DIYSIP Picks of Dec 2016 19 Dec 2016

RETAIL RESEARCH

We present herewith two set of stocks (Better known Medium risk and Lesser known stocks High Risk), which investors, based on their risk profile, can look at for
investing from a medium term perspective in a systematic investment way (SIP).

While the frontline indices have corrected from recent highs due to global and local macro factors, mid and small caps have done well (though they too have come
under pressure lately). While a further correction will not be entirely unexpected, using a SIP or averaging policy may be advisable (for aggressive investors, this may be
in addition to an initial lumpsum investment, if they so choose). This will enable lowering the average entry level due to expected fall in prices (in line with the expected
fall in these stocks).

SIP investments will give good returns only if the average entry price is lower (due to the initial fall expected). In case the stock price first rises and then falls, SIP
investment may not generate attractive returns. One of the criteria for choosing these stocks is that there is a good chance that they could first fall for some
weeks/months and then rise so that the full benefit of averaging is available.

Systematic Investment Plans, or SIPs, are expected to curb volatility, both on the upside as well as downside. This is done by cost averaging since the investments are
made on a periodic basis, and not in a lump sum. Though the investment amount is fixed, more units are purchased when the market/stock trends down, and fewer
units are purchased when the market/stock moves up.

If compared with lump-sum investing, cost averaging does not work to the investors benefit in a rising market. While cost averaging cushions your investment during a
downside, it also irons out gains made in a bull run to some extent. But to be effective, it needs to be sustained over a long time frame or at least an entire market cycle.

In case, at any time during the period of SIP, the stock price moves up sharply (compared to the average entry price) to attain the probable upside level or a good
return above the average entry price depending on the period of investment, capitalization and volatility of the individual stocks, then it would be a good idea to stop
the SIP and sell the stocks booking the profits accrued.

Better Known Stocks

Book Net Change Change Last
Equity Value Sales in sales PAT in PAT EPS P/E Div Dividend
Sr No Company Industry Latest FV CMP latest FY16 y-o-y FY16 y-o-y TTM TTM P/BV %. Yield
1 Apollo Hospitals* Hospitals / Medical Services 69.6 5 1,215.9 248.3 6085.6 17.5% 331.0 0.2% 26.6 45.6 4.9 120 0.5%
2 Arvind Ltd Textiles 258.4 10 341.5 99.0 8431.5 7.9% 370.7 1.3% 14.1 24.2 3.5 24 0.7%
3 Bajaj Auto Automobiles 289.4 10 2,659.5 555.5 22154.9 5.0% 4061.2 24.6% 137.9 19.3 4.8 0 0.0%
4 Bank of Baroda* Banks - Public Sector 460.8 2 159.7 166.5 45799.0 2.0% -5067.7 -229.6% -24.3 -6.6 1.0 0 0.0%
5 ICICI Bank* Banks - Private Sector 1,164.1 2 255.6 156.8 59293.7 7.9% 12084.6 -1.3% 18.1 14.1 1.6 250 2.0%
6 Oil India* Oil Exploration 601.1 10 440.1 375. 9384.7 -0.9% 2155.0 -17.4% 35.3 12.5 1.2 160 3.6%
Source: Capitaline Database, *= Standalone Number
All figures are Consolidated and in Rs. except for Equity, Sales FY16 and PAT FY16 which are in Rs.Cr., CMP is as of Dec 16, 2016, EPS is adjusted for extraordinary items. Past dividend yield may not
necessarily sustain in future

RETAIL RESEARCH Page |1

 RETAIL RESEARCH

A brief write up on the six stocks is as under:

Apollo Hospitals (MCap Rs 16914 cr)

Apollo Hospitals runs the largest chain of hospitals in India and enjoys a leading market position in the domestic healthcare industry.
Apollo Hospitals recently announced equity infusion of Rs 4.5 bn by International Finance Corporation (IFC) in its wholly owned subsidiary Apollo Health and Lifestyle
Limited (AHLL). IFC will acquire 29.03% stake in AHLL thereby valuing AHLL at Rs 15 bn. Apollo Hospital is exploring its restructuring options for its non-hospital
business through divestments/spin-offs and divestment of AHLL stake is a positive step towards unlocking value in its unit focused on retail healthcare business.
AHLL currently operates across various verticals including multi-specialty clinics (Apollo Clinics), diabetes clinics (Apollo Sugar), diagnostics (Apollo Diagnostics),
dental care (Apollo Dental), Women and children centres (Apollo Cradle), dialysis centres (Apollo Dialysis), fertility centres (Apollo Fertility) and short stay and day
care centres (Apollo Spectra) with a presence in 17 states and over 400 touch points. AHLL aims to aggressively expand its network, particularly in clinics, diagnostics
and cradle while consolidating its leadership position in diabetes clinics and surgical centres.
Apollo Hospital is in the process of establishing a network of Hospital under Apollo Reach with the objective of expanding its network and penetrates different
markets in Tier II and tier III cities and hospitals will be set up under this initiative with capacity of 100-200 beds.
Changes in Income tax deduction on capex for new hospitals wef FY18, rising competition, shortage of skilled personnel and ability to maintain occupancy and
average revenue per day/bed are some concerns faced by Apollo Hospitals.

Arvind Ltd (MCap Rs 8821 cr)

Arvind Ltd is Indias largest textile company and largest cotton textile manufacturer, with an installed fabric capacity of over 200mn mtrs per annum. It is the
preferred supplier to internationally renowned brands like Polo, Armani Exchange, Diesel, and GAP among others.
Arvind is diluting 10% stake in its brand business subsidiary for INR 7.4b, pegging its enterprise value at INR 80b. The entire stake will be picked up by Multiples
Private Equity. At company level, this transaction will aid in improving the financial muscle to address other opportunities (brands/technical textiles) and reduce debt
(debt equity to improve from 1.1x in FY16 to 0.6x in FY17 and 0.5x in FY18).
The company intends to setup two garmenting facilities: smaller one close to Paris (investments done and ~80% recruitment also completed) and the larger one in
Hawassa (Ethiopia). The management believes Ethiopia has one of the lowest cost infrastructure in the world with the company getting land and other facilities from
the government at a steep discounted price. It intends to build strategic relationship with its customers (TVH, H&M etc) and sees a revenue potential of INR 10b
from both plants.
The management is very optimistic about growth prospects of Brands and Retail division and expects a growth rate of ~21%/31%/29% in power brands/other
emerging brands/specialty retail category respectively for next 5 years with a healthy improvement at EBITDA margin.
Price volatility of Cotton, drought situation in cotton cultivation area, slowdown in personal spending and changing fashion trends could impact its margins going
forward.

Bajaj Auto (MCap Rs 76957.95 cr)

Bajaj Auto is expanding the economy segment and scaling up its presence in the executive segment. Successful launches last year resulted in an increase in market
share in domestic motorcycle market by over 300 bps to ~19%. Upcoming launches are expected to drive growth for Bajaj Autos domestic 2-W segment.
Recently Bajaj Auto launched 400cc bike under top end variant Dominar at an ex showroom price of Rs 136000. The company aims to sell at least 10,000 units a
month in the domestic market, where deliveries will begin from January 2017. Exports could start from February, 2017 and average 5,000 units initially. Company
expects the Dominar to become a $1 billion brand in the next 12-18 months.

RETAIL RESEARCH Page |2

 RETAIL RESEARCH

Bajaj Auto expects its volume for exports to be around 16 lacs units for FY17 and looks forward sale 2.5mn units in current financial year. Company has the right mix
to maintain its growth for the second half by launching new bikes. However, short-fall in exports volume continues to haunt company in near term. Margins are also
set to remain stable. Companys differential offering, superior mileage and performance as compared to existing product in the segment is a game changer.
Export volumes continue to be under pressure mainly due to lower availability of dollar and a local depreciating currency in its largest exporting countries.
Demonetisation related impact on demand is expected to get over in the next 1-2 months; failing which its topline growth and margins could remain affected.

Bank of Baroda (MCap Rs 36785 cr)

BOB management has guided for front-ended fresh slippages of Rs 15,000 cr in FY17 while higher recoveries and upgrades coupled with lower NPL formation will
enable asset quality improvement from 2HFY17. It has one of the highest coverage ratio amongst major PSU banks, much higher than the minimum requirement
which will enable it to report much lower credit cost and aid earnings.
Fresh slippages moderated in Q2FY17 and higher recovery resulted in NNPA improving 27 bps qoq to 5.5%. Watchlist also reduced by ~Rs 6000 cr. Total stressed
asset (Net NPA + Restructured assets) as a percentage of advances decreased by 27bps QoQ to 9.4% indicating stability in asset quality
The management is rationalizing business especially the overseas assets (syndicated loans) and focusing on customer centric products like retail. The bank had to let
go of certain unprofitable overseas business as they want to pursue higher profitability and put their capital to optimum use. Accordingly the international loan book
declined by 4% qoq, though the pace of decline moderated from 10% in previous quarter. Deposit base grew by 1% qoq.
Amongst PSU banks, BOB is best placed to comply with Basel-III regulations, all by itself. Its Tier I ratio stands at 10.8%, one of the highest amongst PSU banks,
management has also highlighted that they are not looking to raise capital in near future.
The bank reported an elevated credit cost of 182bp in Q2FY17, although moderating from 213bp QoQ, as specific credit cost remains elevated and unlikely to come
down in the near term. Coupled with higher concentration of impaired assets profitable growth opportunities could be limited. Credit growth opportunities remain
limited in the near term and competition in the space remains elevated.

ICICI Bank (MCap Rs 148767 cr)

Near term business growth will be driven by retail business and the share of high profit making products (mainly by cross sell) like credit cards, personal loans and
business banking is likely to go up.
Retail business remains healthy with ~90% of the loans being secured, core CASA ratio in excess of 40%, high contribution by fee income ( 65%+), and NNPA ratio of
~65bps would drive the growth in retail book. Structural improvement in liability and ALM profile over the last few years has helped ICICI Bank to gradually improve
NIMs to 3.1%+, despite increasing competition within retail business.
Increasing pace of resolution (Management expects resolution in two large accounts which would further reduce the watch-list in coming quarters) is reducing
uncertainty over the health of the balance-sheet. Additionally, bank is utilizing higher share of non-core income to create buffer on the balance-sheet. Recognition of
lumpy corporate accounts (from watchlist) in the key stress sectors would assuage the fears of negative surprise in the ensuing quarters.
Apollo JV for asset reconstruction is in the process of regulatory approval progress to be seen in the coming quarters.
Asset quality pressure to remain as slippages run-rate to continue over the next few quarters resulting in lower RoAA.

Oil India Ltd (MCap Rs 26452 cr)

The recent production cuts announced by OPEC and non-OPEC members augur well for the company as its earnings are highly sensitive to movement in crude prices.
The production cuts would provide support to crude prices and it would counter-balance the increase in shale oil supplies and increased output from Iran.

RETAIL RESEARCH Page |3

 RETAIL RESEARCH

OIL, IOCL & BPRL have jointly acquired 23.9% and 29.9% stakes in Vankorneft and Taas Yuryakh, Russia. Total acquisitions cost is US$ 3.14bn (OILs Share 33.5%). The
acquisition would be value accretive for the company in the long run.
The upstream oil companies have demanded a reduction on oil cess levied on domestic crude production and the petroleum ministry is also in favour of the same.
Oil cess was changed from fixed levy of Rs 4500 per tonne to ad-valorem rate of 20% in budget of 2016-17 to provide relief to upstream oil companies. However,
above $44/bbl the levy works out to more than Rs 4500.
OILs stock performance will move in tandem with the crude prices. If the OPEC and non-OPEC members do not stick to the announced production cuts, crude prices
will again start falling. This could impact OILs margins and stock price.
Adverse Regulatory policy changes could hurt OILs revenues and margins.

Lesser Known Stocks

Book Change Change Last

Equity Value Net Sales in sales in PAT EPS P/E Div Dividend
Sr No Company Industry Latest FV CMP latest FY16 y-o-y PAT FY16 y-o-y TTM TTM P/BV %. Yield
1 Adani Ports Miscellaneous 414.2 2 280.3 74.3 6,968.8 19.4% 2,867.4 23.9% 16.8 16.7 3.8 55 0.4%
2 AIA Engg. Castings - Steel / Alloy 18.9 2 1,316.8 268.8 2,053.2 -2.6% 424.2 -1.6% 47.6 27.6 4.9 900 1.4%
3 Akzo Nobel* Paints / Varnishes 46.7 10 1,395.7 185.9 2,683.1 8.6% 195.4 5.9% 46.0 30.3 7.5 700 5.0%
4 Capital First Finance - Investment 92.4 10 543.7 197.8 1,882.2 32.1% 166.2 45.4% 21.5 25.3 2.7 24 0.4%
5 Century Textiles* Cement - Major 111.7 10 766.5 223.2 7,652.5 4.8% (54.5) PL 3.7 209.9 3.4 55 0.7%
6 Dishman Pharma. Pharmaceuticals 32.3 2 218.0 102.6 1,561.9 0.1% 171.1 42.8% 12.2 17.9 2.1 100 0.9%
7 Jubilant Life Pharmaceuticals 15.9 1 630.3 213.5 5,649.8 -2.2% 427.2 LP 29.5 21.4 3.0 0 0.0%
8 Lloyd Electric* Air-conditioners 40.3 10 273.3 204.3 2,715.2 25.0% 70.4 -20.3% 25.4 10.7 1.3 13 0.5%
9 NMDC* Mining / Minerals 316.4 1 127.7 94.4 6,454.0 -47.7% 3,056.8 -52.4% 8.8 14.4 1.4 1100 8.6%
10 Sharda Cropchem Chemicals - Inorganic 90.2 10 445.5 99.2 1,218.6 14.8% 175.0 42.3% 20.9 21.3 4.5 30 0.7%
Source: Capitaline Database *= Standalone Number
All figures are Consolidated and in Rs. except for Equity, Sales FY16 and PAT FY16 which are in Rs.Cr., CMP is as of Dec 16, 2016, EPS is adjusted for extraordinary items.,LP= loss to profit, PL= profit to loss,
Past dividend yield may not necessarily sustain in future

A brief write up on the ten stocks is as under:

Adani Ports (MCap Rs 58038 cr)

Management expects 30% volume growth (last year) to sustain (~100 MT in 5-7 years), driven by inbound cargo (~66 MT: Coking/ thermal coal, limestone) and
outbound cargo (~34 MT primarily coastal coal). Achieving the target is contingent on very strong demand unlikely that cannibalizing volumes from other ports
would drive 30% volume CAGR for 5 years.
Adani Ports and Special Economic Zone (APSEZ) has bought TM Harbour Services, a Tata Steel company, in an all cash deal worth Rs 106 crore. TM Harbour provides
tug services at Dhamra Port, Odisha which is owned by APSEZ. It owns three tugs the acquisition will help it to provide seamless marine services at the port.
Acquired 125 metre wide corridor from Dhamra to Bhadrak which can accommodate 2 rail tracks and 4 lane road. Currently, almost entire cargo is evacuated via 62
km rail link (single track) from Dhamra to Bhadrak on main Howrah-Chennai line. Widening of road is imperative if road has to be used for evacuation.

RETAIL RESEARCH Page |4

 RETAIL RESEARCH

In line with managements earlier guidance of pruning loans and advances to related parties, APSEZ has cut the exposure by INR 10bn.This helped prune net working
capital and reduce net debt by INR 13bn in H1FY17.
The strong results posted by Adani Ports in September 2016 quarter reiterate the earnings recovery trend which started in the June quarter. Results exceeded
expectations, led by volumes rising 18 per cent year-on-year to 43 million tonnes. Net revenues increased 21 per cent year-on-year to Rs.2,183 crore, while net profit
expanded 61 per cent to Rs.1,091 crore.
The company is targeting 4MT of coastal cargo and is on track to achieve the same. Margin profile for coastal movements is similar to EXIM cargo.
The company has a strong portfolio of projects on the Indian west coast other than the flagship Mundra port. The projects are a mix of brown-field port
development i.e. currently at Dahej & Hazira and as terminal operator at the major ports i.e. coal terminal under development at the Murmagao port. Such projects
would help the company gain a pan India presence. While the company is looking at setting up a large port on the east cost of India, it has also been scouting for
opportunities to go global and has recently evinced interest in port development projects in Australia and Indonesia, in line with its long-term strategy.
Since cargo at ports is contingent on international trade, any slowdown in it could affect Mundra Port as well.
Any changes in the form of reversal of current tax benefits to units under the SEZ umbrella will significantly undermine incentives for industries to setup units in the
SEZ, hampering current plans of land sale.

AIA Engineering Ltd: MCap Rs 12417 cr

Primary mining segment volumes are expected to add substantial volumes in FY18 and FY19. Addressable market in mining grinding media has increased from 1.5m
tonnes to ~3.5m-4.5m tonnes. The company is confident of achieving a further 120,000 tonnes of mining grinding-media volumes over the next three years.
Gold and copper-ore customers added which pushed up mining grinding-media volumes 31% yoy to 31,858 tonnes. AIAs volume growth anticipated to be strong in
coming years.
Narrowing gap in prices of iron ore and ferrochrome would add more iron-ore mining customers. New customers added would most likely impact margins in FY18.
However increased utilization to allow the company to catch up on margins in FY19.
Of the companys requirement of raw material, 25% (by sales value) is imported. 75% of its sales arise from exports. Hence, a net 50% of sales is exposed to currency
volatility. To temper the currency risk, the company hedges short-term quarterly sales.
Mining-grinding-media could lead to keener competition due to higher return ratios; hence, might affect profitability going ahead.

Akzo Nobel India Ltd: MCap Rs 6512 cr

Dulux brand manufacturer- Decorative paints revenue is growing at a higher rate compared to industrial paints. Incremental revenue anticipated from decorative
paint segment.
For packaging coatings, company expects vigorous growth in South Asia to continue in future which justifies company's investment in new Thane plant.
Gwalior plant - a strategic location with supply chain point of view to reduce the cost to benefit the margins
Fairly stable oil prices to keep input cost in check and thereby increase the profitability
Peers adding capacity could put pressure on pricing and increase competition.
Up-trending Crude prices to put pressure on margins.

Capital First Ltd (MCap Rs 5023 cr)

RETAIL RESEARCH Page |5

 RETAIL RESEARCH

Capital Firsts loan book spans under-penetrated credit categories such as consumer durables, 2Ws and MSME business loans (which provide growth, yields and
granularity) as well as anchor segments like MSME LAP (including home loans) that impart scale (~52% of the book). The company employs digital technology to
lower turnaround time and drive up operating efficiency while keeping asset quality benign.
The company has advanced analytical systems, which allows credit appraisal turnaround for consumer durable loans within 15-30 seconds and 2W in 4-5 hours.
Increased cross-selling in CD and 2W segments will improve efficiencies and result in better cost-income (47.6%) going forward.
With the shift to MCLR and the rising proportion of lower cost debentures (11% vs. 4% in FY15), we expect CAFLs CoF is likely to decline in the coming years. CAFL
has a stable long-term credit rating that got upgraded from A+/AA- in FY11/12 to AA+.
As per regulatory requirements, CAFL recognises NPLS at 150DPD. However, it conservatively provides at 90DPD. Thus, the shift to 90DPD over three years will
optically elevate reported GNPAs by 60-70bps without having any impact on earnings. It has exited from gold loans (in FY15), property services and
securities/commodities broking (in FY14) to focus on the core retail lending business.
Higher-than-expected delinquencies in the unseasoned unsecured lending book, slowdown in economic activity could result in higher stress in MSME LAP book and
higher than expected increase in costs may impact ROAAs.

Century Textiles (MCap Rs 8560 cr)

Century has a diversified business risk profile and has presence across three core business segments, namely, cement, textiles and, pulp, paper and paper board.
Furthermore, each of the business segments has a sizeable scale and annual revenue in excess of Rs.15 billion. Its cement division (capacity of 12.8 million tonnes per
annum is the largest revenue contributor- 52% in 2015-16, followed by paper and pulp (22.2%) and textiles (24%). All of its businesses have witnessed a steady
growth, leading to overall revenue registering a compound annual growth rate of 14.5% between 2011-12 and 2015-16.
The worlds largest paper company International Paper acquired 75% stake in Andhra Pradesh Paper Mills (APPM) for around Rs 1,900 crore in Oct 2011, making it
the first global paper and packaging company with a significant position in India's fast growing economy. In the paper business, Century Textiles has a rayon grade
pulp capacity of 31,320 tonnes per annum, writing and printing paper capacity of 1,97,800 tonnes per annum and capacity of 36,000 tonnes per annum for tissue
paper.
Century Pulp & Paper has recently set up a 500-tonnes per day (1,80,000 tonnes per annum) multilayer packaging board plant adjacent to its existing pulp and paper
plant at Lalkua, Uttarakhand. In the board segment, Century caters to the pharmaceutical and fast moving consumer goods industries.
The growth in demand for packaging paper / board in the country is picking up due to growth in the fast moving consumer goods and pharmaceutical sectors. Paper
mills have implemented operational efficiency measures and are benefitting out of low wood prices. Most paper stocks are currently trading close to their 52-week
highs.
As far as the financials are concerned, Cement division is the main contributor to Centurys revenue while Textile and Paper division play a relatively minor role. Real
estate has just started to contribute at the top line marginally, but could be a larger contributor going ahead.
During FY16, EBITDA of the company has shown some improvement as compared to previous year. However, due to increase in interest burden because of charge of
interest to revenue account, relating to completion of one office building at Mumbai and expansion of capacity of the plant at the Manikgarh Cement unit in
Maharashtra, the companys net profit has been adversely affected. Further, due to demand recession and pressure on selling prices of cement, the financial
performance of the cement units has suffered a setback.
Restructuring at Century Textiles is possible going by the statements given by Mr. B. K. Birla some years ago in June 2009. He had been quoted as saying that most of
his group companies, barring two or three, would be given to his grandson Mr. Kumar Mangalam Birla. The companies like Century Textiles, Century Enka and
Century Extrusions would be given to Kumar Mangalam Birla. Even Kesoram Industries is likely to go to Kumar Mangalam Birla.

RETAIL RESEARCH Page |6

 RETAIL RESEARCH

Dishman Pharmaceuticals & Chemicals Ltd: MCap Rs 3517 cr

Dishman Pharma has an stable order book of $150mn with bulk being in Carbogenamcis ($100mn) with oncology being key focus area. This order book gives stable
revenue visibility over next few years. The company has over 250 CRAMS projects under different phases out of which over 100 arein Phase 2 and 18 are in phase 3.
The company offers Vitamin D2, Vitamin D3, Vitamin D analogues, cholesterol and lanolin-related products for the pharmaceuticals, cosmetics and related markets
through its Netherland subsidiary - Dishman Vitamin & Chemicals. As per industry estimates, the vitamin D market is likely to post a CAGR of 11% to reach $2.5bn by
2020. There are limited companies in this segment and thus provides opportunities for players like Dishman.
The strategy of Low volume high value molecules has handsomely rewarded Dishman Pharma as it has allowed the company to grow its profits faster than the
revenues. The margins are further expected to improve in future due to higher utilization in the India business.
Dishmans contract research and manufacturing services are the core of its business. Due to the focused approach on CRAMS, strong execution capabilities, non-
conflicting business policies and state of the art facilities, Dishman is perceived as a strong partner and not as a competitor. CRAMS has been a strong business
segment for the company and is likely to continue in future too.
China is emerging as a strong contender for CMO business on account of cost competitiveness, though India has a lead over China in terms of manufacturing facilities
and Language skills.
With the new facility now up and running despite initial delays, Dishmans ability to successfully fill (currently running at 50% utilization) remains a key monitorable.

Jubilant Life Sciences Ltd: MCap Rs 10039 cr

Radio Pharma to drive growth for Jubilant on the back of Rubyfill approval from USFDA and new product launches in niche areas. Company shifting its focus to
increase the contribution of pharmaceutical business which has higher margin profile.
Geographical diversification to reduce dependence on the US and generate steady revenue. Entered in Vietnam with commercial supply of Acetic Anhydride (LSI
business). Also received orders from the across Europe, Africa, Middle East and Asia in Life Science Chemicals
Strong filling/ approval pipeline across geographies provides visibility for future. Out of total of 871 filings across geographies, 669 filings have been approved while
202 filings are pending approval
Robust growth in Fine Ingredient business to provide incremental revenues.
Exposure to US which leads Jubilant to get into scanner of USFDA and sometimes it becomes tricky to handle the regulation and its lengthy procedure to get
approvals on the filed API or generics solid dosages formulation.
Revenue contribution from the overseas business is nearly 73% which leads Jubilant to have more exposure to the different currencies in the world. So any
unfavourable move in currency can impact Jubilants revenue and margin trend.

Lloyd Electric & Engineering Ltd (MCap Rs 1102 cr)

Driven by its aggressive marketing initiatives in the AC and TV segments, the Consumer Durable business has grown multifold over FY2012-16. It has improved on its
after sales service experience which ensures total satisfaction to the customer.
The increase in advertisement costs over the years (in absolute terms and in % to sales terms) has begun to bear fruits in terms of market share and absolute value
of sales. Advertisement costs have increased from negligible levels in FY11 to ~4% of revenues in FY16.
There is a clear shift toward five-star and inverter ACs that comprise 20% and 10%, respectively, of overall industry volumes. Lloyd is geared up for the changes as
per the BEE which would be implemented from January 2018. The company has started penetration of Inverter ACs is selected areas like coastal areas and places
where the temperature is less than 45 degree Celsius. Lloyd has technology to launch inverter ACs in areas where temperature is +55 degree Celsius.

RETAIL RESEARCH Page |7

 RETAIL RESEARCH

In the international market, during FY16, economic situation was close to stagnation in the major EU countries due to which the company incurred losses even in
high margin markets UK and Russia. In July 2016, external restructuring expert/advisor (Ernst & Young) was hired by the company to explore various strategic and
financial alternatives to enhance the shareholders' value.
There is intense competition among players leading to higher advertisement spends and lesser pricing power, thereby lowering margins. While market leaders in the
various categories are feeling secure, the other companies are finding that it is a tough going. Other factors like fluctuations in prices of raw materials especially
Aluminium, Copper and Sheet Metal could lead to erosion of margins as well as rising competition that could have a detrimental effect on the sector/company.

NMDC (MCap Rs 40387 cr)

NMDC reported a better than expected Q2FY17 with reported EBITDA at Rs 8258mn. The company continues to report strong buoyancy in volumes with dispatches
for Q2FY17 at 8.1mnte up 4% QoQ and 25% YoY. October and November, 2016 volumes have surprised with 3.14mnte and 3.63mnte of dispatches which sets up for
a stellar volume performance in FY17.
NMDCs Export volumes continue to be strong as relaxation in the railway freight for export and reduction in duties has rendered exports profitable again (0.64 mT in
2QFY17). This would have helped NMDC offset some of the declines in selling prices during the quarter.
The pricing situation is likely to be volatile given the sharp swings in international markets. Domestically, it is expected some pressure on steel volumes as
demonetization clearly has impacted long products. Further, aided by strong volumes from Orissa miners, this may weigh down prices, irrespective of global
scenario.
Global iron ore price after remaining range-bound between USD50-60/t during Q2FY17 moved up 46% during Q3FY17 to USD81.6/t. For a month now, international
iron ore price has consistently remained above USD70/t driven by increased demand for high grade iron ore from China to reduce its dependence on coking coal up
to the maximum extent possible. This means NMDC will register better realisations for ~3mn tonnes of exports, and at the same time international price parity will
ensure that differential pricing will continue in Karnataka and import substitution by mills located along the west coast would sustain.
Budgeted capex for FY17 and FY18 is INR36bn and INR40bn, respectively. NMDC incurred capex of INR14.3bn in H1FY17 of which INR12bn was expended for the
steel plant. In H2FY17 and FY18, capex of INR18bn and INR20bn will likely be incurred for the steel plant. Additionally, with INR75bn due to be paid for share
buyback, it is expected cash & equivalents to come down to INR21bn from INR148bn if dividend payout of INR11/share (similar toFY16) is maintained.
The company has started operations of the pellet plant in Donimalai and has sold first lot of 12,000te. Increasing off take from the pellet plant will be a margin
headwind henceforth. Capex for the steel plant has been restated to ~Rs 225bn from Rs 165bn earlier which is a negative.
Cabinet committee of economic affairs is considering strategic disinvestment of the Nagannar steel plant of NMDC. There is a significant opportunity for value
unlocking if the strategic sale proceeds towards completion.
Lower-than-expected sales volume, Introduction of mining tax, Increase in export duty on pellets and extensive correction in iron ore prices are the key negative
risks to the company.

Sharda Cropchem (MCap Rs 4018.87 cr)

Sharda Cropchem Ltd is a generics agrochemical company that follows a differentiated asset-light business model focusing on product registrations and outsourced
manufacturing. It operates in formulations and active ingredients solely based on generic (off patent) molecules.
Sharda Cropchem business faces less competition as it requires huge capital deployment and long gestation period to get the registrations and dossiers done. Time
delay and funds tied for a long period makes this an unattractive opportunity for new generic agrochemical players. The capital investment required for registrations
is usually Euro 3-5 million while the time required to receive one approval ranges from 3-5 years depending on the type of registration and the region in which it is
applied.

RETAIL RESEARCH Page |8

 RETAIL RESEARCH

Sharda Cropchem has a portfolio of 68 products, of which 38 are present in all geographies while balance 30 products penetration to all geographies is expected
going forward. Further, it has a launch pipeline of 12-14 new products over the next 3 to 4 years
Sharda Cropchem's unique and asset-light business model ensures its focus on increasing the number of registrations going forward. Company's targets 18% revenue
growth over FY16- 18 with stable margins.
Adverse weather can trigger pest infestations as well as affect demand for crop-protection products, thereby negatively affecting the company's sales.

Analyst Educational Qualification Stock Holding

Abdul Karim MBA, Research Analyst Apollo Hospitals No
Abdul Karim MBA, Research Analyst Arvind Ltd No
Abdul Karim MBA, Research Analyst Bajaj Auto No
Atul Karwa MMS, Research Analyst Bank of Baroda No
Atul Karwa MMS, Research Analyst ICICI Bank No
Atul Karwa MMS, Research Analyst Oil India No
Abhishek Lodhiya MMS, Research Analyst Adani Ports No
Abhishek Lodhiya MMS, Research Analyst AIA Engg No
Abhishek Lodhiya MMS, Research Analyst Akzo Nobel No
Atul Karwa MMS, Research Analyst Capital First No
Abdul Karim MBA, Research Analyst Century Textiles No
Abhishek Lodhiya MMS, Research Analyst Dishman Pharma No
Abhishek Lodhiya MMS, Research Analyst Jubilant Life No
Atul Karwa MMS, Research Analyst Lloyd Electric No
Abdul Karim MBA, Research Analyst NMDC No
Abdul Karim MBA, Research Analyst Sharda Cropchem No

We, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We
also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research
Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.

RETAIL RESEARCH Page |9

 RETAIL RESEARCH

Disclaimer:

This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or
arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of
warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information
purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer
or solicitation of an offer, to buy or sell any securities or other financial instruments.

This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality,
state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its
affiliates to any registration or licensing requirement within such jurisdiction.

If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be
reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd .

Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from
them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.

It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any
company mentioned in this mail and/or its attachments.

HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other
related information and opinions.

HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action
taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or
income, etc.

HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or
may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.

HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other
assignment in the past twelve months.

HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for
services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific
transaction in the normal course of business.

HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not
based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different
conclusion from the information presented in this report.

Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have
not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having
registration no. INH000002475."

RETAIL RESEARCH P a g e | 10