NOVEMBER 12, 2014 Economy News The Finance Ministry has called a meeting with the Reserve Bank of India (RBI) and other departments concerned on Thursday to review the '80:20' scheme for gold imports. The scheme prescribes that any entity importing gold must re-export 20 per cent of it in value-added form. (BL) The centre and the states moved into the last mile of discussions ahead of agreeing on a single goods and services tax (GST) after a panel proposed to peg the rate at just under 27%. This is roughly the aggregate of centre and states' indirect tax rates that prevail currently. (Mint) The Railways is opening up for investment by foreign and domestic players sanctioned projects worth Rs120 bn. This amount would go up if one were to add the high-speed rail link projects and the North-South freight corridor and passenger terminal development of several stations - whose costs are yet to be worked out. (BL) An inter-ministerial panel arrived at the formula to fix the floor price for e-auction of coal blocks as well as the reserve price for allocation to public sector companies. The price is expected to be announced within a fortnight. (BL) Corporate News Industry experts said according to current trend Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd are likely to reduce pump price of petrol and diesel by about Rs 1 per litre by the end of this week. (ET) Equity % Chg 11 Nov 14 Indian Indices SENSEX Index NIFTY Index BANKEX Index BSET Index BSETCG INDEX BSEOIL INDEX CNXMcap Index BSESMCAP INDEX 27,910 8,363 19,895 10,774 15,883 10,959 12,091 11,162 0.1 0.2 0.7 (0.4) 0.6 0.4 0.8 0.2 6.1 6.4 12.4 0.9 10.7 1.9 7.7 5.2 7.8 8.2 15.4 9.8 9.8 2.6 11.8 12.2 World Indices Dow Jones Nasdaq FTSE NIKKEI HANGSENG 17,615 4,661 6,627 17,124 23,808 0.0 0.2 0.2 2.0 0.3 6.5 9.0 4.5 12.9 3.4 6.4 6.2 (0.1) 13.9 (3.3) Value traded (Rs cr) Tata Consultancy Services, the information technology unit of the Tata Group, is more than a quarter of the way to its goal of garnering $1 billion (more than Rs 61.50 bn) in revenue from the group's companies. (ET) FII FII FII FII The Securities Appellate Tribunal (SAT) admitted the plea of DLF's promoters against a Securities and Exchange Board of India (Sebi) order that had barred the real estate major and related entities from accessing capital markets. (BS) Homegrown auto major Mahindra & Mahindra said it has increased prices of its passenger and commercial vehicles from this month by an average of 1 per cent, in the range of Rs 2,300 to Rs 11,500 (exshowroom), to partially offset the impact of rising input costs. (ET) Amtek Global Technologies, subsidiary of Delhi-based auto component maker Amtek Auto, is set to raise 235 mn euros (about Rs 18 bn) from global investment firm Kohlberg Kravis Roberts (KKR) to meet its longterm financing needs and consolidate its entire debt with a single entity. (ET) % Chg - Day 3,202 16,952 160,446 (15.0) 1.6 0.9 Net inflows (Rs cr) Starting afresh the issue of compensatory tariff charged by Ultra Mega Power Projects (UMPP) operators Tata Power and Adani Group, the Supreme Court stayed the proceedings in APTEL and has decided to hold fresh hearing after November 25. (BS) Hinduja Group flagship company Ashok Leyland is in the process of selling its stakes in some of the overseas joint ventures and associate companies, and is looking for suitable buyer in this regard. (ET) 11 Nov 14 Cash BSE Cash NSE Derivatives FII Mutual Fund Anil Ambani-led Reliance Power commissioned its 100-megawatt concentrated solar power (CSP) project at Jaisalmer, Rajasthan. This is the biggest CSP in the world. Built at a cost of Rs 21 bn, the project has 25 per cent reserve margin to meet 25-year power purchase agreement obligations. (BS) 1 Day 1 Mth 3 Mths 10 Nov 14 % Chg MTD YTD 382 36 (87) (133) 5,862 (769) 22,230 14,319 FII open interest (Rs cr) Index Index Stock Stock 10 Nov 14 % Chg 19,265 62,588 48,647 2,409 2.3 1.2 1.4 14.1 Futures Options Futures Options Advances / Declines (BSE) 11 Nov 14 Advances Declines Unchanged A B T 179 117 3 1089 1,015 74 285 258 27 Total % total 1,553 1,390 104 Commodity 51 46 3 % Chg 11 Nov 14 1 Day 1 Mth 3 Mths Crude (NYMEX) (US$/BBL) 77.5 Gold (US$/OZ) 1,162.4 Silver (US$/OZ) 15.7 (0.6) 0.1 0.3 (9.7) (4.7) (9.4) (20.4) (11.3) (21.4) Debt / forex market 11 Nov 14 1 Day 1 Mth 3 Mths 10 yr G-Sec yield % Re/US$ 8.2 61.6 8.2 61.5 8.5 61.1 8.6 61.2 Sensex 28,000 25,875 23,750 21,625 Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange 19,500 O ct-13 Jan-14 Ap r-14 Jul-14 Oct-14 MORNING INSIGHT November 12, 2014 BHARAT ELECTRONICS LTD (BEL) RESULT UPDATE Sanjeev Zarbade [email protected] +91 22 6621 6305 PRICE: RS.2301 TARGET PRICE: RS.2545 Summary table (Rs mn) FY14 FY15E FY16E Sales 62,755 Growth (%) 1.5 EBITDA 8,911 EBITDA margin (%) 14.6 PBT 11,740 Net profit 9,309 EPS (Rs) 116.4 Growth (%) 3.9 CEPS (Rs) 134.1 BV (Rs/share) 867.2 Dividend / share (Rs) 25.0 ROE (%) 14.0 ROCE (%) 13.3 Net cash (debt) 45,644 NW Capital (Days) 90 EV/Sales (x) 2.3 EV/EBITDA (x) 15.5 P/E (x) 19.8 P/Cash Earnings 17.2 P/BV (x) 2.7 68,440 12.1 10,250 15.0 13,409 10,593 132.4 13.8 151.4 970.3 23.3 14.3 13.6 55,102 73 1.9 12.6 17.4 15.2 2.4 75,601 10.5 12,274 16.2 16,092 12,713 158.9 20.0 179.9 1100.0 25.0 15.2 14.6 63,894 73 1.6 9.8 14.5 12.8 2.1 In a seasonally lean quarter, BEL reported improved order execution leading to significant margin gains and substantial profit beat. Strong order backlog at Rs 229 bn provides 42 months of revenue visibility. EBITDA margins have bounced back in FY14 and H1FY15 and if the execution rate accelerates in the future, the margins can improve further. Valuations have inched up but continue to remain at a substantial discount to peer group (Capital Goods universe). If order execution rate inches up in the coming quarters, then there could be further room for valuations to rise. We remain positive on the stock and revise rating to ACCUMULATE (prior rating was BUY) in view of the sharp rally in the stock and moderate upside from current levels. Risk: Recent amendments to DPP could increase competition for BEL from private sector Quarterly performance (Rs mn) Q2FY15 Net Revenue Other operating income Q2FY14 YoY (%) H1FY15 H1FY14 YoY (%) 12,657 10,093 25.4 22,624 18,939 19.5 283 355 -20.3 438 492 -10.9 revenue distribution (%) 17.0 20.0 -13.9 0.3 0.4 -16.3 Operating Expenditure 11,751 10,431 12.7 22,328 19,973 11.8 Raw Material costs 3,601 5,307 -32.1 9,263 10,205 -9.2 Purchase of stock in trad 3,767 880 327.9 4,619 1,598 189.0 Staff costs 2,976 2,767 7.6 5,953 5,783 2.9 Other expenditure 1,407 1,477 -4.7 2,494 2,387 4.5 Operating profit 1,189 17 6814.0 734 -543 -235.3 375 342 9.6 739 680 8.7 1,106 1,093 1.2 2,258 2,216 1.9 1,920 768 150.1 2,254 994 126.7 Depreciation Other income Source: Company, Kotak Securities - Private Client Research RECOMMENDATION: ACCUMULATE FY16E P/E: 14.5X EBIT Interest PBT Tax 0 0 0.0 0.2 2.8 -92.9 1,920 768 150.1 2,254 991 127.4 447.5 173.3 158.2 525 225 133.3 1,472.6 594.4 147.7 1,729 766 125.6 18.4 7.4 21.6 9.6 9 0 3 (3) Raw Matl costs to sales (%) 28 53 41 54 Trading items to sales (%) 30 9 20 8 Staff costs to sales (%) 24 27 26 31 Other exp to sales (%) 11 15 11 13 Tax rate (%) 23 23 23 23 Adjusted PAT EPS Rs EBITDA (%) Source: Company Earnings estimates (Rs mn) Reported Estimated Revenue 12657 11405 EBITDA (%) 9.0% 0.8% PAT 1473 687 Comments Improved order execution Higher gross margins and fixed cost absorption Significant profit beat Source: Kotak Securities - Private Client Research Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2 MORNING INSIGHT November 12, 2014 Key Result Highlights In a seasonally weak quarter, BEL's revenues were ahead of our estimates. The nature of business that BEL is into is highly unpredictable which results in quarterly volatility in revenues. Major orders delivered during the quarter were Akash Missile Systems, Passive Night Vision Devices, Missile Warning system and Shipborne Electronic Warfare System. Gross margins expanded to 42% from 38% in Q2FY15, likely due to changes in revenue mix. Staff costs grew moderately which helped the company to keep costs under check. EBITDA margins stood at 9% vs 0% in Q2FY14. Consequently, the company posted EBITDA profit of Rs 1.18 bn. Other income remained flat to Rs 1.1 bn due to stagnation in cash in balance sheet at Rs 46.4 bn at end of Q2FY15 from Rs 45 bn at end of Q2FY14. Tax rate for the fiscal remained stable at 23%, lower likely due to higher R&D spend during the quarter. Order book at the end of quarter stands at Rs 228 bn (down 8% and 2% yoy and qoq respectively), providing revenue visibility of 42 months of trailing four quarter revenues. Order intake in Q2FY15 was lower yoy at Rs 8.3 bn vs Rs 10.2 bn in Q2FY14. Among the orders won include Mobile Communication Terminal, weapons locating radar, electronic warfare suites. The company has continued to emphasize on the immense opportunities from Defence offsets. It expects that many foreign companies will source directly from Indian companies or set up JVs to address the offset requirements. It is to be noted that for MMRCA (Medium multi-role combat aircraft) projects, the offset is at 50% of the contract value whereas it is at 30% for all contracts above Rs 3.0. The company has signed Memorandum of Understanding with GOI for revenue of Rs 68.5 bn in FY15 to entitle for "Very Good" rating. This implies a marginal growth over FY14 (FY14 MOU target was Rs 67.5 bn). Our revenue forecast is in line as we take into account better performance in H1FY15. We recommend ACCUMULATE on Bharat Electronics with a price target of Rs.2545 Kotak Securities - Private Client Research Valuation: At the current price, BEL is trading at 17.4x and 14.5x FY15 and FY16 earnings respectively. On a forward EV/EBITDA basis, the company trades at 9.8x. In view of the moderate upside of 11% to our DCF based target price of Rs 2545 (Rs 2338 earlier), we revise rating to "ACCUMULATE", thereby advising investors to buy on declines. Please see the disclaimer on the last page For Private Circulation 3 MORNING INSIGHT November 12, 2014 VOLTAMP LTD RESULT UPDATE Sanjeev Zarbade [email protected] +91 22 6621 6305 PRICE: RS.680 TARGET PRICE: RS.660 RECOMMENDATION: SELL FY16E P/E: 15.1X Aided by other income, Voltamp's profit numbers are in line with our expectations but at the EBITDA levels, there is a significant slump in margins. We understand from the management that the market scenario remains dire and characterized by severe price pressures. We see scope for earnings trajectory improving in the next few years as the industrial demand emerges from a downcycle. There is potential that the company could surprise on margins as well as revenue side. However, in view of full valuation, we advise investors to look for better price points to enter the stock. Hence recommend Sell. Risk: Weak industry outlook characterized by intense price undercutting. Quarterly financial performance Summary table (Rs mn) FY14 FY15E FY16E Sales 4,448 Growth (%) -14 EBITDA 150 EBITDA margin (%) 3.4 PBT 342 Net profit 263 EPS (Rs) 26 Growth (%) (20) CEPS (Rs) 33 BV (Rs/share) 411 Dividend / share (Rs) 15 ROE (%) 6 ROCE (%) 6 Net cash (debt) 6 NW Capital (Days) 130 EV/Sales (x) 1.1 EV/EBITDA (x) 31.2 P/E (x) 26.1 P/Cash Earnings 20.5 P/BV (x) 1.7 4,786 8 232 4.9 439 353 35 34 42 434 10 8 8 152 125 0.9 19.5 19.5 16.1 1.6 5,263 10 385 7.3 617 456 45 29 53 468 10 10 10 428 116 0.8 11.0 15.1 12.8 1.5 Source: Company, Kotak Securities - Private Client Research (Rs mn) Q2FY15 Volume MVA Gross revenues per MVA Gross sales Excise Q2FY14 YoY (%) H1FY15 H1FY14 YoY (%) 2,049 1,417 45 3,348 2,886 16 727,477 764,996 -5 1426,822 1457,985 -2 1,491 1,084 38 2,399 2,102 14 146 104 40 221 193 14 Net Sales / Income from Opns 1,345 980 37 2,178 1,909 14 1,399 1,025 36 2,294 2,047 12 Consumption of Raw Materials 1,155 16 Total Income 815 42 1,797 1,550 47 46 1 96 95 1 117 105 12 219 215 1 1,319 966 37 2,112 1,860 14 PBDIT 26 14 83 66 49 36 Depreciation 20 18 15 40 35 13 Other Income 54 45 19 116 138 -16 EBIT 59 41 43 142 151 -6 Interest & Finance Charges 0.9 0.7 34 2 2 -8 Profit / (Loss) before tax 58 41 43 140 149 -6 Staff Cost Other Expenditure Operating Expenditures Tax provision Profit / (Loss) after tax EPS (Rs) 9 1 917 24 30 -21 49 40 24 117 119 -2 4.87 3.94 24 12 12 -2 Ratios Excise rate (%) 9.8 9.6 9.2 9.2 EBITDA (%) 1.9 1.4 3.1 2.6 Gross profit/MVA (Rs/MVA) 92,352 116,302 113,734 124,428 EBITDA/MVA (Rs/MVA) 12,460 9,852 19,857 16,965 563,919 575,300 536,879 537,041 85.9 83.2 82.5 81.2 RM cost per MVA (Rs/MVA) RM cost to sales (%) Other exp to sales (%) 8.7 10.7 10.0 11.3 Tax rate adj for ot income (%) 210.1 -19.6 95.3 252.1 2.2 16.9 20.1 Tax rate (%) 15.4 Source: Company Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 4 MORNING INSIGHT November 12, 2014 Earnings estimates (Rs mn) Reported Estimated Revenue Remark 1,345 917 Revenue growth ahead of estimate EBITDA (%) 1.9 3.4 Low gross margins PAT 49 48 PAT shored by other income Source: Kotak Securities - Private Client Research Erosion in profitability continues on delivery of low margin orders Net sales grew by 37% yoy as the company delivered a large order from the Gujarat Electricity Board. EBITDA margin expanded by 50 bps to 1.9% in the quarter, far lower than expectations. Gross margins stood at 14.1% in Q2FY15 vs 16.8% in Q2FY14, which was partly attributed to delivery of some low margins orders during the quarter. EBITDA margins have remained at depressed levels on account of lower throughput coupled with pricing pressure on electrical equipments. Order backlog stands at Rs 3.15 bn vs Rs 2.98 bn at the end of Q2 FY14. The management remains negative on the demand outlook and expects the subdued demand conditions to continue in the foreseeable future. In this scenario, the company's focus remains on profit and cash preservation, which is the right approach in our view. The company remains debt free and has sizeable investments worth ~ Rs 2.2 bn in treasury instruments. Receivables turnover continue to be at elevated levels at 82 days of trailing four quarter sales (63 days yoy). EBITDA margin trend (%) Source: Company Outlook Although there has been a perceptible improvement in sentiment corporate India, it is yet to translate into order enquiries. The order pipeline is not adequate as yet and after two years of contraction, the T&D equipment industry could at best report marginal growth in 2014. We recommend SELL on Voltamp Ltd with a price target of Rs.660 Valuation The Voltamp stock is currently trading at 19.5x and 15.1x FY15 and FY16 earnings respectively. The stock appears fully valued based on foreseeable earnings. Hence maintain SELL. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 5 MORNING INSIGHT November 12, 2014 KALPATARU POWER TRANSMISSION LTD (KPTL) RESULT UPDATE Ruchir Khare [email protected] +91 22 6621 6448 PRICE: RS.166 TARGET PRICE: RS.183 RECOMMENDATION: ACCUMULATE FY16E P/E: 10.9X KPTL reported Q2FY15 results above our estimates on back of superior execution in T&D orders. Order intake remained weak in the quarter due to muted activity in domestic market. Management believes that the ordering should pick up through Q4FY15-FY16 on back of increased public spending in infrastructure space. In view of marginal upside to our unchanged target price of Rs 183, we maintain 'Accumulate' (Buy on dips) rating on company's stock Standalone Result Summary table (Rs mn) FY14 FY15E FY16E (Rs mn) Sales 40,552 Growth (%) 21.6 EBITDA 3,863 EBITDA margin (%) 9.5 PBT 2,190 Net profit (Adj) 1,463 EPS (Rs) 9.5 Growth (%) 6.3 CEPS (Rs) 14.1 BV (Rs/share) 125.3 Dividend/share (Rs) 1.3 ROE (%) 7.7 ROCE (%) 12.5 Net cash (debt) (6,636) NW Capital (Days) 151 EV/Sales (x) 0.8 EV/EBITDA (x) 8.3 P/E (x) 17.4 P/Cash Earnings (x) 11.8 P/BV (x) 1.3 44,669 10.2 4,395 9.8 2,527 1,794 11.7 22.6 17.0 135.5 1.3 8.8 13.0 (6,637) 146 0.7 7.3 14.2 9.7 1.2 50,633 13.4 5,245 10.4 3,298 2,342 15.3 30.5 21.4 147.9 1.3 10.6 14.6 (7,438) 146 0.7 6.3 10.9 7.7 1.1 Net Sales Source: Company, Kotak Securities - Private Client Research Q2FY15 Q2FY14 YoY (%) Q1FY15 QoQ (%) 11407 9622 18.6 10634 7.3 Other Income 195.7 141.2 38.6 105.6 85.3 Raw Material 5263.3 4758.6 10.6 4429.8 18.8 778 592.1 31.4 742 4.9 job charges 2926 2217.2 32.0 2855.4 2.5 Other expenditure 1402 1142.8 22.7 1544 (9.2) Total Expenditure 10369 8711 19.0 9571 8.3 PBIDT 1038 911 13.9 1063 (2.4) Staff costs Finance cost 368 410 -10.2 328 12.2 PBDT 865 642 34.7 840 3.0 Depreciation 223 173.4 28.6 204.4 9.1 PBT 642 469 36.9 636 1.0 Tax 216 159.2 35.7 217.5 (0.7) PAT 426 310 37.6 419 1.9 EPS (Rs) 2.8 2.0 37.6 2.7 1.9 EBDIT (%) 9.1 9.5 10.0 46.1 49.5 41.7 6.8 6.2 7.0 job charges to sales (%) 25.7 23.0 26.9 Other expenditure to sales (%) 12.3 11.9 14.5 Tax rate (%) 33.6 33.9 34.2 Raw material costs to sales (%) Staff costs to sales (%) Source: Company Result Highlights KPTL reported strong revenue growth at Rs 11.4 Bn in Q2FY15, 18.6% YoY growth driven by T&D business. Transmission business grew by 21% YoY in the quarter. Company reported operating margin at 9.1% in the quarter vis-à-vis 9.5%. While KPTL maintained margins in T&D business, EBIT margins in infrastructure business continued to remain lackluster. Management has stated that the existing low margin orders now constitutes to a lower proportion in existing order book. Staff cost and job charges increased by 31.4% and 32% YoY respectively in the quarter. In T&D, management has stated that the domestic market could improve through FY16 on back of increased spending on T&D projects. Overseas markets (mainly African/SAARC regions) could also observe traction. We highlight that international revenues now contributed to over 55% of the revenue pie. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 6 MORNING INSIGHT November 12, 2014 Segment reporting Q2FY15 Q2FY15 YoY (%) Q1FY15 QoQ (%) 10,805 8,906 21.3 9,928 8.8 440 556 -20.9 566 (22.3) 10.0 Standalone Revenues (Rs mn) T& Dist business Infrastructure PBIT (Rs mn) T& Dist business Infrastructure 954 867 988 (3.4) (124) (145) (135) - 8.8 9.7 9.9 - - - PBIT (%) T& Dist business Infrastructure Source: Company Finance cost in Q2FY15 increased to Rs 368 mn in the quarter vis-à-vis Rs 410 mn last year. Company reported Rs 216 mn of tax expense in the quarter that resulted in the reported PAT at Rs 426 mn in Q2FY15 vis-à-vis Rs 310 mn last year. Company has been deploying significant resources in its subsidiary JMC involved in road construction projects. Margins so far, have been disappointing for the subsidiary. JMC has reported revenues at Rs 5.8 Bn in Q2FY15 against Rs 6.1 Bn in Q2FY14. PAT for JMC, stood at Rs 43 mn up 39% YoY. In Q2FY15, Shree Shubham Logistics (SSLL) has reported revenue at Rs 783 mn against Rs 930 mn in the previous year. EBITDA for SSLL stood at Rs 114 mn visà-vis Rs 115 mn in Q2FY14. KPTL current standalone order book stands at close to Rs 55.5 Bn (flat YoY). Order intake in the quarter stood at Rs 9.1 Bn. Management expect order flows through 4QFY15-FY16. We recommend ACCUMULATE on Kalpataru Power Transmission with a price target of Rs.183 Valuation & Recommendation At CMP of Rs.166, KTPL stock is trading at 6.3x EV/EBITDA and 10.9x P/E based on FY16E earnings. We factor in 1) improved medium/long term outlook and 2) increased market value of KPTL's key subsidiary JMC projects in our DCF. In view of marginal upside to our unchanged target price of Rs 183, we maintain 'ACCUMULATE' (Buy on dips) rating on company's stock. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 7 MORNING INSIGHT November 12, 2014 IL&FS TRANSPORTATION NETWORKS LTD RESULT UPDATE Teena Virmani [email protected] +91 22 6621 6302 PRICE: RS.196 TARGET PRICE: RS.214 RECOMMENDATION: ACCUMULATE FY16E P/E: 14.1X IL&FS Transportation networks Ltd (ITNL) revenues for the quarter were in line with our estimates and were boosted by claims received during the quarter. Margins are also high on account of one time claims received during the quarter. Based on current order book and portfolio of projects, we expect construction revenues to start recovering in coming quarters while completion of work on under construction projects is expected to increase the toll revenues during this year and going forward. We maintain our estimates and maintain ACCUMULATE on stock owing to limited upside from the current levels. We recommend investors to buy the stock on declines. Summary table (Rs mn) FY14 FY15E FY16E Sales 65,870 71,665 71,737 Growth (%) (0.9) 8.8 0.1 EBITDA 18,897 21,584 22,194 EBITDA margin (%) 28.7% 30.1% 30.9% PBT 4,831 4,903 5,500 Net profit 4,631 3,169 3,429 EPS (Rs) 23.8 12.8 13.9 Growth (%) (11.0) (46.1) 8.2 CEPS(Rs) 31.6 20.6 24.5 BV (Rs/share) 257.6 230.8 238.6 DPS (Rs) 5.1 5.1 5.1 ROE (%) 10.7 5.9 5.9 ROCE (%) 9.3 8.4 7.5 Net debt 176,762 197,573 208,164 Net WCapital (Days) 54 58 61 P/E (x) 8.2 15.3 14.1 P/BV (x) 0.8 0.8 0.8 EV/Sales (x) 3.3 3.5 3.6 EV/EBITDA (x) 11.6 11.6 11.8 Result highlights Revenues of the company for Q2FY15 reported a growth of 12% led by compensation claims to the tune of Rs 2609 mn due to delays in handing over land for project execution. Operating margins stood at 41% during Q2FY15 as against 37.2% in Q2FY14 and stood better than our estimates on account of claims received during the quarter. Net profit reported a decline of 11% YoY for Q2FY15 and was impacted by increase in interest and depreciation charges but was boosted by higher other income and higher margins. Financial highlights DESCRIPTION Q2FY15 Q2FY14 YoY (%) Net Sales 15015.6 13407.0 12.0% 8859.6 8416.6 5.3% -4.9 1.8 345.2 303.5 Total Expenditure (Increase) / Decrease In Stocks Cost of Services & Raw Materials Purchase of Finished Goods Source: Company, Kotak Securities - Private Client Research 0.0 11.3 Operating & Manufacturing Expenses 7335.1 7049.4 Employee Cost 1184.2 1050.6 6156.0 4990.4 41% 37.2% EBITDA EBITDA % Depreciation EBIT Interest 432.2 276.1 5723.8 4714.3 4939.6 3626.1 EBT(exc other income) 784.2 1088.2 Other Income 712.8 267.1 PBT 1497.0 1355.3 Tax 615.9 219.6 0.4 16.2% 881.1 1135.7 76.7 -38.7 Tax (%) PAT Minority Interest Shares of Associates Consolidated net profit Equity Capital EPS (Rs) 31.6 15.7 989.4 1112.7 2467.2 1942.7 4.0 5.7 23.4% 21.4% -27.9% 10.5% -22.4% -11.1% Source: Company Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 8 MORNING INSIGHT November 12, 2014 At current price of Rs 196, stock is trading at 15.3x and 14.1x P/E and 11.6x and 11.8x EV/EBITDA on FY15 and FY16 estimates respectively. We incorporate annual report details and arrive at a revised price target of Rs 214 on FY16 estimates. (Rs 217 earlier). Owing to limited upside from the current levels, we maintain ACCUMULATE rating on the stock and would recommend investors to buy the stock on declines. Revenue growth boosted by claims Revenues of the company for Q2FY15 reported a growth of 12% led by compensation claims to the tune of Rs 2609 mn due to delays in handing over land for project execution. Adjusted with this, revenues were lower than our estimates and were impacted by floods in J&K thereby impacting execution. Thus EPC revenues improved during the quarter by 19.6% YoY. Projects like Jharkhand CKC, Chandrapur Warora and Chenani Nashri contributed to EPC revenues. However, Elsamax revenues witnessed a decline of 4% YoY and toll revenues improved by 19% YoY led by commissioning of projects like Pune-Solapur, Narkatpally-Addanki and some check posts of MPRDC. Fee income during the quarter has declined by 22% during the quarter as company had largely booked fee income in previous quarters. During the quarter, Elsamex SA, has been awarded a contract by the Ethiopian Roads Authority for Construction of Ambo-Wolliso Road Upgrading Project worth approximately Rs 3.63 bn for a total length of 62.7 Km to be executed in a period of 36 months. ITNL has also been issued provisional completion certificate for SeoniNagpur Border check post by MPRDC Ltd. This is in addition to 7 check posts already in operation by the company. During Oct,14, provisional completion certificate for Chindwara - Nagpur & Kabir - Chabutara Border Check Posts was also given by MPRDC Ltd. Current order book of company stands at Rs 139 bn and we expect construction division revenues to grow to Rs 45 bn and Rs 41 bn for FY15 and FY16 respectively Operating margins ahead of our estimates Operating margins stood at 41% during Q2FY15 as against 37.2% in Q2FY14 and stood better than our estimates on account of claims received during the quarter. We maintain our estimates and expect margins to be 30.1% and 30.9% for FY15 and FY16 respectively. Margins for the full year are expected to increase in FY15 due to increase in proportion of toll revenues to the total revenues. Net profits ahead of our estimates Net profit reported a decline of 11% YoY for Q2FY15 and was impacted by increase in interest and depreciation charges but was boosted by higher other income and higher margins. During H1FY15, other income was high due to stake sale in GRICL. On sequential basis, company witnessed an increase of 7% in debt at consolidated level due to drawdown of already sanctioned debt on projects under construction. D/ E for Q2FY15 stood at 3.68x as compared to 3.49x for Q1FY15. Company expects incremental equity requirement of Rs 8.97 bn for the existing projects. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 9 MORNING INSIGHT November 12, 2014 Sum of the parts valuation Sum of the parts valuation EPS(FY16E) Multiple 19 8 Core construction division Toll projects EV(Rs mn) Stake(%) Value per share 148 Cost of equity(%) Noida Toll bridge 13.8% Operational 3910 25% 4 West Gujarat Exp Ltd 13.8% Operational 998 100% 4 Gujarat Roads 13.8% Operational 10427 84% 36 RIDCOR Phase 1 13.8% Operational 9998 50% 20 Beawer Gomti 13.8% Operational 394 100% 2 Pune-Sholapur 13.8% Operational 7714 100% 31 RIDCOR Phase 2 13.8% Under Cons 1654 50% 3 Chandrapur Warora 13.8% Under Cons 741 35% 1 Moradabad Bareilly 13.8% Under Cons 8314 100% 34 Narkatpally Adanki 13.8% Operational 3168 50% 6 Kiratpur Ner chowk 13.8% Under Cons 2044 100% 8 Sikar Bikaner 13.8% Under Cons 492 100% 2 Kharagpur Baleshwar 13.8% Under Cons 382 100% 2 North Karnataka Exp 13.8% Operational 383 88% 1 Andhra Pradesh Exp 13.8% Operational 870 100% 4 Thiruvanantpuram Phase 1 13.8% Operational -23 50% 0 East Hyd Exp 13.8% Operational 420 74% 1 Thiruvanantpuram Phase 2 13.8% Under Cons -767 50% -2 Jharkhand roads -RRR,RPR1,RPR2 13.8% Under Cons 1631 100% 8 Jharkhand roads -CKC,AK 13.8% Operational 1278 100% 5 Hazaribag Ranchi 13.8% Under Cons 1228 74% 4 Chenani Nashri 13.8% Under Cons 4302 100% 17 Jorabat-Shillong 13.8% Under Cons 982 50% 2 Elsamex P/BV of 1.5 x 2700 100% 21 Gurgaon Metro Rail P/BV of 1.5 x 1860 59.30% 9 MP border check post P/BV of 1.5 x 1136 51% 4 Annuity Projects Other projects Bus transport system P/BV of 1 x 156 90% 1 Yuhe Expressway P/BV of 1 x 1100 49% 3 Net Debt at standalone level 32057 165 Total 214 Source: Kotak Securities - Private Client Research Valuation and recommendation At current price of Rs 196, stock is trading at 15.3x and 14.1x P/E and 11.6x and 11.8x EV/EBITDA on FY15 and FY16 estimates respectively. We recommend ACCUMULATE on IL&FS Transportation Networks with a price target of Rs.214 Kotak Securities - Private Client Research We incorporate annual report details and arrive at a revised price target of Rs 214 on FY16 estimates. (Rs 217 earlier). Owing to limited upside from the current levels, we maintain ACCUMULATE rating on the stock and would recommend investors to buy the stock on declines. Please see the disclaimer on the last page For Private Circulation 10 MORNING INSIGHT November 12, 2014 ENIL RESULT UPDATE Ritwik Rai [email protected] +91 22 6621 6310 PRICE: RS.525 TARGET PRICE: RS.575 RECOMMENDATION: ACCUMULATE FY16E P/E: 22.2X ENIL reported a robust set of results for 2QFY15, on the back of strong growth in radio industry, as also growth in the non-radio business of the company. Management has indicated that the company continues to see strong growth in revenues in October/ November so far, and sounded more confident about near-term growth prospects - this also leads to improved outlook on margins. We raise our EPS estimates 9%/9% for FY15/FY16. The company stays well-placed to benefit from growth in radio industry, as also upcoming regulatory changes (Phase -3 auctions), which are expected to happen in the next 1-2 quarters. We believe the stock shall receive stronger valuations going forward, and raise our price target to Rs 575 (earlier Rs 457). We retain ACCUMULATE, and would look to buy ENIL at lower prices. Results Summary Summary table (Rs mn) Rsmn, FY Ends Mar FY14 FY15E FY16E Sales 3,848 Growth (%) 13.7 EBITDA 1,250 EBITDA margin (%) 32.5 PBT 1,155 Net profit 835 EPS (Rs) 17.5 Growth (%) 23.3 CEPS (Rs) 24.2 BV (Rs/share) 123.0 Dividend / share (Rs) 1.0 ROE (%) 15.3 ROCE (%) 15.3 Net cash (debt) 3,570 NW Capital (Days) 82 P/E (x) 30.0 P/BV (x) 4.3 EV/Sales (x) 5.6 EV/EBITDA (x) 17.2 4,368 13.5 1,465 33.6 1,417 950 19.9 13.8 26.6 142.0 1.0 15.0 15.0 4,467 82 26.4 3.7 4.7 14.0 4,935 13.0 1,708 34.6 1,710 1,128 23.7 18.8 30.3 164.6 1.0 15.4 15.4 5,532 83 22.2 3.2 4.0 11.4 Source: Company, Kotak Securities - Private Client Research Net Sales Q2FY15 Q2FY14 % chg y/y Q1FY15 % chg q/q 1040 855 22% 918 13% 3 10 -67% 15 -76% Total Operating Income 1044 865 21% 933 12% Expenses: 25% Other Operating Income 727 613 19% 584 Production Expenses 45 41 11% 41 9% License Fees 53 47 13% 47 13% Employees cost 202 186 9% 204 -1% Marketing Expenses 237 171 39% 120 97% Administration and Other Exp 190 169 12% 171 11% EBITDA 317 253 25% 349 -9% Margin (%) 30.3 29.2 1.13ppt 37.4 -0.19ppt Depreciation 26 24 7% 27 -4% Amortisation 56 55 1% 55 1% 235 173 36% 267 -12% 79 55 43% 71 10% EBIT Other Income Interest (net) 0 0 NM 0 PBT (Pre-exc) 313 228 37% 338 -7% PBT Reported 313 228 37% 338 -7% 81 64 26% 95 -15% Provision for Tax Effective Tax Rate (%) 25.7 28.1 -2.35ppt 28.2 -0.09ppt PAT 233 164 42% 243 -4% Source: Company Reports ENIL has reported a strong set of financials for the quarter, led by topline growth. The company's revenues came in 6% ahead of our expectations. The company said that, during the quarter, radio industry continued to grow faster than print and television. Categories that registered strong growth included Media and Entertainment (M&E), auto sector, retail, services, and FMCG. This quarter's results do not include any impact from political advertising (ost of political advertising happened in October), while government revenues actually registered a decline. In the quarter, growth in advertising revenues was largely aided by volume growth, with some improvement in yields. Blended utilization for the quarter rose to 101% (based on 13 minutes/ hour). Also, non-radio business of the company registered strong growth (+32%, y/y), which helped topline growth. As guided by the management, marketing expenses of the company registered Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 11 MORNING INSIGHT November 12, 2014 high growth (+39% y/y), due to campaigns in Mumbai and Delhi. The company expects that the employee expenses and marketing expenses shall continue to see high growth as the company aims to improve its capabilities and enhance brand prior to Phase - 3 auctions. Other expenses followed the expected trend; EBITDA came in 8.5% ahead of our expectations, largely due to strong growth in revenues. The provision for tax in the quarter includes a deferred tax charge of Rs 22mn. In the quarter, the company generated Rs 177.9mn cash. Free cash with the company, at the end of the quarter, is Rs 4817mn. Management believes that Phase-3 auctions are likely to take place in the coming few months. On the conference call, the company has said that advertising in October/ November has been strong for radio industry as a whole. October has benefited to an extent from political advertising in Maharashtra (and modestly in Delhi). Management has indicated that it expects that despite rise in personnel and advertising and promotion spends, the company is likely to witness an improvement in margin for the year as a whole. Outlook and Investment View The company has reported strong results in the quarter, and is likely to report strong results in the coming quarters as well, as political advertising is likely to support the topline growth. WE revise our estimates 9%/9% for FY15/FY16 following strong results. We remain positive on ENIL as we think: 1/ long-term driver of radio outperformance, the relatively low ratio of advertising revenues given the time spent, 2/ radio industry is likely to continue outperforming other media vehicles as focus on customer promotions is likely to remain, 3/ we think that e-commerce, with fresh capital coming in, is likely to be a significant advertising category for radio industry; industry is likely to benefit disproportionately given high concentration in urban areas and small size of radio industry. We recommend ACCUMULATE on ENIL with a price target of Rs.575 Kotak Securities - Private Client Research We raise the target price of ENIL to 575 (Rs 454 earlier), as we believe ENIL is likely to be rewarded for high visibility in earnings and potential for high longterm growth. We retain ACCUMULATE. Upcoming auctions for Phase - 3 of FM radio/ extension of licenses are the most significant risk for ENIL. Please see the disclaimer on the last page For Private Circulation 12 MORNING INSIGHT November 12, 2014 APOLLO TYRES (APTY) RESULT UPDATE Arun Agarwal [email protected] +91 22 6621 6143 PRICE: RS.233 TARGET PRICE: RS.251 RECOMMENDATION: ACCUMULATE FY16E P/E: 10.2X APTY's 2QFY15 consolidated revenue came in at Rs33,152mn and was down by 3% YoY due to part sale of South African business in 2HFY14. EBITDA margin benefitted from weak rubber prices and the same expanded by 172bps - both YoY and QoQ. PAT at Rs2,579mn was up by 18% YoY and 13% QoQ. After witnessing demand slowdown for the past two years, tyre demand is expected to pick-up over the medium to long term. Weak natural rubber prices and decline in crude oil price provide with comfort on the EBITDA margin front. We marginally revise our FY15 and FY16 estimates upward. We raise our target price on the stock to Rs251 (earlier Rs218) and retain our ACCUMULATE (buy on decline) rating on the stock Standalone result highlights Quarterly performance (Standalone) Summary table (Rs mn) FY14 FY15E FY16E (Rs mn) Sales 134,120 137,286 154,917 Growth (%) 4.8 2.4 12.8 EBITDA 18,755 20,333 22,144 EBITDA margin (%) 14.0 14.8 14.3 PBT 12,319 14,853 16,427 Net profit 10,051 10,862 11,643 EPS (Rs) 19.9 21.3 22.8 Growth (%) 64.1 6.8 7.2 CEPS (Rs) 28.1 29.6 31.7 BV (Rs/share) 90.7 109.9 131.9 Dividend / share (Rs) 0.7 0.8 0.8 ROE (%) 26.0 21.3 18.9 ROCE (%) 23.7 23.7 21.2 Net cash (debt) (9,704) (13,867) (19,036) NW Capital (Days) 52.7 55.9 53.7 P/E (x) 11.7 10.9 10.2 P/BV (x) 2.6 2.1 1.8 EV/Sales (x) 0.9 1.0 0.9 EV/EBITDA (x) 6.8 6.5 6.2 Revenues Source: Company, Kotak Securities - Private Client Research Reported PAT 2QFY15 2QFY14 YoY (%) 1QFY15 QoQ (%) 22,496 21,068 6.8 23,065 (2.5) Total expenditure 19,231 18,338 4.9 20,185 (4.7) RM consumed 14,170 14,254 (0.6) 15,413 (8.1) Employee cost 1,407 1,145 22.9 1,475 (4.6) Other expenses 3,654 2,939 24.3 3,297 10.8 EBITDA 3,265 2,730 19.6 2,881 13.3 EBITDA margin (%) 14.5 13.0 - 12.5 - Depreciation 677 609 11.1 606 11.7 Interest cost 460 615 (25.2) 513 (10.4) Other Income 154 158 (2.3) 217 (29) 2,283 1,614 41.4 1,978 15.4 PBT margins (%) 10.1 7.7 Tax 666 523 Exceptional item PBT Tax rate (%) (50) 8.6 27.3 588 13.2 29.2 32.4 - 29.7 - 1,617 1,091 48.1 1,391 16.3 PAT margins (%) 7.2 5.2 - 6.0 - Reported EPS (Rs) 3.2 2.2 46.5 2.7 16.3 Source: Company APTY's 2QFY15, standalone revenues came in at Rs22,496mn, 7% higher over 2QFY14 revenue of Rs21,068mn. Revenue growth came on 7% volume increase, though there was negative 1% impact of price and mix. On a sequential basis, the company reported 3% decline in revenues. Company benefitted from soft rubber prices. Gross margins of the company expanded by 467bps YoY and 383bps QoQ to 37%. Employee cost during the quarter was up by 23%, though the same was lower by 5% QoQ. Other expenses during the quarter was on the higher side. Other expenses at Rs3,654mn increased by 24% YoY 11% QoQ. Management attributed increase in freight cost and marketing/advertisement spend as the reason for rise in other expenses. EBITDA during the quarter grew by 20% YoY and 13% QoQ and the same was primarily on account of benefit from lower input cost. EBITDA margin at 14.5% was higher by 150bps YoY and 200bps QoQ. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 13 MORNING INSIGHT November 12, 2014 Depreciation cost was higher by 11% YoY and 12% QoQ. Other income declined marginally YoY. Interest cost declined for third consecutive quarter. Interest cost declined by 25% YoY and 10% QoQ. APTY reported standalone PAT of Rs1,617mn, a growth of 48% YoY and 16% QoQ. Consolidated result highlights Quarterly performance (Consolidated) (Rs mn) Revenues 2QFY15 2QFY14 YoY (%) 1QFY15 QoQ (%) 33,152 34,335 (3.4) 32,476 2.1 Total expenditure 28,218 29,815 (5.4) 28,188 0.1 RM consumed 18,475 20,213 (8.6) 18,329 0.8 Employee cost 4,264 4,227 0.9 4,320 (1.3) Other expenses 5,479 5,376 1.9 5,539 (1.1) EBITDA 4,935 4,520 9.2 4,287 15.1 14.9 13.2 - 13.2 - EBITDA margin (%) Depreciation 1,070 1,038 3.1 1,004 6.6 Interest cost 496 756 (34.4) 530 (6.3) Other Income 196 290 (32.5) 186 5.2 (300) - 3,564 2,611 36.5 10.8 7.6 Exceptional item PBT PBT margins (%) 3,044 17.1 9.4 Tax 985 417 136.4 764 28.9 Tax rate (%) 27.6 16.0 - 25.1 - 17.5 2,279 13.2 Reported PAT 2,579 2,195 PAT margins (%) 7.8 6.4 Reported EPS (Rs) 5.1 4.4 16.2 4.5 13.2 2QFY15 2QFY14 YoY% 1QFY15 QoQ% 22,651 21,227 6.7 23,282 (2.7) 1,903 3,752 (49.3) 1,598 19.1 10,544 10,609 (0.6) 9,503 11.0 12.1 10.7 - 10.7 - 0.7 2.2 - 1.1 - 13.0 11.8 - 11.3 - 7.0 Source: Company Segmental performance (Rs mn) Segmental Revenues India South Africa Europe EBIT margins (%) India South Africa Europe Source: Company Consolidated revenues in 2QFY15 de-grew by 4% YoY and on a QoQ bias, reported marginal growth. India operations revenues inched up by 7% YoY and the same stood at Rs22,651mn. As compared with 1QFY15, revenues declined marginally. Revenues from the South African operations are not strictly comparable on a YoY basis. Company closed the deal with SRI in 3QFY14. So post 3QFY14, revenues consist of only one plant. Accordingly revenues on a YoY basis are down significantly. On a sequential basis, revenues grew by 19% to Rs1,903mn. From European operations, revenue growth stood flat at Rs10,554mn. While volumes increased by around 2%, there was negative impact of price and mix. On a QoQ basis, company reported 11% jump in revenues. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 14 MORNING INSIGHT November 12, 2014 On weak natural rubber prices, the company reported gross margin improvement from 41.1% in 2QFY14 and 43.6% in 1QFY15 to 44.3% during the quarter under review. Gross margin expansion was primarily contributed by Indian operations. Despite sharp rise in standalone employee cost, on a consolidated basis, employee cost increased marginally by 1%. Similarly, even other expenses increased marginally by 2%, despite 24% rise in Indian operations. One of the reason for the same is part sale of South African operations in 3QFY14. Consolidated EBITDA grew by 9% YoY and 15% QoQ to Rs4,935mn. EBITDA margin increased from 13.2% in 2QFY14 and 1QFY15 to 14.9% in 2QFY15. EBIT margins improved both YoY and QoQ at Indian and European operations. In India, 2QFY15 EBIT margins stood at 12.1%, as against 10.7% in 2QFY14 and 1QFY15. Similarly, European operations reported EBIT margin at 13%, up from 11.8% in 2QFY14 and 11.3% in 1QFY15. In Europe, EBITDA margin increased from 15% to 17% in 2QFY15. In line with standalone operations, interest cost at the consolidated basis witnessed sharp YoY decline. APTY reported consolidated PAT of Rs2,579mn, 18% higher over 2QFY14 PAT of Rs2,195mn. Sequentially, profits were up by 13%. Conference Call Highlights Management said that in India, there are signs of demand pick-up but they are still weak. Industry is not witnessing significant price cuts but there is some discounting and there no increase in discounting levels in the past 3-6 months. In 2QFY15, APTY witnessed volume growth in the truck segment, slightly below 10%. Passenger car volumes grew by 15% but there was de-growth in farm segment volumes. MHCV replacement demand is growing in low single digit. Management expects economic recovery will see good pick-up in MHCV replacement demand. Capacity utilization at Indian operations increased from ~75% to more than 80%. Capacity utilization in the truck bias segment has remained same between 70-75%, but in the truck radial side, the company has witnessed improvement in capacity utilization. Truck Bias and Truck Radial capacity stands at 800MTPD and 600MTPD respectively. In Europe, management said that despite worries on European economy, the passenger car industry demand continues to be in positive territory. In 2QFY15, the company operated at 90% capacity utilization. With 3Q being the best period, capacity utilization will reach its peak. In the South African operations, the company initiated Business Rescue Proceedings in order to re-structure its operations there. In 2QFY15, South African operations achieved break-even levels. On the raw material side, the management believes that natural rubber prices have bottomed out. Going forward, there could be marginal increase in natural rubber and other raw material prices. Crude oil price decline benefit generally comes after a lag of two quarters. Management cautioned that, crude oil price decline may necessarily not lead to decrease in crude derivatives as they have their own dynamics. Average raw material cost for the quarter was - Natural Rubber Rs150/kg, Synthetic Rubber Rs140/kg, Carbon Black - Rs87/kg. In 2QFY15, at the standalone operations, 23% revenues came from OEM sales and 77% from replacement and exports. At the consolidated level, replacement accounted for 79% of revenues and OEM contributed 21% of revenues. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 15 MORNING INSIGHT November 12, 2014 In standalone operations, revenues from truck tyre sales were 64%, passenger car tyre accounted for 17% and balance was from LCV/farm/OHT. At the consolidated level, revenue from truck tyre sale stood at 46%, while passenger car tyre revenues accounted for 36% of the overall revenues. In FY15, capex includes maintenance capex of Rs2bn and certain advances for plant and machinery towards Chennai expansion and industrial tyre conversion. For FY16 and FY17, the company plans to put invest Euro300mn for its Europe greenfield plant, Rs1.5bn for Chennai expansion and majority of Rs5bn earmarked for capacity conversion to OHT/Industrial tyres. Apart from this there would be annual maintenance capex. As of end September 2014, standalone net debt and consolidated net debt stood at Rs12bn and Rs9.3bn respectively. Gross debt at end 2QFY15 was Rs16.5bn. Outlook After witnessing demand slowdown for the past two years, tyre demand is expected to pick-up over the medium to long term. Demand for automobiles is expected to grow on a strong note over the course of net couple of years. In the domestic market, we expect strong growth in passenger vehicle and commercial vehicle segment over the course of next 2-3 years. Given significant exposure in the PV and CV segment, we expect APTY to benefit from expected demand revival in these two critical segments. We recommend ACCUMULATE on Apollo Tyres with a price target of Rs.251 Natural rubber price has seen further correction in recent months and that bodes well for tyre producing companies. Apart from natural rubber price decline, fall in crude oil prices has come as an added advantage. Significant portion of raw material are crude oil derivatives and fall in crude oil prices could potentially further lower the raw material cost basket for tyre manufacturers. In the near term, lower input cost will continue to support earnings and over the medium to long term, we expect earnings to receive boost from growth in revenues. We marginally revise our FY15 and FY16 estimates upward. We raise our target price on the stock to Rs251 (earlier Rs218) and retain our ACCUMULATE (buy on decline) rating on the stock. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 16 MORNING INSIGHT Bulk deals November 12, 2014 Trade details of bulk deals Date Scrip name Name of client Buy/ Sell Quantity of shares Avg. price (Rs) 11-Nov Berldrg 11-Nov Deltaltd Saurabh Rasiklal Gandhi S 30,581 31.7 Sanjay Kumar Patwari S 75,000 11-Nov 74.3 Deltaltd Sandeep Kumar B 100,750 74.2 11-Nov Ecoplast-$ Manakchand Motilal Daga S 48,914 56.5 11-Nov Ecoplast-$ Shanaz Shukkoor B 20,000 56.9 11-Nov Ecoplast-$ Jayesh M Parekh B 50,027 56.9 11-Nov FCL Shah Atul B 62,500 156.2 11-Nov FCL Ajay Multi Projects Ltd S 75,000 154.6 11-Nov Feindialtd Ajay Gupta B 58,000 19.4 11-Nov Gaganpo Chitalia Stock Trading Pvt Ltd S 100,000 5.9 11-Nov Gaganpo Anju R Maheshwari B 98,500 5.9 11-Nov Indocity-$ Indo-Castle Shares & Stocks Ltd B 100,300 6.3 11-Nov Indovation Kirit Ramanlal Shah B 20,000 92.0 11-Nov Indovation Sabina Anilkumar Sanghvi B 20,000 92.0 11-Nov Indovation Rama Krishna Bhashyam S 44,721 92.1 11-Nov Jindalsaw Valiant Mauritius Partners Ltd S 2,014,000 80.5 11-Nov Jindalsaw Valiant Mauritius Partners Offshore S 1,786,000 80.5 11-Nov Mahavirind Raja Ram Ladha B 65,000 15.0 11-Nov Mahavirind Pankaj Ladha B 153,196 15.0 11-Nov Mahavirind Shobhita Kapoor S 200,000 15.0 11-Nov Naisarg Savitaben Tarachand Shah B 50,000 12.4 11-Nov Naisarg Ald Promoters Pvt Ltd S 40,000 12.4 11-Nov Naisarg Jilesh Navin Chheda (Huf) B 40,000 12.4 11-Nov Naisarg Paresh Ramjibhai Chauhan S 109,831 12.4 11-Nov Naisarg Jyoti Singh Vishwakarma B 49,404 12.4 11-Nov Obil Vck Share & Stock Broking Services S 40,000 12.0 11-Nov Prerinfra Vijay Shah S 59,935 22.9 11-Nov Primapla Pioneer Holdings Pvt Ltd S 75,000 52.0 11-Nov Primapla Dipak Kanayalal Shah S 215,000 52.5 11-Nov Ramappr-B Meenu Gupta S 84,000 9.3 11-Nov Ramappr-B Divya Mansharamani B 70,708 9.6 11-Nov Skpsec Laxmipat Dudheria B 28,111 22.1 11-Nov Starlit Ajay Prakash Jhunjhunwala S 48,000 19.0 11-Nov Starpaper New Millenium Tech Management B 100,993 14.8 11-Nov Starpaper IFCI Ltd S 127,394 14.9 11-Nov Sunrajdi Gunial Investment & Trading Pvt Ltd S 639,100 8.3 11-Nov Sunrajdi Sunny Sunil Gandhi B 639,100 8.3 11-Nov Thirinfra Century Finvest Pvt Ltd S 29,595 26.2 11-Nov Upsurge Ivory Consultants Pvt Ltd B 200,000 51.0 11-Nov Upsurge Soma Gavandhe B 200,000 51.0 11-Nov Upsurge Anurag Gupta Huf S 275,000 51.0 11-Nov Vgcl Hem Chand Jain S 132,000 19.1 11-Nov Vinrklb Manoj Kumar Jain S 35,000 17.0 11-Nov Vinrklb Shatbhisha Trading Pvt Ltd B 35,500 17.0 11-Nov VMS Abhinandan Jain B 200,000 21.8 11-Nov VMS Priteshkumar H Shah S 200,000 21.8 11-Nov Voracon Vinayak Trimbak Sarkhot S 10,000 10.0 11-Nov Yogisung Euro Plus Capital Ltd B 92,252 13.9 11-Nov Yogisung Parkfield Developers & Builders S 100,100 13.1 11-Nov Zentec Ashish Rameshchandra Kacholia B 88,636 413.2 Source: BSE Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 17 MORNING INSIGHT Gainers & Losers November 12, 2014 Nifty Gainers & Losers Price (Rs) chg (%) Index points Volume (mn) Gainers Punjab National Bank 954 3.4 NA 0.9 1,012 2.7 NA 1.7 155 2.7 NA 7.6 BHEL 245 (2.2) NA 3.3 ITC 364 (2.0) NA 4.8 Bharti Airtel 385 (1.6) NA 4.2 Bank of Baroda IDFC Ltd Losers Source: Bloomberg Forthcoming events Company/Market Date Event 12-Nov Apollo Hosp, BPCL, Creative Eye, Datamatics, DCM Shriram, DCW, Dishman, Eicher Mot, FDC, HEG, ICRA, IGL, India Cement, J&K Bank, JP Associates, MT Educare, Natco Pharma, Nalco, Oil, Orbit Corp, RCF, Reliance Infra, Renuka, Rolta, Rel power, Sobha Dev, STC India, Subex, Tata Steel, Time Techno, TNPL earnings expected 13-Nov Arvind Remedy, Bajaj Electricals, Balkrishna Ind, Bombay Dyeing, Cipla, DLF, Elantas, Finolex Ind, Fortis, GIC Housing Finance, Gujarat Gas, Hathway, Hindalco, HPCL, Hindcopper, IOC, ITI, IVRCL Infra, Magnum, Merck, Modi Rubber, NCC, SAIL, SCI, Sun Pharma, Tata Power, Voltas earnings expected 14-Nov ABG, Aegis Logistics, BEML, BHEL, Britannia Industries, CESC, Essar ports, GE Shipping, GMR Infra, Gujarat Apollo, HDIL, JBF Ind, JK Tyre, Madhucon, Mangalam Cement, Megasoft, Nalco, ONGC, Patel Engg, PTC, Punj Lloyd, Rajesh Exports, Rcom, Rel Capital, SBI, Sunil Hitech, Tata Motors, TVS Motors UB Holdings, earnings expected Source: Bloomberg Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 18 MORNING INSIGHT November 12, 2014 Fundamental Research Team Dipen Shah IT [email protected] +91 22 6621 6301 Saday Sinha Banking, NBFC, Economy [email protected] +91 22 6621 6312 Ritwik Rai FMCG, Media [email protected] +91 22 6621 6310 Jayesh Kumar Economy [email protected] +91 22 6652 9172 Sanjeev Zarbade Capital Goods, Engineering [email protected] +91 22 6621 6305 Arun Agarwal Auto & Auto Ancillary [email protected] +91 22 6621 6143 Sumit Pokharna Oil and Gas [email protected] +91 22 6621 6313 K. Kathirvelu Production [email protected] +91 22 6621 6311 Teena Virmani Construction, Cement [email protected] +91 22 6621 6302 Ruchir Khare Capital Goods, Engineering [email protected] +91 22 6621 6448 Amit Agarwal Logistics, Transportation [email protected] +91 22 6621 6222 Technical Research Team Shrikant Chouhan [email protected] +91 22 6621 6360 Amol Athawale [email protected] +91 20 6620 3350 Derivatives Research Team Sahaj Agrawal [email protected] +91 79 6607 2231 Rahul Sharma [email protected] +91 22 6621 6198 Malay Gandhi [email protected] +91 22 6621 6350 Prashanth Lalu [email protected] +91 22 6621 6110 Disclaimer This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. 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