Escolar Documentos
Profissional Documentos
Cultura Documentos
Key Takeaways
Kashyap Pujara Executive Director – Head of Research Ashish Nigam Dy Head – Research | Executive Director – Auto
kashyap.pujara@axiscap.in; (+91 22 4325 1146) ashish.nigam@axiscap.in; 91 22 4325 1148
17 NOV 2017 Key Takeaways
Annual India 2020 Stars Conference 2017
Axis Capital conference 2017
We hosted ~425 delegates from ~140 funds to meet with ~80 corporates at the 11th Annual Axis Capital 2020
Stars Conference 2017.
Many eminent speakers from some of India Inc’s brightest and best companies shared their insights. The discussions
caught the breadth of interesting happenings in the economy like banking sector’s perspective on NCLT, potential in
energy (even conventional), DBT and doubling farm income from an industry perspective, disruptions expected in
retail landscape, real estate after RERA, pollution & safety norms in Auto, and Aluminum vs. Steel.
Panel discussions on ‘Real Estate: RERA, Affordable Housing’, ‘BFSI: Headwinds/Tailwinds for Retail Assets’, and
‘Media & Entertainment‘ saw wide participation and interest.
Continuing with the tradition of marquee interviews, MD & CEO of Axis Bank Shikha Sharma explored Sajjan
Jindal’s (Chairman of JSW Group) strategy and philosophy behind JSW’s success. They discussed the changing
dynamics of the steel industry and the innovations JSW adopted to meet challenges. Mr. Jindal spoke of satiating his
long term passion to build cars with JSW’s foray into electric vehicles. Rebuilding the Kedarnath temple is another
project that is close to his heart.
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17 NOV 2017 Key Takeaways
Main Table of contents
Axis Capital conference 2017
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Company Meetings 32 - 97
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Contents: Companies
Axis Capital conference 2017
Company name Page Company name Page Company name Page Company name Page
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Marquee Interview
Axis Capital conference 2017
Our 11th Annual Investor Conference culminated with MD & CEO of Axis Bank Shikha Sharma (Right)
interviewing Sajjan Jindal (Left), Chairman - JSW Group
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Main track speakers…
Axis Capital conference 2017
Macro
Macro continues to languish
Deposits running well ahead of credit post-demonetization led to margin squeeze, but this trend
will ease going forward
Retail credit has seen a bump-up during Diwali – as good as last year, although actual sales
doesn’t seem to show that bump-up
Retail
Retailization of the bank is paying-off thanks to expansion of channels, geography and
customer penetration
Reducing concentration risk with large corporate. Planned granularization of the loan book is
Jairam Sridharan happening
Group Executive and Loan growth is starting to come back; we see SME lending starting to come back, but mostly
CFO – Axis Bank working capital is growing rather than term loans. Expect normalization of credit by H2 FY19
Axis Bank tops the charts it terms of mobile spends in the country.
Very happy with Freecharge acquisition. Axis took 16 years to acquire 20 mn customers,
Freecharge has 40 mn customers already
Stock of stressed assets has systematically come down, which should lead to lower slippages
Average credit cost for Axis Bank is 95 bps, rose to 282 bps last year and has now corrected
to 256 bps
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17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
Strategy for Freecharge (FC): Customers are loyal to good experience. Bank has to work hard even to convert a part
of FC’s customer base using proprietary customer information and FC’s start-up culture type approach to problem
solving. The bank is not just focusing on profitability or break even (in ~3 years), but the strategic options FC provides
to convert it into payments bank or digital bank etc.
On National Company Law Tribunal (NCLT): Cautiously optimistic; first few procedures are on track. We are coming
close to decision making, but be prepared for a few to go into liquidation. However, bankers and promoters will
avoid going into liquidation since they will lose control. Expect 60% recovery on portfolio basis
Home loans: While the loan book is growing, sanctions are anemic, which means we are disbursing sanctions of the
past. Margins from retail loan are much better than corporate since bond markets rates have fallen to 7.4%. Home
loans are not risk free.
Steel industry: Despite steel prices rising, these accounts are still not able to service their debt since EBITDA/ton has
not yet risen to the levels when these loans were taken
Deposit growth: Rates on deposits have fallen steadily and likely reached a bottom since banks are not originating
any deposits at these levels
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17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
HDFC foraying into education finance business through HDFC Credila and may plan for
an IPO in 4-5 years.
Present cost to income ratio of 7.4% and HDFC has write offs of 4 bps of overall book
since incorporation
Unrecognized profit in investments made (listed): US$16 bn; unlisted: US$10.5-11 bn
Present purchasing cost of residence at 3.5 times household income
Mortgage/ GDP at 9% in India as compared to 63% in US and 68% in UK
Keki Mistry Portfolio: 72% - Individuals, 7% - Corporate, 13% - consumer finance, 8% - lease rental.
Vice Chairman &
Lease rental has seen substantial growth in recent years
CEO – HDFC
Foresee growth of business in tier II and III cities and outskirts of tier I cities. Chennai and
Delhi NCR region has shown slower growth rate and expect no substantial growth
Rs 434 bn loans sold down which provide return of 1.27%
83% of loans sourced within associates (HDFC sales 50% (WOS) and bank 27%)
Average loan amount of Rs 2.63 mn which has possibly decreased over recent quarters on
account of subsidy schemes of government
Spread
Non-individuals: 3.07%
Individuals: 1.92%
Overall: 2.29%
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
GST has simplified the tax structure substantially. While there are teething troubles, it will
be resolved soon
Demonetization impact was not seen for cars since 80% is financed
Job creation: Manufacturing has the maximum spinoff potential for jobs
Japan-India relationship: Political understanding is good but business people will invest
when ease of doing business improves. Japanese businesses are still skeptical of infra,
taxation, price transfer issues etc. With GST, a lot of these issues will be addressed
R C Bhargava
Chairman – Maruti Cost of ownership low: Maruti's key focus is to keep cost of spares and maintenance low.
It has achieved this by ensuring easy access to dealership as well as service outlets
Focus on India centric products: Maruti has tried to incorporate many customer feedbacks
to improve its product portfolio. It's the only global OEM (Suzuki) which has introduced
India-centric products. This is key to its sustained market share and improving profitability
Rohtak R&D: India R&D set up will complement Suzuki's global R&D and leverage upon
human talent pool and low wage costs in India. This will lower product development cost,
reduce lead time, and further increase India-centric products
Cab aggregators: Boom in cab aggregators has brought in more people to use cabs/cars
(albeit shared) vs. other modes of transport. Also, the replacement cycle of car here is
much quicker than that in personal usage. So, in the long term, this will be beneficial to
car OEMs
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17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
Company expects its capacity to expand to 40-45 mnt by 2030 against current capacity
of 18 mnt. This will be achieved through both organic and inorganic expansions.
Near term organic brownfield expansion potential in its Vijayanagar plant by 4 mnt. This
is subject to iron ore supply constraint easing
Company will ramp up 5 Category C iron ore mines in Karnataka by next year and
Seshagiri Rao coking coal mine by 2019 in Jharkhand
Jt. MD & Group CFO –
JSW Steel Cost of conversion is USD 115/t where JSW has the lowest labor cost per ton of Rs 16.
For other parameters, the company’s cost structure is comparable to global standards.
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
Aluminum vs. Steel: Although aluminum as alternative to steel is growing, but aluminum has several disadvantages:
Carbon footprint: Aluminum-making is 5x more polluting compared to steel-making. Due to global cautiousness on pollution
control, company believes it will be a major hurdle in the long run
Tensile strength in steel is higher compared to aluminum
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
Do you see US pricing pressure peaking out and exits by smaller players?
Expects pricing erosion to continue over next 2 years led by channel consolidation and
increasing approvals by USFDA
However, expects new product launches to largely offset pricing erosion. FDA compliance
remains critical for continued growth
Generic business could see more consolidation as there is too much capacity right now. Small
companies have to move up the value chain to avoid being consolidated or becoming obsolete
(requiring high R&D investments)
Glenn Saldanha Complex generics: Would niches remain niches for long?
Chairman – Sees complex generics becoming competitive as a lot of players investing in this space
Glenmark Pharma
Believes there is a short window of opportunity of 3-6 months to earn higher returns in complex
generics with FDA prioritizing generic approvals for products with lower competition (<3 generic
approvals)
Expects specialty drugs to drive the next leg of growth. Believes Glenmark Pharma’s R&D quality
is now on par with the global pharmaceutical companies players in oncology and derma. OTC
opportunity also remains lucrative.
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17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
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…Main track speakers…
Axis Capital conference 2017
Believes power sector has bottomed out and expects consolidation ahead. Early signs of
pick up in latent demand visible; H1FY18 witnessed power demand of 5.5% vs. < 4%
CAGR over 2012-2017
Expects thermal capacities to be at similar levels in the next 5 years as new additions
would be largely equivalent to retirement of old plants. Thermal PLFs to rise to 73-75%
under pessimistic demand growth scenario of 5% CAGR (assuming no industrial growth)
Revival of industrial demand, distribution reforms such as UDAY, and reaching 18% of
households that are not connected to grid are upside triggers for Power sector
JSW Energy has taken strategic steps such as:
Prashant Jain
Long term tie up for open portfolio (Haryana and Punjab 376 MW of capacity under
Joint MD & CEO – regulatory approval for PPA); Another 40-50 MW to tie up under group captive PPA. Expects
JSW Energy
75% of sales under PPA by FY18; balance merchant
Switch from imported coal to domestic coal to offer great synergies
Reduced interest cost by 84 bps in H1FY18 and O&M by 15%
Entered manufacturing of Electric Vehicles and battery storage
Focus on inorganic growth in thermal assets. Of the ~20 GW of stressed capacities, looking to
acquire 7-8 GW of assets which are closer to the mine. Targeting >15% IRR at tariff of sub-Rs
3/kWh
Renewables the next big thing - focusing on off-grid rooftop solar with storage. Believes
distributed power generation would be a large opportunity
EV- an exciting space - changing dynamics of traditional mobility: JSW has signed MoU with
Gujarat govt to manufacture EV cars. Earmarked capex of Rs 30-40 bn over 3-4 years.
Scouting for technology partners for EV foray.
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…Main track speakers…
Axis Capital conference 2017
Roads contribute ~85% of its current order book with remaining from mining and
irrigation. Dilip Buildcon is executing projects in 16 states and has completed ~90-95% of
its projects on or before time across states. Key factors driving this growth and profitability
are:
It owns one of the largest equipment bank and doesn’t believe in subcontracting its work which
helps in completing the projects before time and earn early completion bonus
DBL has 27k employees with ~17k drivers/operators. Company provides facilities of free food
for its workers, health insurance for their families, support for education of kids and gift of Rs 1
lac for marriage of daughter
DBL has systems and processes to track performance of its large fleet of equipment and
Rohan Suryavanshi optimize fuel consumption, spare and services
Director Strategy &
Planning – Dilip Buildcon
Management keeps track of project execution on daily basis
DBL is targeting revenue of ~Rs 100 bn in FY20
Road construction industry is growing rapidly with ordering for highways having picked up
from 1.9k km in FY13 to ~16k km in FY17. Even execution has picked up from 4.3k in
FY14 to 8.2k km in FY17
Government is targeting ordering for ~25k km and execution of ~15k km in FY18
Bharatmala program for investment of ~Rs 7 trn over next 5 years provides good visibility for
ordering for next 2-3 years
DBL believes strong ordering in FY18 should lead to increase in execution to ~16k km per year
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
ALTBalaji launched in Apr’17 and already has presence across >90 countries with healthy
downloads in Pakistan, USA, Bangladesh, UAE and Australia. Within India, tier 1 cities
like Delhi, Mumbai, Hyderabad, Bengaluru and Kolkata saw significant traction
Addressable target market of 100 mn households for original Indian content. These
households are currently paying Rs 1,000 per month for traditional TV subscriptions;
addressable market size at US$ 1 bn per annum for subscription-based OTT platforms.
Indians staying abroad also offer potential
However, with the fast-paced digital penetration, target audience may expand further to
Nachiket Pantvaidya semi urban viewers across tier II/III cities
CEO ALT Balaji –
Balaji Telefilms ALTBalaji to focus on offering content across Hindi and Regional languages - expects to
add 150-200 hours of original content annually across 25-30 shows (~90 hours; currently
12 shows). Strong content release lined up over the next 4-6 quarters
Funding well in place given Rs 4 bn investment from Reliance Industries (owns ~25% stake
in Balaji Telefilms now) and Rs >1.5 bn cash/ investment earlier
Distribution to be focused through tie ups with telecom players, broadband providers and
other payment gateways – this will help scale up subscriber addition much faster
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Main track speakers…
Axis Capital conference 2017
Group ethos
Meritocracy is the basis for our operations
Business Structured across 3 major verticals : agriculture; finance; engineering
We have to be #1 regionally or nationally in any business we get into
Operate with very low debt and pay 25% of PAT as dividend
What we didn’t do in our journey is also important: We didn’t get into Urea, gold loan, life
insurance, etc
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…Main track speakers…
Axis Capital conference 2017
Future plans
Expand range of services to make farmers profitable
Expand physical presence; Expand geography from 2 to 5 states
Work on output marketing potential
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…Main track speakers
Axis Capital conference 2017
Retail 3.0
Future Group will launch its new Retail 3.0 avatar (named ‘tathastu’) on 21 Nov, which will
extensively leverage technology to get closer to the customer. Current e-commerce industry
format is inefficient as it incurs 45-50% of sales as cost for customer acquisition, fulfillment and
payments. Retail 3.0 will significantly reduce this cost to below 8%.
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Real Estate Panel…
Axis Capital conference 2017
While the panel highlighted that consumer sentiment has not improved significantly, there is anecdotal evidence to suggest
that consumers are beginning to utilize the mechanism available (eg through information via RERA website) to help in
formulating their purchasing decisions.
Additionally, with RERA weeding out unorganized players who are unable to abide by fiscal discipline (maintaining escrow
accounts, funding approval costs without cash flow from pre-launches, etc.) the panel pointed out that the biggest
beneficiaries would be those on the financing side (private equity, NBFCs etc), whose opportunities will be limited only to
viable projects, without the added ‘promoter risk’ which previously existed.
The panel unanimously agreed that the biggest challenge faced by developers is the ability to fund working capital and
project permissions (FSI/TDR payments, design) given that collections are now back-ended while costs are being up-fronted,
increasing the working capital for the business. This would require a significant increase in equity to function under RERA,
which will spell the end for fly by night developers.
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Real Estate Panel
Axis Capital conference 2017
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Media & Entertainment Panel
Axis Capital conference 2017
Adlabs Entertainment - Kapil Bagla, Non Executive Director PVR - Nitin Sood, CFO
Spatial Access Solutions - Meenakshi Menon, Chairperson & UFO Moviez - Siddharth Bhardwaj, CMO &
Managing Partner National Sales Head
Significant focus among Multiplex and Entertainment companies to boost share of F&B spends and ad revenues to (offering
high margin) boost their earnings; focus to capitalize on rising footfalls
While overall ad revenue market remains dominated by traditional mediums like Television and Print (35-40% each),
emerging mediums like Digital and in-screen to offer non-linear growth in the medium term
Given dedicated/ captive audience, in-screen ad revenue growth will be further augmented by ongoing consolidation among
single-screen theatres as well as multiplex players
While multiplexes are organized, introduction of audience measurement system across single screen theatres will be the key to
boost such ad spends
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
BFSI Panel – Retail Assets: Headwinds/ Tailwinds…
Axis Capital conference 2017
AU Small Finance Bank - Sanjay Agarwal, Promoter & MD Reliance Commercial Fin. - Devang Mody, ED & CEO
CIBIL - Deep Mukherjee, Chief Product Officer Ujjivan - Samit Ghosh, MD & CEO
Growth drivers in small finance companies: For a small player, the aspirations and options are boundless, which make
them key drivers of growth. NBFCs tend to go out to get customers, service them and collect dues, whereas banks are
used to the branch model where customers come to them. These are some of the reasons driving micro credit growth.
Latent potential is huge due to the population and low penetration.
Banking on credit rating: Despite double digit retail credit growth, delinquencies have remained low due to
improvement in credit assessment process of lenders – which has become more data-oriented. Even 650-750 CIBIL
score is being seen by banks as bankable. Credit standards are not getting compromised despite rising competitive
intensity though there is margin pressure due to new players. The total pie is growing, though low revenue and high
opex at individual lender level is a concern. Fortunately, India’s latent potential remains attractive. What is needed is
innovative solutions to penetrate this potential.
World Bank credit score for India is reportedly better than OECD average, which means our credit eco system is world class,
but this is not being well appreciated.
Moral hazard: Not facing repayment issues in Uttar Pradesh after farm loan waiver but facing challenges in
Maharashtra due to political intervention. No issues with regards to customers’ willingness to pay debt.
Data mining: CIBIL will begin to provide reports on behavioral attributes of the borrower. They are also looking into
abilities to prevent fraud to ensure that synthetic identities that can pass through multiple systems are not created.
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…BFSI Panel – Retail Assets: Headwinds/ Tailwinds
Axis Capital conference 2017
Role of analytics: India is beginning to see world-beating digital infrastructure, so competition in banking will depend
on how each player develops their analytics and embed them into servicing of the customer.
Building deposit base: Rather than purely focusing on building deposits, the key is to build innovative products and
delivery. This will bring down capital costs.
SME lending: is about picking the right sector and executing it. Banks tend to avoid manufacturing MSMEs since
large corporates don’t pay small manufacturing firms on time
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ANNUAL INDIA CONFERENCE 2017
Sector-wise summary of takeaways
Note: The views summarized here are those of the participants, and may not necessarily reflect our views
Sector Takeaways
♦ Companies remain optimistic on growth, as GST transition is behind and inventory in the system is low
after the strong festive period. Growth in H2FY18 will look unusually high due to low base of last year
(demonetization). However, discounts in selective pockets (CVs mainly) remains high
Auto
♦ Auto ancillaries are upbeat on opportunities going into the upcoming safety and emission norms over
next 2-3 years. This can drive sharp content increase going ahead
♦ On flip side, commodity price uptick could keep margin muted in H2FY18
♦ Focus shifts to growth: Key focus for majority of BFSI players has shifted to ‘growth’ from earlier focus
of managing the balance sheet. Incremental accretion to bad assets has moderated for most, whereas
value unlocking and fresh capital infusion have aided significantly. Realigning the business model in
focus, with transition and consolidation gaining pace. Overall, retail-based banks and NBFCs continue
to dominate, with MFI-based lenders showing some signs of revival
BFSI
♦ On National Company Law Tribunal (NCLT): Most bankers are cautiously optimistic and first few
procedures/cases are on track. The cases are close to decision making, but some cases might go into
liquidation. Bankers expect ~60% recovery on portfolio basis
♦ Most preferred bets: HDFC Bank, RBL Bank, Cholamandalam Finance
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Sector-wise takeaways…
Axis Capital conference 2017
Sector Takeaways
♦ Positive outlook for government capex: Growth will be driven by increase in government capex on
roads and railways as well as increased level of investment in power T&D segment by state utilities.
Investments in renewables continue to grow. Large infra projects like Bharatmala presents strong
visibility of pipeline for EPC companies over medium term. NHAI is evaluating inclusion of qualitative
Capital Goods
criteria (performance in prior projects) in future projects, which could bring rationality in bidding
process and ease competitive pressure in medium term
♦ Initial signs of recovery in private capex. Private capex in conventional sectors (steel, oil & gas)
remains subdued, but there are initial signs of recovery in private capex as well
♦ Demand from rural housing is recovering, but urban demand is yet to pick up
♦ Government schemes including those on infrastructure are progressing well, but private investments in
Cement construction is yet to gain pace
♦ Demand growth strong in East region with pick-up in affordable housing and infrastructure
♦ Peak season freight prices to hit from this quarter; to increase freight cost of companies
♦ After GST, wholesale channel is gradually coming back to operations. Extent of channel recovery
varied from 75% to 85% across FMCG companies
♦ Strong recovery in rural market expected to be driven by (a) better monsoon, (b) higher MSP increase
Consumer
and (c) likely stimulus from government before election
♦ GST’s impact on unorganized counterpart will be gradual. Further, supply chain efficiency benefits are
on the cards (like corporates are looking to close out unnecessary depots)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Sector-wise takeaways…
Axis Capital conference 2017
Sector Takeaways
♦ FY18 revenue growth was impacted by slower-than-expected spending in BFSI (especially in BFS North
America) and structural challenges in Retail vertical
♦ Other verticals like CPG, Manufacturing, Travel & Transportation, Life Sciences etc. witnessed double
digit growth
♦ Expects BFSI IT budget in FY19/CY18 to have less negative surprise, as clients do not expect any
IT Services tailwind due to legislative changes
♦ Companies are investing extensively to re-train their workforce, partnering with start-up ecosystem, and
investing in newer technologies
♦ Expect growth to witness mean reversion to double digits over next few quarters driven by continued
spending in newer technologies and bottoming out of pricing pressure in legacy system
♦ Investing in near-shore and on-shore centers to mitigate protectionist risk
♦ While GST will help shift trade volumes from unorganized to organized players in medium term,
near-term growth outlook remains subdued, as industry is still grappling with GST-led changes
Logistics ♦ Competitive intensity remains high due to paucity of trade volumes; demand recovery expected in next
2-3 quarters. Low utilization coupled with expected rise in operating overheads (diesel cost, manpower
etc.) to impact near term operating margin
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Sector-wise takeaways…
Axis Capital conference 2017
Sector Takeaways
♦ Ad spends expected to rise across key sectors like FMCG, E-Commerce etc. for Television, as GST-led
slowdown eases out. Broadcasters expect double-digit ad growth in H2 (aided by low-base as well)
♦ Content investment to accelerate across Television (broadcasters) and Digital (OTT players) space, as
competition to attract eyeballs intensifies
Media
♦ Subscription revenue growth trend to continue, as benefits of mandatory digitization play out;
however, given possible delays in signing agreements with distributors, growth may be back-ended
♦ Continued focus on consumer discretionary spends to drive F&B spends and in-screen ad revenue for
multiplex players, which will drive operating leverage benefits
♦ Pricing erosion in US to continue over next 2 years led by channel consolidation and increasing
approvals by USFDA. FDA compliance remains critical for continued growth
♦ Complex generics becoming competitive, as lot of players are investing in this space and USFDA
prioritizing generic approvals for products with lower competition (<3 generic approvals)
Pharma
♦ Compliance and R&D costs are expected to remain at elevated levels
♦ While domestic formulations growth recovered in Q2FY18 (post GST impact in Q1FY18), it is unlikely
to see complete recovery, as inventory levels are expected to be lower than earlier levels and due to
complexity on return of goods under GST
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17 NOV 2017 Key Takeaways
…Sector-wise takeaways…
Axis Capital conference 2017
Sector Takeaways
♦ Sector bottoming out; early signs of recovery with pick-up in latent power demand. Consolidation
ahead. Thermal capacity to be at similar levels in next 5 years, as new additions will be largely
equivalent to retirement of old plants, driving PLFs to 73-75% from less than 60% currently
♦ Merchant tariffs have risen to ~Rs 4/kWh from Rs 2.4/kWh last year on coal shortages and monsoon
deficit. Coal shortage expected to ease in Nov’17, thereby leading to decline in merchant tariffs
Power
♦ Government is contemplating Direct Benefit Transfer (DBT) by giving direct subsidy to farmers.
This will help to structurally turnaround the sector -- similar to Oil & Gas reforms. Recent contracts to
source 5 mn smart meters from L&T and solar powered agri pumps are indicative steps towards DBT
♦ Key risk is tariff revision for regulated utilities such as NTPC and PGCIL in Jan'19 (regulated RoE likely
to compress)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Sector-wise takeaways…
Axis Capital conference 2017
Sector Takeaways
♦ As R-Jio started reporting financials, its focus will be to present improving headline performance,
easing off competitive intensity in the industry
♦ Wireless industry consolidates to 3-4 players; Top 3 (Bharti, Idea-Voda and R-Jio) will account for
Telecom
90%+ revenue share
♦ Expect data consumption to drive growth in the industry with improving yield in CY18; however,
changes in IUC will impact revenue performance in Q3FY18
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ANNUAL INDIA CONFERENCE 2017
Company meetings
Note: The views summarized here are those of the participants, and may not necessarily reflect our views
Management vision: Revenue of ~Rs 100 bn each from Brands & Retail division (~25% CAGR) and Textiles division
(~10% CAGR) by FY22. Company announced demerger of its Brands & Retail and Engineering divisions into
separate companies. The move will unlock full potential of these businesses and also boost the core business of textiles
Brands: By FY19, Brands business is expected to generate sufficient cash flow to fund its own growth. Current
trajectory of ~25% revenue CAGR to sustain with margin improvement, as brands mature
Textiles: Cash flow generated by the textile division, which until recently was being used to fund other businesses
(Brands, internet) will be freed and Rs 1.5 bn of cash generated over the next 3 years will be reinvested in the
textile division. We believe focus on high growth technical textile and garmenting business (low capital intensity)
will lead to ~10% revenue growth and higher RoCE over FY17-22
Vertical integration: Arvind will be ~50% vertically integrated (fabric to garments) over the next 5 years vs. 6-8%
currently. Garments have better pricing and sticky customer base. Lower capital intensity in garmenting will lead to
higher RoCE
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17 NOV 2017 Key Takeaways
AU Small Finance Bank
Axis Capital conference 2017
Co. represented by: Sunil Parnami (Chief IR – Strategic Communication), Hemant Sethia (IR)
Strong AUM growth to continue: AUM at ~Rs 120 bn, of which ~85% is retail and ~15% is higher ticket size business
loans. Growth in FY17 was hit, as AUBANK divested stake in AU Housing, as focus was more on creating liability
franchise, IPO process and demonetization. However, it is back to normal in Q2FY18 and management continues to
guide for 30-40% AUM growth. Avg. ticket size of loans in retail is ~Rs 0.5-0.7 mn, vehicle finance is ~Rs 0.35 mn,
MSME is ~Rs 5-10 mn, and wholesale segment is ~Rs 30-50 mn
Liability franchise gaining traction: Deposits base is ~Rs 25 bn with CASA ratio at 33% and, management is hopeful
of maintaining CASA ratio at 30-35% going forward. Incremental deposits are raised at 6.65% and bank will like to
maintain deposits as its main source of funding. Bucket-wise, interest rate on SA deposits offered by the bank: Rs
100K: 5%, Rs 0.5 mn to Rs 1 mn: 6% and; above Rs1 mn: 6.5%
Stable asset quality; expect operational efficiency to start kicking in: 90-dpd GNPA ratio at 3.1% in Q2FY18. Bank
follows stringent provisioning norms, which should provide cushion during tough times. Cost to income ratio was high
at ~55% in Q2, as it was the first full quarter of banking operations. Management believes following the establishment
of over 300 branches in last few months, cost base can be expected to start improving over next few quarters
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17 NOV 2017 Key Takeaways
Axis Bank
Axis Capital conference 2017
Loan growth momentum is back: Strong growth was led by pick-up across key segments. Management stated that
driven by strong growth in working capital loans, the growth in corporate loans is much higher than that witnessed in
recent quarters. Traction in SME loans has also been much higher than in recent times
Internal customer -- mainstay for sourcing retail loans: Retail book remains well-diversified and nearly all major
segments are contributing significantly. Internal customers continue to be the mainstay for sourcing retail loans, with
72% of sourcing in Q2 from existing customers (97% of bank's credit cards and 78% of personal loans origination).
50% of overall sourcing has been through branches
Strategy for Freecharge (FC): Customers are loyal to good experience. Bank has to work hard even to convert a part
of FC’s customer base using proprietary customer information and FC’s start-up culture type approach to problem
solving. Bank is not just focusing on profitability or break even (in ~3 years), but the strategic options FC provides to
convert it into payments bank or digital bank etc.
On National Company Law Tribunal (NCLT): Cautiously optimistic, first few procedures/cases are on track. The cases
are close to decision making, but the bank is prepared for a few to go into liquidation. The bank expects ~60%
recovery on portfolio basis
Financial sum m ary (C MP: R s 54 2)
Y/E PAT EPS EPS c hg BV Adj. BV P/E P/BV RoE RoA Net NPA
Marc h (R s mn) (R s) (% ) (R s) (R s) (x) (x) (% ) (% ) (R s)
FY14 62,177 26.5 19.6 163 160 20.5 3.4 17.4 1.7 0.4
FY15 74,924 31.6 19.4 188 185 17.2 2.9 18.1 1.8 0.5
FY16 82,237 34.5 9.2 223 216 15.7 2.5 16.8 1.6 0.7
FY17 36,793 15.4 (55.5) 233 210 35.3 2.6 6.8 0.6 2.3
Source: Company 34.4 17.5
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Bajaj Finance
Axis Capital conference 2017
Co. represented by: Sandeep Jain (CFO), Deepak Bagati (Head SME business)
Opex growth to remain elevated: Management highlighted that opex growth will remain elevated due to investments
in four areas: (a) increasing capabilities in BFL 2.0 for a strong growth horizon (B/S of
Rs 2.0 trillion in 3-4 years); (b) new product lines (LAP to salaried, gold loans, network services business, BFL
marketplace, REMI etc.); (c) expansion (added 85 new cities and towns in H1FY18 and plans to get to 2,000 cities
and towns in next 2-3 years); (d) building a brand
SME -- structural impact due to GST: Company continues to be cautious on SME lending (grew ~18% YoY in Q2). It
believes it will be atleast 2-3 quarters before it can put a foot on accelerator in SME business. Meanwhile, it is using
this time to refine its business model, expand geographies, improve capabilities, which will allow it to grow much
more strongly when the sector is out of woods
RBL Bank co-branded card: BAF informed that in the first five months of the business, it ended Q2 with 135,000 cards.
BAF is committed to build and become the fourth or fifth largest co-branded card distributor in India in the next three to
four years
Guidance: Company expects loan book CAGR of 25% in next 5 years with RoA/RoE target of ~3%/~18%
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Balaji Teleflims
Axis Capital conference 2017
ALTBalaji – a ‘B2C’ franchise: While Balaji Telefilms (Balaji) pioneered Television content creation (B2B business), the
management aims to build ‘B2C’ franchise along its core B2B TV content business
Target to offer exclusive premium content through its subscription-based digital platform, ALTBalaji, and create a niche in
drama content – to be a mix of own production as well as sourced from third party (supervised by Balaji) in 30:70 proportion
Content investments to scale up: ALTBalaji plans to create 150-200 hours of original hours annually (>Rs1 bn spend
annually) across languages, targeting Indians worldwide
With >60 hours of original content (across 12 shows), it is the market leader with 50-60% market share of aggregate
original digital content hours currently
Focus on telcos, payment partners to boost distribution: ALTBalaji is already on-board with Vodafone and is in talks
with other telcos like RJio, Airtel etc. to boost its distribution and enhance viewership
While management targets cash breakeven in third year of operations with ~4 mn exit subscribers and monthly ARPU of
Rs 60, it is contemplating to offer smaller-ticket sachet content packs to address prepaid consumers as well
TV content business growth to be driven by yield improvement, aiding margin expansion. Movies to see calibrated
investments; co-production based model to limit downside
Financial summary (consolidated; ex-ALTBalaji) (CMP: Rs 138)
Y/E S al es EBIT DA EBIT DA Adj. PAT EPS C hg R oIC PE EV/E
Marc h (R s mn) (R s mn) margin (% ) (R s mn) (R s) YoY (% ) (% ) (x) (x)
FY17 4,212 (181) (4.3) (297) (3.9) NA NA NA NA
FY18E 3,791 386 10.2 437 4.3 LP 9.0 32 24
FY19E 4,151 463 11.2 481 4.8 10.1 10.2 29 19
FY20E 4,551 550 12.1 518 5.1 7.5 11.0 27 15
Source: Company, Axis Capital
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Bharat Forge
Axis Capital conference 2017
Co. represented by: Kedar Dixit (VP – Finance), S. Rajhagopalan (AVP – Finance)
Exports surge (~55% of revenue): Exports at Rs 7 bn were up 56% YoY on low base (+5% QoQ) driven by recovery
in North America Class 8 truck production and stable oil & gas revenue. Both the segments are posting strong growth
on uptick in US economy and high crude prices (leading to higher shale gas production). Company continues to
develop new products and increase addressable market, which shall further drive diversification over medium term
New order wins: Company has won USD 40 mn worth of new orders in YTD FY18 (USD 120 mn in FY17) across
products and geographies
New greenfield facility: The company has approved new greenfield facility in Andhra Pradesh with initial capex of
Rs 2 bn. The facility will host ‘Centre for Light Weighting Technology’ focused on aluminium and magnesium products
for EVs (Electric Vehicles) and transition in India from BS IV to BS VI emission norms
Capex to remain under control: Management highlighted its focus on lean balance sheet. Utilization at ~75%
requires minimal forging capex. Company is debottlenecking existing facilities, which will increase capacity by 10%
Net debt at comfortable level: Net debt at Rs 8.9 bn (Rs 11.1 bn YoY/ Rs 8.3 bn QoQ) remains comfortable with net
debt to equity at 0.2x
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Bharti Airtel
Axis Capital conference 2017
Co. represented by: Parag Toley (Corporate Planning, Risk Management and head IR), Aparna Vyas (IR)
Industry outlook improving : As Reliance Jio (R-Jio) looks to improve its operating metrics, the competitive pricing
pressure on incumbents have eased off. Bharti does not expect significant deterioration in the pricing environment of
the industry. Moreover, Bharti is in the process of migrating high-value customers to base plant, impact of which is
already captured in its financials. Impact of IUC and tail impact of pricing are likely to drag revenue in H2FY18
Improving operations: (i) Value-accretive acquisition of wireless business of TTSL and TTM, which will be on cash free
and debt free basis. It will give spectrum asset worth ~Rs 150 bn (acquisition cost of Rs 40 bn = spectrum liability of
~Rs 25 bn + lease cancellation cost ~Rs 15 bn) i.e. 178.5 MHz (all in FDD bands – 800, 1800, and 2100);
(ii) Consolidating Africa operation: Management’s effort is to improve margin especially in countries wherein Bharti is
the 3rd-4th player (planning to replicate the strategy of Ghana). Africa is FCF positive, but the margin spread of
different countries is 5-40% and initiatives are to consolidate position to improve margin to company level
Consolidation driving better outlook: Recent corporate actions like M&A, shutting operations, transfer of assets have
consolidated Indian wireless industry to a 3-player market plus government owned BSNL/MTNL. The positives of
consolidation has started showing green shoots of bottoming out of pricing pressure along with strong volume growth,
which is slowly outweighing challenges of market disruption that the industry witnessed over past 1.5 years
39
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Bharti Infratel
Axis Capital conference 2017
Co. represented by: Devendeer Singh Rawat (Managing Director & CEO)
Industry consolidation to impact tenancy: The entry of R-Jio has increased the pace of corporate action -- consolidation
and exits -- impacting the tenancy for the company. Tenancy decline has been ahead of expectations. Management
sees few financially strong players to be better than large number of financially weak players, as it gives pricing
power to the company. Moreover, tenancy of 2+ will continue to generate healthy return ratios for the company
Onslaught of data consumption: The consumption of data has been growing at a rapid pace led by content/digital
services consumption and increasing penetration of affordable 4G smartphones. To meet the consumer demand,
companies are going to roll out their network capex (4G roll-out in deep rural areas also), as clarity on competitive
landscape emerges. Moreover, the company is also bidding for Smart City projects and getting equipped for the
possibilities
Open for M&A: The company is open for acquiring assets of competing firm. Moreover, it has taken enabling
authorization to acquire more stake in Indus Towers. However, it is just an enabling authorization and not an
agreement. Management believes the acquisition of stake in Indus Towers will be value accretive
40
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Biocon
Axis Capital conference 2017
Co. represented by: Siddharth Mittal (CFO), Saurabh Paliwal (Head – IR)
Regulatory update
USFDA regulatory update (Bangalore facility): On track to implement the CAPA for the sterile facility. Completed plant
modifications and in process of re-qualifying the facilities. May not require USFDA re-inspection
EMA regulatory update: Biocon has implemented the CAPA^ for its drug product – Bangalore facility and is engaged with
the regulator on next steps for re-inspection of this facility. Received EMA (EU) approval for its Malaysia Insulin facility
Financial sum m ary (C MP: R s 367)
Y/E S al es Adj. PAT C o nsensus EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) EPS * (R s) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY16 33,810 3,898 - 6.5 (3.1) - 10.7 10.5 - 1.7
FY17 39,216 6,121 - 10.2 57.0 - 13.8 12.1 - 1.0
FY18E 41,268 3,975 7.1 6.6 (35.1) 59.1 7.8 8.8 28.0 1.7
FY19E 50,462 5,922 11.3 9.9 49.0 39.7 10.7 11.7 19.9 1.7
Source: Company, Axis Capital; *Consensus broker estimates
Volumes to improve as Demonetization, GST impact eases off – While GST implementation led to subdued trade
volumes earlier, management expects volumes to recover in next 2-3 quarters, as GST-led teething trouble eases
Uptick in consumer spending (with macro recovery) will also drive much higher growth in e-commerce volumes – expected to
post 40% CAGR over next 5-7 years, as per industry
Macro slowdown led to sharp decline in Blue Dart’s B2C (e-commerce) volumes to 22% currently vs. 35% earlier
Management highlighted increase in use of credit cards and payment platforms. While Cash-on-delivery volumes have
again increased (vs. post-demonetization), it is still lower than pre-demonetization levels
Margin expansion to be calibrated: Rising crude prices (pushing diesel prices up) and increase in minimum wages
(already revised in Delhi; other states under review) to pressure operating margin
Minimum wage in Delhi have been increased >2x to Rs 18,000 per month now vs. Rs 8,000 earlier. This will push Blue
Dart’s personnel cost up by ~Rs 20 mn per month
Fuel cost (6% of total cost) is passed on to customers through a ready reckoner scheme
This will slow the operating leverage benefit accruals with volume recovery; fixed cost accounts for 60-70% of overall costs
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Capacit'e Infraprojects
Axis Capital conference 2017
RERA, Housing for All, Smart Cities – to provide upside triggers to real estate sector (organized players to benefit)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Capital First
Axis Capital conference 2017
Co. represented by: Pankaj Sanklecha (CFO & Head Corporate Centre), Saptarshi Bapari (Head strategic initiatives, IR)
Strong AUM traction to continue: Management maintained its growth guidance of 25%+ and targets an AUM of
Rs 300 bn by FY19 (Rs 230 bn in Q2FY18). A large part of AUM growth will be driven by unsecured SME, consumer
durables and two wheeler segments. Management has guided for 18%/1.95% RoE/RoA by FY20
Share of LAP in AUM to decline further: Share of LAP in AUM at ~42% currently will decline to 32-35% over next
couple of years. LAP book is growing at ~11% and is at ~Rs 90 bn currently, 50% of which is off book and sold to the
banking system. Company earns a spread of 3% on down sell. More so, share of wholesale book that is currently at
~7% will also come down, as there has been no significant fresh disbursement in this segment
Expect 100-150 bps expansion in margin: Change in product mix towards higher-yielding products and changing
borrowing mix in favor of market borrowings will aid in margin expansion. Management intends to bring the share of
bank borrowings down to ~30-35% over next 18 months from ~50% at present, which will further bring the cost of
funds down. On the back of these changes, core NIM can increase further to 11-11.5% from 10.7% in Q2FY18,
while including fees, NIM can increase by another 1-1.5% by FY19
44
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Carborundum Universal
Axis Capital conference 2017
Carborundum Universal (CUMI) operates in abrasives (46% of revenue), industrial ceramics (21%) and electro-
minerals (35%) and, derives ~50% of its revenue from overseas. It has manufacturing bases in India, Russia, and
South Africa
Growth drivers: (1) optimal utilization of plants relocated from South Africa; (2) operating leverage as macro
improves; and (3) increased input cost to be compensated by higher prices of end products and better product mix.
Management expects revenue of Rs 35 bn (Rs 21 bn in FY17) with ~23% RoCE over next 2-3 years
Standalone standard mass market business which was impacted owing to implementation of GST, bounced back
partially due to channel restocking
Volzhsky Abrasive Works (VAW; Russian subsidiary) is seeing pick up in volume and the capacity is operating at full
utilization
Company has used past few years for creating capacity and strengthening its balance sheet, which makes it well-
placed to capture the next industrial upcycle
Financial sum m ary (C M P: R s 370)
Y/ E S al es Adj. PAT C o ns ens us EPS C hg PE RoE RoCE EV/ E DPS
M arc h (R s mn) (R s mn) EPS * (R s ) (R s ) Yo Y (% ) (x) (% ) (% ) (x) (R s )
FY16 19,440 1,555 - 8.3 51 - 13.6 11.6 - 1.5
FY17 21,125 1,838 - 9.7 18 - 14.3 12.2 - 1.8
FY18E 24,034 2,201 11.2 11.7 20 31.7 14.9 14.6 15.6 1.8
FY19E 27,807 2,894 14.0 15.3 32 24.1 17.1 16.3 12.2 1.8
Source: Company, Axis Capital; *Consensus broker estimates
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
CERA Sanitaryware…
Axis Capital conference 2017
Co. represented by: S.C Kothari (CEO), Bharat Mody (Strategic Advisor), Surabhi (Jr Advisor)
Demand outlook: Demand did improve in Q2FY18, but was still below expectation, as the Real Estate Regulation Act
(RERA) and GST continued to affect demand. Management indicated while FY18 appears to be a year of
consolidation, initial signs of recovery visible today will lead to return-to-normalcy by FY19
Management guided for 15-16% revenue growth in FY18 with EBITDA margin of 15.5-16%
Long-term vision of management is to have tiles and faucets contributing 25% (each) to revenue and 50% from
sanitaryware over next three years. It expects revenue growth momentum to return to 18-20% over next 3-5 years.
Growth will be driven by combination of demand pick-up (including replacement demand) and distribution network
expansion into new markets
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…CERA Sanitaryware
Axis Capital conference 2017
Capex
Capex planned for FY18 is Rs 900 mn. Capacity utilization in sanitaryware segment is 98%, faucet is around 70%
and tiles around 80%. Therefore, going forward, capex will be more focused towards the sanitaryware segment.
The rolling capex of Rs 1,800 mn will also include investment in automation and brand visibility. Automation will
focus more on the labor-intensive sanitaryware segment and also on faucets
Company is expanding its sanitaryware capacity (0.3 mn pieces addition to existing 3 mn annual capacity) and
has recently changed one of its tiles manufacturing line at its Anjani factory to produce GVT and double-charged
products (vis-à-vis low-margin soluble salt tiles)
Although its sanitaryware utilization level is at 97-98%, the company always has the option to outsource low-value
products to Morbi-based players while importing premium products from China. The company is also looking to
add a tiles factory in Rajasthan (land for the same has been acquired)
47
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Cholamandalam Investment and Finance Co
Axis Capital conference 2017
Co. represented by: N. Srinivasan (MD), Arul Selvan (CFO), Ravindra Kundu (Exec. VP & Business Head – VF)
Well-poised for next leg of growth: Management retains its guidance of ~18-20% loan growth in FY18 (driven by
vehicle finance). It expects loan book composition to shift to 65:25:10 [vehicle finance: home equity: others (MSME,
trip financing)] in medium term
Branch expansion to aid growth: Due to significant competition in metros, the company has been opening most of the
incremental branches in rural areas; further, it will continue to do so, helping it further penetrate the rural market.
These branches has low cost of operations and break even within first year of operations
Cyclical tailwinds to support margin in medium term: Shift in loan mix away from high-margin used CV loans would
weigh on yields, but will be compensated by a larger fall in cost of funds aided by change in borrowing mix and
recent upgrade in rating
Top-tier return metrics: Company reiterated its RoA target of ~3% on better productivity and
net credit loss of less than 1%. Management has given long-term RoE guidance of 18-20%, while maintaining an
optimal level of leverage
48
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Cipla
Axis Capital conference 2017
Co. represented by: Kedar Upadhye (Global CFO), Naveen Bansal (IR)
Guidance
Targets to improve EBITDA by 100 bps annually led by cost-saving initiatives
US scale-up on cards
Price erosion is not significant, as the portfolio is already priced out
Expects filing/ approval intensity to ramp up with a good mix of differentiated products
Expects R&D to scale up to ~8% of sales in H2FY18 (vs. 6% in Q2FY18) with commencement of clinical trials for respiratory
pipeline; On track to file 20-25 ANDAs in FY18 (filed 8 in H1FY18)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Coromandel International
Axis Capital conference 2017
Co. represented by: Samer Goel (MD), Jayashree Satagopan (CFO), S Sankarasubramanian (CEO – Fertilizer division)
Strong operating environment in both fertilizer (~65% of EBITDA) and crop protection (~35% of EBITDA) business.
Fertilizer (~65% of EBITDA): Moving towards brand-led business model; reduced dependence on subsidy
Margin supported by (a) 33% revenue from unique grades of fertilizers (branding benefit; zero imports; no domestic
competition), where margin is ~2x that of DAP and (b) ~50% increase in manufacturing capacity of Phosphoric Acid (key raw
material). DBT in fertilizer to progressively remove subsidy-related issues (just like LPG)
Mana Gromor retail outlets: Aids aggressive brand building and gets ground insights directly from farmers
Crop Protection: Bigger than some of frontline pesticide companies; and turning even bigger
Securing exports registrations of pesticides will unravel B2C opportunity in growth markets. Mana Gromor (agri-retail outlets)
will act as one-stop solution for farmers, wherein Coromandel can push more self-produced labels (e.g. unique fertilizer
grades) and get direct consumer insights
Aims to capitalize firm demand for Mancozeb (as stabilization partner in newer chemistries) by expanding Dahej and
Sarigam plants. Focus shifting to securing export registrations in key markets (Latam, Africa, APAC) than relying on local
dealers, which will help diversify user base and give on-the-ground intelligence on demand pattern
50
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Dalmia Bharat
Axis Capital conference 2017
Co. represented by: Reena Verma Bhasin (Executive Director, Head -- Group Strategies and Mergers & Acquisitions)
Demand scenario
South: Andhra Pradesh/ Telangana growing in high double digits, Tamil Nadu and Kerala showing weak growth. However
due to high prices, Tamil Nadu and Kerala are more profitable, as no new capacities are coming up in the region
North East: Clinker capacity has come up in last 5 years after government’s focus, but in the recent times, tax benefits are
expiring; so, clinker capacity is expected to be lower in the future. In terms of competition, top 2 players (Dalmia Bharat and
Star Cements) are very strong and then there are lot of small players
East: Demand growth is strong with pick-up in affordable housing and infrastructure
Sand shortage
Sand availability issue: Sand shortage condition in Bihar has improved and the company expects the situation to normalize
by November, as Bihar government has issued new licenses
Acquisitions
Company is open to acquisition based on cash flow principles
Comfortable with leverage of 2.5-3.5x net debt/EBITDA
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Dilip Buildcon
Axis Capital conference 2017
Company targets revenue of ~Rs 100 bn (24% CAGR over FY18-20E) in FY20
Roads contribute ~85% to current order book; mining and irrigation contribute the rest. Company executing projects in
16 states. It has completed ~90-95% projects on or before time across states. Key factors driving growth and
profitability:
Large, modern equipment bank (worth ~Rs 25 bn) and minimal sub-contracting ensure better control over execution and
timely EPC services
DBL has 27k employees with ~17k drivers/operators. Company provides free food to workers, health insurance to their
families, education for kids and gift of Rs 1 lakh for marriage of daughter
15+ functional heads for material procurement, project monitoring, equipment management, etc. based out of head office
and delegated to take decisions. KRA of project manager at site is only to ensure execution as per timelines. Management
keeps track of project execution on daily basis
DBL has recently signed an agreement with Shrem Group for sale of its entire BOT portfolio, as it wants to remain an
EPC-focused company; the agreement will help it reduce debt as well as grab more EPC opportunities
Financial sum m ary (C MP: R s 857)
Y/E S al es EBIT DA Adj. PAT EPS C hg PE RoE EV/E DPS
Marc h (R s mn) (R s mn) (R s mn) (R s) Yo Y (% ) (x) (% ) (x) (R s)
FY16 40,176 7,992 2,199 18.8 50.8 44.2 22.3 15.5 -
FY17 50,754 9,923 3,609 26.4 40.6 30.6 24.5 14.3 -
FY18E 69,975 13,095 6,289 46.0 74.2 17.6 29.9 10.4 9.2
FY19E 93,998 17,540 9,324 68.2 48.3 11.8 34.8 7.6 9.2
Source: Company, Axis Capital
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Dr Reddy's Laboratories
Axis Capital conference 2017
US
Pricing pressure: Witnessing 10-12% YoY pricing erosion. Witnessed ~3-5% QoQ pricing erosion in Q2’18 with Clarus one
(Walmart-Mckesson) re-negotiations towards end of Q1. Seeing lower pricing pressures in injectables, OTC products
Product concentration : Top 3 products contribute ~USD 160 mn revenue (vs. USD 300 mn earlier). Top 5 products (includes
2 OTC products) contribute to a third of sales; while Top 10 account for ~50% (most of which now have 3-4 generics)
R&D
To maintain absolute R&D spend of ~Rs 5 bn per quarter in FY18, with ~60% in generics and ~25% in proprietary R&D
Key product launches: gCopaxone: Initiated site transfer to Srikakulam SEZ facility (API currently filed from Srikakulam
facility). gSuboxone/gNuvaring – USFDA approval more crtical than litigation outcome, with both being first time generics
Financial sum m ary (C MP: R s 2321)
Y/E S al es Adj. PAT C o nsensus EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) EPS * (R s) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY16 155,683 26,910 - 158 (8) 15 23 18 11 24
FY17 141,961 12,921 - 78 (51) 30 10 9 17 20
FY18E 146,552 26,910 75.9 158 (8) 15 23 18 11 24
FY19E 176,542 12,921 124.6 78 (51) 31 10 9 18 24
Source: Company, Axis Capital; *Consensus broker estimates
53
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Endurance Technologies…
Axis Capital conference 2017
Endurance India revenue grew 10% in Q2FY18 when two-wheeler volumes grew 12%. This was led by:
Bajaj (~45% of Endurance India sales) underperformed the market, and grew only 2% YoY during Q2FY18. On the flip side,
TVS (nil of Endurance revenue) outperformed, and grew 17% in Q2FY18
As per management, product mix was also slightly weak. This quarter had higher production of lower-end bikes going into
festive season and those also saw higher restocking after GST. Endurance's value per bike is much lower in lower-end bikes
There was some lumpy tooling revenue last quarter, which normalized this quarter
54
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Endurance Technologies
Axis Capital conference 2017
Top 5 customers are Bajaj Auto, Fiat Chrysler Group, Honda Motorcycle (HMSI), Royal Enfield (RE), and
Daimler (in that order). Consolidated share of Bajaj stood at 35% (vs. 37% YoY)
55
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Equitas Holdings
Axis Capital conference 2017
Non-MFI segments to drive AUM growth: It maintained FY18 AUM growth guidance of 15% YoY. Management
reiterated rationalization of MFI portfolio should continue and growth will be driven by non-MFI book. Over next 2-3
years, AUM composition could look like: MFI loans at ~15%, mortgage portfolio (Micro/General LAP) at ~30%,
vehicle finance loans at ~30% while Gold/unsecured business loans at ~25%. Management believes as cost of funds
decline, its ability to roll out new products will increase
Operating leverage to kick in: Management believes that operating expenses have reached a steady state level of ~Rs
2.2 bn/quarter and expects operating leverage to kick in from investments made in liability franchise. Equitas will
focus on leveraging its existing network of 392 branches and does not envisage any significant addition to its current
branch network. Management is hopeful that cost to income ratio (83% in Q2FY18) will decline going forward, as
new products are scaling swiftly
Cost of funds should decline; some more pain left on provisioning: Equitas is adding ~Rs 2.5 mn CASA deposits per
month and has CASA deposits worth Rs 9 bn. Cost of funds are coming off gradually and could decline to ~8% by
FY18 end (8.7% in Q2), as liability franchise continues to get granular. Some pain left on provisioning, as Rs 1 bn
needs to be provided over next 3 quarters, with a bulk to be provided in Q1FY19
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Eris Lifesciences
Axis Capital conference 2017
Outlook
Expects IPM growth to rebound to 10-12% in FY19. Expects Eris to continue to outperform industry growth by 30-50%
Expects margin improvement with improving MR productivity (~550 of 1,600 MR's currently with monthly sales/ Medical Rep
< Rs 0.2 mn – do not contribute to EBITDA)
Launched Neuro division in July-Aug’17 with a team of 75 MR's; plans to add another 25 MR’s in near term
M&A strategy
To continue to look for stressed assets which are a good fit and with good gross margin
UTH (focused on Neutraceuticals segment): Acquisition good fit with Eris' focus on chronic/ lifestyle segment. Eris will
rationalize portfolio from Rs 250 mn base to Rs 180 mn base. Portfolio to build up to Rs 300 mn in FY19
GST concerns
Cumbersome to return stocks and claim tax credit under GST. This has hit working capital of stockists/retailers. Additionally,
as returning goods was very easy earlier, inventories were high. Instead of worrying about sales, retailers are more worried
about the inventory (sees 2-4% impact on FY18 annual sales due to inventory correction)
Financial sum m ary (C MP: R s 586)
Y/E S al es Adj. PAT C o nsensus EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) EPS * (R s) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY16 5,970 1,336 - 9.7 49.7 - 47.3 49.9 - 6.0
FY17 7,250 2,421 - 17.6 81.2 - 57.7 59.1 - -
FY18E 8,754 3,339 24.3 24.3 37.9 24.1 47.5 49.4 22.1 0.5
FY19E 10,398 4,180 30.4 30.4 25.2 19.3 39.0 41.4 17.3 0.6
Source: Company, Axis Capital; *Consensus broker estimates
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Glenmark Pharmaceuticals
Axis Capital conference 2017
Co. represented by: Glenn Sandanha (Chairman & MD), Jason Dsouza (IR)
58
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Godrej Properties
Axis Capital conference 2017
Co. represented by: Mohit Malhotra (MD & CEO), Rajendra Khetawat (CFO)
Outlook on future growth strategy: Godrej Properties (GPL) plans to grow its under construction portfolio by 5-10x
from its current size of ~40 msf within next 5 to 8 years, with the aim to be among the top 2 players in every micro-
market in which it operates. While contracting partners have the bandwidth to absorb this increase, the key challenge
is consistently generating strong cash flows from its inventory to efficiently fuel growth
Focus on increasing scale: Management highlighted while GPL has registered strong pre-sales across its micro-markets
(H1FY18 pre-sales of Rs 28 bn), there is still room for improvement, as GPL is still not among the top 2 developers in
few of its key markets (eg. Bangalore, Pune) in terms of pre-sales. To increase scale, GPL aims to launch one project
every quarter in each of its micro-markets.
Improving return ratios: Management expects these strategies to result in improvement in RoCE to ~20%
(vs. ~10% currently), which will be achieved by (1) deploying capital into new high-yielding projects,
(2) increasing stakes in existing high-value projects, (3) increasing footprint in its core markets (Mumbai, NCR,
Bangalore) and (4) improving construction efficiencies through the use of technology (currently experimenting with the
use of pre-cast technology on a smaller scale at Godrej Golf Links in Gurgaon)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
HDFC Ltd
Axis Capital conference 2017
Tier II & III cities to be next growth opportunities: HDFC foresees business growth in tier II and III cities and outskirts of
tier I cities. Chennai, Delhi and NCR have shown slower growth rate and the bank does not expect any significant
improvement in the near term. On the other side, Mumbai, Banglore and Hyderabad are showing good traction in
relatively smaller ticket size loans
Portfolio mix: Individuals: ~70%; Corporate/wholesale: ~22%; and lease rental: ~8% Lease rental has grown
substantially in recent years. Average loan amount at Rs 2.63 mn, which has decreased over recent quarters due to
subsidy schemes (affordable housing)
Foraying into education business: HDFC is foraying into education finance business through HDFC Credila and, may
plan for an IPO in 4-5 years. Value unlocking from life insurance and AMC business is on the way and will be value-
accretive. Management intends to create a provision buffer in Q3 from profit realized on listing of its life
insurance subsidiary
On National Company Law Tribunal (NCLT): Management was very positive on progress of one of the cases referred
to NCLT and expects its resolution by Q4
Financial sum m ary (standalone) (C MP: R s 1663)
Y/E PAT EPS EPS c hg BV Adj. BV* P/E* P/ABV * RoE RoA Net NPA
Marc h (R s mn) (R s) (% ) (R s) (R s) (x) (x) (% ) (% ) (R s)
FY16 70,931 44.9 0.0 214 163 20.2 5.6 21.8 2.6 0.0
FY17 74,426 46.8 4.3 249 197 18.4 4.4 20.2 2.4 0.0
FY18E 76,374 48.1 2.6 280 227 18.0 3.6 18.1 2.1 0.0
FY19E 87,885 55.3 15.1 315 260 14.8 3.0 18.5 2.2 0.0
Source: Company, Axis Capital; Note: * HDFC valuations are calculated after deducting VOI from Price & COI from BV/ABV/EPS
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
HDFC Bank
Axis Capital conference 2017
Co. represented by: Bhavin Lakhpatwala (Senior VP – Finance), Ajit Shetty (Deputy VP & IR)
Retail asset quality holding up well: Retail will remain the key loan growth driver for HDFCB (55% of loans). Behavior
of this portfolio has largely remained the same over past few years; in fact, riskiness in this segment is less than some
of the secured products. More so, barring agri and CV segments, actual losses in this portfolio is panning out be lower
than expected losses. 50%/65% of personal loans/credit cards are sourced from customers, while the remaining are
offered to the salaried segment. Overall GNPA/NNPA stood at 1.3%/0.4% in Q2FY18
Adopting a calibrated approach in wholesale: Fee and margin in corporate lending have thinned, but risk-adjusted
returns on incremental lending are better. Bank is adopting a calibrated approach and going selective in this segment.
Focus remains on working capital loans and is not too active in the few project loans that are present in the market
External benchmarking to feed NIM volatility: Management believes that external benchmarking brings uncertainty to
balance sheet management, as it exposes an element of risk in the balance sheet of banks, which is absent currently.
Banks do not borrow more than 5% of their balance sheet from RBI and most of the borrowings are in the form of
deposits which are fixed rate. If external benchmarking is implemented, the ability to maintain NIM within a range
goes away. NIM as of Q2FY18 stood at 4.3% (likely to benefit from recent cut in SA rates)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Hind Zinc
Axis Capital conference 2017
Co. represented by: Amitabh Gupta (CFO), Ekta Singh (IR Head)
Expansion plans
Management expects total mined metal capacity by FY20 to be 1.2 mnt after debottlenecking. Company will fully shift to
underground mining from next year
Maintain fumer project completion guidance of mid FY19
Zawar mill expansion to 2.7 mnt was commissioned during Q2FY18 along with associated power upgradation
Captive mines with R&R base of 400 mnt valid at least till 2030
62
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Hindustan Unilever
Axis Capital conference 2017
Co. represented by: Aasif Malbari (Group Finance Controller & Head IR), Aashna Bhandari (IR Manager)
GST effect – negative part done with, positives continues to bear fruit
Wholesale down-stocking impacted the entire sector, but has stabilized now in most parts of the country. Wholesale partners
are ready to adhere to law and regulations. GST rate benefit of ~3-4% is passed on to consumers
Back-end efficiency will come in the medium to long term (company looking to close down unnecessary depots). Shift from
unorganized is an opportunity in the long run, i.e. in detergents, unbranded share is ~50% by volume and ~33% by value
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
IDFC Bank
Axis Capital conference 2017
Legacy challenges dragging RoA: Management put total drag due to legacy challenges
(fixed-rate liabilities and stressed assets) at Rs 5.7-6 bn per annum, which translates into estimated RoA drag of ~35
bps. IDFC Bank believes this drag to decline in about 3-3.5 years. Consequently, including the drag impact, the
management expects RoA to touch 0.9-1% by FY20-21
Focus on non-infra segment for growth: IDFC Bank is focused on accelerating diversification away from infrastructure
loans primarily into retail (including SME), emerging large corporate and non-infra large corporate. The bank is
rapidly acquiring market share in the non-infra space (non-infra funded credit grew by 76% YoY in Q2FY18, much
higher than the industry average)
IDFC Bank has a distribution network of 100 branches, 383 corporate BC outlets, and over 10,000 Micro ATMs. The
bank expects to increase the branch network in metros and tier 1 locations from 17 to 31 branches by December end
or first week of January
Management is confident that the pace of customer addition (2 mn customers currently) will continue to increase in the
ensuing quarters. Currently, the monthly customer acquisition run-rate is >100,000, with ~25% of the customers
acquired in 8 metro/tier-I cities
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Indiabulls Housing Finance
Axis Capital conference 2017
Co. represented by: Ashwin Mallick (Head Treasury), Ramnath Shenoy (Executive VP – Head Analytics and IR)
Strong traction in affordable housing space: Pradhan Mantri Awaas Yojana (PMAY) scheme has been driving strong
growth in affordable housing space. Home loans constitute 58% of the AUM and majority of this book qualifies as
affordable housing. Management expects contribution of home loans to AUM to increase to 66% in FY20, while
LAP/corporate lending composition is likely to be evenly split and contribute the remaining to AUM
Margin likely to remain strong: Higher home loan share is unlikely to impact margin and management expects to
maintain NIM in the range of 3-3.25%, as it has recently got a rating upgrade and expects the cost of raising
incremental funds to gradually come down. Marginal cost of funds for company is at 7.3%, while 93% of incremental
funds are raised through market borrowings or sell down
eHome loans, digitalization lower the costs: Company is witnessing rationalization in its cost to income ratio with
increasing penetration of eHome loans, digitized sourcing and underwriting model. Cost to income ratio under the
digital lending model is 2-3% vs. 12-13% for traditional model. Apart from decline in opex costs, credit costs have
also supported spreads and RoA. At present, ~24% of all home loan disbursements are from loans sourced through
eHome loan platform. Management aims to lower the cost to income ratio to 9.5-10% by FY20 from ~13% at present
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
IndusInd Bank
Axis Capital conference 2017
Co. represented by: Sanjay Mallik (Head IR & Strategy), Indrajit Yadav (DVP – Strategy & IR)
Margin to remain stable: Management alluded that NIM have positive levers both from assets as well as liabilities side
of the balance sheet. Higher yields from retail, especially MFI, can aid NIM from the lending side while lower funding
costs with improving CASA ratio and rationalization of SA rates can aid from the funding side. However, management
intends to maintain NIM at 4% going forward and aims to add good corporates (lending), as IIB is as competitive as
any other large bank in the shorter end of MCLR
Asset quality holding up well: Credit cost for FY18 could be ~65 bps, while for FY19 could be lower. Corporate
portfolio is tracked every month including low risk accounts which have witnessed some improvement. More so,
SMA-2 book has come down. RBI’s audit is currently going on and its report is expected in mid December. Divergence
in asset quality, if any, could be more of interpretational issue than subjective, as is the case with some banks recently
IIB-BHAFIN merger to be value-accretive: BHAFIN’s customer base/ branches/ Kirana stores can act as selling points
and provide liability/asset/third party distribution and cross-selling opportunity to IIB. Management alluded that
microfinance will grow at 30-40% YoY and that it will be comfortable at keeping the book at <10% of loans
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Kotak Mahindra Bank
Axis Capital conference 2017
Growth coming across verticals: On advances, management sees growth across all key verticals. CV/CEs have
posted decent growth especially CEs due to overall growth in infra. SME lending has slowed due to GST, but expected
to improve. Personal loans growing at stable rate due to strong CIBIL scores
No plan of value unlocking in subsidiaries in short term: Management clearly shared its intent of not listing the
insurance, AMC, securities or IB arms in the near term. Recently, the bank did two transactions of buying BSS
Microfinance and acquiring the remaining stake in its life insurance business from Old Mutual
No intention to reduce savings deposit rate though of late savings deposits (particularly in older customers) have been
under some pressure due to increased investing in securities. CASA growth is largely from newer customers and
management does not intend to reduce savings rate of 6% (on specific buckets)
No divergence as per RBI requirement: The bank’s SMA2 (Rs 2.5 bn; ~0.16 % of advances) and restructured standard
assets numbers (Rs 650 mn; ~0.04% of advances) remain insignificant. On RBI report, the bank indicated that there
was no divergence from the report
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
L&T Technology Services
Axis Capital conference 2017
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Mahindra Holidays Resorts India …
Axis Capital conference 2017
On lower Q2
Membership addition and VO income were weak during Q2FY18. This was primarily because of the management’s
conscious plan to improve quality of member-adds by increasing the proportion of down payment and discouraging
48-month EMI programme (especially in the Blue segment)
While this may lead to lower membership addition in near term, it will increase customer persistency, reduce
cancellations and improve realizations over longer term
Room addition
The company added 150 rooms during H1FY18. This included 3 new resorts in Kochi, Srinagar and Singapore.
Management’s previous guidance on room addition pipeline of 600 rooms (to be added in the next 18 months)
remains on track
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Mahindra Holidays Resorts India
Axis Capital conference 2017
The room addition plan is in calibration with new member additions, keeping the member/room broadly stable at
65. New projects in pipeline include those at Goa (250 rooms); Ashtamudi (100 rooms), Kandhaghat (150 rooms)
and Naldehera (110 rooms, of which 55 rooms have been commissioned)
Others
HCR (the Finnish subsidiary) achieved breakeven in Q4FY17. Management indicated that the subsidiary reported
strong revenue growth (13% YoY) in H1FY18 and generated profit of Euro 2.7 mn vs. loss of Euro 1.7 mn
in H1FY17
Club Mahindra’s product “Bliss” targeting potential customers above the age of 55 years is gaining momentum.
This is a shorter duration product (8-10 years) and provides greater flexibility to prospects
Management indicated that its online/ digital investments are paying off, with more than 85% of the members
confirming the holidays through online channel or mobile app
Gift XoXo, the online adventure and wellness activities company MHRL acquired last year, is enabling MHRL
provide better experience and weekend getaways to members. MHRL also offers discounts to members availing
these activities
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Mahindra Life Space
Axis Capital conference 2017
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Mindtree
Axis Capital conference 2017
Co. represented by: Parthasarathy N.S (Executive Vice Chairman & COO), Sunil Gujjar (IR)
Strategy: Mindtree will remain vertical-focused (Technology-Media and Services: 38%, BFSI: 25%, Retail-CPG &
Manufacturing: 23%, Travel & Hospitality: 15%) in key geographies of US and Europe and believes there is ample
scope to grow
Investments in reskilling around adjacent skills for employees are paying off. It has been significantly investing in
account/ sales people and this remains a key focus area
Digital (~43% of revenue): Most clients have completed pilot projects (PoC#) and Indian IT is able to participate in
larger implementations driven by their end-to-end capabilities. Win ratios against global competition has also been
improving driven by capabilities. Given evolving client spends, a 50:50 mix of Run and change the business offerings
will be ideal. It is also looking at Digital projects in India. Mindtree is adequately invested in its digital offerings
Bluefin and Magnet 360 will take 2-3 quarters to stabilize; focus is on driving profitable growth. Bluefin is seeing
green shoots of recovery
Outlook: Expects high single digit revenue growth in FY18 (FY17: 9%), driven by ramp-up of deal wins and healthy
pipeline, which will aid growth in H2
Financial sum m ary (C MP: R s 4 98)
Y/E S al es Adj. PAT C o nsensus EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) EPS * (R s) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY16 46,730 5,525 - 32.9 3.0 - 25.0 28.7 - 12.5
FY17 52,364 4,186 - 24.8 (24.4) - 16.8 19.9 - 10.0
FY18E 53,654 4,761 28.1 28.4 14.3 17.5 18.6 18.8 12.0 11.9
FY19E 60,905 5,546 32.2 33.1 16.5 15.0 20.7 24.7 9.0 14.3
Source: Company, Axis Capital; *Consensus broker estimates
# Proof of concept 72
ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
MCX
Axis Capital conference 2017
Co. represented by: Sanjay Wadhwa (CFO), Nilesh Chauhan (Investor Relation)
Industry leadership to be sustained: MCX has retained its dominant position with ~90% market share in the segments
it operate in. The company continues to explore new growth opportunities: (i) Options trading started from October
2017: To start with there are few products (1kg gold option) which will help in growing volumes; (ii) Expects
institutional participation (Banks, Institutional Investors – MFs, PMS etc.) in commodity derivative to commence in next
six months, which will improve the depth of commodity market and boost ADTV
ADTV is expected to improve in H2FY18 led by the launch of options and recovery in metal volumes. Operating leverage will
lead to expansion of margin (embedded non-linearity in the business)
Some risk from competition: Existing commodity exchanges are lobbing for the approval to compete with MCX.
However, there is no common equity and commodity exchanges in the world. Nevertheless, there is possibility of
government allocating universal licenses to the exchanges
SEBI approvals: MCX Clearing Corporation Ltd (MCX CCL) applied to SEBI seeking recognition to transfer the
functions of clearing and settlement of trades to itself as a separate clearing body. Management expects the operations
to commence in few months, as some key management level hiring is still pending
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Narayana Hrudayalaya
Axis Capital conference 2017
Co. represented by: Dr. Raghuvanshi (Vice Chairman and group CEO), V Kesavan (CFO), Ashish Sukhija (IR)
As of Nov 2017, Narayana Hrudayalaya (NH) has 6,888 capacity beds across 50 facilities, of which ~5,900 beds
were operational. NH is entering a strong growth phase, as capacity utilization ramps up and new beds get added.
Overall occupancy to improve further over the next 3 years, as beds mature. Only 53% of operational beds are
matured (over 5 years), which are clocking EBITDAR margin of ~25%
NH continues to follow an asset light model with low capex/ bed. Average effective capital cost per operational bed
stood at Rs 2.8 mn
Over the past few quarters, NH’s EBITDA has been lower as it recently-commissioned the children’s hospital in
Mumbai (H1 EBITDA loss of ~Rs 150 mn) and also due to the price control on cardiac stents (H1 EBITDA loss of
~Rs 170 mn). However, NH increased procedure prices in end of September, to counter regulated stent prices
NH will be acquiring the balance 71% in Health City, Cayman Islands for ~USD 32 mn. The hospital achieved
operating revenue of USD 11.6 mn and EBITDA of USD 1.8 mn in Q2FY18 (EBITDA margin of ~16%). It achieved
EBITDA breakeven in Q2FY17 (within 24 months of starting operations) and the management is confident of
sustaining the performance on improved healthcare regulations in the US and pick-up in medical tourism
Financial sum m ary (C M P: R s 295)
Y/ E S al es Adj. PAT C o ns ens us EPS C hg PE RoE RoCE EV/ E DPS
M ar (R s mn) (R s mn) EPS * (R s ) (R s ) Yo Y (% ) (x) (% ) (% ) (x) (R s )
FY16 16,138 318 - 1.6 - - 3.9 9.8 - -
FY17 18,782 843 - 4.1 - - 9.2 14.1 - -
FY18E 22,807 667 3.4 3.3 (20.9) 90.3 6.7 10.8 27.1 -
FY19E 27,251 1,010 5.6 4.9 51.5 59.6 9.4 13.3 27.1 -
Source: Company, Axis Capital; *Consensus broker estimates
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Oberoi Realty
Axis Capital conference 2017
Co. represented by: Saumil Daru (Director – Finance), Shital Shah (Sr Mgr – IR)
Launch pipeline: Oberoi Realty (ORL) plans to launch an additional phase at Borivali, a new project in Goregaon (as
existing inventory is limited) as well as newly acquired Thane project in near term (FY19/20). While it will evaluate
new markets on the basis of opportunity (eg. NCR, Bangalore, Hyderabad), the focus remains on Mumbai
Thane Land: ORL is still working out the total land conversion costs from industrial to residential (currently in
discussions with regulators). While the Thane residential market is oversupplied, ORL expects that there would be
demand for a high quality product currently unavailable in this micro-market. With improvements in infrastructure and
connectivity, as well as growth visibility in commercial space in the area (TCS setting up an office of ~30k people),
there are significant potential buyers for this product
Worli project: Sales traction has been slow in last 2 quarters, but ORL expects it to pick up as the project nears
completion (maintains delivery timeline of FY19). ORL has been working on completing the lobby and façade to make
the project look more complete. Total cost will be ~Rs 26 bn (has incurred Rs 10 bn) at ~Rs 11,000 psf. While ORL
awaits additional FSI (contingent upon height approval), it will take a call on the final size of the project soon
Rental portfolio: New leasing at Oberoi Mall is moving more towards revenue share (~30% of contracts) given the
increased maturity of the asset (99% occupancy), and higher rental income will be visible from FY19. Expects
Commerz II to reach 75% occupancy by Q4FY18 (currently at ~45%)
Financial sum m ary (C MP: R s 4 58)
Y/E Sa les EB ITDA Ad j.P AT EP S Chg Net Deb t Networth RoE RoCE PE PB
Ma rch (Rs m n) (Rs m n) (Rs m n) (Rs) YoY (% ) (Rs m n) (Rs m n) (x) (% ) (x) (x)
FY16 14,162 6,763 4,356 12.8 32.9 1,447 52,840 8.8 11.0 35.7 2.9
FY17 11,138 5,701 3,786 11.2 (13.1) 4,868 56,689 6.9 8.5 41.1 2.7
FY18E 24,012 11,389 7,418 21.8 95.9 18,922 63,413 12.4 14.4 21.0 2.5
FY19E 23,752 10,073 8,587 25.3 15.8 19,143 71,196 12.8 10.6 18.1 2.2
Source: Company, Axis Capital
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Persistent Systems
Axis Capital conference 2017
Services segment (44% of revenue): Management highlighted Persistent is winning new deals, but headwinds continue
around the traditional model. Hence, the management expects growth to be soft
Onsite mix increase due to digital engagements: Margin has declined over the past couple of years due to ramp-up in
onsite mix driven by higher digital engagements. This is likely to remain elevated for the next 2 years
PARX acquisition: Management shared that the deal pipeline is healthy (vs. expectation) and the growth in Europe is
expected to pick up
Investments in next gen technologies: Persistent has been investing in Machine Learning, Robotics, Blockchain,
Analytics, IoT and in some products of the Accelerite portfolio
Financial sum m ary (C MP: R s 64 5)
Y/E S al es Adj. PAT C o nsensus EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) EPS * (R s) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY16 23,123 2,974 - 37.2 2.3 - 19.4 25.6 - 8.0
FY17 28,784 3,015 - 37.7 1.4 - 17.0 22.2 - 9.0
FY18E 30,985 3,242 41.5 40.5 7.5 15.9 16.5 22.0 9.6 8.6
FY19E 35,919 3,809 48.1 47.6 17.5 13.5 17.6 23.5 7.4 11.4
Source: Company, Axis Capital; *Consensus broker estimates
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Phoenix Mills
Axis Capital conference 2017
Co. represented by: Pradumna Kanodia (Director – Finance), Varun Parwal (VP – Finance & IR)
Pune mall: Phoenix (PHNX) acquired ~15 acre land parcel in Wakad (west Pune) for Rs 1.85 bn under CPPIB
platform. The land will be used for a retail asset with total development potential of 1 msf (additional 0.8 msf to be
developed subsequently) and will cater to strong commercial catchment in the area (~30 msf of commercial space
within 10 km radius). Total project cost for the retail project is expected to be Rs 7.5 bn (including land acquisition)
and be completed within 4-5 years. Expect to break ground on this project within 6 months post receipt of approvals
CPPIB platform: Second tranche of Rs 9 bn is yet to be received. Assuming a maximum debt/equity of 1x, the platform
can deploy ~Rs 32 bn, which can be used to fund acquisition of 4-5 retail assets. Post Pune acquisition, the platform is
evaluating purchase of an asset in Indore – with decision expected by Jan’18. The ultimate aim of the platform is to
double its retail portfolio to 12 msf within 4 to 5 years
Stake purchases: PHNX has spent Rs 2.5 bn in FY18 to increase its stake in four SPVs to 100% (38 to 80% earlier),
which will add ~Rs 1.7 bn to EBITDA in near term. No further cash will be required for stake purchases, and PHNX
will evaluate the use of free cash from its SPVs, possibly towards dividend payouts or repayment of debt
Cost of debt: Rs 10 bn of debt coming up for rate renegotiation in next 5 months, and PHNX expects to lower the cost
of debt by between 20 and 50 bps (current cost of debt at 9.3%)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
PVR
Axis Capital conference 2017
Co. represented by: Nitin Sood (CFO), Rahul Gautam (VP Finance & Head Investor Relations)
Screen addition to remain healthy: PVR reiterated its guidance to add 60-70 screens annually (600 screens currently)
across tier 1 and tier 2/3 cities to enhance audience reach
Also enhancing viewer experience through (a) launch of P[XL] screens (competition to IMAX, but at 1/3rd the cost) – to open
10-12 screens in 2 years and (b) adding recliner seats in the first row of select screens
Launched a loyalty program, PVR Privilege, to drive footfalls through better experience through points system, which can be
redeemed at its outlets for tickets, food etc.
F&B spends and ad revenue growth to continue: Management to continue enhance consumer spends across F&B
(current SPH at Rs 90/head; 43% of ATP) and increase its in-screen ad revenue
As tax rate on F&B has increased under GST (to 18% vs. 12% earlier), PVR has selectively passed on the same; to introduce
new food products (or variants of the same products) instead of increasing prices for easy consumer acceptance
Rising rentals key risk to earnings: Management highlighted that high competitive intensity has shot up screen rentals
at premium locations
Management highlighted its preference not to overpay and does not prefer to grow at the cost of profitability; will consider
exiting such screens if there is disproportionate rise in rentals
Financial sum m ary (C MP: R s 1388)
Y/E S al es Adj. PAT C o nsensus EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) EPS * (R s) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY16 18,810 1,218 - 26.1 684.4 53.2 18.5 18.4 20.9 2.0
FY17 21,626 1,037 - 22.2 (14.9) 62.5 11.2 15.2 19.8 2.0
FY18E 24,704 1,236 29.3 26.4 19.1 52.5 12.1 16.4 17.3 2.0
FY19E 29,221 1,970 42.3 42.1 59.4 32.9 16.8 21.8 12.9 2.0
Source: Company, Axis Capital; *Consensus broker estimates
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ANNUAL INDIA CONFERENCE 2017
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Ramco Cements
Axis Capital conference 2017
Expansions
Grinding Capacity: 3 mnt grinding capacity expansion targeting east region is slated to be completed in 18 months at a cost
of Rs 10 bn (USD 55/t) funded by a mix of debt and internal accruals. Capex related to grinding units is in initial stages and
few approvals are pending
Clinker expansion: Current clinker utilization is at 75%. There are no capex plans in near future. Company will go for capex
only after capacity utilization picks up to 90%
Cement demand
8% volume growth is expected in FY18; 5% growth has happened in H1FY18. The company expects better H2 due to good
rains in Tamil Nadu
Political stability in Tamil Nadu is not an issue for the company, as 75-80% of the company’s sales is through retail network
Costs: Pet coke inventory has been built up, which will last till March 2018. Average pet coke inventory cost is
USD 86/t vs. current price of around USD 100/t
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
RBL Bank
Axis Capital conference 2017
Co. represented by: Rajeev Ahuja (Executive Director), Harjeet Toor (Head – Retail, Cards, Micro Credit),
Surinder S Chawla (Head Branch Banking), Ramesh Ramanathan (VP – Finance & IR)
High growth phase to continue: Loan book has posted CAGR of ~47% over FY13-17. Management continues to guide
for 30-35% YoY growth over next couple of years led by retail and microfinance segments which are expected to
grow ~50% YoY
Granular liability franchise in the making: CASA ratio over post two years increased by ~400 bps to 23.7% in
Q2FY18. Management continues to guide for 75-100 bps improvement in CASA ratio each year by FY20 (positive
for NIM)
Asset quality to stay healthy: Restructured standard assets portfolio is at 0.25% and net security receipts as % of total
assets at 0.02%. in Q2FY18, RBL has done no sale to ARC and only a single instance of SDR case. Also, there was no
5:25 refinancing or S4A case done by the bank in Q2FY18
Cross sell earns valuable fee income and management believes this income stream will continue to grow faster than
the growth in balance sheet. However, given RBL is building capacity for the next growth phase by investing in
branches and technology, cost/income ratio is expected to stay elevated (~53.5 in FY18E)
Financial sum m ary (C MP: R s 510)
Y/E PAT EPS EPS c hg BV Adj. BV P/E P/ABV RoE RoA Net NPA
Marc h (R s mn) (R s) (% ) (R s) (R s) (x) (x) (% ) (% ) (R s)
FY16 2,925 9.0 27.6 92 89 56.6 5.7 11.2 0.9 0.6
FY17 4,460 11.9 32.0 116 113 42.9 4.5 12.2 1.0 0.6
FY18E 6,353 15.3 28.6 158 153 33.4 3.3 11.7 1.1 0.8
FY19E 8,418 20.3 32.5 176 169 25.2 3.0 12.1 1.2 0.8
Source: Company
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Redington India
Axis Capital conference 2017
Co. represented by: Raj Shankar (MD), Sowmiya M (Manager – Investor Relations)
Expect momentum to pick up in H2 : Management remains upbeat on growth prospects in H2 (vs. H1) and expects
growth momentum to be driven by India business (36% of revenue). The impact of GST should be behind after
Q3FY18. Overseas business (64% of revenue) is also likely to do well in H2 with growth momentum likely to continue
in the Middle East and Africa. Further, the management is positive on the launch of iphone 8 and iphone X
Realigning to GST: Around 70% vendors have realigned themselves to GST; the remaining 30% of vendors will be on
track in Q3FY18
Logistics subsidiary (Proconnect) continues its strong momentum: Share of non-Redington business grew to 77%
(vs. 63% in Q2FY17) and the management highlighted that ecommerce accounts for 12% of revenue. Proconnect has
165+ customers. Company remains confident of Proconnect’s profits tripling in 5 years with organic growth as a key
growth driver
Working capital discipline: Consolidated working capital days reduced to 40 days in Q2 (vs. 46 days in Q2FY17):
India business at 54 days (vs. 53 days in Q2FY17) and overseas business at 32 days (vs. 42 days in Q2FY17).
Management will ideally like to maintain working capital at 45 days
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Reliance Home Finance
Axis Capital conference 2017
AUM growth trajectory likely to remain strong: Company aims AUM of Rs 180 bn by FY18 (Q2FY18:
Rs 141.2 bn) by focusing on retail segment and benefitting from policy thrust on affordable housing. More so, it aims
to increase the share of home/affordable housing loans to 60-65% by FY20 from ~52% currently
Well-managed asset quality: Despite higher focus on risky LAP and construction finance (~48% of the portfolio),
company has maintained its asset quality well with its GNPA ratio at 0.8% (LAP/construction finance segment at
0.6%/0.9%) in Q2FY18, indicating strong risk management practices. Management expects to maintain GNPA ratio
near the current level
Margin likely to remain healthy: A diversified portfolio coupled with added focus on self-employed customers earns
higher yields (9.5%/10.4% yield on home/affordable housing and 11.9%/15.2% yield on LAP/construction loans)
for RHF. Going forward, NIM is expected to stabilize at ~3.5% (3.9% currently) due to re-pricing pressure on yields
and higher focus on home/affordable housing loans (changing mix)
Cost rationalization by leveraging digital technology along with scale can aid in lowering cost/income ratio to <30%
by FY19 (39.2% currently), which can drive RoE/RoA to 18-19%/1.6-1.7% by FY20
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Sequent Scientific
Axis Capital conference 2017
Co. represented by: Manish Gupta (MD), Tushar Mistry (CFO), Abhishek Singhal (Investor Relation – Consultant)
Strategy
Business has become 4x in 3 years through a mix of organic and inorganic growth initiatives
Has shifted from an emerging market API business to a regulated market formulations business which has higher margin and
is more sticky. Has built a brownfield state-of-the-art plant in Vizag, which is approved by the USFDA
Aims to establish Alvira as a top 10 global animal health company by FY22 (~USD 300 mn revenue vs. USD 120 mn
currently). Aims to grow business organically by ~10-12% annually
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Sterlite Technologies
Axis Capital conference 2017
Co. represented by: Vishal Agarwal (GM – Corporate Strategy & IR)
Strong tailwinds from fiberization of telecom data networks…
Sterlite Technologies (SOTL) is the only fully integrated single-location manufacturer of Optic Fiber (OF) and Optic Fiber Cable
(OFC) in India. The ability to manufacture technology-intensive preform (from which fiber is drawn) gives it an edge over its
competitors. SOTL enjoys domestic market share of ~40%
In developed countries, 70-80% of towers are connected with fiber; In India, it is only 15%. As data consumption grows and
technologies like Virtual Reality come into play, operators around the globe will invest in fiber backhaul -- a boost to SOTL
…Well-placed to leverage this growth opportunity
SOTL has recently expanded its OFC capacity to 30 mn fkm and plans to take this up to 50 mn fkm by October 2019
By leveraging upon its existing capacity, SOTL will be able to expand to 50 mn fkm with significantly lower incremental
capex. One fkm of optic fiber generates EBIDTA of ~USD 2.5 backed by realization of ~USD 7.5/fkm, while conversion to
optic fiber cable generates additional ~USD 1.5 EBITDA with realization of ~USD 17/fkm
System Integration (SI)
This business provides end-to-end design, build and manage telecom network services to govt’s clients including defense,
smart cities and public sector units. SOTL has already completed 3 Smart City projects worth ~Rs 700-800 mn. A large
defense project in J&K worth ~Rs 1.1 bn is expected to complete in 2018 - SOTL also has the maintenance contract for the
same for the next 7 years with assured revenue of ~ Rs 5 bn
Financial sum m ary (C MP: R s 264 )
Y/E S al es EBIT DA Adj. PAT EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) (R s mn) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY14 25,010 2,754 (385) - - NA (4) 3 17.3 0.3
FY15 30,271 4,607 89 - - NA 1 5 13.9 0.6
FY16 21,105 4,592 1,536 3.9 - 23.3 17 8 9.8 1.0
FY17 24,063 5,189 2,017 5.0 27 25.4 27 19 11.1 1.3
Source: Capita Line
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Strides Shasun
Axis Capital conference 2017
Co. represented by: Badree Komandur (CFO), Sandeep Baid (IR), Abhishek Singhal (Investor Relation – Consultant)
US
H2 is always better for the company due to pick up in sales of some seasonal products (like Benzonatate)
Recently-launched gLovaza, Potassium citrate ER, to drive growth. Expects additional product approvals in Dec'17
Has changed agreement structure of partnered products in the US to include certain upfront manufacturing margin
Australia
Aims to increase operating margin from 18% currently to 25% in the next 3 years
Market growing in high single digits (with volume growth of 12-13%)
Currently has a portfolio of 160 molecules ( vs. 130 when it acquired Aspen business). Plans to introduce 30 molecules every
year (other top competitor companies have a portfolio of 300 molecules)
API demerger
NCLT (National Company Law Tribunal) hearing in Dec'17 (vs. Nov'17 earlier)
API business has revenue of USD 200 mn with 13% operating margin
Financial sum m ary (C MP: R s 782)
Y/E S al es Adj. PAT C o nsensus EPS C hg PE RoE RoCE EV/E DPS
Marc h (R s mn) (R s mn) EPS * (R s) (R s) Yo Y (% ) (x) (% ) (% ) (x) (R s)
FY16 28,622 1,777 - 22.2 28.2 - 9.3 9.0 - 3.9
FY17 34,834 3,045 - 34.0 53.3 18.8 11.3 9.8 13.1 4.5
FY18E 35,925 2,371 32.3 26.6 (22.0) 29.4 8.5 8.3 14.8 7.0
FY19E 37,952 4,044 53.3 45.3 70.5 17.3 13.3 11.5 11.1 7.0
Source: Company, Axis Capital; *Consensus broker estimates
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Supreme Industries…
Axis Capital conference 2017
Co. represented by: M P Taparia (MD), P C Somani (CFO), R J Saboo (Company Secretary)
Plastic pipes
Management indicated India’s overall PVC consumption declined by more than 6% during the first half of the year.
Demand for residential pipes has been temporarily impacted because of implementation of RERA or Real Estate
(Regulatory and Development) Act. Agricultural pipes segment has been in slow mode since May 2017 and overall
market declined 6% in H1FY17. During Q2FY18, plastic pipes segment grew 17% in volume terms while the net
realization remained flat
CPVC consumption in the country grew 15% during H1FY18. Supreme opted for higher discounts on its pipes to
capture more market share and boost volume growth
Packaging
Strong volume growth during Q2 has mainly been because of early Diwali festive season this year. During this
festive season, Supreme opted for discounts to boost volume growth. Current capacity of Supreme’s Silpaulin brand
stands at 27,000 tn
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
…Supreme Industries
Axis Capital conference 2017
Supreme started exporting its multi-layered cross-laminated film Silpaulin to 10 more countries during the previous quarter.
It currently exports Silpaulin to 25 countries and has drawn good response. Barsati Tarpaulin and Bhuvan Fabrics are the
other two competitors in this segment.
Industrial:
Industrial segment comprises material and industrial component sub-segments. Growth in this segment was mainly on account
of good demand from the consumer durables segment
Supreme is setting up a new plant in Giloth, Rajasthan, exclusively for Daikin air-conditioners. The plant is expected to
become operational between April- June of 2018
The initial disruption felt on account of GST was smoothened out towards the end of August. This led to strong volume
growth of 18%. However, PVC prices remained volatile during H1CY17 and PVC consumption in India declined 6%
during same period. Therefore, to capture business, Supreme operated at a lower price level in this segment. This
coupled with erosion in inventory valuation eroded the operating margin during the quarter. Supreme’s rising focus on
export markets led to growth of 46% in H1FY18
Capex: In FY17, Supreme incurred capex of Rs 2,130 mn and expected to incur capex of Rs 4,250 mn-Rs 4,500 mn
in FY18 (earlier guidance of ~Rs 3,000 mn to Rs 3,500 mn). The increase in the capex guidance was to increase
capacity for industrial and packaging products. Supreme is expected to add capacity of 50,0 00 tn, of which
28,000 tn is for plastic pipes (6,500 tn for HDPE pipes), 12,000 tn for industrial products and the remaining
10,000 tn for packaging products
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Syngene International
Axis Capital conference 2017
Fire impact transient, growth to rebound from H2FY18: Of ~20% of the business hit by fire incident at its S2 facility,
10% business (Chemistry) has been relocated to other facilities within campus and operational since January ’17;
facility for remaining Biologics business will be commissioned in Q3FY18, which will drive growth
Unique positioning given cost advantages: Syngene’s advantages stem from lower operating costs on its lower loaded
cost of scientists than in China/ EU (which have per scientist cost 1.5x/3-4x that of Syngene’s billing rate)
CRO CRAMS: Syngene currently captures ~USD 200 mn of the ~USD 500 mn CRO industry in India
(~USD 1.5 bn CRO industry in China). Syngene will continue to drive its CRO business, as it is witnessing huge
demand specially in the discovery biology segment. Company to additionally foray into contract manufacturing
services (global market of ~USD 40 bn)
Plans to invest USD 200 mn by FY19, as it transitions from a CRO to a CRAMS player. ~USD 102 mn of the planned
USD 200 mn capex has been invested till date; USD 72 mn towards expansion of Bangalore facilities, USD 30 mn
towards its Mangalore facility. Expects Bangalore Biologics manufacturing facility to be commissioned in Q3FY18,
while Mangalore facility is expected to be commissioned by FY20
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Tata Consultancy Services
Axis Capital conference 2017
Pricing environment: Management highlighted there is no pricing pressure (realization is flat over the past 5 years).
With respect to Digital, while pricing is better vs. traditional services, the premium will reduce as Digital matures
Insourcing a threat: TCS has not seen business move from them to captives. Overall, clients are keeping the core
services in-house and will look at vendors like TCS to support their business investments
Digital investments are paying off with TCS being able to participate in clients’ digital transformation agenda
(especially in Retail). 60% of its clients are being serviced on Digital. Ignio is also seeing good traction and has been
able to open cross-selling opportunities for other services. Last year, 215K employees have been trained in Digital
services and 598K competencies were developed
Investments/ acquisition: TCS will look for opportunities in domain capabilities and new markets
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Tech Mahindra
Axis Capital conference 2017
Co. represented by: Manoj Bhat (Deputy CFO), Vikas Jadhav (IR)
Telecom – expanding portfolio to capture capex spend: TechM has expanded the service portfolio from only opex
(BSS/OSS/BPM) to capex (Network Services) with LCC. Nevertheless, LCC has been a drag after acquisition.
However, management has restructured LCC to improve focus on few geographies, which will help TechM capture the
opportunities when 5G capex spend starts (3-4 quarters away). Moreover, management expects revenue growth from
mid- to high-single digit in FY19, driven by limited drag in the existing portfolio
Enterprise – growth likely to be ahead of industry: Enterprise momentum is steady excluding seasonality. The
enterprise segment continues to deliver industry-leading growth led by Retail/ Manufacturing/ Other. Management
expects retail momentum to continue in Q3FY18. Management expects deal wins and improved pipeline to help
sustain steady organic growth revenue momentum
Margin trajectory to improve: TechM remains confident of improving margin in the coming quarters, driven by several
initiatives it had undertaken: (i) utilization (ii) pyramid rationalization: slow and steady improvement over next few
quarters, (iii) automation: much benefits would be realized in FY19-20, (iv) margin improvement of portfolio company:
LCC to break even in H2, Comviva to be profitable in H2; (v) offshoring and yield management are bearing results
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
TTK Prestige
Axis Capital conference 2017
Double-digit growth in September and October: The festive season has been excellent for TTK Prestige (TTK) across
categories. The company expects to close Q3FY18 with double-digit growth rate on account of new year sales
Newer businesses: TTK introduced “Judge” in the cooker segment, pricing it 10-15% lower than Prestige cookers and
positioning it as not-so-premium cooker targeting specific customer base. The company plans to use exclusive
dealership network for Judge and, seeing the response to the segment, it plans to launch other segments under Judge
in H2FY18
Impact of GST: TTK witnessed GST-led disruption, but Diwali sales offset the impact. TTK did not go for a price hike
post GST implementation unlike other peers, which led to higher volume sales than industry during H1FY18
New distribution channels: TTK has tied up with large stores like Big Bazaar to improve its customer reach across
urban area (~90% of total sales). E-commerce sales now account for 5-6% of overall sales; Modern trade accounts for
~12% of overall sales
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Tube Investments
Axis Capital conference 2017
Co. represented by: Mahendra Kumar (CFO) and K.R. Chandrasekar (President – Cycle division)
Tube Investments (TI) is a market leader across its 3 manufacturing segments of bicycles, engineering (mainly tubes)
and metal formed products, with FY17 revenue of Rs 41 bn and EBITDA of Rs 3.6 bn
Additionally, TI has 70% stake in Shanthi Gears (M-cap: Rs 11 bn)
Over past few years, automotive industry growth has been sluggish due to weak macro. TI has used the downturn to
add capacities in bicycles, engineering (tubes) and metal formed (chains) segments. RoCE for its core manufacturing
operations is ~20% even in the current down-cycle (vs. ~35% in up-cycle)
Growth drivers: Margin improvement in cycle division led by higher volumes and consolidation of plants, (2) export-
led growth in tubes along with large diameter tube mill contributing to higher margin, (3) focus on after-market for
chain business along with new products and (4) higher wallet share in the fine blanking business
With capex cycle behind and with gradually improving macro, new capacities will start contributing to revenue and
PAT going forward
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
UFO Moviez
Axis Capital conference 2017
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Ujjivan Financial Services
Axis Capital conference 2017
Co. represented by: Sudha Suresh (CEO - Ujjivan Financial Services), Rajat Singh (Strategy Head - Ujjivan SFB)
MFI Industry recovering: MFI industry is well on the path of recovery after demonetization impact.
Barring one location, Ujjivan is witnessing good pick up in growth with improvement in collection efficiencies
Disbursements almost at pre-demonetization level: Disbursements grew 15% YoY in Q2FY18 and likely to increase
further in next two quarters. Ujjivan has also revamped its MSME and housing businesses and brought in a new team
to lead the same. On overall loan growth, it expects to grow by 18-20% in FY18, of which ~40% to be contributed by
MSE and housing portfolio (albeit on a smaller base)
Collection efficiency at 99.7% for new business: PAR ‘0’ and PAR ‘90’ improved to 6.7% and 5.5% (8.8% and 6.1%
in Q1FY18). For branches with PAR '0' of >5%, the focus is entirely on collections and new customer acquisition has
been stopped. Ujjivan expects credit cost to significantly taper off in H2FY18 and is looking at credit cost of ~4%
in FY18
40 SFB branches were added in Q2 (total 92) with a total network of 445 branches. Ujjivan SFB plans to add
another 82 outlets in H2FY18 (41 each in ensuing quarters)
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Voltamp Transformers
Axis Capital conference 2017
Transformer industry for industrial customers linked to private capex; business to improve going ahead
Voltamp has ~15% market share in industrial application transformers
Transformer industry troughed in FY15 both in terms of pricing as well as receivables. Based on current order backlog,
Voltamp has revenue visibility of ~Rs 6 bn in FY18 (flat YoY). Company had earlier guided for 10-15% topline growth in
FY18, which looks challenging due to GST-related issues
Renewables (solar) and industry (textile, auto ancillaries etc.) were key growth drivers in FY17; both are expected to sustain
the growth
Pricing still under pressure, but expects 100-200 bps margin improvement on operating leverage
Competition intensity remains high, but irrational price behavior by competitors have declined
Voltamp expects improvement in EBITDA margin to ~10-11% in 1-2 years
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Westlife Development
Axis Capital conference 2017
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ANNUAL INDIA CONFERENCE 2017
17 NOV 2017 Key Takeaways
Zee Entertainment Enterprises
Axis Capital conference 2017
Co. represented by: Bharat Kedia (CFO), Bijal Shah (Head IR), Saurabh Garg (IR)
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ANNUAL INDIA CONFERENCE 2017
Axis Capital Limited is registered with the Securities & Exchange Board of India (SEBI) as “Research Analyst” with SEBI-registration number INH000002434 and which registration is valid up to
03/12/2020.
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