investors eye

stock update

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May 26, 2016

Index
w Stock Update >> Ashok Leyland
w Stock Update >> Bajaj Auto
w Stock Update >> Info Edge (India)
w Stock Update >> Bajaj Finserv
w Stock Update >> Finolex Cables
w Stock Update >> Kewal Kiran Clothing
w Stock Update >> Thermax
w Viewpoint >> Cummins India

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May 26, 2016

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Ashok Leyland

Reco: Buy

Stock Update
Robust volume growth to sustain; maintain Buy with an unchanged PT Rs120
Key points

Company details
Price target:

Rs120

Market cap:

Rs29,640 cr

52-week high/low:

Rs112/63

NSE volume:
(No of shares)
BSE code:

1.1 cr
500477

NSE code:

ASHOKLEY

Sharekhan code:

ASHOKLEY

Free float:
(No of shares)

141.2 cr

Shareholding pattern
Institutions
10%

Corporate
Bodies
4%
Foreign
25%

Promoters
50%

Public and
Others
11%

Price chart
120
110
100
90
80
70

May-16

Jan-16

May-15

Sep-15

60

Price performance

(%)

CMP: Rs104

1m

3m

6m 12m

Absolute

-8.0

9.0

6.2 41.3

Relative
to Sensex

-6.1

1.9

8.2 53.2

Q4FY2016 results broadly in line; exceptional item drags PAT: For Q4FY2016, Ashok
Leyland Ltd (ALL)s top line at Rs5,955.3 crore was up 32% YoY, driven primarily by
a strong volume growth of 34% in the MHCV segment. Realisation per vehicle grew
marginally by 2% led by price hikes. The EBITDA margin at 12.6% improved sharply by
250BPS YoY owing to soft commodity prices and lower employee cost and was broadly
in line with estimates. However, exceptional loss of Rs379.2 crore (Rs420.9-crore loss on
provision for dimunition in value of investments in JV/subsidiaries and Rs41.6-crore gain
on sale of long-term investment) dragged the profitability. Adjusting for the exceptional
loss, the PAT at Rs456 crore was in line with our estimate of Rs449 crore.
Robust double-digit volume growth to sustain: The MHCV segment exhibited a buoyant
trend in FY2016 and the momentum is expected to continue over the next one to two
years. Improved fleet operator economics (due to soft fuel prices and interest rates),
pick-up in the mining and infrastructure projects are likely to aid volume expansion
for MHCVs. Despite the strong growth in the last two years, the industry is still below
the peak volume levels reported in FY2011 indicating sustained double-digit demand
over the medium term. Further, ALLs dealer network expansion in non-south regions
and new launches in the intermediate commercial vehicle (ICV) segment would aid
market-share gains for the company as well. Also, ALL has been gaining traction in the
defence business with the company recently winning 11 out of the 12 orders it bid for.
ALL has identified defence as the core business area and is aiming to increase the share
of defence from the current 4% to 10% over the next four to five years. We expect ALLs
revenues to grow at 16% CAGR over FY2016-18E.
Margins to expand given the operating leverage: ALLs margins are likely to expand
over the next two years given the operating leverage due to robust double-digit MHCV
growth. With the raw material prices inching up, the input costs would go up which
would be more than offset by operating leverage due to robust double-digit volume
growth and the ability to take price increases. The OPM is expected to expand by
120BPS over the next two years.
Maintain Buy with an unchanged PT of Rs120: ALLs industry leading volume growth
in the MHCV segment has enabled it to garner 4.2% incremental market share in
FY2016. Strong visibility on the top-line growth due to positive outlook for the MHCV
industry coupled with ALLs efforts to expand network in the non-south region and new
product launches in the ICV segment augur well for ALL. Favourable product mix and
operating leverage would enable ALL to improve its margins. Further, a major impact
of provisioning for diminution in value of investments in subsidiaries/JV has been done
in FY2016 and no major write-offs are expected in the near future which would clean
up the balance sheet and improve the return ratios. Though ALL has taken an enabling
resolution for issue of fresh equity, however there are no firm plans for fund raising
given the healthy cash flow generation, low capex requirement and comfortable debt/
equity ratio, thus restricting any dilution. We have broadly maintained our estimates for
FY2017 and FY2018 and re-iterated our Buy rating on the stock with an unchanged price
target of Rs120.
Results
Particulars
Net sales
Operating profit
OPM (%)
Depreciation
Interest
Other income
PBT
Tax
Adjusted PAT
Exceptional items
Reported PAT
Recurring EPS
Sharekhan

Q4FY16
5,955.3
753.1
12.6
117.7
60.2
32.0
607.1
150.8
456.3
-379.3
77.0
1.6

May 26, 2016

Q4FY15
4,505.7
457.1
10.1
110.1
88.2
37.2
296.1
58.0
238.0
-8.0
230.0
0.8

YoY (%)
32.2
64.8
BPS
6.9
-31.7
-14.2
105.1
159.9
91.7
-66.5

Q3FY16
4,085.3
429.7
10.5
108.7
66.6
25.9
280.3
75.2
205.1
0.0
198.6
0.7

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Rs cr
QoQ (%)
45.8
75.3
BPS
8.3
-9.5
23.5
116.6
100.6
122.4
-61.2

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stock update

Domestic MHCV grows 30% in FY2016; double-digit

growth likely for FY2017 as well: Buoyed by lowered
fuel prices and firm freight, rates the domestic medium
and heavy commercial vehicle (MHCV) truck segment
posted a strong volume growth of 32% for FY2016 while
the MHCV bus segment grew by 19% for FY2016. With the
key economic indicators (industrial activities) expected
to remain positive for the next one to two years coupled
with pick-up in mining and infrastructure projects, the
demand is likely to remain buoyant in FY2017. In addition
to this, the benign interest rate scenario and soft fuel
prices would aid volume growth in the future. Further,
governments proposal to scrap vehicles older than 10
years (so to curb pollution levels) could significantly
boost the MHCV segments volumes, if approved by
the cabinet. Consequently, the MHCV segment is likely
to sustain a strong demand and register a double-digit
growth in FY2017.

share gain of 4.2%. New product launches and higher

dealer penetration particularly in the non-south regions
has helped ALL register a strong overall performance.
Going ahead the demand undercurrent for the MHCV
segment is likely to remain buoyant given the pickup in the mining activity and firm industrial activities
coupled with pre-buying due to implementation of the
new emission standards effective from April 1, 2017.
Likely introduction of the scrappage policy for vehicles
older than 10 years could be an inflection point for ALLs
revenue growth. We expect the revenues to grow at a
compounded annual growth rate (CAGR) of 16% over
FY2016-18E.
ALLs volume growth
50,000

60
50

40,000

40
30

30,000

MHCV industry growth

50%

80000

40%

10,000

30%

% Change YoY (RHS)

ALLs segmental market share

60%
50%
40%

20%
10%

Q4 FY16

Q3 FY16

Q2 FY16

Q1 FY16

Q4 FY15

Q3 FY15

Q2 FY15

Q1 FY15

Q4 FY14

Q3 FY14

Q2 FY14

Q1 FY14

0%

Truck

Bus

Visibility on top-line growth provides comfort: ALL

reported a sharp improvement of 41% year on year (YoY)
in the MHCV volumes for FY2016 leading to a market-

Sharekhan

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Operating leverage to aid margins expansion: Benign

raw material cost scenario across FY2016 helped ALL
to post a record improvement in the margins with the
operating profit margin (OPM) at 11.5%. The raw material
cycle particularly of steel prices have begun to inch up
pointing at a reversal of the commodity prices, thus
leading to increase cost. However, a strong growth
in the top line due to a positive demand outlook and
ability to take price increase (ALL indicated it could
take 1-3% to price increases which would pass on the
entired commodity price increase) would lead to margin
improvement. We expect ALLs OPM to expand by 120
basis points (BPS) between FY2016-18.

30%

MHCV

YoY chg %

Defence to be the next growth opportunity: ALL has

been gaining traction in the defence business with the
company recently winning 11 out of 12 orders it bid
for. The company is enhancing the product offerings for
defence by introducing ammunition carrying vehicles as
well. ALL has identified defence as the core business area
and is aiming to increase the share of defence from the
current 4% to 10% of the revenues over the next four to
five years.

Q4 FY16

Q3 FY16

Q2 FY16

Q1 FY16

Q4 FY15

Q3 FY15

Q2 FY15

Q1 FY15

-10%

MHCV Truck Volumes (LHS)

Q4FY14

Overall Volumes

0%

Q3FY14

Q2FY14

(30)

Q1FY14

10%

20000

0
(10)
(20)

20%
40000

10

20,000

100000

60000

20

May 26, 2016

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Valuation

thus restricting any dilution. We have broadly maintained

our estimates for FY2017 and FY2018 and re-iterated our
Buy rating on the stock with an unchanged price target
of Rs120.

ALLs industry leading volume growth in the MHCV

segment has enabled it to garner 4.2% incremental
market share in FY2016. Strong visibility on the top-line
growth due to positive outlook for the MHCV industry
coupled with ALLs efforts to expand network in the
non-south regions and new product launches in the ICV
segment augur well for ALL. Favourable product mix
and operating leverage would enable ALL to improve
its margins. Further, a major impact of provisioning for
diminution in value of investments in subsidiaries/JV has
been done with in FY2016 and no major write-offs are
expected in the near future which would clean up the
balance sheet and improve the return ratios. Though ALL
has taken an enabling resolution for issue of fresh equity,
however there are no firm plans for fund raising given the
healthy cash flow generation, low capital expenditure
(capex) requirement and comfortable debt/equity ratio,

Valuations
Particulars
Net sales

FY14

FY15

FY16

FY17E

Rs cr
FY18E

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

Growth (%)

-20.3

36.4

38.8

16.9

16.4

EBIDTA

3,250.2

116.9

1,026.6

2,166.0

2,672.3

OPM (%)

1.2

7.6

11.5

12.1

12.7

Adj PAT

-476.3

233.9

1,112.7

1,497.8

1,917.2

Growth (%)

-421.5

NA

375.8

34.6

28.0

FD EPS (Rs)

-1.8

0.8

3.9

5.3

6.7

P/E (x)

NA

126.6

26.6

19.8

15.4

P/BV (x)

6.2

5.8

5.3

4.8

4.4

EV/EBITDA (x)

269.9

30.6

14.6

11.7

9.5

RoCE (%)

-3.0

7.4

20.7

25.2

29.5

RoE (%)

-10.7

4.6

19.9

24.5

28.2

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

Sharekhan

May 26, 2016

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Bajaj Auto

Reco: Hold

Stock Update
Exports outlook weak; maintain Hold
Company details
Price target:

Rs2,600

Market cap:

Rs72,490 cr

52-week high/low:

Rs2,655/2,133

NSE volume:
(No of shares)
BSE code:

2.6 lakh
532977

NSE code:

BAJAJ-AUTO

Sharekhan code:

BAJAJ-AUTO

Free float:
(No of shares)

14.6 cr

Shareholding pattern
Institutions
9%

Corporate
Bodies
7%
Foreign
18%

Promoters
49%
Public and
Others
17%

Price chart
2700
2600
2500
2400
2300
2200

May-16

Jan-16

Sep-15

May-15

2100

Price performance

(%)

1m

3m

6m 12m

Absolute

-3.2

2.1

1.2 18.9

Relative
to Sensex

-1.1

-4.6

3.1 28.8

CMP: Rs2,505

Key points
Operationally in-line quarter; lower other income leads to profit miss: For Q4FY2016,
Bajaj Auto Ltd (BAL)s results were in line with our estimates on the operating front.
Revenues grew by 14% YoY to Rs5,411 crore primarily led by a 12% volume growth. A robust
24% volume growth in the domestic motorcycle segment led by new launches more than
offset the weakness in motorcycle exports which declined by 3%. Further, realisation
per vehicle grew by 2% led by favourable currency realisation (BAL realised Rs67.5 per
dollar in Q4FY2016 as against Rs65.5 per dollar in Q4FY2015 on exports) and richer
product mix (increased proportion of premium bikes). The EBIDTA margin improved by
360BPS YoY to 21.3% (in line with our estimates of 21.9%) led by soft commodity prices
and richer product mix. The EBIDTA at Rs1,152 crore met our expectation. However,
lower other income at Rs124 crore (declined by 20% YoY) led to a miss on the profit
front. The net profit at Rs803 crore was below our estimate of Rs879 crore.
Domestic motorcycle industry to recover in FY2017; new launches to lead to marketshare gains: After a flat motorcycle industry in FY2016 due to poor rural sentiments,
the domestic motorcycle industry is poised for a recovery in FY2017. A good monsoon
forecast has led to improvement in the rural sentiments. The industry is likely to record
a 6-7% growth in FY2017. Also, BAL is likely to outgrow the motorcycle industry given
the new launches. FY2017 is likely to see the full impact of recent launches (Avenger
and CT 100). Also, BAL plans to introduce a new Platina (targeting the entry segment)
and a new 400cc Pulsar (sport segment). It also plans to launch a refreshed version of
Pulsar which is likely to lead to market-share gains for BAL. We expect BAL to register a
15% growth in the domestic motorcycle industry in FY2017.
Exports market weak; have guided for almost double-digit decline in FY2017: BAL
exports volumes (forming about 45% of the overall volumes) are likely to remain under
pressure. The weakness in the oil prices have led to the currency depreciation of key
markets of BAL (Africa, Egypt, Argentina) making the imports costlier. Further, the
countries are also plagued with lack of availability of dollar given the deteriorating
balance of payments position. Also, demand in another key market, Sri Lanka, has been
affected by increase in the import duties which has significantly increased the vehicle
prices thereby affecting the demand. The above markets are likely to remain under
pressure in the near term with BAL guiding for lower export volumes of 1.6 million in
FY2017 as against 1.74 million export units in FY2016.
FY2016 margins at peak; margins to come under pressure given the increased
commodity prices, higher marketing expenses and expiry of incentives at Pantnagar:
BALs FY2016 margins at 21.1% were at multi-year high gaining from favourable exchange
rate movement and downtrend in the commodity prices. However, going ahead the
margins are expected to come down given the uptrend in the commodity prices. Also,
BALs marketing expenses are likely to inch up given the new product launches and
increased competition. Further, the expiry of incentives at the Pantnagar plant in
FY2018 would also exert pressure on the margins going ahead. We expect BALs margins
to come down by 130BPS over the next two years to 19.8% in FY2018.
Outlook and valuation: BAL is likely to register a healthy double-digit growth in the
domestic motorcycle industry given the improved industry prospects and market-share
gain on the back of new launches. However, the export markets contributing about
half of the volumes are likely to decline in double digits given the sharp currency
depreciation in the key overseas markets. Further, margins would also come under
pressure given the increase in commodity prices, increased marketing expenses and
expiry of incentives at the Pantnagar plant. We have reduced our FY2017 earnings
estimates by 7% to factor in weak exports and margin decline. We have also introduced
FY2018E earnings assumptions in our note. We have maintained our Hold rating on the
stock with an unchanged price target of Rs2,600.
Results
Particulars
Total income
EBIDTA
EBIDTA margins (%)
Depreciation
Interest
Other income
PBT
Tax
Recurring PAT
EPS
Sharekhan

Q4FY16
5,411.4
1,151.5
21.3
76.1
0.1
124.1
1,199.5
396.5
803.1
27.8

May 26, 2016

Q4FY15
4,739.3
837.8
17.7
63.8
6.3
154.3
922.0
300.4
621.6
23.0

YoY (%)
14.2
37.4
360BPS
19.3
-99.0
-19.5
30.1
32.0
29.2
20.6

Q3FY16
5,564.9
1,171.3
21.0
74.6
0.1
199.7
1,296.2
394.7
901.5
31.2

Home

Rs cr
QoQ (%)
-2.8
-1.7
30BPS
2.0
-14.3
-37.8
-7.5
0.4
-10.9
-10.9

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Valuations
Particulars
Income
Growth (%)
EBIDTA (Rs cr)
OPM (%)
PAT (Rs cr)

Rs cr
FY14

FY15

FY16

FY17E

FY18E

20,149.5

21,612.0

22,687.6

24,434.1

27,805.0

0.8

7.3

5.0

7.7

13.8

4,105.7

4,116.6

4,779.6

4,883.1

5,514.2

20.4

19.0

21.1

20.0

19.8

3,243.3

2,813.7

3,652.4

3,840.7

4,349.3

Growth (%)

6.6

-13.2

29.8

5.2

13.2

FD EPS (Rs)

112.1

107.2

126.3

132.8

150.4

22.4

23.4

19.9

18.9

16.7

P/E (x)
P/B (x)

7.8

7.0

6.0

5.2

4.6

EV/EBIDTA (x)

15.7

15.5

13.2

12.3

10.6

RoE (%)

34.8

27.0

30.1

27.5

27.6

RoCE (%)

46.8

40.3

42.5

39.0

39.3

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

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May 26, 2016

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Info Edge (India)

Reco: Buy

Stock Update
Good quarter, Zomato restructuring will drive lower cash burns
Company details
Price target:

Rs1,000

Market cap:

Rs9,585 cr

52-week high/low:

Rs935/690

NSE volume:
(No of shares)
BSE code:

0.93 lakh
532777

NSE code:

NAUKRI

Sharekhan code:

NAUKRI

Free float:
(No of shares)

6.9 cr

Shareholding pattern
Corporate
Bodies
0.4%

Foreign
35.8%

Institutions
10.1%
Public and
Others
10.7%

Promoters
43.1%

Price chart
950
900
850
800
750
700

May-16

Jan-16

May-15

Sep-15

650

Price performance

(%)

1m

3m

6m 12m

Absolute

-6.2

2.9

-8.0

-1.2

Relative
to Sensex

-4.2

-3.9

-6.3

7.1

CMP: Rs793

Key points
Strong Q4: For Q4FY2016, Info Edge delivered a higher-than-expected revenue growth of
18% YoY to Rs204.2 crore, driven by 18.9% growth in the recruitment business (Naukri.com)
and 5.6% in 99acres.com. The operating profit margin (OPM) for the quarter improved by
833BPS QoQ and was down by 86BPS YoY to 30.5% (ahead of our estimates). The sequential
improvement in margin was attributed to lower advertising spends (especially in 99acres,
due to lower competitive intensity) and improvement in the OPM (280BPS) for Naukri.
Excluding exceptional income of Rs29.2 crore in Q4FY2015, the adjusted net income for
the quarter was up by 7.8% YoY to Rs57.2 crore on the back of lower tax provisioning at
25.4% (vs 31.1% in Q4FY2015). On consolidated basis, the adjusted net loss was Rs101 crore
in FY2016 as compared with adjusted net profit of Rs29.6 crore in FY2015, owing to huge
operating loss of Rs440 crore for Zomato (before depreciation and tax expenses), though
things have started improving at Zomato, as burn rate has come down to less than $2
million from $9 million earlier.
Growth momentum likely to continue for stand-alone business: (1) Recruitment
(Naukri)s business sentiment remained stable and its newly launched SaaS-based product
career site manager has been embraced by the customers. Expect recruitment to
sustain the growth momentum in FY2017 on the back of favourable IT markets (~40% of
the total recruitment revenues) and the overall gross domestic product (GDP) growth;
(2) Demand for new homes continued to witness slowdown in the NCR region (50-55%
of 99acres revenue) and Hyderabad, while Mumbai and Bengaluru markets remained
slightly better. Though the revenue growth for 99acres.com is expected to be better than
Q4 growth rate (YoY), the management foresees no near-term revival in the advertising
spends in the NCR region. Further, prevailing lower competitive intensity in the northern
region is positive in terms of profitability; (3) Operating loss for Jeevensathi increased
to Rs13 crore in FY2016 against Rs4.4-crore loss in FY2015 owing to higher ad spends.
However, the management indicated that Jeevansathi reached nearly break-even level in
Q4FY2016. Similarly, Shiksha reported a turnaround at its operating level in Q4FY2016 and
the management guided the losses will decline further in FY2017.
Zomato revenue to double in FY2017, to achieve break-even: Although Zomato reported
a revenue of Rs185 crore (up 91%YoY) in FY2016, its operation loss sharply swelled more
than 3x reaching Rs440.9 crore. The management anticipates the revenue for Zomato will
be in the range of Rs300-350 crore, a growth of ~60-95% YoY. Further, the management
believes Zomato will achieve break-even at the end of FY2017 as the current cash burn
per month falls in the range of $1.6-1.7 million from earlier $9 million. Zomatos current
cash balance stands at $35 million (more details in Zomato con-call highlights).
Maintain Buy with a price target of Rs1,000: Given the lower competitive intensity in
real estate space, we expect the overall stand-alone margins to improve further in the
near term, additionally in Naukri, we expect gradual improvement in revenues with a
stable outlook in overall GDP and job market. Further, improvement in overall financials
of Zomato after recent restructuring exercise will result in lower cash burns. We have
tweaked our overall estimates by 2-3% for FY2017 on the back of strong performance
reported in Q4FY2016 and introduced FY2018 estimates. We have maintained our Buy
rating on the stock with an SOTP-based price target of Rs1,000.
Results (stand-alone)
Particulars
Net sales
Network, internet and other direct charges
Employee benefits expense
Gross profit
Advertising and promotion cost
Other expenses
Operating profit
Depreciation and amortisation
EBIT
Other income
Provision of tax
Adjusted net income
Exceptional item
Reported net income
Adjusted EPS (Rs)
Margin (%)
OPM
NPM
Sharekhan

May 26, 2016

Q4FY16
204.2
6.0
89.0
109.3
21.2
25.8
62.3
6.0
56.4
20.3
19.5
57.2
0.0
57.2
4.7

Q4FY15
173.1
5.6
68.7
99.1
21.9
22.8
54.4
3.6
50.8
26.9
23.9
53.0
-29.2
82.2
4.4

Q3FY16
173.4
5.9
80.4
87.1
27.1
21.5
38.5
5.4
33.0
21.6
21.4
33.2
11.5
21.7
2.7

30.5
28.0

31.4
30.6

22.2
19.1

YoY (%)
18.0
7.7
29.6
10.2
-3.4
12.9
14.6
68.1
10.8
-24.6
-18.6
7.8

Rs cr
QoQ (%)
17.8
2.1
10.6
25.4
-21.9
19.6
62.0
10.0
70.6
-5.9
-9.1
72.3

-30.4

163.1

(BPS)
-86
-259

(BPS)
833
886

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Valuations (stand-alone)

Rs cr

Particulars

FY15

FY16

FY17E

FY18E

Total revenue

611.6

723.5

854.5

1,024.9

EBITDA margin (%)

29.8

21.8

28.5

31.0

Adjusted net profit

164.7

153.0

209.6

261.1

Adjusted EPS (Rs)

13.6

12.7

17.3

21.6

PER (x)

59.1

63.6

46.4

37.3

P/BV

5.8

5.5

5.0

4.5

46.7

55.4

35.7

27.1

RoE (%)

9.9

8.7

10.8

12.0

RoCE (%)

14.5

12.5

15.5

17.2

0.4

0.1

0.2

0.3

EV/EBITDA

Dividend yield (%)

SOTP valuation:
Business segment

Stake %

Valuation methodology/rational

Per share value (Rs)

Recruitment business

100

EV/EBITDA

569.5

99 Acres

100

EV/Sales

58.9

Jeevansathi.com

100

EV/Sales

13.5

46

Based on latest funding, valued at

$1bn in the last round of funding

Stand-alone business (per share)

Zomato Media Pvt Ltd

641.9
243.5

Other investee company

20.9

Cash

Per share

94.2

Total per share

1,000

Highlights of Zomato conference call

Zomato has cut down its business from 23 countries
to 14 countries to reduce the cash burns in these high
risk geographies. The company primarily pulled out its
business from the countries, such as the USA, the UK,
Ireland, Sri Lanka, etc.

80% of its total orders are being delivered to customers

by the restaurants, while the remaining orders are being
delivered to customers by Zomato through its logistic
partners
Online delivery business in India contributes 20% of
total Indias revenue, while online delivery business
across the globe contributes 7% of its total revenue; the
company has recently started delivery business in the
Philippines

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

as compared with $9 million per month early last fiscal
year
Around 70,000 restaurants are currently listed with
Zomato in India, out of which 6% are paid clients

Food delivery business is currently growing at 30%

month on month (MoM), while advertising revenue is
growing at 10% MoM

Currently, the average number of orders stands in the

range of 25,000-26,000 per week. 80% of the total
orders are automated, while 20% orders are placed
through call centers

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

March 31, 2016

Management expects the overall online ordering

business will hit profitability when the average will
touch 40,000 orders a day

Sharekhan

Zomato has 1,900 employees worldwide, out of which

1,250 are in India

May 26, 2016

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Operating metrics
Particulars

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Number of resumes (m)

38

39

40

41

42

44

45

46

Avg resumes added daily (000s)

12

13

10

13

13

11

13

116

135

124

133

166

185

163

195

31

31

31

33

34

34

34

36

28

29

28

31

29

29

30

31

17

17

17

16

16

15

15

14

6.3

6.5

6.6

6.8

7.2

7.4

7.6

1,486

1,849

1,872

2,050

2,131

2,455

2,241

1,925

Number of listings

772

834

852

964

900

1,042

1,095

1098

Number of paid listings

603

609

588

663

623

728

748

747

18.2

21

19.2

20.7

17.6

24.6

23.7

22.4

Net sales

145.4

147.5

145.7

172.9

171.8

174.1

173.4

204.2

Recruitment solutions

104.1

107.2

108.4

125.2

124.7

128.2

129.4

148.9

99acres for real estate

22.6

24.5

23.0

30.3

25.3

27.8

25.9

31.7

Other verticals

18.3

15.8

14.3

17.8

21.8

18.1

18.1

23.6

PBIT (in cr)

48.7

40.4

34.3

58.3

24.3

32.7

32.7

64.7

Recruitment solutions

53.8

53.8

53.4

69.5

63.9

68.2

64.1

78.9

99acres for real estate

-4.8

-10.5

-15.0

-7.6

-36.1

-27.2

-21.3

-13.4

Others (including Jeevansathi)

-0.3

-2.9

-4.1

-3.6

-3.5

-8.3

-4.8

-0.9

PBIT margins (%)

33.5

27.4

23.5

33.7

14.1

18.8

18.9

31.7

Recruitment solutions

51.7

50.2

49.3

55.5

51.2

53.2

49.5

53.0

99acres for real estate

-20.9

-42.9

-65.2

-25.4

-142.7

-97.8

-82.2

-42.3

Naukri.com

Average no. of resumes modified

daily (000s)
Number of unique customers (000s)
Vertical breakup of Naukri.com (%)
IT/ITeS
BFSI
Infrastructure
Jeevansathi.com
Number of profiles ever loaded (m)
Avg profiles acquired daily
99acres.com

Number of paid transactions

Segmental revenues (In cr)

Others (including Jeevansathi)

Headcount
Deferred revenues (in cr)

-1.6

-18.4

-28.7

-20.2

-16.1

-45.9

-26.5

-3.8

3,406

3,681

3,701

3,817

4,049

4,124

4,082

4,220

150

147

143

175

187

175

173

206

Source: Company, Sharekhan research

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

Sharekhan

May 26, 2016

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Bajaj Finserv

Reco: Buy

Stock Update
General insurance and BFL post good performance
Key points

Company details
Price target:

Rs2,290

Market cap:

Rs28,484 cr

52-week high/low:

CMP: Rs1,789

Rs2,160/1,446

NSE volume:
(No of shares)
BSE code:

0.5 lakh
532978

NSE code:

BAJAJFINSV

Sharekhan code:

BAJAJFINSV

Free float:
(No of shares)

6.63 cr

Shareholding pattern

Public
42%
Promoter
58%

Price chart
2100
2000
1900
1800

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

Bajaj Finserv reported a 26.8% Y-o-Y decline in its net profit owing to change
in its accounting practices. Earlier till FY2015 the profits from policyholders
account to shareholders account were transferred on an annual basis which
is now done on a quarterly basis. Hence, the sum transferred to shareholders
account was higher than in Q4FY2016 leading to a decline in the overall profit.
The total income however reported a healthy growth of 28.7% YoY.
General insurance and lending business report healthy performance: Bajaj
Allianz General Insurance Company (BAGIC) posted a good set of numbers as
gross written premium (GWP) was up by 18.1% YoY while the profit growth stood
at 44.4% YoY. Bajaj Finance Ltd (BFL) also reported a strong performance as loan
book growth stood at 37.0% YoY driven by consumer durable finance, personal
and business loans. Bajaj Allianz Life Insurance Company (BALIC) reported
a 58.5% decline in its profit due to change in accounting practices however
shareholders profit excluding transfer from policy holders account grew by
87.3% YoY. The asset under management (AUM) growth was flat (up 1.3%) owing
to lack of bancassurance.
Valuation and outlook: BAGIC has shown good performance after a downfall in
Q3FY2016 owing to Chennai floods and remains one of the top companies in the
general insurance space owing to its strong distribution network, while BALIC
could see improvement as the company is looking out for tie-ups with various
banks for bancassurance and revival in life insurance industry could augment its
growth. The lending business, ie BFL, continues to remain robust and we expect
it to be the key driver for overall earnings growth. We have maintained our Buy
rating on the stock with an unchanged SOTP-based price target of Rs2,290.
Results

1700

Rs cr

1500

Income from operations

1400

Transfer from policy holders account

May-16

Jan-16

Sep-15

Particulars

May-15

1600

Price performance

Q4FY16

Q4FY15

YoY (%)

Q3FY16

2,467.6
99.46

1,917.9

28.7

2,395.2

3.0

487.89

(79.61)

48.64

104.5

0.2

0.8

-81.9

0.0

650.0

2,567.2

2,406.7

6.7

2,443.9

5.0

750.7

603.0

24.5

755.9

-0.7

1,816.5

1,803.7

0.7

1,688.0

7.6

789.5

602.8

31.0

733.8

7.6

Other income
Total income
Expenses
Operating profit
Interest

(%)

1m

3m

6m 12m

Absolute

-4.1

8.0

-6.6 24.7

Relative
to Sensex

-2.0

0.9

-4.9 35.1

Profit before tax

QoQ (%)

1,026.9

1,200.9

-14.5

954.2

7.6

Tax

260.1

227.0

14.6

276.0

-5.8

Profit from ordinary activities

766.8

973.9

-21.3

678.2

13.1

Less minority interest

248.9

266.8

-6.7

240.9

3.3

Net profit

518.0

707.1

-26.8

437.3

18.4

Sharekhan

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BALICMuted business growth: For Q4FY2016, BALIC

showed a muted performance as the GWP growth
remained flat at 1.7% year on year (YoY). However, the
new business premium was up by 7.6% YoY, while renewal
premium during the quarter declined by 3.7% YoY owing
to lapsation of limited pay products hence the base to
generate premiums was lower. However, the company
is looking out to approach banks for bancassurance tieups which were the primary reasons for its lacklustre
growth along with overall sluggish life insurance
business environment. The company also expects public
sector banks (PSBs) would go for multiple tie-ups since
Insurance Regulatory and Development Authority (IRDA)
has increased the limit for banks to tie-up with insurers
from three to nine. The company would now focus more
on the individual segment in order to revive its life
insurance business. It has started various activities to
improve its life insurance business like revamping the
agency channel, improving the ticket size and targeting
top 20 to 30 cities where its presence is weak. The net
profit for the quarter was down by 58.5% YoY owing to
change in accounting practices while the AUM growth
stood at 1.3% YoY.

its reinsurance counterpart. The management feels the

market for general insurance is still under penetrated
and there is a lot of opportunity for growth. BAGIC is
one of the top general insurers especially in the retail
category with best operating metrics. Any uptick in the
economic activity and vehicle sales would only enhance
the growth prospectus for BAGIC.
Bajaj Allianz General Insurance Company
Particulars

Q4
FY16

Q4
FY15

YoY
(%)

Q3
FY16

QoQ
(%)

Gross written
premium

2,419.0

2,379.1

1.7

1,225.2

97.4

New business
premium

1,213.0

1,127.0

7.6

538.0

125.5

Renewal
premium

1,206.0

1,252.0

-3.7

687.0

75.5

Policyholders
surplus

99.0

488.0

-79.7

49.0

102.0

Shareholders
profit

133.0

71.0

87.3

191.0

-30.4

Profit/(Loss) for
the year

232.0

559.0

-58.5

142.0

63.4

1.3 43,361.0

1.7

AUM

44,107.5 43,553.7

YoY
(%)

Q3
FY16

QoQ
(%)

Gross written
premium

1,730.0

1,465.0

18.1

1,348.4

28.3

Net earned
premium

1,126.0

999.8

12.6

1,037.0

8.6

277.0

177.0

56.5

211.0

31.3

Profit before tax

257.0

197.0

30.5

95.0

170.5

Profit after tax

208.0

144.0

44.4

68.0

205.9

BFLStrong performance continues: BFL reported

a healthy 36.4% year-on-year (Y-o-Y) growth in its net
profit driven by a strong 37.0% jump in its loan book.
The loan book was driven by various segments like
consumer durable finance, personal and business loans.
The relatively new products like lifestyle financing,
digital products lending and rural financing also reported
a robust growth (small book size). The company has the
ability to launch new products, strong risk management
and has unique customer acquisition strategy which
would continue to drive the business growth. The overall
asset quality has improved during the quarter as gross
non-performing asset (GNPA) ratio declined to 1.23%
from 1.29% quarter on quarter (QoQ).
Particulars

BAGICProfitability and operating metrics improve:

During Q4FY2016, BAGIC reported a good set of numbers
after subdued performance in the previous quarter owing
to Chennai floods. The GWP increased by 18.1% YoY while
net earned premium growth stood at 12.6%, and interest
and dividend income also reported a strong growth of
56.5% YoY. The AUM growth underwriting profit grew by
50% YoY to Rs30 crore after a loss of Rs116 crore due to
higher claims in Q3FY2016. Claim ratio was down by ~1%
for Q4FY2016 while the combined ratio improved to 94.3%
from 95.14% YoY and 108.7% YoY. BAGIC saw a decline in
its operating expense (opex) ratio as the overall growth
picked up while some part of the expense was shared by
Sharekhan

Q4
FY15

Interest and
dividend income

Bajaj Allianz Life Insurance Company

Particulars

Q4
FY16

Q4
FY16

Q4
FY15

YoY
(%)

Q3
FY16

QoQ
(%)

Net interest
income

1,015.3

741.4

37.0 1,222.4

-16.9

Non-interest
income

136.3

91.9

1,151.6

Operating
expenses

97.9

39.2

833.2

38.2 1,320.3

-12.8

506.1

374.9

35.0

549.0

-7.8

Preprovisioning
profit

645.5

458.3

40.9

771.4

-16.3

Provisions

156.5

113.8

37.6

146.2

7.1

Profit before
tax

489.0

344.6

41.9

625.2

-21.8

Tax

174.0

113.6

53.2

216.7

-19.7

Profit after tax

315.0

231.0

36.4

408.5

-22.9

42,756

31,199

37.0

41,760

2.4

Net total
income

Advances

11

May 26, 2016

48.4

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Valuation and outlook: BAGIC has shown good

performance after a downfall in Q3FY2016 owing to
Chennai floods and remains one of the top companies
in the general insurance space owing to its strong
distribution network, while BALIC could see improvement
as the company is looking out for tie-ups with various
banks for bancassurance and revival in the life insurance
industry could augment its growth. The lending business,
ie BFL, continues to remain robust and we expect it to
be the key driver for overall earnings growth. We have
maintained our Buy rating on the stock with an unchanged
sum-of-the-parts (SOTP)-based price target of Rs2,290.

Valuation
Particulars

Stake
(%)

Value per share

Life Insurance (1.3x FY16 EV)

74

615

General Insurance (2.8x FY17 BV)

74

505

Bajaj Finance ( 3.7x FY18 BV)

58

1150

Investments

20

Total

2,290

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

Sharekhan

12

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Finolex Cables

Reco: Buy

Stock Update
Stellar performance; PT revised to Rs360
Key points

Company details
Price target:

Rs360

Market cap:

Rs4,669 cr

52-week high/low:

Rs314/201

NSE volume:
(No of shares)
BSE code:

79,963
500144

NSE code:

FINCABLES

Sharekhan code:

FINCABLES

Free float:
(No of shares)

9.6 cr

Shareholding pattern
Others
38%

Promoters
37%

DIIs
20%

CMP: Rs305

Stellar performance; earnings more than doubled, much ahead of estimates:

Finolex Cables Ltd (FCL) reported a whooping Rs83 crore of PAT in Q4FY2016 as
compared with Rs32 crore in Q4FY2015. This was also substantially better than
our as well as Street estimate. In line with our estimate, the revenue remained
flat (YoY) at Rs681 crore due to lower realisations (copper price correction has
been passed on to consumers) but it witnessed a strong volume growth in both
electrical (up 12%) and communications (up 20%) segments. The OPM expanded
by spectacular 700BPS YoY and the operating profit jumped by 82% YoY to Rs112
crore in Q4FY2016. Consequently, PAT jumped by a whopping 160% YoY in the
current quarter, also on annual basis earnings grew by more than 40% to Rs249
crore.
Existing business on track but delay in new product lines: During FY2016,
the performance of communication business jumped substantially (with
government order in hand) over last year which propelled the overall growth,
though the electrical cables business continued a very healthy volume driven
growth momentum. The prudent working capital management helped the
company to generate close to Rs300-crore cash from operation which will be
instrumental in further strengthening its already debt-free balance sheet. While
the existing business is doing fairly well, recently the company launched fans
in the market which could bring incremental revenue marginally in FY2017 and
meaningfully in FY2018. However, the company is still waiting for the approval
of its switchgear facility.
Revised upward earnings estimate and price target; re-iterate Buy: FCL
reported an impressive result in this quarter, which surprised us positively and
the stock could react strongly in the next trading session. We like the sustained
strong cash flow generation by the company and the ability to deliver a very
healthy returns ratio. Moreover, the management is fairly confident of healthy
volume growth in future and expects the new product lines like fans and
switchgears will add substantial revenue stream in future. On this backdrop,
we have revised upward our earnings estimates by roughly 15-20% for FY2017
and FY2018 each and raised our price target to Rs360 (earlier Rs310). We also
re-iterate our Buy rating on the stock.

FII
5%

Price chart
320
300
280
260
240
220

May-16

Jan-16

May-15

Sep-15

200

Price performance

(%)

1m

3m

6m 12m

Absolute

-2.1

19.5

6.9 15.7

Relative
to Sensex

0.0

11.7

8.9 25.4

Results
Particulars
Revenue
Operating profit
Other income
Interest
Depreciation
PBT
Tax
EO
Reported PAT
Adjusted PAT
Adjusted EPS
Margin
OPM (%)
NPM (%)
Tax rate
Sharekhan

13

Q4FY16
681
112
18
1
18
111
27
83
83
5.4

Q4FY15
658
61
9
3
22
46
21
23
47
32
2.1

16.4
12.2
24.8

9.3
4.8
46.9

May 26, 2016

YoY (%)
3.4
82.2
95.4
-57.7
-18.5
141.6
27.7
77.7
160.7
160.7
BPS
708.6
736.9
(2,211.0)

Q3FY16
587
78
10
2
13
73
20
53
53
3.4
13.4
9.0
27.6

Home

Rs cr
QoQ (%)
16.0
42.4
84.7
-32.3
31.5
51.9
36.5
57.8
57.8
57.8
BPS
303.3
323.5
(280.4)

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Valuations
Particulars
Net sales

FY15

FY16

FY17E

FY18E

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

Y-o-Y growth (%)

3.9

3.8

0.5

9.0

13.2

Operating profit

248.2

258.8

338.5

364.8

409.4

10.5

10.6

13.8

13.6

13.5

189.9

175.8

248.8

270.6

301.9

Adjusted EPS (Rs)

12.4

11.5

16.3

17.7

19.7

Y-o-Y growth (%)

18.3

(7.4)

41.6

8.8

11.6

PER (x)

24.6

26.6

18.8

17.3

15.5

OPM (%)
Net profit

P/B (x)
EV/EBIDTA (x)
Div yield (%)

Segmental
Particulars

Rs cr
FY14

4.2

3.7

3.2

2.8

2.4

14.8

13.8

10.5

9.3

8.2

0.5

0.6

0.8

0.9

1.0

RoCE (%)

22.0

19.7

24.5

23.3

22.6

Core RoE (%)

26.9

20.0

28.6

23.2

22.8

RoIC (%)

33.9

34.5

51.3

50.8

48.1

Electric cables
Revenue
Contribution (%)
PBIT
Contribution (%)
PBITM (%)
Communication
cables
Revenue
Contribution (%)
PBIT
Contribution (%)
PBITM (%)
Others
Revenue
Contribution (%)
PBIT
Contribution
PBITM (%)

Stellar performance; beats estimates: FCL beat the

estimates with a whooping Rs83-crore adjusted profit
after tax (PAT) in Q4FY2016 as compared with Rs32crore adjusted PAT in Q4FY2015. The revenue remained
flat year on year (YoY) at Rs681 crore due to lower
realisations as the copper price correction has been
passed on to consumers. The strong volume growth
in both electrical (12%) and communications (20%)
segments surprised us positively. The gross profit margin
(GPM) expanded by 930 basis points (BPS) in Q4FY2016
as the company was successful in harvesting the benefit
of commodity price correction. The volume growth along
with GPM expansion has driven the profitability of the
company. The operating profit margin (OPM) expanded
by spectacular 700BPS year on year (YoY) to 16.4% in
Q4FY2016 and consequently operating profit jumped to
Rs112 crore in Q4FY2016 as compared with Rs61 crore
in Q4FY2015. The strong operating performance trickled
down to profit after tax (PAT) level which more than
doubled in the current quarter.

Q4
FY16
545.4
83
98.2
88
18.0

Q4
FY15

YoY
(%)

Q3
FY16

551.98
-1
85
83.8
17
108 (1,935)
BPS
15.2
281

521.1
90
82.3
95

119.0
18
17.23
15
14.5

73.8
11
6.21
8
8.4

26.0
4
-4.65
NA
-17.9

48.7
8
-13.14
NA
-27.0

61
177
752
607
-47
NA
NA

15.8
62.2
11
4.73
5
7.6
6.5
1
-0.64
NA
-9.9

Rs cr
QoQ
(%)
5
19
(628)
BPS
219
91
264
1,006
687
303
NA
NA

FY2016 performance: During FY2016, the company

benefitted from a sharp correction in the commodity
prices and favourable product mix thus delivering a solid
operating and consequently earnings numbers. The top
line however was flattish at Rs2,461 crore as volume
growth was off-set by drop in realisation. The OPM of
the company expanded by 320BPS YoY to 13.8% and
the operating profit stood at Rs338 crore, 30% up YoY.
Consequently, the adjusted PAT of the company grew by
42% YoY to Rs249 crore. On the balance sheet side, the
company has repaid around Rs25-crore debt in FY2016
and now the total debt on the companys balance sheet
stands at Rs26 crore. The company also managed to
improve its net working capital cycle to 33 days in FY2016
from 42 days in FY2015. Consequently, the company has
generated around Rs300-crore cash flow from operations.
Revised upward earnings estimate and price target;
re-iterate Buy: FCL reported an impressive result in this
quarter, which surprised us positively and the stock could
react strongly in the next trading session. We like the
sustained strong cash flow generation by the company
and the ability to deliver a very healthy returns ratio.
Moreover, the management is fairly confident of healthy
volume growth in future and expects the new product
lines like fans and switchgears could add substantial
revenue stream in future. On this backdrop, we have
revised upward our earnings estimate by roughly 15-20%
for FY2017 and FY2018 and raised our price target to
Rs360 (earlier Rs310). We also re-iterate Buy rating on
the stock.

On segmental basis, the electrical cables revenue was

flat at Rs545 crore in spite of lower copper prices, on the
back of a strong 12% volume growth. With a strong volume
growth, the profit before interest and tax (PBIT) margin
of the segment expanded by 281BPS to 18% and PBIT
stood at Rs98 crore, 17% higher YoY. The communications
cables segments revenue grew by 18% again on the back
of strong 20% volume growth. Consequently, the PBIT
margin expanded by 600BPS to 14.5% and PBIT more than
doubled YoY to Rs17 crore, on a low base.

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

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stock update

Kewal Kiran Clothing

Reco: Buy

Stock Update
Robust business; maintain Buy with PT revised to Rs2,360
Key points

Company details
Price target:

Rs2,360

Market cap:

Rs2,158 cr

52-week high/low:

Rs2,300/1,603

NSE volume:
(No of shares)
BSE code:

1,691
532732

NSE code:

KKCL

Sharekhan code:

KKCL

Free float:
(No of shares)

0.3 cr

Shareholding pattern
Foreign
13%
Institutions
9%

Non-promoter
corporate
1%

Promoters
77%

CMP: Rs1,750

Q4FY2016 result synopsis; Strong performance: For Q4FY2016, driven by

strong volume growth of 17% YoY, Kewal Kiran Clothing Ltd (KKCL) posted a
robust 20.9% top-line growth. Despite a sharp increase in overheads (contractual
employee cost, and advertisement & sales promotion), the benign raw material
prices resulted in margin sustenance at 27% for the quarter, while the operating
profit grew by 21% YoY. Lower other income, coupled with increased tax and
depreciation affected the net earnings that grew by 1.8% on a Y-o-Y basis.
Management remains confident of double-digit revenue growth: In our
interaction with the management, it sounded confident of the demand
environment and has started witnessing double-digit growth across regions and
categories. Its strategy of staying away from rampant discounting in the market
place has started yielding results. It has guided us for a revenue growth of
around 15% for FY2017, while it expects the revenue growth momentum in
medium term in the range of 15-18%. The company would continue to nurture
and invest in its brands and hence advertisement and promotion expenses
would continue to remain elevated, and hence it expects the annual margin to
remain at the current level of 23-24%.
Strong business, robust balance sheet; maintain Buy: We expect KKCL to
post 13.2% revenue CAGR over FY2016-18, with net earnings growing at 19.6%
over the same period. The company has robust balance sheet with an overall
cash and cash equivalents of Rs183 crore as on March 31, 2016, this constitutes
around 8.5% of its current market cap. We believe that the company with strong
pedigree of brands, transparent management and a robust balance sheet,
would continue to trade at premium valuations. Thus, we have maintained our
Buy rating on the stock with a revised price target of Rs2,360.

Price chart
2350
2200
2050
1900
1750

May-16

Jan-16

Sep-15

May-15

1600

Price performance

(%)

1m

3m

6m 12m

Absolute

-0.6

4.0

-8.5 -16.0

Relative
to Sensex

1.5

-2.8

-6.8

-9.0

Results
Particulars
Net revenues
COGS
Sales (%)
Staff cost
Sales (%)
Selling & administrative
expenses
Sales (%)
Other expenses
Sales (%)
Operating profit
Interest expenses (net)
Depreciation & amortization
PBT
Tax
Adjusted PAT
PAT margin
Extra-ordinary item
Reported PAT
EPS
Gross profit margin
OPM (%)
Sharekhan

15

Q4FY16
126.7
52.8
41.7
11.6
9.2

Q4FY15
104.7
46.9
44.7
11.9
11.3

YoY (%)
20.9
12.8

15.8

10.6

49.5

12.5
12.4
9.8
34.0
0.9
1.2
33.6
11.9
21.8
17.2
21.8
17.7
58.3
26.9

10.1
7.3
7.0
28.1
0.5
0.9
30.5
9.0
21.4
20.4
21.4
17.4
55.3
26.9

May 26, 2016

(2.2)

69.1
21.0
78.4
27.5
10.5
31.1
1.8
1.8
1.8
302
1

Q3FY16
95.4
41.8
43.8
12.9
13.5
15.3
16.0
9.1
9.5
17.2
0.8
1.0
16.2
5.5
10.7
0.1
10.7
8.7
56.2
18.0

Home

Rs cr
QoQ (%)
32.7
26.5
(9.9)
(32.1)
3.2
36.6
3.0
98.3
8.3
16.0
107.7
114.3
104.2
104.2
104.2
206
888

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investors eye

stock update

Valuations

Q4FY2016- Channel-wise revenue mix

Rs cr

Particulars

FY14

FY15

FY16

FY17E

FY18E

Net sales

367.2

405.1

457.4

517.0

585.8

Growth (%)

21.2

10.3

12.9

13.0

13.3

Adj net profit

67.0

66.3

68.0

84.9

97.3

Yoy change

26.5

(1.1)

2.6

25.0

14.6

EPS

54.4

53.7

55.1

68.9

78.9

P/E (x)

32.2

32.6

31.8

25.4

22.2

235.5

261.9

291.3

328.1

370.2

7.4

6.7

6.0

5.3

4.7

EV/EBITDA (x)

18.8

18.6

17.3

13.7

11.8

RoE

24.6

21.6

19.9

22.2

22.6

RoCE

30.9

28.9

28.1

28.4

28.8

Book value
P/BV

Exports, 6%
Factory outlet, 3%
Large format
stores, 9%

MBO, 57%

Key result highlights

GPM improves: Aided by lower commodity prices

(predominately cotton), as Q4 being a summer-led
quarter, the usage of blends reduces and cotton and
linen are largely used as raw materials. Thus, KKCL
witnessed a 302-basis point gross profit margin (GPM)
expansion for the quarter from 55.3% in Q4FY2015 to
58.3% in Q4FY2016.

Volume growth drives top-line performance: KKCL

posted a strong 21% growth in the top line, led by
double-digit volume growth for the quarter. The
company posted a 17% volume growth while the
blended realisation grew by 3.7% year on year (YoY).
The realisation growth was a combination of excise
duty hike passed on to consumers (imposed in Budget
2016), along with a product mix change.

Margins sustain despite increase in overheads:

Though GPM improved, increase in other fixed
overheads (increase in minimum wages for contractual
employees accounted in other expenses), along
with increase in advertisement spent (to improve
brand reach and salience), nullified the impact of
GPM expansion, thus resulting in flat margins on a
Y-o-Y basis. The operating profit margin (OPM) for
Q4FY2016 was at 26.9%, and the overall operating
profit grew by 21% YoY.

Brand-wise Lawman posted a stellar 50% year-onyear (Y-o-Y) growth (albeit at a low base), followed
by Integriti (+21.5% YoY), and Easies (+14.6% YoY).
Brand Killer that constitutes around 48-50% to the
top line grew at a modest 11.4% YoY. Going forward,
the management expects around 15% growth from
the overall portfolio of brands. Distribution-wise,
MBO continues to be the main distribution mode
(constituting around 51% to the revenue), which grew
at 17.4% YoY. Growth from the e-commerce and large
format stores was strong at 3x and 54% respectively.

Balance sheet remains robust: KKCL continues

to leverage on its brand strength and consumer
pull strategy, thus it continues to sell on outright
purchase method, thereby de-risking itself from
inventory risk. The company has a sleek 90 days cash
conversion cycle. The company is cash surplus with
Rs183 crore. The business generates enviable returns
hovering around 28% for return on capital employed
(RoCE) and 20% return on equity (RoE).

Q4FY2016- Brand-wise revenue mix

Easies, 3%

K- Lounge, 24%

Others, 3%

Investments parked in fixed maturity paper: The

company has parked its cash and investment into
fixed maturity papers, with an annual yield of 9%,
with three years maturity. It has parked around
Rs150 crore into this papers, which as per the new
accounting policy would be recognised only on receipt
basis (earlier the same was recognised on accrual
basis). Thus, for the last 24 months there has been no
accounting on other income into the financials of the
company. A part of the same investment (around Rs80
crore) would mature in Q2 and Q3FY2017 (around that
would provide boost to the earnings in FY2017, while
the rest (around Rs70 crore) would mature in FY2018.

Page 3
Lawman, 20%

Killer, 54%
Integriti, 20%

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

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16

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stock update

Thermax

Reco: Hold

Stock Update
Another weak quarter; PT revised down to Rs800
Key points

Company details
Price target:

Rs800

Market cap:

Rs12,368 cr

52-week high/low:

Rs1,144/700

NSE volume:
(No of shares)
BSE code:

46,911
500411

NSE code:

THERMAX

Sharekhan code:

THERMAX

Free float:
(No of shares)

4.5 cr

Shareholding pattern

Others
14.2%
DII
7.8%

Promoters
38.9%

FII
16.0%

CMP: Rs740

Price chart
1150
1050

Weak result in Q4; slippage in revenue affects earnings: For Q4FY2016,

Thermax (stand-alone) reported another quarter of weak result, below our
estimate. The earnings declined by 16% YoY to Rs111 crore mainly on account of
lower revenue (15% drop YoY) and OPM contraction of 120BPS. The company is
going through a phase of subdued order inflow, given the slower-than-expected
investment cycle revival. Though Thermax managed to improve its gross profit
margin (GPM) in this quarter, higher other expenses (includes write-off of bad
debts to the tune of Rs14 crore) weighed on the OPM in a weak revenue scenario.
Consequently, the operating profit declined by 25% but with a sharp drop in
interest cost, the net profit decline was restricted at 16% YoY in Q4FY2016.
Recovery elusive; softer outlook to continue: During FY2016, the earnings of
Thermax declined by 9% YoY, on account of 7% decline in revenue and 109BPS
of OPM contraction. However, due to prudent working capital management,
it has generated substantially higher cash flow and debts in the subsidiaries
are paid off. Further, the management expects loss from subsidiaries to shrink
going forward, with better balance sheet. While the efforts by the company are
visible in numbers, the environment remains challenging as investment cycle
recovery is yet to pick up. Consequently, the outlook is likely to remain softer
for some time.
Revised down earnings estimate, subsequently PT revised down to Rs800
but retain Hold: Thermax started the year with a 16% lower order book, but
managed to close the year with a 7% decline in revenue with better execution.
Now, again FY2017 is starting with a 15% lower order book position at Rs3,747
crore. Therefore, we expect weak revenue for FY2017 again, unless the company
wins substantially higher orders in the year. On this backdrop, we have revised
down our earnings estimate by roughly 15% and subsequently revised down the
price target. We believe muted outlook would be an overhang for the stock
especially being at a high valuation. Nevertheless, the company is prepared to
withstand the phase and building its base for future growth, backed by strong
balance sheet and technology advantage. Hence, we have retained our Hold
rating on the stock with price target revised down to Rs800 (earlier Rs900).

950
850
750

May-16

Jan-16

Sep-15

May-15

650

Price performance

(%)

1m

3m

6m 12m

Absolute

-9.8

-9.3 -20.0 -31.4

Relative
to Sensex

-7.9

-15.2 -18.5 -25.6

Results
Particulars
Net sales
Net raw material
Employee expenses
Other expenses
Operating profit
Other income
Interest
Depreciation
PBT
Tax
Adjusted PAT
Rep PAT
EPS
Margin (%)
OPM
PATM
Tax rate
Sharekhan

17

Q4FY16
1,293
791
123
262
118
48
0.1
13
152
41
111
111
9.3

Q4FY15
1,521
1,011
126
226
157
63
12.4
15
192
60
132
132
11.1

9.1
8.6
27.1

10.3
8.7
31.2

May 26, 2016

YoY (%)
-15.0
-21.8
-2.6
15.6
-24.8
-24.0
-99.4
-12.0
-20.8
-31.3
-16.0
-16.0
-16.0
BPS
(120)
(11)
(416)

Q3FY16
1,039
640
118
182
99
13
0.2
16
96
28
68
68
5.7
9.5
6.5
29.1

Home

Rs cr
QoQ (%)
24
24
4
43
20
266
-60
-16
59
48
64
64
64
BPS
(37)
207
(203)

Next

investors eye

stock update

On a consolidated basis, with better revenue traction

in subsidiaries (up 77% YoY), the most of the lossmaking subsidiaries have reduced the losses and have
become earnings before interest, tax, depreciation
and amortisation (EBITDA) positive. The total loss of
subsidiaries amounted to Rs23 crore in Q4FY2016 as
compared with a loss of Rs35 crore in Q4FY2016. As a
mixed bag result of poor performance in stand-alone
entity and better performance of subsidiaries, the
consolidated profit for the company declined by 10%
to Rs88 crore. To sum it up, the weak performance
of the stand-alone entity was partially offset by the
improvement in subsidiaries.

Rs cr

Y-o-Y growth (%)

(8.3)

9.2

(7.4)

(6.6)

6.4

Operating profit

409

471

389

379

412

OPM (%)

9.5

10.0

8.9

9.3

9.5

Adj Net Profit

220

336

306

291

319
26.8

Adj EPS
Y-o-Y growth (%)
PER
P/B

18.5

28.2

25.6

24.4

(37.0)

52.6

(9.2)

(4.7)

9.8

56.1

36.8

40.5

42.5

38.7

6.1

5.5

5.0

4.6

4.2

EV/EBIDTA

23.5

18.8

21.6

21.0

18.9

RoCE (%)

20.3

22.9

17.9

16.2

16.7

RoNW (%)

11.4

15.8

12.9

11.3

11.4

0.8

0.9

0.8

0.8

0.8

Div yield (%)

Stand-alone and group performance

140

Q4FY2016 result-Another weak quarter: The weak

order inflow scenario in the past has led to a 15% year-onyear (Y-o-Y) decline in stand-alone revenues, which stood
at Rs1,293 crore. Both energy and environment segments
declined by 17% year on year (YoY) however the other
operating income (consists of foreign exchange [forex]
fluctuations) grew substantially thus partially arresting
the fall in revenues. On the positive side, the subsidiaries
continued the high revenue growth momentum (up 77%
YoY), on a low base. Thus, subsidiaries managed to mask
the poor performance of stand-alone entity and on the
consolidated basis, Thermaxs revenue was down only 5%
YoY at Rs1,620 crore.

120
100
80
60
40
20

Q4FY14

Standalone PAT

14%

5,000
4,000

-3%

-6%

13%

30%

19%

20%

10%

10%

-3%
-11%

3,000

-9%

0%
-15%

3,747

3,830

4,006

4,275

4,396

5,097

5,016

5,206

5,389

5,699

1,000

-10%
-20%

2,000

-30%
-40%

Order Backlog -Standalone

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

-50%

Q3FY14

Revenue growth Standalone%

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

improved due to low commodity prices. However, the
other expenses grew substantially due to bad debt writeoffs. Therefore, despite GPM expansion by 500 basis points
(BPS) YoY, the operating profit margin (OPM) contracted
by 120 basis points (BPS) YoY and led to decline in the
operating profit of 25% YoY to Rs118 crore in Q4FY2016.
Below the operating line, the lower interest & tax outgo
restricted profit after tax (PAT) to decline by 16% only to
Rs111 crore on a stand-alone basis.
Sharekhan

Group PAT

FY2016 performance and earnings revision: The standalone FY2016 performance is lower than FY2015 both at
top line as well as at the adjusted profit after tax (PAT)
level. The OPM has contracted by 100BPS to 8.9%. Even
the order book scenario has also deteriorated, given a 9%
Y-o-Y drop in order inflow. Consequently, at the end of
FY2016, the order backlog is 15% lower on a Y-o-Y basis at
Rs3,747 crore. On the balance sheet side, the company
continues to remain debt free and it also managed to
maintain its net working capital days at 65. On the
consolidated basis, the scenario was better as most of
the subsidiaries which were making losses have now
turning EBITDA positive. Consequently, the consolidated
revenues of the company were up by 4% YoY at Rs5,501
crore and the operating profit margin was also stable at
8.2%. The repayment of debt, reduced finance expenses
and led to an adjusted profit of Rs243 crore, up 21% YoY.

Trend in top line

6,000

Q4FY16

4,328

Q3FY16

FY18E

4,066

Q2FY16

FY17E

Q1FY16

FY16
4,352

Q4FY15

FY15
4,697

Q3FY15

FY14
4,302

Q2FY15

Particulars
Net sales

Q1FY15

Valuations

Conference call highlights:

Weak order inflow in Q4; likely to remain soft
for some time: Due to the delay in the pick-up of
domestic capital exchange (capex) cycle, the order
book scenario of the company is subdued for past
several quarters and now the stand-alone order book
stands at Rs3,747 crore, down 15% YoY. On segmental
18

May 26, 2016

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stock update

Revised down earnings estimate, subsequently PT

revised down to Rs800 but retain Hold: Thermax had
started the year with a 16% lower order book, but it
managed to close the year with 7% decline in revenue
with better execution. Now, again FY2017 is starting
with a 15% lower order book position at Rs3,747
crore. Therefore, we expect weak revenue for FY2017
again, since it seems unlikely that the company wins
substantially higher orders in the year. On this backdrop,
we have revised down our earnings estimate by roughly
15% and subsequently revised down the price target.
We believe muted outlook would be an overhang for the
stock especially being at a high valuation. Nevertheless,
the company is prepared to withstand the phase and
building its base for future growth, backed by strong
balance sheet and technology advantage. Hence, we
have retained our Hold rating on the stock with a price
target revised down to Rs800 (earlier Rs900).

basis, the energy segments order inflows and order

backlog stood at Rs961 crore and Rs3,125 crore
respectively, while for the environment segment it
is Rs216 crore and Rs622 crore respectively. Also, the
management does not see any material changes on
the large-ticket ordering activity. However, smalland medium-sized order momentum continues to
remain strong and the company is doing quite well
in the space.
Improvement in performance of subsidiaries
continues: The revenue of the subsidiaries has jumped
more than 77% to Rs327 crore and consequently the
overall subsidiaries net loss has also reduced to Rs23
crore in Q4FY2016 from Rs35 crore in Q4FY2015. The
management has guided that, all the subsidiaries
except China are profit before tax (PBT) positive and
even the China subsidiary is EBITDA positive now.
Consequently, the management expects that for
FY2017 the total subsidiaries should be contributing
to profitability positively.

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May 26, 2016

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viewpoint

Cummins India
Viewpoint

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

CMP: Rs808

Key points
Sharp drop in export business lead to weak result in Q4: Cummins India Ltd (CIL) reported a weak set of numbers
in Q4FY2016. The earnings declined by 14% YoY to Rs164 crore due to subdued revenue and drop in other income.
The revenue declined by 6% YoY as the export business dropped by around 30%. However, the domestic business
is relatively stable. For FY2016, the revenue grew by 7%, backed by 13% increase in the domestic business while
export business declined by 3%. The annual operating performance turned weaker in H2FY2016, though it started
on a strong note at the beginning of FY2016.
Export outlook turned hazy and rising concern related to change in policy for new products: In addition to
weak Q4, the guidance for FY2017 is also not encouraging. The management indicated that the domestic business
is likely to grow by 8-10% in FY2017 but export business is expected to be flat-to-negative next year. Consequently,
FY2017 revenue is likely to grow in mid-to-high single digit only. Whats more, the company indicated that all new
export models would be introduced through its unlisted subsidiary in India (and not the listed Cummins India) and
the listed entity would only earn marketing margins on the new products. This is an unfavourable development for
the listed company (CIL) and negative for minority shareholders.
Muted earnings outlook and unfavourable policy changes; Exit; removing it from the Wealth Creator Folio
also: Given the muted growth guidance and unfavourable policy changes, CIL would no longer command premium
valuations associated with its pedigree and technological prowess in engines segment. Moreover, the arrangement
to just earn marketing margins on new products would eventually dent its margin profile and return ratios. Hence,
we expect the stock to languish and underperform. We recommend investors to Exit. We are also removing the
stock from the Wealth Creator Portfolio with immediate effect (would recommend a replacement during the
monthly review next week).
Risk to our call: In case of resistance from minority shareholders, the management might reconsider its policy of
introducing new products through its unlisted subsidiary in India. In the past also, some of the companies have
relented to shareholder pressure and policy reversed decision detrimental to the interest of minority shareholders.

Result
Particulars
Net sales
Net raw material
Employee Expenses
Other Expenses
Operating profit
Other Income
Interest
Depreciation
PBT
Tax
Adjusted PAT
Rep PAT
EPS
Margin (%)
OPM
PATM
Tax rate

Q4FY16
1,065
655
104
136
171
51
0.2
20.6
201.3
37
164
164
5.9

Q4FY15
1,134
716
100
143
175
66
0.3
19.1
222.0
32
190
190
6.9

16.0
15.4
18.5

15.5
16.8
14.2
Sharekhan

20

YoY (%)
-6.0
-8.6
4.1
-4.5
-2.5
-22.4
-12.0
7.8
-9.3
17.8
-13.8
-13.8
-13.8
BPS
57
(139)
425
May 26, 2016

Rs cr
QoQ (%)
-7.1
-10.2
-3.9
-1.8
-0.1
-9.3
4.8
2.1
-2.8
28.9
-8.0
-8.0
-8.0
BPS
112
(14)
454

Q3FY16
1147
729
108
139
171
57
0.2
20.2
207.2
29
178
178
6.4
14.9
15.6
13.9

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May 26, 2016

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