IEA Report 16th May.

IEA Report
16th May 2017

NESTLE "BUY" 16th May 2017
After Maggie fiasco, companys new management has become more aggressive in launching new products. The company has launched more than
25 products in last few quarters. Going forward, it has plans to launch more new products from its parents global product portfolio. New product
launches will improve companys volume going ahead. Secondly, NESTLE has strong pricing power so we expect strong pricing led growth for
NESTLE going ahead. As companys most of the sales come from urban areas, approx. 75%, hence any recovery in urban demand will be huge
positive for the company. Presently, Maggies market share has reached to 60% versus peak market share of 75% which is commendable. Our buy
recommendation on NESTLE is based on Maggies market share gain, new product launches and expectation of urban demand recovery going
forward. We have positive view on this stock and maintain `BUY with a target price of Rs 7920. ........................................................... ( Page : 2-
5)
GLENMARK "NEUTRAL" 15th May 2017

Due to drug price regulation by US government, US business of company is severely impacted in Q4FY17. Drug price corrected by 15% and it is
expected to correct more going forward considering US government drug price regulation policies. Mgt. has indicated Zetia sales improvement
going forward but we expect that it would not be easy considering current scenario. Management has guided for new products launch in the US
market in FY18E but we need to wait to get clear visibility on it. We expect ROE to maintain at the level of 22% in FY18E. Currently, the stock is
trading at 4x FY19E P/BV. Considering the near-term un-certainties, we maintain Neutral rating in this stock while revising our previous target
price to Rs. 830. ................................................ ( Page : 6-10)
HEROMOTOCO "NEUTRAL" 12th May 2017

Hero Motocorp is the market leader in the entry segment motorcycle and commands over 50% market share in that segment. The company has
lost 4-5 percent market share in FY17 to Honda Motorcycle, which has grown fiercely in the Indian two wheeler market. Rising commodity prices
and transition from BS-III to BS-IV restricted the company to expand its profitability. The management has stated that the margins will be under
pressure as the full impact of increased commodity prices has not been factored yet. Higher depreciation on Halol plant will lead to further
contraction in profitability as the plants will take at least 6-8 months to ramp up. The uncertainty regarding tax structure under GST will also keep
automobile industry outlook hazy. We expect 320bps deterioration in FY19E RoE. Considering the margin contraction and uncertainty regarding
GST we reduce our target from Rs.3800 to Rs.3575 and change our rating from BUY to NEUTRAL. ................................................................ (
Page : 11-15)
VIJAYA BANK "HOLD" 11th May 2017

We expect NIM to improve further in FY18 to 2.75%. Focus of management is growing retail book going forward hence we expect 8 to 10 percent
credit growth in FY18. Assets quality is likely to continue to improve going forward but we are cautious for the whole scenario of assets quality in
PSU banking. With the Tier 1 ratio at 9.96% and CRAR at 12.73% management plans to Raise Rs 1000 Cr core capital in FY18. With this we expect
RoE and RoA of 11.7% and 0.6% respectively in FY18. We initiated this stock at the price of Rs 48 which has almost doubled till now. The stock is
currently trading at (1.3x/1.2x PV FY17/FY18E) and valuation has got stretched which leaves us with little upside, hence we recommend to partly
book profit on this stock and hold for the rest with the target price of Rs 98. .................................................................. ( Page : 16-19)
GODREJCP "HOLD" 10th May 2017

The company has reported better numbers for Q4FY17. Domestic volume grew handsomely by 5% YoY. EBITDA margin improved by 147 bps YoY
in an inflationary environment. International business EBITDA margin also improved by 150 bps YoY to 19.6%. As far as international business in
concern, we expect better revenue growth from Indonesian market going forward as company is expanding its distribution reach and launching
new products and for African business we expect 15% CAGR for next two year led by strong growth in Strength of Nature(SON). Considering all this
we still hold positive view on GODREJCP but stock has run up sharply after result so we presently recommend `HOLD rating on it.
................................................... ( Page : 20-24)
EICHERMOT "HOLD" 9th May 2017

Eicher Motors is well placed in the domestic two wheeler industry. RE volumes have grown at a 42% CAGR over last 5 years. Management is
expanding itself through only exclusive stores which reflect management's focused approach to make it a premium brand. There are short term
hiccups in the domestic market like GST and Monsoon which may slow down the overall trucking activity in the country, however, the long term
growth story remains intact backed by strong infra-activity in the country and growing exports markets. We expect margins to expand by 160 bps
to 32.5% in FY19. Currently, the stock is trading at 8.0x FY19E P/BV. Earlier we recommended this stock at Rs.24007 for a target price of Rs.26600
and the stock has achieved our recommended target, but considering the future growth potential, we upgrade our target to Rs. 28009 and
maintain HOLD' rating on this stock. ....................................................... ( Page : 25-29)
Narnolia Securities Ltd IEA Edition No.- 1014

INDUSTRY - Con. Staples
BSE Code - 500790
NSE Code - NESTLEIND
16-May-17 NIFTY - 9445
Company Data Key Highlights of the Report:

CMP 6611 Sales for the quarter grew by 9.5% YoY to Rs 2592cr, second best in our
Target Price 7920
FMCG universe after GODREJCP.
Previous Target Price 7920 Domestic revenue grew by 9.7% led by volume improvement across
Upside 20% section. Exports remained flat due to lower sales from Nepal and Bhutan.
52wk Range H/L 7390/5701 Gross margin declined by 51 bps YoY to 57.8% led by higher input prices.
Mkt Capital (Rs Cr) 63,744 EBITDA margin declined by 169 bps YoY to 20% from 21.7% led by
Av. Volume (,000) 33 higher COGS,employee cost and Other expenses.
RoE & ROCE

Our buy recommendation on NESTLE is based on Maggis market share
gain, new product launches and expectation of urban demand recovery
going forward. We Maintain `BUY with target price of Rs 7920.
ROE ROCE
70.0%
60.2%
60.0%
46.0% 47.7%
50.0% 42.6%
40.0% 46.8%
41.6%
30.0%
32.3% 31.2%
Financials/Valu CY15 CY16 CY17E CY18E FY19E
20.0%
ation
Net Sales 8,175 9,224 10,847 12,038 13,351
10.0%
0.0%
EBITDA 1,555 1,807 1,969 1,976 2,236
CY13 CY14 CY15 CY16 EBIT esv 1,535 1,772 1,954 2,131
Shareholding patterns % PAT 1,208 1,453 1,613 1,621 1,883
1QCY17 4QCY16 3QCY16 EPS (Rs) 58 96 121 124 145
Promoters 62.8 62.8 62.8 EPS growth (%) -52% 63% 27% 2% 16%
Public 37.2 37.2 37.2 ROE (%) 32% 31% 34% 32% 34%
Total 100.0 100.0 100.0 ROCE (%) 43% 48% 47% 43% 45%
BV 292 313 344 377 415
Stock Performance % P/B (X) 16.9 19.8 21.0 19.8 18.1
1Mn 3Mn 1Yr P/E (x) 99.3 68.6 56.3 54.9 47.2
Absolute 2.6 6.5 15.9
Rel.to Nifty (0.6) (0.9) (3.7) Recent development and launches:
130
Nestle India has launched new range of Noodles Maggi Masala in India.
NESTLEIND NIFTY The new range of MAGGI noodles includes four new flavors - Amritsari
125 Achari, Mumbaiya Chatak, Super Chennai and Bengali Jhaal.
120
115 In this quarter, Nestle India tied up with Google and Paytm for promotion
110
to create strong bonding with consumers which may boost volumes going
105 forward.
100
95 The Company has introduced Milo Ready to drink the sports partner for
90 kids in 1QCY17.
85
NESTLE India extends NESTLE a+ GREKYO range with the launches of
80
Blueberry Greek Yoghurt and Greek Style Curd.
RAJEEV ANAND
rajeev.anand@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Quarterly Performance
Financials 1QCY16 2QCY16 3QCY16 4QCY16 1QCY17 1QCY16 QoQ% CY15 CY16 YoY %
Net Sales 2,368 2,272 2,363 2,286 2,592 9% 13% 8,175 9,224 13%
Other Income 35 37 37 41 42 18% 3% 110 149 36%
COGS 987 950 986 959 1,094 11% 14% 3,469 3,880 12%
Net Provi. For Contin. 12 22 10 9 10 -17% 7%
Employee Cost 213 263 270 294 246 16% -16% 913 1,073 18%
Other Expenses 560 608 650 617 625 12% 1% 2,147 2,410 12%
EBITDA 513 429 447 403 517 1% 28% 1,555 1,807 16%
Depreciation 89 89 88 87 87 -3% -1% 347 354 2%
Interest (26) 0 0 0 (23) -12% -5158% 3 4 34%
PBT 433 377 397 276 450 4% 63% 814 1,440 77%
Tax 166 114 127 113 143 -14% 27% 250 519 107%
PAT 287 231 269 164 307 7% 87% 563 921 63%
Sales grew by
9.5% YoY
Better revenue growth led by better domestic business performance
second best in
our FMCG
universe after The company has reported sales Rs 2592 cr(Vs Rs 2561 cr of our expectation), grew by 9.5% YoY,
second best in our FMCG universe after GODREJCP.
GODREJCP.
Gross margin declined by 51 bps YoY to 57.8% led by higher input prices(Milk derivatives).
Domestic revenue grew by 9.7% led by volume improvement across section. Exports remained flat
due to lower sales from Nepal and Bhutan.
EBITDA margin declined by 169 bps YoY to 20% from 21.7% led by higher COGS (up 51
bps),employee cost(up by 52 bps) and Other expenses(up by 47 bps).
PAT margin declined by 30 bps YoY 11.8% YoY from 12.1%.
PAT for this quarter grew by 7% YoY to Rs 307 cr from Rs 287 cr. PAT margin deteriorated by 30
bps YoY to 11.8% from 12.1% in Q1CY17.
OPM NPM
Sales(in cr) PAT(in cr)
25.0% 21.8% 21.7%
3000 350 20.0%
309 307300 19.2% 18.9% 18.9%
287 20.0% 18.0% 17.6%
2500 269
250 15.3%
231
2000 200 15.0% 12.3% 12.1% 11.8%
183 11.4%
164 150 10.2%
1500 124 9.3%
100 10.0% 7.1% 7.2%
1000 50
0 5.0%
500
2516
1957
1742
1959
2368
2272
2363
2286
2592
-64
-50
0 -100 0.0% -3.3%
-5.0%

Investment Arguments:
New product launches, the key of future growth: After Maggie fiasco, companys new
management has become more aggressive in launching new products. The company has
launched more than 25 products in last few quarters. NESTLE has strong backing of its parent
with more than 2000 products globally .Going forward, it has plans to launch more new
products from its parents global product portfolio. New product launches will improve
companys volume going forward.
Historically NESTLE has strong pricing power: As in most the FMCG categories input
prices have bottomed out and have started moving up. Hence going forward we expect growth
for FMCG will be pricing led. NESTLE has strong premium product portfolio and strong pricing
power.
Urban demand recovery led growth going forward: For last four years urban demand is
struggling due to higher inflation and lower economic activities which is one of the causes of
companys dismal performance. As NESTLEs most of the sales comes from urban areas,
approx. 75%, hence any recovery in urban demand will be huge positive for the company. We
expect better demand scenario for urban market going ahead led by declining inflation and
interest rate scenario. Hence we have positive view on NESTLE.
Smart bounce back by Maggie shows strong brand value: Nestle re-launched Maggie on
9 Nov., 2015 and within 53 days of re-launch, it regained market share of 33% which shows
strong brand power. Presently, Maggies market share has reached to 60% versus peak
market share of 75% which is commendable. It shows new managements aggression and
focus towards NESTLEs future growth. Going forward we expect brand Maggie to consolidate
further with more market share gain.
NESTLE didnt take price hike in CY16, so expect hike in CY17 Prepared Dishes(includes Maggie) Volume and growth
Overall Realization growth YoY Prepared Dishes Vol.(in MT) Vol. Growth YoY
73%
35% 31% 300000 80%
30% 60%
250000
25% 30%
25% 22% 40%
20% 200000 13%
8% 4% 4% 20%
13%
15% 11%
8%
7%
9% 150000 0%
10% 5%
-20%
5% 2% 100000
-59% -40%
122208
158993
193494
219041
236554
245443
254553
103138
178467
0%
50000
-5% -60%
-11%
-10% 0 -80%
-15%
View & Valuation

After Maggie fiasco, companys new management has become more aggressive in launching new
products. The company has launched more than 25 products in last few quarters. Going forward, it has
plans to launch more new products from its parents global product portfolio. New product launches
will improve companys volume going ahead. Secondly, NESTLE has strong pricing power so we
expect strong pricing led growth for NESTLE going ahead. As companys most of the sales come from
urban areas, approx. 75%, hence any recovery in urban demand will be huge positive for the
company. Presently, Maggies market share has reached to 60% versus peak market share of 75%
which is commendable. Our buy recommendation on NESTLE is based on Maggies market share
gain, new product launches and expectation of urban demand recovery going forward. We have
positive view on this stock and maintain `BUY with a target price of Rs 7920.

Financials Snap Shot
Income Statement Rs in Crores Key Ratios
Y/E March CY16 CY17E CY18E CY19E Y/E March CY16 CY17E CY18E CY19E
Revenue from Operation 9,224 10,847 12,038 13,351 ROE 31% 34% 32% 34%
Change (%) 13% 18% 11% 11% ROCE 48% 47% 43% 45%
Other Operating Income Asset Turnover 1.4 1.4 1.4 1.4
EBITDA 1,807 1,969 1,976 2,236 Debtor Days 4 4 4 4
Change (%) 16% 9% 0% 13% Inventory Days 37 37 37 37
Margin (%) 20% 18% 16% 17% Payable Days 32 32 32 32
Dep & Amortization 354 356 354 353 Interest Coverage 330 366 368 427
EBIT 1,453 1,613 1,621 1,883 P/E 69 56 55 47
Interest & other finance cost 4 4 4 4 Price / Book Value 20 21 20 18
Other Income 149 190 226 265 EV/EBITDA 35 33 33 29
EBT 1,440 1,798 1,843 2,144 FCF per Share 105 125 127 147
Exceptional Item (31) - - - Dividend Yield 0.9% 1.1% 1.1% 1.3%
Tax 519 629 645 750
Minority Int & P/L share of Ass. - - - - Assumptions
Reported PAT 921 1,169 1,198 1,393 Y/E March CY16 CY17E CY18E FY19E
Adjusted PAT 941 1,169 1,198 1,393 Volume Growth(domestic) 36% 9% 6% 5%
Change (%) 3% 24% 2% 16% Capex 416 300 300 300
Margin(%) 10% 11% 10% 10%
Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores

Y/E March CY16 CY17E CY18E CY19E Y/E March CY16 CY17E CY18E CY19E
Share Capital 96 96 96 96 PBT 1,409 1,798 1,843 2,144
Reserves 2,917 3,323 3,641 4,010 (inc)/Dec in Working Capital (29) 90 66 72
Networth 3,014 3,420 3,737 4,107 Non Cash Op Exp 354 356 354 353
Debt 33 33 33 33 Interest Paid (+) 4 4 4 4
Other Non Current Liab - - - - Tax Paid (519) (629) (645) (750)
Total Capital Employed 3,047 3,453 3,770 4,140 others - - - -
Net Fixed Assets (incl CWIP) 2,918 2,904 2,892 2,881 CF from Op. Activities 1,157 1,543 1,567 1,762
Non Current Investments 474 607 757 907 (inc)/Dec in FA & CWIP (143) (342) (342) (342)
Other Non Current Assets 135 135 135 135 Free Cashflow 1,014 1,201 1,225 1,420
Non Current Assets 3,527 3,646 3,784 3,924 (Pur)/Sale of Investment (424) (433) (450) (450)
Inventory 943 1,109 1,231 1,365 others (19) - - -
Debtors 98 115 128 142 CF from Inv. Activities (586) (775) (792) (792)
Cash & Bank 880 1,207 1,401 1,654 inc/(dec) in NW - - - -
Other Current Assets 26 30 34 37 inc/(dec) in Debt (0) - - -
Current Assets 3,279 4,103 4,743 5,456 Interest Paid (4) (4) (4) (4)
Creditors 799 940 1,043 1,157 Dividend Paid (inc tax) (677) (758) (780) (923)
Provisions 321 377 419 464 others 430 250 250 250
Other Current Liabilities 513 603 669 742 CF from Fin. Activities (235) (513) (534) (678)
Curr Liabilities 1,633 1,920 2,131 2,363 Inc(Dec) in Cash 336 255 240 292
Net Current Assets 1,646 2,183 2,612 3,092 Add: Opening Balance 500 880 1,207 1,401
Total Assets 6,806 7,750 8,527 9,379 Closing Balance 835 1,135 1,447 1,693

INDUSTRY - Pharmaceuticals
BSE Code - 532296
NSE Code - GLENMARK
15-May-17 NIFTY - 9400

CMP 759 US price regulation imposed by the US government has impacted the US
Target Price 830
base business of the company upto the extent of 18%. We expect this
Previous Target Price 1096 regulation to be continued for next 12-18 months.
Upside 9% Rupee appreciation against dollar has impacted the earnings form the US
52wk Range H/L 994/730 business in Q4FY17.
Mkt Capital (Rs Cr) 21,426 Higher finance cost has impacted the margins due to higher level of debt
Av. Volume (,000) 189 in FY17.
RoE to maintain at 25% in FY17

Company is expected to launch 10 new products and file 3 new ANDA's
but no timeline yet.
30%
Currently, the stock is trading at 4x FY19E P/BV
25% 25%
23% 22%
20% 20%
19%
18% 18%
15% 16%
10% Financials/Valu FY15 FY16 FY17 FY18E FY19E

5% ation
Net Sales 6,630 7,650 9,186 10,019 9,456
0% EBITDA 1,210 1,437 2,037 2,068 1,959
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
EBIT 950 1,203 1,772 1,842 1,693
Shareholding patterns % PAT 474 743 1,109 1,259 1,178
4QFY17 3QFY17 2QFY17 EPS (Rs) 17 26 39 45 42
Promoters 46.5 46.5 46.5 EPS growth (%) -13% 51% 49% 13% -6%
Public 53.5 53.5 53.5 ROE (%) 16% 20% 25% 22% 18%
Total 100.0 100.0 100.0 ROCE (%) 17% 20% 20% 20% 18%
BV 2,973 3,601 4,464 5,611 6,685
1Mn 3Mn 1Yr P/E (x) 45.0 30.2 21.7 19.1 20.4
Absolute (14.5) (11.4) (11.4)
Rel.to Nifty (17.2) (31.2) (20.1) RECENT DEVELOPMENT:
Glenmark gets tentative USFDA nod for anti-coagulant drug. IMS Health
sales data for the 12 months to February 2017, the approved product has
125 GLENMARK NIFTY
120 achieved annual sales of around USD 913 million
115 Glenmark has been granted final approval by U.S. FDA for Fenofibrate
110 Capsules (Generic version of Tricor Micronized Capsules).According to
105 IMS Health sales data for the 12 month period ending February 2017, the
100 Tricor Micronized Capsules achieved annual sales of approximately $97.5
95 million.
90
Glenmark Pharmaceuticals receives ANDA approval for Clobetasol
85 Propionate Ointment USP, 0.05%.According to IMS Health sales data for
80
the 12 month period ending January 2017, the Temovate Ointment,
Jul-16
Sep-16
Feb-17
Jan-17
Dec-16
Jun-16
Aug-16
May-16
May-17
Oct-16
Nov-16
Apr-17
Mar-17
0.05% market1 achieved annual sales of approximately $175.3 million*
Glenmark Pharmaceuticals Reports Positive Results from a Phase 3 Trial

of GSP 301, Mometasone/Olopatadine FixedDose Combination Nasal
ADITYA GUPTA
Spray, in Seasonal Allergic Rhinitis
aditya.gupta@narnolia.com
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Net Sales 2,281 1,969 2,224 2,535 2,457 8% -3% 7,650 9,186 20%
Other Income 11.7 75.9 -1.8 14.6 -51.3 -539% -452% 20 37.365 87%
COGS 744 624 615 599 777 4% 30% 2,303 2,614 14%
Employee Cost 348 372 482 402 385 11% -4% 1,378 1,641 19%
Other Expenses 887 595 678 769 852 -4% 11% 2,532 2,894 14%
EBITDA 302 379 449 765 444 47% -42% 1,437 2,037 42%
Depreciation 58 64 69 63 69 18% 10% 234 264 13%
Interest 48 43 63 62 70 47% 13% 179 237 33%
PBT 208 348 315 655 254 22% -61% 1,044 1,572 51%
Tax 59 121 92 178 (11) -118% -106% 301 383 27%
PAT 149 227 224 477 184 23% -61% 743 1,109 49%
Lower than expceted sales from Zetia drug
India Formulations- Sales for the formulation business in India for Q4FY17 was at Rs. 576 Cr.
(Growth of 6.88% YoY). India business is improved in Cardiac, Respiratory, Anti-diabetic and
Derma segment.
USA Formulations- Sale of finished dosage formulations was Rs. 1000 Cr. for the Q4FY17.
(Growth of 53.45% YoY), but reported a decline in growth of 18% QoQ on account of US pricing
pressure and increased competition. Sales from the newly launched drug Zetia is also impacted
due to price erosion.
Africa, Asia and CIS Region (ROW)- In Q4FY17, revenue from Africa, Asia and CIS region was
Rs. 288 Cr. as against Rs. 298 Cr.(de-growth of 3.06% YoY) due to Russian subsidiary recorded
moderate sales growth.
Europe Formulations- Glenmark Europes operations revenue for Q4FY17 was at Rs.229 Cr. as
compared to Rs. 270 Cr. YoY recording a decrease of 15.06% YoY. The growth was impacted due
to the currency depreciation of the British Pound.
Latin America- Revenue from its Latin American and Caribbean operations was at Rs. 133 Cr. for
the Q4FY17 as compared to Rs. 241 Cr. in the corresponding quarter of FY16(Decrease of 44%
YoY).The Latam region performance continues to be impacted on account of the lower sales from
Venezuela in the fourth quarter of the FY17.
Active Pharmaceutical Ingredients (API)- Revenue from sale of API was Rs. 199 Cr. during the
last quarter, Glenmark filed 3 US DMF, one Canada and one in Europe and has also received an
EIR from the U.S. FDA for its Ankleshwar facility.
Other Income- Company has reported other income of Rs. -51 Cr. in Q4FY17 as compared to Rs.
12 Cr. in the same quarter of FY16. This loss is on account of higher forex losses.
Finance Cost- Glenmark has reported finance cost of Rs. 70 Cr. in the last quarter of FY17 as
compared to the Rs.47 Cr. in the same quarter of FY16. Finance cost has increased on account of
higher debt level. Debt level has increased to Rs. 4724 Cr. in FY17 vs Rs. 3275 Cr in FY16.
Tax- Company has received tax benefit of Rs. 11 Cr. in Q4FY17 which is one-time benefit.
Management has guided that from Q1FY18, company will be in normal tax braket and effective tax
rate would be around 25%.
PAT- Glenmark has reported PAT of Rs. 184 Cr. in the last quarter of FY17 registering growth of
23% YoY and de-growth of 61% QoQ . This decline is on account of lower earnings and margins in
the last quarter of FY17.

Higher forex loss and R&D expenses impacted margins
Margin % 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Gross Margin 67% 68% 72% 76% 68% 0.01 -0.08 70% 72% 0.02
EBITDA Margin 13% 19% 20% 30% 18% 0.05 -0.12 19% 22% 0.03
PAT Margin 6.5% 11.5% 10.1% 18.8% 7.5% 0.01 -0.11 10% 12% 0.02
Gross Margin improved by 100bps YoY but contracted by 799bps QoQ on account of higher
purchases of stock in trade.
EBITDA improved by 500bps YoY but degrew by 1200bps due to foreign currency loss of Rs. 65 Cr in
Q4FY17 and higher R&D expenses.
PAT grew by 23.5%YoY to Rs.184 crore on account of higher revenue which resulted in 100bps
improvement in PAT Margin in 4QFY17.
EBITDA(Cr.) EBITDA margins PAT(Cr.) PAT margins

900 35% 600 19% 20%
30%
800 18%
30% 500
700 16%
22% 21% 21% 25% 14%
600 20% 20% 400 11% 11% 11% 12%
19%
18% 10% 10% 12%
500 16% 20%
16% 300 10%
13% 7%
765
400 7%
477
15% 7% 8%
300 200
6%
10%
449
444
404
379
227
371
224
359
216
200 4%
335
196
184
183
302
100
165
281
266
149
115
5% 1% 2%
11
100
0 0% 0 0%
Concall Highlights:
Price erosion in US base business has reached to 15% in Q4, including Zetia(which has exclusive
rights for 180 days). Management is expecting price erosion to continue for next 10-18 months
Company has received 4 observations for Goa facility for which remediation process is completed and
company has responded to USFDA.
Management is expecting 10-15 launches in FY18,and plans to file 3 ANDAs in Q1FY18.
Revenue guidance of 12-15% in FY18E. And margin guidance of 23% going forward.
Management expects Zetia sales to revamp in Q1FY18, and looks for few meaningful launches in
FY18E.
Generic anti-cholesterol drug Zetia sales to be lower than company's guidance of USD 200 million.
Generic Zetia to be key contributor in Q1 FY18, as two months exclusivity remain.
R&D expenditure to be in the range 11-12 percent in FY18
Glenmark took a write-off Rs 325 crore of its Venezuela business in Q4FY17.
Management expects Goa facility to be inspected in 2017.

Increased competition in US market due to entry of new players.
Targeting to file 20 25 ANDAs and launch ~20 products annually. Leverage expertise in the
dermatology segment 15+ ANDAs pending for approval and 20+ products in development
Management expects EBITDA margins to touch 25 percent over the next 10 years.

US price regulation- In the last quarter US government has capped price of certain drugs and also
plans to review regulations imposed on the Pharmaceutical sector. US business contributes about
41% of the total revenue. This price regulation is imposed on the existing as well as on the newly
launched drug Zetia. We expect that this regulation will tapper the earnings as well as the margins of
the company going forward.
Currency fluctuations- From the beginning of this year rupee is continuously appreciating against
dollar which puts pressure on the earnings of the company. The US business contributes about 41%
of total revenue which comes in the form of Dollars.
On-going US FDA observations- The Ankleshwar manufacturing facility received 4 observations to
which company has responded to the U.S. FDA and waiting for the re-inspection. The company has
received for 483 on this facility in 21 Feb 2017. This facility is under the US import ban and till the time
this ban is not lifted, this facility cannot export any drug to the US market.
Higher Research & Development- The company has a pipeline of 7 new molecular entities, which
includes 2 new chemical entities and 5 new biological entities, in various stages of clinical
development. This involves higher R&D expense of 12% going forward and we expect this will impact
margin in FY18E.
Debt repayment- In the last quarter management has guided to repay debt on the back of Zetia sales,
but it was unable to repay its debt in FY17. Now debt repayment is the key concern to track for the
company in this current fiscal. Debt/Equity ratio is 1.05 in FY17 and we expect to come down in FY18
based on the management guidance to repay debt.
Geographical contribution in Revenue(%)
FY16 FY17
9% 9%
12% 32% 11%

41%
9% 8%
6%
10%
28% 25%
US INDIA LATAM Europe ROW ( Africa, CIS, Asia) API
View & Valuation

Due to drug price regulation by US government, US business of company is severely impacted in
Q4FY17. Drug price corrected by 15% and it is expected to correct more going forward considering US
government drug price regulation policies. Mgt. has indicated Zetia sales improvement going forward
but we expect that it would not be easy considering current scenario. Management has guided for new
products launch in the US market in FY18E but we need to wait to get clear visibility on it. We expect
ROE to maintain at the level of 22% in FY18E. Currently, the stock is trading at 4x FY19E P/BV.
Considering the near-term un-certainties, we maintain Neutral rating in this stock while revising our
previous target price to Rs. 830

Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Change (%) 15% 20% 9% -6% ROCE 20% 20% 20% 18%
Other Operating Income - - - - Asset Turnover 0.8 0.8 0.8 0.8
EBITDA 1,437 2,037 2,068 1,959 Debtor Days 119 96 96 96
Change (%) 19% 42% 2% -5% Inventory Days 75 85 85 85
Dep & Amortization 234 264 227 266 Interest Coverage 6.72 7.47 9.24 10.78
EBIT 1,203 1,772 1,842 1,693 P/E 30 22 19 20
Interest & other finance cost 179 237 199 157 Price / Book Value 6.2 5.4 4.3 3.6
EBT 1,044 1,572 1,678 1,571 FCF per Share (19) (22) 36 38
Exceptional Item - 81 - - Dividend Yield 0.3% 0.2% 0.2% 0.2%
Tax 301 383 420 393
Minority Int & P/L share of Ass. (0) (0) - - Segment Revenue(%)
Reported PAT 743 1,109 1,259 1,178 Revenue FY16 FY17 FY18E FY19E
Adjusted PAT 743 1,048 1,259 1,178 US 32% 41% 41% 32%
Change (%) 57% 49% 13% -6% INDIA 28% 25% 24% 26%
Margin(%) 10% 12% 13% 12% LATAM 10% 6% 6% 7%
Europe 9% 8% 7% 9%
ROW ( Africa, CIS, Asia) 12% 11% 13% 16%
API 9% 9% 9% 9%
Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Reserves 3,601 4,464 5,611 6,685 (inc)/Dec in Working Capital 1,431 2,053 2,241 1,955
Other Non Current Liab 72 30 30 30 Tax Paid (478) (383) (420) (393)
Total Capital Employed 6,904 9,216 9,607 9,838 others (22) - - -
Net Fixed Assets (incl CWIP) 3,079 3,415 3,659 4,109 CF from Op. Activities 345 (43) 1,534 1,756
Non Current Investments 17 16 16 16 (inc)/Dec in FA & CWIP (890) (571) (508) (677)
Other Non Current Assets 42 63 - - Free Cashflow (545) (614) 1,026 1,079
Non Current Assets 4,289 4,889 5,034 5,484 (Pur)/Sale of Investment - 10 - -
Inventory 1,568 2,139 2,333 2,202 others 3 10 - -
Debtors 2,493 2,404 2,622 2,475 CF from Inv. Activities (880) (561) (508) (677)
Cash & Bank 857 1,056 1,016 990 inc/(dec) in NW 935 - - -
Other Current Assets 971 1,074 1,171 1,105 inc/(dec) in Debt 11 1,449 (755) (843)
Current Assets 5,904 6,875 7,344 6,974 Interest Paid 179 237 199 157
Creditors 1,941 1,904 2,076 1,960 Dividend Paid (inc tax) (68) (66) (112) (105)
Provisions 63 77 84 79 others - - - -
Other Current Liabilities 392 469 512 483 CF from Fin. Activities 699 1,145 (1,067) (1,104)
Curr Liabilities 3,212 2,515 2,738 2,588 Inc(Dec) in Cash 163 541 (40) (25)
Net Current Assets 2,692 4,359 4,606 4,386 Add: Opening Balance 764 857 1,056 1,016
Total Assets 10,193 11,764 12,377 12,458 Closing Balance 857 1,398 1,016 991

INDUSTRY - AUTOMOBILE
BSE Code - 500182
NSE Code - HEROMOTOCO
12-May-17 NIFTY - 9422

CMP 3463 Rising commodity prices and transition from BS-III to BS-IV restricted the
Target Price 3575 company to expand its profitability and the company reported weakest
Previous Target Price 3800 EBITDA margin in last 8 quarters.
Upside 3% Higher depreciation on Halol plant will lead to further contraction in
52wk Range H/L 3740/2844 profitability as the plants will take at least 6-8 months to ramp up.
Mkt Capital (Rs Cr) 69,171 Hero Motocorp is the market leader in the entry segment motorcyle and
Av. Volume ('000) 22 commands over 50% market share in that segment.The company has lost
4-5 percent market share in FY17 to Honda Motorcycle, which has grown
RoE to drop sharply by 320 bps in FY19 fiercely in the indian two wheeler market.
ROE We expect 320bps deterioration in FY19E RoE. Considering the margin

37% 36% contraction and uncertainty regarding GST we reduce our target from
36% 35%
35% 34% Rs.3800 to Rs.3575 and change our rating from BUY to NEUTRAL.
34%
33% 32%
32% 31%
31%
30%
Financials/Valu FY15 FY16 FY17 FY18E FY19E
29% ation
Net Sales 27,538 28,457 28,585 30,971 33,473
28%
EBITDA 3,497 4,398 4,576 5,206 5,926
EBIT 2,956 3,954 4,074 4,618 5,279
Shareholding patterns % PAT 2,365 3,112 3,546 3,793 4,309
4QFY17 3QFY17 2QFY17 EPS (Rs) 118 156 178 190 216
Promoters 34.6 34.6 34.6 EPS growth (%) 12% 32% 14% 7% 14%
Public 65.4 65.4 65.4 ROE (%) 36% 35% 34% 32% 31%
Total 100.0 100.0 100.0 ROCE (%) 45% 44% 39% 38% 38%
BV 328 442 517 599 692
Stock Performance % P/B (X) 8 7 6 6 5
1Mn 3Mn 1Yr P/E (x) 22 19 19 17 15
Absolute 8.2 7.4 16.9
Rel.to Nifty 6.2 0.3 (2.5) RECENT DEVELOPMENTS:
130
The Halol Plant at Gujarat has started commercial production in 4QFY17.
HEROMOTOCO NIFTY The first phase capacity of Halol plant is 12 lakh units per annum, while
125
120
overall production capacity planned is 18 lakh units. This plant will take
115
care exports also.
110
The company has planned Rs. 2500 crores of capital expenditure to be
105
spent over next two years. This will be towards new product development,
100
phase wise capacity installation & expansion at existing facilities.
95
90 The company expanded its footprint in the international markets by
85 commencing operations in two significant global markets like Argentina
80 and Nigeria.
Jul-16
Sep-16
Feb-17
Jan-17
Dec-16
Jun-16
Aug-16
May-16
May-17
Oct-16
Nov-16
Apr-17
Mar-17
The company has robust pipe line of new products in Scooter and
Premium segment motorcycles. These products will be launched in FY18
& FY19.
NAVEEN KUMAR DUBEY
Naveen.dubey@narnolia.com
Total Volumes ('000) 1,721 1,745 1,823 1,473 1,622 -6% 10% 6,631 6,664 0%
Realization(Rs./ bike) 43,644 42,391 42,755 43,202 42,639 -2% -1% 42,912 42,895 0%
Net Sales 7,505 7,399 7,796 6,365 6,915 -8% 9% 28,457 28,585 0%
Other Income 117 120 152 132 118 1% -10% 413 522 26%
COGS 4,964 4,965 5,183 4,128 4,736 -5% 15% 19,308 19,091 -1%
Employee Cost 351 336 357 374 328 -7% -12% 1,339 1,432 7%
Other Expenses 1,001 867 887 783 893 -11% 14% 3,412 3,486 2%
EBITDA 1,189 1,230 1,369 1,080 958 -19% -11% 4,398 4,576 4%
Depreciation 115 115 119 125 135 18% 8% 443 502 13%
Interest 1 2 2 2 1 21% -3% 15 27 87%
PBT 1,190 1,234 1,400 1,085 939 -21% -13% 4,353 4,568 5%
Tax 357 351 396 313 221 -38% -29% 1,275 1,339 5%
PAT 833 883 1,004 772 718 -14% -7% 3,112 3,546 14%
Volume de-growth of 6% YoY, realisations declined by 2% YoY
Hero Motocorp reported 8%YoY decline in the net sales in 4QFY17. Total sales volumes contracted
by 6%YoY and Realization also declined by 2%YoY.
Reduction in the total sales volumes was the after effect of demonetization during the 3QFY17. 2
Wheeler sector was one of the most affected sectors due to currency ban. The company witnessed
slow recovery during January and February months in the rural segment, where Hero has more
than 50% exposure. 2 Wheeler sales increased in March on account of destocking of BS-III
inventory.
Heavy discounts of up to Rs.10000 per vehicle because of higher BS-III inventory resulted in lower
realization for the quarter.
EBITDA declined by 19% YoY to Rs.958 crore in 4QFY17 due to increased commodity prices and
higher other expenses.
Depreciation for the quarter stood at Rs.135 crore, higher 18%YoY because of the production at
Halol Plant has started in 4QFY17.
Profit after tax also declined by 14% YoY to Rs.718 crore during the quarter.
Volume trend Realisation trend
Two wheeler YoY Growth Realisation (Rs./vehicle) YoY Growth
2,000,000 16% 20% 44,000 7%

1,800,000 6%
15% 43,500
6%
4% 5%
1,600,000 9%
1,400,000 6% 10% 3% 4%
1,200,000 3% 43,000 3%
5% 1%
1,000,000 2%
-4% 0% 0% 0%
800,000 -13% 42,500 -2% 1%
1,473,211
-6% -2%
1,645,867
-7%
1,574,861
1,690,354
1,721,240
1,745,389
1,823,498
1,621,805
600,000 -5% 0%
43,414
43,155
43,644
42,391
43,202
42,639
42,259
42,755
400,000 42,000 -1%

200,000 -10% -2%
- -15% 41,500 -3%

EBITDA Margins at 13.8% weakest in last 8 quarters
Gross Margin 34% 33% 34% 35% 32% (0.02) -0.04 32% 33% 0.01
EBITDA Margin 16% 17% 18% 17% 14% (0.02) -0.03 15% 16% 0.01
PAT Margin 11% 12% 13% 12% 10% (0.01) -0.02 11% 12% 0.01
Gross Margin contracted by 230 bps YoY to 32% due to higher commodity prices. Transition from BS-
III to BS-IV has also put the margins under pressure. Full impact of increased commodity prices have
not yet factored in 4QFY17 results and thus margins will also be under pressure in 1QFY18.
EBITDA Margin declined by 200 bps YoY to 13.8% in 4QFY17 impacted by higher other expenses.
Lower tax expenses during the quarter supported PAT and restricted the further decline in the PAT
Margins.
EBITDA and EBITDA Margin trend PAT and PAT Margin trend
EBITDA (Rs. Crore) EBITDA Margin PAT (Rs. Crore) PAT Margin
1,200 13% 14%

1,600 18% 17%
20% 12% 12%
17% 11% 11% 11%
16% 16% 18% 11% 12%
1,400 15% 16% 1,000 10%
14% 16%
1,200 10%
14% 800
1,000 12% 8%
800 10% 600
6%
600 8% 400
6% 4%
400
1,004
4%
1,048
1,083
1,131
1,189
1,080
1,230
1,369
200
750
772
793
833
883
772
718
2%
958
200 2%
- 0% - 0%
Concall Highlights:
High single digit growth for industry in FY18.
Double digit growth for Hero in FY18.
EBITDA Margin would be in the range of 14-15%.
There will be cost pressure in 1QFY18 also.
Advertising & Promotion expenses will be 2.5% of sales in FY18.
Depreciation will be high because of commencement of production in Halol Plant.
Scooter segment growth will be higher than industry.
Rural market is expected to post good growth backed by good monsoon and marriage season.
Capex guidance of Rs.2500 crore to be spent on R&D (new product development) and Andhra plant.
Inventory level stood at 5-6 weeks.
The tax benefit for plants in Rajasthan and Gujarat will last for 7 years; and the benefit is restricted to
the extent of investment
Management expects benefit from LEAP program to be around 50-60 bps and additional 25-30 bps
from other initiatives.
Export market outlook remain sluggisg for next couple of months.
The management is also focusing on developing electric vehicles considering the government focus
towards Mission Electric by 2020.

Margins to remain under pressure- The management has explained that the company has not yet fully
factored the increased RM cost. Hero Motocorp took the price hike in the range of Rs.500-2000 which was
not sufficient to net off the impact of higher commodity prices. So we expect that 1QFY18 will also be under
pressure on margin front.
Higher Depreciation may affect the bottom-line- The commercial production at Halol plant has started in
4QFY17. Considering the demand scenario we expect that it will take at least 6-8 months to ramp up and till
then the company has to incur higher other expenses and depreciation on the plant.
Uncertainty regarding tax regime- GST will come in effect from 1st July 2017 and the tax rates are still not
certain which keeps the auto industry to on its toes. All the auto manufacturers will refrain from keeping
higher inventory with them. The meeting has been scheduled on 19th May to decide the tax rates.
Rural Demand to drive growth- Hero Motocorp has more than 55% exposure in rural segment.
Expectation of good monsoon in the current fiscal may drive the demand going ahead. Marriage season in
the North region will be key growth driver for the company in FY18.
New product launch in the scooter and premium segment- The company has huge capex plan of
Rs.2500 crore over next two years. The launches will be in the fast growing scooter segment and premium
segment motorcycles. Hero Motorcorp has very minimal presence in the premium segment where peers like
Bajaj Auto, TVS Motors and Yamaha has captured more than 80% market share.
Trend in Segment Mix Share of Scooters & 125 cc segment increasing gardually
Economy Executive 100 Executive 125

Motorcycles Scooters
Premium Scooters
100% 90% 89% 88% 88%
84% 86% 86%
90% 84% 120%
80% 100% 9% 10% 15% 16% 12% 13% 12% 12%
70% 2% 2% 2% 2% 2% 1%
80% 11% 12% 3% 1% 13% 11% 13%
60% 10% 11% 13%
50% 60%
40% 61% 58% 54% 52% 53% 51% 52% 51%
40%
30%
16% 16% 14% 14%
20% 10% 11% 13% 12% 20%
17% 18% 18% 20% 20% 21% 23% 23%
10% 0%
0%
View & Valuation

Hero Motocorp is the market leader in the entry segment motorcycle and commands over 50% market
share in that segment. The company has lost 4-5 percent market share in FY17 to Honda Motorcycle,
which has grown fiercely in the Indian two wheeler market. Rising commodity prices and transition
from BS-III to BS-IV restricted the company to expand its profitability. The management has stated that
the margins will be under pressure as the full impact of increased commodity prices has not been
factored yet. Higher depreciation on Halol plant will lead to further contraction in profitability as the
plants will take at least 6-8 months to ramp up. The uncertainty regarding tax structure under GST will
also keep automobile industry outlook hazy. We expect 320bps deterioration in FY19E RoE.
Considering the margin contraction and uncertainty regarding GST we reduce our target from Rs.3800
to Rs.3575 and change our rating from BUY to NEUTRAL.

Change (%) 3% 0% 8% 8% ROCE 44% 39% 38% 38%
EBITDA 4,398 4,576 5,206 5,926 Debtor Days 16.4 19.8 19.8 19.8
Change (%) 26% 4% 14% 14% Inventory Days 9.8 9.0 9.0 9.0
Margin (%) 15% 16% 17% 18% Payable Days 34.3 41.7 41.7 41.7
EBIT 3,954 4,074 4,618 5,279 P/E 18.9 18.6 17.3 15.3
Other Income 413 522 697 825 EV/EBITDA 13.4 14.4 12.7 11.1
EBT 4,353 4,568 5,288 6,078 FCF per Share 5,504 6,095 5,749 6,203
Exceptional Item - (262) - - Dividend Yield 2.4% 2.6% 2.8% 3.1%
Tax 1,275 1,339 1,550 1,823
Minority Int & P/L share of Ass. 34 55 55 55 Assumptions
Reported PAT 3,112 3,546 3,793 4,309 Y/E March FY16 FY17 FY18E FY19E
Adjusted PAT 3,112 3,546 3,793 4,309 Volume ('000) 6,631 6,664 7,174 7,773
Change (%) 32% 14% 7% 14% Volume Growth 0% 0% 8% 8%
Margin(%) 11% 12% 12% 13% Realization(Rs./vehicle) 42,912 42,895 43,169 43,061
Realization Growth 3% 0% 1% 0%
Capex(Rs crore) 1,476 1,432 1,250 1,250

Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Debt 230.04 248.0 245.3 242.6 Interest Paid (+) 12 27 27 27
Other Non Current Liab Tax Paid (1,104) (1,339) (1,550) (1,823)
Net Fixed Assets (incl CWIP) 4,437 5,180 5,529 6,013 CF from Op. Activities 3,796 4,850 4,813 5,072
Non Current Investments 1,030 1,522 2,730 2,804 (inc)/Dec in FA & CWIP (1,708) (1,245) (936) (1,131)
Non Current Assets 6,592 7,741 8,966 9,524 (Pur)/Sale of Investment (549) - - -
Inventory 762 709 768 830 others 169 (1,565) (1,813) (1,469)
Debtors 1,282 1,552 1,681 1,817 CF from Inv. Activities (2,286) (2,810) (2,749) (2,600)
Cash & Bank 75 74 75 70 inc/(dec) in NW
Other Current Assets 562 524 568 613 inc/(dec) in Debt 132 18 (3) (3)
Creditors 2,675 3,266 3,539 3,825 Dividend Paid (inc tax) (1,682) (2,014) (2,155) (2,448)
Provisions 98 118 114 124 others 133 18 (3) (3)
Other Current Liabilities 506 457 495 535 CF from Fin. Activities (1,561) (2,024) (2,184) (2,477)
Curr Liabilities 3,487 4,137 4,437 4,766 Inc(Dec) in Cash (50) 16 (121) (5)
Net Current Assets 2,816 3,434 3,852 5,160 Add: Opening Balance 155 75 74 75
Total Assets 12,896 15,312 17,255 19,449 Closing Balance 104 74 75 70

INDUSTRY - BANKING
BSE Code - 532401
NSE Code - VIJAYABANK
11-May-17 NIFTY - 9407
Company Data Key Highlights of the report:

CMP 93 Vijaya bank continues to report healthy results amid dismal numbers among
Target Price 98 its public peer banks.
Previous Target Price Credit growth has shown positive sign with growth of 6% YoY on the back of
Upside 6% strong retail credit growth.
Change from Previous Vijaya bank has lowest stressed assets among all public sector banks and
52wk Range H/L 97/29 has declined for consecutive two quarters. However we remain extremely
Mkt Capital (Rs Cr) 9254 cautious on assets quality front for PSU banks.
Av. Volume (,000) 823 With the less stress assets on balance sheet margins and profitability has
Share Holding Pattern % continuously improved for vijaya bank.
4QFY17 3QFY17 2QFY17 We initiated this stock at the price of Rs 48 which has almost doubled
Promoters 70.3 70.3 70.3 till now. The stock is currently trading at (1.3x/1.2x PV FY17/FY18E) and
DII 14.5 14.5 14.7 valuation has got stretched which leaves us with little upside, hence we
FII 2.4 2.4 3.2 recommend to partly book profit on this stock and hold for the rest with
12.9 12.8 11.8
the target price of Rs 98.
Others
Vijaya bank is trading at its higher Financials/Valuation FY15 FY16 FY17 FY18E FY19E
range of P/B NII 2,292 2,761 3,506 4,054 4,701
1.20
PPP 1,912 2,086 2,737 2,784 3,127
1.00
PAT 439 382 750 904 1,338
0.80 NIM % 1.8 2.1 2.5 2.7 2.8
0.60 EPS (Rs) 5.1 4.1 7.5 8.2 12.2
0.40 EPS growth (%) 26.4% -20.0% 83.5% 9.5% 48.0%
0.20
ROE (%) 7.5 6.1 11.1 11.7 15.0
ROA (%) 0.3 0.3 0.5 0.6 0.8
-
BV 69 70 70 77 86
4QFY16
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
1QFY17
2QFY17
3QFY17
4QFY17
FY07
FY08
FY10
FY11
FY12
FY13
FY09
P/B (X) 0.7 0.4 1.0 1.2 1.1

Stock Performance % P/E (x) 9.4 7.7 9.2 11.3 7.6
1Mn 1Yr YTD
Absolute 29.8 194.1 97.1 Recent Development : Key Highlights of Result Update
Rel.to Nifty 27.9 174.5 82.1 Vijaya bank continues to report healthy performance in 4Q FY17 as per our
240
expectation.
VIJAYABANK NIFTY
220
PAT increased by 3 times to Rs 204 Cr in 4Q FY17.
200
180
NIM improved to 3.10% from 2.27% on 4Q FY16.
160 Advances grew by 6.3% YoY on the back of healthy growth in retail
140 advances.
120
100
Assets quality has further improved on sequential basis with GNPA at 6.59%
80
against 6.98%
CASA ratio remained healthy at 28% against 23% a year back.
With the Tier 1 ratio at 9.96% and CRAR at 12.73% management plans to
DEEPAK KUMAR Raise Rs 1000 Cr core capital in FY18.
Deepak.kumar@narnolia.com
Interest Inc. 2,956 3,060 3,128 3,137 3,055 3.3% -2.6% 12,084 12,379 2.4%
Robust NII Interest Exp. 2,287 2,277 2,300 2,231 2,065 -9.7% -7.4% 9,323 8,873 -4.8%
growth on the NII 668 783 828 906 989 48.0% 9.2% 2,761 3,506 27.0%
back of NIM Other Income 273 235 388 577 450 65.0% -22.0% 874 1,651 89.0%
expansion.
Total Income 941 1,018 1,216 1,484 1,440 53.0% -3.0% 3,635 5,158 41.9%
Ope Exp. 627 559 645 795 737 17.5% -7.4% 2,086 2,737 31.2%
PPP 314 459 571 688 703 123.7% 2.1% 1,549 2,421 56.3%
Provisions 653 268 390 417 432 -33.9% 3.6% 1,391 1,507 8.4%
PBT (339) 191 181 271 271 -180.0% -0.2% 158 914 477.5%
Tax (411) 29 27 41 67 -116.3% 62.7% (223) 164 -173.4%
Net Profit 72 162 155 230 204 183.9% -11.4% 382 750 96.6%
Strong profitability continues in 4Q FY17.

Vijaya bank continues to report healthy performance in 4Q FY17 as per our expectation. PAT almost
increased by 3 times on the back of lower PAT base in 4Q FY16.
NII grew by robust rate of 48% YoY backed by NIM expansion.
Other income grew by 65% YoY backed by heavy treasury gain which increased by 14x YoY. However
fee income also remained healthy and registered 99% growth YoY.
Operating expenses grew by 17% YoY which led to decline in C/I ratio to 51% from 53.4% on
sequential basis.
Provisions declined by 34% YoY on the back of stable assets quality performance.
NIM improved to 3.10% from 2.27% on 4Q FY16. Cost of fund declined by 134 bps to 5.43% mainly
benefitting from improved CASA ratio due to demonetization. Yield on earning assets decreased to
8.03% against 8.77% on 4Q FY17.
Profitability Metrix 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
C/I Ratio % 66.6 54.9 53.1 53.6 51.2 -15.44 -2.44 57.4 53.1 -4.33
Cost to Empl. Cost/ Tot. Exp. % 58.5 61.0 63.8 64.4 65.6 7.02 1.20 59.8 63.9 4.09
Income Other Exp/Tot. Exp.% 41.5 39.0 36.2 35.6 34.4 -7.02 -1.20 40.2 36.1 -4.09
remained at
Provision/PPP % 207.8 58.4 68.3 60.6 61.5 -146.4 0.89 89.8 62.2 -27.55
higher side. A
Tax Rate % 121.2 15.3 14.6 15.2 24.7 -96.46 9.56 -141.1 17.9 159.03
lot of scope
form Int Exp./Int Inc. (%) 77.4 74.4 73.5 71.1 67.6 -9.78 -3.50 77.2 71.7 -5.48
improvement. Other Inc./Net Inc. % 29.0 23.1 31.9 38.9 31.3 2.28 -7.64 24.0 32.0 7.97
PAT/ Net Income % 7.6 15.9 12.7 15.5 14.2 6.54 -1.35 10.5 14.6 4.05
PAT Growth % -27.3 13.4 34.1 337.7 183.9 211.2 -153.8 -13.1 96.6 109.67
NII Growth % (YoY) 6.9 18.2 19.5 22.9 48.0 41.16 25.17 20.4 27.0 6.57
Operating Profit Growth 0.0 16.8 43.1 55.5 123.7 123.73 68.24 23.0 56.3 33.30
YoY
RoE %
% 6.1 9.8 9.1 13.2 11.6 5.47 -1.60 6.1 11.1 4.97
RoA % 0.3 0.5 0.4 0.6 0.5 0.23 -0.08 0.3 0.5 0.25

Consecutive Improvement in Non-performing assets.
Assets quality has further improved on sequential basis with GNPA at 6.59% against 6.98% and
NNPA at 4.36% against 4.74%.
However slippages increased significantly during this quarter to Rs 713 Cr against Rs 200 in 3Q FY17.
Management highlighted that slippages were mostly from retail and MSME accounts (Demonetization)
which was not recognized in 3Q FY17 as per dispensation scheme of RBI.
Recoveries & Up-gradation was Rs 213 Cr against Rs 172 Cr.

PCR has increased to 58% against 55% on sequential basis.
Restructured assets declined to Rs 1524 Cr against 1969 Cr sequentially.
Healthy Retail advances and CASA growth.

Advances grew by 6.3% YoY on the back of healthy growth in retail advances.
Retail advance grew by 24.3% YoY, agri portfolio increased by 13.5% YoY whereas MSME advances
grew by 6.7% YoY.
Under the retail advances housing loan grew by 29% YoY. Retail advances constitute 30% of the loan
portfolio and management is focused to increase share of retail advances going forward.
Total deposits grew by 6% YoY whereas CASA deposit registered healthy growth of 28% YoY.
CASA ratio remained healthy at 28% against 23% a year back but it declined marginally by 60 bps
sequentially. Under CASA both current and saving deposits grew by 28% YoY.
Concall Highlights :
Slippages were due to demonetization which got deferment during 3Q FY17 on account of
dispensation scheme of RBI. However management said that they saw good recovery in MSME
accounts from mid of April. There was only one large account from S4A which slipped to the tune of
Rs 60 to 70 Cr.
Steel and Iron advances is Rs3711 Cr and NPA in this Rs 2000 Cr which constitute 31% of total
GNPA. Engineering constitute 8.3% of GNPA, Power is 9.65%, textile is 4.8%, Road is 5.7% of total
GNPA.
Expect 9%-10% credit growth on the back of retail, agri and MSME sector in FY18.NIM target is 2.8%-
3%. Expect to cross PCR of 65% in FY18.
Management expects slippages run rate of Rs 250-300 Cr per quarter in FY18.
S4A exposure is Rs 836 Cr, SDR is Rs 222 Cr (4 a/c) of which Rs 192 is NPA, 5/25 is Rs 1972 Cr of
which Rs 982 Cr is already NPA.
One account to the tune of Rs 400 Cr from electronic company is showing stress.
Restructured book reduced due to conversion of discom exposure of Rs 400 Cr from Tamil Nadu and
Telengana.
View and Valuation
Focus of management on retail banking has helped the operating profitability to improve significantly.
The balance sheet has tilted towards more on retail banking both on assets side as well as liability
side. Focus on CASA deposits and shedding the bulk deposits has helped the cost of fund to decline
significantly. We expect NIM to improve further in FY18 to 2.75%. Focus of management is growing
retail book going forward hence we expect 8 to 10 percent credit growth in FY18. Assets quality is
likely to continue to improve going forward but we are cautious for the whole scenario of assets quality
in PSU banking. With the Tier 1 ratio at 9.96% and CRAR at 12.73% management plans to Raise Rs
1000 Cr core capital in FY18. With this we expect RoE and RoA of 11.7% and 0.6% respectively in
FY18.
We initiated this stock at the price of Rs 48 which has almost doubled till now. The stock is
currently trading at (1.3x/1.2x PV FY17/FY18E) and valuation has got stretched which leaves us
with little upside, hence we recommend to partly book profit on this stock and hold for the rest
with the target price of Rs 98.
Non-Performing Assets
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
GNPA (Rs) 6,027 6,589 6,490 6,305 6,382 5.9% 1.2% 6,027 6,382 5.9%
GNPA % 6.6 7.3 7.1 7.0 6.6 -0.05 -0.39 6.6 6.6 -0.05
NNPA (Rs) 4,277 4,793 4,587 4,182 4,118 -3.7% -1.5% 4,277 4,118 -3.7%
NNPA % 4.8 5.4 5.1 4.7 4.4 -0.45 -0.38 4.8 4.4 -0.45
Slippages (Rs) 3,016 1,244 736 200 713 -76.4% 256.5% 5,836 2,893 -50.4%
Restructured Ast.(Rs) 2,155 9,670 2,285 1,969 1,524 -631.00 -445.00 2,155 1,524 -631.00
PCR % 50.1 48.6 51.3 55.4 58.2 8.07 2.71 50.1 58.2 8.07
Advances Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Gross Adv. (Rs in Cr) 87,692 84,800 87,026 89,696 90,765 90,199 91,821 90,290 96,821
Adv. Growth YoY % 6.4 10.0 10.8 13.3 3.5 6.4 5.5 0.7 6.7
>> Growth QoQ % 10.8 -3.3 2.6 3.1 1.2 -0.6 1.8 -1.7 7.2
Deposits Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Deposits (Rs in Cr) 126343 127640 123286 125475 125441 120477 127785 128299 133012
Growth YoY % 1.6 7.6 0.1 1.1 -0.7 -5.6 3.6 2.3 6.0
>> Growth QoQ % 1.8 1.0 -3.4 1.8 0.0 -4.0 6.1 0.4 3.7
CASA (Rs) 25,721 24,285 25,311 25,992 29,125 27,975 28,953 36,816 37,373
>>CASA Growth YoY % 12.5 6.9 8.4 9.8 13.2 15.2 14.4 41.6 28.3
>> Growth QoQ % 8.7 -5.6 4.2 2.7 12.1 -3.9 3.5 27.2 1.5
CASA % 20.4 19.0 20.5 20.7 23.2 23.2 22.7 28.7 28.1
CA % 5.3 4.2 4.6 4.9 5.3 5.0 4.6 6.3 6.4
SA % 15.1 14.8 15.9 15.9 17.9 18.2 18.0 22.4 21.7
Credit Deposit Ratio 69.4 66.4 70.6 71.5 72.4 74.9 71.9 70.4 72.8
Gross Adv. (Rs in Cr) Adv. Growth YoY % GNPA % NNPA %
98,000 16.0 8 7.31

7.07 6.98
96,000 7 6.64 6.59
14.0
94,000
12.0 6 5.42
92,000 5.10
4.81 4.74
10.0 5 4.32 4.36
90,000 3.98
88,000 8.0 4 3.39
2.78 2.84 2.98
86,000 6.0 3 2.45
84,000 1.92
4.0 2
82,000
2.0 1
80,000
78,000 0.0 0

Narnolia Securities
Ltd
INDUSTRY - Con. Staples
BSE Code - 532424
NSE Code - GODREJCP
10-May-17 NIFTY - 9352

CMP 1929 GODREJCP's Q4FY17 numbers are better than our expectation. Revenue
Target Price HOLD
for Q4FY17 grew by 13%YoY to Rs 2489 cr (Vs expectation of Rs 2473
cr).
Previous Target Price Surprised us on margin front. Gross margin improved by 282 bps YoY to
Upside 58.5% (Vs expectation of 57%).EBITDA margin improved by 147 bps YoY
52wk Range H/L 1956/1286 to 22.1%(Vs expectation of 20%).
Mkt Capital (Rs Cr) 65,710 Domestic volume for this quarter grew by 5%.
Av. Volume (,000) 166 We expect better growth led by GST and see similar margin or
improvement in margin going forward as indicated by management. On
RoE & ROCE International business front we expect African business to grow at 15%
CAGR for next two year backed by strong growth in SON . We still hold
ROE ROCE
positive view on GODREJCP but as stock has run up sharply after result
35%
so we presently recommend `HOLD rating on it.
30% 25% 24% 23%
25% 21%
19%
20% 25%
22% 22%
15% 20% 21%
10%
5% ation
Net Sales 8,276 8,753 9,609 10,553 12,011
0% EBITDA 1,365 1,636 1,913 2,119 2,291
FY15 FY16 FY17 FY18E FY19E
EBIT 1,275 1,535 1,772 1,954 2,131
Shareholding patterns % PAT 907 828 1,304 1,483 1,649
4QFY17 3QFY17 2QFY17 EPS (Rs) 27 24 38 44 48
Promoters 63.3 63.3 63.3 EPS growth (%) 19% -9% 58% 14% 11%
Public 36.7 36.7 36.7 ROE (%) 21% 19% 25% 24% 23%
Total 100.0 100.0 100.0 ROCE (%) 20% 22% 21% 22% 25%
BV 127 125 156 184 208
1Mn 3Mn 1Yr P/E (x) 72.4 79.4 50.4 44.3 39.8
Absolute 13.6 23.4 45.5
Rel.to Nifty 12.3 17.2 25.1 Domestic business segmental growth:
Domestic Household Insecticides (HI) business grew by 4% YoY to Rs
150 GODREJCP NIFTY 665 cr impacted by erratic weather in March especially in North India.
140
Hair colour grew handsomely by 13% YoY led by double digit volume
130 growth as compared to decline of 2% in previous quarter. Godrej Expert
120 Rich Crme reaches highest ever market share on exit basis.
110
Soap business performance is better than expectation, grew by 9% YoY
100 to Rs 358 cr led by mid-single digit volume growth.
90
The company launched HIT Gel Stick with a price point of Rs 30 in this
80 quarter.
RAJEEV ANAND
rajeev.anand@narnolia.com
Net Sales 2,207 2,123 2,439 2,486 2,489 13% 0% 8,753 9,609 10%
Other Income 11 14 17 19 26 145% 36% 84 60 -29%
COGS 979 982 1,059 1,057 1,034 6% -2% 3,867 4,133 7%
Ad & P Expenses 154 168 203 192 155 1% -19%
Employee Cost 229 249 241 256 247 8% -3% 944 988 5%
Other Expenses 313 343 391 381 403 29% 6% 1,977 2,234 13%
EBITDA 456 381 466 517 551 21% 7% 1,636 1,913 17%
Depreciation 28 33 36 36 37 30% 2% 101 142 41%
Interest 25 33 35 40 38 50% -4% 119 145 22%
PBT 418 330 412 447 497 19% 11% 1,500 1,686 12%
Tax 102 75 91 99 115 12% 16% 336 379 13%
PAT 125 244 318 352 390 212% 11% 828 1,304 58%
Better revenue growth led by better domestic business performance

Gross margin
improved by GODREJCP has reported Q4FY17 result better than our expectation. Revenue for Q4FY17 grew by
13%YoY to Rs 2489 cr whereas our expectation was Rs 2473 cr.
282 bps YoY in
Q4FY17. Surprised us at margin front. Gross margin improved by 282 bps YoY to 58.5% (Vs expectation of
57%).EBITDA margin improved by 147 bps YoY to 22.1%(Vs expectation of 20%).
Domestic volume for this quarter grew by 5% better than other FMCG players DABUR (2.4%) and
EMAMILTD(3%).
International business delivered 6% constant currency (CC) sales growth mostly driven by Africa
and Latin America in Q4FY17.
International business EBITDA margin improved by 150 bps YoY to 19.6%.
Indonesia business remained flat in CC term with Rs 389 cr revenue (Vs expectation of Rs
402 cr) in Q4FY17.
PAT without exceptional grew by 22% YoY to Rs 390 cr in Q4FY17 and for full year PAT grew by
58% to Rs 1304 cr.
3000 450 International Business Revenue(in cr.)

Sales(in cr) PAT(in cr)
400
390 1400
2500 368
352 350
1200
318
2000 300
1000
264 266
244 250
1500 235 800
222
200
600
1000 143 150
117 125 400
100
500
1029
1013
1018
1028
1086
1120
1220
1173
1078
200
1889
2060
2236
2092
1988
2197
2286
2207
2123
2439
2486
2489
889
910
920
50
0 0 0

Gross Margin 55.7% 53.8% 56.6% 57.5% 58.5% 2.8% 1.0% 55.8% 57.0% 1.2%
EBITDA Margin 20.7% 17.9% 19.1% 20.8% 22.1% 1.5% 1.3% 18.7% 19.9% 1.2%
PAT Margin 5.7% 11.5% 13.0% 14.2% 15.7% 10.0% 1.5% 9.5% 13.6% 4.1%
Gross margin for this quarter improved by 282 bps YoY to 58.5% led by lower input prices, product
mix and price hike. On yearly basis gross margin improved by 117 bps to 57%.
EBITDA margin improved by 147 bps YoY to 22.1% led by 282 bps YoY decline in COGS,76 bps YoY
decline in A&P expense and 47 bps YoY decline in employee expenses in Q4FY17 whereas other
expenses went up by 202 bps YoY.
PAT margin remained 15.7%in Q4FY17 as compared to 5.7% in Q4FY16 due to onetime exceptional
item loss of Rs 189 cr in Q4FY16.
Domestic Soap Revenue growth YoY Segments Penetration
Domestic Soap Revenue growth YoY
20% Penetration
15%
15% 13% 13% 120%
11% 100%
9% 100%
10%
3% 80%
5% 2% 2%
1%
60% 48%
0% 38%
-6% -6% 40%
-5%
-10% 20%
-10%
0%
-15% Hair colour Household Soap
Insecticides(HI)
Make balance
between Concall Highlights(Q4FY17):
capital The company will maintain margin going forward. Try to improve it further.
allocation and
Focus to improve ROCE going forward. The company will make balance between capital
Div. Payout. allocation and Dividend payout going forward.
Confident of strong growth in medium to long term .
The company has seen recovery in consumer demand in Q4FY17.
Indonesian business: competitive intensity is decreasing in insecticide business. Expect better
growth going forward. Non insecticide business grew by 9% inQ4FY17. Insecticide business
maintained market share.
For the full year working capital has been reduced. The company sees it going down further.
The company launched HIT Gel Stick with a price point of Rs 30 in this quarter.
Domestic Soap business: The Company has initiated selective price increases in soap
portfolio and is scaling back consumer and trade offers.
The company is ready to leverage acquisition of Strength of Nature to build Wet Hair Care
platform in Africa.
European business: Overall demand environment remains challenging. Adjusted EBITDA
margins increased by 590 bps YoY led by judicious marketing investments and one-time
reversal of A&P provisions in Q4FY17.

Innovation and new product launches: The Company gets 25% to 40% of sales growth from launch
of new products historically. Going forward, the company will maintain innovation, launch new
products, intensify introduction on Lower Unit Pack (LUP) which will deliver better growth going
forward.
Lower penetration gives opportunity: GODREJCP is present in less penetrated segment as

compared to other FMCG players like Hair Colour(38%) and HI(48%). It will give it enough room to
grow further.
Relatively less impacted by Patanjali: If we see our FMCG basket, GODREJCP has minimum
overlap of products with Patanjali than any other players. Hence we expect very less impact on the
volume of GODREJCP due to expansion of Patanjali.
Expectation of better revenue from Indonesian market: Indonesian market contributes approx.
17% of companys revenue. We expect it to improve going forward as company has plans to launch
several hair care and personal care products in Indonesian market in next 6-12 months which will
improve companys volume going forward. Secondly company is planning to ramp up its distribution
reach to double in next 3-5 year which will translate into better volume growth from Indonesia going
forward.
African business (Potential growth driver): African business grew by 19% YoY in constant currency
(CC) terms and 54%YoY including Strength of Nature in Q3FY17. We expect similar growth in
Q4FY17.Although African business is facing some currency headwinds but by localizing production
facility and increasing prices company is expected to counter it.Going forward management sees
continuous margin improvement from African business in next 3-5 years.
Indonesian Market Constant Currency(CC) growth Africa Constant Currency(CC) growth

Indonesian Market (CC) growth YoY Africa (CC) growth YoY
25% 75%
80%
21%
70% 61%
20% 54%
19% 60% 52%
50%
15% 15% 36%
13% 40% 32% 33%
26%
30% 23%
10%
15% 16%
8% 20% 12%
7%
6%
5% 10%
3% 3%
0%
0% 0% 0%
-2%
-5%
View & Valuation

The company has reported better numbers for Q4FY17. Domestic volume grew handsomely by 5%
YoY. EBITDA margin improved by 147 bps YoY in an inflationary environment. International business
EBITDA margin also improved by 150 bps YoY to 19.6%. Going forward management indicated that
they will maintain margin and also try to improve it. GODREJCP is present in less penetrated segment
as compared to other FMCG players such as Hair color and Home Insecticide. It gives GODREJCP
enough room to grow further. As far as international business in concern, we expect better revenue
growth from Indonesian market going forward as company is expanding its distribution reach and
launching new products and for African business we expect 15% CAGR for next two year led by strong
growth in Strength of Nature(SON). Considering all this we still hold positive view on GODREJCP but
stock has run up sharply after result so we presently recommend `HOLD rating on it.

Change (%) 6% 10% 10% 14% ROCE 22% 21% 22% 25%
EBIT 1,535 1,772 1,954 2,131 P/E 44 43 38 34
EBT 1,500 1,686 1,917 2,131 FCF per Share 19 48 47 50
Exceptional Item (334) 0 - - Dividend Yield 0.4% 0.9% 1.0% 1.2%
Tax 336 379 431 479
Reported PAT 828 1,304 1,483 1,649 Y/E March FY16 FY17 FY18E FY19E
Adjusted PAT 1,086 1,304 1,483 1,649 Volume Growth(domestic) 10% 4% 7% 12%
Change (%) 18% 20% 14% 11% Realization Growth(domestic) -1% 1% 5% 5%
Margin(%) 12% 14% 14% 14%

Reserves 4,233 5,268 6,216 7,054 (inc)/Dec in Working Capital (482) 293 (31) (49)
Other Non Current Liab 313 1,238 327 327 Tax Paid (336) (379) (431) (479)
Net Fixed Assets (incl CWIP) 1,831 3,524 3,453 3,364 CF from Op. Activities 839 1,873 1,766 1,836
Non Current Investments - - - - (inc)/Dec in FA & CWIP (208) (237) (173) (127)
Other Non Current Assets 4,339 4,969 4,969 4,969 Free Cashflow 631 1,636 1,592 1,709
Non Current Assets 6,259 8,814 8,423 8,334 (Pur)/Sale of Investment (330) 1,249 232 (200)
Inventory 1,307 1,413 1,551 1,766 others 43 (667) (15) (23)
Debtors 1,118 1,029 1,130 1,286 CF from Inv. Activities (495) (1,720) 123 (294)
Cash & Bank 613 895 822 1,004 inc/(dec) in NW 0 - - -
Other Current Assets 305 830 613 836 inc/(dec) in Debt 157 710 (900) (900)
Creditors 1,485 1,724 1,893 2,155 Dividend Paid (inc tax) (225) (613) (698) (776)
Provisions 70 90 99 113 others - (9) - -
Other Current Liabilities 315 307 337 384 CF from Fin. Activities (187) (58) (1,698) (1,752)
Curr Liabilities 2,533 3,150 2,330 2,652 Inc(Dec) in Cash 157 96 190 (210)
Net Current Assets 962 1,067 1,787 2,240 Add: Opening Balance 404 613 709 899

INDUSTRY - AUTOMOBILE
BSE Code - 505200
NSE Code - EICHERMOT
09-May-17 NIFTY - 9314

CMP 26910 Eicher Motors has reported one of the best quarters in terms of volume
Target Price 28009 and profitability. The company reported highest ever PAT of Rs.459 crore
Previous Target Price 26600 in 4QFY17.
Upside 4% Despite pre-buying due to BS-IV transition in 3QFY17 the company
52wk Range H/L 26999/18006 posted healthy volume growth in April 2017.
Mkt Capital (Rs Cr) 73,224 Eicher Motors volumes has grown at 42% CAGR over last 5 years well
Av. Volume (,000) 11 ahead of industry growth.
RoE to maintain over 25%

Strong positioning in the commercial vehicle segment with the partnership
of Volvo provided VECV technical edge over its peers in the domestic as
well as in the export markets.
ROE
40%
35%
Currently, the stock is trading at 8.0x FY19E P/BV. We maintain BUY'
30% with the target price of Rs. 28009 .
25%
20%
15%
10%
5%
0%
ation
Net Sales 8,738 6,173 7,033 7,923 8,915
EBITDA 1,115 1,690 2,174 2,448 2,902
EBIT 895 1,553 2,020 2,278 2,608
Shareholding patterns % PAT 615 1,338 1,667 1,872 2,148
4QFY17 3QFY17 2QFY17 EPS (Rs) 227 493 613 688 790
Promoters 50.6 50.6 50.6 EPS growth (%) 56% 117% 24% 12% 15%
Public 49.4 49.4 49.4 ROE (%) 24% 37% 31% 27% 25%
Total 100.0 100.0 100.0 ROCE (%) 36% 43% 38% 33% 30%
BV 928 1,345 1,964 2,532 3,202
Stock Performance % P/B (X) 16 14 13 11 8
1Mn 3Mn 1Yr P/E (x) 66 39 41 39 34
Absolute 4.4 12.7 33.1
Rel.to Nifty 3.1 6.5 12.7 RECENT DEVELOPMENT: Commencement of Vallam Vadagal plant
140
EICHERMOT NIFTY
Earlier the company was facing capacity constraints because of huge
demand for its classic models. But the management of the company took
130 right decision to increase the capacity in phased manner and in-line with
the demand.
120
110
The Vallam Vadagal facility is likely to commence production from August
2017 and with this expansion total capacity for two wheelers will reach to
100 825000 units per annum in FY18.
90 The company has target to take the production capacity to 900000 units
per annum by FY2018-19. Eicher Motors has planned Rs.800 crore of
80 capex in this regard in FY19.
Jul-16
Sep-16
Feb-17
Jan-17
Dec-16
Jun-16
Aug-16
May-16
May-17
Oct-16
Nov-16
Apr-17
Mar-17
Besides that the company is also working on developing refreshed

versions of popular models from its two technical centres situated in
Chennai and UK. Significant part of capex will be spent on developing
NAVEEN KUMAR DUBEY these models.
Naveen.dubey@narnolia.com
Total Volumes ('000) 148 147 167 174 178 20% 3% 601 666 11%
Realization(Rs./ bike) 104258.2 105503.7 105121 105544.2 105935.1 2% 0% 102954 105526 2%
Net Sales 1,532 1,556 1,755 1,835 1,888 23% 3% 6,173 7,033 14%
Other Income 45 47 66 59 55 22% -7% 178 227 28%
COGS 833 831 912 969 993 19% 2% 3,435 3,704 8%
Employee Cost 77 91 100 106 106 37% 0% 350 402 15%
Other Expenses 175 164 201 183 205 17% 12% 699 753 8%
EBITDA 447 470 542 577 585 31% 1% 1,690 2,174 29%
Depreciation 37 39 36 36 43 16% 21% 137 154 13%
Interest 1 1 1 1 1 91% 14% 2 4 68%
PBT 454 477 572 599 596 31% -1% 1,729 2,244 30%
Tax 144 147 184 200 189 31% -6% 539 720 34%
PAT 343 376 413 418 459 34% 10% 1,338 1,667 25%
Strong growth momentum maintained
Net sales grew by 23%YoY to Rs.1888 crore which was in-line with our estimates (Rs.1915 crore).
Volumes grew by 21%YoY and realization have also grown by 2%YoY.
Higher sales of Classic 350 motorcycles led to this volume growth. These motorcycles have more
than 2 months of waiting period in the domestic market. Export volumes have seen sharp increase
of 41%YoY during the quarter. On the commercial vehicle front VECV reported volume growth of
20%YoY in 4QFY17. The growth was supported by higher sales of Medium and Heavy Commercial
vehicles on the back of BS-IV transition.
Reported EBITDA grew by 30.9%YoY to Rs.585 crore. Lower advertising and promotion expenses
helped company to post 31% of EBITDA margin.
Depreciation and Amortization expenses remain higher in the quarter due to operationalization of
valam vadagal facility.
PAT stood Rs.459 crore at a growth of 34%YoY due to higher other income.
Royal Enfield volume trend Royal Enfield realization trend
RE Growth YoY RE Growth YoY

85% 107,000 6%
200000 90% 5% 5%
180000 70% 80% 106,000 6%
105,000 5%
160000 60% 70% 4%
140000 56% 53% 104,000 3% 4%
49% 60% 103,000 3%
120000 46% 44%
50% 3%
100000 38% 38% 102,000 2% 3%
31% 40% 2% 1% 2%
80000 101,000 1%
20% 30% 100,000 2%
100,658
100,168
102,878
101,968
102,147
105,504
100,730
103,522
104,258
105,121
105,544
105,935
60000
106613
127611
125690
148186
147483
166941
173838
178228
20% 99,000
74131
81977
82215
92846
40000 1%
20000 10% 98,000
0 0% 97,000 0%

Higher operating leverage leads to further margin expansion
Gross Margin 46% 47% 48% 47% 47% 1.81% 0.00 44% 47% 0.03
EBITDA Margin 29% 30% 31% 31% 31% 1.81% 0.00 27% 31% 0.04
PAT Margin 22% 24% 24% 23% 24% 1.94% 0.02 22% 24% 0.02
Gross Margin improved by 180 bps YoY to 47.4% on the back of lower commodity prices and higher
realization during the quarter.
The company has been taking the advantage of high operating leverage based on the higher volumes
which led the EBITDA margin to 31% during the quarter up by 180 bps YoY.
PAT margin increased by 190 bps owning to minimal finance cost and higher other income in the
4QFY17.
EBITDA and EBITDA Margin trend PAT and PAT Margin trend
EBITDA (Rs. Crore) EBITDA Margin PAT (Rs. Crore) PAT Margin
700 31% 31% 35% 450 30%

29% 30% 24% 24%
28% 400 23%
600 26% 27% 30% 22% 22% 22% 22% 25%
350
500 25% 300 20%
400 20% 250
13% 13% 13%
14% 15%
300 15% 200
150 7% 7% 7% 8% 10%
200 10%
100
5%
157
165
195
237
285
279
376
413
418
154
343
285
305
366
286
351
358
470
542
577
303
447
100 5% 50
- 0% - 0%
Concall Highlights:
The company has robust order book for classic 350 models
Valam vadagal facility will start from August 2017 and the total capcity will reach to 825000 units p.a.
Capex Rs.800 crore
Waiting period of more than 2 months for classic 350
Exports: RE sales is higher in developed markets than developing market. (UK, Germany, Italy and
France has on around 40-60 dealers in each countries)
The company has 1 store in Bangkok, 1 in Jakarta and 4 in Columbia.
22 new exclusive stores will be added in the international market.
Currently the company has 675 dealers and the company does not have any plans for expanding
through sub-dealers.
The outlook for commercial vehcles can be subdued going ahead.
Management expects that the rollout of GST on July 1 and it will benefit the consumers tax wise and
so may incentivize them to buy more trucks.
The company will come out with refresh versions of existing Royal Enfield models the current fiscal.
Spare parts stands 5-6 percent of total revenue.
On the BS-III inventory, the management has stated that the company has left with very minimal BS-III
stocks which can be sold to export markets.

Focus to keep RE as a Premium brand- Eicher Motors is catering niche segment in the Indian
motorcycles market. In order to make it a global premium brand the management has complete
focused approach to expand through exclusive dealers and stores. The company does not have any
plan to expand through sub dealers strategy generally used by other two wheeler manufacturers.
Capacity addition in-line with demand- Considering the 3 months waiting period the company
increased the capacity from 720000 units to 825000 units per annum looking at the demand scenario.
We expect that the Eicher Motors will enjoy the benefit of operating leverage with increasing volumes
going ahead.
Expanding footprints in export markets- RE has expanded its footprint in the exports by opening up
stores in the various export markets like; Latin America, indonesia, bangkok and Madrid. The
investments are becoming fruitful in terms of higher volumes from exports. The company has already
more than 150 RE stores in UK, Germany, Italy and France. However considering the potential in the
developing economies Royal Enfield has started looking for the big opportunity in the fast growing
Brazilian market.
VECV prepared to take advantage of recovery in the commercial vehicles space- Currently the
CV segment is going through the pain of BS-IV transition from BS-III. GST roll out and monsoon will
also keep the situation haizy for few months. However we are optimistic about the growth in the
commercial vehicle space because of growing infrastructure activity in the country. The Govt. of India
and SIAM is in talk to bring scrappage policy in the country, which will bring the huge demand for
commercial vehicles in the country.
VECV volume trend Growth in RE and VECV to drive ROE and ROCE
CV Growth YoY ROE ROCE
20000 43% 50% 45% 43%

18000 38%
40% 37% 38%
33% 40% 36%
16000 33%
35% 31%
14000 30% 30%
22% 30% 27% 27%
12000 24% 25%
10000 13% 15% 20% 25%
12% 19%
10%
8000 5%
7% 20%
6000 4% 10%
15%
10865
12128
11657
12687
15492
16071
13408
17341
11306
11784
4000 0%
9544
9217
-7% 10%
2000
0 -10% 5%
0%
FY16
FY17
FY18
FY19
CY13
CY14
View & Valuation

Eicher Motors is well placed in the domestic two wheeler industry. RE volumes have grown at a 42%
CAGR over last 5 years. Management is expanding itself through only exclusive stores which reflect
management's focused approach to make it a premium brand. Strong order book of classic 350
models and capacity addition in-line with demand will give further headroom for growth for RE. In the
commercial vehicle space VECV has positioned itself as a third strong player after Tata Motors and
Ashok Leyland. There are short term hiccups in the domestic market like GST and Monsoon which
may slow down the overall trucking activity in the country, however, the long term growth story remains
intact backed by strong infra-activity in the country and growing exports markets. We expect margins
to expand by 160 bps to 32.5% in FY19. Currently, the stock is trading at 8.0x FY19E P/BV. Earlier we
recommended this stock at Rs.24007 for a target price of Rs.26600 and the stock has achieved our
recommended target, but considering the future growth potential, we upgrade our target to Rs. 28009
and maintain HOLD' rating on this stock.

Y/E March FY16 FY17E FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Change (%) -29% 14% 8% 12% ROCE 43% 38% 33% 30%
Margin (%) 27% 31% 31% 33% Payable Days 42.8 43.2 43.2 43.2
EBIT 1,553 2,020 2,278 2,608 P/E 38.9 40.7 39.1 34.1
Other Income 178 227 270 349 EV/EBITDA 30.8 31.2 29.9 25.2
EBT 1,729 2,244 2,545 2,953 FCF per Share 217.7 6.4 18.5 20.9
Exceptional Item Dividend Yield 0.5% 0.4% 0.4% 0.4%
Tax 539 720 817 948
Reported PAT 1,338 1,667 1,872 2,148 Y/E March FY16 FY17E FY18E FY19E
Adjusted PAT 1,338 1,667 1,872 2,148 Volume ('000) 6,00,946 6,66,490 7,47,887 8,33,191
Change (%) 117% 25% 12% 15% Volume Growth 99% 11% 12% 11%
Margin(%) 22% 24% 24% 24% Realization(Rs./vehicle) 1,02,954 1,05,526 1,05,935 1,06,994
Realization Growth 3% 2% 0% 1%
Capex(Rs crore) 977 223 800 500

Y/E March FY16 FY17E FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Debt 22.57 44.4 44.4 44.4 Interest Paid (+) 9 4 4 4
Other Non Current Liab 81 144 85 85 Tax Paid (634) (720) (817) (948)
Total Capital Employed 3,653 5,345 6,890 8,712 others
Net Fixed Assets (incl CWIP) 884 1,242 1,883 2,100 CF from Op. Activities 2,282 2,404 2,091 2,563
Non Current Investments 2,801 4,104 4,800 6,078 (inc)/Dec in FA & CWIP (1,070) (512) (810) (510)
Non Current Assets 3,890 5,610 6,947 8,442 (Pur)/Sale of Investment 207 (301) (220) (438)
Inventory 308 336 378 426 others (869) (1,303) (696) (1,278)
Debtors 33 50 56 63 CF from Inv. Activities (1,481) (2,116) (1,727) (2,226)
Cash & Bank 49 25 58 65 inc/(dec) in NW 1,137 1,692 1,545 1,822
Other Current Assets 63 77 87 98 inc/(dec) in Debt 28 22 - -
Creditors 723 833 938 1,055 Dividend Paid (inc tax) (586) (327) (327) (327)
Provisions 26 33 37 41 others 5 - - -
Other Current Liabilities 350 430 484 545 CF from Fin. Activities (563) (307) (330) (330)
Curr Liabilities 1,182 1,457 1,621 1,804 Inc(Dec) in Cash 238 (18) 33 7
Net Current Assets (134) (76) 72 399 Add: Opening Balance 353 36 17 50

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IEA Report 16th May.

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IEA Report 16th May.

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IEA Report

16th May 2017

GLENMARK "NEUTRAL" 15th May 2017

HEROMOTOCO "NEUTRAL" 12th May 2017

VIJAYA BANK "HOLD" 11th May 2017

GODREJCP "HOLD" 10th May 2017

EICHERMOT "HOLD" 9th May 2017

Narnolia Securities Ltd IEA Edition No.- 1014

Company Data Key Highlights of the Report:

RoE & ROCE

Please refer to the Disclaimers at the end of this Report

View & Valuation

Please refer to the Disclaimers at the end of this Report

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores

Please refer to the Disclaimers at the end of this Report

Company Data Key Highlights of the Report:

RoE to maintain at 25% in FY17

10% Financials/Valu FY15 FY16 FY17 FY18E FY19E

0.05% market1 achieved annual sales of approximately $175.3 million*

Glenmark Pharmaceuticals Reports Positive Results from a Phase 3 Trial

Lower than expceted sales from Zetia drug

Please refer to the Disclaimers at the end of this Report

EBITDA(Cr.) EBITDA margins PAT(Cr.) PAT margins

Please refer to the Disclaimers at the end of this Report

Geographical contribution in Revenue(%)

12% 32% 11%

US INDIA LATAM Europe ROW ( Africa, CIS, Asia) API

View & Valuation

Please refer to the Disclaimers at the end of this Report

Please refer to the Disclaimers at the end of this Report

Company Data Key Highlights of the Report:

ROE We expect 320bps deterioration in FY19E RoE. Considering the margin

Volume de-growth of 6% YoY, realisations declined by 2% YoY

Volume trend Realisation trend

Two wheeler YoY Growth Realisation (Rs./vehicle) YoY Growth

2,000,000 16% 20% 44,000 7%

400,000 42,000 -1%

Please refer to the Disclaimers at the end of this Report

1,200 13% 14%

Please refer to the Disclaimers at the end of this Report

Economy Executive 100 Executive 125

View & Valuation

Please refer to the Disclaimers at the end of this Report

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores

Please refer to the Disclaimers at the end of this Report

Company Data Key Highlights of the report:

P/B (X) 0.7 0.4 1.0 1.2 1.1

Strong profitability continues in 4Q FY17.

Please refer to the Disclaimers at the end of this Report

Recoveries & Up-gradation was Rs 213 Cr against Rs 172 Cr.

Healthy Retail advances and CASA growth.

Gross Adv. (Rs in Cr) Adv. Growth YoY % GNPA % NNPA %

98,000 16.0 8 7.31

Please refer to the Disclaimers at the end of this Report

Company Data Key Highlights of the Report:

Better revenue growth led by better domestic business performance

3000 450 International Business Revenue(in cr.)

Please refer to the Disclaimers at the end of this Report

Please refer to the Disclaimers at the end of this Report

Lower penetration gives opportunity: GODREJCP is present in less penetrated segment as

Indonesian Market Constant Currency(CC) growth Africa Constant Currency(CC) growth

View & Valuation

Please refer to the Disclaimers at the end of this Report

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores