by the end of FY18. Retail, SME & Agriculture together constitute
57.5% of the domestic loan book. Much of the growth in advances came
from Retail segments (home loans and auto loans). Retail loans grew by
13.55% in FY18. Within retail, home loans grew by 13.3% in FY2018. The
bank’s home loan portfolio now constitutes more than 57% of Retail loans.
Additionally, SBI continues to be the largest home loan provider in the
banking sector with a market share of over 32% amongst ASCB.
Asset Quality: Material changes in the method of recognizing corporate
stressed assets occurred after RBI’s Feb’18 notification. Despite this, the
slippage ratio in FY18 has declined to 4.9%. Overall the Gross NPA Ratio
stood at 10.9% and the Net NPA ratio at 5.7%. Provision Coverage Ratio
(PCR) improved to 66.2%.
Valuation and Risks: SBI with its focus on loan book growth, CASA
share in deposits, sustained NIMs of 2.7%, reducing NPAs and fresh
slippages augur well in the long term. Merged SBI presents a case for a
diversified balance sheet that mirrors the domestic economy available at
bargain valuations from a long term investment perspective. We value the
stock at 1.2x FY20 BVPS with a “BUY” rating for a target price of Rs. 334.
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SBIN
Sensex
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Interest Income 775929 813367 823828 - -
Net Profit 122246 2412.3 45562.9 128772 247220
EPS (Rs.) 16.0 0.3 (5.3) 15.3 30.6
BVPS (Rs.) 232.6 272.4 258.1 255.5 282.7
P/E (x)* 12.2 946.5 0.0 16.9 8.6
P/BV (x)* 0.8 1.1 1.0 1.0 0.9
RoE (%) 7.2 0.1 (2.0) 0.4 0.6
RoA (%) 0.4 0.0 (0.1) 0.4 0.6
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
KARVY WEALTH MAXIMIZER - MARCH 2018
17
Company Background
State Bank of India is India’s largest bank offering personal banking, agricultural banking, corporate banking and NRI
banking with a consolidated balance sheet close to Rs. 36.2 lakh crore (Rs. 36.2 Tn). SBI employs over 264,041
employees and operates through a network of 22414 branches and has one of the largest ATM networks in the world
with 59541 ATMs including Cash Deposit Machines and Recyclers serving over 424 Mn customers. SBI, along with its
merged subsidiaries provides various services like deposits, retail loans for Home, Automobile, Education, other personal
and corporate loans. SBI has various non-banking subsidiaries: SBI Life insurance Company, SBI Capital Markets, SBI
Funds Management and SBI Cards & Payments.
SBIN: Technical View
SBIN has witnessed profit taking from its previous swing high placed around 290 levels which also happened to
be near its 4-month high. Thereafter, the stock entered profit booking mode and has slipped towards 255 levels
in a span of around 10-12 trading sessions, correcting more than 10% from its highs. The stock has fallen from its
52- week highs of 351.30 levels clocked on 26th October, 2017. Since then, the stock has been continuously falling
with minor pullbacks. The fall in the stock was arrested on 23rd March, 2018 when the stock made a low of 232.35
levels and rallied sharply towards 265 levels in a matter of 11-12 trading sessions, gaining more than 14% from its
lows. The stock again retested the lows of 232.35 levels but did not breach the levels this time and bounced back
again towards 260 levels. It has been observed from previous two occasions that whenever the stock trades around
235-240 levels value based buying is witnessed in the counter which takes back the stock towards 260-265 levels.
It can also be inferred that the short to medium term bottom in the stock has been placed around 232-233 levels,
any breach below the said levels will give a fresh breakdown in the counter and the stock may further slide towards
200-mark. The overall long term chart structure of the stock is positive and looks good at current levels for long term
investment. The stock being the premier Public Sector Bank in the country is one of the most sought after banking
stocks when it comes to investing and this decline from the said highs gives investors an excellent opportunity to go
long for potential upside of 285-315 in about a year or so. As far as the technical setup of this stock is concerned,
the weekly and monthly charts indicate strong support around 230-240 zone below which the next levels to watch
out for will be 190-200, where the stock has very strong support. Whereas on the upside, the immediate resistance
zone is placed around 285-290 levels which will test the patience of investors. However, if the stock manages to
cross and sustain above the mentioned immediate resistance zone, then a quick rally towards the next resistance
zone of around 315-320 could be seen. Hence, we recommend long term investors to go long in the counter around
the current levels, average in case of declines towards Rs. 235 and hold with a stop loss placed below 190 for the
above mentioned target levels in the stipulated time frame.
KARVY WEALTH MAXIMIZER - JULY 2018
18
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 269
Target Price 405
Upside (%) 50
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 858.2 / 12.5
52-wk High/Low (Rs.) 468 / 262
3M Avg.daily value (Rs. Mn)
4380.2
Beta (x) 1.5
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 2887.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 36.4
FIIs 20.3
DIIs 17.5
Others 25.9
Stock Performance (%)
1M 3M 6M 12M
Absolute (9) (18) (38) (38)
Relative to Sensex (10) (23) (40) (46)
Source: Bloomberg
Bloomberg Code: TTMT IN
Tata Motors Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 2673201 2639995 2946192 3289067 3627401
EBITDA 371520 344314 369158 411148 475013
EBITDA Margin (%) 13.9 13.0 12.5 12.5 13.1
Adj. Net Profit 107498 79842 76063 104063 131621
EPS (Rs.) 37.2 27.7 26.3 36.0 45.6
RoE (%) 17.1 10.9 11.7 10.8 12.5
PE (x)* 12.2 19.8 10.2 7.5 5.9
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
JLR to Invest On New Platforms
Around GBP 13.5 Bn has been lined up for investments for the next three
years on technology, new launches and capacity expansion which works
out to be ~ GBP 4.5 Bn per annum out of which ~78% is expected to be
spent on technology and product development. Basically, the technology
involved is called Modular Longitudinal Architecture (MLA) which is
compatible with Internal Combustion Engine (ICE), Battery Electric Vehicle
(BEV) and Plug-in Hybrid Electric Vehicle (PHEV) making it a flexible design.
This is expected to bring about some operational benefits and will be fully
implemented by FY25E.
I-Pace technology to revive demand in UK: This works on lithium-
ion battery with a capacity of 90kWh and has a range of up to 298 miles.
These supplies are expected to begin during the first week of July 2018
having orders booked for the next six months. Furthermore, recently
launched RR Sport PHEV has got a good response and is expected to
do well.
TMLs vehicles gain significant domestic market share: TATA’s
total domestic utility vehicles sales volume stood at 51891 units during
FY18 posting a growth of 178% YoY. This led to an increase in market
share from 2.45% to 5.63% in the utility segment, eventually resulting
in the overall passenger vehicle segment market share to increase from
5.66% to 6.39% during FY18. In the commercial vehicle segment, TML’s
sales volume grew by 23.2% YoY during FY18 recording 376456 vehicles.
Also, TML’s YTDFY19 (Apr-May) utility segment volumes have gone up by
six times indicating a good domestic demand. Furthermore, the company
plans to launch 50 commercial vehicles during FY19 across geographies.
Valuation and Risks: At CMP of Rs. 269, the stock is trading at P/E
5.9x for FY20E EPS. The Bloomberg consensus target price for TATA
Motors is Rs. 405 which is valued at P/E 8.9x for FY20E EPS based on
future growth prospects. However, slowdown in the UK and European
markets for JLR can be viewed as the possible downside risks to the call.
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TTMT
KARVY WEALTH MAXIMIZER - MARCH 2018
19
Company Background
Tata Motors Group, is an automobile manufacturer with a portfolio that includes a wide range of cars, sports vehicles,
trucks, buses and defence vehicles spread across 175 countries around the globe. Tata Motor’s Jaguar Land Rover
Automotive PLC is the holding company of Jaguar Land Rover Limited, a British multinational automobile company with
its headquarters in Coventry, United Kingdom. Models under the Jaguar Series include XF, XJ, F-Pace, XE etc, and
models under the Land Rover series are Defender, Discovery and Range Rover (RR) series with more prominence in the
UK, Europe, North American and Chinese regions.
TATAMOTORS: Technical View
Tata Motors Ltd headquartered in Mumbai is an Indian multinational automotive manufacturing company and
a member of the Tata Group. Its products include passenger cars, trucks, vans, coaches, buses, sports cars,
construction equipment and military vehicles. Since Sep’16, Tata Motors is correcting from the highs at 598 levels
and is currently trading close to its support zone at Rs. 260-262 levels. We expect the stock to witness a round of
consolidation in the near term before taking the fresh leg of up move, any medium to long term investor may start
accumulating the stock from current levels and add more on declines towards 250 levels which is multiple support
of the counter as the stock has witnessed consolidation at the mentioned levels and is expected to witness rally in
the counter. On the oscillator front, the 14 period RSI is indicating weakness and is placed near the oversold region,
indicating a reversal in the counter. On the monthly chart, the stock is still in downtrend making lower highs and lower
lows indicating inherent weakness in the counter from short term perspective. In the current scenario, considering
all the data mentioned above, one may go long in the counter on any dip towards the mentioned support zone for
an immediate upside targets towards the said resistance zones, breaching which the stock might move towards its
all-time high in the long-term perspective.
KARVY WEALTH MAXIMIZER - JULY 2018
20
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 879
Target Price 1058
Upside (%) 20
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 779.9 / 11.4
52-wk High/Low (Rs.) 1006 / 503
3M Avg.daily value (Rs. Mn)
2570.1
Beta (x) 1.0
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 887.8
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 52.9
FIIs 20.7
DIIs 6.1
Others 20.3
Stock Performance (%)
1M 3M 6M 12M
Absolute (4) (7) 2 72
Relative to Sensex (5) (13) (2) 50
Source: Bloomberg
Bloomberg Code: TTAN IN
Titan Company Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 111877 129038 159465 196275 235302
EBITDA 9347 11555 16447 21477 26890
EBITDA Margin (%) 8.4 9.0 10.3 10.9 11.4
Adj. Net Profit 6745 7115 11301 14512 17986
EPS (Rs.) 7.8 8.6 12.9 16.4 20.3
RoE (%) 20.5 18.4 24.2 31.1 38.6
PE (x)* 44.6 57.8 74.0 53.4 43.2
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
International Markets and Wedding Jewellery
Segment to Drive Growth for Jewellery Business
Under jewellery segment, ‘Tanishq’ is the most successful and leading
brand for the company in India. Now the company is planning to enter into
international markets in jewellery segment by the end of FY19. Initially the
company is looking at Asian markets by setting up stores under franchise
model. These stores will be launched under partnership basis and each
store will be costing Rs. 200-300 Mn to the company. Despite being low
margin business, rise in total revenue will improve the PAT value for the
company.
The wedding segment accounts for more than 60% of the total jewellery
market in India. The company has developed ‘Rivaah’ collections under
this segment and growing quickly to capture more market share. Titan
is aiming to achieve total revenue of Rs. 500 Bn by FY23E with jewellery
business to contribute Rs. 400 Bn and Rs. 100 Bn from other segments.
Watches and Titan Eye Plus segments continue to grow aided
by E-Commerce: Titan has witnessed significant growth under these
segments with their expansion strategies under E-Commerce to improve
their customer reach. Titan Watches are now available in USA through
e-commerce partners. Eyewear division is aiming to release new and
innovative products and also focusing on increasing its footfall in Tier – II
and Tier – III cities.
Valuation and Risks: Titan, with its improving operational efficiencies
and expansion strategies in retail network, is moving up the value chain
and capturing more market share. At CMP, Rs. 879 per share, the stock
is currently trading at 43.2x FY20E consensus EPS. The stock is valued at
52.0x on Bloomberg consensus FY20E EPS with “BUY” rating to arrive
at target price of Rs. 1058 with an upside of 20%. However, government
regulations on gold purchases, competition from regional jewellery players,
gold price volatility, revival in consumer spending & competition from
e-commerce players will be the key risks to the earning of the company.
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KARVY WEALTH MAXIMIZER - MARCH 2018
21
Company Background
Titan’s success story began in 1984 with a joint venture between the Tata Group and the Tamil Nadu Industrial
Development Corporation. Titan is the fifth largest integrated own brand watch manufacturer in the world. In addition
to ‘Titan’ the watch brand, Titan has also built ‘Tanishq’ the leading jewellery brand over the past few years. Both
these brands are among the most recognized and loved brands in India. Titan Company is one of the largest jewellery
retailers in India with over 250 exclusive Tanishq boutiques in over 150 cities. The jewellery is manufactured in a fully
integrated manufacturing plant with state-of-art equipment. The company has two exclusive design studios for watches
and jewellery. The company is also into eyewear industry under ‘Titan Eyeplus’ which is 3rd major business line for
the company. Titan has launched ‘Fastrack’ in 1998 and became an independent urban youth brand. In addition, the
company has extended to personal accessories such as bags, belts, wallets and also into fragrance market under ‘Skinn’
Brand. Further, the company has also launched Raga branded watches for women category. With a retail footprint of
over 1400 stores, the company has India’s largest specialty retail network spanning over 240 towns.
TITAN: Technical View
TITAN has been making repeated cycles of higher highs and higher lows on the weekly charts. The counter has
generated tremendous wealth for the medium to long term investors in past one year and has generated almost 2x
for the same time frame. The stock has corrected over 12% in the past two months and is currently placed around its
long term moving average of 200 DEMA sustaining which may witness a fresh surge in the counter giving opportunity
to investors to invest in the counter. Thereafter, the stock managed to form base around the said support levels of
its 200 DEMA and is all set to move higher towards its recent peaks. Analyzing the recent volume price action, the
volumes have been encouraging in the recent consolidation indicating strong hands have started accumulating the
stock at lower levels. The immediate support for the stock is placed around 820 levels followed by 790 levels while
on the flip side the resistance is pegged around 920 levels followed by its all time high, breaching which it may enter
to the uncharted territory. At current juncture, the stock is trading well above the major long term moving averages
and looks attractive from risk reward point of view. The stock is expected to re-gain its bullish momentum and move
towards the higher levels of 980-990 levels in medium term perspective. We recommend investors to buy the stocks
at current levels and accumulate on any correction for long term perspective.
KARVY WEALTH MAXIMIZER - JULY 2018
22
India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 619
Target Price 934
Upside (%) 51
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 315.1 / 4.6
52-wk High/Low (Rs.) 903 / 603
3M Avg.daily value (Rs. Mn)
1004.3
Beta (x) 1.1
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 509.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 27.7
FIIs 44.0
DIIs 11.2
Others 17.1
Stock Performance (%)
1M 3M 6M 12M
Absolute (12) (15) (19) (25)
Relative to Sensex (13) (21) (22) (35)
Source: Bloomberg
Bloomberg Code: UPLL IN
UPL Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 138340 160750 173780 194357 217814
EBITDA 23950 29850 35160 39891 45548
EBITDA Margin (%) 17.3 18.6 20.2 20.5 20.9
Adj. Net Profit 9930 17662 20220 23295 27293
EPS (Rs.) 18.4 33.9 39.6 45.7 53.7
RoE (%) 16.0 26.2 24.5 22.8 22.2
PE (x)* 25.8 21.3 18.4 13.4 11.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Near Future Oversees Global Adversities Stabilizing: FY18 saw
Delayed rains in North Brazil and dry season in Southern Cone/Argentina,
high channel inventories weighed on overall Latin American region. Farm
prices continue to remain tapered, and high channel inventory has hurt
pricing growth because of raw material cost inflation. It is expected that
stock-to-use ratios of key grain commodities will drop which would allow
UPL to take in price hikes to pass on higher RM costs. The world GDP
growth in CY18 is expected to be at 3.9% and weather forecast for key
agricultural regions is favourable. Further, government’s Agri-focused
initiatives would prove to be a boon for UPL and the agrochemicals
industry. The tariff related hostility between US and China could yield
penetration to new geographies and business opportunities.
New Product Launches Keep profitability in place: Successful
launch of Sperto (Insecticide) in Brazil has been well accepted in the
market. UPL launched new fungicide Advancer Glow and Cuprofix in FY18.
These products have been well received by the farmers and will contribute
substantially in the near term. Additionally, 3 new nutritional specialty/
biological products have been launched. This performance visibility of the
same can be seen during FY19.
Valuation and Risks: The favorable weather forecasts for key
agricultural regions, constructive government policies, and possibility
of price increase (given stock-to-use ratios of key grain commodities
expected to fall in certain regions) should speak well. Crop diversity and
gaining traction in biological nutrition portfolio will further drive growth
for UPL and help in mitigating risk. At CMP Rs. 619, as per consensus
estimates, we recommend ‘BUY’ for a target of Rs. 934 valuing at 17.4x
FY20E EPS representing an upside potential of 51%.
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Sensex
KARVY WEALTH MAXIMIZER - MARCH 2018
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Company Background
United Phosphorous (UPL) is the largest producer of agrochemicals in India, producer of crop protection products,
other industrial chemicals was incorporated in the year 1969 spread across 123 countries. UPL is amongst the top
five post–patent agrochemical manufacturers in the world. It offers wide range of products and has developed more
than 100 insecticides, fumigants, rodenticides, fungicides and herbicides. All the units of UPL are certified under the
ISO 9001 for quality assurance, 14001 for Environment Pollution Control norms and OHSAS 18001 for healthy and
safety also manufactures Caustic Chlorine, White Phosphorus, Industrial Chemicals and Specialty Chemicals. It also
has captive power plant that has a generating capacity of 48.5 MW i.e. BEIL (Bharuch Enviro Infrastructure). BEIL is
engaged in collection and disposing off solid/hazardous wastes from member industries in the regions. CEL (Chemo
Electronic Laboratory) is part of UPL’s diversification strategy. It is one of the largest manufacturers of toxic gas detection
devices and is the only manufacturer of chemical detector tubes in India. ETL (Enviro Technology) has a common effluent
treatment plant located in Gujarat.
UPL: Technical View
UPL is in structural uptrend making higher highs and higher lows on the weekly charts. The stock had made a
spectacular run from the lower levels of 356 odd levels to all time high levels of 902.50 in just a small time frame of
two and a half years. After the said stellar rally, the counter witnessed a round of profit booking which dragged the
stock towards the levels of 600-620 from all time highs. At current juncture, the stock has already retraced its 50%
rally from the swing corners of 355 and 902.50 levels and is trading around the said levels. The counter is looking
sideways at current juncture on the weekly charts and is hovering near the accumulation zone for the long term
perspective. We expect the stock to witness a round of consolidation in the near term before taking the fresh leg of
up move, any medium to long term investor may start accumulating the stock from current levels and add more on
declines towards 570-580 levels which is near its 61.8% retracement levels of the mentioned swing corners. The
medium term support for the stock is placed around 600 followed by 550 levels while next resistance is pegged
around 640 followed by 680-700 levels. Considering the above data facts, we expect the stock to resume its bullish
trend from current levels and may test 680-700 levels in 9-12 months time frame.
KARVY WEALTH MAXIMIZER - JULY 2018
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India Research - Stock Broking
Recommendation (Rs.)
CMP (as on Jun 29, 2018) 340
Target Price 472
Upside (%) 39
Stock Information
Mkt Cap (Rs.Bn/US$ Bn) 783.1 / 11.4
52-wk High/Low (Rs.) 383 / 285
3M Avg.daily value (Rs. Mn)
4312.1
Beta (x) 1.2
Sensex/Nifty 35423 / 10714
O/S Shares(mn) 2305.7
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 20.0
FIIs 42.6
DIIs 24.8
Others 12.6
Stock Performance (%)
1M 3M 6M 12M
Absolute 0 11 8 18
Relative to Sensex (1) 4 4 3
Source: Bloomberg
Bloomberg Code: YES IN
Yes Bank Ltd
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 45667 57973 77371 104973 136842
EBITDA 25394 33301 42246 58259 78717
EBITDA Margin (%) 12.0 15.0 18.0 25.0 34.0
Adj. Net Profit 66.0 97.0 112.0 133.0 161.0
EPS (Rs.) 29.1 24.1 19.2 13.9 10.3
RoE (%) 5.4 3.6 3.1 2.7 2.2
PE (x)* 19.9 18.6 17.7 20.7 23.3
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Performance*
Source: Bloomberg; *Index 100
Strong Asset quality: The asset quality performance in Q4FY18 was
quite strong with slippages at Rs. 3.8 bn (0.81% annualized). Of this
Rs. 0.3 bn came from the previously reported SDR account. The retail
slippages were quite minimal at Rs. 0.6 bn. The GNPA/NNPA/Coverage
ratio improved to 1.3%/0.6%/50% from 1.7%/0.9%/46% in Q4FY18.
Going forward, the outlook remains stable with bank indentifying only
Rs. 2.8 bn of exposure to an account which could potentially be referred
to NCLT under the new guidelines for asset resolution by RBI. The bank
pushed its guidance on achieving coverage ratio of 60% to Q2FY19E
from its earlier ambition of achieving the same by Q1FY19E. The bank has
Rs. 969 crore exposure to nine accounts under NCLT for which it has
made provisions in the range of 43-50%. Progress towards meeting the
targeted coverage ratio of 60% could act as an upside trigger.
Phenomenal growth; outlook robust: The loan growth for the
quarter was phenomenal at 19%/54% QoQ/YoY. The same was led by
growth in both the verticals: Corporate 19%/54% QoQ/YoY and Branch
Banking (19%/54% QoQ/YoY). Within Branch Banking, the growth came
across the segments: Medium Enterprises (16%/42% QoQ/YoY), Micro
& Small Enterprises (19%/29% QoQ/YoY), and Consumer Banking
(23%/98% QoQ/YoY). With growth remaining strong at corporate, we do
not estimate a material shift in the loan book mix towards non-corporate
over FY19E-20E.
Valuation and Risks: Volatility in asset quality is a cause of concern.
In the past five years, the bank has consistently delivered 1.5%+ RoA and
18%+ RoE. Liabilities have been managed well with CASA as well as retail
deposits improving and its target of 40% by FY19 looks achievable. It
has ambitious target for NIM of 4% by FY20. Expansion of branches and
employee addition will keep costs elevated. Supported by strong earnings
and the ability to raise capital at a good price, its book value accretion
has been the strongest among peers with a five-year CAGR of +30%. We
maintain a “BUY” on the stock with TP of Rs. 472, an upside of 39%.
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YES
KARVY WEALTH MAXIMIZER - MARCH 2018
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Company Background
Yes bank is a private bank set up in 2004. Over the years, the bank’s strong business growth, healthy net interest
margins, stable profitability and healthy capitalization have made it one of the top five private sector banks in India. It has
steadily built a Corporate, Retail & SME banking franchise, with a comprehensive product suite of Financial Markets,
Investment Banking, Corporate Finance, Branch Banking, Business and Transaction Banking and Wealth Management
business across the country. Yes bank has adopted knowledge driven approach to offer financial solutions which go
beyond the traditional realm of banking. The total branch count is 1100 branches & 1724 ATMs at end of March 2018
and expects to reach 1250 branches by 2020.
YESBANK: Technical View
YESBANK has been making repeated cycles of higher highs and higher lows on the weekly charts. The counter has
generated tremendous wealth for the medium to long term investors and has zoomed over 100% towards 335-340
levels from the lows of 155 levels in short time frame of three years. After clocking an all time high of 383 levels,
the counter witnessed a round of profit booking which dragged the stock towards lower levels of 280-300 which is
acting as a good support on the lower side for the stock. Thereafter, the stock managed to form base around the
said support levels and is all set to move higher towards its recent peaks. Analyzing the recent volume price action,
the volumes have been encouraging in the recent consolidation indicating strong hands have started accumulating
the stock at lower levels. The immediate support for the stock is placed at 310 levels followed by 280 breaching
which the stock may enter the bearish territory. On the flip side, major resistance is pegged around 380 followed by
410 levels. At current levels, the stock is trading well above the major long term moving averages and looks attractive
from risk reward point of view. The stock is expected to re-gain its bullish momentum and move towards the higher
levels of 680-690 in medium term perspective. We recommend investors to buy the stocks at current levels and
accumulate on any correction for long term perspective.
KARVY WEALTH MAXIMIZER - JULY 2018
26
Wealth Maximizer - Largecap (WM) is an investment product of Karvy Stock Broking Ltd formulated
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The objective of ‘Wealth Maximizer’ is to deliver superior returns over an extended time frame. The investment
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The 10 large cap companies in this product in our opinion reflects superior businesses with consistent future
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Disclaimer
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