India - India Inc Trends and Outlook

22 AUG 2019 Quarterly Update
Earnings Review: Q1FY20
India Inc: Trends and outlook

Q1FY20 performance of Corporate India (BSE 500) based on TTM analysis is the weakest in revenue in last four quarters and the worst reading
for earnings (negative 1%) in eight quarters. Revenue has been trending downwards on weakness in manufacturing with Autos posting low
single-digit growth in Q1. Even earnings surprise ratio is at its lowest in 2 years. Dismal Q1 along with sluggish economy has triggered substantial
cuts by Consensus in both revenue and earnings across sectors, except insurance space. Our Nifty estimates have been reduced by 6% for
FY20 (Rs 578) and 4% for FY21 (Rs 697).
Identifying stocks changing earnings trajectory: Post quarter ended June 2019, we filtered companies in BSE 500 index based on TTM earnings
method to minimize volatility and narrowed down to stocks with (1) valuation vs. earnings growth, (2) YoY PAT growth far above their respective
sector averages, (3) sustained earnings momentum, (4) acceleration/ deceleration in earnings, and (5) turnaround in business over last 4 quarters.
Subsequent pages provide insights by our analysts on whether the trend is sustainable for companies under our coverage.
Our analysts expect momentum to sustain for these stocks under our coverage. Refer pages 7-17 for rationale.
♦ Valuations vs earnings growth: Peak valns & momentum sustainable: Bata, Cholamandalam, HDFC Bank, Kotak Mah Bank, NIIT Tech;
Valns near/below mean & momentum sustainable: Alembic, Aurobindo, Biocon, CESC, Dr Reddy, Endurance, Reliance Inds, Torrent Pharma,
Torrent Power, Varun Beverages
♦ High PAT growth in Q’ June19 vs. their sector average and expected to continue: Alembic Pharma, Bata, Biocon, CESC, Cholamandalam,
Dr Reddys, Endurance, Kotak Bank, NIIT Tech, Reliance Inds, Torrent Pharma, Torrent Power, Varun Beverages
♦ High momentum in earnings growth, i.e. 30% YoY in last four quarters and sustainable going forward: Alembic Pharma, Bata, IPCA,
Varun Beverages
♦ Acceleration/ deceleration in earnings observed during the last 4 quarters, where we believe the trend will continue: Acceleration:
Biocon, CESC, HDFC Bank; Deceleration: Shriram Transport, Yes Bank
♦ Turnaround observed in earnings during Q’ June 19: Negative: Cadila, JSW Steel, Page Inds
Sector-wise outlook and Q1 concalls of key companies – pages 19 to 47
Pankaj Kadu (VP – Database) Nitesh Momaya (AVP – Database)

pankaj.kadu@axiscap.in; 91 22 4325 1111 nitesh.momaya@axiscap.in;
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Corporate India (BSE500): Key charts
Revenue (ex BFSI): TTM growth weakest in 4 quarters Earnings (ex PSU Banks): TTM growth turns negative
20
20 (YoY %) 18 18 20 (YoY %) 18
16
16 15 15 16 14
12
12 12 12 10
12 11
8
8 5
8
4
4
0
0 (1)
(4)
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
Source: Axis Capital, Capitaline

Source: Axis Capital, Capitaline
Axis cap earnings surprise: Momentum weakest in 2 years Axiscap Nifty EPS: Estimates cut by 6% in FY20 and 4% in FY21
Surprise ratio 5yr average
Pre Q1FY20 Current
60
(%)
48 750 723
50 44 (Rs)
41 41 697
39 40 700
40 37
33
650
30 612
600 578
20
550
10
500
0 FY20e FY21e
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19
Source: Axis Capital Source: Axis Capital, Bloomberg
2
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Corporate India: TTM revenue growth weakest in last 4 quarters
No o f BS E 500 c o mp anies
S ec to rs cos S ep - 17 Dec - 17 M ar- 18 J un- 18 S ep - 18 Dec - 18 M ar- 19 J un- 19
Exp o rts 5 3 3 7 10 13 15 15
IT - Services 26 5 4 4 7 10 14 16 16
Pharmaceuticals 42 4 2 2 7 9 12 13 13
M anufac turing 13 16 17 20 23 23 20 15
Auto 38 4 9 16 21 19 16 8 3
Cement 15 12 22 28 33 30 25 20 15
Chemicals & Fertilisers 34 (0) 5 10 16 20 20 19 16
Consumer Durables 10 11 15 22 24 25 29 19 17
Engineering 38 7 15 12 12 17 11 12 11
FMCG 31 5 8 7 10 11 11 12 12
Infrastructure 13 (1) 3 17 8 19 23 17 23
Oil & Gas 16 19 21 19 23 31 35 31 24
Power Utilities 12 5 5 5 6 10 11 10 11
Metals / Mining 23 24 24 21 22 22 20 18 11
Textiles 11 5 6 7 6 9 10 15 16
S erv ic es 5 1 0 (0) 3 8 13 18
Logistics 8 17 20 16 15 15 17 19 24
Media 8 3 4 6 9 12 16 18 16
Real Estate 14 (6) (4) (1) (4) 2 10 13 15
Retail 15 45 20 16 12 17 18 20 20
Telecommunications 7 (8) (10) (11) (11) (9) (1) 7 15
Others
Diversified 3 17 21 17 12 10 8 10 6
Miscellaneous 54 8 (2) (6) (6) (3) 3 4 6
BS E- 500 (ex BF S I) 4 19 11 12 12 15 18 20 18 15
Aggregate manufacturing revenue growth at multi quarter lows, pulling down overall growth.
Auto sector worst effected!
Source: Axis Capital; Capitaline 3

Corporate India: TTM earnings growth turns negative
No o f BS E 500 c o mp anies
S ec to rs cos S ep - 17 Dec - 17 M ar- 18 J un- 18 S ep - 18 Dec - 18 M ar- 19 J un- 19
Exp o rts 1 3 7 14 16 13 8 6
IT - Services 26 3 4 4 8 11 11 14 12
Pharmaceuticals 42 (5) 1 13 30 32 19 (7) (7)
M anufac turing 17 17 11 23 22 12 9 (2)
Auto 38 (9) (2) 3 19 9 6 (5) (20)
Cement 15 (7) (10) (3) (3) (1) 10 14 26
Chemicals & Fertilisers 34 26 35 37 45 44 17 (9) (17)
Consumer Durables 10 5 10 18 40 33 27 13 3
Engineering 38 45 33 11 5 10 2 10 13
FMCG 31 6 12 11 16 16 13 14 12
Infrastructure 13 LP 717 301 133 67 59 11 16
Oil & Gas 16 12 14 (0) 21 18 4 8 (8)
Power Utilities 12 23 14 6 7 6 (1) (0) 1
Metals / Mining 23 78 62 51 62 60 47 29 5
Textiles 11 (24) (26) (15) (14) 23 24 59 67
S erv ic es 10 16 8 7 1 (7) (8) (5)
Bank - PVT 17 4 12 3 (3) (4) (2) 10 24
Logistics 8 (3) 15 1 (31) (72) (84) (61) 9
Media 8 7 8 14 21 14 17 10 4
NBFC 42 34 46 29 33 25 6 5 0
Real Estate 14 (2) 7 64 74 114 156 4 (1)
Retail 15 68 52 51 45 36 29 10 3
Telecommunications 7 (56) (81) PL PL PL PL Loss Loss
Others
Diversified 3 47 46 28 21 8 (2) 24 20
Miscellaneous 54 11 13 4 10 8 2 11 10
BS E- 500 (ex PS U Bank s) 4 77 12 14 10 18 16 8 5 (1)
Earnings for exports, manufacturing and services are at multi quarter lows!
Source: Axis Capital; Capitaline *PL = Profit to Loss, LP = Loss to Profit 4

Sluggish economy triggers substantial cuts in FY20 forecast
Revenue: Consensus estimate cut over past 4 weeks Earnings: Consensus estimate cut over past 4 weeks
Insurance 2 Insurance 9
(%) (%)
NBFC 1 Chemicals 0
Power Utilities 0 Infrastructure 0
Bank - PVT 0 Cement (0)
Cement (0) FMCG (0)
Bank - PSU (0) IT - Services (1)
IT - Services (0) Oil & Gas (1)
Others (0) NBFC (1)
Textiles (0) Others (1)
FMCG (1) Power Utilities (1)
Consumer Durables (1) Pharmaceuticals (2)
Telecommunications (1) Engineering (2)
Infrastructure (1) Bank - PVT (2)
Building Materials (1) Fertilisers (2)
Oil & Gas (1) Logistics (2)
Retail (1) Building Materials (3)
Metals / Mining (1) Textiles (3)
Logistics (1) Media (3)
Pharmaceuticals (1) Consumer Durables (3)
Engineering (1) Retail (4)
Fertilisers (2) Real Estate (4)
Chemicals (2) Metals / Mining (6)
Media (2) Auto (9)
Real Estate (3) Bank - PSU (14)
Auto (4) Telecommunications (42)
(6) (4) (2) 0 2 4 (50) (40) (30) (20) (10) 0 10 20
Source: Axis Capital; Bloomberg Note: Based on BSE500 where consensus data is available and calculated on market-cap weighted method
Consensus slashes both revenue and earnings estimates for FY20 across sectors, except Insurance
5
Stocks changing earnings
trajectory

Stocks where we observe change in earnings trajectory
Stocks changing Trajectory
Companies in yellow background are where we expect earnings momentum to continue

12m th f wd va lns (Red = near/above +1SD; B lu e = near mean; G reen = near/below -1SD; B la ck = Not covered by Axis Capital)
Nif ty NSE M id ca p B SE500 ^
Criteria (50 cos) (100 cos) (ex Nif ty & M id ca p s)
Kota k Ba nk , Ul tratec h, H industan Bharat F o rge, Enduranc e, Canara Bank,

Sundram Fasteners, Oriental Bank, Bandhan, AC C ,
Unil ev er, T C S , Wip ro , T ata Federal Bank, SRF, BEL , L T Info , LT Tech,
Hig h TTM ea rning s g rowth: Aarti Inds, Atul, T hermax, Varun Bev , NIIT T ec h,
S teel , Coal India, Bajaj F inanc e, C ho l a, PNB Hsg, Manappuram, GS PL , MGL,
Q'Jun-19 vs their respective sector C o ntainer C o rp , L &T F in, S hriram C ity, Gujarat
GAIL , ONGC , R IL , Dr R eddy, T o rrent Pharma , T o rrent Po wer, Bata,
Gas, Bio c o n, Al emb ic , C ES C , DMART, Trent
PGC IL J ub il ant F o o d
Su sta ined m om entu m : Cos that have ACC , Varun Bev , L &T F in, Al emb ic , IPC A,
consistently reported > 30% TTM YoY Bajaj F inanc e R BL Bank , Bata, J ub il ant F o o d , Indian Hotels Pho enix M il l s , Aarti Inds, Atul, Vinati Org, Century
growth over past 4 quarters Textile
Accelera tion in ea rning s: Cos that

The rma x , Bio c o n, C ES C , Aarti Inds, AU Small Fin
have seen continuous rise in TTM YoY HDFC Ba nk , Ul tratec h, IT C PI Inds, SRF, Manappuram
Bank
earnings over past 4 quarters
Decelera tion in ea rning s: Cos with Eic her, H ero M o to c o rp , M aruti,

PSU Banks, Bharat F o rge, Escorts, T ata Astral Po l y, S hriram T ransp o rt , SKF, KEC Intl,
continuous decline in TTM YoY earnings Yes Bank, Asian Paints , H indal c o ,
Po wer, GRUH Finance, Muthoot Finance Abbott, Sanofi
over past 4 quarters BPC L , NT PC , UPL, Indiabulls Hsg
P ositive tu rna rou nd : Positive TTM YoY

earnings growth in Q’Jun19 vs. decline in ICICI Ba nk R amc o C ement , Prestige Estate Dal mia Bharat , J K C ement , Kajaria, Auro b indo
previous quarters
Neg a tive tu rna rou nd : Decline in TTM Ashok Ley, Ambuja Ce m , H av el l s , Petro net ,
Bal k rishna Inds , Apollo Tyres, Ob ero i
YoY earnings growth in Q’Jun19 vs. Eic her, J S W S teel , Indiabulls Hsg C adil a, Page Inds , Bosch, Minda Inds, MRF,
R eal ty, NALCO
growth in previous quarters Schaeffler, Wabco, 3M
Source: Axis Capital; Bloomberg Note: ^ Cos with minimum Mcap > US$ 1 bn considered 7
View on Axiscap companies…
HG: High growth vs. sector SM: Sustained momentum AE: Acceleration in earnings
DE: Deceleration in earnings PT: Positive turnaround NT: Negative turnaround
PAT gwth
C o mp any C riteria Qtr Yo Y (% ) C o mments
AC C * HG SM Sep-18 37
Strong realization growth as cement companies increased cement prices across India from April (mid Feb
Mcap (USDm): 3905 AE DE Dec-18 84
for South region companies) by 10-15%. This coupled with cost moderation boosted EBITDA/t by
Price (Rs): 1487 PT NT Mar-19 87
30-60% for cement companies.
Parent nos Jun-19 72
Al emb ic Pharma * HG SM Sep-18 40 Strong US sales (up 47% YoY, 13% QoQ) was led by one-time opportunities while India sales declined
34 2% YoY given inventory control at trade channel and weak season for acute segment.
Mcap (USDm): 1317 AE DE Dec-18
We believe Alembic is in a transition mode with long-gestation R&D pipeline which would start
monetizing {derma (FY20 onwards), oncology solids (FY21) and injectables (FY22)} and enhanced growth
Consol nos Jun-19 41 from FY22.
Amb uja C ements * HG SM Sep-18 23
Mcap (USDm): 5588 AE DE Dec-18 7 Strong realization growth as cement companies increased cement prices across India from April by
Price (Rs): 201 PT NT Mar-19 12 10-15%. This coupled with cost moderation boosted EBITDA/t by 30-60% for cement companies.
Parent nos Jun-19 (4)
Asho k L eyl and * HG SM Sep-18 40 TTM numbers impacted by extremely weak Q1 performance. Q1 volumes declined by 6% YoY and
13 34% QoQ on subdued auto demand environment. As a result, revenues were down 9% YoY. Consequent
operating deleverage and financial leverage led to 38% YoY decline in PAT. Outlook for Q2 also remains
Price (Rs): 62 PT NT Mar-19 23 weak albeit should be marginally better than Q1. Expect H2 to see some recovery in volumes on festive
Parent nos Jun-19 (3) season and some pre-buy activity ahead of BS-6 changeover.
Asian Paints * HG SM Sep-18 13 Asian Paints started Q1 with 16% YoY volume growth, partly aided by innovative schemes/channel push
Mcap (USDm): 21326 AE DE Dec-18 11 in current quarter and channel destocking in base quarter leading to a 17% YoY revenue growth. Outlook
Price (Rs): 1589 PT NT Mar-19 10 for Q2 remains robust given the early Diwali and festival season, however we expect the pace of volume
Consol nos Jun-19 7 growth to see some moderation going ahead.
Auro b indo Pharma * HG SM Sep-18 (4) Q1 was led by strong US sales growth (+10% QoQ), improvement in gross margin (+260 bps YoY,
QoQ) and some positive impact of lower costs above EBITDA line.
Mcap (USDm): 4832 AE DE Dec-18 (5)
Growth visibility remains given strong pipeline and acquisitions in US; proposed acquisition of select
Price (Rs): 590 PT NT Mar-19 (2) portfolio of Sandoz in US (expected to close by Q2FY20) remains a rerating catalyst (could add
Consol nos Jun-19 4 annualized EPS of ~Rs 9-10).
Source: CMIE, Axis Capital; Note: PL = Profit to Loss, LP = Loss to Profit; NM = Not Meaningful; 8
…View on Axiscap companies…
PAT gwth
Bajaj F inanc e * HG SM Sep-18 55
Expansion of product portfolio, venturing into new geographies especially rural based, market share
gain and higher use of digital penetration aided in significant growth; stable margin and limited pressure
on asset quality ensured strong PAT growth momentum
25 Balkrishna has seen weak volume growth over the last few quarters. Q1 saw a 10% YoY decline in
Bal k rishna Industries * HG SM Sep-18
volumes while realisation also declined by 5% YoY on the back of higher competitive intensity and
Mcap (USDm): 2002 AE DE Dec-18 17 product mix. Consequent operating deleverage and higher incremental branding expenses led to a
28%/23% YoY decline in EBITDA/PAT which has impacted TTM numbers. Expect trend to reverse in the
remaining quarters as channel inventory has come down to ~50% of normal levels Expect volume growth
(12) to pick up which should drive earnings uptick.
Parent nos Jun-19
Bandhan Bank * HG SM Sep-18 -
Mcap (USDm): 7767 AE DE Dec-18 - Expansion of product portfolio, venturing into new geographies especially rural based, market share
Price (Rs): 465 PT NT Mar-19 45 gain and stable margin with limited pressure on asset quality ensured strong PAT growth momentum
Bata India * HG SM Sep-18 30
Bata posted strong double digit topline growth led by mid single digit growth in SSSG and 30 new store
opening . We expect the strong growth momentum for Bata to continue in Q2 given multiple initiatives on
reviving growth and margins
Bharat El ec tro nic s * HG SM Sep-18 (5)
Structural challenges due to change in policy on profitability norms for nomination orders (~40% of
orders) could reduce margin for BEL. Expect TTM earnings growth to settle down and stabilize at a yearly
levels of ~15% growth in topline. Further, we expect PAT growth to be ~5% in FY20.
Bharat F o rge * HG SM Sep-18 43 Earnings deceleration largely driven by weak demand in India CV which has led to ~9% YoY decline in
Mcap (USDm): 2537 AE DE Dec-18 35 tonnage over the last 2 quarters. Q1 also saw inventory destocking at a Oil & Gas customer which
Price (Rs): 390 PT NT Mar-19 32 impacted volumes and realisations as well. While CV demand continues to remain weak, the inventory
Parent nos Jun-19 17 destocking was a one-off and should normalize going forward.
PAT gwth
Bio c o n * HG SM Sep-18 13 Q1 led by strong sales growth in higher margin businesses (biologics) led to gross and EBITDA margin
Mcap (USDm): 3748 AE DE Dec-18 70 beat.
Price (Rs): 223 PT NT Mar-19 91 Strong growth visibility going ahead led by Biosimilar pipeline (launch of Trastuzumab by end CY19 and
Consol nos Jun-19 94 Insulin glargine by Mar’20 in US) & pipeline beyond FY21 (Aspart, Bevacizumab, novel, etc)
BPC L * HG SM Sep-18 11 High adventitious inventory losses from lower crude in last 4 quarters + weak core GRMs vs. inventory
Mcap (USDm): 9964 AE DE Dec-18 (10) gains from rising crude prices + strong core GRMs in prior quarters was major factor for steep decline in
Price (Rs): 328 PT NT Mar-19 (10) earnings growth. Expected improvement in core GRMs and high marketing margins could reverse this
Parent nos Jun-19 (38) trend going forward.
C adil a H eal thc are * HG SM Sep-18 44 Lower US sales at USD 197 (down 23% QoQ; our estimate: USD 222 mn) on competition in specialty
22 Levorphanol, gAndrogel and gLialda.
While growth visibility remains on Wellness and domestic business, we expect ~8% YoY decline in US
Price (Rs): 214 PT NT Mar-19 2 sales in FY20 on competition in key products and OAI status on Moraiya facility (1/3rd of pending
Consol nos Jun-19 (19) ANDAs).
C ES C * HG SM Sep-18 3
While stanalone regulated business is growing at steady, earnings too improving with reduction in losses
from the distribution franchise circles. We believe this is sustainable; expect 13.5% earnings CAGR for
the next 3 years
C ho l amandal am Inv st * HG SM Sep-18 38
While there is slowdown in HCV and car segment, the diversified book in vehicle finance particularly
used CV along with adequate liquidity, stable margin and limited pressure on asset quality aided in high
PAT growth. We believe this would be sustainable
C o ntainer C o rp * HG SM Sep-18 1 Concor’s assured pricing to customers (no rejigs in FY20, post increasing prices by 4-5% from Apr’19)
Mcap (USDm): 4118 AE DE Dec-18 14 has seen limited volume shift (Q1 originating vol down 6% YoY) as Railways’ rail haulage charges was
Price (Rs): 483 PT NT Mar-19 15 unchanged. We remain watchful on its mkt share loss to road and other peers, which may restrict near
Parent nos Jun-19 25 term volume growth, though margin may remain stable on price hikes.
PAT gwth
Dal mia Bharat * HG SM Sep-18 (50)
for South region companies) by 10-15%. This, coupled with cost moderation, boosted EBITDA/t by
Price (Rs): 950 PT NT Mar-19 (38)
~30-60% for cement companies.
Consol nos Jun-19 10
Dr R eddys * HG SM Sep-18 23 While QoQ US growth was led by new product launches (5 in Q1’20) and increase in volumes
(gSuboxone), EBITDA miss was led by weak gross margin of Global Generics (one-time inventory write-off
impact of 80 bps) and PSAI.
Price (Rs): 2503 PT NT Mar-19 71 We expect earnings to improve with scale-up of recent (gSuboxone, gCubicin, gPropofol) and new
Consol nos Jun-19 26 launches in the US coupled with improving execution in EM (India, Russia, China).
Eic her M o to rs * HG SM Sep-18 26 Slowdown in earnings driven by weak volume growth. RE volumes have declined 5%/13%/19% YoY
Mcap (USDm): 6108 AE DE Dec-18 20 over the last 3 quarters on weak auto demand. Margins have also contracted owing to the resultant
Price (Rs): 16003 PT NT Mar-19 5 operating deleverage. Expect volumes to recover in H2 on some recovery in demand and RE's
Consol nos Jun-19 (9) distribution network expansion activities. This should drive earnings growth recovery.
Enduranc e T ec hno l o gies * HG SM Sep-18 35 While the auto industry demand has been tepid, Endurance continues to outperform the industry on
Mcap (USDm): 1738 AE DE Dec-18 27 increasing wallet share. We expect this trend to continue going ahead given the order wins over the last
Price (Rs): 883 PT NT Mar-19 20 few quarters. Expected recovery in industry volumes will further aid revenue and earnings growth for
Consol nos Jun-19 13 Endurance.
GAIL * HG SM Sep-18 29 Combination of factors like strong trading profit, higher petchem/LPG prices in certain quarters, pipeline
31 tariff hikes aided in strong earnings growth. Q1 was operationally weak due to lower
transmission/trading volumes & petchem plant shutdown. We expect low earnings growth as
Price (Rs): 123 PT NT Mar-19 41 transmisison/trading volumes recovery and higher petchem plant utilization gets offset by low commodity
Parent nos Jun-19 31 prices.
Gujarat S tate Petro net * HG SM Sep-18 40
Strong earnings growth in last few quarters is hinged on 28% pipeline tariff hike and >5% increase in
transmission volumes. However, growth is expected to taper down from Q2 onwards on high-base and
mid to high-single digit volume growth expected.
PAT gwth
H av el l s India * HG SM Sep-18 38 Negative earnings were on account of the weak performance in Lloyd (down 8% YoY). What is
29 worrisome is that despite a strong season for RAC business, Lloyd disappointed on growth and earnings.
Given the increased competitive intensity both from incumbents and existing players and the change in
Price (Rs): 651 PT NT Mar-19 13 strategy (improving the Lloyd brand persona), we believe the stress in Lloyd is likely to spill into H2 when
(4) growth / margin recovery is expected.
Parent nos Jun-19
H DF C Bank * HG SM Sep-18 20
Mcap (USDm): 85136 AE DE Dec-18 20 Relatively higher loan growth, stable margins and limited pressure on asset quality has enabled the bank
Price (Rs): 2226 PT NT Mar-19 21 to sustain its PAT growth rate. This would continue to be sustainable in ensuing quarters
H ero M o to c o rp * HG SM Sep-18 (2) Slowdown in earnings driven by weak volume growth. Hero volumes have declined 11%/13% YoY over
Mcap (USDm): 7583 AE DE Dec-18 (4) the last 2 quarters on weak auto demand. Margin also contracted to ~14% levels from ~15% levels
Price (Rs): 2714 PT NT Mar-19 (11) previously due to the resultant operating deleverage which has weighed on earnings growth. Expect
Parent nos Jun-19 (14) volumes to recover in H2 on some recovery in demand. This should drive some recovery in earnings.
H indal c o Inds * HG SM Sep-18 (7)
Hindalco's domestic business impacted with continued decline in LME aluminum prices. However, the loss
in domestic partly offset by continued strong performance of its US subsidiary Novelis, which gained on
better spread in its North America market.
H industan Unil ev er * HG SM Sep-18 25
HUL posted modest margin expansion and 7% revenue gorwth led by 5% UVG growth. Company has
called out for moderation in growth rates going ahead due to overall economic slowdown. Management
remained cautious on near-term demand outlook but hopeful of recovery in H2FY20.
IC IC I Bank * HG SM Sep-18 (60)
Mcap (USDm): 37218 AE DE Dec-18 (56) PAT growth was strong primarily on lower provisions due to moderation in slippages. Headline asset
Price (Rs): 412 PT NT Mar-19 (50) quality improved with GNPA down 21 bps QoQ at 6.5%
PAT gwth
IPC A * HG SM Sep-18 169 Strong growth in exports API (47% YoY) coupled with steady India growth (13% YoY) and lower costs.
Mcap (USDm): 1657 AE DE Dec-18 117 We expect EBITDA margin to expand ~400 bps over FY19-21 as operating leverage kicks in through
Price (Rs): 938 PT NT Mar-19 105 (1) mid-teens growth in India business and (2) resumption of institutional tender & UK business. Resolution
Parent nos Jun-19 50 of USFDA issues would further drive operating leverage (awaiting re-inspection).
IT C * HG SM Sep-18 11
ITC’s Q1FY20 print was bit weaker than expected on revenue front dragged by slower cigarette volumes.
PAT growth was aided by a sharp 54% jump in other Income. ITC is clearly struggling to drive volume
growth in the core Cigarette business and hence we expect the growth to be muted in coming quarters.
J K C ement * HG SM Sep-18 (4)
for South region companies) by 10-15%. This, coupled with cost moderation, boosted EBITDA/t by
~30-60% for cement companies.
J S W S teel * HG SM Sep-18 167
Mcap (USDm): 7400 AE DE Dec-18 123 JSW Steel benefitted from high global steel prices till CY19. However, with US-China trade war
Price (Rs): 219 PT NT Mar-19 38 escalating, prices of steel declined. We expect profitability to continue to slide
Consol nos Jun-19 (14)
J ub il ant F o o dwo rk s * HG SM Sep-18 178 JUBI started the year on a weak note dragged by sustained moderation in SSSG to 4.1; weak leverage
Mcap (USDm): 2081 AE DE Dec-18 113 and higher-than-expected inflation in staff costs and other expenses leading to EBITDA growth of just 4%
Price (Rs): 1127 PT NT Mar-19 64 YoY as margin contracted 100 bps YoY. We expect pressure on margins and SSSG going ahead due to
Parent nos Jun-19 31 slowdown in overall consumption.
Ko tak M ahindra Bank * HG SM Sep-18 15
Mcap (USDm): 40221 AE DE Dec-18 16 Strong momentum in PATwas driven by growth in advances, largely stable headline asset quality and
Price (Rs): 1506 PT NT Mar-19 19 NIM, which would continue to be on a sustainable basis
L &T F inanc e H l dg * HG SM Sep-18 33
Mcap (USDm): 2703 AE DE Dec-18 47 Lower provisions and high other income has led to increase in TTM earnings growth. We don’t see this as
Price (Rs): 97 PT NT Mar-19 75 sustainable in ensuing quarters on account of higher provision from stressed asserts
PAT gwth
L &T Info tec h * HG SM Sep-18 28 LTI’s Q1FY20 performance was marginally better than expectations: revenue growth +0.8% QoQ (1%
Mcap (USDm): 3885 AE DE Dec-18 32 CC) to USD 356.5 mn; EBIT margin eroded by 170 bps QoQ to 16% (in-line) due to visa charges, INR
Price (Rs): 1598 PT NT Mar-19 36 appreciation, SG&A and lower utilization. The trajectory is unlikely to sustain owning to near term
Consol nos Jun-19 25 challenges in Q2.
M aruti S uzuk i * HG SM Sep-18 10 Slowdown in earnings driven by weak volumes on tepid industry demand. Volumes have been flat or
5 lower YoY for each of the last 4 quarters. Q1 volumes were down 18% YoY. Margin also contracted to
10-11% levels from ~15% levels last year due to the resultant operating deleverage which has weighed
Price (Rs): 6223 PT NT Mar-19 (8) on earnings growth. Expect volumes to recover in H2 on some recovery in demand and new launches by
Parent nos Jun-19 (19) Maruti. This should drive an earnings recovery.
NIIT T ec hno l o gies * HG SM Sep-18 41
Q1FY20 adjusted revenue grew ~3% QoQ (~4% in cc terms). Adj EBITDA margin eroded 51 bps QoQ
to 17.1% (AxisCap: 15.8% /Cons: 15.7%). Expect momenutm to remain healthy (despite client specific
issues) driven by healthy deal wins/ pipeline.
NT PC * HG SM Sep-18 10
Expect TTM earnings de-growth to reverse as Q1 on-offs of Rs 4 bn to reverse in Q2 and earnings growth
to be aided by 10% rise in regulated equity, nil -coal under-recoveries. Expect 15% EPS CAGR over
FY19-22e with core RoEs improving 350 bps to 21%
ONGC * HG SM Sep-18 26
High crude and gas price realizations, 4-5% gas production growth along with FX depreciation aided in
strong earnings growth even though crude production de-grew. We don't see the growth sustaining as
crude prices remain muted and domestic gas price may get revised down by 10%.
Page Industries * HG SM Sep-18 32
Page Industries posted another extremely weak quarter with decline in volume (down 2.5% YoY), EBITDA
(down 6%) and PAT (down 11%) . We expect the weakness in the topline and bottomline growth to
persist in the near term given the high competitive activity and slowdown in footfalls
PAT gwth
Petro net L NG * HG SM Sep-18 16 Decline in utilization of Dahej and Kochi terminals in Q2-Q4FY19 on low offtake by power and fertilizer
Mcap (USDm): 5012 AE DE Dec-18 10 sectors impacted earnings growth. Expanded capacity at Dahej terminal, Kochi-Mangalore pipeline
Price (Rs): 239 PT NT Mar-19 4 completion and sustained high power and CGD sectors' demand could result in >10% earnings growth
Parent nos Jun-19 (3) (ex-Ind AS 116).
Po wer Grid C o rp * HG SM Sep-18 8
Mcap (USDm): 14987 AE DE Dec-18 9 Expect earnings to slow down to 9% CAGR given sharp reduction in capex and capitalization ahead in
Price (Rs): 205 PT NT Mar-19 14 the regulated business as incremental opportunities to be awarded under competitive bidding.
R amc o C ement * HG SM Sep-18 (21)
for South region companies) by 10-15%. This coupled with cost moderation boosted EBITDA/t by ~30-
60% for cement companies.
Parent nos Jun-19 6
R BL Bank * HG SM Sep-18 34
Mcap (USDm): 2239 AE DE Dec-18 36 Higher advance growth, improving margin and relatively better asset quality led to sustained momentum
Price (Rs): 372 PT NT Mar-19 37 in earnings growth. We believe this will not sustain on account of concerns arising on asset quality front
R el ianc e Inds * HG SM Sep-18 19 Strong petrochemicals business performance supported by new projects and higher margins along with
15 increased contribution from RJio and Retail resulted in strong growth. We expect the momentum to sustain
going forward as GRMs get boost from accelerated demand for diesel on IMO, petcoke gasifiers are
Price (Rs): 1271 PT NT Mar-19 13 utilized, feedstock and product flexibilities are used to the hilt as well as on continued aggressive
Consol nos Jun-19 10 expansion or penetration in consumer businesses.
S hriram C ity Unio n F in * HG SM Sep-18 25
Abnormally high TTM growth in PAT is on account of favorable base due to asset quality deterioration as
SCUF transitioned to 90 dpd NPA recognition norm. Credit cost in FY18 stood at ~4%. We believe this
momentum will not sustain.
PAT gwth
S hriram T ransp o rt F in * HG SM Sep-18 85
Moderating growth, pressure on margin, asset quality deterioration and unfavorable base (higher PAT
supported by lower provisions) led to decline in PAT. We believe pressure on bottomline will continue
for few more quarters
Parent nos Jun-19 2
T ata C o nsul tanc y * HG SM Sep-18 11 TCS' Q1 performance was a miss on revenue and margin. USD revenue growth at 1.6% (vs. estimate of
Mcap (USDm): 114729 AE DE Dec-18 18 ~3%) and margin at 24.2% (down 155 bps QoQ). TCS’ Q1 performance was weak in a seasonally
Price (Rs): 2186 PT NT Mar-19 22 strong quarter. Continued weakness in European banks and Capital markets (US) lead to our pessimism
Consol nos Jun-19 19 on growth acceleration from hereon.
T ata Po wer * HG SM Sep-18 21 Earnings in the past quarters were impacted by various factors such as lower profits from coal SPVs due
Mcap (USDm): 1933 AE DE Dec-18 15 to imposition of domestic market obligation in Indonesia, under-recoveries at Mundra. Expect earnings to
Price (Rs): 51 PT NT Mar-19 (29) improve – declining imported coal prices to lower Mundra under-recoveries, receeding impact of DMO
Consol nos Jun-19 (37) to lift coal profits and successful deleveraging through monetization of non-core to aid profitability.
T ata S teel * HG SM Sep-18 (11)
Mcap (USDm): 5443 AE DE Dec-18 (36) Tata Steel benefitted from the high global steel prices till CY19. However, with US-China trade war
Price (Rs): 343 PT NT Mar-19 139 escalating, prices of steel declined. We expect profitability to continue to slide.
T hermax * HG SM Sep-18 21
Revenue growth is likely to be weak in 9MFY20 (order inflows at Rs 12,170 mn saw a decline of ~26%
YoY). We expect ~15% order growth and margin uptick of ~90 bps in FY20. Abnormally high PAT
Price (Rs): 1035 PT NT Mar-19 39 growth should settle down to around 20% for FY20 and 21% for FY21.
T o rrent Pharma * HG SM Sep-18 (5) Strong gross (+220 bps YoY) and EBITDA margin (+130 bps YoY) despite muted sales growth.
Mcap (USDm): 3955 AE DE Dec-18 57 While Torrent is facing headwinds in US (OAI for Indrad and Dahej facilities), India franchise remains
Price (Rs): 1671 PT NT Mar-19 60 strong coupled with superior return ratios.
…View on Axiscap companies
PAT gwth
T o rrent Po wer * HG SM Sep-18 70
Expect earnings momentum to continue with steady growth in the regulated equity entity; recent PPA for
Unosugen, short term contracts for Sugen and turnaround in distribution franchise to create an alpha in
earnings. Expect EPS to post15% CAGR over FY19-22E and RoEs to improve to 12%.
Ul tratec h C ement * HG SM Sep-18 (17)
for South region companies) by 10-15%. This coupled with cost moderation boosted EBITDA/t by 30-
60% for cement companies.
Varun Bev erages * HG SM Sep-18 78 Varun Beverages (VBL) posted another strong quarter (Q2 is peak quarter) led by robust organic growth
(20%+ organic volume growth, 18.5% organic growth in India) and gains from consolidation of acquired
territories. Near-term catalysts include sustained gains from consolidation of recently acquired South-west
Price (Rs): 641 PT NT Mar-19 40 territories (including revenue scale up potential), portfolio de-risk through scale up of juices/water
Consol nos Jun-19 48 portfolio and sustained momentum in international business.
Wip ro * HG SM Sep-18 (10) Q1FY20 financial performance was weaker than expected on all counts. Revenue decline of -1.3% QoQ
(2) in USD terms and adjusted margin erosion of ~110 bps was weaker than consensus expectation. We
don’t expect the momenutm to sustain as Wipro’s Q2 guidance indicates another quarter of soft financial
Price (Rs): 253 PT NT Mar-19 12 performance. Company continues to see uncertainty in demand environment with challenges mounting in
Consol nos Jun-19 15 few verticals.
Yes Bank * HG SM Sep-18 19
Moderating growth, significant pressure on margin and sharp asset quality deterioration has led to
decline in PAT. We believe preussre on bottomline will continue for few more quarters on account of
stressed assets and lower capital
Outlook and management
concall takeaways

Auto…
Q1FY20 - Outlook and management
concall takeaways
 Management outlook
 Volume outlook: Given the continued uncertainty and weak demand scenario, most OEMs refrained from providing any
quantitative industry growth outlook for FY20. Q2 is also likely to see YoY decline in volumes albeit to a lesser degree than
Q1. Most OEMs are hopeful of a recovery in H2 due to festive season. However, government intervention in the form of
GST cut/lower road-tax or registration charges/scrappage policy etc. are a must to spur demand.
 Inventory levels: Most OEMs highlighted that inventory levels were normal/slightly higher than normal heading into the
festive season. However, dealer association (FADA) has highlighted that 2W and CV inventories continue to be elevated and
are a cause for concern.
 Commodity costs have stabilized and were a positive in Q1 leading to gross margin expansion. OEMs believe Q2 will likely
see some more benefits come in. They have also initiated cost reduction programs in order to protect margin.
Key management comments (segment-wise)
 Maruti: Management refrained from giving any outlook on industry growth given significant uncertainty in the market, which
has made it difficult to predict growth. Demand continues to be weak; however, management expects some government
support to come in given increased awareness of the slowdown. There has been steep fall in walk-ins and enquiries. MSIL
has increased field level activities to ensure improvement in enquiries. Management expects commodity cost benefits to
continue to accrue in Q2FY20 given easing prices. MSIL continues to evaluate if its 1.5 litre diesel engine can be made BS-6
compliant. It has not yet decided to vacate the diesel space.
 Ashok Leyland: Given the continued weakness and uncertainty in demand, management refrained from providing FY20
industry volume growth outlook (vs. expectations of 10-12% previously). Management believes volume growth can turn out to
be flat if the current demand scenario persists. However, it is difficult to predict growth due to multiple issues like impending
BS6 transition, possibility of reduction in GST by government (fleet owners postponing purchases in anticipation), and
likelihood of fuel price increases on account of BS6. Management is aggressively working on a cost reduction program
which aims to reduce costs by ~Rs 5 bn and is on track to achieve this in FY20. Under this program, all overheads are being
looked at and company is only spending on vital and capability building items. Dealer inventory currently stands at 30-45
days. LCV inventory is not high. Cost increase post BS6 transition can be in the range of 13-20% of ASP.
Nikhil Kale, CFA (VP – Auto)

19
nikhil.kale@axiscap.in; 91 22 4325 1137
…Auto…
concall takeaways
 Key management comments (segment-wise)
 M&M: Management believes worst is over in tractor industry and expects industry volumes to be largely flat YoY (implying
6-8% growth for remaining months). Volumes could turn out to be better if monsoon continues to remain good in next
1-2 months driving improvement in sentiment and higher Rabi sowing complemented by favorable base in H2. For the auto
segment, management refrained from quantifying outlook given continued uncertainty, but highlighted that government
intervention is necessary to spur recovery in demand. Commodity costs continued to be benign in Q1 leading to a benefit of
50 bps. Management expects the trend to continue in Q2. Inventory levels in both segments are reasonably under control at
~1-2 days higher than ideal levels.
 JLR: Management maintained its guidance and continues to expect JLR’s EBIT margin in FY20-21 to be 3-4% and in FY22-23
at 4-6%. However, margin for FY20 is expected to be at lower end of the guidance. Gross debt/EBITDA target ratio was
increased from 2.5x to 2.8x for FY20-21 and FY22-23 to adjust for impact of accounting for leases as debt under IFRS16.
Company achieved £ 1.3 bn from the targeted savings by reduction in investments (£ 0.7 bn), inventory and working
capital reductions (£ 0.4 bn) and some cost actions (£ 0.2 bn) in FY19. In Q1, it further achieved savings of £ 0.4 bn
through reduction in investments (£ 0.3 bn) and cost savings (£ 0.1 bn). Going forward, company is taking significant
actions to deliver the remaining savings.
 Bajaj Auto: Industry is witnessing a clear decline and the trend continues to worsen. June was the worst month so far and
July has been even worse. Management expects the festive season to mitigate some of the decline going forward; however,
seasonality may not be enough to completely offset the decline. Company has been outpacing the industry by 8-12% and
remains confident of continuing this. Management believes the slowdown in CVs is seasonal rather than structural. Q2 is
likely to be a better quarter than Q1 on festive season uptick. For 2Ws, while growth in Africa and ASEAN is steady,
Latin America remains muted. Exports 2W industry growth is likely be at ~2-3% assuming there are no geopolitical shocks.
Bajaj remains confident of outperforming industry growth. Management feels EBITDA has largely bottomed out; margin is
expected to remain in the current range if market demand and raw material prices remain at similar levels.

20
…Auto
concall takeaways
 Key management comments (segment-wise)
 Hero: Management expects demand to improve in H2 on festive season starting from September end which should benefit
Q3 volumes. Q4 volumes are also expected to benefit from pre-buy prior to BS-6 emission norms changeover. Management
believes there is genuine intent to buy amongst consumers, but they have deferred their purchases which should change at
some point of time. Inventory reduced by ~80k units (~3 days) in Q1. As a result, inventory days have reduced to 42-47
(vs. 45-50 in Q4). Management finds this level comfortable heading into the festive season. Material costs have been
adversely impacted by HSRP and transition to CBS/ABS. Commodity costs are subdued and to remain tailwinds going
forward.
 TVS Motors: At the start of the year, the 2W industry was expected to grow at ~6% YoY. However, after a weak Q1
(volumes down 12% YoY), management expects industry growth to continue to remain negative in Q2 as well as H2
although the trend would be improving (Q2 better than Q1, H2 better than H1). With a stable government in place,
management expects GDP growth to recover but will take some time. Driven by its product portfolio, management expects
TVS to continue to outperform both domestic and export industry growth. Management highlighted that reduction in RM costs
has just started and should continue in subsequent quarters. Benefits from cost reduction initiatives will continue to accrue for
rest of the year, aiding margin. Management noted margin would have benefitted further if volume growth had been better.
 Eicher Motors: Management expects volumes to pick up going ahead on recovery in sentiment. RE volumes have declined
more than the industry given the aspirational nature of its products. Management expects RE volumes to also recover faster
than the industry when the sentiment turns positive. Demand has been impacted more in states where RE has a higher market
share than its country average. Top 20 cities now account for ~25% of RE volumes. At its analyst meet in June, management
had announced plans to open 350 studio stores in 2019 in smaller towns and rural areas. Management has accelerated this
plan and now will open ~500 stores in Q2 itself (half to be operational in August). Channel inventory is less than 1 month
and dealer inventory is much less than that.

21
Banks and Financial Services…
concall takeaways
 Q1FY20 review
 Growth slowdown is visible across the board with some managements highlighting concerns on consumption-led slowdown.
Even large private banks (which were gaining market share) have witnessed a slowdown in overall loan growth despite
NBFCs / PSU banks pulling back aggressively.
 Focus has now shifted on shoring up the liabilities franchise with some banks getting aggressive on term deposits whereas
CASA has witnessed a QoQ slowdown across the board (more of a seasonal phenomenon).
 Asset quality is showcasing a mixed picture with negligible resolutions from NCLT cases but coverage ratio has moved up
across the board. Slippages from retail loans and concerns of NPAs from agriculture portfolio are increasing.
 NBFC sector witnessed significant stress with growth slowing down, lack of adequate funding and increase in cost of funds.
Wholesale and bulk lenders with exposures to builders/ LAP resorted to sell down on non-core portfolios/ assets to improve
ALM and liquidity positions.
 Capital consumption on the rise due to higher risk weight imposed by RBI on unrated exposures. Slowing growth, lower
investment income and weak recoveries from bad assets will force many banks to tap the capital markets for fresh equity.
 Our view
 Liabilities management has taken precedence over growth. Slowing growth, lower investment income and weak recoveries
from bad assets will force many banks to tap the capital markets for fresh equity in the coming quarters. Challenges for
NBFCs will continue in the shorter term with poor liquidity, rising delinquencies and exposure to high risk sectors. Revival of
PSU banks hinges on fresh capital from government and recovery from NCLT cases.
 Overall, the results of HDFC Bank, ICICI, Kotak Bank and Bajaj Finance were among the best. Mid cap private banks and
PSU banks continue to face stress (along with low visibility of fresh capital infusion).
 We remain selective and maintain HDFC Bank, ICICI Bank, SBI and CIFC as our preferred picks in the sector. We expect
mid-cap private banks, bulk lenders in NBFC and PSU banks (excluding SBI) to continue to underperform.
Praveen Agarwal (Executive Director – BFSI) Vikash Mundhra (VP – BFSI) Ojasvi Khicha (AVP – BFSI)
22
praveen.agarwal@axiscap.in; 91EMISPDF
22 4325 1105 vikash.mundhra@axiscap.in; 91 22 4325 1126
in-iimrohtak from 14.139.225.83 on 2019-09-14 04:20:34 BST. DownloadPDF.
ojasvi.khicha@axiscap.in; 91 22 4325 1133
…Banks and Financial Services
concall takeaways
 Key management comments (company-wise)
 ICICI Bank: Management has not given any loan growth target, while the focus is to improve operating profit with focus on
granular and collateralized growth. On CASA front, bank expects CASA ratio to moderate further due to its focus on
garnering granular retail deposits to move to a more sustainable and stable funding source. Management maintained its credit
cost guidance of 1.2-1.3% in FY20 (significantly lower than FY19) and progress towards long term average in ensuing years
and does not see any stress in its retail portfolio.
 Kotak Bank: Economy is certainly slowing down with challenges in few sectors like NBFCs and real estate. For the financial
system, availability of credit/ liquidity will depend more on solvency than on cash flows. Kotak expects to gain market share in
select sectors where comfort is high; guides for ~20% YoY growth in advances for FY20. The bank will likely increase its
presence in Eastern states gradually (presence in South India got a boost from ING Vysya acquisition).
 State Bank of India: Management believes economic slowdown is evident. Government spending and sorting of credit flow to
NBFCs is critical for revival. Project finance proposals for the bank in pipeline are largely from oil & gas
(city gas/refinery/LNG terminals), roads and renewable energy sectors. No significant credit demand for capex outside these
3 sectors. Bank revised down its RoA guidance for FY20 from ~100 bps to 50-60 bps due to recent developments and lumpy
slippages. Additionally, it guided for 12% advances growth for FY20 (expect retail growth to continue momentum) and
3.15% domestic NIM for full FY20.
 Bajaj Finance: While growth environment remains patchy, guidance for advances growth remains at 25-30% over the medium
term; will continue to focus on risk more than growth. Asset quality in LAP business (ex-IL&FS) remains steady. There has been
material progress in IL&FS case with sale of premise and Rs 180 mn money received in escrow account in last 20 days;
optimistic to come out unscathed and current provisioning cover stands at 26%. While the company has turned cautious on
digital product category, it believes there is huge opportunity to grow.
 Equitas Holdings: To meet the dual listing requirement. the proposed scheme of arrangement is pending with the SEBI and the
company expects the approval shortly. Post SEBI’s approval, it will take another 5-6 months to complete the process. The bank
is in constant dialogue with RBI and remains optimistic for approvals to come through. Within vehicle finance, management
expects strong growth to continue in used CV segment, but is cautious on new CV front. Plans to re-launch its gold loan
product in near term across branches in south and expects better traction going forward.
Praveen Agarwal (Executive Director – BFSI) Vikash Mundhra (VP – BFSI) Ojasvi Khicha (AVP – BFSI)
23
praveen.agarwal@axiscap.in; 91EMISPDF
22 4325 1105 vikash.mundhra@axiscap.in; 91 22 4325 1126
ojasvi.khicha@axiscap.in; 91 22 4325 1133
Cement
concall takeaways
Management outlook
 Volumes
 Housing: demand moderated on unavailability of liquidity. On delayed monsoon, rural demand witnessed slowdown. To improve if
monsoon pick up in Q2.
 Infrastructure: Government spending declined due to general elections in Q1. Q2 hasn’t witnessed any pick up yet. Expect H2 to be
better.
 Overall there is a degrowth in volumes to the extent of 3-5%.
 Demand: has been weak, especially in the East, after 4 quarters of strong growth. Demand weakened in Telangana post
completion of Kaleswaram project Phase 1. AP demand weakened as government renegotiating old contracts. Demand situation
relatively better in North and West region.
 Pricing and cost

 Cement prices increased by 10-15% across region in Q1. For South region, the increase took place in mid-Q4. Prices mostly sustained in
Q1 but weakened in Q2 on (1) lower than expected demand and (2) seasonally weak quarter. Power and fuel cost declined with global
weakness in coal and petcoke prices.
 Key announcements in Q1
 UltraTech on acquired assets: (1) Nathdwara Cement (formerly Binani Cement) is fully integrated with UltraTech.
Capacity utilization for Q1 at 60% – low due to outage. The unit generated EBITDA/t of Rs 1,200 and EBITDA of Rs 1.6 bn;
(2) 21.2 mnt acquired JP Assets is now EPS accretive with 68% capacity utilization; and (3) Century Cement is expected to
merge in Q2FY20 and only few approvals are pending. Management confirmed UTCEM has to pay Rs 64/t additional
royalty on Century’s mines as per MMDRA Act. On Binani assets, UTCEM is in talks to hive off non-core assets and expected
to sell off some in FY20. Management indicated focus on integration and sweating of acquired assets and no organic/
inorganic expansion.
Arijit Dutta (VP – Materials) 24

arijit.dutta@axiscap.in; 91 22 4325
EMISPDF1122
Consumer durables/Electricals…
concall takeaways
Outlook
Q1 was characterized by a strong financial performance but weak management commentary. For most of the companies under our
coverage, growth was driven by ECD, while other core segments (lighting/C&W) faltered. For durable players, Q1 was a bumper
quarter as they benefitted from harsh summers. Durables/ light electricals sector is facing strong headwinds, both macro-led (weak
real estate demand, soft consumer spends etc.) and industry specific issues (increasing competition). While most of these franchises
are robust and should tide over these challenges – near term (12 months) growth/ margin and FCF generation could be stretched.
 Havells
 Tepid performance on account of slowdown in real estate, liquidity squeeze and delays in projects (post elections).
 Major disappointment was Lloyd (down 8% YoY) in peak RAC season; other key segments – switchgears (flat YoY) and cables (up
4% YoY) – too had muted performance.
 ECD (up 24% YoY) had a strong quarter while lighting registered high-single digit growth.
 EBITDA margin deteriorated (down 190 bps YoY) on (1) adverse commodity prices, (2) higher A&P spends (during Cricket World
Cup), (3) rationalization of distribution (shift towards premium channels in Lloyd), and (4) delayed pricing actions.
 Management guided Q1 weak economic scenario is likely to impact Q2 performance; however guided for recovery in H2.
 Havells continues investments in innovation, brand, people and distribution to be among the top 3 players across categories.
 Crompton Greaves Consumer Electricals

 Strong performance in fans, pumps and appliances aided 16% YoY revenue growth; LEDs continued to report double-digit volume
growth.
 Key negative was 160 bps margin compression in lighting to 5.1% vs. management double-digit margin guidance in Q4.
Management attributed this to increased A&P spends (during Cricket World Cup), higher provisioning and investment in
B2B segments.
 New launches - ‘Crest ‘mini’, Anti-dust fans, ‘Anti-bac’ bulbs – continue to dominate their respective categories; and plans to
introduce more products across segments largely targeting the mass-premium segment.
 Targets market share gains across categories with rollout of GTM.
Aditya Bagul (VP – Midcaps) Kashyap Pujara (Managing Director – Head of Research)
kashyap.pujara@axiscap.in; 91 22 4325 1107
25
aditya.bagul@axiscap.in; 91 22 4325 1130
…Consumer durables/Electricals…
concall takeaways
 Voltas
 Best quarter for UCP (up 47% YoY), however other segments – MEP & Engg. – declined 3% - 4% YoY due to project delays.
 Retained #1 spot in RAC market (24% share) driven by (a) strong brand recall; (b) smart product introductions;
(c) aggressive marketing initiatives; and (d) extensive distribution network (15,000+ touch points).
 Voltas has entered EESL contract for providing 50K RAC units in Delhi.
 High RAC inventory level that trade channel was carrying in H2FY19 has normalized in Q1.
 Voltbek plant in Gujarat is scaling up well and is expected to start commercial production in CY20.
 MEP: Domestic business was muted on account of slowdown in private investments and delays in government projects (post
elections). In international segment, Voltas will be cautious in picking up new projects (especially in MEA). As of Jun-19,
closing order book stood at ~Rs 48 bn.
 Engg: Challenges continue to prevail in textile industry; Mozambique operations continue to drive segment growth.
 Whirlpool
 After tepid performance in Q4, Whirlpool bounced back to double-digit growth trajectory (up 20% YoY) benefitting from
harsh summer.
 Whirlpool benefits from a strong brand recall and robust execution with regards to (1) innovation-led new product launches,
(2) expanding geographic footprint to tier II and III locations and (3) growth from adjacencies like air, water and cooking.
 Whirlpool has embarked on a ~Rs 6 bn capex over next 5 years.
 At last analyst meet, the management highlighted its 4-pillar strategy for USD 1 bn and beyond including (i) Brand
revitalization (ii) Refreshing product portfolio (iii) Creating growth opportunities, and (iv) Strengthening foundations.
26
…Consumer durables/Electricals…
concall takeaways
 TTK Prestige
 Revenue/earnings growth was muted for second consecutive quarter. Management guided that revenue growth after
excluding for chunky institutional business (in base quarter) and soft rural demand was at 17%. Management guided for
improvement Q2 onwards and targets to close FY20 with double-digit growth.
 Revenue equally distributed between south/non-south markets; TTK Prestige has a network of 574 PSKs and targets to add
75-100 new stores in FY20.
 TTK Prestige launched 35 new SKUs and targets to launch more across key segments – pressure cookers, mixer grinder and
small domestic appliances.
 Expansion plan to add capacities in pressure cookers/cookware is on track and is expected to become operational in Q2.
 V-Guard
 Double-digit revenue growth momentum continued for third consecutive quarter. This was aided by strong performance in key
categories of stabilizers, inverters, fans and kitchen appliances. It continued to make in-roads in non-south markets with 14%
YoY growth, while south markets clocked 7% YoY growth during the quarter.
 EBITDA margin improved to 10.2% (vs. 7.3% in Q1FY19) and margin expansion was aided by pricing actions, mix
improvement, lower A&P spend and stringent control over costs.
 RAC stabilizers registered strong double-digit growth and was well supported by harsh summer. In ECD; fans, pumps and
kitchen appliances were the key growth drivers.
 Revenue mix across south/ non-south market was 54%/ 46%. Over next 5 years; management targets equal contribution
from both these markets.
 V-Guard targets expanding its 30,000 retail touch points with additional of 3,000-5,000 new dealers and distributors each
year over next 5 years. Management highlighted that majority of additions will be in non-south markets.
27
…Consumer durables/Electricals
concall takeaways
 Polycab
 Despite challenging environment, trajectory was strong (up 15% YoY) aided by robust growth in FMEG (up 60+%) - fans,
lightings & luminaries, switches and switch gears. C&W growth was muted (up 8% YoY) while EPC grew strong on
execution of certain high ticket contracts.
 Cables witnessed good traction (especially OFC), however wires performance was impacted slowdown in economy and
de-stocking by trade channel.
 Expansion plans are on track and capex guidance for FY20 is Rs 2 – 2.5 bn.
 Loyalty programs like ‘Project Bandhan’ increased retail presence across 115K touchpoints.
 Channel financing initiatives have helped in reducing receivable days. Currently, ~50% of dealers are availing this facility
and management targets to cover ~65% by end of FY20.
28
Engineering…
concall takeaways
 Sector outlook
 Cautiously optimistic: Slowdown in capex, especially Government spending and across market verticals. Liquidity is
becoming a concern in the economy, with payments being delayed and inventory offtake slowing down. Believe that short
cycle projects and projects requiring low investments are the areas of opportunity.
 Focus: In light of current economic scenario, focus on initiatives such as improving productivity and capacity utilization,
achieving cost efficiencies, and maintaining a healthy working capital cycle have gained importance.
 Road sector awarding to see uptick in H2 on strong bid pipeline: Order inflows in the road sector remained muted in Q1,
ordering to pick up in H2 on robust bid pipeline. Almost 43 EPC projects (worth Rs 290 bn) and 28 HAM projects (worth
Rs 315 bn) are under bidding–deadline of Sep’19. Irrigation orders to see an uptick under the Jal Shakti Scheme (worth
Rs 200 bn). ~70-80% of new awarding to be under EPC (balance HAM) given limited appetite of existing road developers to
take additional HAM projects. Asset monetization (of BOT/HAM projects) to enhance growth capital and ability to take more
HAM projects. For NHAI too, asset monetization through TOT is becoming imperative (given rising debt on its balance sheet.
Working capital to improve with receipt of mobilization advances, pick up in execution of exiting HAM/EPC projects.

 L&T: Order inflows at Rs 387 bn were up 11% YoY, despite a usually weak quarter – led by strong PSU and private sector
orders from Power and Infra segments. Infra execution was strong +14% and 27% domestically. On the negative side, infra
margin continued to be lower at 6.4%, down 40 bps (though management believes it should recover ~50 bps for fully year
FY20). Working capital expanded to 23% of sales largely due to reduction in payables – on vendor support in the wake of
tighter liquidity.
 ABB: Business has become immune from slowdowns such as the current auto slowdown, given – ABB is not a dominant
player in any industry as well as it has headroom to grow in multiple segments of the market. Core sectors will continue to
provide growth opportunities. ABB plans to increase its product offerings, especially in the Motion segment to gain on the
Railway demand. Exports revenue grew by ~20% (ex-PG business), largely driven by motions and electrification businesses.
PG business exports grew by ~50%. Automobile sector slowdown impacted the Robotics segment. However, the order
pipeline for the segment remains healthy with traction from the F&B and Pharma industry.
Abhishek Puri (Executive Director – Capital Goods, Power & Infrastructure) Vaibhav Saboo (AVP– Capital Goods)
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…Engineering…
concall takeaways
 BHEL: Orders received were weak at Rs 39 bn, down 11% YoY. Company has order backlog of Rs 1,070 bn (3.6x FY19
revenue). Execution delays in power segment due to customer clearances, site related issues (land and agitation),
acceptance of material by customers in series and delays in orders led to net loss. Order cycle expected to recover in
remaining FY20. Favorably placed in Rs 200 bn worth of orders and looking for tenders of 7-8 GW power capacities in
FY20 given the pushback due to elections in FY19. Similar tenders in hydro and nuclear are 1.900 MW and over
4,000 MW.
 GE T&D: Sluggishness in market due to elections led to deferment of new orders (including a few State projects). Orders
worth Rs 4 bn (L1 positions) have been moved to Q2FY20. Order book stands at ~Rs 59.3 bn. Contribution from private
sector was ~50%, from central government ~20% and from state/others ~30% of order book. For the quarter, private sector
contributed close to 70-75% to incoming orders. 2/3rds of the current order book is executable in FY20. Green grid and
regional opportunities in FY20 as government has approved USD 2 bn worth green energy corridors and a
23 GW solar park in Leh-Kargil with an associated transmission system with HVDC link (NTPC-PGCIL likely to bid jointly).
 Thermax: (1) Order inflows are expected from short-cycle and Environment segment (Water and FGDs), (2) Margin uptick is
likely from (a) Danstoker loss recovery – manufacturing shifted to low-cost Poland facility; (b) Sunk cost for Indonesia
recovering with steady orders (Rs 1 bn) and EBITDA break-even in FY20; as well as for Sri City Chillers factory with strong
product orders; (c) Low margin EPC orders are likely to finish by Q3FY20; (d) 10-20% lower commodity prices in FY20.
 Cummins: Domestic demand for rails, compressors, and marine looks strong, though weakness is expected in construction
and mining. Export markets across geographies were weak. Change in product mix led the margin fall – (a) decline in the
high margin LHP exports – led a sharp decline in gross margin by ~325 bps, (b) EBITDA margin declined ~490 bps due to
one-time consulting fees towards improving the supply chain system. Near-term outlook remains negative, with growth
expected only in FY21, near CPCB IV emission norms. Company is focussed on gaining market share with new product
launches and margin through value-added products.
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…Engineering
concall takeaways
 Siemens: Order inflow was up 6% in Q3 and 11% in 9MFY19. Strong growth in drives and railways was negated by weak
T&D business. Digital Industries (DI) had its slowest growth, of just 6% in Q3, due to inclusion of automation (slow growth in
auto sector). Segments have been reclassified as per vision 2020+.
 Bharat Electronics: Q1 adjusted PAT was up ~14% YoY to Rs 2,047 mn. Revenue was flat YoY at Rs 21 bn. Order intake
declined 43% to Rs 20bn, and backlog stood at Rs 517 bn (book to bill > 4 yrs). EBITDA at Rs. 3,481 mn grew by 12% on
a YoY basis. EBITDA margin for the quarter increased ~180 bps to 16.6% and gross margin increased 240 bps.
 Sadbhav Engineering: FY20 revenue guidance revised downwards to Rs 36 bn; expects EBITDA margin to remain in
11.5-12% range. Cited unavailability of land as the key reason for delays in appointed dates for the HAM projects – ADs
for three projects pushed to Q4 (vs. Q2 earlier). Order book declined due to muted order wins in Q1 and termination of one
HAM project on land delays. Expects awarding to pick up in H2 on strong bid pipeline by NHAI – targets new awards of
Rs 30-40 bn. To remain opportunistic for irrigation projects under the Jal Shakti Scheme.
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FMCG
concall takeaways
 Moderation in demand outlook: Management commentary across companies remained cautious with most of them calling
out for moderation in demand going ahead. Paint companies completely bucked the trend with strong double digit volume
growth in decorative paint segment. Liquidity crunch in the trade channel and poor consumer sentiment were alluded as
reasons for slowdown in demand, also rural growth rates have come down and is now at par with urban growth rates. July
has witnessed further deterioration in demand as compared to Q1.
 RM tailwinds, incremental pricing to be limited: With correction in key inputs especially led by drop in crude oil prices, most
companies (esp. HPC) have either deferred price hikes or are resorting to price cuts to pass on the benefits to the consumers.
However, inflation in food companies is inching up led by higher wheat, barley and milk prices and companies like
Britannia, Nestle and GSK-CH have started to take selective price hikes to offset input cost inflation.
 Uptick in competitive intensity: The competitive intensity within the staples space has intensified due to a deceleration in
revenue/volume growth (moderation in volume growth visible across companies barring Colgate, Dabur, HUL and Nestle).
Also, with the fall in crude oil prices, companies have either refrained from price increases or have passed on the benefits to
the consumers to increase market share.
 New product launches tepid: With the slowdown in overall demand conditions, companies are very selective with regards to
new product launches and only companies like Nestle, Dabur, HUL and Marico continue to sustain their pace of innovation
while Britannia is recalibrating its new launches.
 Our view
 Good monsoon, improvement in liquidity and demand pickup led by upcoming festive season remain critical growth drivers .
Preferred picks – HUL, Dabur, Marico and Varun Beverages in Consumer staples and Asian Paints.
Gaurav Jogani (AVP – Consumer)

Anand Shah (Executive Director – Consumer) 32
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IT Services…
concall takeaways
 Tier-I IT reported a soft start to FY20 with most companies reporting weaker-than-expected revenue growth (both in USD and
cc terms) except Infosys which posted an in-line performance. Subdued start to FY20 has led to scaling back of growth
estimates. The hope for high single digit revenue growth for tier-1 Indian IT in FY20 is contingent on strong recovery in Q2.
TCS’ management highlighted how Q2 performance would decide the course of the year. Demand continues to be healthy,
except for pockets of weakness in the BFSI (capital markets and Europe). Deal win momentum continues to be healthy with
none of tier-1 Indian IT companies indicating major slowdown in decision making (elongated sales cycle).
 While none of the tier-I Indian IT companies indicated strong pullback in spends by clients, any worsening of macro (trade
wars, Brexit, protectionism) could delay decision making and ramp-up of deals won, denting growth prospects for H2. Key
management comments (company-wise).
 TCS: Management highlighted weakness in BFSI sector has been more pronounced (had highlighted earlier). In US, the
pressure is in banks on capital market side; in Europe, it is across the banking space. In Retail, seeing a bit of slowdown,
which should recover. It is more of a single quarter issue; hence, will recover in the next quarter. In Manufacturing, US
continues to do well, whereas Europe and UK remain soft. Management highlighted growth momentum in Q2 will be key for
FY20 growth. Management also highlighted it is seeing pockets of improvement in pricing (client-specific).
 Infosys: Management highlighted company is seeing some challenges in Financial Services due to ongoing merger and
acquisition situation in some US banks and also in capital market business in Europe and US. However, there are also
growth opportunities in consumer, corporate and commercial banking, cards and payments and wealth management driven
by digital transformation and technology modernization. Infosys increased its revenue guidance from guidance to 8.5% to
10% (earlier: 7.5%-9.5%) and retained its margin guidance at 21-23%. In the CPG industry, witnessing consolidation and
clients are asking for integrated BPO and IT services. Manufacturing segment continues to be reeling under the pressure of
trade wars, especially in Europe.
Shashi Bhusan (Executive Director – IT & Telecom) Vishal Desai (AVP – IT)
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…IT Services
concall takeaways
 HCL Technologies: Management retained its cc revenue growth of 14-16% YoY driven by higher inorganic contribution for
FY20 with margin guidance stable at 18.5-19.5%. HCLT has maintained its FY20 guidance; however, management is
confident of stronger organic growth driven by large deal ramp-up and receding client-specific headwinds (though pressure
exists in two large clients). Contribution from organic growth in the guidance is 9-10% YoY from earlier 7-9% YoY i.e.
offsetting the impact of one quarter delay in IBM integration. In IMS, wins in Q1 have been healthy. Its strong integrated
offering with DRYICE (automation platform) is driving strong wins in rebid market. However, management highlighted it is
going selective and targeting deals with a certain margin threshold.
 Wipro: Management expects IT services revenue of USD 2,039-2,080 mn implies 0% to +2% QoQ growth in USD terms for
Q2FY20. Management commentary was cautious across key verticals leading to skepticism on growth acceleration in near
term. According to management, sales cycle has elongated along with delay in project ramp-up over the last quarter as
decision making slowed down due to macro uncertainty. Moreover, there are few ailing verticals that have been dragging
growth (BFSI, ENU, Manufacturing, Healthcare).
 Tech Mahindra: Management is more confident on improving revenue visibility in Communication with momentum in
Enterprise improving in H2. Excluding Comviva, TechM reported flattish revenue growth QoQ in CC terms. Despite some
spend in 5G getting pushed out to FY21, the management is confident of improving growth trajectory led by stronger
pipeline and deal wins. Outlook in Enterprise is not deteriorating any further and expects momentum to pick up from H2.
Shashi Bhusan (Executive Director – IT & Telecom) Vishal Desai (AVP – IT)
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Media
concall takeaways
 Management outlook/industry commentary
 Broadcasters: Ad growth slowed down on lower spends across key sectors given adverse macros; management expects the
same to rebound in H2 with the start of festive season.
 Implementation of TRAI’s new tariff order has gradually stabilized – this has been visible in strong subscription revenue
growth across national and regional players from both LCOs and MSOs (growth among Cable and DTH)
 Content investments to remain elevated, given increased competitive intensity across TV and Digital – both ZEE and Sun
TV highlighted elevated content investments for their respective OTT platforms in FY20
 Though still at a nascent stage, ZEE5 and ALTBalaji joined hands to develop content jointly which will be available on
their respective OTT platforms (paid basis only)
 Distributors: DTH players revised revenue reporting to net of content (pass-through) post implementation of New Tariff Order.
 Given Q1 was relatively heavier on sports content, Dish TV witnessed an equal share among a-l-carte channels and
package-based subscribers - this may undergo a change in the coming quarters, impacting overall ARPU growth
 Management highlighted decline in procurement prices of Set Top Boxes (price differential among SD/ HD boxes
declining) which has been passed through to attract higher HD subs
 Benefit of most of the ARPU uptick (under new tariff order has been gained by broadcasters – distributors to focus lower
operating overheads as ARPU growth looks limited; subs addition to be gradual
 Print media: Ad revenue growth remained subdued (across Print and Digital) given slower uptick across key sectors including
education, lifestyle, auto etc.
 Newsprint prices (NP) expected to soften further (down 11% QoQ; flat YoY); print companies to continue to use a mix of
domestic and imported
 Margin to remain subdued given partial absorption of 10% customs duty and adverse operating leverage
 Exhibitors: Subdued content impacts footfalls growth, but performance across operating matrix (net SPH/ ATP grew 8/ 4%).
 Screen additions target (for both PVR and Inox) remains intact; management confident of healthy growth in net SPH, ATP
and ad revenue growth (led by yield improvement)
Ankur Periwal, CFA (Sr. Vice President – Media, Logistics & Midcaps) Nitesh Dhoot (AVP – Media, Logistics & Midcaps)
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Oil & Gas…
concall takeaways
 RIL: (a) RJio’s focus remains on market share gains and higher data consumption. JioFiber and other services (IoT,
Home/Enterprise/SME broadbands etc) commercial launch from Sep’19, (b) Retail to add stores at accelerated pace in
Q2/Q3 with retail formats across all categories being adopted for smaller cities, (c) Refining GRM to increase benefiting from
IMO 2020 regulation (RIL increasing coker capacity to further reduce FO production and looking to process high sulphur
heavier crudes by adding desalting capacity). Petcoke gasifiers are still under stabilization, and (d) Petchem to see flattish
margins as global olefins market is balanced with new start-ups offset by turnarounds, PP spreads benefit from low propylene
prices and integrated polyester margins remain robust even though PX and MEG cracks are under pressure due to excess
supply.
 OMCs focus on margin expansion: OMCs set to maximize GRM as middle distillates demand rises from Q3FY20 as IMO
regulation for shipping vessels comes into effect from early 2020. Marketing margin to sustain at Q1 levels. Q1 – (a) IOCL
had inventory gain due to higher price for some crudes used but BPCL and HPCL reported inventory losses. Weak light-
distillate cracks meant YoY reduction in core GRM (but improved QoQ), (b) Core marketing margin fell QoQ (up YoY) across
OMCs – OMCs marketing margin came under pressure when crude prices surpassed USD 70/bl levels until end May (also
was elections time), but quickly recovered as crude fell from thereon. Private players’ market share increased YoY as OMCs
combined have lost market share of ~1% YoY each in MS and HSD.
 Gas utilities: GAIL expects trading profitability to sustain/better going forward (majority of volumes are hedged/tied-up for
FY20/21). Transmission volumes to improve in Q2 from restart of fertilizer plants and Dahej expanded capacity. Petchem
plants now operating at >100% levels post maintenance shutdown taken in Q1. PLNG highlighted that Ind AS 116
recognition has negative impact at PBT level until 2025 but neutral over lease period of 3 LNG vessels. Kochi-Mangalore
pipeline completion expected by Oct’19. Continues to see no risk to Dahej expanded terminal touching 100% utilization and
Kochi’s utilization to be 30-35% on full-year basis. IGL’s volume growth of >10% to be supported by new GAs, FO ban and
installation of new CNG stations.
 Upstream companies: ONGC guided for standalone crude & gas production CAGR of 3% & 6% over FY19-21. KG DW
98/2 field’s (a major project) first production timelines intact. Oil India guided for crude & gas production CAGR of 2% & 6%
over FY19-21E.
Manikantha Garre (AVP – Energy)

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…Oil & Gas
concall takeaways
 Our view
 RIL: (a) We see status quo in wireless pricing near term and strong subscriber addition to continue in FY20, supported by
strong traction in JioPhones. RJio likely to change its pricing strategy in FY21 to increase revenues as subscribers addition
rate moderate, returns for its current pricing strategy diminishes due to the incumbent strategy to retain market share. EBITDA
margin expected to expand in long-term due to operating leverage in wireless, high margin enterprise business (~60%
margin), and interconnect charges turning zero from Q4FY20, (b) We expect further margin expansion with sustained
growth momentum/store expansion for Retail, (c) RIL’s ahead of the curve execution of projects like ROGC, petcoke gasifiers,
ethane imports, polyester expansion, coker expansion and downstream integration are expected to fetch it higher GRM and
petchem margins than historical levels in an accelerating global growth and IMO environment.
 OMCs: Singapore complex GRM trending up in Q2TD by ~USD 3.6/bl from Q1 average of USD 3.2/bl on sharp recovery
in global light-distillate cracks post Philadelphia refinery closure. We expect core GRM to improve sequentially but expect
inventory losses again if current crude price level persists. Expect core GRM in FY20/21E to be ~USD 5.0-7.0/bl (IOCL at
high-end and HPCL at low-end) on IMO regulation, greenfield/brownfield projects and operational efficiencies. Expect
marketing margins to improve and marketing volumes to grow at 1-4% in FY20/21E supported by demand for auto fuels.
 Gas utilities: GAIL – we remain confident on sustainability of its earnings – key drivers/triggers are improved
utilization/margin for petchem plants, higher transmission and trading volumes and recovery in LPG prices. PLNG – Ind AS
implementation in our model will reduce our FY20/21E EPS by 5-6% but no CF impact. We expect Dahej expanded terminal
to reach 100% utilization by FY21 and Kochi terminal to reach 40% utilization by FY22 (unchanged). Kochi terminal’s
regasification tariffs forecasted to reduce 10% each in FY21/22E from FY20 while PLNG focuses on ramping up volumes.
High single-digit YoY growth in LNG imports on the back of higher demand from CGD, power, petchem/refining and
fertilizer sectors to support gas consumption growth. IGL – we see ~13.5% CAGR volume growth over next decade along
with rising EBITDA/scm supported by new GAs and expansion potential in existing GAs.
 Upstream companies: We expect (a) ONGC’s crude production to fall 1.5-2% but gas production to grow at 5% per annum
over FY19-21E, (b) Oil India to have nil/2% crude production growth and 2% CAGR natural gas production in FY20/21E.
We maintained our crude price forecasts of flat USD 70/bl in FY20/21E.
Manikantha Garre (AVP – Energy)

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Pharmaceuticals
concall takeaways
 US generics market stabilizing but still challenging: Q1 saw growth recovery in US (up 19% YoY but down 3% QoQ) led by one-offs
(Alembic Pharma, Aurobindo, Cipla, Sun Pharma, Lupin), partially offset by competition in key products for few (Cadila, Glenmark).
While price erosion remains, it has stabilized to mid to high single digit. We also note increase in regulatory inspections in QTDFY19.
 Companies with strong USFDA track record and pipeline are expected to outperform going forward.
 Growth in India business recovering: Q1 saw muted 6% YoY growth on reported basis; adjusted for one-offs related to realignment of
distributors in trade generics/ dispatch deferrals in Rx business (for Cipla), growth recovered to 8% YoY; Inventory write-offs/ change in
distribution policy undertaken by companies in FY19 (Sun Pharma, Cipla, Eris, Alkem, Cadila) would lead to normalized growth from
FY20, in our view. IPM growth is improving given recovery in the acute segment.
 Rationalization of R&D and other expenses witnessed in FY19 continued in Q1FY20; likely to continue in FY20.
 Our view
 While growth is recovering for India business (8% in Q1’20 on adj. basis vs. 10% in FY19) and benefits from depreciating
currency (2% YoY for Rs/ USD) continue, US generics market outlook remains challenging given supply and demand
side headwinds.
 We expect earnings growth recovery (on a low base) in FY20/21 by some recovery in US sales (as expect launches to
improve, USFDA resolution for some) coupled with steady India growth and continued benefits from currency. However, we
highlight that RoE/ RoCE would remain low (at ~15% in FY20 vs. 26% in FY16) due to declining profitability in US generics
market (on higher competition and increasing investments in R&D) and regulatory requirements.
Prakash Agarwal (Dy Head - Research | Executive Director – Pharmaceuticals) Dhagash Vora (AVP – Pharmaceuticals) 38
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Power utilities…
concall takeaways
 Sector outlook
 Thermal utilization to rise on widening demand-supply mismatch; private investments in thermal to be negligible.
 Expect thermal utilization to rebound 1,100 bps in next 4 years on (1) 5-6% power demand growth (6.5% in Q1) and
(2) limited net capacity addition with forced retirement of old plants of 22GW (5.5GW shut in FY18/19). Investments in
thermal to be led by NTPC (4-5 GW p.a.); share by private sector to be negligible by FY21E from 15% in FY19.
 Renewables + coal to be future energy mix – increasing RE share to boost spot trading/ gas pooling to manage grid.
 Expect ~60% of the net capacity addition over next 5 years to be under renewables (RE).
 While government’s 100 GW target for solar is unrealistic given on-ground challenges – land acquisition, payment
delays, safeguard duties, GST etc., ~56 GW looks achievable in current scenario.
 Expect share of RE in gen to rise to 13% by FY24 (9% in FY19). Rising variability in RE gen to boost spot trading;
inability of thermal to quickly ramp up in evening peaks (post back-down by solar) to benefit gas power plants.
 Sharp decline in imported coal prices to benefit merchant capacities; domestic coal inventory improves sharply.
 Imported coal prices fell sharply (-33% YTD) vs. spot prices (-20% YTD) – this to widen dark spreads for merchant plants.
 Under-recovery on coal shortages to be negligible in FY20 on improved inventory at 14-15 days coal stock.
 Mandatory LCs by discoms from 1st Aug to aid discipline – this is imperative given sharp surge in discom dues.
 Discom dues to gencos surged to the highest ever level in Jul’19 to Rs 460 bn (+30% YoY); 66% of this is >60 days due.
 Mandatory LCs by discoms and ability in hands of gencos to encash the LCs post expiry of grace period (45-60 day) as
provided in the PPAs – to ensure payment securities for gencos.
 Deteriorating discom health – one of the key pain points in the sector; discom reforms imperative.
 State discom losses rose to Rs 250 bn in FY19 on election phenomena (free power, zero tariff hikes etc.).
 Billing & collection efficiency, AT&C losses had improved till FY18 but FY19 AT&C losses stood 18.3% (vs.15% target).
 Expect discom reforms though privatization to open opportunities under franchise/license model.
Abhishek Puri (Executive Director – Capital Goods, Power & Infrastructure) Pranjal Jain (AVP – Power & Infrastructure)
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…Power utilities…
concall takeaways
 Key management comments
 NTPC: Regulated equity to grow 15% in next 3 years on 19GW capacity under construction. CWIP/PPE ratio to reduce
from 42% to 22% by FY21E with commercialization of ~5 GW/ year. NTPC achieved 30% of its target capacity addition
for FY20. Further, FGD capex to boost regulated equity (47GW under implementation and 17GW under tendering). Under-
recovery on coal shortages to be negligible in FY20 with sharp improvement in coal inventory and expects 30% higher coal
production at its captive mines. Impact of reduction in regulated equity for old plants was Rs 27 bn; benefits of regulations to
be reflective in Q2 earnings; also Q1 impact of ~Rs 4 bn (DSM, carpet coal, outages) to reverse in Q2 & boost core RoEs.
 PGCIL: Capex/ capitalization target stood at Rs 150 bn/200 bn for FY20. Expects Rs 53 bn of inter-state projects (largely
green corridors) and Rs 88 bn of intra-state project bids in FY20 and reiterated PGCIL has maintained 40% market share.
Competitive intensity to rise as large part of transmission lines for RE integration to be awarded under competitive bidding.
Impact of new tariff regulations remained minimal.
 JSW Energy: Expects to tie 100% capacity by fiscal end (81% currently). For merchant capacity witnessed improvement in
dark spreads on sharp rise in imported coal prices. Vijaynagar stands L1 for 290 MW under Pilot scheme-II of PTC/NHPC
for 3 years and management expects to commence in next 4-5 months. No firm commentary on inorganic expansion,
evaluating few stressed assets; until then free cash generation to be utilized towards debt repayments.
 Tata Power: Under-recovery at Mundra reduced sharply; expects tariff approval for Mundra in the next 4- months. Deadlines
for renewing Indonesian coal mining license by Oct’19 – TPWR confident to renew the contract on existing lines with minor
term changes. Deleveraging to remain top priority – to monetize international ventures, Tata Projects. Remains opportunistic
in renewable expansion, distribution license/franchise model. On letter received by AP to cancel PPAs, TPWR expects
existing PPAs to remain intact with High Court putting a stay on AP’s order.
 Torrent Power: Expects gas power plants to turnaround with Unosugen’s PPA beginning Jul’19 (expects to breakeven in
FY20) and Sugen to benefit from medium term contracts for its untied capacity until Oct’19 and gas pooling to offer upside
for Dgen. Declining LNG prices to support gas plants; Torrent Power has entered into forward contracts for the same.
Renewable capacity addition to be delayed on land acquisition, financial stress by EPC contractor. TPL has spent Rs 3.6 bn
on these RE projects till date and is protected to an extent of Rs 2 bn through BGs issued by Inox/Suzlon – maximum loss of
Rs 1.6 bn to be impacted if these projects are scrapped.
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…Power utilities
concall takeaways
Key management comments
 CESC: Standalone generation and distribution to grow at steady state. Turnaround in DF losses from Rs 0.54 bn currently to
breakeven EBITDA/PAT in FY20/21 – Bikaner and Bharatpur are witnessing fast progress in loss reduction, but Kota has
seen some gradual improvement. On the recently-won Malegaon circle, the management highlighted it has already signed
the agreement and expects to take over the circle in the next 1-2 months. Scouting for PPAs for the untied 300 MW at
Dhariwal plant. Continues its cautious stance on RE expansion at current lows tariffs. Free cash generation to be utilized
towards debt repayments/ higher payouts.
 Indian Energy Exchange: Q1 volume decline of 13.5% was due to rise in bilateral trade during elections and lower offtake
by Gujarat post positive outcome for Adani’s Mundra /Essar plants – both these events to reverse in Q2. Expects to double-
digit volume growth in FY20. To introduce new products such as Green Day-ahead-market exclusive for renewable energy
and monthly term-ahead market – expected to receive approval from CERC in next 6-8 months. Lower inventory of REC
volumes to impact REC trade. Shorter gate closures as highlighted in the draft regulations to boost intraday trading on IEX.
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Real estate…
concall takeaways
 Volumes: Sales volume improvement continues across tier 1 developers – aggregate volume/value growth of 25/15% YoY for
companies under coverage in Q1FY20 – as demand polarization towards reputed developers continues amidst the liquidity crisis.
While launches have improved in Q1 for some developers, expect significant improvement in next 3-4 quarters as companies have
guided for strong launch pipeline of ~5-10 msf each, with greater focus in mid-income and affordable segments where demand
remains strong. While we expect overall industry growth to be moderate, we believe reputed players will report strong growth due
to market share gains on account of industry consolidation.
 Rental income remains steady on good traction in rental escalations. This paired with paucity of grade-A commercial supply
(pan-India vacancy levels currently ~12% vs. 20% in 2012) augurs well for those with expanding annuity portfolios (Prestige
Estates, DLF, Phoenix, Brigade).

 DLF: Company reinforced its key goals of (1) exit rentals of Rs 37.5 bn by Mar ‘20 (vs. Rs 29 bn at the end of Q1), (2) pre-sales of
Rs 27 bn for FY20 (vs. Rs 7 bn in Q1) and (3) target of zero debt in residential business in the near term. Currently has ready
inventory of Rs 110 bn to be monetized over next 4 years. Payables to DCCDL reduced by Rs 31 bn in Q1 to Rs 56 bn – mainly
driven by transfer of Mall of India Noida (Rs 29.5 bn) and land parcel of Mall of India Gurgaon (Rs 3.3 bn). It plans to settle these
payables by Q2FY20.
 Godrej Properties: Sales moderated in Q1FY20 to Rs 9 bn (vs. Rs 20 bn in Q4) due to delay in new launches. Maintained
guidance of continued growth momentum in FY20 driven by pipeline of new launches (~14 msf). Outflow for land and approvals
was higher (Rs 9 bn in Q1 vs. Rs 6.9 bn in Q4) spread across 15-20 projects, expects outflow to moderate in coming quarters.
Prices may correct in short term due to liquidity pressure, however, like any other cycle, this cycle should turn around in 3-4 years.
 Oberoi Realty: Impact of subvention scheme will not be significant as <1% of its sales are through these schemes. Management
highlighted ban on interest subvention schemes will be positive for Oberoi as it will spur consolidation in the industry. While Thane
land transaction is yet to close, management is confident of launching it around festive season (Sep/ Oct ’19). Also, targeting to
launch Goregaon III around festive season. Revenue recognition of Worli project expected to commence from Q2FY20. Expects to
receive Occupation Certificate (OC) by Sep-Dec 2019. First competing the residential building at Worli and thereafter launch of
hotel in Sep-Dec 2020.
Kunal Lakhan (VP – Realty & Aviation)

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…Real estate
concall takeaways
 Prestige Estates: Steady operational performance in Q1– pre-sales of Rs 10 bn, completion of ~11 msf and collections of
Rs 32 bn. While net debt inched up Rs 5.3 bn on stake acquisition in a rental asset, it maintained guidance of net D/E of 1.4x
(vs. 1.8x currently). Management expects collections run-rate to increase to Rs 14-15 bn (from current Rs 10-11 bn) over next few
quarters driven by new launches and monetization of ready inventory. Maintained its FY20 guidance of 25-30% growth with
target pre-sales of Rs 50-60 bn, new leasing of 2-2.5 msf and exit rentals of ~Rs 10 bn.
 Phoenix Mills: Consumption growth was low at 5% YoY impacted by upgradation/ churn at its malls resulting in lower trading
area. Management expects the impact to be transient and consumption to rebound Q4FY20 onwards as upgradations/ renewals
start yielding revenues. Guided for consistent mid-teen growth in rentals at its existing portfolio, driven by (1) renewals of 2.9 msf
across malls over FY20-22 (~57% of retail area) and (2) steady consumption growth leading to increased revenue share for PML.
Under-construction projects are on track. It continues to scout for opportunities in underserved Tier I/II markets across India.
 Sobha: Debt increased by Rs 3.2 bn to Rs 27.5 bn (net D/E of 1.2x) on payments of Rs 1.5 bn towards opportunistic land
acquisitions of 143 acres and capex of Rs 0.7 bn. Management targets significantly lower outlay in the remainder of FY20. While
it has not launched any new project in Q2 so far, it expects to achieve its targeted launches of 10.65 msf for FY20. Maintained
guidance of double digit growth in pre-sales for FY20 aided by sales value of unsold stock ~Rs 60 bn.
 Sunteck Realty: Pre-sales were low at Rs 1.86 bn (Rs 2.9 bn in Q4), mainly due to no project activations in the quarter (vs.
activation at ODC^ in Q4). Management expects sales run-rate to ramp up over coming quarters led by project activations and
new phase launches in Naigaon and ODC. Management highlighted it is in advanced stages of closure of new acquisitions
(expect to share in current quarter). Delay in launch of ODC Commercial project due to delay in obtaining environmental
clearances, high rise clearances etc. It is expected to be completed by the next quarter.
 Brigade Enterprises: Q1 pre-sales were strong at Rs 5.9 bn/ 1.1 msf following ~1.3 msf of new launches during the quarter.
Management maintained its guidance of 4 msf/ 33% volume growth in FY20 mainly driven by pipeline of 6.4 msf of new
launches. Leased 0.7 msf of area and expects to lease ~0.6 msf in Q2. It has ~3.5 msf of area yet to be leased in its Tech
Garden (Bangalore) and WTC (Chennai). Management is hopeful of leasing out 2-2.5 msf of incremental area in these projects in
FY20. In advanced stage of negotiation with one party for divestment in hospitality segment; expects to make some developments
in this quarter.
Kunal Lakhan (VP – Realty & Aviation)

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Resources
concall takeaways
 Non-ferrous
 Aluminium: Current Al LME at USD 1,750/t has limited downside risk, as more than 60% of global Al capacity is operating at cash
losses with added risk of tariff barriers. This indicates bottomed-out earnings for Hindalco’s Al operations.
 Zinc: Zinc prices have corrected 14% through Q1, in line with our expectation. The correction is mainly led by capacity additions in
the sectors. However, management believes capacity ramp-up has been historically poor in the sector and supply deficit will remain.
Additionally many new capacities are not viable at the current price.
 Copper smelting: Tight concentrate supply market is pressurizing copper TcRc, leading to lower margin for smelters.
 Steel
 Steel prices witnessed sharp fall in Q2. Management guided for Rs 3,000/t drop in average realization in Q2. However, the drop
will be partially offset by lower cost. Demand continues to be weak, mainly in auto (flat products) and infra (rebars). Management
expects demand to recover in H2, given good monsoon.
 Cost moderated for most metal companies: CoP for most companies has moderated due to global decline in coal prices and
better availability of domestic coal. Companies expect Q2 cost to be lower.

 Tata Steel:
 SE Asia business: SE Asia deal called off as the 70% stake buying company HBIS Group failed to procure necessary approvals.
Management had indicated Rs 500 mn gross debt reduction if the deal passes through. Company continues to classify SE Asia asset
as “Held for Sale” and is in talks with a Thailand-based PE firm for hiving off 70% stake.
 JSPL:
 Share pledge: Management clarified that out of 65% promoter share pledge, 15% is non-disposable as per arrangement. Underlying
promoter loan reduced to Rs 9.1 bn vs. Rs 11.5 bn in Sept’19 (peak level), with Rs 1 bn repaid in last month. Management assured
further payment of Rs 0.4-0.5 bn in next 3 months. However, pledging will go up to provide additional cushion to banks against
stock price volatility.
Arijit Dutta (VP – Materials) 44

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Retail
concall takeaways
 Management comments
 QSR companies
 Slowdown in consumer demand coupled with high growth in delivery has led to mid single digit SSSG for the sector, also growth
rates have moderated vs. past few quarters as base is catching up and anniversarization of GST-cut led price hikes.
 Dine-in is getting impacted due to lower footfalls and high growth rates witnessed in delivery segment.
 Near-term cost challenges emerging from sourcing of manpower from food aggregators post recent round of fund raising by large
delivery platforms like Zomato and Swiggy now seems to abating and the worst seems to behind.
 Department store/apparel/Jewelry and footwear retailers
 Performance of apparel and footwear players has been mixed bag, while ABFRL and BATA witnessed good growth, likes of Arvind
Fashion, Page and Khadim struggled. Also, Titan fell short of guidance due to a tepid June month impacting the quarter.
 While the discretionary performance has been relatively better vs. staples, moderation in growth is clearly visible with lower
consumer footfalls and deterioration in consumer sentiments.
 Our view
 Retail segment registered a mixed bag performance with outperformers like ABFRL (led by Pantaloons) and Bata (both
revenues and margins surprised positively) while Jubilant Foodworks (benign SSSG and weak margins) and Page (due to
negative volume growth of ~2%).
 We believe companies which exhibit strong execution capabilities are well placed to capture the macro economic tailwind
of conversion from unorganized to organized. We like Westlife in QSR space.
 We continue to like the apparel and footwear categories as a good play on urban recovery and uptrading. We expect the
categories to benefit from an accelerated shift to organized due to demonetization and implementation of GST. We like
ABFRL and Bata in the apparel and footwear space.
 Our preferred picks in the space are Bata and Westlife Development.
Gaurav Jogani (AVP – Consumer)

Anand Shah (Executive Director – Consumer) 45
anand.shah@axiscap.in; 91 22 4325 1142
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Telecom…
concall takeaways
 Our view: For Indian wireless business, industry is still under stress though prices have stabilized now. We expect
wireless players to benefit from operating leverage as ARPU improves gradually from FY20. For Tejas Networks,
revenue to pick up in H2FY20 led by international/India private deal execution, though we remain cautious on revenue
from government projects as it may remain lumpy. For Sterlite Tech, we expect revenue CAGR of 17% to translate into
only 9% earnings CAGR over FY19-21, due to: (i) moderation in services revenue once the Navy/MahaNet projects
are executed; (ii) risks of soft OF & OFC demand/pricing pressure.

 Tejas Networks
 Pick up in H2FY20: Q1FY20 was weak due to muted growth in Government projects. Q2 is also expected to be muted
and Bharatnet part will continue to be volatile. However, demand is expected to pick up in H2FY20 led by India private
and international. International growth growth to be strong on sales spending.
 DSO to reduce: DSO higher due to delays from India Government customers and expected to reduce post payments.
 Sterlite Technologies (SOTL)

 OF demand to pick up in China by FY21: China fiber demand was flat in FY19 (-1% YoY growth). Q1FY20 OF demand
was also flat in China while it was up globally. Management expects OF demand to grow moderately globally, but flat in
China in FY20. However, it expects OF demand to pick up in FY21 as capex for 5G starts to gain pace in China. Early
5G commercial launches across major markets have already started, including in South Korea, China and USA.
 OF prices over USD 7/fkm for SOTL: OF business operates at USD 7-8 fkm. OF prices have softened. However, it is still
over USD 7 fkm for the company. OF price correction has remained largely localized and has not widely impacted in
Europe and USA. As per management, OF prices in China has already bottomed out and OF demand has started to
come in again. As per management, pricing trend (due to glut in China) would have limited impact in near term as it has
no exposure to spot market.
Shashi Bhusan (Executive Director – IT & Telecom) Santosh Sinha (AVP – Telecom & Internet)
46
shashi.bhusan@axiscap.in; 91 22 4325 1104 santosh.sinha@axiscap.in; 91 22 4325 1121
…Telecom
concall takeaways
 Bharti Airtel
 Q2 to be weak: Expects Q2FY20 to be seasonally weak. Company has not given guidance for ARPU for Q2.
 ARPU to improve: ARPU can witness sustained improvement over FY20-21. ARPU to increase due to upgrading from 2G
to 4G and implementation of Airtel Thanks program. Incremental revenue to be key EBITDA margin driver (~60% flow to
EBITDA). Also plans to keep costs low (War on Waste).
 No significant decline in postpaid rates: It has re-architected postpaid pricing and does not expect further downside
in postpaid.
 Vodafone Idea
 Churn to reduce: Q1 revenue decline was due to (i) exit of customers; (ii) down-trending. Going forward, company
expects churn to reduce as more customers move to 4G.
 More synergy benefits: Possibility of synergy benefits beyond the guided figure. However, it did not give details on the
same. Company expects opex synergy benefit target of Rs 84 bn to reflect fully in Q1FY21.
 Intention of monetizing assets: Expects Indus monetization post Bharti Infratel and Indus Towers merger by H1FY20.
 Bharti Infratel (BHIN)

 Expects revival in demand: Management continues to expect revival in demand, as loading of 4G sites on their existing
towers by telcos is nearing completion and new tenancy additions are likely to start. As per the company, there will be
some exits going forward as operators optimize their network. BHIN is witnessing healthy gross addition and expects
tenancy/tower addition to pick up gradually. Demand to be supported by: (i) fund raise by incumbents; (ii) spending by
3 private operators; and (iii) continued orders from RJio and catch-up by Vodafone-Idea.
Shashi Bhusan (Executive Director – IT & Telecom) Santosh Sinha (AVP – Telecom & Internet)
47
shashi.bhusan@axiscap.in; 91 22 4325 1104 santosh.sinha@axiscap.in; 91 22 4325 1121
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22 AUG 2019 Quarterly Update

Earnings Review: Q1FY20

India Inc: Trends and outlook

Sector-wise outlook and Q1 concalls of key companies – pages 19 to 47

Pankaj Kadu (VP – Database) Nitesh Momaya (AVP – Database)

Source: Axis Capital, Capitaline

Source: Axis Capital; Capitaline 3

Source: Axis Capital; Capitaline *PL = Profit to Loss, LP = Loss to Profit 4

(6) (4) (2) 0 2 4 (50) (40) (30) (20) (10) 0 10 20

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Companies in yellow background are where we expect earnings momentum to continue

Kota k Ba nk , Ul tratec h, H industan Bharat F o rge, Enduranc e, Canara Bank,

Accelera tion in ea rning s: Cos that

Decelera tion in ea rning s: Cos with Eic her, H ero M o to c o rp , M aruti,

P ositive tu rna rou nd : Positive TTM YoY

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Nikhil Kale, CFA (VP – Auto)

Nikhil Kale, CFA (VP – Auto)

Nikhil Kale, CFA (VP – Auto)

 Pricing and cost

Arijit Dutta (VP – Materials) 24

 Crompton Greaves Consumer Electricals

 Key management comments (company-wise)

Gaurav Jogani (AVP – Consumer)

Manikantha Garre (AVP – Energy)

Manikantha Garre (AVP – Energy)

 Key management comments (company-wise)

Kunal Lakhan (VP – Realty & Aviation)

Kunal Lakhan (VP – Realty & Aviation)

 Key management comments (company-wise)

Arijit Dutta (VP – Materials) 44

Gaurav Jogani (AVP – Consumer)

 Key management comments (company-wise)

 Sterlite Technologies (SOTL)

 Bharti Infratel (BHIN)

New Rating system effective 12 April, 2019 Previous Rating system

Research Disclosure - NOTICE TO US INVESTORS:

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