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WEALTH MAXIMIZER
2019
LARGE CAP STOCKS
Company Name NSE Symbol Sector
Market Cap
(Rs. Bn.)
CMP*
(Rs.)
Target Price
(Rs.)
Upside (%)
Bhai Infratel Ltd INFRATEL Telecom 486 263 308 17
HCL Technologies Ltd HCLTECH IT 1335 958 1167 22
Hindustan Unilever Ltd HINDUNILVR FMCG 3944 1822 2138 17
ICICI Bank Ltd ICICIBANK Banking 2323 361 440 22
Larsen & Toubro Ltd LT Infrastructure 2018 1439 1700 18
Oil & Natural Gas Corp Ltd ONGC Oil & gas 1931 151 210 39
State Bank of India Ltd SBIN Banking 2631 295 347 18
Tata Motors Ltd TATAMOTORS Automotive 540 171 259 51
UPL Ltd UPL Chemicals 386 758 1004 32
Yes Bank Ltd YESBANK Banking 420 181 410 127
WEALTH MAXIMIZER
Karvy Stock Broking Research is available on Thomson Reuters & Bloomberg (Code: KRVY<GO>)
Vivek Ranjan Misra
040 - 3321 6296
vivekr.misra@karvy.com
*As on Dec 28, 2018
Bloomberg Code: BHIN IN
BHARTI INFRATEL LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 55583 60874 66212 146656 158457
EBITDA 24883 28251 31865 59153 62577
EBITDA Margin (%) 44.77 46.42 48.12 40.3 39.5
Adj. Net Prot 22474 27470 24937 23255 24068
EPS (Rs.) 11.9 14.7 13.5 12.8 12.5
RoE (%) 12.8 16.3 15.4 14.3 14.5
PE (x)* 32.2 22.1 24.9 21.0 21.0
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Company’s Intent to Diversify Business Tends to be a
Positive Move
New Revenue Streams: Considering the rapid increase of data services
through expansion of 3G / 4G network and infrastructure expansion across
cities, we expect a likely surge in demand for small cells, berised backhaul,
WiFi and In-building Solutions (IBS) which are new revenue oppounities
for tower companies. These will also be key to the ‘Sma Cities’ - ‘Digital
India’ project which is one of the biggest focus areas of the Government
of India. Development of ‘Sma Cities’ is a key initiative under the ‘Digital
India’ Program and the Government has already announced the creation of
100 ‘Sma Cities’. During the year, Bhai Infratel has been implementing
the Bhopal Sma City project while the company’s Joint Venture with Indus
won the bids for Sma city project of Vadodara and New Delhi Municipal
Corporation area. For both the Companies, these projects will open a new
avenue of business.
Low Rural Penetration Levels: Indian telecom market has a huge untapped
potential in the rural areas. With wireless rural tele-density still at 58.7% (as
of Mar 31, 2018, Source TRAI), there is signicant headroom for growth in
voice services currently and in data services over time in these untapped
areas. The high cost of providing services and the ability to quickly deploy
state of the a networks will translate into growth oppounities for the
Company. Already, Bhai Infratel has a wide footprint in the Category B and
C circles enabling the expansion of networks in rural markets.
Expect healthy gross tenancy additions ahead: Management indicated that
gross tenancy addition trend may be weak for some time but it is expected
to bounce back on account of aggressive 4G rollouts from incumbents. As
per management, they do not foresee any threat for gross tenancy additions
despite Jio’s continued preference to build some of the sites on its own.
5G Incremental Oppounities: The company has stated that they have
already staed deploying small cell in top 2 metros and this would be a
scalable model for the company as data usage will be elevated when 5G will
be deployed.
Valuation and Risks: At CMP of 263, BHIN is trading at a P/E 21x FY20E EPS.
The consensus has valued the stock at P/E of 24.5x FY20E EPS, arriving at a
target price of Rs. 308 with an upside potential of 17%.
Relative Performance*
Source: Bloomberg; *Index 100
60
75
90
105
120
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
BHIN
Sensex
Stock Performance (%)
1M 3M 6M 12M
Absolute 1 0 (12) (29)
Relative to Sensex 0 0 (14) (33)
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 263
Target Price 308
Upside(%) 17
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 486.4 / 7.0
52-wk High/Low (Rs.) 384 / 242
3M Avg.daily value (Rs. Mn) 649.4
Beta (x) 0.3
Sensex/Niy 36077 / 10860
O/S Shares(mn) 1849.6
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 53.5
FIIs 42.3
DIIs 3.0
Others 1.2
KARVY WEALTH MAXIMIZER REPORT 2019
3
Company Background
Bhai Infratel is a provider of tower and related infrastructure and on a consolidated basis, the company
is one of the largest tower infrastructure providers in India, based on the number of towers that Bhai
Infratel owns and operates and the number of towers owned or operated by Indus, that are represented
by Bhai Infratel’s 42% equity interest in Indus ,which was created as a Joint Venture among Bhai Infratel,
Vodafone and Aditya Birla Telecom to hive o the Towers business in 15 telecom circles.
The company is a pioneer in the tower infrastructure sharing concept in India with over 39,000+ towers
across 18 states, and 11 Telecom circles, with some of them in the remotest and tough terrains. The
company has also pioneered the concept of environment friendly Towers or ‘GreenTowers’ and energy
ecient methods for maintenance of these towers. Infratel has helped Telecom operators maximize their
reach in a sho period of time. Infratel is a domain within Aiel and is responsible for managing the tower
infrastructure of Aiel’s wireless business. Bhai Infratel is created as an independent tower company
to provide compelling capex saving oppounities to telecom service providers, while optimally utilising
Aiel’s large tower base.
INFRATEL: Technical View
The stock price made an all time low of 126 in June’13, wherein from it witnessed stupendous rise
towards 499.65 made in the sta of Aug’15. Aer clocking an all time high, stock entered into a
deep correction mode, which extended in time also. From the highs, prices made a swing low of
281.75 in the sta of Mar’17, wherein from price rebounded towards its all time high and where
it found resistance and again entered into a correction mode; in the last correction prices failed
to protect its previous swing low of 281.75 and moved lower. Technically, prices have a typical
behavior of respecting double booms and bouncing back; in the recent past, stock has made a
double boom near 244 levels and aempted to recover, exhibiting possibility of prices to regain
strength in sessions to come. On the weekly momentum setup, 14-pd RSI was consolidating below
40-levels from last couple of months, but in the recent pullback indicator aempted to move above
consolidation zone, which indicates prices may recover from lower levels. Going forward, stock
has impoant suppo near 230-240 levels, followed by 180-200 levels. On the higher side, stock is
likely to nd immediate resistance near 290-300 levels, followed by 325-330 moving above which
stock may move towards 380-400 mark.
KARVY WEALTH MAXIMIZER REPORT 2019
4
Bloomberg Code: HCLT IN
HCL TECHNOLOGIES LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 408082 475675 505690 601610 673306
EBITDA 87547 103844 112460 141197 157100
EBITDA Margin (%) 21.5 21.8 22.2 23.5 23.3
Adj. Net Prot 73188 86063 87210 101408 109762
EPS (Rs.) 51.9 60.1 61.4 73.7 80.2
RoE (%) - 28.3 25.2 25.8 24.3
PE (x)* 15.5 14.5 15.6 13.0 11.9
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Relative Underpeormance Gives Condence
Price reaction overdone:
Aer HCL Technologies (HCLT) announced $1.8 bn
deal to acquire 8 soware products from IBM, the largest ever deal by an Indian
IT company, markets expressed concerns about the rationale behind the deal and
punished the stock. We believe that these 8 products with a market size of $110
bn will bring in great synergies in the form of $625mn in incremental revenues in
12 months aer completion of the deal (mid-2019) and addition of more clients.
Moreover, we believe that relative underpeormance of HCLT (returned just 5%
YTD vs average YTD return of 23% recorded by Big Five IT rms and 25% YTD return
posted by BSE IT Index over the same period) prices in all the risks in the deal.
Large deal wins to suppo organic growth:
Concerns surrounding organic
growth rate seem to be faded with the announcement of four mega deals from
Broadcom, Nokia, P&G and Barclays. Organic growth rate for H1 FY19 at 7%-8%
was beer than expected and we believe that HCLT might close FY19 with an
organic growth rate of 7%-8%, much beer than 5% guided by the management.
Mode 3 achieves scale as Mode 2 gains traction:
One of the four large deals
announced recently was based on professional services related to cyber security
and DevOps. We believe that this is proof of HCLT’s capabilities and its past
investments would fuher enhance its Mode 2 revenues, thanks to its recent deals
announced, we believe Mode 3 will gain traction.
Key Catalysts for earnings re-rating in place: We believe regaining organic
growth momentum and scaling up of products and plaorms business are
key catalysts for rerating of the earnings and subsequently the stock. We
believe that the ongoing large deal momentum and maturing of IBM’s IP
panerships are giving visibility for the same. In the coming year, we expect
HCLT’s stock price to be re-rated given the rerating of earnings.
Valuation and Risks: We remain positive on the stock given its relative
underpeormance, upside risks to core organic growth and its potential to
increase Mode 2 and Mode 3 revenues. We reiterate our buy on HCLT and
value it on a consensus FY20E PE of 14.5x with a target price of Rs. 1167, an
upside of 22%.
Relative Performance*
Source: Bloomberg; *Index 100
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug
-18
Sep-18
Oct-18
Nov-18
Dec-18
HCLT
Sensex
Stock Performance (%)
1M 3M 6M 12M
Absolute (8) (12) 5 9
Relative to Sensex (9) (12) 2 2
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 958
Target Price 1167
Upside(%) 22
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 1334.6 / 19.1
52-wk High/Low (Rs.) 1125 / 875
3M Avg.daily value (Rs. Mn) 2270.0
Beta (x) 0.7
Sensex/Niy 36077 / 10860
O/S Shares(mn) 1392.6
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 60.2
FIIs 28.0
DIIs 8.1
Others 3.7
KARVY WEALTH MAXIMIZER REPORT 2019
5
Company Background
HCL Technologies is India’s fouh largest IT services company. HCL Technologies helps global enterprise
transform their businesses for the digital age through integrated pofolio of products, solutions and
services and IP. HCLT’s products are built around digital, IoT, AI, automation, infrastructure management
and engineering services. HCLT oers these services through a global network of R&D labs, innovation
labs, and delivery centers spread across 39 countries.
HCLT serves as a leading enterprise across key industries including 250 of the Foune 500 companies and
650 of the Foune 2000 companies. HCLT oers integrated pofolio of products solutions and services
and IP through Mode 1-2-3 strategy built around Digital, IoT, Cloud, Automation, Cybersecurity, Analytics,
Infrastructure management and Engineering Services to help enterprises reimagine their businesses for
the digital age.
HCLT has been the Top Employer in the UK for the past 12 consecutive years. HCL’s DRYiCE COPA
(Cognitive Orchestrated Process Autonomics) plaorm that applies AI to drive enterprise-wide process
automation and orchestration won the Best Innovation in RPA at AI Summit in San Francisco in 2017.
HCLTECH: Technical View
HCLTECH has witnessed a stellar rally from the low of 654 levels till it clocked its life time high of
1125 levels on 25th September, 2018. Thereaer, the rally took pause, on account of prot taking;
price corrected and made a low of 930.70 levels. Currently, the stock is consolidating in a range of
930-980 levels forming a base before its next rally. Among the indicators and oscillators, the 14-day
RSI is trading above its 9-day signal line on daily cha and poised with bullish bias, indicating that
stock is likely to continue its outpeormance in the coming month as well. Among other leading
indicators, parabolic SAR (Stop & Reverse) is trading below the current price on monthly cha,
suggesting an uptrend in the counter. The MACD is trading above the signal line in buy territory on
monthly cha, indicating positive momentum in the stock on medium to long term perspective.
On the downside, stock has an immediate suppo around its 52 week low of 850 levels, followed
by 760-750 levels. While on the higher side stock may nd immediate resistance near 1050-1060
levels, followed by 1125-1150 levels. From the above observation, technically the stock has potential
to surge higher towards its life time high and eventually in an unchaed territory in the coming
months.
KARVY WEALTH MAXIMIZER REPORT 2019
6
Bloomberg Code: HUVR IN
HINDUSTAN UNILEVER LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 323670 347810 393652 444298 506764
EBITDA 63400 74990 88372 103644 120773
EBITDA Margin (%) 19.6 21.6 22.4 23.3 23.8
Adj. Net Prot 44760 52140 62070 72976 85800
EPS (Rs.) 20.7 24.1 28.7 33.6 39.6
RoE (%) 66.5 74.7 82.4 90.1 90.7
PE (x)* 44.0 55.4 63.1 53.6 46.0
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Horlicks Proves to be a Drink of Health for the Health
Food Drinks Business
HUL’s acquisition of GSK Consumer garners valuation of the entity at
Rs. 317 Bn. HUL, implies a leadership in the domestic HFD (Health Food
Drinks) business along with soaps and detergent category. Given the low
penetration in the HFD category i.e. 14% in rural market and 24% in overall
domestic market, there is ample oppounity for growth which will be aided
by HUL’s strong direct distribution network (3x GSK Consumer’s). HUL’s
volume increased more than its peers, such as Dabur, Marico, BCL, etc. Post-
merger GSK Consumer will hold 5.7% in HUL with a lock in period of one year.
GSK Consumer would supposedly liquidate its shares to nance the Novais
acquisition. Synergy from the acquisition will lower HUL’s operational
expenditure, employee costs, A&P spends, and procurement costs.
Intimidating presence in premium detergents space: Channel checks have
suggested that the market share has increased for HUL in the premium
detergents space. HUL’s dominance reects the company’s solid execution
and market development eos as well.
Valuation and Risks: We believe HFD pofolio growth will accelerate, given
its strong direct distribution and pofolio innovation. In addition, signicant
cost savings are expected in FY21E, aer all synergies from the deal factor in.
To consider all benets of the acquisition, we have assigned HUL a P/E of 54x
to arrive at a TP of Rs. 2138 reecting an upside potential of 17%.
Relative Performance*
Source: Bloomberg; *Index 100
90
100
110
120
130
140
Dec-17
Jan-18
Feb-
18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
HUVR
Sensex
Stock Performance (%)
1M 3M 6M 12M
Absolute 5 13 14 35
Relative to Sensex 4 14 10 26
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 1822
Target Price 2138
Upside(%) 17
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 3944.1 / 56.4
52-wk High/Low (Rs.) 1871 / 1281
3M Avg.daily value (Rs. Mn) 2853.1
Beta (x) 0.8
Sensex/Niy 36077 / 10860
O/S Shares(mn) 2164.6
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 67.2
FIIs 12.1
DIIs 7.3
Others 13.4
KARVY WEALTH MAXIMIZER REPORT 2019
7
Company Background
Hindustan Unilever Limited (HUL) is India’s largest Fast Moving Consumer Goods company with a
heritage of over 80 years in India. In 1931, Unilever set up its rst Indian subsidiary, Hindustan Vanaspati
Manufacturing Company, followed by Lever Brothers India Limited (1933) and United Traders Limited
(1935). These three companies merged to form HUL in November 1956; HUL oered 10% of its equity to
the Indian public, being the rst among the foreign subsidiaries to do so. Unilever now holds 67.25% equity
in the company. The rest of the shareholding is distributed among about 3 lakh individual shareholders
and nancial institutions. With over 35 brands spanning 20 distinct categories such as soaps, detergents,
shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coee, packaged foods, ice cream, and
water puriers, the Company is a pa of the everyday life of millions of consumers across India. Its
pofolio includes leading household brands such as Lux, Lifebuoy, Su Excel, Rin, Wheel, Fair & Lovely,
Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr,
Kissan, Kwality Wall’s and Pureit.
HINDUNILVR: Technical View
HINDUNILVR is in uptrend and making higher highs and higher lows on weekly chas. The historical
price action in the stock reects that, any meaningful dip in the stock may aract market paicipants
which will help stock to resume its up move. Currently, the stock is trading near its all time high and
seen prot bookings from its all time high levels of 1869.50 levels which has placed the stock to the
low of 1741.25 levels. Thereaer, the stock has bounced from the said lower levels with suppoive
volume formation on daily chas which suggests that the strong hands are accumulating the stock
at higher levels. Prior to that, the stock has seen sharp cut from the high of 1808 levels which has
placed the stock near its 200 DEMA on daily chas. The bounce from the 200 DEMA has seen
suppoive volume formation which again reects uptrend in the stock will remain intact. The stock
is trading above all its major moving averages on daily chas which indicates strength in the stock.
On technical setup, the 14 period RSI is pointing nohwards indicates strength in the stock. The
parabolic SAR is trading below the price on weekly chas which indicates uptrend in the stock will
remain intact.
KARVY WEALTH MAXIMIZER REPORT 2019
8
Bloomberg Code: ICICIBC IN
ICICI BANK LIMITED
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Interest Income 212240 217373 230258 271994 328055
Net Prot 97263 98011 67774 40575 149645
EPS (Rs.) 15.0 15.0 11.0 6.0 23.0
BVPS (Rs.) 140 156 164 169 188
P/E (x)* 20.7 20.6 29.9 49.9 13.5
P/BV (x)* 1.7 1.5 1.4 1.4 1.2
RoE (%) 11.4 10.3 6.6 3.8 13.1
RoA (%) 1.6 1.4 0.9 0.5 1.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Recovery and Stability at the Core
The peormance continues to underlie the traction in recovery & stability in the
core operating metrics. Headline loan growth numbers showed improvement as
the quaer saw lesser drag from stressed book and the healthy pa continues
to grow. Margins showed sharp sequential uptick (14 bps QoQ) aided by multiple
factors and the outlook remains positive. Core fee income growth too held on to
the improved growth trajectory.
Loan Growth:
The loan book (Rs. 5.5 trillion) growth for the quaer was healthy
and broadly in line with the expectation at 5.5%/12.8% QoQ/YoY. The same was
well diversied across the segments: Retail (5.0%/20.5% QoQ/YoY, 57.3% of
loan mix), SME (5.8%/21.8% QoQ/YoY, 4.6% of loan mix), Domestic Corporate
(5.2%/5.3% QoQ/YoY, 25.4% of loan mix), and Overseas (7.1%/-4.0% QoQ/YoY,
12.7% of loan mix). The growth in overseas is more optical as the same reects
the positive impact of rupee depreciation. The growth in retail was diversied
largely across the products and gives us condence on the hold on asset quality at
the granular level. While the headline loan growth in the domestic corporate was
muted at 5.3% YoY, the underlying growth in the non-stress book was healthy at
~15%. With big ticket resolutions expected over 2HFY19E, we expect the headline
reading on domestic corporate to remain weak. We have revised our FY19E/FY20E
growth estimates by 13.4%/18.0% (earlier 10.8%/16.7%).
Stable Asset quality:
The headline asset quality ratios GNPA/NNPA/Coverage
improved to 8.54%/3.65%/59.5% vs 8.81%/4.19%/54.8% in Q2FY19. The retail
slippages were at ~Rs. 8 bn vs ~Rs. 11 bn in Q2FY19, which continue to inspire
condence. Of the ~Rs. 24 bn corporate slippage (Rs. 29 bn in Q2FY19), Rs. 13.0 bn
were due to impact of exchange rate movement. The quaer also held a positive
surprise on ~Rs. 18 bn of a steel account upgrade from the bank’s stress list. Fuher
the bank’s exposure to IL&FS is limited at ~Rs. 9.0 bn. We expect credit costs to be
at 3.1%/0.9% in FY19E/FY20E.
Valuation and Risks: We maintain “BUY” on the stock with target price at
Rs. 440 valuing subsidiaries at Rs. 101 per share and core banking book at 2.3x
FY20E P/B.
Relative Performance*
Source: Bloomberg; *Index 100
Stock Performance (%)
1M 3M 6M 12M
Absolute 0 18 33 14
Relative to Sensex (1) 19 29 7
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 361
Target Price 440
Upside(%) 22
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 2323.4 / 33.2
52-wk High/Low (Rs.) 375 / 257
3M Avg.daily value (Rs. Mn) 8010.3
Beta (x) 1.4
Sensex/Niy 36077 / 10860
O/S Shares(mn) 6440.4
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 0.0
FIIs 45.3
DIIs 44.2
Others 14.5
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
ICICIBC
Sensex
KARVY WEALTH MAXIMIZER REPORT 2019
9
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 oers 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 oerings as well as other online investment
services. It also provides farmer nance, tractor loans, and micro-banking services as well as other services to
agro-traders and processors and agro corporate. Fuher, it provides pofolio 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 sector as the stock is in secular
uptrend, making higher highs and higher lows on all cha frames. In the calendar year 2018, the
stock has generated over 15% of returns and has outpeormed its broader index Niy Bank and
even Niy 50 for the same time frame. On daily cha, the stock is placed above all its major moving
averages indicating inherent strength in the counter and even it is trading near to its all time high
levels. As far as technical setup is concerned, the 14 period RSI is placed in a comfo zone of 60-
63 levels on weekly cha suggesting fuher potential in the counter. On oscillator front, the stock
is placed above the mean of the Bollinger band and is heading towards the upper band on weekly
cha frame arming the bullish view in the counter; 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 in small quantities on every dip towards the immediate
suppo zone of 340 levels for the immediate upside of 375 levels, which is also its all time high
breaching which the stock might surge fuher in the unchaed territory towards 408-410 levels
as per price extension on technical cha.
KARVY WEALTH MAXIMIZER REPORT 2019
10
Bloomberg Code: LT IN
LARSEN & TOUBRO LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 1000328 1076365 1179081 1377648 1551471
EBITDA 104571 110732 195911 166052 191154
EBITDA Margin (%) 10.5 10.3 16.6 12.1 12.3
Adj. Net Prot 41933 60287 87892 88390 100842
EPS (Rs.) 29.9 43.0 62.6 63.3 72.4
RoE (%) 9.9 12.9 13.9 15.0 15.6
PE (x)* 29.0 31.5 28.0 22.7 19.9
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Eight Decades of Leading the Change
Robust order book, traction in infrastructure segment: L&T’s outstanding
order book at the end of Sep 2018 stood at Rs. 2812 Bn (9% growth Vs H1FY18)
from diversied sectors while the order inow for Q2FY19 stood at Rs. 419
Bn (46% growth Vs Q2FY18). Order inow is mainly due to strong tendering
activity in domestic market. Although the private sector investment remains
subdued, public sector continues to drive the order inow. Infrastructure
segment constitutes for 77.6% of the order book and 54.8% of its new order
inow during Q2FY19. Current outstanding order book is dominated by
domestic orders with 78% contribution followed by Middle East with 13%.
Financial peormance: Robust order book reects its proven leadership in the
infrastructure & engineering segments and gives revenue visibility. While the
consensus estimates a slowdown in ordering activity due to the scheduled
general elections, they remain optimistic about the execution momentum.
Consensus estimates revenue CAGR of 14% & earnings CAGR of 18% during
FY18-20E along with a healthy EBITDA margin of ~12% by FY20E.
Five-year strategic plan ‘Lakshya’ in place: LT 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. Successful implementation of the
strategic plan should ensure healthy operational growth for LT.
Buyback: L&T announced a share buyback of up to 6 crore equity shares at a
maximum price of Rs.1500/ share for aggregate amount of Rs. 9000 crore.
Metro: Entire corridor 1 of the Hyderabad metro became operational and the
company is planning to open another stage of the metro in FY19, taking the
total operations to 56 km.
Valuation and Risks: L&T’s diversied exposure to various sectors/
geographies coupled with its excellent execution capabilities
across sectors and its balance sheet strength compared to other
peers in the sector has resulted in strong order book build up.
The consensus values the company at 23.5x for a target price of
Rs. 1700, representing an upside potential of 18%. Delay in capex cycle
recovery & order execution may pose threat to the call.
Relative Performance*
Source: Bloomberg; *Index 100
Stock Performance (%)
1M 3M 6M 12M
Absolute 3 13 17 15
Relative to Sensex 2 14 13 8
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 1439
Target Price 1700
Upside(%) 18
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 2018.0 / 28.9
52-wk High/Low (Rs.) 1470 / 1183
3M Avg.daily value (Rs. Mn) 3407.0
Beta (x) 1.1
Sensex/Niy 36077 / 10860
O/S Shares(mn) 1401.9
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 0.0
FIIs 18.9
DIIs 38.3
Others 42.8
90
100
110
120
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
LT
Sensex
KARVY WEALTH MAXIMIZER REPORT 2019
11
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 veically 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 paner resulting in repeat orders from the clients. L&T has strong presence
in Infrastructure, Power, Metallurgical-material handling, Heavy Engineering, Electrical & Automation,
Hydrocarbon, Development projects, IT, Financial services and others. It undeakes developmental
projects like Buildings & Factories, Transpoation 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 witnessed a stellar rally from the low of 645.50 levels till it clocked its life time high of 1459.70
levels on 21st December 2018. Adding to that, the stock is trading well above its 21/50/100/200
DEMA with positive price structure indicating the positive momentum in the stock is likely to
continue in the coming month also. Among the indicators and oscillators front, 14 periods RSI is
pointing nohwards and poised with bullish bias, clearly indicating the bullish trend in the stock
is likely to continue and the counter is expected to head higher in the near to medium term. The
parabolic SAR (Stop & Reverse) is comfoably trading below the price on daily as well as on weekly
cha, which reects buying will remain intact in the counter. The MACD is trading above the signal
line in buy territory on weekly cha, suggesting strength in up move. The immediate suppo for
the stock is placed around 1340-1300 levels followed by 1180-1150 levels, while on the higher side,
the stock may face resistance near 1600-1650 levels followed by 1850-1900 levels. From the above
observations, it is evident that stock is likely to surge higher and outpeorm its peers in the near
to medium term perspective.
KARVY WEALTH MAXIMIZER REPORT 2019
12
Bloomberg Code: ONGC IN
OIL & NATURAL GAS CORP LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 1348162 3232749 3598789 4136673 4213822
EBITDA 405143 529583 574770 785366 796468
EBITDA Margin (%) 30.1 16.4 16 19 18.9
Adj. Net Prot 180600 240823 223602 324041 330703
EPS (Rs.) 9.4 18.8 17.4 24.9 25.7
RoE (%) 6.8 12.5 11.1 14.8 13.7
PE (x)* 21.4 11.4 10.3 6.0 5.8
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Impressive Peormance
Oil and Natural Gas Corporation in FY18 recorded standalone revenue of
Rs. 850041 Mn, up 9% over FY17 on the back of impressive production and
sales peormances. Crude oil production on standalone basis increased to
22.31 MMT recording aish growth of 0.3%. Natural gas production rose to
23.48 BCM registering an impressive growth of 6%. Domestic hydrocarbon
volumes at 50.05 MMtoe registered 3% growth. Production of value added
products at 3.39 MMT increased 4.6% over FY17. The company realized $
7.33/barrel for crude oil sold in domestic market.
Beer Business Synergy: The acquisition of majority stake (51.11%) in
Hindustan Petroleum Corporation Limited provides synergy in terms of
low crude procurement cost for both HPCL and Mangalore renery &
Petrochemicals Limited (71.63% owned by ONGC and 16.96% by HPCL). In
event of decline in crude oil price, ONGC upstream margin could be oset
by an increase in rening margin of HPCL. Thus, acquisitions of these entities
help protect margins of each other thereby neutralizing erratic movements
in crude price.
Upcoming Gas Projects: The company completed 17 projects during last 4
years contributing over 6 MMtoe of oil & gas supplies. Ramp-up in gas output
is expected from key projects such as KG-DWN-98/2, Daman and Vashishta
elds whereas Western Oshore redevelopment projects will add to oil
production.
Transparent Pricing: ONGC’s crude subsidy burden has signicantly eased
following downstream sector reforms. Domestic gas price is now linked
to prices in international hubs (US Henry Hub, UK NBP, Albea and Russia),
which is revised every 6 months. We believe, ONGC will continue to benet
from benign subsidy environment and its net realization will now closely track
oil price.
Valuation and Risks: Synergies in ONGC’s upstream and downstream
business with the acquisitions of HPCL and MRPL will prove to be value
unlocking and ensure not only retention of margin but also enhancement of
the same for the company. Consensus valuation for the company is PE 8.2x
of FY20E EPS for the target price of Rs. 210 with upside potential of 39%.
Relative Performance*
Source: Bloomberg; *Index 100
Stock Performance (%)
1M 3M 6M 12M
Absolute 5 (15) (2) (22)
Relative to Sensex 4 (15) (5) (27)
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 151
Target Price 210
Upside(%) 39
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 1931.4 / 27.6
52-wk High/Low (Rs.) 213 / 135
3M Avg.daily value (Rs. Mn) 1781.9
Beta (x) 0.9
Sensex/Niy 36077 / 10860
O/S Shares(mn) 12833.2
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 67.5
FIIs 5.8
DIIs 13.3
Others 13.4
70
80
90
100
110
120
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug
-18
Sep-18
Oct-18
Nov-18
Dec-18
ONGC
Sensex
KARVY WEALTH MAXIMIZER REPORT 2019
13
Company Background
Oil and Natural Gas Corporation with ‘Maharatna’ status, is World’s No. 1 Exploration & Production company
and ranks 11 among global energy majors. In Forbes Global 2000 list 2018, ONGC ranked 3rd largest in
India and 246th worldwide. ONGC group companies comprises of ONGC Videsh Limited (having 41 oil
and gas projects in 20 countries), Hindustan Petroleum Corporation Limited (having 15000 retail outlets
and pipeline network of 3370 kms), Manglaore Renery & Petrochemicals Limited, ONGC Petro additions
Limited (OPaL) and ONGC Mangalore Petrochemicals Limited (OMPL). ONGC is the fully integrated oil
and gas company in India, operating along the entire hydrocarbon. The company has established 8.70
billion tonnes of hydrocarbon reserves. The company holds the largest share of hydrocarbon acreages in
India (61% in Petroleum Exploration Licence (PEL) Areas & 81% in Mining Lease (ML) Areas). The company
produces over 1.26 million barrels of oil equivalent per day, contributing around 70% of India’s domestic
production. Of this 75% of crude oil produced is Light & Sweet.
ONGC: Technical View
ONGC has bounced well aer nding suppo around 134 levels. The immediate trend in the stock
reects lower lows and lower highs on daily chas. Prior to that, the stock has seen sharp fall from
its swing high of 212.85 levels which has dragged the stock to the low of 134.75 levels. The fall in the
stock has placed the stock below all its major moving averages and trading well below the same.
The recent bounce in the stock from the suppo of 134 levels and sustainability above this level will
be a fresh trigger for the stock which indicates near term boom in the stock is placed and stock
is expected to resume its up move in medium term. The historical price action in the stock also
reects that any meaningful dip in the stock may aract market paicipants which will help the
stock resume its upward movement. On technical setup, the 14 period RSI is pointing nohwards
indicates strength in the stock. The immediate suppo is placed around 134 levels and below that
is 120 levels. Whereas, the resistance is placed around 165 levels and above that at 185 levels.
KARVY WEALTH MAXIMIZER REPORT 2019
14
Bloomberg Code: SBIN IN
STATE BANK OF INDIA LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 775929 813367 823828 928742 1045000
EBITDA 122246 2412 (45563) 92244 276531
EBITDA Margin (%) 15.9 0.3 (5.3) 11.1 28.5
Adj. Net Prot 232.6 272.4 258.0 241.5 262.7
EPS (Rs.) 12.2 946.4 0.0 24.5 9.5
RoE (%) 0.8 1.0 0.9 1.1 1.0
PE (x)* 0.5 0.4 (0.2) 0.3 0.7
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
SBI: On the Road to Recovery
Improvement in protability: SBI repoed positive earnings for Q2FY19.
SBI repoed PAT of Rs. 9.4 bn aer three consecutive quaers of losses
on back of Rs. 15.6 bn gains from stake sale in SBI General Insurance and
merchant acquiring business. Domestic NIM increased 29 bps YoY to 2.88%
in Q2FY19. Global NIMs expanded to 2.73% in this quaer. On sequential
basis, net advances increased to 8.5%. Deposits growth came at 7% YoY
at Rs. 28.07 lakh cr, increased by 2.2% sequentially. NII grew 12.5% YoY to
Rs. 20906 cr led by loan growth.
Reduction in slippages: The GNPAs improved as it got lowered 74 bps
sequentially to 9.95%. i.e. it lowered approx. 3.3% QoQ to approx. Rs 2.06 tn.
This downtrend is likely to continue. This GNPA was due to lower slippages
(Rs. 109 bn), even though there was a sharp drop in overall reductions
(Rs. 178 bn, down by ~28%). Across segments, slippages were lower but
SME slippages doubled QoQ (Rs. 38.3 bn) despite the bank availing the
RBI dispensation of Rs 5.1 bn. Corporate slippages lowered quarterly to
Rs. 31.9 bn (-14% QoQ) incl. slippages of ~Rs. 23.9 bn from the watch list.
Growth in various nancial vectors: Management commented that advance
growth will be at 10% YoY in FY19E. NIM may reach to 3% as per management’s
comment. Domestic credit growth was at 11% YoY. Retail credit increased by
14.3% YoY to Rs. 5.79 lakh crores in Q2FY19. Home loans grew by 14.26% YoY
to Rs. 3.14 lakh crore. Advances to large corporates increased by 14% YoY to
Rs. 7.45 lakh crore.
Valuation and Risks: SBI with its focus on reducing NPAs and fresh slippages
augur well in the long term. We value the stock at 1.3x FY20 BVPS with a “BUY”
rating for a target price of Rs. 347. Risks are IL&FS exposure and slippages
outside the watch list.
Relative Performance*
Source: Bloomberg; *Index 100
Stock Performance (%)
1M 3M 6M 12M
Absolute 4 11 15 (4)
Relative to Sensex 3 11 11 (10)
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 295
Target Price 347
Upside(%) 18
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 2631.0 / 37.6
52-wk High/Low (Rs.) 335 / 232
3M Avg.daily value (Rs. Mn) 6738.0
Beta (x) 1.5
Sensex/Niy 36077 / 10860
O/S Shares(mn) 8924.6
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 58.9
FIIs 11.2
DIIs 22.3
Others 7.6
70
80
90
100
110
120
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
SBIN
Sensex
KARVY WEALTH MAXIMIZER REPORT 2019
15
Company Background
State Bank of India is India’s largest bank oering personal banking, agricultural banking, corporate banking
and NRI banking with a consolidated balance sheet close to Rs. 36.2 lakh crore (Rs. 36.2 Tn). SBI employs
over 264,041 employees and operates through a network of 22414 branches and has one of the largest
ATM networks in the world with 59541 ATMs including Cash Deposit Machines and Recyclers serving over
424 Mn customers. SBI, along with its merged subsidiaries provides various services like deposits, retail
loans for Home, Automobile, Education, other Personal and Corporate loans. SBI has various non-banking
subsidiaries: SBI Life Insurance Company, SBI Capital Markets, SBI Funds Management and SBI Cards &
Payments.
SBIN: Technical View
SBIN has gained more than 11% during the third quaer of 2019 Financial Year and is one of the
stocks in Bank Niy index which has gained for the month of December 2018. The stock is currently
trading well above its all major moving averages like 50, 100, and 200 days moving averages. Even
on the weekly chas also, the stock is trading well above its all major moving averages, conrming
the uptrend. However, on a broader trend, the stock is stuck in the range of 245-325 levels over
last few quaers. The overall cha structure of the stock indicates that though the stock is stuck
in the broader range, the volumes, momentum and magnitude suggest the bulls are having strong
grip on the counter. The stock has good suppo around Rs. 255-250 levels below which the next
levels of meaningful suppo lie around Rs. 230-225 levels. As far as the technical setup of the
stock is concerned, the ADX is clearly indicating that the stock is gaining strength of its current up
move and a similar picture is being painted by the RSI which is trading around 57 on weekly chas.
Investors with a medium term horizon can sta accumulating the stock in bits and pas with a
provision to add more on dips towards 250 levels and may hold with a stop loss placed below Rs.
230 on a closing basis for potential upside technical targets of Rs. 330-350 in the next few quaers.
KARVY WEALTH MAXIMIZER REPORT 2019
16
Bloomberg Code: TTMT IN
TATA MOTORS LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 2673201 2639995 2910930 3176151 3490468
EBITDA 371520 344314 351842 329936 418515
EBITDA Margin (%) 13.9 13.0 12.1 10.4 12.0
Adj. Net Prot 107498 79842 83290 30217 77859
EPS (Rs.) 32.0 23.0 25.7 8.8 22.9
RoE (%) 17.1 10.9 12.3 3.2 7.7
PE (x)* 12.2 19.8 12.7 19.4 7.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
To Overcome Near Term Challenges
Despite the near term pressure on margins due to slowdown in luxury
car demand, we think that the management’s focus on improving core
protability will help recover from the stress. Also, new vehicle launches lined
up during the next 2 years including that of the EV plaorm is expected to
drive volume growth. Increased focus on the LCV and utility vehicle segment
has led TTMT’s domestic market share to improve considerably during
YTDFY19. Though we are not worried about the domestic business but for the
irregularities in the JLR business. We expect JLR business to get streamlined
during FY20E.
JLR business to revive on the back of new launches:
JLR’s business was
impacted by lower volume due to disruption in the Chinese market while other
markets such as UK and Europe have done fairly beer. Inventory destocking and
higher discounts led to a decline in the overall protability. However, new models in
the hybrid segment are expected to be launched under the JLR cap which we think
will be helpful in reviving demand.
Cost measures to ll the protability gap:
The company has evaluated several
measures to maintain operating costs at lower levels where the entire business
will be restructured to achieve higher operating margin. Some of the parameters
include modular architecture, procurement, in-house engineering to simulate
product design changes and overall business consolidation.
Valuation and Risks: Aer the recent correction in the stock, we
think that TTMT is available at cheap valuation. We expect steady
recovery in the JLR business and think that cost reduction measures
being taken will work in favour of the company. TATA Motors is valued
on SOTP basis based on consensus estimates for a target price of
Rs. 259 having an upside of 51%. However, unceainties in the JLR business
continue to be the downside risk to our call.
Relative Performance*
Source: Bloomberg; *Index 100
Stock Performance (%)
1M 3M 6M 12M
Absolute (2) (24) (35) (59)
Relative to Sensex (3) (23) (37) (62)
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 171
Target Price 259
Upside(%) 51
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 540.1 / 7.7
52-wk High/Low (Rs.) 444 / 155
3M Avg.daily value (Rs. Mn) 3528.8
Beta (x) 1.3
Sensex/Niy 36077 / 10860
O/S Shares(mn) 2887.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 37.3
FIIs 18.8
DIIs 17.2
Others 26.7
30
60
90
120
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
TTMT
Sensex
KARVY WEALTH MAXIMIZER REPORT 2019
17
Company Background
Tata Motors Group is an automobile manufacturer with a pofolio that includes a wide range of cars,
spos vehicles, trucks, buses and defence vehicles spread across 175 countries around the globe. TATA
Motor’s Jaguar Land Rover Automotive PLC is the holding company of Jaguar Land Rover Limited, a British
multinational automobile company with its headquaers in Coventry United Kingdom. Models under
the Jaguar series include XF, XJ, F-Pace, XE etc. and models under the Land Rover series are Defender,
Discovery and Range Rover (RR) series having more prominence in the UK, Europe, Noh American and
Chinese regions.
TATAMOTORS: Technical View
TATAMOTORS is in secular downtrend and is in the cycle of making lower tops and lower booms
from the highs of 598.40 levels and is currently trading in a truncated trading zone of 160-180
levels. The stock is placed below all its major moving averages on daily cha. However at current
juncture, the stock is trading in a narrow range having immediate suppo placed around 150-154
levels, which is also the multiple suppo for the counter on weekly cha followed by its multiyear
suppo of 135-140 levels sustaining which the stock is expected to surge higher close to its
immediate resistance of the unlled gap placed around 205-208 levels. As far as the technical
setup of the stock is concerned, the ADX is clearly indicating that the stock is gaining strength
at current scenario and the bulls are trying to ght hard against the bears. Even the weekly RSI
depicts the same kind of view as it is placed near to the oversold region suggesting the stock to
be boomed out soon and a reversal in the trend can be witnessed. Tata Motors being one of the
underpeormers from the auto sector in the FY18 is expected to peorm in FY19. Hence, investors
with medium to long tern time horizon can sta accumulating the stock in small quantities on every
dip towards the immediate suppo zone for the potential upside of 205-208 levels, breaching
which the stock might surge fuher towards 225-230 levels.
KARVY WEALTH MAXIMIZER REPORT 2019
18
Bloomberg Code: UPLL IN
UPL LTD
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Sales 160750 171410 194041 273652 289361
EBITDA 29850 35050 40017 57542 62786
EBITDA Margin (%) 18.6 20.4 20.6 21.0 21.7
Adj. Net Prot 17270 20220 22456 26854 32005
EPS (Rs.) 34.1 39.8 44.9 53.8 62.8
RoE (%) 28.4 23.2 22.5 21.8 21.6
PE (x)* 21.3 18.4 16.7 14.2 12.1
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
Traction in Latin American Business has kept Growth
Stable
Growth in India and LATAM jointly contribute to ~66% of total sales. Products
like Sweep Power, Avancer Glow and Delma received encouraging response
from the farmers in India Business, despite erratic business. H2FY19 is
expected to be encouraging with higher reservoir levels than last year.
Except for Argentina, LATAM growth has remained healthy for the recent
quaer at 25.8% YoY. The inventory position in LATAM is below normal with
healthy order book, coupled with the benets accruing from the US-China
trade war. UPL posted stable volume growth of 8% YoY for Q2FY19, driven by
robust peormance across India, LATAM and Africa. Beer realization and
favourable currency movement resulted in a 14% YoY growth in net revenue
to Rs 42.5 bn. Management has re-iterated its revenue growth guidance for
FY19E at 10-12%. UPL is well-positioned to post stronger growth in 2HFY19,
driven by beer farmer sentiments following the recent MSP hike (which
would increase agri spends by farmers),pick-up in demand amid beer
monsoon and healthy peormance of the new and existing product pofolio
in key crops like Coon, Soybean and Sugar beet.
Positive Synergies from UPL-Arysta Life Sciences Acquisition continue: The
acquisition will enhance UPL’s position as a global leader in the agricultural
solutions. Through this, it intends to nd market oppounities in emerging
markets like Asia, Latin America and Europe. The consolidation in the industry
is driven towards giving crop solutions to farmers. UPL has been investing
in the same from the last few years to improve their ability to ght climate
change. Globally, Arysta is 4th in seed treatment while being 7th/8th in seed
treatment solutions. Arysta also has an alliance with Japanese manufacturers
who have access to several patented and new molecules which would bring
in new value to UPL. Strong backward integration, consolidation in the
agrochemical space with a boost to geographical/ segment/ product mix
would give strong traction to the business and aid protability.
Valuation and Risks: Factoring in strong backward integration, consolidation
in the agrochemical space with a boost to geographical/ segment/ product
mix and strong traction in LATAM business, at CMP Rs. 758, as per consensus
estimates, we recommend ‘BUY’ for a target of Rs. 1004 valuing at 5 year average
historical PE of 16x on FY21E EPS representing an upside potential of 32%.
Relative Performance*
Source: Bloomberg; *Index 100
Stock Performance (%)
1M 3M 6M 12M
Absolute (2) 14 25 (1)
Relative to Sensex (3) 15 21 (7)
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 758
Target Price 1004
Upside(%) 32
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 386.2 / 5.5
52-wk High/Low (Rs.) 830 / 537
3M Avg.daily value (Rs. Mn) 1559.4
Beta (x) 1.2
Sensex/Niy 36077 / 10860
O/S Shares(mn) 509.3
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 27.9
FIIs 42.4
DIIs 8.6
Others 2 1.1
60
80
100
120
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
UPLL
Sensex
KARVY WEALTH MAXIMIZER REPORT 2019
19
Company Background
United Phosphorous Ltd (UPL) is the largest producer of agrochemicals in India. The company produces
and expos o-patent crop protection products, other industrial chemicals. Incorporated in the year
1969, UPL is among the top ve post–patent agrochemical manufacturers in the world and is present
across 123 countries. It oers wide range of products and has developed more than 100 insecticides,
fumigants, rodenticides, fungicides, herbicides, specialty chemicals, industry chemicals and chloroalkaline
products. All the units of UPL are ceied under the ISO 9001 for quality assurance, 14001 for Environment
Pollution Control norms and OHSAS 18001 for healthy and safety. UPL also manufactures Caustic
Chlorine, White Phosphorus, Industrial Chemicals and Specialty Chemicals. It also has captive power plant
that has a generating capacity of 48.5 MW i.e. BEIL (Bharuch Enviro Infrastructure). BEIL is engaged in
collection and disposing o solid/hazardous wastes from member industries in the regions. CEL (Chemo
Electronic Laboratory) is pa of UPL’s diversication strategy. It is one of the largest manufacturers of
toxic gas detection devices and is the only manufacturer of chemical detector tubes in India. ETL (Enviro
Technology) has a common euent treatment plant in Gujarat. Recently, it acquired a seed treatment/
solutions company called Arysta Life Sciences in a 4.2 Bn deal.
UPL: Technical View
UPL stock price clocked an all time high of 902.50 in the sta of Aug’17, post which it entered into
a correction mode, and continued to dri lower till July 18, almost a year long price correction,
wherein prices retraced its key Golden Fibonacci Ratio by placing a swing low of 537, post which
it witnessed gradual recovery towards 790 levels in last couple of months. Technically, prices
managed to recover from the lows and formed higher-high and higher low in the recent recovery,
also prices moved above its major 200-DEMA (706) and from last two months it is sustaining
above that, also it is holding above its 21 & 50-DEMA which is currently placed near 753 & 733 levels
respectively. On the weekly momentum setup, 14-pd RSI aer testing oversold territory, moved
back in bullish territory, and it is also reected on daily time frame cha where indicator managed
to oat above 40-levels from last many sessions, regaining underlying strength in the counter.
Going forward, stock has impoant suppo near 700-710 levels, followed by 580-600 levels. On
the higher side, stock is likely to nd immediate resistance near 800-830 levels followed by 890-
910 moving above which stock will enter into an unchaed territory towards 960-990 mark.
KARVY WEALTH MAXIMIZER REPORT 2019
20
Bloomberg Code: YES IN
YES BANK LTD
Odds In favour of Yes
The bank’s Q2FY19 peormance disappointed on asset quality
notwithstanding the healthy business momentum. The slippages were much
higher than anticipated neveheless the miss was led by concentrated
exposure and the bank continues to see good possibility of recovery.
Additional disclosure on asset quality peaining to lower SMA2 accounts
(> Rs. 50 mln at 0.15%) and no exposure to IL&FS at the parent level should
somewhat balance out the negative on slippages. Business momentum remained
healthy with advances led by across the segments. NIMs surprised on the positive
and held stable notwithstanding high consumption. The outpeormance on NIMs
vis-a-vis retail peers could be explained by much higher propoion of variable book
and quite less pressure on retail book. The bank has lowered its branch expansion
targets neveheless we see past investments sucing to maintain the granular
momentum in the medium term. Factoring in higher treasury losses, lower loan
growth and a similar peormance on divergences as it was last year, we estimate
ROEs to be at ~16%/18% in FY19E/FY20E.
Outpeormance on margins:
The NIMs were stable QoQ at 3.3% notwithstanding
high capital consumption as against our expectation of a sequential decline. We
believe the outpeormance as against the retail peers is led by higher propoion
of variable book and less competitive pressure on retail book.
Loan growth remains strong: We expect loan growth to remain healthy
(~20/25%) not withstanding capital and transition issue. The loan growth for
the quaer was quite strong at 12%/61% QoQ/ YoY. The same was led by the
business banking, 9.5%/57% QoQ/ YoY and corporate banking, 12.6%/63%
QoQ/ YoY. Within the business banking the most granular of the segment,
Retail Banking, continues to show the strongest momentum at 14%/102%
QoQ/ YoY. We expect some pressure on growth because of constrained
capital to be led by corporate banking leading to a positive shi in the loan
book mix towards business banking. We estimate loan growth at 25%/21%
FY19E/FY20E.
Valuation and Risks: We rate “BUY” on the stock with a Target Price of Rs.
410 valuing the stock at 2.67x FY20E P/B. We believe that unceainties about
its top management and asset-quality issues will remain a cloud on the stock
price in the near term.
Relative Performance*
Source: Bloomberg; *Index 100
Stock Performance (%)
1M 3M 6M 12M
Absolute 12 (1) (45) (42)
Relative to Sensex 11 (1) (46) (46)
Source: Bloomberg
Recommendation (Rs.)
CMP
(as on Dec 28, 2018) 181
Target Price 410
Upside(%) 127
Stock information
Mkt Cap (Rs.Bn/US$ Bn) 419.5 / 6.0
52-wk High/Low (Rs.) 404 / 147
3M Avg.daily value (Rs. Mn) 12779.9
Beta (x) 1.4
Sensex/Niy 36077 / 10860
O/S Shares(mn) 2312.0
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 19.9
FIIs 39.6
DIIs 22.9
Others 17.6
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug -18
Sep-18
Oct-18
Nov-18
Dec-18
YES
Sensex
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17
FY18 FY19E FY20E
Net Interest Income 45667 57973 77371 99294 113656
Net Prot 25394 33301 42246 43745 58762
EPS (Rs.) 12.0 15.0 18.0 19.0 26.0
BVPS (Rs.) 66 97 112 130 154
P/E (x)* 16.4 13.6 10.8 10.4 7.8
P/BV (x)* 3.0 2.1 1.8 1.5 1.3
RoE (%) 19.9 18.6 17.7 15.7 18.0
RoA (%) 1.8 1.9 1.7 1.3 1.4
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 - FY18 are based on historic market price
KARVY WEALTH MAXIMIZER REPORT 2019
21
Company Background
Yes bank is a private bank set-up in 2004. Over the years, the bank’s strong business growth, healthy net
interest margins, stable protability, healthy capitalization have made it one of the top ve private sector
banks in India. It has steadily built a Corporate, Retail & SME banking franchise, with a comprehensive
product suite of Financial Markets, Investment Banking, Corporate Finance, Branch Banking, Business and
Transaction Banking, and Wealth Management business across the country. Its Treasury segment includes
investments and nancial market activities such as trading, maintenance of reserve requirements and
resource mobilization. The Corporate/Wholesale Banking includes lending, deposit taking and other
services oered to corporate customers. The Retail Banking includes lending, deposit taking and other
services oered to retail customers. The Other Banking Operations segment includes Para banking
activities, such as third pay product distribution and merchant banking among others. Yes bank has
adopted knowledge driven approach to oer nancial solutions, which go beyond the traditional realm
of banking.
YESBANK: Technical View
YESBANK witnessed a huge correction from the higher levels of 404 towards 146 levels within a
sho time frame of around 4 months. The stock is trading far from the major moving averages and
is trading near the major suppo area of 150-160 levels and formed a good base around the same
levels from past few weeks. The stock has been in the sideways consolidation mode from past few
weeks and witnessed reasonable volumes indicating strong hands have staed accumulating the
stock at current levels aer the recent correction. At the current juncture, the stock is indicating a
bullish divergence as seen with its momentum indicators and is looking bullish. The stock is poised
to surge higher towards 280 plus levels with 14 days RSI ploing comfoably around 45-50 levels
suggesting positivity in the counter. On the shoer time frame, the stock will enter into bullish
trajectory once the price breached its immediate resistance level of 195 followed by 205 levels. On
the ip side, the next best suppo for the counter is placed around 145-150 which may be utilized
as a good accumulating oppounity for the long-term period. On the overall front, we expect
the stock to gradually move nohwards in the next few months and may continue to trade with
positive bias. Long-term investors may buy the stock at current levels and accumulate more if the
stock dips towards the suppo zones.
KARVY WEALTH MAXIMIZER REPORT 2019
22
Wealth Maximizer - Largecap (WM) is an investment product of Karvy Stock Broking
Ltd formulated by our Equity Fundamental & Technical Research, based on Techno-Funda
Analysis. It enlists 10 stocks from the Karvy Large-cap stock universe.
The objective of ‘Wealth Maximizer’ is to deliver superior returns over an extended time
frame. The investment philosophy works on simple but superior fundamental research.
The 10 large cap companies detailed in this product in our opinion, reect superior
businesses with consistent future cash ows, operating eciency and growth potential.
We also track sho-term price distoions that create long-term value, driven by sound
economic fundamentals of the company. This reects that stocks that have margin of
safety will converge to their intrinsic value over a period of time and will reect superior
returns.
This is also a pa of managing the overall risk, the objective is to aain higher risk adjusted
returns and deliver consistent outpeormance.
The stocks’ peormance will be assessed on an ongoing basis and the composition of
the stocks in the product will be altered based on target achievement, changes in the
fundamentals of the stocks, industry position, market peormance and broad macro-
economic factors.
The product is being given to the clients in the form of non-binding investment
recommendations so that they can decide to capitalize on the robust fundamentals and
future plans of the company which are being discussed in the repo.
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