WEALTH
MAXIMIZER
LARGE CAP STOCKS
July - 2019
Company Name NSE Symbol Sector
Market Cap
(Rs. Mn)
CMP*
(Rs.)
Target
Price (Rs.)
Upside (%)
Adani Pos & Special
Economic Zone Ltd
ADANIPORTS Infrastructure 859238 415 500 21
Bandhan Bank Ltd BANDHANBNK Banking 662643 555 675 22
Coal India Ltd COALINDIA Energy 1546537 251 304 21
HCL Technologies Ltd HCLTECH Information Technology 1425720 1051 1262 20
Hero MotoCorp Ltd HEROMOTOCO Automobiles 516793 2588 3103 20
Hindustan Zinc Ltd HINDZINC Metals & Mining 1017668 241 280 16
ICICI Bank Ltd ICICIBANK Banking 2812322 436 512 17
Indiabulls Housing Finance Ltd IBULHSGFIN NBFC 295432 691 923 34
ITC Ltd ITC Consumer Staples 3391599 277 345 25
Larsen & Toubro Ltd LT Infrastructure 2213270 1578 1900 20
WEALTH MAXIMIZER
*As on 03 Jul, 2019
Bloomberg Code: ADSEZ IN
ADANI PORTS & SPECIAL
ECONOMIC ZONE LTD
India’s Largest Commercial Pos Operator
Integrated operating model & Acquisitions: APSEZ enjoys a unique &
integrated business model with presence in pos + logistics + SEZ and is
developing fully integrated logistics model for diverse range of cargo. APSEZ
has a successful track record of developing & operating 18 terminals with
47 behs. APSEZ acquired Dhamra in 2014 and has turned around; volumes
grew at 11% CAGR between FY14-FY19. Dhamra is well positioned to emerge
as a hub for Eastern India. Another acquisition, Kaupalli, strategically
located to cater to the regional container cargo demand for southern India,
grew at 107% CAGR between FY16-FY19. APSEZ recently developed another
liquid tank farm of 224,500 kl at Kaupalli to capture potential of liquid cargo
market. The management expects container and cargo volume to grow at
20% & 12% respectively for FY20 &21.
Financial peormance: Delivered a revenue growth of 11.5% over the last
three years (FY17-19) with consistently high EBITDA margin (above 60%).
PAT margin during the last three years has also been higher at 30% and the
number stood at 37% for FY19 vs. 32.6% for FY18. Current Net Debt to EBITDA
stands at 2.9 vs. 3.4x of FY17x. Consensus estimates revenue CAGR of 13%
along with earnings CAGR of ~16% for FY19-21E.
Diversication aiding overall improvement: APSEZ is consistently delivering
growth with gaining market share (14.8% to 21.2% as on FY19). Total cargo
volumes grew by 15.3% for FY19 to 207.7 MMT while all India cargo grew by
4%. APSEZ has been successful in increasing market share sustainably.
Valuation and Risks: Healthy growth of container and cargo volumes coming
in from the expansion plans are the key positives. Stock is currently trading at
15.8x. The consensus values the company at 19x for a target price of Rs. 500,
representing an upside potential of 21%.
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (2) 9 10 14
Relative to Sensex (1) 6 (2) 2
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 415
Target Price 500
Upside(%) 21
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 859238 / 12471
52-wk High/Low (Rs.) 431 / 292
3M Avg.daily value (Rs. Mn) 1670.6
Beta (x) 1.4
Sensex/Niy 39839 / 11917
O/S Shares(mn) 2071.0
Face Value (Rs.) 2.0
SHAREHOLDING PATTERN (%)
Promoters 62.3
FIIs 21.7
DIIs 12.5
Others 3.5
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Sales 84394 113230 109254 124289 140229
EBITDA 54147 71454 70675 79331 89900
EBITDA Margin (%) 64.2 63.1 64.7 63.8 64.1
Adj. Net Prot 39115 36736 39902 46518 53636
EPS (Rs.) 18.9 17.7 19.3 22.3 25.8
RoE (%) 25.5 19.2 17.6 17.4 17.5
PE (x)* 18.0 20.0 19.6 18.2 15.8
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
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120
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Jul-18
Aug-18
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Nov-18
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Mar-19
Apr-19
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ADSEZ IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
3
Company Background
Incorporated as Gujarat Adani Po Ltd on May 26, 1998, Adani Pos and Special Economic Zone (APSEZ)
is India’s largest private multi-po operator, post entering concession agreement with GMB to build,
operate and maintain the po for a period of 30 years till 2031 extendable by another 20 years. The po
is into providing cargo handling services for bulk, crude and container cargo. While the company is also
bidding for other domestic and international po projects, it has also invested in value added services like
logistics suppo, providing container rail services and inland container depots to diversify from its core
po business.
ADANIPORTS: Technical View
The stock has seen a stellar rally from the May 2016 lows of 169.70 odd levels to the high of
452.35 odd levels in the month of January 2018. Thereaer, the stock went into consolidation and
corrected lower towards 300 odd levels where its monthly 50 EMA was placed and found suppo
near the same. Currently, the stock is trading in the range of 390-430 levels from the past few
weeks and nding suppo above its daily 50EMA which is currently placed around 402 levels. On
the weekly chas, the stock is trading above its 50Weekly EMA which indicates buying pressure at
the lower levels. On the price cha, the stock has stuck in the range of 390-430 levels, and once a
breakout comes from this range the stock may pick up momentum on the higher side. On oscillator
front, the 14 period RSI on the daily, weekly and monthly chas is trading well above its 9 Pd EMA
indicating a bullish bias in the medium to long term. Among other observations, the stock is trading
above its weekly 200 EMA and also above its daily 200 EMA which is another suppo point for the
bulls. Going ahead suppo are placed around 390 levels followed by 350 levels in the medium to
long term while resistance is placed around 450 levels followed by 500 levels.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
4
Bloomberg Code: BANDHAN IN
BANDHAN BANK LTD
Earnings Deliver A Beat on Higher Loan Growth
Liability peormance remains exceptional: Bandhan bank earnings stood at
67% YoY with RoE at 24% with loan book growth at 33% YoY with NII growth
at 45% YoY. Stable NIM with positive delta on non-interest income has
resulted in an overall improvement in asset and retail deposit growth of 37%
YoY along with release of provisions on IL&FS exposure has improved the
liability side.
Micro Finance book has grown by 40% YoY due to volume (customer)
growth of 23% and average ticket size growth of 13% YoY which is just over
the nominal growth in rural incomes and in our view could sta aening.
Non-micro book registered a growth of 36% YoY led by loans to NBFC-MFIs
growing at 62% YoY and retail advances at 34% YoY.
Retail deposits at the bank accounts for 78% of overall deposits with asset
growth of 33%. CASA ratio is at 40.8% with growth at 6.4% YoY with new
addition of 50 branches in FY19 to now at 986.
Gruh Finance acquisition though expensive will benet in allowing housing
nance business to grow faster in coming years.
Valuation and Risks: Bandhan bank is the lowest-cost loan provider in high
yield MFI business in East India in a sho time and our forecast is on high loan
growth in medium term are key positives.
Consensus one year target price for Bandhan Bank of Rs. 675 is based on
three stage dividend discount model implying 4.3x Mar 21 P/BV. Consensus
valuation factors in cost of equity of 12.5%, normalized RoE of 23%, and
terminal growth of 6%. Downside risk will generate from customer base
in micro lending segment from low income group who are subjected to
higher loss given defaults in multiple cycles increasing ticket size of loans.
Geographic concentration in East India has exposures to event risks and
scalability challenges. Growth oppounity in other than MFI segment carries
high competition.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (7) 1 4 (1)
Relative to Sensex (6) (1) (7) (12)
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 555
Target Price 675
Upside(%) 22
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 662643 / 9618
52-wk High/Low (Rs.) 742 / 368
3M Avg.daily value (Rs. Mn) 517.9
Beta (x) -
Sensex/Niy 39839 / 11917
O/S Shares(mn) 1193.1
Face Value (Rs.) 10.0
SHAREHOLDING PATTERN (%)
Promoters 82.3
FIIs 5.6
DIIs 10.0
Others 2.2
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Interest Income 24035 30322 44961 78472 105658
Net Prot 11120 13456 19515 28910 36964
EPS (Rs.) 10.15 12.26 16.36 21.11 26.33
BVPS (Rs.) 40.6 78.7 93.9 105.7 131.1
P/E (x)* - 38.3 32.2 26.5 21.3
P/BV (x)* - 6.0 5.6 5.3 4.3
RoE (%) 28.6 19.5 19.0 21.9 21.2
RoA (%) 4.5 3.6 3.9 3.9 3.8
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
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Mar-19
Apr-19
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BANDHAN IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
5
Company Background
Bandhan Bank Limited is a commercial bank was incorporated on December 23, 2014 at Kolkata, West
Bengal as a public limited company under the Companies Act, 2013, pursuant to ceicate of incorporation
issued by the RoC. The bank oers a variety of asset and liability products and services designed for micro
banking and general banking as well as other banking products and services. Its asset products consist of
retail loans including a substantial pofolio of micro loans as well as micro, small and medium enterprise
(SME) loans and small enterprise loans. Its liability products consist of savings accounts, current accounts
and a variety of xed deposit accounts. The Company also oers debit cards, Internet banking, mobile
banking, electronic data capture-point of sale (EDC- POS) terminals, online bill payment services and the
distribution of third-pay general insurance products and mutual fund products.
BANDHANBNK: Technical View
The stock has found suppo around 385 levels in October 2018 where it ended its down move
from its lifetime high of 731 levels. Thereaer, the stock went into the booming process and aer
forming a double boom paern which is a bullish reversal paern indicating an end to the bearish
bias from the high of 731 levels. Currently, the stock is trading in the range of 520- 600 levels from
the past few weeks and nding suppo around its weekly 50EMA which is currently placed around
523 levels. On the weekly chas, the stock is trading above its 50Weekly EMA which indicates
buying pressure at the lower levels. On the price cha, the stock has stuck in the range of 520-
600 levels, and once a breakout comes from this range, the stock may pick up momentum on
the higher side. On oscillator front, the 14 periods RSI on the daily cha is trading well above its 9
Pd EMA indicating a bullish bias in the near term. Among other observations, the stock is trading
above its weekly 200 EMA and also above its daily 200 EMA which is another suppo point for the
bulls. Going ahead, suppos are placed around 525 levels followed by 460 levels in the medium to
long term while resistance is placed around 627 levels followed by 700 levels.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
6
Bloomberg Code: COAL IN
COAL INDIA LTD
CIL’s Strategic Impoance in Meeting India’s Energy
Requirement
Continued near monopoly status along with largest prot making enterprise
in India: Due to India’s abundant coal reserves and non-availability of other
sustainable sources of fuel, coal continues to play a dominant role in meeting
the country’s energy requirement. CIL accounted for 84% of domestic coal
production in scal 2019. CIL possesses 48% of India’s proven reserves in its
command area, and accounts for bulk of domestic coal production.
A drastic reduction in employee benet expenses came down by 35.74%
at Rs. 10,700.79 crore as against Rs. 16,651.20 crore posted in the Q4FY18
accompanied with other operational eciencies backed by higher price
realisations, helped Coal India post a record increase of 362.46% in its net
prot at Rs. 6,024.23 crore for the quaer ended March 31, 2019. Beer
average realization in both coal, Fuel Supply Agreement (FSA) and e-auction
sales coupled with operational cost control propelled the company to its
best ever nancial peormance.
Stepping up its growth, high protability & strong nancial risk prole: In
scal 2019, production grew 7% while dispatches rose 5%, owing to greater
demand especially from power producers. With steady demand from power
sector, volume and protability would improve fuher in 2020 and remain
healthy over medium term.
CIL’s debt levels shrunk making it a safe investment. CIL made outstanding
use of shareholders’ funds with ROE greater than 40%, also making ecient
use of its assets compared to Oil and Gas industry average with ROA of 8%.
Dividend payout remained high at around Rs. 11,200 crore during scal 2019.
All the subsidiaries of Coal India earned very good prot margins.
Valuation and Risks: As per consensus, the stock is valued at a PE of 10.5x of
FY21E EPS for a target price of Rs. 304 which gives a potential upside of 21%.
The company has to rst fulll its obligation of being able to deliver enough
coal to satisfy the growing power needs of the country as coal output has
been constrained by delays in obtaining environmental and forest approvals
& exibility is also restricted by socio political factors.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (4) 7 7 (4)
Relative to Sensex (3) 5 (5) (15)
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 251
Target Price 304
Upside(%) 21
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 1546537 / 22447
52-wk High/Low (Rs.) 300 / 211
3M Avg.daily value (Rs. Mn) 1934.6
Beta (x) 0.5
Sensex/Niy 39839 / 11917
O/S Shares(mn) 6162.7
Face Value (Rs.) 10.0
SHAREHOLDING PATTERN (%)
Promoters 71.0
FIIs 7.1
DIIs 19.0
Others 3.0
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Sales 754591 817000 928961 1028838 1080064
EBITDA 124477 95478 249771 248319 259838
EBITDA Margin (%) 16.0 12.0 27.0 24.0 24.0
Adj. Net Prot 92800 70203 174619 171700 178460
EPS (Rs.) 14.8 11.3 28.1 27.8 28.9
RoE (%) 31.3 31.7 75.4 60.7 58.6
PE (x)* 19.8 25.1 8.4 9.2 8.8
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
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COAL IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
7
Company Background
Coal India Limited (CIL) is a ‘Maharatna’ company under the Ministry of Coal, Government of India,
headquaered at Kolkata, West Bengal. CIL is the single largest coal producing company in the world and
one of the largest corporate employers with manpower of 2,98,757. CIL operates through 82 mining areas
spread over nine provincial states and has 369 mines (as on 1st April, 2018) of which 174 are underground,
177 opencast and 18 mixed mines. CIL fuher operates 15 coal washeries, (11 coking coal and 4 non-
coking coal) and also manages other establishments like workshops, hospitals, and 27 training Institutes.
Coal India’s major consumers are power and steel sectors. Others include cement, feilizer, brick, kilns,
and a host of other industries. CIL achieved an all time high production at 580.28 Million Tonnes with a
6.8% growth compared to the last year. CIL has eight fully owned Indian subsidiary companies: Eastern
Coalelds Limited (ECL), Bharat Coking Coal Limited (BCCL), Central Coalelds Limited(CCL), Western
Coalelds Limited (WCL), South Eastern Coalelds Limited (SECL), Nohern Coalelds Limited (NCL),
Mahanadi Coalelds Limited (MCL) and Central Mine Planning & Design Institute Limited (CMPDIL). The
government of India’s shareholdings as on March 31, 2019 in the company was 70.96%.
COALINDIA: Technical View
On the technical front, COALINDIA has been one of our preferred pick in the mining space. The
stock is in the cycle of higher highs and higher lows on the weekly and monthly chas and is
currently placed above the major long term suppos. Historically, aer clocking a peak of 337 odd
levels in August 2017, the counter witnessed a round of prot booking which dragged the stock
towards lower levels of 200-210 levels which is the 61.8% (Golden Ratio) Fibonacci retracement
levels drawn from the swing corners of 152 and all time highs. The stock is currently revolving
above the 50% retracement levels on the monthly chas. The stock has remained untouched in the
traction in the broader markets indicating the inherent strength in the counter. In the recent past,
aer few months of healthy consolidation and good correction from the higher levels, the stock
is exhibiting its rst signs of reversal from the lower levels from the suppo zone of 225 levels
on daily chas coupled with notable trading volumes. Analyzing the recent volume price action,
the volumes have been encouraging in the recent up move indicating strong hands have staed
accumulating the stock at current levels. The overall cha structure looks very positive for medium
term perspective with good price volumes action in the last few weeks. The stock has suppo
around 230 and 200 on the lower side while resistance is placed around 280 and 320 levels for the
medium to long term perspective.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
8
KEY FINANCIALS (Rs. Mn)
YE Mar - Consolidated
FY17 FY18 FY19 FY20E FY21E
Net Sales 475675 505690 603988 699055 768516
EBITDA 103844 112460 139228 159682 176715
EBITDA Margin (%) 21.8 22.2 23.1 22.8 23.0
Adj. Net Prot 86063 87210 100809 107164 118854
EPS (Rs.) 60.3 62.2 73.3 79.3 87.9
RoE (%) 28.3 25.2 24.8 23.8 22.7
PE (x)* 14.5 15.6 15.0 13.4 12.1
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
Bloomberg Code: HCLT IN
HCL TECHNOLOGIES LTD
Upbeat Growth Outlook
Strong growth led by organic and inorganic components: We expect FY20
growth outlook for HCLT to be upbeat backed by both organic and inorganic
components. We expect acquisition of IBM IP to be completed by H1FY20.
We expect this to contribute substantially to revenues during that period. We
expect organic growth to be aided by strong deal wins during FY20 which is
in line with management’s improved guidance of ~7% organic growth.
Revival in IMS aids Q4 revenue growth: During Q4FY19, HCLT’s revenues
were up 3.5% in USD terms QoQ and 3.3% in constant currency (CC) terms.
Growth was aided by public services – up 17.7% QoQ in CC terms. Infra
services was up 7.3% QoQ in CC terms. ER&D (Engineering , R&D), however,
was a dampener which declined 3.3% QoQ.
Margin guidance lowered: While the revenue growth outlook was positive for
HCLT, it lowered margin guidance to 18.5-19.54% vs. 19.5-20.5% earlier. For
FY19, HCLT repoed margin of 19% below management’s guidance owing to
investments in building digital capabilities.
Muted growth guidance: HCLT’s guidance of 14-16% in CC terms translates
to a $ revenue growth of 13.4% to 15.4% based on 31 March 2019 exchange
rate. HCLT also lowered EBIT margin guidance to 18.5-19.5% vs. 19.5-20.5%
earlier due to signicant digital required in IBM IPs. An upbeat organic growth
guidance of 7-9% is positive in our view which will be driven by Mode 2
revenues.
Valuation and Risks: While the market is disappointed by muted growth
guidance and a lower margin guidance, we remain positive on the stock due
to its improved organic growth which was a concern till now and upside risks
to the overall revenue growth driven by IBM IPs and string order book. We
recommend a “BUY” on HCLT with a price target of Rs. 1262, an upside of
20% based on consensus 1yr forward PE of 14.4x.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (6) (6) 11 12
Relative to Sensex (5) (8) (1) (0)
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 1051
Target Price 1262
Upside(%) 20
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 1425720 / 20693
52-wk High/Low (Rs.) 1190 / 917
3M Avg.daily value (Rs. Mn) 2270.5
Beta (x) 0.7
Sensex/Niy 39839 / 11917
O/S Shares(mn) 1356.3
Face Value (Rs.) 2.0
SHAREHOLDING PATTERN (%)
Promoters 60.0
FIIs 28.8
DIIs 7.6
Others 3.6
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
90
100
110
120
130
140
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Jul-18
Aug -18
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HCLT IN
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KARVY INVESTMENT STRATEGY REPORT - JULY 2019
9
Company Background
HCL Technologies Limited is engaged in providing a range of soware development services, business
process outsourcing services and information technology (IT) infrastructure services. The Company’s
segments include soware services, infrastructure management services and business process
outsourcing services. The soware services segment provides application development and maintenance,
enterprise application, soware as a service (SAAS) application services and engineering, and research
and development (R&D) services to global customers. The infrastructure management services segment
involves managing customer’s IT assets. The business process outsourcing services segment includes
contact center and help desk services. The Company delivers its solutions across select veicals, including
nancial services, manufacturing, retail and consumer products, media, publishing and enteainment,
public services, energy and utility, healthcare, and travel, transpo and logistics.
HCLTECH: Technical View
HCLTECH is trading with bullish bias on the daily and weekly chas making repeated cycles of
higher highs and higher lows. The stock is our preferred pick in the Information Technology space
and has outpeormed many of its peers in the last couple of months. At current juncture, the
stock is hovering just above the 200-DMA which is a long term moving average and is considered
as the best level to accumulate the counter for long term investment. The counter is currently
trading around the major moving averages with the stock price placed above the good suppo
levels of 1000-1020 on the daily chas. Aer crossing sti resistance of 1030-1050 levels, the
stock made nohwards journey towards 1160-1180 levels in the recent past exhibiting good price
volume action. On the Bollinger band (20,2) front, the stock is trading just below the mean on the
weekly chas with the overall trend pointing towards the upward direction. The crucial suppos
for the stock is placed at 1020 levels followed by 980-990 levels while resistance is pegged around
1100-130 levels followed by 1180 for the medium to long term investment perspective. We expect
the stock to continue to trade in the bullish trajectory and may surpass the recent resistances and
may move towards all time high levels. Medium to long term investors may sta accumulating the
stock from current levels and add more on any correction towards the suppo levels as mentioned
above in the counter with a time frame of 9-12 months investment period.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
10
Bloomberg Code: HMCL IN
HERO MOTOCORP LTD
Decent Peormance in Challenging Environment
Volume growth to rebound in H2FY20: The company repoed 11% volume
growth during Q4FY19 and 3.1% in FY19. This is aer a strong 13.9% volume
growth in FY18. For HMCL, volumes witnessed sharp decline in H2FY19 on
account of high insurance costs, tight liquidity in vehicle nancing and general
slowdown in the economy. The company recovered some of the market share
in entry level segment in Q4FY19 from its rivals. However, current inventory
levels at HMCL’s dealers are still high at 45-50 days which it plans to lower
to 40 days and hence management expects volume growth to remain tepid
during Q1FY20. The Company has reduced FY20 volume growth guidance
from high single digit to mid single digit with a so H1 and relatively stronger
H2 (10% volume growth). This is based on its strong product pofolio and
likely uptake in the economic growth beginning from Q2FY20.
Growth Outlook: 2W demand in India continues to remain so as growth in
rural and urban area has soened due to general slowdown in the economy
and increase in prices of bikes. Despite this, we believe growth is likely to
rebound post Q2FY20 as unceainties related to Monsoon and General
Election is likely to be over. We expect HMCL to repo 5%/7% volume growth
during FY20E/21E.
Valuation and Risks: At CMP Rs. 2581, the stock is currently quoting at
13.4xFY21E earnings. While near term growth outlook for HMCL remains
challenging, we remain upbeat on its medium term growth prospects given
its competitive advantages like strong brand and distribution network. Also
HMCL is in a superior position to benet from rural economic recovery. It is
a debt-free, cash-rich entity with 35%+ average RoE. We rate “BUY” on the
stock for a price target of Rs. 3103 (PER of 16xFY21E).
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (9) 0 (14) (25)
Relative to Sensex (8) (2) (23) (33)
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 2588
Target Price 3103
Upside(%) 20
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 516793 / 7501
52-wk High/Low (Rs.) 3695 / 2475
3M Avg.daily value (Rs. Mn) 1974.4
Beta (x) 0.9
Sensex/Niy 39839 / 11917
O/S Shares(mn) 199.7
Face Value (Rs.) 2.0
SHAREHOLDING PATTERN (%)
Promoters 34.6
FIIs 38.2
DIIs 16.1
Others 11.1
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Sales 285005 322305 336505 364473 397219
EBITDA 46348 52802 49301 51393 56906
EBITDA Margin (%) 16.3 16.4 14.7 14.1 14.3
Adj. Net Prot 33771 37972 34097 34996 38744
EPS (Rs.) 169.1 190.1 170.7 175.2 194.0
RoE (%) 35.7 34.7 27.7 25.9 26.0
PE (x)* 15.4 13.7 15.3 14.7 13.3
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
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HMCL IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
11
Company Background
HERO MOTOCORP (HMCL), formerly Hero Honda Ltd is the world’s largest two wheeler manufacturing
company based in New Delhi. It is into manufacturing of motorcycles and scooters and is promoted by
the Munjal Family. Some of its agship products are Splendor, Passion and HD Deluxe in the motorcycle
segment and Duet, Pleasure and Glamour in the scooter segment. HMCL has extensive sales and service
network which spans over 6,000 customers touch points across the country which comprise a mix of
authorized dealerships, service & pas outlets and dealer appointed outlets. Apa from domestic market
the company has been able to spread its presence in 105 countries.
HEROMOTOCO: Technical View
HEROMOTOCO has corrected over 60% from its all time high of 4091.95 levels and is currently
placed around 2580-2600 zone. On yearly cha, the stock has formed a Black Swan paern
for which the suppo is pegged around in the broader range of 2200-2250 levels and even on
monthly basis, the stock has retraced to 68% of the Fibonacci retracement drawn from the trend
low of 1435 to the all time high of 4091.95 levels suggesting the stock to boom out at the current
zone. On the larger aspect as the yearly and monthly technical formation of the paerns, the stock
is expected to reverse its current trend. On technical set up, the 14 period RSI is placed near the
oversold zone of 30 and as per the historical scenario the indicator is expected to reverse its trend.
Even the stock price is placed near to the lower band of the Bollinger (20, 2) and is on the verge
of heading towards the mean on monthly basis. On weekly and monthly chas MACD is trading
above its neutral line, and bullish crossover existed throughout the months of April and June and
the RSI on daily chas which is hovering around 40-45 levels over last few months also suggests
the probable downside is limited. Medium to long term investors may sta accumulating the stock
from current levels and add more on any correction towards the suppo levels of 2250-2300
levels as mentioned above in the counter with a time frame of 9-12 months investment period.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
12
Bloomberg Code: HZ IN
HINDUSTAN ZINC LTD
Lower Metal Prices Aecting Protability
Hindustan Zinc, a Vedanta Group company in FY19 has posted revenue of
Rs. 208340 Mn which dropped by 4% over FY18 on the back of fall in zinc
volume and realization. Net sales of zinc in FY19 at Rs. 144750 Mn declined
11%, lead sales at Rs. 31590 Mn increased by 12%, silver sales at Rs. 25680 Mn
grew by 22% and other sales at Rs. 9160 Mn accelerated by 15% over FY18.
Mined metal production at 936 MT decreased by 1% whereas total rened
zinc volume at 696 MT declined by 12%. EBITDA margins in FY19 at 51.2% got
contracted by 556 bps over FY18. PAT at Rs. 79560 Mn de-grew by 14% over
FY18. In line with PAT, EPS at Rs. 18.8 de-grew by 14% over FY18.
Going forward, the company expects both mined metals and nished metals
production to be higher than last year and it is expected to be about 1 Mn MT.
The management expects the completion of underground mine expansion
plan towards the end of Q2FY20E. With this, company’s mined metals
production capacity will go upto 1.2 Mn MTs per annum. The management
expects that zinc cost of production in FY20E to be under $1000 per MT. The
guidance for silver production is to be in the range of 750-800 MT for FY20E.
The project capex for FY19 to be around US $350-$400 Mn.
Dominant Market Position: Hindustan Zinc Limited has mined metal capacity
of around 1 Mn MT per annum and smelter capacities of 843000 MTPA for
zinc, 201000 MTPA for lead and 600 MTPA for silver. It is the second largest
zinc-lead miner and fouh largest zinc-lead smelter globally. The company
enjoys more than 75% share by volume. The company is expected to maintain
leading position in zinc and lead segments in India over medium to long term.
Expo presence in global markets enhances revenue diversity.
Lead and Silver Assets are Best-in-Class: The company’s lead and silver
assets are best in class. The company has strong cash-rich balance sheet.
Valuation and Risks: We value Hindustan Zinc at PE 12.8x of FY21E EPS to
reach at consensus TP of Rs. 280 with potential upside of 16%.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (3) (15) (11) (7)
Relative to Sensex (2) (17) (20) (17)
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 241
Target Price 280
Upside(%) 16
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 1017668 / 14771
52-wk High/Low (Rs.) 292 / 226
3M Avg.daily value (Rs. Mn) 187.9
Beta (x) 0.8
Sensex/Niy 39839 / 11917
O/S Shares(mn) 4225.3
Face Value (Rs.) 2.0
SHAREHOLDING PATTERN (%)
Promoters 64.9
FIIs 1.5
DIIs 2.4
Others 31.1
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Sales 168700 216140 208340 239345 254879
EBITDA 97390 122720 106700 126719 131071
EBITDA Margin (%) 57.7 56.8 51.2 52.9 51.4
Adj. Net Prot 83160 92760 79560 92644 96472
EPS (Rs.) 19.68 21.95 18.8 22.0 21.9
RoE (%) 24.4 31.6 22.9 26.2 25.8
PE (x)* 14.7 13.7 14.7 11.0 10.7
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
80
90
100
110
120
Jun-18
Jul-18
Aug -
18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
HZ IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
13
Company Background
Hindustan Zinc is India’s largest and world’s second largest zinc-lead miner. It has reserve base of 105.7
Mn MT with an average zinc-lead grade of 10.5% and mineral resources of 305.6 Mn MT. The mine life
is over 25 years. The company enjoys 78% market share in India’s primary zinc industry. The company is
among top 10 silver producers globally with an annual capacity of 600 MT. The total metal production
capacity is 834000 MT of zinc and 201000 MT of lead. The company has facilities located in Rampura
Agucha, Chanderia, Dariba, Kayad, and Zawar in the state of Rajasthan, along with zinc lead processing
and rening facilities and a silver renery at Pantnagar in the state of Uarakhand.
Hindustan Zinc is subsidiary of Vedanta which owns 64.9% stake in the company while the Government of
India holds 29.54% stake.
HINDZINC: Technical View
HINDZINC has seen correction of around 30% in the past one year on a consistent manner in the
cycle of lower lows and lower highs which placed it below all its major moving averages on daily cha,
making it an undervalued counter as per its peers in spite of having sound fundamentals. Hence it is
a preferred contender from the universe of metal sector as outpeormance is expected from this
counter. Technically, the stock has retraced from the 50% Fibonacci retracement drawn from the
lows of 117.05 to its recent swing high of 340.20 levels suggesting it to be a great oppounity to
invest in the counter. On weekly cha, the stock has taken suppo from its previous swing low of
225-230 levels and has bounced back indicating it to be a strong suppo and buyers have a strong
hand at the mentioned levels. On oscillator front, 14 period RSI is placed near 35-38 levels post
testing its oversold zone of 30 and witnessed a good sign of recovery. Even on the Bollinger band,
the stock price has seen a good reversal from the lower band of the Bollinger towards the mean
on weekly cha arming the reversal in the counter. On broader time frame, even the MACD is
placed above its neutral line and the bullish crossover existed through some period. Medium to
long term investors may sta accumulating the stock from current levels and add more on any
correction towards the suppo levels of previous swing low of 220 odd zones as mentioned above
in the counter with a time frame of 9-12 months investment period.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
14
Bloomberg Code: ICICIBC IN
ICICI BANK LTD
Winds of Change
Earnings hit by higher credit costs: During Q4FY19, ICICI Bank repoed
overall beer peormance with NII growth of 27% YoY and Fee
income growth of 15% YoY, aided by strong loan growth of 15%. Core
pre-provision prot was up 26% YoY despite 20% YoY growth in
Operating expenses. Due to unexpected higher credit costs, up 28%
QoQ, earnings were with PAT down by 5.5% and up 10% sequentially.
Loan growth improved driven by retail: Loan growth continued to
improve with 14.5% YoY growth. The loan book growth was driven by
Retail and SME. While retail was up 21.7%, SME book was up by 20.3%.
Domestic corporate book was up by 6%. We see that the increased
focus on retail book is the result of new management’s renewed
focus on retail and reduced dependency on corporate book.
Positive NIM outlook: ICICI Bank repoed NIM of 3.72%, adjusted for
one-os, including +20 bps on interest on income tax refund, +7 bps
on cash recovery, core NIM stood at 3.45%. While the core NIM looks
weaker, we believe that NIM will continue to improve in the wake of
recovery on account of NPA resolution.
Improving asset quality: Coverage ratio was up 220 bps QoQ to 70.7%.
With GNPA and NNPA ratio fuher declining by 105 bps and 52 bps to
6.7% and 2.06%, we are optimistic about the future outlook on asset
quality front.
Valuation and Risks: On the back of the new management’s renewed
strategy to de-risk the loan book and improving fundamentals, we are
positive about ICICI bank and recommend a “BUY” with a price target of
Rs. 512, an upside of 17%, based on consensus 1-Yr forward PBV estimate of
2.78x.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute 3 11 20 60
Relative to Sensex 4 8 7 42
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 436
Target Price 512
Upside(%) 17
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 2812322 / 40819
52-wk High/Low (Rs.) 444 / 257
3M Avg.daily value (Rs. Mn) 7193.3
Beta (x) 1.4
Sensex/Niy 39839 / 11917
O/S Shares(mn) 6451.0
Face Value (Rs.) 2.0
SHAREHOLDING PATTERN (%)
Promoters 0.0
FIIs 43.0
DIIs 43.9
Others 13.1
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Interest Income 256497 239773 270148 314930 370680
Net Prot 101884 67774 33633 139427 179200
EPS (Rs.) 17.5 10.6 5.2 21.6 27.7
BVPS (Rs.) 171.6 163.6 168.1 181.3 203.5
P/E (x)* 15.8 26.4 76.6 20.4 15.9
P/BV (x)* 1.5 1.7 2.4 2.4 2.2
RoE (%) 10.3 6.6 3.2 12.2 14.2
RoA (%) 1.3 0.8 0.4 1.3 1.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
90
110
130
150
170
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
Jan
-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
ICICIBC IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
15
Company Background
ICICI Bank Limited provides banking and nancial services in India and internationally. It operates through
Retail Banking, Wholesale Banking, Treasury, Other Banking, Life Insurance, General Insurance and other
segments. It provides home, car, two wheeler, personal, gold and commercial business loans as well as
loans against securities and loans for new entities. In addition, the bank oers life, health, travel, car,
two wheeler, home, and student medical insurance products; pockets wallet; xed income products;
investment products such as mutual funds, gold monetization schemes and initial public oerings as well
as other online investment services. Fuher, it provides pofolio management, trade, foreign exchange,
locker, private and NRI banking and cash management services; family wealth and demat accounts;
commercial banking, investment banking, capital markets and custodial, project and technology nance
and institutional banking services as well as internet, mobile and phone banking services.
ICICIBANK: Technical View
ICICIBANK is one of the preferred counters from the Banking space which is in strong secular
uptrend. It is one of the stocks from large cap space which is trading at life time highs. The stock
has seled with a gain of more than 10% for the rst quaer of 2019 nancial year, and for the
year of 2019, the stock is currently trading with a gain of more than 20% and has outpeormed its
large cap and sectoral index Niy 50 and Bank Niy during the same period. Currently, the stock
is nding suppo from its daily 50EMA and moving higher. On the weekly chas, the stock is
trading above its 50Weekly EMA which indicates buying pressure at the lower levels. On oscillator
front, the 14 period RSI on the daily, weekly and monthly chas is trading well above its 9 Pd EMA
indicating a bullish bias in the medium to long term. As far as technicals are concerned, the 14
periods RSI is pegged at around 65 levels on weekly chas suggesting the stock is not signicantly
over bought and potential fuher upside in the counter exists. On the Bollinger band front, the
stock price is above its mean line and is trading around the upper band on weekly chas, even the
ADX is clearly indicating that the stock is gaining strength of its current up move. Hence, investors
with medium to long term time horizon can sta accumulating the stock on every dip towards the
immediate suppo zone of 415-420 levels for the immediate upside of 470-475 levels, and beyond
into unchaered territory towards 500 levels as per price extensions.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
16
Bloomberg Code: IHFL IN
INDIABULLS HOUSING FINANCE LTD
Liquidity Management Holds Key
IHFL is the second largest private mogage lending company in India and is
regulated by NHB. The company has transformed from a diversied lender to
a focused mogage player. In the last 7 years, the company’s loan assets and
Net Interest Income (NII) grew at 30% and 24% CAGR respectively. Since the
liquidity crisis emerged, the company has raised around Rs. 50000 Cr which
were mainly utilized for repayment of liability and liquidity management.
Stable Asset Quality: IHFL’s GNPA stood at 88 bps vs. 79 bps QoQ while
NNPA stood at 69 bps vs. 59 bps as at 4QFY19. The company’s AUM declined
3% sequentially mainly due to decline of 20% YoY in developer segment.
Due to asset-liability mismatch, growth of IBULHSGFIN hampered along with
margin pressure. However, it has managed to pass on the increase in cost of
borrowings to the customer which will oset some pressure going ahead.
Banking liscense will lead to new leg of growth: IHFL has announced a merger
with Laxmi Vilas Bank. The merger is a win-win deal for both IHFL and LVB.
IHFL gets access to stable, low-cost funding in the form of public deposits.
It would also help in expanding liability franchisee and will provide longevity
to its lending business on a consistent basis. Amalgamated bank will derive
operational eciency from adoption of technology-enabled processes
pioneered by IBH. In the sho term, the deal will have negative impact on
return ratios due to equity dilution.
Valuation and Outlook: IHFL has come a long way from being a diversied
lender to a focused mogage player and now a proposed bank. Its
transformation has yielded returns, with RoE improving from 3% in FY09
to 25% in FY19. IHFL’s asset quality remains stable and the bank’s focus on
core mogage loans and its proposal to conve into a bank will drive growth
moving forward. IHFL is currently trading at 1.4x P/B on FY20E and based on
consensus we assign a “BUY” rating on stock with a TP of Rs. 923.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (15) (21) (15) (39)
Relative to Sensex (14) (22) (25) (45)
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 691
Target Price 923
Upside(%) 34
STOCK INFORMATION
Mkt Cap (Rs.Mn/US$ Mn) 295432 / 4288
52-wk High/Low (Rs.) 1397 / 488
3M Avg.daily value (Rs. Mn) 10838.7
Beta (x) 1.4
Sensex/Niy 39839 / 11917
O/S Shares(mn) 427.6
Face Value (Rs.) 2.0
SHAREHOLDING PATTERN (%)
Promoters 21.6
FIIs 56.9
DIIs 12.4
Others 9.1
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Interest Income 42213 60719 54752 62289 71622
Net Prot 28424 35665 37293 40392 45564
EPS (Rs.) 67.3 83.9 87.3 95.0 107.0
BVPS (Rs.) 286.0 314.7 385.6 454.2 522.2
P/E (x)* 14.8 14.8 9.8 6.5 5.7
P/BV (x)* 3.6 4.1 2.1 1.4 1.3
RoE (%) 25.4 28.8 24.7 23.8 24.2
RoA (%) 3.2 3.3 3.1 3.0 3.0
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
40
60
80
100
120
Jun-18
Jul-
18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
IHFL IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
17
Company Background
Indiabulls Housing Finance Ltd. (IBHFL) is the second largest private housing nance company in India
and is regulated by the National Housing Bank (NHB). IBHFL has served over 1 Mn customers with a
cumulative loan disbursal of Rs. 2.4 Tn and has an AUM of over Rs. 1.28 Tn as of Dec FY18. It was established
as a wholly-owned subsidiary of Indiabulls Financial Services (IBFSL). In early 2013, keeping with IBHFL’s
long-term commitment to the housing nance business, the company was reverse merged into its
housing nance subsidiary IBHFL. IBHFL oers home loans to target client base of middle and upper-
middle income individuals and small and medium-sized enterprises or SMEs Loan Against Propey (LAP).
IBULHSGFIN: Technical View
IBULHSGFIN has bounced well aer nding suppo around 487 levels. The primary trend in the
stock reects lower lows and lower highs on daily chas. Prior to that, the stock has seen a sharp fall
from its swing high of 1200 levels which has dragged the stock to the low of 487 levels. The recent
rise in the stock has placed the stock above the sho term moving averages and is trading well
above the same. The recent bounce in the stock from the suppo levels of 487 and sustainability
above 650 levels will be a trigger for the stock which indicates near term boom and it is expected
to resume its up move in the sho to medium term. The historical price action in the stock also
reects that any meaningful dip in the stock may aract market paicipants which will help the
stock resume its upward movement. On technical setup, the 14 period RSI is pointing nohwards
indicates strength in the stock. The immediate suppo is placed around 570 levels and below that
is 550 levels whereas the resistance is placed around 800 levels and above that at 900 levels.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
18
Bloomberg Code: ITC IN
ITC LTD
Diversication to Suppo Long Term Growth
Non cigaree business continues to grow: ITC has one of the fastest growing
branded packaged foods businesses in the country. Its FMCG business
grew at 9.0% to Rs. 125 Bn over the last 5 scals, suppoed by growth
in major brands across food and personal care categories. The FMCG
business currently contributes 25% to sales and has 3.2% EBIT margin and
management is looking to 5% EBIT margins by FY21E on account of scale
up of the new launches. Following the “asset right strategy”, the company
now manages over 50% rooms and this has aided in optimizing eciency.
Aided by increase in foreign tourism (5% growth in 2018) and the segment
recorded robust growth driven by increase in average room rates, higher
occupancy and food & beverage revenue from existing hotels and addition
of new propeies to the pofolio. The hotel business currently accounts for
10.7% EBIT margin.
Leadership position in the cigaree business: With ~75% volume share in the
cigaree business and considering the low penetration of cigarees in the
overall tobacco consumption, cigaree volumes are expected to be good
on the back of new brand launches and the eect of lower base as the sales
volumes of cigarees were impacted in recent times on account of increase
in taxes. With no additional taxation levied in recent times the erosion of the
illegal cigaree business is expected to get slower. In terms of value, ITC
holds ~80% share in the organized tobacco business.
Valuation and Risks: Long term position of the company remains strong on
the back of high market share, high barriers to entry and improving protability
of the non cigaree business. Valuations have been impacted in recent times
on account of increasing share of the illegal cigaree business and the
company trades at a consensus 1 year forward P/E of 23x, which is below its
5 year average valuation by 8.5% (25.3x). With expectation of stable volumes
in cigarees, and improving peormances of the non cigaree businesses,
the stock is valued at a P/E of 27.3x on FY21E consensus EPS of 12.64 and
recommend “BUY” with a TP of Rs. 345. Risk to the call includes decline in
legal cigaree market share on account of higher taxation, and lower growth
in the non core business on account of lower growth in economy.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute (1) (7) (1) 4
Relative to Sensex 0 (9) (12) (7)
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 277
Target Price 345
Upside(%) 25
STOCK INFORMATION
Mkt Cap (Rs.Mn/US$ Mn) 3391599 / 49227
52-wk High/Low (Rs.) 323 / 261
3M Avg.daily value (Rs. Mn) 3544.6
Beta (x) 0.8
Sensex/Niy 39839 / 11917
O/S Shares(mn) 12257.3
Face Value (Rs.) 1.0
SHAREHOLDING PATTERN (%)
Promoters 0.0
FIIs 17.0
DIIs 38.2
Others 44.8
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Sales 423600 431229 478390 526669 582595
EBITDA 154494 164955 185282 205103 229039
EBITDA Margin (%) 36.5 38.3 38.7 38.9 39.3
Adj. Net Prot 102989 112800 126217 139705 157190
EPS (Rs.) 8.5 9.2 10.2 11.4 12.8
RoE (%) 23.10 22.79 22.56 23.8 25.3
PE (x)* 34.3 26.7 26.0 24.0 21.4
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
90
100
110
120
130
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
ITC IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
19
Company Background
ITC Limited is a holding company which is engaged in the marketing of fast moving consumer goods
(FMGC). The Company operates through four segments: FMCG, Hotels, Paperboards, Paper and
Packaging, and Agri Business. The FMCG segment includes cigarees and cigars (46.4% revenue), and
others, such as branded packaged foods businesses (Staples, Snacks and Meals; Dairy and Beverages,
and Confections), Apparel, Education and Stationery Products, Personal Care Products, Safety Matches,
and Agarbais. Its Hotels segment includes Hoteliering and Paperboards, Paper and Packaging segment
includes paperboards, paper, including specialty paper, and packaging, including exibles. Its Agri Business
segment includes Agri commodities, such as soya, spices, coee and leaf tobacco. The leading brands of
the company include Aashirvaad, Sunfeast Dark Fantasy, Bingo!, Classmate, Wills Lifestyle, John Players
among others.
ITC: Technical View
ITC has bounced well aer nding suppo around 240 levels. The primary trend in the stock
reects a consolidation paern with a positive bias. Prior to that, the stock has seen a sharp fall
from its swing high of 355 levels which has dragged the stock to the low of 240 levels. The recent
movement in the stock has placed the stock around the medium and long term moving averages.
The stock sustaining above 300 levels will be a fresh trigger for the stock which indicates a strong
breakout in the stock and is expected to resume its up move in the sho to medium term. The
historical price action in the stock also reects that any meaningful dip in the stock may aract
market paicipants which will help the stock resume its upward movement. On technical setup,
the 14 period RSI pointing nohwards indicates strength in the stock. The immediate suppo is
placed around 260 levels and below that is 240 levels whereas the resistance is placed around 300
levels and above that at 320 levels.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
20
Bloomberg Code: LT IN
LARSEN & TOUBRO LTD
Transition to Asset Light Business Model
Financial peormance: Order inow grew across sectors and witnessed a
16% growth for FY19 vs. FY18 while OB reached to Rs. 2934 Bn. Revenue for
the year grew at 18% to reach Rs. 1410 Bn, while EBITDA margin eased o
to 8.8% in FY19 vs 9.8% in FY18 due to job mix. Revenue growth is primarily
led by infra, hydrocarbon, realty & services businesses aided by robust order
book conversion. Owing to healthy order book & proven leadership in the
infrastructure & engineering segments consensus estimates revenue CAGR
of 13% & earnings CAGR of 16% during FY19-21E along with a healthy EBITDA
margin of ~12.2% by FY21E.
Robust order book: L&T’s outstanding order book at the end of Mar
2019 stood at Rs. 2934 Bn spread across sectors. While domestic private
sector witnessed a pick up, public sector orders constituted mainly state
government orders. Higher share of domestic OB (76%) reects continued
focus on infra capex. International business grew mainly due to growth in
hydrocarbon segment. Composition of Order Inows shied towards larger
sized projects in FY19.
Mindtree Deal: L&T has gained a controlling stake (60%) in Mindtree and
plans to acquire another 6.3%. Mindtree acquisition is likely to add signicant
scale to its hi-tech, CPG, retail and travel veicals.
Five-year strategic plan ‘Lakshya’ in place: L&T has put in place its ve-
year strategic plan “Lakshya”, which focuses on doubling sales to Rs. 2 Tn
by FY21, improving margins (ex-services) from 10% in FY16 to 11.2% in FY21,
value unlocking either by listing the asset or by divesting non-core assets,
improving RoE’s from 12% in FY16 to 18% in FY21 and bringing down working
capital from 24% in FY16 to 18% by FY21.
Valuation and Risks: L&T’s diversied exposure to various sectors/
geographies coupled with its excellent execution capabilities and its balance
sheet strength has resulted in strong order book build up. The consensus
values the company at 23x for a target price of Rs. 1900. Delay in capex cycle
recovery & order execution may pose a threat to the call.
STOCK PERFORMANCE (%)
1M 3M 6M 12M
Absolute 1 15 13 26
Relative to Sensex 2 12 1 12
Source: Bloomberg
RECOMMENDATION (RS.)
CMP (as on 03 Jul, 2019) 1578
Target Price 1900
Upside(%) 20
STOCK INFORMATION
Mkt Cap (Rs.Bn/US$ Mn) 2213270 / 32124
52-wk High/Low (Rs.) 1607 / 1183
3M Avg.daily value (Rs. Mn) 4345.8
Beta (x) 1.1
Sensex/Niy 39839 / 11917
O/S Shares(mn) 1402.5
Face Value (Rs.) 2.0
SHAREHOLDING PATTERN (%)
Promoters 0.0
FIIs 19.0
DIIs 38.6
Others 42.4
KEY FINANCIALS (Rs. Mn)
YE Mar FY17 FY18 FY19 FY20E FY21E
Net Sales 1076365 1179081 1410071 1587223 1793477
EBITDA 110732 195911 237103 189367 218962
EBITDA Margin (%) 10.3 16.6 16.8 11.9 12.2
Adj. Net Prot 60287 87892 86988 100114 116759
EPS (Rs.) 64.4 62.6 61.9 71.2 83.4
RoE (%) 12.8 13.9 15.1 15.2 15.8
PE (x)* 24.3 24.9 21.8 21.9 18.7
Source: Bloomberg, Karvy Research, *Represents multiples for FY17 - FY19 are based on historic market price
RELATIVE PERFORMANCE*
Source: Bloomberg; *Index 100
90
104
118
132
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
LT IN
Sensex
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
21
Company Background
L&T is a $18 Bn technology, engineering, construction, projects, manufacturing and nancial services
conglomerate with global operations. L&T is one of Asia’s largest veically integrated E&C Companies
and is India’s largest Engineering & Construction Company. L&T has an excellent track record of executing
the most complex projects in diverse sectors like infrastructure, oil & gas, defence, power and others
making it the most preferred paner resulting in repeat orders from the clients. L&T has a strong presence
in Infrastructure, Power, Metallurgical-material handling, Heavy Engineering, Electrical & Automation,
Hydrocarbon, Development projects, IT, Financial services and others. It undeakes developmental
projects like Buildings & Factories, Transpoation infrastructure, Heavy Civil Infrastructure, Power, water
& renewable energy, Ship Building, Defence, Machinery & Industrial products. L&T, through its subsidiaries,
associates and JVs operates in Financial services, Infotech, Infrastructure, Hydrocarbon, Manufacturing,
Fabrication and other Services, etc.
LT: Technical View
LT has peormed in line with its key large cap benchmark of Niy 50 and its thematic index NIFTY
Infrastructure for the rst half of 2019. The stock has ended the half year with a gain of around
9% and during the same period Niy 50 and Niy Infrastructure also gained to the same extent of
9% and 8% respectively. LT has given breakout from one and half year trading range and clocked
life time highs in the month of May. The said breakout has expanded the range on quaerly and
monthly chas, indicating probable sta of new bull run in the counter. In June the stock stayed
sideways and compressed its range to 100 point move indicating a pause in the ongoing uptrend.
Currently, stock price is trading consistently above its all major sho and medium term moving
averages on daily, weekly and monthly chas and the volumes on each up day / week are higher
than on the down days / weeks, at the same time, every minor dip is being bought with good
volumes, indicating strong hands are accumulating it. On daily and weekly chas, MACD is trading
above its neutral line, and bullish crossover existed throughout the months of May and June and
the RSI on daily chas which is hovering around 50-60 levels over last 1 month also suggests the
probable downside is limited. On the derivative activity front also, the stock is witnessing good
long rollovers over last 3 months suppoing our bullish view for the coming quaers.
KARVY INVESTMENT STRATEGY REPORT - JULY 2019
22
Wealth Maximizer - Large cap (WM) is an investment product of Karvy Stock Broking
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the stocks in the product will be altered based on target achievement, changes in the
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KARVY INVESTMENT STRATEGY REPORT - JULY 2019
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