DIWALI PICKS SAMVAT 2077 2020 - A Touch of Light to Your Wealth
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DIWALI PICKS
2020
SAMVAT 2077
A Touch of Light to Your Wealth
HDFC HDFC Britannia Alembic Infosys
UPL
Ltd. Bank Industries Pharma
HCL TV18 CreditAccess Sundaram
ITC Cipla
Technologies Broadcast Grameen Fasteners
SAMVAT 2077
Stellar returns expected as economy rebounds backed by
government reforms, stimulus packages and continued strong
funds flow into capital markets
Samvat 2077 is already beginning on a strong positive note where stock markets are hovering close to its
all time high with most sectors witnessing enthusiastic momentum. One of the key contributor remained
the banking industry which has acted as strong foundation support to the reviving Indian economy. Key
early data points do indicate towards the worst probably being over with gradual resumption in supply-
side, phased unlocking programs combined with consumption being aided by the pent-up demand in the
system, industry and services overall seem to be coming back to track.
Year 2020 marked a period of high volatility for equity markets on the back of global and domestic cues,
the most important being impact of Covid-19. Markets widely oscillated from an all time Nifty high of
12,430 in January 2020 to tanking nearly 40% in a quick span of 2-3 months to 7511 levels at the
beginning of the pandemic. Although, a smart recovery followed, where the frontrunners remained IT and
Pharma sector in the altered structural post covid-19 landscape. We believe four key sectors to look
forward in coming couple of years are – 1) Technology / Digital, 2) Healthcare / Pharma, 3) Financial
Services / Investment Products, and 4) Consumption.
Our Samvat 2077 shortlist consists of stock ideas in sectors that are either resilient / or are in the fast
growing emerging segments / or are likely beneficiaries of the Covid-19 fall-out stimulus packages. We
believe, while delivering returns is essential, it is equally important to protect the downside and manage
risks appropriately to achieve the perfect portfolio balance. The point is perfectly re-iterated by our
performance delivered on last year Samvat 2076 stock picks in the uncertain and highly volatile market
where combined average return delivered by 12 recommended stocks has been ~ 34% (*reference below
table) whereas the benchmark index has witnessed a return of 6.9%* in the same period.
On this note we present this year’s Samvat 2077 top stock picks best poised to deliver sound returns,
along with performance summary for last year’s Diwali picks.
Performance of Diwali Stock Picks – 2019
M Cap Report Target Price Target Period High Returns CMP (INR)
Stock Name
(INR Cr.) Price (INR) (INR) Returns Price (INR) Achieved* 6 Nov 2020
Hdfc Bank 719948 1229 1492 21% 1310 7% 1308
ICICI Bank 305628 437 508 16% 552 26% 443
HDFC Life Insurance 119317 608 730 20% 648 6% 591
ICICI Prudential Life 59949 477 559 17% 538 13% 418
Bajaj Finserv 99950 8285 9661 17% 9950 20% 6286
Ashok Leyland 24937 78 97 24% 88 12% 85
Minda Corporation 1560 84 124 48% 122 45% 69
Sundaram Fasteners 9710 460 551 20% 533 16% 462
Tata Elxsi 9651 706 1008 43% 1710 142% 1553
Sterlite Technology 5821 147 211 44% 174.70 19% 147
Reliance Industries 1372018 1416 1722 22% 2369 67% 2029
Mahanagar Gas 8270 963 1177 22% 1247 29% 837
*Returns achieved calculated from period high price
SAMVAT 2077
Top Diwali Stock Ideas
Samvat 2077
M Cap CMP* Target Price Target
Stock Name Sector
(INR Cr.) (INR) (INR) Returns
HDFC Ltd. BFSI 384,049 2,138 2,500 17%
HDFC Bank Ltd. BFSI 719,562 1,307 1,510 16%
Britannia Industries Ltd. Consumer Goods 84,360 3,514 4,125 17%
UPL Ltd. Agrochemicals 32,243 422 622 47%
Alembic Pharma Ltd. Pharmaceuticals 19,243 979 1,286 31%
Infosys Ltd. IT 473,966 1,113 1,300 17%
HCL Technologies Ltd. IT 230,689 850 1,015 19%
TV18 Broadcast Ltd. Media 4,766 28 36 29%
CreditAccess Grameen Ltd. NBFC-MFI 10,523 676 843 25%
ITC Ltd. Consumer Goods 212,446 174 228 31%
Cipla Ltd. Pharmaceuticals 63,690 790 950 20%
Sundram Fasteners Ltd. Auto Ancillary 9,710 462 532 15%
Note: *CMP as of 6 November 2020
Source: KRChoksey ResearchHDFC Ltd.
HDFC
CMP Target Potential Upside Market Cap (INR Cr) Recommendation Sector
INR 2,138 INR 2,500 17% 3,84,049 BUY BFSI
Company overview
HDFC is a pioneer in home loans and is the largest mortgage lender in India. It has an extensive distribution network of 546
interconnected offices (including 188 offices of HDFC Sales) with outreach programs to several towns and cities all over India and
over 5600+ branches of HDFC bank as a key customer acquisition machine, with over 3000 employees. Its AUM in mortgages is INR
5,40,000+ Cr with individual home loans contributing more than 70% of book. Apart from core operations in mortgages, it holds
substantial interest in other financial services companies including HDFC Bank (India’s largest private lender), HDFC AMC (one of the
largest mutual funds), HDFC life (life insurance), HDFC Ergo (general Insurance), Credila (Education focused NBFC), HDB Financial
(NBFC through the bank), and other property and investment fund companies. It is currently chaired by Mr. Deepak Parekh and Mr.
Keki Mistry is its Vice Chair and CEO and Ms. Renu Sud Karnad is its managing Director.
MARKET DATA KEY FINANCIALS
Shares outs (Cr) 180 Particulars (INR Cr) FY17 FY18 FY19 FY20E FY21E
Equity Cap (INR Cr) 1,00,133 NII 9,635 10,498 11,646 16,375 18,546
PPOP 15,305 13,149 12,600 29,772 32,173
Mkt Cap (INR Cr) 3,84,049 PAT 10,959 8,727 17,726 21,597 22,906
52 Wk H/L (INR) 2500/1473 EPS (INR / Share) 66.5 56.1 102.2 120.8 128.1
Volume Avg (3m K) 4,609 BVPS (INR / Share) 407.3 454.6 497.4 544.2 589.0
NIM (%) 2.74% 2.51% 2.45% 3.07% 3.13%
Face Value (INR) 2 Advances Growth YoY (%) 20.9% 12.1% 11.6% 8.4% 9.3%
Bloomberg Code HDFC IN Source: Company, KRChoksey Research
Key Investment Rationale:
SHARE PRICE PERFORMANCE (REBASED)
Home loans to drive retail demand: The pandemic has led to structural change in
170 perceptions for home. There is a significant push from the regulator to make home
loans attractive. This coupled with customer friendly cost saving such as lower stamp
150
duty and interest rates along with favorable pricing have led to traction in home loans.
130 While the segments have caught the interest of banks and NBFCs, HDFC Ltd. is well
110 poised to benefit from the surge. We expect AUM growth to improve to ~12% over
90 CAGR 20-22E.
70 Operating performance to remain robust: The cost on the liabilities have come off
50
aided by lower interest rates, TLRTRO and higher debt flows to well-rated companies.
HDFC has been a key beneficiary with one of lowest lending costs in the industry. This
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places it favourably amidst competition. We expect it to be able to maintain NIMs at
above 3% even as incremental individual loans may be higher. We expect strong
NIFTY HDFC operating performance on the back of managed costs and strong NIIs.
Low risk to adverse credit costs and strong Capital base: Under ECL, the provisions
were at INR 12,304 Cr. The provisions carried as a percentage of the Exposure at Default
MARKET INFO (EAD) is equivalent to 2.60%. Though the GNPA is 4.2% yet, it has witnessed resolution in
the high-risk segments. We don’t expect incremental adverse credit costs for the
SENSEX 41,893 stressed book. This coupled with a CAR of 20% bodes well for HDFC.
NIFTY 12,264
Valuation : We value the core business at 2.1x FY22E P/ABV at INR 1,182 and subsidiaries
INR 1,318 taking our target to INR 2,500, implying an upside of 17%.
SHARE HOLDING PATTERN (%)
Particulars Sep-20 June-20 March-20
Promoters
FIIs
DIIs
00
70.0
18.7
0.0
70.2
18.5
0.0
70.9
18.0
26.2% 13.7%
Others 11.3 11.3 11.1
NII CAGR between FY20 and PAT CAGR between FY20 and
Total 100 100 100 FY22E FY22EHDFC Bank Ltd.
HDFC Bank
CMP Target Potential Upside Market Cap (INR Cr) Recommendation Sector
INR 1,307 INR 1,510 16% 7,19,562 BUY BFSI
Company overview
HDFC Bank is India’s leading private sector bank, with 5,500 branches across 2,764 towns and cities in India. HDFC Bank, established in 1994,
commenced its operations as a Scheduled Commercial Bank in January 1995. It is promoted by Housing Development Finance Corporation
(HDFC) and Foreign Portfolio Investors (FPIs) holding around 37% stake. The bank caters to a wide range of banking services including
commercial and investment banking on the wholesale side and transactional/ branch banking on the retail side. The bank has three key
business segments such as retail banking, wholesale banking and treasury. Its retail lending business comprises of around 52% of its loan
book while the rest 48% comprises of corporate lending. HDFC Bank has maintained its reputation of renowned customer services helping
them build the brand name they have today among other private peers. The bank has been led by MD Aditya Puri since its inception until he
retired this year passing the baton to Mr. Sashidhar Jagdishan.
MARKET DATA KEY FINANCIALS
Shares outs (Cr) 550 Particulars (INR Cr) FY17 FY18 FY19 FY20E FY21E
Equity Cap (INR Cr) 1,86,112 NII 40,095 48,243 56,186 65,249 78,423
Mkt Cap (INR Cr) 7,19,562 PPOP 32,625 39,750 48,750 57,788 67,971
52 Wk H/L (INR) 1,335/739 PAT 17,487 21,078 26,257 32,339 38,958
EPS (INR / Share) 33.7 39.2 47.9 58.8 70.8
Volume Avg (3m K) 11,403
BVPS (INR / Share) 204.8 273.9 311.8 355.0 408.1
Face Value (INR) 1
NIM (%) 4.4% 4.4% 4.4% 4.2% 4.0%
Bloomberg Code HDFCB IN Advances Growth YoY (%) 18.71% 24.47% 21.27% 21.80% 20.60%
Source: Company, KRChoksey Research
SHARE PRICE PERFORMANCE (REBASED) Key Investment Rationale:
160 Poised to grow at CAGR 20% over FY20-22 with wholesale and new products: We
expect the bank to grow at CAGR 20% over FY20-22 driven by secured retail and
140 wholesale outperforming the industry. In H1FY21, the wholesale advances grew 30%
YoY. While the caution is likely to remain in unsecured, the secured retail including
120 autos and MSME is poised for traction. The bank has not been averse to deposits
100 despite excess liquidity. We expect the strong franchise to continue to fuel its growth
at reasonable costs.
80
Credit costs provided for the stress till date: The management has assessed the likely
60 bad assets based on the trends and history of likely stress. We believe the bank has
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provided for the legacy stress and there is unlikely to be any carry forward of stress
from the current pool of recognized assets. The bank reported GNPA at 1.01%, lower on
account of the Supreme Court standstill on recognition of NPAs. Excluding the same,
NIFTY HDFC Bank the GNPA would have been 1.38%. Similarly reported NNPA were 0.1% against the likely
0.35% and reported PCR was 85% vs likely 75%. The bank has provided INR 1241 Cr as
specific provisions and additional INR 1130 Cr for the unrecognized GNPAs.
MARKET INFO Valuation and View: With the traction in advances, lower incremental credit costs,
strong operating profits, improved risk adjusted NIMs, we expect NII growth of
SENSEX 41,893 16%/20%; PPoP at ~18%; PAT at 23%/20% and ability to maintain RoAs at 1.9% in FY21/22
NIFTY 12,264 respectively. We raise our target to INR 1,510 (from INR 1,427), implying a P/ABV of 3.7x
FY22E P/ABV (higher from 3.5x on improving growth momentum and low adverse risk
to credit costs), upside of 16%. It is currently trading at 3x FY22E P/ABV.
SHARE HOLDING PATTERN (%)
Particulars Sep-20 June-20 March-20
Promoters
FIIs
DIIs
26.0
37.4
23.9
26.1
37.0
22.1
26.1
36.7
22.0
18.1% 21.8%
Others 12.7 14.8 15.2
NII CAGR between FY20 and PAT CAGR between FY20 and
Total 100 100 100 FY22E FY22EBritannia Industries
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 3,514 INR 4,125 17.4% 843,600 BUY Consumer Goods
Company overview
Britannia Industries is one of the leading food companies and among the most trusted food brand with a over 100-year legacy, starting its
operation in 1892 from Kolkata. Britannia products are available across the country in close to 5 million retail outlets and reach over 50% of
Indian homes. Britannia caters to six product segments like Biscuits (~80% contribution to sales in FY20), Bread, Cakes, Rusk, Cream wafers,
Centre Filled Croissants and Dairy products. Its major brands such as TIGER, Good-Day, 50:50 has an estimated market share of 33% in the
Indian biscuits industry. Britannia bread operates through 13 factories and 4 franchisees and is India’s largest player in organized sector with
annual volume turnover of ~1 lakh tons. Company’s dairy products directly reach to 100,000 outlets. Company’s direct reach has grown over
period of time and now it has reached directly at 22.3 lakhs touch points. It has presence in over 60 countries like Middle East, North
America, Europe, Africa and South East Asia. Britannia is 2nd largest biscuit player in UAE. Company’s strategic expansion plan is based on
one new market a year. It has local manufacturing base outside India in Nepal, UAE and Oman and plans to set up and operate through local
market in Africa and South East Asia. In FY20 the consolidated revenue reached INR 116bn, with EBITDA margin at 15.9%
MARKET DATA KEY FINANCIALS
Shares outs (Mn) 240 INR Million FY18 FY19 FY20 FY21E FY22E
Revenue 99,901 1,10,547 1,15,996 1,21,722 1,30,199
Equity Cap (INR Mn) 44,380
EBITDA 15,017 17,334 18,432 24,296 25,649
Mkt Cap (INR Mn) 843,600
PAT 10,042 11,591 14,026 18,540 19,842
52 Wk H/L (INR) 4,015/2,100 EPS (INR) 41.81 48.21 58.32 77.09 82.50
Volume Avg (3m K) 769 EBITDA Margin (%) 15.0% 15.7% 15.9% 20.0% 19.7%
Face Value (INR) 1
NPM (%) 10.1% 10.5% 12.1% 15.2% 15.2%
Source: Company, KRChoksey Research
Bloomberg Code BRIT IN
Key investment rationale
New launches will bolster performance:
SHARE PRICE PERFORMANCE (REBASED)
New product launches and innovations continue to remain the company's focus. The
management prioritized sale of premium segment products such as Good Day, Milk Bikis, Marie
150 and Digestive Milky Choice in 2020. Besides on low-price point, newly launched Winkin Cow Lassi
in 2 flavours and a layer cake for INR 5, both of which has received good response from the
120 market. We believe its strategy to grow and improve profitability by launching new premium
products and controlling operational overheads bolster performance in medium to long term.
90 Expansion plan (“One New Market a Year”) on track; augurs well for future growth
The company plans to invest ~INR 700 Cr to build new manufacturing facilities and expansion to
60 existing facilities over the next 2-3 years. Three Greenfield facilities include Tamil Nadu, UP and
Bihar and two brownfield facilities include existing facilities in Odisha and Maharashtra. The
30 company is also planning to expand its dairy business in which it has limited presence. After
establishing presence in Nepal, the company is eyeing to enter Bangladesh market in next 1-2
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years. The strategy of continuous expansion augurs well for future.
Focus on strengthening of distribution channels; especially in rural markets
BRIT NIFTY 50 Currently the direct reach of Britannia is 22.3 mn outlets as of September 2020 (19.7 mn in March
2020). Number of rural distributors were 22K outlets for the quarter compared to 19K in March
2020, which helped the company to increase its market share considerably. Rural share was ~30%
of the total revenue in FY20. Among all states, UP, MP, Gujarat, Rajasthan (Hindi Belt) grew in a
CAGR range of 17-22% between (YTD FY18 to YTD FY21). The company’s focused efforts on
MARKET INFO distribution & processes will help them get back on high growth trajectory and consistently
enhance value for all stakeholders.
SENSEX 41,893 Valuation
NIFTY 12,264 Britannia is as a BUY with target price of INR 4,125, a 17.4% upside, after applying P/E multiple of
50.0x to the FY22 EPS of INR 82.5 per share. The company commands a well-deserved valuation
premium on account of strong brand image, consistent improvement in margins and the essential
nature of its products like biscuits.
SHARE HOLDING PATTERN (%)
Particulars Sep-20 Jun-20 Mar-20
5.9% 18.9%
Promoters 50.6 50.6 50.6
FIIs 16.0 14.7 14.7
DIIs 11.5 12.7 13.4
Others 21.9 22.1 21.3
Revenue CAGR between FY20 PAT CAGR between FY20 and
Total 100 100 100
and FY22E FY22EUPL Ltd.
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 422 INR 622 47.4% 322,427 BUY Agrochemicals
Company overview
UPL Ltd. is amongst the leading agrochemical company, globally with presence in more than 138 countries. Its major offerings include high-
quality seeds and crop protection solutions like Herbicides, Fungicides and Insecticides. Geography-wise, Latin America is the major market
and contributes about 47% of the revenues, followed by Rest of the World (17%), India (16%), Europe (11%) and North America (9%), as of
Q2FY21. It has global manufacturing and R&D facilities with 11 plants in America, 13 plants in Europe and 17 plants in Rest of the World. In
FY19, UPL Ltd. acquired Arysta LifeScience in an all-cash USD 4.2 Bn deal. The combined entity has emerged as the world’s fifth largest crop
protection solutions company. Currently, the acquisition has been successfully integrated, resulting into cost and revenue synergies like
cross-selling through expanded geographic reach, optimizing manufacturing footprint and increasing procurement efficiency.
MARKET DATA KEY FINANCIALS
Shares outs (Mn) 764 Particulars (INR mn) FY18 FY19 FY20 FY21E FY22E
Revenues 1,73,780 2,18,370 3,57,560 3,84,031 4,18,091
Equity Cap (INR Mn) 223,560
EBITDA 35,050 38,130 67,730 82,567 94,071
Mkt Cap (INR Mn) 322,427 Adj. PAT 21,237 19,420 23,990 27,938 35,372
52 Wk H/L (INR) 617/240 EPS Diluted (INR) 41.6 38.0 31.3 36.4 46.1
Volume Avg (3m K) 5,450 EBITDA Margin (%) 20.2% 17.5% 18.9% 21.5% 22.5%
NPM (%) 12.2% 8.9% 6.7% 7.3% 8.5%
Face Value (INR) 2
Source: Company, KRChoksey Research
Bloomberg Code UPLL IN
Leader in bio solutions with strong performance across geographies:
UPL is amongst the leader in bio solutions space and the largest supplier of organic portfolio
of products in the world. Its leadership is evident from the robust performance across
regions. In Q2FY21, Latin America grew 12.4% YoY on the back of strong volume growth
SHARE PRICE PERFORMANCE (REBASED) witnessed in Chile, Argentina and Paraguay and partially offset the adverse exchange impact.
Europe grew 6.2% YoY due to benefit of integration; North America grew 8.7% YoY due to
150 better weather conditions; India grew 17.9% YoY driven by herbicides in Rice and Soybeans
supported by intensification of monsoons while Rest of the World grew 27.2% YoY due to
120 higher contribution from South East Asia with new product launches as well as better
weather conditions in South Africa, Australia, New Zealand.
90 Improvement in operating matrix indicating management efficiency:
Driven by new product launches and differentiated solutions, the management has guided
60 for healthy growth in revenues. EBITDA margin is also expected to improve going forward
and remain in the range of 23 to 25% in the next few years. Efficiencies in cost control and
30
revenue growth will facilitate operating margin expansion, going forward. In Q2FY21,
0
company was able to maintain EBITDA margin at Q2FY20 level, at around 18.6% (+14bps YoY, -
474bps QoQ) through cost savings in overheads & employee cost.
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Deleveraging and strengthening of the balance sheet:
As of 30th September 2020, UPL’s net debt was INR 238.4 bn, higher by INR 17.8 bn
compared to 31st March 2020 mainly due to an increase in working capital of INR 29.2 bn, in
UPL NIFTY 50 line with the seasonality of the business. However, the company has targeted to reduce the
net debt in H2FY21 and maintain an investment grade credit rating. The management intends
to keep Net debt/EBITDA at 2.0x by FY21 as against 2.9x currently.
Valuation:
MARKET INFO We have a BUY recommendation on UPL Ltd., with a Target Price of INR 622/share, which
implies a potential upside of 47% over the CMP. The company’s pipeline is valued currently
SENSEX 41,893 at USD 2.0 bn to USD 2.5 bn of peak sales, reaching maturity in the next five to eight years.
NIFTY 12,264 Moreover, the company has highlighted that they expect USD 5.0 bn of additional market
value from products becoming off-patent in the next five years, and the company’s
backward integration and scale will facilitate it to grabe a large share of this market.
SHARE HOLDING PATTERN (%)
Particulars Sep-20 Jun-20 Mar-20
8.1% 21.4%
Promoters 27.9 27.9 27.9
FIIs 37.2 40.6 43.5
DIIs 16.2 13.4 11.5
Others 18.7 18.4 17.2
Revenue CAGR between FY20 Adj. PAT CAGR between FY20
Total 100 100 100
and FY22E and FY22EAlembic Pharma
Alembic Pharma
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 979 INR 1,286 31% 1,92,432 BUY Pharmaceuticals
Company overview: Founded in 1907, Alembic Pharmaceuticals Ltd., is a vertically integrated, research and development
oriented pharmaceutical company belonging to Alembic group. Company is headquartered in India and is involved in
manufacturing and marketing of generic pharmaceutical products all over the world. Company draws 31% of its revenue from
India, 43% from the US, 11% from RoW & 15% from API. In the US, the company has a cumulative total of 133 ANDA approvals (116
final approvals and 17 tentative approvals) from USFDA. Company’s therapy focus in the domestic market is on Cardiology,
Antidiabetics, Gynecology, Gastrology, Dermatology, Orthopedics, Ophthalmology, Nephrology, Ant infectives & Cold & Cough.
MARKET DATA KEY FINANCIALS
Shares Outs (Mn) 197 INR Millions FY18 FY19 FY20 FY21E FY22E
Equity Cap (INR Mn) 31,907 Revenue 31,308 39,347 46,058 55,432 62,863
EBITDA 6,431 8,736 12,230 15,576 15,841
Mkt Cap (INR Mn) 1,92,432
PAT 4,126 5,844 8,291 10,791 10,753
52 Wk H/L (INR) 1,129/434
EPS (INR) 21.90 30.94 42.49 54.9 54.7
Volume Avg (3m K) 504
EBITDA Margin 20.5% 22.2% 26.6% 28.1% 25.2%
Face Value (INR) 2
NPM 13.2% 14.9% 18.0% 19.5% 17.1%
Bloomberg Code ALPM IN Source: Company, KRChoksey Research
SHARE PRICE PERFORMANCE (REBASED) Strong earnings visibility; US market to drive growth
We expect Alembic Pharma’s topline to grow at a CAGR of 16.8% over FY20-22E period and
220
net profit to grow by CAGR of 13.9% over FY20-22E period. We are optimistic of company’s
200 growth prospects on the back of new product introductions in the US, new products filed
180 from recently commercialized Aleor JV, and improvement in the revenue mix with
160 contribution from general and oncology injectables. Growth in the US market to remain
140 intact with 15-20 expected new launches a year for next three years. Company to see
120 continued traction in the Azithromycin for at least two more quarters, which will drive the
100
API business. Recovery in the RoW & domestic market will also continue.
Fund raising to reduce debt and expand API/Injectable manufacturing facilities:
80
Recently (in Aug-20), Alembic Pharma carried out fund raising of INR 7.50 bn through a
60 qualified institutional placement (QIP) to reduce the debt and expand API/Injectable
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facilities. From the total proceeds, company reportedly would utilize ~INR 4.0 bn for debt
repayment, while the remaining will be used for expansion activities. It should be noted
that, in last 5 years company has spent ~INR 2,7.3 bn on capital expenditure at an average
Alembic Pharma Nifty
rate of 15% of revenue (highest in industry). In FY21, company’s capex is likely to peak out at
INR 7.0 bn and from FY22 onwards it will normalize to ~ INR 3.0-3.5 bn, post which we
expect improvement in return ratios.
Highlights of Q2FY21:
For Q2FY21, Alembic Pharma reported strong Revenue growth of 17.4% YoY (up 8.6% QoQ)
led by strong growth in the ROW market and the API segment. EBITDA grew 28.3% YoY (up
8.9% QoQ). EBITDA margin expanded to 30.4% in Q2FY21 (from 27.8% last year). Net Profit
rose 35.4% YoY (up 10.6% QoQ) while Net Profit Margin for the quarter expanded 303 bps
MARKET INFO YoY to 22.9% (up 40 bps QoQ) from 19.8% in Q2FY20.
SENSEX 41,893
Valuation and view
The shares of Alembic Pharma are currently trading at a P/E of 17.8x/17.9x on FY21E/22E
NIFTY 12,264
earnings. We continue to apply P/E multiple of 23.5x on the FY22E EPS of INR 54.7/share in
the wake of increased earnings visibility & maintain our target price at INR 1,286 per
share; an upside potential of 31.0%.
SHARE HOLDING PATTERN (%)
Particulars Sep-20 (%) Jun-20 (%) Mar-20 (%)
16.8% 13.9%
Promoters 69.8 72.9 72.9
FIIs 7.0 7.3 8.3
DIIs 9.4 7.2 6.9
Others 13.8 12.6 11.9
Revenue CAGR between FY20 PAT CAGR between FY20
Total 100 100 100
and FY22E and FY22EInfosys Ltd.
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 1,113 INR 1,300 16.8% 4,739,660 BUY IT
Company overview
Infosys is a top-tier Indian IT services firm that offers a wide range of IT services to clients ranging from application development &
maintenance, business process management, infrastructure management, R&D services, IT consulting, digital services including cloud,
analytics, IoT and products. Company’s major verticals include Financial Services, Retail, Communications, Energy & Utilities,
Manufacturing, Hi-tech and Life Sciences. Infosys earns a lion’s share of its revenue from North America (60.7% in 2QFY21), followed by
Europe (24.3%), Rest of the World (12%) and India (3%). Segment-wise, the company earns a major share of revenue from Non-digital
(traditional) services (52.7% in 2QFY21), while 47.3% of revenue is accounted for by high-growth Digital services. The company employed
240,000+ people as of 2QFY21-end. Infosys has grown revenue, EBIT and PAT at CAGRs of 11.2%, 7.0% and 6.1%, respectively over the
period FY15-FY20.
MARKET DATA KEY FINANCIALS
Particulars (INR Mn) FY19 FY20 FY21E FY22E FY23E
Shares outs (Mn) 4,259 Net Sales 826,750 907,910 989,829 1,101,311 1,215,555
Equity Cap (INR Mn) 7,10,000 EBIT 188,800 193,740 233,006 252,914 281,080
APAT 154,040 165,940 189,430 209,494 232,052
Mkt Cap (INR Mn) 4,739,660 EPS (INR) 36.1 38.9 44.4 49.1 54.4
52 Wk H/L (INR) 509/1186 EBIT Margin (%) 22.8 21.3 23.5 23.0 23.1
Volume Avg (3m K) 10,512 P/E (x) 30.8 28.6 25.1 22.7 20.5
EV/EBIT (x) 24.6 24.1 19.9 18.3 16.4
Face Value (INR) 5 Source: Company, KRChoksey Research
Bloomberg Code INFO IN Key investment rationale
Large deal aggression drives revenue visibility, expect double-digit revenue growth till FY23E
SHARE PRICE PERFORMANCE (REBASED) Infosys’ large deal TCV has shown healthy growth, with 2QFY21 TCV up >10% YoY and >80% QoQ,
reflecting robust recovery post 1QFY21. Over the past 2 years, the IT major’s TCV has risen nearly
200 3x, with annualised 1HFY21 TCV up >8% vs FY20. The IT major’s aggression on large deals augurs
well for improved revenue visibility, with marquee wins such as Vanguard to boost growth. We
150 expect Infosys to achieve 12% USD revenue growth in FY22E, followed by 10.4% in FY23E, aided by
large deal execution, a greater number of smaller-sized deals that lend themselves to quicker
execution cycles, and client organisations shifting workloads to the cloud.
100
Margin resilience impresses, expect sustainable EBIT margin at 23% going forward
Infosys doubled down on cost efficiency in 1HFY21, cutting items like travel and sub-contracting,
50
delaying wage hike till 2HFY21, and raising utilisation and offshore revenue share, which had the
salutary effect of boosting EBIT margin up >400bps over 4QFY20-2QFY21; 2QFY21 margin stood at
0 25.3%, its highest in 18 quarters (since 4QFY16). We model for a sustainable margin of ~23%, as
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cost elements such as wage hikes and travel return in some shape and form, with >20% EBIT
growth in FY21 followed by ~10% EBIT CAGR over FY21-FY23.
Cash return to shareholders, greater M&A activity to drive cash usage, sustain multiple
INFOSYS NIFTY 50 Infosys has made 3 bonus share issues since FY14, and carried out 3 share buy backs over the past
3 years, apart from regular dividend payouts. The company’s policy is to return 85% of free cash
flow to shareholders over a 5-year period from FY20, post keeping aside cash to fund its internal
capex and opex needs. The IT major has also become active on M&A, acquiring 2 firms recently.
MARKET INFO We believe this is a positive indicator of improved cash usage, which has boosted RoE 350bps
over the last 3 years to 25.5%, and is likely to keep the IT major’s PE multiple at elevated levels.
SENSEX 41,893 Valuation
NIFTY 12,264 We have a BUY recommendation on Infosys, with a TP of INR 1,300. We believe the IT major is
well-positioned to ride the increase in IT spend led by cloud movement, with its wide portfolio of
offerings and large deal aggression, with margins likely to be resilient, and cash return to
shareholders in the form of buy backs and dividends, a recurring theme.
SHARE HOLDING PATTERN (%)
Particulars Sep 20 Jun 20 Mar 20
10.8% 10.7%
Promoters 13.0 13.2 13.2
FIIs 31.3 30.5 31.0
DIIs 25.4 25.9 25.1
Others 30.4 30.5 30.7
Revenue CAGR between FY21 PAT CAGR between FY21
Total 100 100 100
and FY23E and FY23EHCL Technologies
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 850 INR 1,015 19.4% 2,306,887 BUY IT
Company overview
HCL Technologies (HCLT) is a top-tier Indian IT services firm that offers a wide range of IT services to clients ranging from application
development, business process management, infrastructure management, ER&D services, consulting, cloud, analytics, IoT and software
products. Its major verticals include Financial Services, Manufacturing, Technology & Services, Retail & CPG, Life Sciences, Public Services
and Communications, Media, Publishing & Entertainment. HCLT earns a lion’s share of its revenue from the Americas region (63.1% in
2QFY21), followed by Europe (28.4%) and Rest of the World (8.5%). Segment-wise, the company earns a major share of revenue from IT
& Business Services (70.8% in 2QFY21), followed by ER&D Services (15.7%) and Products & Platforms (13.5%) HCLT employed 153,000+
people as of 2QFY21-end. It has grown revenue, EBIT and PAT at CAGRs of 12.5%, 13.5% and 9.4%, respectively over the period FY17-
FY20.
KEY FINANCIALS
MARKET DATA Particulars (INR Mn) FY19 FY20 FY21E FY22E FY23E
Net Sales 604,270 706,780 750,710 820,063 902,449
Shares outs (Mn) 2,714
EBIT 118,540 138,530 155,231 170,579 189,371
Equity Cap (INR Mn) 5,67,790
APAT 101,230 110,620 123,260 136,583 152,824
Mkt Cap (INR Mn) 2,306,887
EPS (INR) 37.3 40.8 45.4 50.3 56.3
52 Wk H/L (INR) 375/911 EBIT Margin (%) 19.6 19.6 20.7 20.8 21.0
Volume Avg (3m K) 9,849 P/E (x) 22.8 20.9 18.7 16.9 15.1
Face Value (INR) 2 EV/EBIT (x) 18.8 15.9 13.9 12.5 11.0
Source: Company, KRChoksey Research
Bloomberg Code HCLT IN
Key investment rationale
Well-established position in cloud services to drive revenue growth
SHARE PRICE PERFORMANCE (REBASED)
HCLT has traditionally been strong in the Infrastructure Management Services (IMS) space, and
had the 2nd-largest IMS practice among Indian IT firms (>US$ 3 billion) till it stopped reporting
150 data in that format post-FY19. The IT major has built strategic partnerships with all the hyper-
scalers – Amazon Web Services, Microsoft Azure and Google Cloud – apart from IBM Cloud, and
120
the shift of workloads on public and hybrid clouds is likely to be a key revenue growth driver for
HCLT going forward. We forecast >10% USD revenue CAGR for HCLT over FY21-FY23E, and expect
growth in cloud infrastructure services to form a critical component of the growth. IBM’s recent
90 move to hive off its cloud services business into a new firm could also be an additional driver.
P&P business a key differentiator, major opportunities for cross-selling services
60 HCLT’s Products & Platforms business is a key differentiator for the IT major. P&P accounted for
13.5% of 2QFY21 revenue, has >20,000 customers, works on >20 product categories and employs
30 >3,200 people, with HCLT spending INR 3.5 billion (1.9% of revenue) on R&D expenses. While
present focus is on on-boarding clients from IBM product acquisition, there is substantial scope
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Nov-19
for cross-selling services to product customers, which could potentially play out from FY22-FY23.
Higher P&P EBITDA margin can provide leeway to reinvest into the business for growth
HCLTECH NIFTY 50 While the P&P business accounted for 13.5% of 2QFY21 revenue, it accounted for ~16% of EBITDA
due to higher margin (30.9% vs 26.6% consolidated). HCLT’s EBIT margin stood at 21.7% in 2QFY21,
above its guided range of 20-21%, partly aided by higher P&P margin. We believe the IT major can
reinvest these margin gains back into the business to drive revenue growth in the core IT services
MARKET INFO and ER&D businesses, which will in turn drive sustainable earnings growth.
Valuation
SENSEX 41,893
We have a BUY recommendation on HCLT, with a TP of INR 1,015. We believe the IT major’s well-
NIFTY 12,264 established position in cloud infrastructure services, integrated service portfolio in traditional
IT services, digital and ER&D services, and P&P differentiator will drive double-digit revenue
and earnings growth from FY21-FY23E. Cash return through consistent dividend payouts, and
M&A activity should also ensure better cash usage.
SHARE HOLDING PATTERN (%)
Particulars Sep 20 Jun 20 Mar 20
9.6% 11.3%
Promoters 60.3 60.3 60.3
FIIs 24.9 25.6 26.4
DIIs 10.7 10.1 9.2
Others 4.1 4.0 4.1
Revenue CAGR between FY21 PAT CAGR between FY21
Total 100 100 100
and FY23E and FY23ETV18 Broadcast Ltd.
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 28 INR 36 28.5% 47,659 BUY Media
Company overview
TV18 Broadcast Limited a subsidiary of Network18, is one of the largest broadcasting companies in India. It runs the largest news
network in India which spans across business news (4 channels with market leadership), general news (one each in English and
Hindi) and regional news (14 channels across India, including joint venture News18-Lokmat). Marquee brands CNBC-TV18 and CNN-
News18 are part of this bouquet. TV18 is home to India’s largest news network and third largest entertainment network with
marquee brands like CNBC-TV18, CNN-News18, Colors, MTV & Nick.TV18’s entertainment subsidiary Viacom18 (a joint venture with
Viacom Inc.) operates an array of entertainment channels. The entertainment portfolio comprises Hindi general entertainment
channels, English entertainment, movies, youth and musical entertainment, kid’s genre and regional entertainment channels
MARKET DATA KEY FINANCIALS
Shares outs (Mn) 1714 Particulars (INR Mn) FY19 FY20 FY21E FY22E
Equity Cap (INR Mn) 3429 Net Sales 49427 51,740 49,554 56,032
Mkt Cap (INR Mn) 47659 EBITDA 3135 7,030 6,038 7,431
52 Wk H/L (INR) 42/12 Adj. PAT 1669 4,164 3,664 4,858
Volume Avg (3m K) 4853 EBITDA Margin % 6.34% 13.59% 12.19% 13.26%
Face Value (INR) 2 EBIT Margin% 3.66% 10.39% 8.86% 10.12%
Bloomberg Code TV18 IN PAT Margin % 4.26% 8.05% 7.39% 8.67%
Source: Company, KRChoksey Research
Key investment rationale
SHARE PRICE PERFORMANCE (REBASED) Subscription to drive growth and to improve overall Revenue Mix
Revenue mix of subscription has improved from 26% in FY19 to 35% in FY20, this was led by the
robust growth of 43% in subscription revenue for FY20. The benefit of transparent and non-
discriminatory B2C regime created by implementation of NTO continued to grow, this boosted
the subscription revenue of TV18 and expected to grow further, this B2C regime has also
resulted in a reset in pricing, and strong channel bouquets.
Gaining strong traction in Digital platform
Digital only subscription which (B2C) is expected to set next wave growth for TV18. This has
further benefited from consumption tailwinds that have been boosted during the lockdown.
The Broadcaster OTT app VOOT saw an increase in consumption of digital exclusive content.
VOOT (Viacoms18's Over the top), its average daily viewership of 45+mins that is the highest
amongst broadcasters OTT apps.
Cost optimization implemented and accelerated during the pandemic
Jan-20
Jan-19
Jul-20
Jan-18
Jul-18
Jul-19
Apr-20
Oct-17
Apr-19
Apr-18
Oct-20
Oct-18
Oct-19
Cost optimization is important focus area of TV18 due to Covid-19 and that will drive higher
profitability from next year onwards. During the Q2FY21, total operating cost were lower by
15.8% YoY. The decline can be attributed towards lower other expense and operational cost. We
TV18 Broadcast Ltd Sensex
continue to review cost-structures on an ongoing basis, concerted efforts to rebase them in the
new normal which have driven efficiencies through the system.
MARKET INFO Valuations & Outlook
We expect, Ad-revenue to increase led by the festive season later in the quarter and few big
SENSEX 41,893 ticket events and programmes but the growth on the same will be moderate. Subscription
NIFTY 12,264 revenue continues to drive growth over ad-revenue on account of new tariff order
implementation which normalized and gaining good amount of traction. Stock currently trades
at EV/EBITDA of 9.5x on FY22 EBITDA of INR 7430 Mn and EV/EBITDA of 10x on trailing EBITDA.
We have valued it at a EV/EBITDA multiple of 11x on FY22 EBITDA to arrive at a target price of
SHARE HOLDING PATTERN (%) 36 per share; an upside of 28.5% over the CMP.
Particulars Sep 20 Jun 20 Mar 20
Promoters 60.4 60.4 60.4
FIIs
DIIs
12.1
0.3
12.7
2.0
13.1
1.9
4.1% 8%
Others 27.2 24.9 24.7
Revenue CAGR between FY20 PAT CAGR between FY20 and
Total 100 100 100
and FY22E FY22ECreditAccess Grameen
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 676 INR 843 24.5% 105,226 BUY NBFC-MFI
Company Overview
CreditAccess Grameen Ltd (CAGL), a Large Microfinance Institution (MFI) was mainly established to serve women from India’s low
income groups (LIGs). CAGL is a leading MFI with INR 112 bn of consolidated AUM as on Q2FY21, highest amongst MFIN members. As
on Sep’20, it has offered ~88% of its overall gross loan portfolio of INR 112 bn for income generation loans. It has a wide network of
1,388 branches across 14 states and Union Territory providing loans to ~3.9 mn borrowers. Major portion of portfolio derives from
states of Karnataka, Maharashtra and Tamil Nadu, primarily southern India. Strong rural existence, established operating structure
with notable AUM growth gaining its sturdy market share in the MFIN industry.
MARKET DATA KEY FINANCIALS
Shares outs (Mn) 155 Particulars (INR cr) FY18 FY19 FY20 FY21E FY22E
Equity Cap (INR Mn)
Advances 4895.5 6602.8 11098.9 12286.5 14620.9
1,555
Total Income 517.9 866.6 1125.5 1439.3 1746.2
Mkt Cap (INR Mn) 105,226 PAT 212.5 321.8 335.5 306.8 574.7
52 Wk H/L (INR) 1,000/306 EPS (INR) 16.5 22.4 23.3 21.3 39.9
Volume Avg (3m K) 121.4
BVPS (INR) 111.9 164.8 197.5 219.5 260.3
ABVPS (INR) 111.8 162.8 194.7 217.8 258.2
Face Value (INR) 10 P/E 18.6x 21.7x 14.5x 31.8x 17.0x
Bloomberg Code CREDAG IN P/ABV 3.4x 3.1x 1.7x 3.1x 2.6x
Source: Company, KRChoksey Research
Key investment rationale
Leading NBFC-MFI to grow further with strong rural penetration
SHARE PRICE PERFORMANCE (REBASED)
Strong penetration across semi-urban/rural areas to support micro loan book growth, as it
250 offers diversified product loans for women borrowers’ life cycle needs. Flexible repayment
options, unique disbursements at individual level in a group lending and customised
200 product loans has built customer centricity. We expect downtrend in AUM growth due to
conservative approach during 1HFY21 to reverse in the coming quarters as similar to the
150 demonetisation event. AUM has grown at ~50% CAGR during FY18-20.
Geographic expansion to ease concentrated risk; resilient asset quality
100 Socio-economic environment in rural areas, awareness about importance of good credit
history likely to be favorable where majority of women borrowers were disciplined in
50 repayments. GNPA stood at 1.66% as on Sep’20. Overall collection efficiency for CAGL &
MMFL stood at 89%/85% as on Oct’20, respectively. Further penetration in northern states,
0 merger with MMFL to boost advances growth with available credit demand in the market.
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Nov-19
May-20
May-19
Aug-20
Aug-19
Sound fundamental performance with steady improvement in operating metrics
It has ~5% of market share in MFIN segment where banks, NBFCs, etc. are also amongst
CAGL Sensex emerging players. Established operating structure, robust growth in advances resulted in
improved and consistent operating efficiency over the last few years. Management expects
its deteriorated efficiency during pandemic to improve with Opex/GLP ratio at 4.8%-4.9% in
the coming years. Profitability has grown at 25.7% during FY18-20.
Valuation
It has a strong parentage of CreditAccess India N.V. as a promoter. INR 800 cr worth of
funds raised through QIP issue (allotment at INR 707/share) on 8th Oct’20 which reduced
MARKET INFO
promoter holding up to 74%. Additionally, allotment of NCDs worth INR 100 cr to
SENSEX 41,893 strengthened its liquidity. It is a good quality stock with strong asset quality (NNPA of 0%),
healthy capital & high promoter holding. Accordingly, we assign P/ABV multiple of ~3.26x
NIFTY 12,264
to FY22E consolidated adjusted book value of INR 258.2/share to arrive at a target price of
INR 843/share and maintain BUY rating on the stock. Currently it is trading at a multiple of
3.5x of consolidated adjusted book value of INR 194.7/share.
SHARE HOLDING PATTERN (%)
Particulars Oct 20 Sep 20 Jun 20
15% 31%
Promoters 74.1 79.9 79.91
FIIs NA 5.4 6.2
DIIs NA 8.9 8.4
Others NA 5.9 5.5
Advances CAGR FY20-FY22E PAT CAGR FY20-FY22E
Total 100 100 100ITC Ltd.
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 174 INR 228 31.2% 2,124,465 BUY Consumer Goods
Company overview
ITC is one of India's foremost private sector companies and a diversified conglomerate with businesses spanning Fast Moving Consumer Goods,
Hotels, Paperboards and Packaging, Agri Business and Information Technology. The Company is acknowledged as one of India's most valuable
business corporations with a Gross sales value of ₹ 76,097.31 crores and Net Profit of ₹ 15,136.05 crores (as on 31.03.2020). ITC was ranked as India's
most admired company, according to a survey conducted by Fortune India, in association with Hay Group. ITC is the country's leading FMCG
marketer, the clear market leader in the Indian Paperboard and Packaging industry, a globally acknowledged pioneer in farmer empowerment
through its wide-reaching Agri Business, a pre-eminent hotel chain in India that is a trailblazer in 'Responsible Luxury'. ITC's wholly-owned subsidiary,
ITC Infotech, is a specialized global digital solutions provider. ITC's world class FMCG brands including Aashirvaad, Sunfeast, Yippee!, Bingo!, B
Natural, ITC Master Chef, Fabelle, Sunbean, Fiama, Engage, Vivel, Savlon, Classmate, Papercraft, Mangal-deep, Aim and others.
MARKET DATA KEY FINANCIALS
Shares outs (Mn) 1,231 INR Million FY18 FY19 FY20 FY21E FY22E
Revenue 443,298 457,844 468,073 525,456 606,596
Equity Cap (INR Mn) 64,029
EBITDA 155,410 173,055 179,043 201,546 233,699
Mkt Cap (INR Mn) 2,124,465
PAT 112,233 124,643 151,361 164,428 190,830
52 Wk H/L (INR) 266/135 EPS (INR) 9.20 10.17 12.31 13.38 15.52
Volume Avg (3m K) 28,860 EBITDA Margin (%) 35.1% 37.8% 38.3% 38.4% 38.5%
Face Value (INR) 1
NPM (%) 25.3% 27.2% 32.3% 31.3% 31.5%
Source: Company, KRChoksey Research
Bloomberg Code ITC IN
Key investment rationale
A resilient business model
SHARE PRICE PERFORMANCE (REBASED) ITC with diversified operations across non-cyclical sectors, a resilient business model,
strong brand leadership position in cigarette business, product innovation track record &
premiumization drive is establishing itself as a FMCG major. Despite the ongoing COVID-19
130 related slowdown, we see recovery signs in recent months and the current valuation
attractive. Besides, we expect the cigarette business to revive in the future with strict
regulation from government on curbing the sale of illegal cigarettes.
80 FMCG – Others: Next big Catalyst
In Q1FY21, the Packaged Foods Business delivered a strong performance, up by 10% YoY
driven by Atta, Noodles, Biscuits and Fresh Dairy. The share of FMCG segment stood at
28% in Q1FY21 vs 21% in Q1FY20; we expect the revenue contribution to reach ~35% by FY23-
30 24. In H1FY21, company launched eight variants of frozen foods and the range was
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May-18
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May-20
May-19
Nov-17
extended to 70+ cities. Recently, Aashirvaad Svasti Lassi , 2 innovative immunity drinks
was launched. We are optimistic on FMCG segment driven by its double-digit growth
momentum, and profitability led by economies of scale
ITC NIFTY 50 Cigarette business, the money-spinner, offers liquidity to emerging FMCG
Currently, all factories are operational, and production has been scaled up to pre-COVID
levels. Sales & distribution operations have normalized. While the cigarette business
faces multiple challenges, it offers capex (~INR 70,000 Cr invested in the last 10 years) for
growing FMCG business.
MARKET INFO Valuation
SENSEX 41,893 In a challenging macro environment, we take a conservative stance to value ITC shares
using an SOTP (Sum of the parts) approach implying 9.1x EV/EBITDA on FY22E to
NIFTY 12,264
Cigarette business; 12.5x EV/EBITDA on Hotel segment; an average 5.5x EV/EBITDA on
Agri/Paper business; and 6.4x on EV/Revenue on FMCG segment - to arrive at a target
price of INR 228 per share; an upside of 31.2% over the CMP.
SHARE HOLDING PATTERN (%)
Particulars Sep-20 Jun-20 Mar-20
13.8% 11.8%
Promoters 0.0 0.0 0.0
FIIs 18.9 16.8 17.0
DIIs 39.3 38.4 38.2
Others 41.9 44.9 44.8
Revenue CAGR between FY20 PAT CAGR between FY20 and
Total 100 100 100
and FY22E FY22ECipla Ltd.
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 790 INR 950 20% 6,36,897 BUY Pharmaceuticals
Company overview
Established in 1935, Cipla is a global pharmaceutical company headquartered in Mumbai, India and serves markets of India, South
Africa, North America, and key regulated and emerging markets. Company’s strengths lies in the therapy areas of respiratory, anti-
retroviral, urology, cardiology, anti-infective and CNS segments. Company’s 46 manufacturing sites around the world produce 50+
dosage forms and 1,500+ products to cater to 80+ markets. Cipla is ranked 3rd largest in pharma in India (IQVIA MAT September’ 20),
3rd largest in the pharma private market in South Africa (IQVIA MAT September’20) and is among the most dispensed generic
players in the U.S. Company’s paradigm-changing offer of a triple anti-retroviral therapy in HIV/AIDS at less than a dollar a day in
Africa in 2001 is widely acknowledged as having contributed to bringing inclusiveness, accessibility and affordability to the centre of
the HIV movement. As of FY, company had revenue contribution of 39% from India, 23% from North America, 18% from SAGA, 9% from
Emerging Markets, 5% from Europe, 4% from Global API & 2% other revenues.
MARKET DATA KEY FINANCIALS
Shares outs (Mn) 806 INR Million FY18 FY19 FY20 FY21E FY22E
Revenue 1,52,193 1,63,624 1,71,320 1,96,047 2,13,910
Equity Cap (INR Mn) 1,60,573
EBITDA 28,264 30,973 32,060 48,031 50,911
Mkt Cap (INR Mn) 6,36,897
PAT 14,881 15,279 15,465 27,197 30,649
52 Wk H/L (INR) 829/355 EPS (INR) 18.5 19.0 19.2 33.7 38.0
Volume Avg (3m K) 8,783 EBITDA Margin (%) 18.6% 18.9% 18.7% 24.5% 23.8%
Face Value (INR) 2
NPM (%) 9.8% 9.3% 9.0% 13.9% 14.3%
Source: Company, KRChoksey Research
Bloomberg Code CIPLA IN
Key investment rationale
SHARE PRICE PERFORMANCE (REBASED) Leader in respiratory therapies; benefiting from COVID-19 related complications
Cipla is de-facto leader in respiratory therapies in India with a market share of 25.7% (rank 1).
In inhalation category, Cipla’s market share stands at 68.9% (rank 1). It also has a significant
135 market share in therapies like Urology with a market share of 16.3% (rank 1) and Cardiology
with a share of 5.5% (rank 4). Cipla’s comprehensive COVID-19 portfolio consists of Cipremi
115
(Remdesivir), Actemra (Tocilizumab), and Ciplenza (Favipiravir) which helped company in
95 posting strong growth in Q2FY21 in the domestic market.
Financial performance highlights buoyant fundamentals
75
Cipla posted strong 14.6% YoY Revenue growth (+15.9% QoQ) in Q2FY21 with broad based
55 growth across geographies, mainly India, SAGA & North American regions. EBITDA margin
expanded 266bps in Q2FY21 to 23.4% (from 20.7% in Q2FY20) mainly due to tighter cost
Nov/20
Nov/18
May/18
Nov/19
May/20
May/19
Nov/17
control despite lower gross profit margin. Net Profit grew 41.2% YoY (+15.1% QoQ), ending
the quarter with Net Profit Margin of 13.2%, an improvement of 248bps YoY.
Near term growth drivers
Cipla Nifty Key factors to watch out for Cipla in near term are approval of Advair Diskus, ramp-up in
albuterol and contribution of COVID-19 drugs. Company has 250 ANDAs as of 30th Sep, 2020,
with 66 ANDAs pending for USFDA approval.
Valuation
MARKET INFO After a steller H1FY21 performance, we have revised our estimates for Cipla upwards for
FY21E/FY22E. We now expect Cipla to report Revenue/PAT growth CAGR of 11.7%/40.8,
SENSEX 41,893
respectively, over the period of FY20-22E. The shares of Cipla are currently trading at a P/E of
NIFTY 12,264 23.4x/20.8x on FY21E/22E earnings. We are optimistic of company’s growth prospects and
raise our target P/E multiple to 25.0x (previously 24.5x) on FY22E EPS of INR 38.0/share and
raise our target price to INR 950/share (earlier INR 894/share), an upside potential of 20%.
SHARE HOLDING PATTERN (%)
Particulars Sep-20 (%) Jun-20 (%) Mar-20 (%)
11.7% 40.8%
Promoters 36.7 36.7 36.7
FIIs 20.1 18.6 17.9
DIIs 19.7 21.3 22.7
Others 23.5 23.4 22.7
Revenue CAGR between FY20 PAT CAGR between FY20 and
Total 100 100 100
and FY22E FY22ESundram Fasteners Ltd.
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 462 INR 532 15.2% 97,100 BUY Auto Ancillary
Company overview
Sundram Fasteners (SFL) was incorporated in 1962. It is a part of the TVS group, headquartered in Chennai. SFL has a diversified
product portfolio and is mainly involved into six product lines I) High Tensile Fasteners II) Cold Extrusion components III) Hot Forged
IV) Power metal parts V) Oil/Water pumps VI) Engine component and powertrain parts. Contribution of fasteners in total revenue is
36% and 64% comes from other product lines. SFL’s standalone domestic business generated 66% of the revenue and exports at 34%
in Q2FY21. Over the years, SFL has acquired cutting-edge technological competencies in forging, metal forming, close-tolerance
machining, heat treatment, surface finishing, and assembly.
MARKET DATA KEY FINANCIALS
Shares Outs (Mn) 210 Particulars (INR Mn) FY19 FY20 FY21E FY22E
Equity Cap (INR Mn) 210.13 Net Sales 45,579 37,232 33,099 40,917
Mkt Cap (INR Mn) 97,100 EBITDA 8,005 5,929 5,336 7,488
52 Wk H/L (INR) 533/249 Adj. PAT 4,575 3,250 2,594 4,147
Volume Avg (3m K) 97 EPS (INR) 21.8 15.5 12.4 19.7
Face Value (INR) 1 EBITDA Margin (%) 17.6 15.9 16.1 18.3
Bloomberg Code SF IN PAT Margin (%) 10.0 8.7 7.8 10.1
Source: Company, KRChoksey Research
SHARE PRICE PERFORMANCE (REBASED) Key investment rationale
Diversification into non-automotive and reducing dependency on Fasteners: In last few years
SFL has reduced its dependency on fasteners business, currently at 36% (specialized fasteners
within it is 25% and 8-10% revenue mix of standard fasteners) of total compare to 65-70% a
decade back. Other product lines contributes 64% which includes engine components, pump
140
assembly, powder metal and extruded products, wind energy and radiator caps. The company
120 is focusing on higher share from other non-auto (industrial) segment such as defence and
100 aerospace. The Company has earmarked INR 100 cr. of its capacities for defence opportunities.
Aftermarket remains strong which is 10%, through strong dealership and distribution.
80
60 Long term strategy of making exports 50% of revenue: Exports presently contributes 34% of its
standalone revenue in Q2FY21, its 80-85% of export is derived from North America and large part
40 from two major clients Cummins and GM. Management expects 50% revenue contribution to
20 come from export in next five to seven year which will de-risk the business from the domestic
market. The company has commissioned Sri City SEZ unit, Andhra Pradesh, for export of high
0
precision engineering components to a leading European manufacturer. We expect healthy
Oct-17
Apr-20
Apr-18
Apr-19
Oct-20
Oct-18
Oct-19
performance from exports over domestic and increase of value added products in exports.
SFL Sensex Multiple trigger in place for better operating performance: We expect EBITDA margin to
remain at ~16% for FY21E and further to improve in FY22E to ~18%, led by favourable commodity
price, better revenue mix (higher contribution value added products and specialized fasteners)
and gradually increased in its factories operation to three shifts to meet the improved demand.
Further, SFL is having sufficient capacity available to capitalize on the demand front in the
MARKET INFO domestic and export markets, return ratio are expected to improve in FY22 on better operating
performance and lower capex spend.
SENSEX 41,893
NIFTY 12,264 Valuation
We maintain our positive stance, on back of diversified set of product portfolio, and strong
domestic presence in all segments of automobile. We expect Revenue to grow by CAGR of 4.8%
over FY20-22E and net profit to grow by CAGR of 13%. At CMP, stock is trading at PE of 37.3x on
FY21E EPS of INR 12.4 and P/E of 23.5x on FY22E EPS of INR 19.7. We have valued SFL at P/E of
27x on FY22E EPS of INR 19.7 to arrive at a target price of INR 532/share.
SHARE HOLDING PATTERN (%)
Particulars 20-Sep 20-Jun 20-Mar
Promoters
FIIs
DIIs
49.53
8.87
18.56
49.53
8.94
18.1
49.53
18.09
8.87 4.8% 13%
Non- institutions 23.04 23.44 23.52 Revenue CAGR between FY20 PAT CAGR between FY20
Total 100 100 100 and FY22E and FY22EDISCLAIMER
ANALYST CERTIFICATION:
We, Parvati Rai (MBA-Finance, M.com), Head Research, Harit Shah (PGDBA-Finance), senior research analyst, and Priyanka Baliga [M.Com, BMS (Finance)], research associate author and the name
subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our
compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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KR Choksey Shares and Securities Pvt. Ltd
Registered Office:
1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001.
Phone: +91-22-6633 5000; Fax: +91-22-6633 8060.
Corporate Office:
ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053.
Phone: +91-22-6696 5555; Fax: +91-22-6691 9576.
ANALYST
Parvati Rai, Head-research@krchoksey.com, +91-22-6696 5413
Harit Shah, lead-analyst@krchoksey.com, +91-22-6696 5555
Priyanka Baliga, priyanka.baliga@krchoksey.com, +91-22-6696 5408You can also read
