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INSTITUTIONAL EQUITY RESEARCH


Ground View Investor Conference Key takeaways 18th & 19th June 2015 INDIA | Conference Update

24 June 2015

We organized a ‘PhillipCapital Ground View Investor Conference’ on June 18th and 19th at Mumbai. In the two‐day event, we hosted channel partners, companies, independent consultants, and heads of verticals. In the following pages, we provide a synopsis of discussions with the participants. List of participants

India Research Team

18th June 19th June 1 ARCIL 1 Allcargo Logistics2 Aurobindo Pharma 2 Ambuja Cements3 Auto Dealer: Bharat Benz, Toyota, Ford, Mah Trac. & Tata PV); (Toyota 3 Ashoka Buildcon4 Auto Dealer: Eicher Motors, Maruti, and Hero 2‐ wheeler 4 Cement Distributors5 Auto Dealer: Hero 2‐ wheeler & Mahindra (Ex Tractors and 2‐ wheelers 5 Century Textiles6 Auto Dealer: Honda 2‐ wheeler, Volkswagon, Nissan, Porsche, Scania, Ashok Leyland 6 COAI (Cellular Operators Association) 7 Auto Dealer: Honda Cars, VW, Mercedes Cars and Triumph Bikes\ 7 Coromandel International 8 Auto Dealer: Hyundai, Toyota, Bajaj & JCB 8 CRH India9 Auto Dealer: Maruti: Largest in NCR Region, North India & Mercedes, Skoda & Isuzu ‐

largest in AP and Telangana 9 Den Networks

10 Auto Dealer: Royal Enfield & Bajaj Auto 10 DigiCable11 Auto Dealer: Tata CVs, JLR, Bharat Benz, Maruti, Honda and Skoda 11 DMICDC12 Bajaj Corp 12 Dr. Sudhir Goel, IAS13 Bombardier 13 Eros14 Can Fin homes 14 Flat Steel Trader15 CARE ratings 15 HCC16 Cement Distributor 16 HT MEDIA17 Ceramics Dealer 17 India Energy Exchange 18 Cholamandalam Finance 18 Jakson Power19 DB Corp` 19 JK Lakshmi Cement20 DRTC India ‐ Fleet Operator & CEAT C&F Agent 20 ABG Cement21 Engineers India 21 Jkumar Infraprojects22 FAASOS 22 Monsanto India23 Federation of Indian Micro & Small & Medium Enterprises (FISME) 23 NHAI24 Gravita India Limited 24 Reconnect Energy25 Hindustan Zinc 25 Reliance Cement26 HUL Distributor 26 Shoppers Stop27 India Cements 27 SML Isuzu28 ITC Distributor 28 Sumit Banerjee29 JSW Steel 29 Tata Chemicals 30 KDDL 30 TBEA Shenyang ‐ Chinese transformer maker31 Lafarge 31 TBZ32 Long Steel Trader 32 UltraTech Cement33 Mahindra Finance 33 Voltas34 Majesco 34 VRL Logistics35 Marico Industries 35 World Wind Energy Association 36 Multibrand, Rural FMCG & Urban Godrej Dist. 36 Zicom37 Ortel 38 Oxigen 39 P&G Distributor 40 Shilpa Medicare 41 Shriram city Union finance 42 SKS Micro Finance 43 SML Isuzu 44 Star Cement 45 Syndicate bank 46 Tata Memorial Hospital 47 Vijay Sales 48 Water Resources, Govt. of India (Maharashtra) 49 Wyeth 50 Zee Entertainment 51 Zuari Cement

GROUND VIEW INVESTOR CONFERENCE KEY TAKEAWAYS

Panel Discussion

Housing for all by 2022: Opportunities and challenges Our panel comprised of a financier, policy maker, a developer, and global real‐estate consultants.

Real estate consultants: • The demand and supply gap in affordable housing is 6x; there is demand for

affordable housing in the economically weaker section (EWS) and low income group (LIG) segments. ‘Housing for all’ will ensure 30mn additional houses by 2022.

• The supply problem is more acute in urban centres, where availability of land is limited. To address this issue, satellite cities need to be developed in and around urban centres — this will entail huge infrastructure development.

Financier: • With enough demand in the mid‐income and high‐income segments, formalised

institutes did not enter the affordable housing space. While financiers will start looking at this segment now, with enough opportunity, the mortgage model will be different from the ones that banks and HFCs follow.

• Affordability of loans is an issue in EWS and LIG segments. The annual average household income in these segments is Rs 100,000 and Rs 200,000. The maximum affordability is around Rs 500,000 and Rs 1mn. It is difficult to buy a housing unit in urban areas (with basic amenities) at even their maximum affordability levels.

Developer: • Housing in urban centres is expensive due to the high cost of land. If land is made

available at cheaper rates, houses could become more affordable. There is also a



need to rationalise taxes, as fees and taxes form 30‐35% of the total cost of a house.

Policy maker: • In their effort towards providing housing units to the EWS and LIG segments,

redevelopment authorities are working at offering affordable prices through policies such as regularizing slums, providing slum land to developers at lower costs for constructing affordable housing, and increasing FSI. The government’s thrust in affordable housing should move things faster in the public‐private partnership model.

Loan against Property: Opportunities and Concerns Our panel comprised of a financier, a rating agency, and the Federation of MSME

Financier: • The outstanding loan book of loan against property (LAP) stands at Rs 1tn, but

the addressable market is much larger at 10x current market size. • LAP has grown at a robust annual rate and should see ~35% growth over 4‐5 years. • There is no asset‐liability maturity mismatch, as the tenure of LAPs is around 3.5‐

4.0 years, similar to the maturity of its liability. • Borrowers are largely SMEs and MSMEs availing credit from banks as overdraft

loan, cash credit, and bill discounting for working capital requirement or term loan for capital expenditure. LAP is a convenience product from a borrower’s point of view, as lag time between loan application and disbursement is small. Moreover, the interest rate on LAP is relatively lesser than SME loans and the duration of an LAP loan is higher compared to working‐capital loans.



• In LAP products, credit costs are much lower at 50bps and collection efficiency is 99.5% (currently), as the terms are conservative in terms of loan‐to‐value (LTV); loans are largely against self‐occupied property and property prices are buoyant.

Rating agency: • Competition has increased due to the lucrative RoA in the LAP business, leading

to a decline in yields by ~200bps in 2‐3 years. LTV has increased to ~65% from ~50% over 4‐5 years.

• Due to limited credit history and lack of portfolio seasoning, there is no data for actual credit cost of the product. The rating agency reckoned the current credit cost is around 1%, which can increase as the portfolio seasons.

• While LAP is largely used for business activity, there have been cases when it is used to build real estate, including land.

Federation of MSME: • MSME does not have large banking relations. LAP has become a preferred

product due to factors such as long‐term loan compared to working capital funding, doorstep services, product innovation matching cash flow of the borrower, and lower interest rate compared to working capital loan .

• LAP is an urban product, largely preferred by service or trading businesses. Service / trading entities do not have tangible assets. Hence, promoters mortgage their personal property to borrow.

• LAP has precedence from borrower point of view, over other loan product in terms of fulfilling commitment.

• The leverage levels of MSMEs is not high. Hence, there is no sign of a red flag at this juncture.

Infrastructure We organized a panel discussion on “Infrastructure – The next three years”. To facilitate an insightful all‐round discussion, we ensured that all stakeholders in the country’s infrastructure development (government, financial institutions, and private developers) were adequately represented on the panel.



Our panel included: • Government: NHAI, DMICDC, MMRDA • Financial institutions: IDFC Infrastructure Finance, Tata Capital Infrastructure

Finance • Private developers: GMR Infrastructure Ltd, J Kumar Infraprojects Ltd Key takeaways from the panel discussion: • Road sector is expected to gain a lot of traction with a large pipeline of orders to

be awarded in FY16. NHAI and MoRTH intend to award 10,000km of orders in FY16 – 50% on EPC basis. However, the share of EPC/BOT will depend on the developer interest in various models.

• Developers have been guilty of bidding aggressively in the past, assuming that the low interest rate regime of 8‐9% will continue indefinitely. This was the primary reason for project IRRs being significantly lower than expected.

• The government is currently introducing lot of schemes to revive stuck projects. While this is a welcome move, private developers believe that these steps are actually being taken to help financial institutions and ensure that their NPAs do not rise. If developers are at fault for bidding aggressively, bankers too financed projects without proper due diligence. Hence, efforts should be made to support developers as well.

• Power sector is currently the biggest concern for financial institutions with a large amount of projects stuck due to fuel unavailability. Roads sector should continue to see good financing growth, due to much lower risk and a mature template in place.

• Key challenges for any urban infrastructure project remain land acquisition and rehabilitation of population. Most Indian cities are not planned; hence, creating new infrastructure is always a challenge. In this respect, DMICDC is a landmark project because the necessary infrastructure is being created before the development takes place.

• Mumbai city is expected to see a surge of order awards in the infrastructure space, especially in MRTS projects. With the approval for coastal road (Nariman Point to Kandivali) and trans‐harbour link (Sewri ‐ Nhava Sheva), the horizontal connectivity across the city will improve significantly. Civil contracts for metro phase‐3 are expected to be awarded by August 2015 and construction should start by December 2015.

• For any infrastructure project, receiving payments on time from the government authority remains a key concern. NHAI, MMRDA, and DMRC were singled out as organizations that have a significantly better payment cycle and release payments on time. In fact, NHAI has a policy to release 75% of all invoices within 48 hours of receiving them. However, large funds are still stuck with various state electricity boards (SEBs) and other government bodies such as Air India.

• In their defence, government bodies alluded to significant over‐billing by developers in their claims. NHAI mentioned that it has settled claims worth ~Rs 170bn at only ~Rs 14bn – less than 10% of the original claims.

• In terms of segments of infrastructure that are likely to see maximum and minimum traction over the next three years, most of our panellists chose roads and urban infrastructure for maximum growth (even as they said urban infrastructure would have its fair share of challenges) and power for minimum traction and maximum challenges.



Agri Inputs Dr Sudhir Goel, Additional Chief Secretary, Agriculture, Government of Maharashtra • Dr Goel expressed the agony of the large number of unorganized farmers who

are at the mercy of the monsoon and middlemen and the role that farm input suppliers’ can play to alleviate this. He believes that corporate and farmer group engagements have been gradually improving; however, it is far less than desired. He emphasized the immense role that the private sector can play in aggregating farmers and their produce thereby indirectly empowering them to invest in agricultural inputs.

• About 83% of the landholdings in the country are now marginal or small — of the 120mn odd farmers about 100mn are small/marginal (<5 hectares of land holding) and undoubtedly unorganized. These unorganized farmers are at the mercy of the weather gods and middlemen, leading to low returns to the growers and volatility in availability and prices for the consumers. Estimates of the wastage of perishables such as fruits and vegetables range from 18‐40%, undeniably high, penalizing both producers and consumers. Agriculture GDP is heavily weighted in favour of high‐value produce (horticulture, animal husbandry, dairy, and poultry and fish products); as much as 75% of the agri‐GDP’s value today comes from these products, primarily because they are not as labour intensive. A creative and collaborative effort can result in unleashing the immense potential that Indian agriculture can offer and farm input suppliers could play a role in this.

• Organized retail – moving at a snail’s pace: The fragmented agricultural marketing value chain and the large number of intermediaries is leading to wastage, low returns to producers, and higher prices for the consumer. Organized retail (though only 3% of the total retail market) is doubling its share every three years or so and is likely to play an increasingly important role in influencing the nature of agricultural markets in the coming decade. A game changer on the horizon is the proposed national food security legislation, which will require the sourcing of huge volumes of food from domestic producers. Traditional production and supply arrangements are unlikely to prove adequate in meeting the challenges posed by these two major developments. As of today, Maharashtra has issued 160 licenses (the highest in India) that enable corporate to directly procure from farmer groups, bypassing middlemen. While, the pace of farmer engagements is improving, it is not yet encouraging. Dr Goel is spearheading many private‐public engagements and indicated that about 51 corporate groups have partnered in such initiatives including Rallis, HUL, Jain Irrigation, ADM Foods, Nuziveedu, and Kaveri Seeds.

R Mukundan, MD, Tata Chemicals • Soda ash prices are likely to hold following improved demand and tight supply.

Management expects GCIP profitability to improve following resumption of capacity after unplanned shutdown and higher prices. Tata Chem intends expanding GCIP (subsidiary in US) capacity from 2.6‐3.2mmt; however, it didn’t disclose any budgeted capex. It retained the guidance of delivering combined BMGL EBITDA of ~ Rs 3.5bn (of which Europe EBITDA is £ 25mn on commissioning of steam turbine and Africa is US$ 15mn). India soda ash demand is strong at 19%. Margins should hold up due to introduction of new detergent variants and tight supply.

• Management said that salt revenues could double to Rs 18bn from Rs 9bn in the next five years. Overall consumer business revenues could go up to Rs 35bn (from Rs 15bn at present including salt, water purifier, pulses). The company is venturing into the ready‐to‐eat and ready‐to‐cook categories and expects the recent Maggi controversy to raise awareness and demand for good quality instant processed food. For nutraceuticals, the management guided at



revenues/net profit of Rs 1,500/400mn at optimum utilization over next three years. It said it could double this segment’s capacity and start a facility dedicated to exports.

• In FY15, branded pulses revenues grew 50% yoy to Rs 2.3bn; the management expects the pace of growth to sustain. Retail touch points are currently at 90,000 and the management is hopeful of crossing > 0.1mn retail stores by next year. Current revenues of Rs 2.5bn could rise to Rs 10bn in next four years with contribution margins of 8‐9%, it said.

• Fertiliser policy pronouncements are progressive and seek to incentivize the efficient producers. Tata Chem incurred a loss of Rs 300mn on production of urea beyond cut‐off limits in FY15.

• With improved cashflows and limited capex, the focus is to lower debt. It said it targets halving consolidated debt over the next five years.

Alim Sayed, Monsanto India, CFO • In highlighting the importance of corn crop, the management indicated that the

per‐capita consumption of staples, such as rice and wheat, has fallen dramatically over the last two decades in both rural and urban India. The trend points to increased consumption and demand for protein‐rich foods such as corn and soya. The relatively high MSP, lower water intensity, and higher demand, should prop up corn acreage

• The conversion from the open‐pollinated variety to hybrid seeds could result in 2.5x jump in yields for maize crops. As of today, only 60% of the area is under hybrid corn and therefore the macro opportunity is huge. Monsanto believes that through its new product launches, it has been able to inch up its market share in corn seeds by 100bps in the FY15 Kharif.

• With improved visibility on monsoon, management expects glyphosate volumes to pick up and partially compensate the steep fall in prices. Glyphosate prices had corrected by 30%, but are holding firm since May 2015.

• The recent withdrawal of the NoC for GM‐crop field trials in Maharashtra is for fresh trails that were approved in November 2014. Monsanto field trials for GM corn are almost in the final stage of submission of data to the Indian government. It retained that it will finish submission of the dossier by end of this year.

G Veerabadram, Coromandel International, President – Crop Chemicals • Expects India’s crop‐protection market to double over the next 3‐5 years. Low

pest consumption, rising MSPs, and demand for food will drive this growth. • The focus is to drop low margin products (such as monocrotophos) and introduce

high‐margin products (that would target high‐value crops such as soyabean, pulses, fruits, vegetables, and the large‐rice market). Current capacities could optimally earn incremental revenues of Rs 10bn and the Dahej expansion could help clock revenues of Rs 14bn overall over the next 3‐5 years.

• The growth in crop‐chemicals export turnover has been encouraging at 35%. Coromandel has four products already registered and commercialized in Brazil and expects approval for two new products (that would be registered this year) to drive this growth further. It is hopeful of continued strong growth rate in India and Brazil.

• To use cash flows to retire long‐term debt of Rs 3bn in Sabero Organics (now merged with Coromandel)

• Sabero’s merger with Coromandel International is synergistic, as it lowers the cost of procurement, betters financial and treasury management, and helps attain economies of scale. The marketing team is integrated and as the products complement (do not overlap), the cumulative (CRIN + Sabero) crop protection FY15 revenues of the group (~Rs 15bn) could be over Rs 25bn in next 3‐5 years.



Automobiles Channel Partners DRTC India & CEAT C&F DRTC • DRTC has a total fleet size of 400 owned vehicles and 1200 outsourced trucks

working only for them. • Recent hikes in diesel prices have not been passed yet; generally it takes 3‐4

months to pass on diesel price hikes. • Payback of a vehicle is generally three years and replacement is on an average

after six years of usage; this is because after 5‐6 years, maintenance expenses of trucks increase dramatically and the downtime also increases.

• Ashok Leyland’s and Tata’s trucks are similar in most parameters; however, Tata trucks provide better resale value.

• Bharat Benz now forms over 10% of DRTCs fleet and the company is very impressed by the quality these trucks. All new fleet additions at DRTC are Bharat Benz products despite the initial cost being 10% higher because: (1) 12‐15% better mileage, (2) Benz needs only one servicing every six months, saving 20‐24 days downtime p.a., and (3) driver comfort is way better in Benz trucks and they are able to cover more distance per day.

• Doesn’t think GST will change anything for freight operators dramatically; believes it will only smoothen the process, but not lead to any significant cost savings.

• Main issue currently faced by fleet operators is availability of drivers. • Do not see any major signs of demand pick up in the near term; pick up expected

from Q3FY16 onwards after which fleet operators might start buying new trucks. • Truck batteries are replaced every two years with Exide and Amaron (similar in

terms of quality). • Fleet operators margins currently stand at ~7%.

CEAT C&F • No price cuts taken by tyre companies despite the sharp rubber price decline. • Radialization in CVs is a big story and fleet operators are shifting to radial tyres.

Bridgestone and Michelin are the best in terms of tyre quality followed by MRF. However, MRF is the preferred choice as it costs lower and provides similar quality.

• Fleet operators generally buy MRF tyres for Benz trucks and Ceat and JK for Tata and Ashok trucks.

• Chinese products have increased in the market; however, their quality is not up to the mark and they are generally used on dead axles.

Hero MotoCorp & M&M (ex‐tractor and two‐wheeler) dealer • Dealership structure in the two‐wheeler industry is leading to more challenges

compared to four wheelers — 55‐60% of actual sales happen through sub dealers while the rest is directly sold by dealers.

• Dealer‐sub dealer structure for the two‐wheeler industry leads to higher than reported inventory in the system. Actual inventory within the system is closer to 10 weeks compared to the 2‐3 weeks reported inventory due to the inventory held by sub dealers.

• Company is focusing on increasing its dealer network to increase its customer reach. Distance between two sub dealers has reduced to 20‐25kms currently from 40‐45kms. Retail sales have not seen an increase despite the increase in dealer network.

• Scooters continues to report absolute growth, but has started seeing overall share decline within two‐wheelers.

• Hero is expected to face challenges in ramping up its exports while Bajaj has continued to be a long‐know brand.



• M&M’s UV launches will not make a material impact on their margins. • Maruti & Hyundai have huge rural presence, which is still not the case with

M&M. • Small CV industry is yet to see any revival and continues to get impacted. • Growth in urban areas is not expected to offset weakness in rural areas. Tata CV, Bharat Benz, Maruti, Honda, and Skoda dealers • Lower rubber prices and job scenario in the Middle East has led to a bigger

slowdown in Kerala compared to the rest of India. This is normally not the case. • Diesel cars have seen their share decline to 20% in the region from 40%. This is

expected to stabilize around 16‐18%. • Ciaz has hit the demand for Verna and Vento, but has not been able to make

much of a dent for Honda City. Better resale value for Maruti cars has helped Ciaz compared to other cars in the segment.

• Maruti is expected to launch 3‐4 cars in the premium segment over the next 1‐2 years.

• Maruti is keeping a check on discounts provided additionally by dealers to various customers. The company tries to keep discount levels uniform across various dealers.

• CV demand is expected to improve. Bharat Benz has made significant inroads despite zero discounts.

• Tata Motors and Ashok Leyland are used to offering huge discounts. However, due to Benz’s zero‐discount policy, they have reduced their discounts. Bharat Benz continues to have premium pricing compared to its peers.

• Dealer plays a greater role in retail finance due to its penetration. Direct selling agents are not active any more.

• Operating profit margins for dealers are at ~3.5% Honda Cars, Volkswagen, Mercedes Benz, and Triumph Motorcycles dealer • Overall demand scenario remains sluggish; expects this festive season to be very

critical and would be testing waters for the industry, demand to be mostly driven by new products.

• Maruti’s biggest strength is its backend and distribution; think other players are at‐least 5‐6 years behind Maruti.

• Dealerships are mainly family businesses and try to cut corners for their own profit; however, this is not possible with Maruti, hence customer satisfaction and consumer faith.

• Another strength of Maruti is that all its products are attuned to Indian conditions where other OEMs are still in a learning curve.

• Within the MMR region, the customer profile varies widely – Mumbai customers are very informed and look for value for money products. Navi Mumbai customers (who have gained from land appreciation) are more of ‘instinct buyers’ and Thane customers show a mixed pattern.

• Kalyan, Dombivali, and Ulhasnagar are some of the upcoming markets in the region

• Dealers and OEMs do a very detailed demographic and demand/supply analysis before opening a dealership in any area. The company recently did a one‐week promotion in a small region of Alibaug and was overwhelmed with the demand response it received.

• Honda city has a waiting of 3‐4 weeks, but its automatic variant has a waiting of up to 20 weeks.

• Expect the market to swiftly shift towards automatic vehicles and expects automatic gearshifts to form as much as 60% of the market in the next five years. Customers were reluctant to shift to auto‐variants, as the earlier models had very poor mileage. However, with better technology mileage difference is lower than 10%.



• Consumer up‐trading clearly visible from the fact that only 4‐5% of sedans sold are entry‐level variants.

• Customer preference has been clearly shifting towards petrol cars with petrol variants of Honda City having a much longer wait over its diesel sibling.

• Organized cab aggregation business holds a huge potential in India with current daily number of rides pegged at 30,000 vs. that of 9mn rides in China, and 11mn in the USA.

• Volkswagen has lost some confidence in the Indian market and is looking to fight back with a few new launches slated from 2016 onwards, including a sub‐four‐meter car, new generation Vento, and a compact SUV.

• Discounts have come down over the last 12 months; however, do not see any major pickup in demand. Spurt in demand that earlier in FY15 was primarily as companies pushed wholesale in expectation of the market picking up. Expect festive season to be the real test — strong demand is anticipated.

• The new Honda Jazz would be launched in July 2015 and dealers have already started taking bookings.

• Honda Civic and Accord to be re‐launched early next year. • Volkswagen after‐service and parts are very expensive, as they are mainly

imported. • Total size of the luxury car market in India was 30,000 units in FY15, which was

dominated by Audi with a market share of 33%, Mercedes at 30% (a close second), and BMW at 25%.

• Mercedes sales in India are expected to grow at 40% in FY16 with the company claiming the leadership spot.

• Luxury cars are no more a big statement in India and 70% of these sell on financing, highlighting big demand from professionals.

• C & E class form 50% of Mercedes sales in India, followed by SUVs constituting over 20% of sales.

• Mercedes mainly imports its vehicles through CKD route and assembles at its Chakan plant in India; lower segment imported as CBUs primarily to test the market.

• Doesn’t expect A class segment of luxury vehicles to pick up as these are generally bought as second vehicles in the family and consumers are still reluctant to accept a luxury vehicle without a boot.

• Triumph motorcycles is a British luxury two‐wheeler brand with motorcycles ranging from Rs 700,000 to Rs 2.5mn. It offers a range from sports to cruiser bikes with engine options from 650cc to 3000cc. Triumph has 10 dealers in India and sells over 25 units a month as of now.

• Overwhelmed by the demand Triumph has seen in India. Customer base is in the age bracket 35‐45 years, affluent businessmen as well as professionals.

• Royal Enfield customers are mainly in the age bracket 20‐30 years, generally single, and want to show that they are doing well in life.

Honda two‐wheelers, Volkswagen, Nissan and Porsche dealer • The group has 12 Honda Motorcycles outlets selling over 3,000 vehicles a month,

6 Volkswagen outlets selling over 275 cars a month, and 6 Nissan outlets selling over 300 units a month. It sold over 45 Porsche cars in Kerala in 2015.

• Honda Motorcycles and Scooters (HMSI) is the largest 2W player in Kerala with ~40% market share primarily as the market is dominated by scooters with 65‐70% of 2W sales being scooters.

• HMSI plans to launch 12 new products in FY16 with 3‐4 new products and rest refreshes.

• HMSI has very low traction in motorcycles and inventory with dealers stand at eight weeks. However, demand for its scooters remains robust and inventory with dealers is minimal.

• No waiting period now in Honda Activa; however, Honda Dio has a good waiting period.



Hyundai, Toyota, Bajaj Auto and JCB dealer • The group has three Toyota outlets and sells 4,500 units p.a., six Hyundai outlets

selling over 8600 units p.a., and it sells over 1500units/month of Bajaj motorcycles.

• Kerala market has been impacted primarily as low oil prices have reduced spends of families with the bread winners working in the Middle Eastern countries and low rubber prices impacting income.

• Bajaj has been losing market share in Kerala due to lack of scooters. However, it has started doing better currently as demand picked up with the launch of Pulsar RS200, which has some waiting period.

• Acceptance of CT100 and Platina has been good, as they are priced competitively and are old known brands.

• Despite the sharp decline in sales volume, dealers have not received any help from Bajaj Auto.

• Bajaj Auto dealership overall is profitable due to good servicing income. It has pushed volumes to dealers leading to inventory build‐up.

• Overall, Bajaj dealership has seen 40% drop in total profits over the last two years.

• Royal Enfield has a waiting of 2‐5 months. • Inventory levels for Toyota and Hyundai are at comfortable levels of 20‐30 days. Bharat Benz, Toyota, Ford, Mahindra Tractors, Tata PV, Bajaj and Honda dealers • Toyota plans to launch its new Innova by April 2016, new Fortuner by September

2016, and Etios Cross by the end of next year. • Lexus will be launched next year in Mumbai, Delhi, and Bangalore. • Toyota plans to launch Vios next year, which will compete with the likes of Ciaz.

It may comeback in 2‐3 years with a new strategy in segments where they have failed. The company normally keeps a model for five years, except for Innova, which has been there for 10 years and is still running.

• Ford does not plan to get into crossover. It plans to launch Mustang by early next year. Four new cars from Ford are expected in the next 9 months.

• India is the 4th largest market Ford globally. This will see it continue to launch new refreshers.

• Maruti will see its volume grow; however, it will continue to lose market share to other companies. Hyundai’s number 2 position is not under threat with other players, including Honda, still quite far away.

• Honda’s motorcycle market is picking up; however, its Dream series is not doing well.

• Hero Motocorp’s Leisure is also not doing well. • Bajaj Auto has got 2‐3 scooters ready, but is not sure about launching them. • Nationwide scooter market is expected to be 30‐35% of total two‐wheeler

volumes. • Tata Motors PV dealer has seen its volumes drop from a peak of 1000 cars per

month to a bottom of 100 cars per month. It is currently doing 200 cars per month because of the new launches (Bolt & Zest). Dealer breakeven will be at sales of 400 cars per month. However, Tata Motors supported the dealers through this period with better margins.

• Of the 200 cars sold monthly, Zest & Bolt account for 50% of volumes. The dealer believes that Bolt is overpriced by Rs 50,000‐60,000. This has led to no impact on Swift sales.

• While the dealer believes Tata cars are good quality, the brand perception is impacting volumes. This is expected to change over a period with a series of good‐quality new launches. The dealer expects good volumes for Tata Motors PV in CY16.



• Tata Motors is expected to launch Kite 1 and Kite 2 in August 2015. This will be in four‐door and five‐door categories and expected to be priced at Rs 400,000‐450,000 lakhs.

• Tata Motors is also expected to launch two cars next year, designed at JLR Design Centre. It should launch its new Aria by January 2016; the old model was priced at Rs 1.7mn, which led to its failure.

• Nano AMT has a waiting period of two months. • Bharat Benz is currently doing 1,100 units per month in India. This is expected to

increase with its new buses launch last month (300 HP and 400 HP). • The dealer is currently selling 60 units a month of Bharat Benz trucks with zero

discounts. Competitors are currently offering 15‐20% discounts. • Current demand for CVs is largely replacement demand with no signs of fresh

demand coming in.

SML Isuzu • The company is present in the 5‐10 tonne range in the buses segment and 5‐12

tonne capacity in cargo. • Current engine of Mazda can only be used on cargo trucks up to 12‐tonne

capacity. The company was looking at importing heavy‐duty engines from Isuzu, which is present in 1‐60 tonne category globally; however it didn’t work out to be economically viable. Management believes that Isuzu would have to invest in an engine plant in India to enter the 12+ tonne category.

• Management expects the company to see c.15% CAGR between FY15‐18E with the bus segment growing by 10% and cargo segment at c.20%.

• Has increased its focus on the cargo segment by creating a separate vertical to sell trucks with a special incentive structure.

• Management highlighted that its bus segment is much more profitable than its cargo segment with gross level profitability of buses being 2x of cargo trucks business.

• The company would be incurring Rs 2.20bn capex over the next two years, primarily on modernizing and revamping the quality of trucks, paint quality, aesthetics, and cabin quality. These improved quality trucks are expected to be launched by the end of FY17. The capex would also take care of capacity expansion to 21,000 units from the current 18,000 units.

• Had launched premium buses, but couldn’t compete with Volvo; it’s R&D team is working on a four‐tonne LCV, which it expects to be launched by FY18‐19.

• The company has a very strong brand name in buses and has never given discounts despite difficult market conditions.

• Currently has a network of 110 dealers with a strong presence in the southern and northern markets.



Capital Goods Bombardier • Positive on the overall metro spending in the coming years with increased focus

by the state and central government to expand the metro network. • The new railway minister has helped hasten the tendering process by

decentralizing powers to regional general managers. This would help quicken execution by the Indian Railways.

• Supplying primarily to Delhi Metro, but looking to bid for other metros across the country.

• Key hurdles to new metros in India are financing, land acquisition, and non‐standardized cars used by different states.

• Pricing for metro coaches has come down to Rs 0.8mn‐0.9mn and this would lead to wafer‐thin margins for players. Expect margins to rise with an increase in orders.

RE connect energy • RE Connect energy is the largest renewable energy service company. It provides

services to both generators and consumers. • After the SC’s order on RPO enforcement, the company has seen significant

traction in demand for RECs and expect demand to remain strong led by the government’s push for renewable capacity. Also, amendment to Electricity Act will give necessary push to renewables.

• Gujarat, Andhra, MP remain lucrative wind sites. Lower tariffs for wind and surplus power situation have slowed capacity addition in Gujarat.

• Wind energy will gradually move from “Accelerated Depreciation” driven market to IPP led.

• Key risks to capacity addition remain on the policy front as various state governments have initiated reverse auctions that could lower tariffs significantly, thus impacting returns.

Jakson Power • Diesel genset volumes are flat yoy and it expects volumes to be up 5‐6% yoy for

FY16 after declining volumes in the last three years. Diesel genset sales in FY15 were at Rs 9bn including the engines, alternators, and control panels.

• Price increases taken for new CPCB engines are in the region of 12‐15%. Prices have been rolled back after the revised price list from December 2014 onwards

• Not too worried about competition since Cummins enjoys a very strong brand image and unmatched OEM/Dealer network.

• Seeing good demand from Telengana and some eastern states. Believe the diesel genset market has bottomed out and is set for a turnaround.

TBEA Shenyang – Ex Managing Director • Expect increasing competition in the 765kv transformer space as Boading also

looking to set up a factory at Baroda for ~10000‐15000MVA. • PGCIL’s domestic manufacturing clause to encourage more players to set up

factories in India – some of the non‐serious players will have to shut shop and move out of the country to the benefit of the incumbents.

• Within 765kv substation, Chinese and Koreans are at an advantage to the Europeans, as Europe is still at 400kv so it has not developed the technology to make 765kv GIS. Players such as Hyosung, NHVS, and Pingga likely to set up factories in India to meet PGCIL’s domestic clause.

• Need large amount of spending in the transmission space where it has been under invested; entry of private sector in transmission to increase pace of capacity addition.



Engineers India • Target Rs 4‐5bn of orders every year (base order) and expect HPCL Vizag

expansion (could be Rs8‐9bn on consulting basis). Numaligarh at Rs 0.8‐0.9bn, IOCL Bina Expansion order(Rs 0.8bn). Looking at ~Rs 20bn of orders in FY16 with Rs 15‐16bn domestic and Rs 3‐4bn overseas.

• Fertilizers ‐ Nothing much in India at this point in time; started work for the Ramagundem fertilizer JV, which is to be done over three years; booked a Rs 1.9bn consulting order in Q4FY15.

• Upgradation of refineries will results in Rs 15bn spending by each refinery. Total capex of Rs 200‐300bn for Euro‐4 to Euro‐6.

• Charges for the BPCL’s delayed coker unit was taken on underestimation of costs, change of scope. Change order has been raised and this could be settled only after completion of the work; 65% of work is complete.

• Fall in oil prices has led to a slowdown in new orders and increased competition for them; however, current execution has remained good.

• Margins in EPC to sustain at 7‐8% and consulting margins to remain at 20‐25% till they get larger sized jobs.



Banking M&M Finance Services • AUM growth to remain in single digits in FY16. While growth in matured

segments like UV/ cars/ tractor to remain in line with industry, other segments will grow at a higher pace.

• Housing loans likely to grow at a similar pace of 50%+ over 2‐3 years. Aiming for book size of 50‐60bn in 2‐3 years. Average ticket size of rural housing loan is Rs 120,000‐150,000 and takes 3‐4 weeks to sanction.

• NIMs to improve by 20‐25bps, as cost of funds is falling. Around 22% of the borrowing is through bonds. The company is incrementally borrowing through the bond route as it offers cost benefits vs. bank loans.

• Asset quality will remain under pressure in H1 due to seasonality. Economic recovery and monsoon will drive asset quality trend in H2FY16. While recovery in Q4 was healthy, its sustainability will be driven by a pickup in economic activity and monsoon.

Shriram City Union Finance • Balance sheet growth in FY16 likely to be in the range of 15‐20% driven by MSME

and two‐wheeler loans. While gold loans will continue to form a significant part of the portfolio, the management will take a call on how much to keep on book.

• Expect business to pick up after Q2, as Q1 is traditionally a sluggish quarter. Andhra Pradesh and Telangana to dive growth.

• Looking to portfolio buyout in SME/housing and exploring lending opportunities in corporate. Aim to bring down Tier I to 16‐17% from current 25%.

• NPA to remain high as company shifts to 90dpd NPA recognition norms. Will move to 150dpd norms for NPA recognition by Q3/Q4 FY16 in line with RBI guidelines. H1 credit cost to be in line with Q4. H2 is likely to be slightly better. Delinquencies in various product segments are – SME (2.49%), two‐wheeler (4.65%), gold (2%), and auto (4.7%)

Cholamandalam Investment & Finance Co. • AUM to grow at a healthy pace over FY15‐17 led by steady growth in LAP book

and pick in demand for commercial vehicles. • While NIMs have improved 10‐15bps in FY15, they are likely to improve further

as borrowing cost eases. • The company has already moved to 150dpd norms for NPA recognition, a year

ahead of RBI‐stipulated norms. • Discount on new vehicles has come down over the last few quarters. Further

reduction in discounts will result in higher realization on sale of reposed vehicles. CARE Ratings • Consistent reforms in the debt market to drive volumes higher; hence, will

increase demand for ratings. • The management expects the domestic rating market to grow at 20%+ over the

next 2‐4 years. • The operating margin likely to remain stable aided by low‐cost employee

structure, high employee productivity, and high technology utilization. • Reduction in budgetary support for SME rating to impact rating revenues;

however, impact will be limited as contribution of NSIC‐SME rating is not significant.

• Shift to IRB based rating approach will be negative for the company; however, do not see any risk in the near to medium term.



Syndicate Bank • Syndicate Bank expects balance sheet growth to remain subdued in FY16 as pick

up in corporate loan book continues to remain weak due to a subdued fresh sanctions pipeline. The focus would remain on retail and SME loans, which is seeing better demand. The corporate loan book is likely to see a pick up in 4QFY16. Overall loan book is expected to grow 11‐12% in FY16.

• Although, overseas loans, which comprise 20% of loan book, earn low NIMs of 0.53% in FY15 as yields are very low, they are very low risk and consume little capital.

• In terms of asset quality, the sector continues to see significant stress. However, the bank has managed to add lesser stress compared to most of its peers. In FY15, the GNPA and NNPA were at 3.13% and 1.9%. Going forward, the bank expects to maintain its asset quality.

• The bank reported NIMs of 2.29% in FY15. In FY16, NIM may see a very marginal improvement as cost of deposits will be re‐priced at lower rates.

• Non‐interest income is expected to remain subdued as fee income linked to corporate loan continues to see weak growth. In addition, in Q1FY15, treasury gains are expected to remain insignificant, as yield have increased marginally.

• The bank’s exposure to Bhushan Steel will continue to remain a standard account after the restructuring under the 5:25 scheme.

SKS Micro Finance (SKSM IN) – Buy • Non‐AP disbursement growth for FY16 is expected at 31% to Rs 90bn and non‐AP

loan book growth is expected at 44% to Rs 60bn (20%‐25% increase in volume and 10%‐15% increase in ticket size).

• Operating expenses to grow at ~25% (includes fresh head counts and increments). Operating cost to AUM ratio can decline by 60‐70bps to ~8.3% in FY16.

• SKSM expects PAT growth of 25% yoy to Rs 2.35bn, considering 21% income tax rate.

• Recent reduction in interest rate of 1.55% to 22% on new loans is effective 1st July. The reduction in interest rate will not impact business growth unlike Q3FY15, as the banks’ systems have been fully upgrade to capture changes.

• Incremental debt requirement is pegged at Rs 70bn for FY16 vs, Rs 50bn in FY15. Non‐convertible debenture and commercial paper constitute 6% of total borrowing in FY15, which can increase to ~25% depending upon market conditions.

• SKSM has applied for small bank license and waits RBI’s decision. If SKSM were to convert to a small bank, neither its customer segment nor its operating model would change. Today, SKSMF complies with all the pre‐requisites on lending that the small banks guideline stipulates.

Canfin Home • CANF expects loan book to see 30%+ CAGR through FY14‐20, taking the loan

book to Rs 350bn from Rs 82bn currently. Incremental branch additions would play a pivotal role in contributing higher loan growth.

• Non‐housing proportion of the loan book, which was at 1% of loan book in FY11, has increased 12%. CANF is targeting to increase it further to 20% of the book by FY16 and eventually to 25%; this would be NIM accretive.

• Incremental borrowing is largely through NCD and commercial paper at 8.5%. The proportion of NCD in overall borrowings will increase to 50% by FY16 from 22% currently.

• Change in the borrowing mix coupled with higher non‐housing loan and proceeds from right issue are expected to drive margin to +2.7% by FY16 from 2.5% currently.

• CANF plan to increase presence (branch + satellite office) to 150 by FY16 from current 124. As per its vision 2020 document, the target is to increase presence



to 350 places by FY20. With the maturity of the newly opened branch, the cost to income ratio is expected to moderate. New branches would take around nine months to breakeven.

• Net NPAs are currently at 0%, lower compared to the industry average of 0.7%; expects to maintain net NPA in the current fiscal.

• CANF follows prudential lending and targets mainly the salaried middle class. Will look at also lending to non‐salaried people, where interest rates are higher.

• CANF completed a Rs 2.7bn rights issue, which should take care of its capital needs till 2017.

Arcil • The difference between banks’ perceived value of assets and ARC’s valuation is

high, which is leading to less deals. • There is need for more legal reforms in the industry for quicker resolution of

asset recovery. • Newer players are more aggressive than ARCIL, being under pressure to build

their book to keep up with other ARC’s. • Average age of asset recovery is between 5‐8 years and in some cases even

beyond 12 years. • ARCIL’s networth at Rs 15bn is half of the industry wide networth of Rs30bn.

AUM was ~Rs110bn (Rs 520bn for the industry). The gross value of the loan in ARCIL's books is Rs 550bn.

• Stress in the system is more than what is disclosed or visible in banks’ books. However if economic recovery plays out, that gap will narrow.

Federation of Indian Micro and Small & Medium Enterprises • FISME is a progressive face of MSME and promotes small and medium

enterprises with an objective of promoting entrepreneurship and improving market access for these companies. The organisation has signed an MOU with like‐minded associations in a few countries and also has representatives in few countries.

• The body is well represented and consulted by SME policy makers and closely works with major multilateral and bilateral bodies in India such as UNIDO, ILO, UNCTAD, DFID, and GTZ.

• The organisation’s research reveals that the SME scenario is changing and has seen a considerable improvement since 2008. Some of the sectors that have seen improvement over the years are textiles.

• The auto component industry continues to face challenges despite strong growth in the OEMs. The challenges faced by the component industry are related to infrastructure deficit, talent crunch (skilled labour), capital, and technology. It is also facing the threat of cheaper imports from ASEAN countries after the Free Trade Agreement (FTA).

• Sector such as gems and jewellery are experiencing a lag in recovery. The typical problem faced by most companies is cost effectiveness, lack of labour training, and access to financing.



Cement • We had an exhaustive presence from the cement sector. There were 11

corporate participants, five cement distributors, and eminent personalities such as Mr Sumit Banerjee (Ex‐Vice Chairman, Reliance Infra, Ex‐MD ACC), presiding at our conference. The corporate participants included names like UltraTech Cement, Ambuja Cements, Reliance Cement, Century Textiles, JK Lakshmi Cement, Star Cement, ABG Cement, CRH, India Cements & Lafarge. We also had five cement distributors from west, south, east and central India. As an extension to our conference, we also arranged for site visits in Rajasthan at JK Cement (Mangrol and Nimbahera) and Udaipur Cement Works Ltd. (subsidiary of JK Lakshmi Cement). Takeaways from these meetings :

• Pricing remains strong in south and east India. Pricing in the north continues to remain under pressure. Pricing in central and western India has seen minor corrections. Given the current market conditions, we are likely to see a declining EBITDA trend in north India and a stable EBITDA trend in the south in Q1FY16 on a sequential basis.

• Cost curve in the near term looks flattish. However, maintenance costs may look up in the monsoon quarters, which may marginally push overall costs. At our site visit in Rajasthan, we understand that ~50% of the existing kilns are in a shutdown phase for maintenance.

• Demand outlook remains positive. However, we are yet to see any substantial action on the ground to trigger a material demand revival. Distributors from south and east India indicated some revival in cement demand; however, North India and other regions are yet to see even these initial indicators.

• Housing demand movement is slow, but new launches should be announced in few regions, which are likely to trigger demand in the medium term. Also, more government housing schemes are likely to be announced in many states. With monsoons turning up to better than expectations, demand is likely to see a material revival over H2FY16.

• On consolidation front, industry expects the hands of majors to become stronger. However, further consolidation with cement majors will be slow and steady as the Competition Commission of India will now closely observe all new mergers (especially those announced by large cement majors).

• Capex for the industry will continue to remain very slow. Except for a handful of new capacity additions in the pipeline, no new capex is likely to be announced. Existing players will continue to grow strong only with consolidation. At our site visits in Rajasthan, we received a similar feedback about capex. Except the ongoing expansions, we are unlikely to see any fresh capex announcement in this region.

• Cement majors such as UltraTech will continue to grow and more aggressively than other cement majors. While ACC, Ambuja and Lafarge will continue to remain busy with the overall consolidation process, a dearth of large asset availability will make it difficult for cement majors such as CRH, Italcementi, and Votorantim to have a strategic presence in India. Mid‐cap cement majors such as Dalmia Bharat looks eager to expand its strategic presence as a pan‐India player in the medium to longer term.

• With this feedback from the conference, we reiterate our BUY on south Indian cement manufacturers. We continue to like visionary player Dalmia Bharat while low valuations make players like India Cements very attractive. In large caps, we continue to place our bets on UltraTech Cement. Other stocks such as Ambuja Cements, JK Lakshmi Cement, and JK Cement should also be accumulated over FY16, as we expect underperformance in north‐based players to continue, given weak pricing sentiments. HeidelbergCement may be a turnaround story.



Consumer Mr S. Muthuraman – Lakshmi Ceramics • Largest national dealer for Kajaria Ceramics over the past five years based out of

Coimbatore with total annual tile sales of Rs 2.5bn of which 20% is for Kajaria; 95% turnover achieved within a radius of 150 km from Coimbatore.

• FY15 was slow with only 12% growth in turnover; FY16 has started in a similar fashion.

• Tile dealers in south India and across the country are being cautious about institutional sales (to builders and real estate developers), especially where collections can become a problem. Institutional segment usually accounts for 50% of revenues.

• Retail sales remain strong in south India, especially TN and Kerala with new construction of individual houses being the main driver. Funding is coming from sale of land parcels. Renovation of existing houses is also turning out to be a demand generator in tier‐2 and 3 locations.

• Sanitary‐ware sales are strong and growing robustly; however, a major chunk (~55%) is still controlled by local brands. National brands are slowly gaining market share, but distribution has to be vastly improved along with advertising.

• On the company front, Kajaria Ceramics has the tightest collection cycle of 30 days, followed by Somany Ceramics. Deliveries are prompt and terms of trade are fair and transparent.

GCPL distributor • The business has seen some slowdown because of sluggishness in demand. • The distributors of Godrej get a profit margin of around 1.5‐2.0% as against

expectation of 2‐2.5%, which reduces their appetite to deploy more investment into the business to increase sales.

• Volume growth in soaps is sluggish, but new variants of Godrej No. 1, which is performing better than Cinthol, are launched by company at regular intervals.

• Hit and Good Night are doing well but Cinthol Deos continues to disappoint. • The company plans to launch many new innovations in the coming quarters and

the distributor expects it to contribute significantly to sales growth. Marico Industries The management sounded confident of achieving 8% to 10% annual volume growth over the next three to four years, but in FY16 volume growth will be a challenge ‐ recovery is expected in the second half, but it is more of hope than any particular quantitative indicators pointing towards a strong recovery. The following are the key takeaways: • Focus of the company continues to be volume growth and maintenance of gross

margin within a band. • Organic growth will be the key focus area with reinvestment of profits to

reinforce established and build new brands for the future. • Advertising and sales promotion to be in the range of 11‐12% over the medium

term. • Inorganic opportunities will supplement organic growth and are unlikely to be

primary growth drivers. • Although copra prices have corrected from peak levels in August 2014, they

continue to remain high. However, this does not affect Parachute as it has generally performed well during periods of high inflation on account of unorganized players losing market share to branded players. With 57% market share, Parachute performs better than market during such periods.

• The deodorants category continues to see hyper competition but Marico has maintained its market share of 4%. Category growth rates have come off significantly from the levels of 2013.




• In the international market, organic growth over the medium term will be around 15% (constant currency).

• To maintain operating margin of around 16%, excluding the corporate overheads.

• Focus in international operations will be on emerging markets of Asia and Africa and nourishment and grooming.

• Marico sounded fairly optimistic on the medium term prospects of both India and international operations, but in the near term, challenges on growth are likely to persist.

HUL distributor We hosted one urban and one semi‐urban distributor of HUL. Key takeaways and outlook: • Achieving targets has become a challenge, as the market is not offering enough

growth. • After the recent round of price cuts across detergents and soaps, the lofty annual

targets of 15%+ growth seem difficult. Growth has come down to a more manageable range of 10‐11%.

• Wholesale channel activity has reduced and distributors with higher share of retail reach are able to manage targets better in the current environment.

• Significant push on personal products portfolio, as prices have been hiked in key products such as Fair and Lovely and Lakme’s premium products and colour cosmetics.

• Premiumisation trends have continued in soaps with Dove continuing to perform well, but pressure seen in brands like Lux and Lifebuoy.

• Overall, demand scenario in the market across categories (both staples and discretionary) continues to remain sluggish and near term negative surprises seem more likely.

ITC Distributor After the recent price hikes after the excise duty hike announced in the Union Budget 2016, volumes have plummeted by almost 15%. The pressure on volume growth is likely to persist in the medium term. The key takeaways of the meeting are as follows: • Volume growth for 84mm and 69mm sticks has taken the most beating with

sharp declines across the brands. • Volumes have improved marginally in June, but they are still significantly lower

than February. • The company’s strongest and most profitable brand Goldflake premium has seen

significant volume erosion and consumers are down trading to 64mm product Goldflake superstar.

• 64mm products for the distributor now contributes 22% of total volumes and are is rising rapidly. This is also because of withdrawal of 69mm Bristol in Mumbai.

• To arrest the fall in volumes of Goldflake Kings, the company has introduced 74mm Goldflake compact at price point of Rs 9 per stick compared to Goldflake King at Rs 11 per stick and Goldflake premium of Rs 8 per stick. This will help in both up‐trading and down‐trading of consumers, but the efficacy of the product is yet to be tested as it has just been introduced.

• In FMCG (others), atta and biscuits continue to perform very well. Other categories are tepid except for deodorants, which have been performing well.

• Overall, ITC’s cigarettes business continues to reel under tremendous pressure on down‐trading and volume declines. Significant improvement will take time and other categories are yet to pick up in a meaningful manner.


Shoppers Stop • There has been some weakening of demand in cities such as Bangalore and

Pune, which have a sizeable number of customers working in the IT industry. However, cities such as Mumbai and Gurgaon have not seen a drastic change in demand.

• Ladies wear and denims have seen good growth whereas jewellery and footwear have not performed well.

• Shopper’s Stop’s loyalty program now covers around 3.7mn members and accounts for 72% of sales.

• Shoppers Stop has added exclusive brands such as Wrogn, Desigual, Reezon, and Femina Flaunt and these currently contribute to 10% of overall sales.

• Currently in‐house brands are available on popular e‐commerce websites such as Myntra, Flipkart, and Amazon.

• The company considers ecommerce an opportunity rather than a threat. It plans to increase sales from ecommerce to 10% of total sales through the ‘omni channel’ strategy. Through this strategy, Shoppers Stop plans to offer multiple yet fully integrated platforms for sales to the customer through brick and mortar shops, website, and mobile app. The company plans to invest Rs 500‐600mn on ecommerce in the next few years. Currently 8,000 pin codes are covered under e‐commerce from four hubs. The company plans to increase the count to 40‐50 hubs; it believes it is at an advantage to most e‐commerce companies due to more than 70 outlets in various cities. This will help Shoppers Stop to provide better service levels and quicker turnaround time for its online sales channel.

Faasos • Faasos now delivers a variety of food across eight cities in India and has become

India's leader in the food technology business. The annual turnover currently is Rs 1.2bn and since the last few quarters, it has grown by over 100% (high double digit SSSG) on the unique technology‐led model. It currently processes 100,000 orders a month and the count is growing rapidly. The customer retention for Faasos is very strong with regular customers ordering once in 13 days from Faasos as against once in 90 days for Jubilant Foodworks.

• Currently, 80% of the sales are driven through its app and the rest through dine‐ins. In cities like Delhi, Gurgaon, and Chennai, the company does not operate any outlets and 100% of sales is driven through the mobile app. The company soon plans to direct sales in all cities only through the mobile app as it believes that the app offers many features that helps drive sales and reduce costs.

• The company intends to increase smart use of technology and effectively use data, which it collects through the mobile app. For example, if a locality is seeing sluggish sales on a particular day, all app users in that locality can be sent a promotional message through the app to pump up sales.

• The company has three levels of supply integration with its online ordering system. First is the national supply‐chain, which accounts for 80% of food sold. Second is local fulfilment centres and third is tie‐ups with external food providers, which account for 10% each of food sold.

Bajaj Corp • FMCG growth has slowed down since the last few quarters and overall market

sentiment is yet to see a revival. • The company is very focused on flagship brand Bajaj Almond Hair Oil, which

continues to do well. The management believes that this oil still has a huge potential to grow because of the consumer trend of switching to branded oils, and through better penetration.

• On the launch of an almond oil product with higher almond oil content by a competitor, the management feels that the flagship brand Bajaj Almond Hair Oil has the optimum value proposition and does not intend to drastically alter its composition.



• No Marks brand continues to perform well and it still has a huge room for growth because of the attractive proposition and market potential.

• The management believes that the company will seek inorganic growth through acquisitions if it believes the sought brand to be a strategic fit.

P&G distributor • Focus on growth and profitability. India expected to be self investing SBU by the

end of this fiscal year. • Slowdown in growth visible; previous quarter grew 9% vs. ~20% revenue growth

in last few years. • Sales growing at high single digit and expected to grow at low double digit for the

year. • Head and Shoulders and Pantene both have lost significant market share to Dove

and Tresemme. • Market share gains in Skin care and Oral Care portfolio but in toothpaste initial

launch experience has not been up to the mark. • Oral B toothpaste likely to see re launch after 6 months. Significant changes are

likely in revamping the portfolio. • Sales portfolio includes 30% detergents, 10% Pampers, 10% Whisper, 15%

Gilette, and 35% other categories such a shampoos and toothpaste. • In detergents, both Tide and Ariel were facing severe competition from HUL

brands. The market is seeing some amount of downtrading; Ariel has been losing market share, as consumers do not find its value proposition attractive vs. Tide.

• While Oral B is still the leading brand in toothbrushes, recently launched toothpaste category failed to make an impact in the market because of Colgate’s market dominance and high competition from other established brands. The consumer experience on imported Oral B products from China has been poor and hence the company has decided to manufacture Oral B toothpaste locally.

TBZ • Slowdown in sales is visible and the management expects some revival in growth

in H2FY16. • Because of a fall in gold prices and gold demand, gross margins have declined by

400 bps in last few years. • The management continues to believe that good service quality and good

designs drive sales, and continues to maintain focus on both. • Roughly 60% of the sales come from designs that are standard across industry

and the rest 40% come from differentiated local designs. • The management believes that the biggest competitor for TBZ is Titan, which

offers good quality product and good stores. • All jewellers source the goods from 80‐100 different artisans (karigars) who have

been in the business since generations. Approximately 80% is done from 20% of karigars.



Infrastructure NHAI • Road sector is expected to see a lot of traction, with a large pipeline of orders to

be awarded in FY16. NHAI and MoRTH intend to award as much as 10,000km of orders in FY16 – 50% on EPC mode. However, the share of EPC/BOT will depend on the developer interest in various models.

• Allocation for NHAI has been doubled from FY15. NHAI has been promised Rs 229bn from cess collection for executing projects in FY16 (as against Rs140bn that it had sought); coupled with toll collection of Rs65bn, NHAI will have Rs 300bn to execute highway projects, ensuring that EPC awards will not be hampered due to inadequate funds. In FY15, NHAI was provided only Rs 95bn from cess and Rs 60bn from toll collection (total Rs 155bn).

• Land acquisition remains a key challenge, even in linear brownfield projects like highways.

• NHAI is also looking at various options to revive stressed projects – premium rescheduling and one‐time fund infusion have been approved/implemented for various projects.

DMICDC • DMICDC is an SPV that is based on PPP (with 49% equity held by GOI and

remaining 51% by financial institutions, including 26% by Japanese institutions and 25% combined by HUDCO (19.9%), IFCL, and LIC).

• DMICDC, India's most ambitious Infrastructure programme, is developing new industrial cities as "Smart Cities" implementing next‐generation technologies across infrastructure sectors. DMICDC envisages development of infrastructure linkages like power plants, assured water supply, high capacity transportation, and logistics facilities as well as softer interventions like skill development programs for employing local people.

• The programme has been conceptualized in partnership and collaboration with the government of Japan. In the first phase, seven new industrial cities are being developed. Each cluster is developed as separate SPV and the government has set up a Rs 185bn fund for basic infrastructure with a maximum limit of Rs 30bn to one SPV.

• DMICDC is planning to use information technology to the fullest in addition to having a physical master plan for all these cities. CISCO and IBM are to create a digital layer on top of the physical plan for these cities. The entire city control and governance will be managed from one place with an integrated approach on a massive scale.

• DMICDC expects major revenue from land monetization and it will be captured at an SPV level to create revolving corpus for future development (either in the same city the land was sold in or for creation of other cities). It has done detailed cash flow analysis for all cities and expects 17‐18 years to breakeven.

• The masterplan, design, and RFQ for Dholera, Gujarat, is complete. Total area for the ‘city’ is 900 sq. km while first phase activation area is 22.5 sq. km, out of which, 40% would be industrial and remaining land will be residential, commercial and other infrastructure. Total investment by government for basic infrastructure is ~Rs 28bn. It is also planning a logistic park in Sanand, near Ahmadabad.

• Shendra, Maharashtra, has 8.39mn sq. km activation area in the first phase out of the total 40 sq. km. Land acquisition of 30mn sq. km and 28mn sq. km for second phase is complete. The government is investing Rs 28bn in the first phase for basic investment and expect investment of Rs 100bn from private players.

• DMICD is also working on logistics data bank with the shipping ministry and government of Japan with online tracking of containers.



J Kumar Infraprojects • The company has an orderbook of Rs 41bn (including L1 of Rs 7bn). It expects to

win orders of ~Rs 50bn over the next 12‐18 months, apart from the Mumbai Metro orders.

• The company appears confident of winning at least one (if not two) packages from the Mumbai Metro Phase III projects. Each package would be ~Rs 20‐25bn.

• Metro and other orders should lead to a robust orderbook, giving visibility for the next 3‐4 years.

• The management does not see any reason for the margins to be under pressure. The opportunity in Mumbai itself is expected to be ~Rs 1tn, which should ensure healthy orderflows without diluting margins.

• The company does not intend to expand its geographical presence significantly; it appeared content with the order pipeline in the four states that it operates in (Maharashtra, Rajasthan, Gujarat, and Delhi).

Ashoka Buildcon • Large no of road projects (EPC and BOT) are in the pipeline – the company

expects it will be able to grab large share in that. • Current orderbook of Rs 31bn (1.7x book‐to‐sales) provides limited visibility – Rs

19bn to be executed in FY16 and remaining in FY17. Share of power projects in the orderbook, currently at 55%, should come down to 35‐40% by FY17. The company expects a topline growth of 15% in EPC.

• Competitive intensity has come down, but it is still present – especially in EPC projects. Many companies have decided not to bid for BOT projects, which has reduced competition in that segment.

• Current leverage for the company stands at 1.6x – should peak out at 2.2x‐2.4x. The company is also looking to refinance multiple projects from the current 11.25% rate to 10.75%.

• While the company does not intend to enter the metro segment, it is open to taking EPC orders in laying railway tracks.

IT Services Mastek/Majesco • The process of demerger into Mastek (IT services arm) and Majesco (product

arm) is complete. Majesco will most likely be listed in the US by end of June/first week of July, while listing of the Indian entity should be by August 2015.

• Majesco is third largest player in the P&C insurance market. Strategy for FY16 will be focus on: (1) creating presence in the US market, and (2) building integrated platform for policy administration, billing, and claims. To expedite the process of creating presence in the US market, the company plans to use the inorganic route.

• Mastek, the IT services arm, has recently acquired (1) IndigoBlue a UK consultancy, specialising in Agile programme and project management and (2) launched Veyo, comprehensive conveyance portal in JV with Law Society and Mastek UK. Mastek’s strategy is to grow its business at higher than the industry average in the next three years and clock margins of 18% (vs. 11% in FY15).



Media Zee Entertainment Limited • Advertising: The company expects advertising to grow in low to mid‐teens over

the near to medium term. From a medium‐ to long‐term perspective, the company does not expect digital media to pose any threat to TV advertising, as penetration of digital is very low, there is a lack of scalable broadband infra, and data usage costs are high. Most digital advertising in India is still on search; video advertising will take time to pick up.

• Subscription: Subscription revenue growth in phase 1 and 2 markets will be driven by increase in improvement in ARPU (led by tiering/packaging from digital cable TV players). However, recent deals with MSOs should result in double‐digit growth in FY16. Subscription revenue to pick up from FY17 onwards as digitization is implemented in Phase 3 and 4 markets.

• &TV: Focus is now on improving the ratings over the next few months and increasing the reach. The company is planning to increase the number of OPH (both fiction and non‐fiction) to increase the rating and improving advertising realization.

• Ratings: The company is not unduly worried about the recent decline in ratings for the flagship channels. Whenever BARC starts including data from rural markets, Zee TV’s ratings should increase. However, the company highlighted that it continues to gain in regional channels (Marathi, Bangla, and Telugu).

• Sports: Have two India‐specific properties in FY16 (Zimbabwe and Sri Lanka), hence the losses may go up in FY16

DB Corp Ltd • Digital and mobile business will be the main growth drivers: The company had

15mn unique visitors with average time‐spend of 17 minutes per day. Its strategy would be to tie‐up with sales persons of mobile players such as Airtel whereby they reach out to the customer directly and get the app installed. While mobile sites are aimed at breaking news at faster pace, editorials and analysis are lesser. Hence, the company feels that the digital business will not cannibalize its paper business, as people like to read the paper for the detailed analysis presented.

• The company stated that they were the number one among Hindi and Marathi (regional language) content providing sites. The company aims to double the average ad‐revenue / unique visitors as number of visitors increase along with their engagement. Times of India and NDTV were making some ~Rs 1.5bn last year from those businesses; hence, DB Corp too can attract similar ad‐numbers. Being a high margin business (in steady state , margins to be 60‐70%), it feels that this will be the key to growth and since no other local player has been able to generate that much traffic, the company feels that the early mover advantage will benefit in the long‐term.

• Pricing key to print revenue growth in FY16: Print revenue growth to come down to lower double digits in FY16. In FY15, the company benefited from lower newsprint prices. For the newspaper segment, they are focussed on pricing, as they believe they can still increase pricing in some regions given their superior product and that some of the competitors were still at a higher price point in some regions. There was a conscious effort to leverage their tie‐ups with several international magazines like Harvard business review, to increase pricing for weekend papers. In the current year, there will be launches in three locations – two of which are in Bihar.

• Advertisement revenue: Ad revenue growth would be challenging because of subdued macro‐economic environment and lack of discretionary spending from corporates. Historically, the company’s print ad revenue has grown at a CAGR of 13% from FY10‐15, but the ad revenue in FY16 would be lower than that (may be in high single digit).



Ortel Communications • Ortel owns and controls the last mile: Ortel owns/operates its own network and

owns 88% of its subscribers. It also ensures legally approved rights of way, superior service, minimal leakages and that the quality of network is uniformly maintained. Ortel also has control on billing of subscribers and collections. Direct collections from customers help in controlling trade receivables and reduce bad debts, resulting in better margins and cash flows. Direct access to consumers limits large‐scale subscriber churn. Tripe play network allows the company to offer full range of services across video, data, voice and network infrastructure leasing for the customer’s benefit. This ensures 100% of economics on above services accrues to the company, thereby enabling efficient capital deployment and maximizing the ROI objective.

• 10% penetration in the addressable market provides ample room to grow: Currently, the addressable market for Ortel is 5mn homes (in Odisha, Chhattisgarh, Andhra Pradesh, and West Bengal) and the company currently has 530k RGU (revenue generating units) providing ample room to grow both organically and inorganically. Currently 50% of Ortel’s homes are broadband ready; hence, incremental capex required for providing broadband services is negligible. Broadband penetration for the company is 11% and they plan to scale it up to 20‐25% in the medium term.

• Digitization and increased broadband penetration to help increase the overall ARPU: Currently 23% of Ortel’s subscriber base is digital and the average ARPU for a digital customer is 1.3x of analog cable ARPU. With the implementation of digitization in phase 3 and 4 markets (Ortel’s focus markets) the share of digital subscribers is likely to rise and hence the ARPU is also likely to increase in the medium term. Similarly, the broadband subscriber’s ARPU at Rs 356 is 2.5x analog cable ARPU; hence, with increased penetration of broadband services and digital TV subscribers, blended ARPU to increase significantly from current level.

• Carriage revenue: Currently, carriage revenue contributes 15% of the total company’s revenue and the company expects this revenue stream to grow at a decent pace in the near term because broadcasters do not have any other alternative.

• To double subscriber base in two years: Plans to deploy IPO proceeds to increase subscriber base; targets doubling the subscriber base to 1mn by FY17 from currently 530k.

Eros International Media Ltd • Diversification is the key strategy going ahead: EIML is a movie studio, which

does 60‐70 movies per year (120‐145 movies per year done by organized studios in India). The company diversifies its movie portfolio in terms of budget, genre, and language. EIML, which started as a Hindi movie studio five years ago, currently caters to other languages including Tamil, Telugu, Marathi, and Bengali. It intends to stick with its current strategy going ahead.

• Pre‐sales of various rights reduces dependence on box office collection: The company pre‐sells various rights (satellite, international, music, and digital) and recovers 100% of production cost of regional movies and 40‐80% of Hindi movies.

• Well‐diversified revenue stream: EIML gets 40%/30%/30% of its revenue from domestic theatrical/TV and others/overseas markets. Catalogue revenue contributes to 22% of total (up from 10% in FY11). EIML has a library of 2100+ movie titles and intends to make it available across all platforms (digital included) so that it increases its monetization potential.

• Others: EIML intends to spend Rs 12bn in FY16 towards movie production and acquisition across all genres and languages. The current slate of movie releases provides revenue visibility for the next 12‐15 months. EIML amortizes 72% of production cost in year‐one and 28% over nine years.



Digicable (unlisted MSO) • Still many loose ends in the implementation of phase‐1 and 2 of digitization:

Even after over 2‐3 years of analog sunset in phase‐1 and 2 areas, Digital Addressable Systems (DAS) are not yielding commensurate benefits for MSOs. In the television broadcast value chain, MSOs are the ones who have invested substantially for digitization, but are yet to see commensurate returns on investments. MSOs are attempting to pick up more money from last‐mile owners (LMOs), but receivables continue to increase. For MSOs, intelligent packaging is the way forward and DAS cable tariffs need to increase to Rs 500‐600/month for viability.

• Carriage revenue won’t come down: Unlike popular perception, the company doesn’t believe that the carriage revenue is going to come down in the near future. With digitization, MSOs can now carry more channels; hence, the company can extract carriage revenue from higher number of channels, albeit at lower realizations.

• MSOs realizing the role of LCOs the hard way: MSOs are heavily dependent on LCOs for last‐mile connectivity, billing and collection services, and repair and maintenance services. Hence, they cannot replace or displace the LCOs.

• LCOs have to align with MSOs for providing value‐added services (broadband and others): LCOs have lost many customers to DTH service provider after the implementation of digitization in phase 1 and 2 markets. Consequently, the margins of LCOs have also fallen on a per subscriber basis. Hence, LCOs have to align with the MSOs to upgrade the infrastructure and provide other value‐added services (like broadband) so that the ARPU from the customers increases significantly from current levels.

Metals Hindustan Zinc • Minority stake sale: Detailed and voluminous asset valuation work went on for

long and was completed in November 2014. Subsequently, valuation report was prepared and approved. Finance Minister has to take the final call on the timing of the stake sale. In BPCL’s case, the SC ruled that parliamentary approval was required for disinvestment. However, this ruling came after HZL’s disinvestment was over and hence cannot be made applicable to that disinvestment retrospectively. Future stake sale is now a minority one and hence does not get impacted by the BPCL ruling.

• Physical premiums: Zinc premiums are currently at US$ 200/tonne vs. US$ 300/tonne in FY15. There is not much dip from Q4FY15 levels as LME has gone lower and typically premiums don’t drop much when LME is lower.

• Zinc demand supply: Mine life for Lisheen cannot be extended and Century mine is closing for sure. Dugald River project and Vedanta’s Gamsberg project are the only two major projects coming up globally. Not many zinc discoveries have happened and open‐cast mines are not likely to come up in near future. Any underground‐mine zinc project takes at least five years for commercialization, thereby reducing the potential for a near‐term supply surge. Only supply expected is from swing mines in China, which will start production at zinc prices of US$ 300/tonne above current levels.

• Production outlook: Refined metal production in FY16 is expected to be 900‐925KT while MIC production is expected to be 900KT. Higher MIC inventory at FY15 end will help the company report higher refined metal production. Rampura Agucha mine (RAM) produced 5.5mn tonnes of ore in FY15, which is expected to be 5mn tonnes in FY16 and FY17 each. The production is expected to reduce to 4.5mn tonnes in FY18 and eventually to 3.75mn tonnes once the open‐cast operations cease.



• Expansion: The company plans to achieve its mined metal output of 1.2mn tonnes in FY19 vs. FY20 planned earlier. RAM underground‐mine expansion is running a year behind schedule and is expected to be commissioned by FY20. Sindesar Khurd (SK) mine underground shaft is running 9‐10 months ahead of schedule and is expected to be commissioned by FY19.

• Cost: COP is expected to increase by low single digits until the underground shafts commission after which cost will drop to current levels.

• Tax rate: Tax rate will be below MAT in FY16. Other income is majorly in tax‐free instruments, leading to lower tax rates.

• MMDR bill impact: All erstwhile RP’s are now useless. HZL expects its 20 prospecting licenses and four mining leases to remain valid. However, even these mines will not be automatically allocated to the company. These mines will be auctioned and HZ will have right of first refusal. Expect auction of new mines to start in the next six months. The Act specifies the DMF ceiling at 100% of royalty, but final rules can specify a lower amount to be applicable currently. Management expects DMF to be set at 33% for new mines and 66% of existing mines.

Long steel trader • Doing volumes of ~350,000 tonnes annually. • Import: Domestic mix improved from 10:90 to 30:70. Though in absolute terms,

both segments saw positive growth. • Satisfied with the 2.5% increase in duty, as it takes care of both the

manufacturers and consumers. After this, domestic prices are now at a premium of 11‐12% to landed imported prices.

• Quality of imported steel from China at par or slightly better than domestically produced.

• They expect to report 25‐30% increase in volumes in FY16. Domestic demand is expected to improve materially in 2HFY16. However, prices should remain range bound at around current levels.

• Import‐to‐domestic mix should remain at current spreads of 11‐12%. However, if premium of domestically produced steel narrows to sub 10%, expects domestic production growth to outpace surge in import.

Flat Steel trader • Caters to NCR, Haryana, Rajasthan, and UP. Distributor for SAIL and JSPL. • Market conditions have deteriorated significantly over the last 2‐3 quarters and

prices have corrected by 15‐20% over this period. • Current HRC prices are at Rs 34,500 plus VAT. These have corrected by Rs 4,000

over the last three months. Expect the prices to correct further with the fall in global prices.

• The dealer is seeing an inventory buildup as he has to meet the monthly commitment in order to be eligible for incentives while the demand continues to be slack on the other end.

• Of the total monthly purchases, 60‐70% are sold and the balance is inventory build up.

• Because of locational disadvantage, they do not import any steel to benefit from lower imported price vis‐à‐vis domestic price.

• Expects no sign of revival for at least the next three months and he is hopeful of improvement at ground level activities after that.

• BIS norms: Steel ministry has recently issued a notification that says traders cannot keep and manufacturers cannot use seconds / faulty material. The material can be kept / billed only in the form of scrap (that has much lower realisations). The notification gives the BIS inspector the right of inspection at any given time. Non‐adherence of the rule will see heavy penalties. The ministry has proposed to convert the notification into a law and has called for suggestions. The notification, which is expected to be enforced from mid‐August



2015, has been opposed by various trade organizations. Seconds material account for roughly 40% of the total material traded by various traders. It also accounts for a good portion of imports into the country. The implementation of the order will be significantly positive for the larger steel producers, who will increase their share of business at the cost of smaller producers and imports.

Midcap VRL Logistics Ltd • Goods transport account for 76% of revenue and 66% is from less than truck

load. The company focus on own vehicles and has in house maintenance facility. The tie up with OEM’s for spare parts, tyre and oil marketing companies for fuel gives cost advantage.

• The company will use its cash flow to repay debt. At present, the company has a total debt of Rs 3.8bn, which is expected to come down to ~Rs 2.4bn by end of FY16; going forward, it plans to maintain debt at Rs 2.3‐2.5bn.

• VRL is looking to capitalize on the growth prospects of the industry as it can leverage the benefits of being an LFO (Large fleet operators). It is well balanced to accelerate growth once the opportunities arrive by way of the GST roll out. The ongoing gradual shift of business from the unorganized sector to the organized players will also be beneficial.

Zicom • Zicom SaaS offer remotely managed security services on monthly revenue

model. It offers security‐managed services with three level of security to retail chains and BFSIs with more than 13,000 enterprise accounts. It has more than 3000 housing societies in Mumbai and Pune under its security services.

• Zicom SaaS is expected to report strong growth with continued flow of orders from banks for ATM surveillance (potential of 500,000 retail and 300,000 ATMs) and housing societies (potential of ~225,000 housing societies in Mumbai and Pune).

• Working capital concern is mainly in the Middle East fire protection business, as it handles specialised large projects. It has ~600 employees in UAE and ~200 in Qatar and ~2,000 on subcontract.

KDDL • Ethos malls showcase brands with prices ranging from Rs 5,000 to Rs 200,000. It

offers watches at airports and is doing well despite high lease rents. It has three duty‐free retail outlets at international terminals and three duty‐paid retail outlets at domestic terminals

• Mass segment watches in India is worth ~Rs 50bn and growing at 7‐8%, while premium and luxury segment market is worth ~Rs 25bn and growing at a higher rate of 18‐20%.

• Compulsory PAN card reporting on purchase bill is not required for watches (as it is in gold jewellery). However, the company has started educating customers about mentioning the PAN card in the billing. Management does not see a major impact even if the government mandates PAN card reporting. Around 40% of its purchases are in cash.

• It expects operating leverage to play out as sales grow and as inventory is not function of sales. Current inventory is 8.5 months on cost and 6.5 months on sales.



Gravita • Gravita has three sources of revenues — lead operations, turnkey operations,

and trading, with lead recycling accounting for ~93% of revenues. • The company is one of the largest lead recyclers in India, with 91,500MT of

capacity across four locations in India and another four overseas. Moving ahead, the company expects to increase its capacity to 155,150MT by the end of FY17.

• Most of its plants offer logistical advantages or are located in tax free zones, enabling the company to maintain steady profitability.

• Sector outlook: Global lead demand stood at ~ 12 mn MT with a growth rate of 7.2% while Indian demand was 1.2mn MT with a growth rate of 15%. India has 30% lead deficit. Secondary lead producers cater to about 75% of Indian lead demand.

• Gravita has global access to cheaper raw material with a global collection network in 17 countries. It imports 90% of the total RM batteries and procures 10% domestically. It has recently entered into the aluminium recycling business, which contributes 4% to revenues.

• The rising demand in the replacement market provides a worthwhile opportunity to Gravita to ramp up its output and obtain benefits of scale.

Pharmaceuticals Aurobindo Pharma • Aurobindo Pharma expects robust annual growth in its US business backed by

continued momentum in its prescription growth, new launches, ramp up in injectables and brand/geographical expansion in the recently acquired Natrol business.

• Aurobindo has built a strong products portfolio of 183 pending ANDAs, including 43 ANDAs from injectables, seven products in controlled substances, and 130 ANDAs under oral solids. It has 10 ANDAs under shared exclusivity. Management indicated it has already received target action dates for 14 ANDAs and expects about 25 ANDA approvals in FY16 (already got USFDA approval for 8 ANDAs in Q1FY16).

• The management foresees muted growth in European operations and neutral EBITDA for FY16. However, it expects strong profitable growth in the European operation led by expansion/penetration in France, Italy, and Belgium (new geography for the company) and new launches. Additionally, the anticipated site transfer of drugs to its integrated new facility in Vizag (commissioning Q3FY15) should drive profitable growth Q1FY17 onwards.

• Aurobindo expects continued profitable growth on better performance in the US, higher contribution from injectables portfolio, improvement in European operations, and margin expansion (led by improved utilization) in Natrol business.

• The company is developing four new projects in the microsphere segment (worth ~US$ 3bn), which could be filed by Q1FY17. Oncology, steroids, and vaccines projects are under development and it expects its first hormone filing in H2FY16. Further, the company has identified 28 oncology molecules and 8 steroid molecules and the development for these is underway.

• Aurobindo’s R&D spend was ~3.5% of sales in FY15 and it guided for R&D spend of 4‐5% of sales in FY16‐17. It also guided at tax remaining at 27% in FY16.

• The company indicated debt reduction of ~US$ 60mn in FY16. As of FY15, it has a gross debt of US$ 713mn and net debt of US$ 638mn. It plans to invest US$ 350mn (US$ 150mn for greenfield and US$ 250mn for brownfield projects) over FY15‐17.

• We estimate Aurobindo Pharma to deliver 19% CAGR in its US sales and 21% CAGR in its consolidated profits over FY15‐17.



Shilpa Medicare • Shilpa has converted its CRAMS alliance into a 50:50 JV and set up a greenfield

facility with an investment of Rs 1.5bn. The commissioning of the plant is expected in Q3FY16 and has a peak sales potential of Rs 5bn.

• Looking at the CRAMS opportunity in oncology formulations, and to leverage its strong association with domestic and global formulators for oncology APIs, Shilpa has set up a greenfield onco‐formulation facility with an investment of Rs 1.5bn in Jadcherla, Andhra Pradesh. The facility is currently producing exhibit batches for dossier development on behalf of partners and paid for this. Onco‐formulation is mainly on cost‐plus contract manufacturing basis.

• Shilpa has signed a technology transfer agreement with global innovator Gilead for manufacturing HIV/AIDS drug APIs and supplying to over 100 countries. Supply of tenofovir is likely Q3FY16 onwards and the management expects full‐fledged ARVs operation by FY18. It expects potential revenue of Rs 2.5‐3.0bn from ARVs by FY18.

Telecom COAI Mr Rajan Mathews: Director General, Cellular Operators Association of India (COAI) Mr Mathews stressed upon the paucity of spectrum in the Indian telecom market and indicated that Indian telecom companies are likely to see improvement in capital efficiency over the next few years. The key takeaways of the meetings: • Developed markets have five different types of networks reaching consumers

and mobile networks are only one of the communication networks. However, in India, mobile networks are the only ubiquitous ones, reaching most of the consumers.

• With only one pervasive network, the spectrum allocated is meagre compared to global standards, where operators enjoy significantly higher allocation of spectrum.

• Backend investments on fibre are increasing with Reliance Jio investing significantly in intra‐city fibre, but a constrain will be last‐mile connectivity, where spectrum still continues to be scarce.

• Data penetration will increase rapidly over the next few with device prices coming down and quality of services improving.

• The economics for data services are favourable and a rapid pick up in services is favourable for capital efficiency.

• Voice realisations have continued to remain sluggish and may not improve significantly in the near term.

• Globally, mobile operators are now investing in fixed‐line assets to improve their backhaul and telecom operators are looking at content. However, no major telecom operator has successfully developed a content platform. Cable operators have been more successful in acquiring and integrating content platforms into their business model.

The telecom industry is poised to grow with data services, but spectrum scarcity issues continue to linger. Capital efficiency will be achieved with growth in data services and consolidation in the industry.



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The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). 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