IEA Report

13th Feb 2017

ASHOKLEY "BUY" 13th Feb 2017
Going forward, We assume that the upcoming emission norms BS-IV to BS-VI, improvement in demand from infrastructure segment and
government's initiative to develop defense products in the country can be volume boosters for the company in FY17. Ashok Leyland is also working
towards a renewed thrust in the international markets, with network expansion and dedicated products. We expect that the company will maintain
a healthy ROE of over 20% going ahead. We maintain 'BUY' on Ashok Leyland considering the huge growth potential going ahead for a target price
of Rs.110. ...................................................... ( Page : 2-4)

HEROMOTOCO "BUY" 10th Feb 2017

We expect improvement in demand scenario in the domestic market after the demonetization, upcoming marriage season, increasing finance
penetration in rural & semi-urban areas and seventh pay commission payout will drive the volumes and implementation of cost cutting initiative
LEAP to boost margins further by 100 bps going ahead. It has a healthy dividend payout of 54%, which provides a cushion to the investors to invest
in the company for long term. The company is trading at 7 times of FY17 expected book value with a RoE of 36%. We maintain "BUY" rating on this
stock with a target price of Rs.3830. ........................................................ ( Page : 5-7)

IRB "BUY" 9th Feb 2017

Encouraging traffic growth in Q3FY17 and strong recovery in economic activity nullify the demonetization impact. Most of the project has seen
improvement in traffic especially in a western part of the country. We expect 5-6% traffic growth in near term. Recent development (regarding
Mumbai Pune express) does not change our growth estimate. We continue to expect 11% revenue growth in FY17E and robust 40-45% revenue
growth in FY18E. The introduction of InvIT will help IRB to grow higher. Hence, we maintain BUY rating on the stock with unchanged target price of
265/- . ...................................... ( Page : 8-12)

DRREDDY "Neutral" 8th Feb 2017

Management expects that global business to gain traction from FY18 on the back of currency stabilization in emerging markets geographies, stable
macro economics and institutional business launches. In Q3FY17, company commercialized 2 In-licensed products from the strategic collaboration
with Amazon. Remediation process at Srikakulam, Mriyalguda and Duvvada facilities are over and the management expects inspection at these
facilities are expected in Feb/ Mar-17. Considering near term uncertainties we recommend NEUTRAL rating in this stock with a target price of Rs
3325. ......................................... ( Page : 13-15)

ONGC "HOLD" 7th Feb 2017

Gas production in ONGC is expected to increase further on completion of development projects. Management has guided for Oil production of 26.2
MMT and 25.63 BCM Gas in FY18. Management is optimistic about spurt in oil and gas prices in FY18. The company is on track to achieve
production volumes of 25.73 MT for FY17. Since no subsidy has been decided by the government for FY17, the benefits of higher crude would flow
into the company. Considering above arguments, we are optimistic on long-term growth in this stock, hence we recommend HOLD rating in this
stock while maintaining our previous target price of Rs. 243. ................. ( Page : 16 -18)

GLENMARK "HOLD" 6th Feb 2017

Management expects that post re-monetization, revenue from India business to improve further and benefits from the launch of Zetia in US will
boost the revenue from US business in next 2 quarters. Good demand in API business and management focus on Oncology, Respiratory and
Dermatology segments will help the company to diversify its portfolio in API segment. The management plans to reduce debt up to some extent by
Q1FY18 on the back of growth in US business. Considering the long-term opportunities, we recommend Hold rating in this stock while
maintaining our previous target price of Rs. 1096. .............................................. ( Page : 19 -21)

MARICO "BUY" 6th Feb 2017

Major positive for this quarter remained 6% volume growth of Saffola despite demand pressure due to demonetization. Management maintains
double digit growth guidance for Saffola in medium term which is one of the positive factor. Secondly, Companys guidance of 20% plus EBITDA
margin for domestic business is commendable in an environment where most of the FMCG players are facing commodity headwinds. As far as
international business is concern, we expect that worse is over for MENA and management is optimistic about high single digit Constant
currency(CC) from Bangladesh going forward. Presently company trades at 15 times of FY17E book value with 35% of RoE. Considering improving
business conditions after demonetization, better margin guidance for domestic business and expected recovery from international business going
forward, we reiterate to BUY this stock with the target price for Rs 330. .................................................. ( Page : 22-24)

Narnolia Securities Ltd IEA Edition No.- 954

 BUY
ASHOK LEYLAND LTD. 13-Feb-17

Result Update
CMP 93 The commercial vehicle giant has posted Rs.4431 crore of net revenue with
Target Price 110 a growth of 7.7% YoY in the 3QFY17. M&HCV volumes grew by 9%YoY on
account of increased infra activity in the country. LCV volumes declined by
Previous Target Price
3% due to the vast presence in rural areas, which were affected most by
Upside 18% demonetization. Realization also declined by 2%QoQ to Rs.1349300
Change from Previous - because of higher discounts in the industry. Discounts have gone up to
Rs.300000 per unit from Rs.225000-250000 per unit but further price
Market Data increases will net off this effect. M&HCV segment market share stood at
33.7% (+370bps YoY) during the quarter despite the demonetization issue.
BSE Code 500477 Exports revenue grew by 11%QoQ to Rs.388 crore for the quarter. The
NSE Symbol ASHOKLEY company has a healthy order book of export orders. Hinduja Foundries
52wk Range H/L 113/74 Limited (HFL), which fulfills casting requirements of Ashok Leyland, has also
shown EBITDA positive for consecutive second quarters. Management
Mkt Capital (Rs Cr) 26,452
anticipates that in two years time the HFL will be accretive to Ashok Leyland.
Av. Volume 1201241 Recently, Ashok Leyland opened a new assembly plant in Bangladesh as it
Nifty 8,794 aims to make further inroads into the neighboring countries.

Stock Performance
1Month 3Month 1Year
3QFY17 Result Highlights

Absolute 9.9 6.4 14.6 Revenue stood Rs.4431 crore with a groowth of 8%YoY on account of
Rel.to Nifty 5.2 0.4 -11.4 6%YoY growth in Volumes and 2%YoY growth in realization in 3QFY17.
EBITDA margin contracted by 60 bps YoY due to 80bps rise in commodity
Share Holding Pattern-% prices during the quarter.
3QFY17 2QFY17 1QFY17 PAT margin declined by 120 bps to 4.1% due to forex loss of Rs.64 crore
Promoter 50.4 50.4 50.4 during the quarter.
Public 49.6 49.6 49.6
Outlook
Others -- -- --
Total 100.0 100.0 100.0
Going forward, We assume that the upcoming emission norms BS-IV to BS-
VI, improvement in demand from infrastructure segment and government's
Company Vs NIFTY initiative to develop defense products in the country can be volume boosters
130
ASHOKLEY NIFTY for the company in FY17. Ashok Leyland is also working towards a renewed
125 thrust in the international markets, with network expansion and dedicated
120 products. We expect that the company will maintain a healthy ROE of over
115 20% going ahead. We maintain 'BUY' on Ashok Leyland considering the
110 huge growth potential going ahead for a target price of Rs.110.
105
100 Rs. In crore
95
90
Financials 3QFY17 2QFY17 3QFY16 QoQ YoY
85 Sales 4431 4622 4114 -4% 8%
80 EBITDA 454 536 449 -15% 1%
Jul-16
Feb-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16

Nov-16
Apr-16
Mar-16

Net Profit 180 294 217 -39% -17%

EBIDTA% 10.3% 11.6% 10.9%
Naveen Kumar Dubey PAT % 4.1% 6.4% 5.3%
naveen.dubey@narnolia.com
Narnolia Securities Ltd 2
Please refer to the Disclaimers at the end of this Report
 ASHOKLEY

Investment Arguments

The country would be moving to BS-IV norms in April, 2017 and a significant amount of pre-buying expected, especially in the
fourth quarter of FY17. Ashok Leyland's subsidiary, Albonair, holds a significant potential moving forward because Albonair does
exhaust emission systems, selective catalytic reduction emission systems which are necessary for being BS-IV compliant.
Export is only 12% of total volumes, therefore the company is targeting the African and Middle East countries to expand its
export contribution by setting up own assembly plants in these countries under the company's global expansion project. The
exports is an important part of Ashok Leyland's strategic intent to globalise its product portfolio and derisk itself from supplying
only into India.
The management expects its defence business to log four-fold jump in revenues at over Rs 2,000 crore in next five years as it
gears up to provide an entire range of mobility solutions, including missile carrying vehicles to the armed forces. Ashok Leyland is
the largest supplier of logistics vehicles to the Indian Army.
The management has focused approach towards its core commercial vehicle business. We expect that the company will be
benefitting from recovery in the M&HCV demand and its EBITDA margin will expand on account of operating leverage. The
company is also working on to reduce its debt and generate more cash to fulfill its future expansion requirements.

Concall Highlights

Management expects Q4 to be promising due to the implementation of BS-IV norms.

Capex for FY17 is Rs.500 crore and for FY18 in the range of Rs.500-750 crore.
If there is economic growth in the country CV industry will move ahead. Going ahead we see CV industry to grow about 12-15%
annually.
33.7% market share in M&HCV space and in south region overall market share is 51%.
Domestic truck business contributes 50-55 percent of total revenue.
Some cost pressure would be in 4QFY17 becasue of rising commodity prices.
Net debt stood at Rs.1520 crore.
Price increase of 4% in truck and bus segment in 4QFY17..
Ashok Leyland have acquired 100% ownership of the JVs, we will continue to be associated with Nissan for the technology of
the existing Dost, Partner, and Mitr models.
The management is focusing on to improve profitability and ROCE of the company going ahead.
Defence Revenue to be close to around Rs 1,500 crore by FY18.

M&HCV volume and growth trend

M&HCV Growth YoY

40000 71% 80%

35246
35000 29840 70%
60%
30000 26262 44% 25346 25,284 50%
64% 23232 24025
25000 21489 34% 40%
18207 18279 40% 27%
20000 30%
14908 14%
15000 12% 9% 20%
0% 10%
10000
0%
5000 -15%
-10%
0 -20%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Narnolia Securities Ltd 3

Please refer to the Disclaimers at the end of this Report

 ASHOKLEY

Financials Snap Shot

INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Net Revenue 11,487 15,341 20,659 21,850 EPS (1) 0 4 4
Other Income 92 189 152 171 Book Value 15 16 18 20
Total Revenue 11,579 15,530 20,811 22,021 DPS - 0.5 1.1 1.1
COGS 8,138 10,443 13,558 14,312 Payout (incl. Div. Tax.) 0% 112% 30% 30%
GPM 71% 68% 66% 66% Valuation(x)
Other Expenses 1,581 1,845 2,396 2,513 P/E -38.4 73.2 9.2 9.1
EBITDA 422 1,517 2,932 3,151 Price / Book Value 1.6 2.2 2.0 1.7
EBITDA Margin (%) 4% 10% 14% 14% Dividend Yield (%) 0.00% 1.53% 3.23% 3.24%
Depreciation 530 580 524 519 Profitability Ratios
EBIT (108) 937 2,408 2,633 RoE -4% 3% 21% 19%
Interest 805 872 968 1,194 RoCE -1% 9% 19% 20%
PBT (821) 254 1,592 1,610 Turnover Ratios
Tax (68) 172 528 534 Asset Turnover (x) 0.7 0.8 0.9 0.9
Tax Rate (%) 8% 68% 33% 33% Debtors (No. of Days) 43.9 32.2 26.8 26.8
Reported PAT (164) 134 1,071 1,077 Inventory (No. of Days) 69.2 54.8 55.5 55.5
Dividend Paid - 150 316 318 Creditors (No. of Days) 82.4 73.3 52.4 50.0
No. of Shares 266 285 285 285 Net Debt/Equity (x) 1.4 1.4 1.5 1.3

BALANCE SHEET CASH FLOW STATEMENT

FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 266 285 285 285 OP/(Loss) before Tax (300) (42) 1,627 1,610
Reserves 3,723 4,227 4,708 5,466 Depreciation 530 580 524 519
Net Worth 3,989 4,511 4,992 5,751 Direct Taxes Paid (97) (112) (545) (534)
Long term Debt 5,491 6,219 7,597 7,217 OP before WC changes 195 1,725 2,431 3,322
Short term Debt 1,264 827 1,093 874 CF from Op. Activity (104) 496 (952) 2,605
Deferred Tax 411 510 536 536 - - - -
Total Capital Employed 9,480 10,731 12,589 12,968 Capex (408) (251) (212) -
Net Fixed Assets 7,087 6,060 5,894 5,871 CF from Inv. Activity (377) (126) 552 (652)
Capital WIP 270 166 162 162 Repayment of Long Term Borrowings
(1,586) (1,996) (2,362) (380)
Debtors 1,381 1,354 1,515 1,603 Interest Paid (499) (803) (316) (1,194)
Cash & Bank Balances 113 905 1,758 1,600 Divd Paid (incl Tax) (187) - (154) (318)
Trade payables 2,592 3,082 2,966 2,993 CF from Fin. Activity 461 381 1,246 (2,111)
Total Provisions 256 599 1,081 1,069 Inc/(Dec) in Cash (20) 751 846 (158)
Net Current Assets 400 522 1,016 1,035 Add: Opening Balance 127 106 858 1,758
Total Assets 17,534 19,525 22,963 23,157 Closing Balance 106 858 1,718 1,600

Narnolia Securities Ltd 4

Please refer to the Disclaimers at the end of this Report

 BUY
Hero Motocorp Limited 10-Feb-17

Result Update
Results in-line; with stable EBITDA margin
CMP 3264
Target Price 3830 Hero Motocorp posted 3QFY17 results in-line with our expectation. Net
Previous Target Price 3179 revenue de-grew by 12%YoY to Rs. 6365 crore in 3QFY17. Volumes
Upside 17% declined by 13%YoY because of demonetization issue during the quarter.
Rural areas have witnessed severe hit due to currency crunch which
Change from Previous 20%
accounts for 60% of the Hero Motocorp volumes. Motorcycle sales were
down by 15% in the month of November and December. Realization stood
Market Data flat because the company took price hike during the quarter. In the month of
BSE Code 500182 January, Hero sold 487000 vehicles with a growth of 48% MoM which
NSE Symbol shows a sharp recovery in the demand. Management expects high single
HEROMOTOCO digit growth for the first half and better second half of next financial year in
52wk Range H/L 3740/2440 volume terms. LEAP, the cost cutting initiative, has supported the company
Mkt Capital (Rs Cr) 65,185 to post EBITDA margin over 16% despite rising commodity prices.
Av. Volume 37142
3QFY17 Results Update
Nifty 8778
>>Revenue declined by 12% YoY to Rs.6365 crore in 3QFY17 because of
Stock Performance 13%YoY decline in volumes.
1Month 3Month 1Year >>Gross margin improved by 270 bps YoY to 35.1% driven by cost cutting
Absolute 6.6 3.8 26.5 initiative LEAP and lower commodity price benefit.
Rel.to Nifty 0.7 0.8 6.3 >>EBITDA margin expanded by 130 bps YoY by lower advertising and
promotional expenses.
Share Holding Pattern-% >>PAT margin improved by 115 bps YoY due to higher other income during
3QFY17 2QFY17 1QFY17 the quarter.
Promoter 34.6 34.6 34.6
Outlook and Valuation
Public 65.4 65.4 65.4
Others -- -- -- We expect improvement in demand scenario in the domestic market after
Total 100.0 100.0 100.0 the demonetization, upcoming marriage season, increasing finance
penetration in rural & semi-urban areas and seventh pay commission payout
will drive the volumes and implementation of cost cutting initiative LEAP to
Company Vs NIFTY
boost margins further by 100 bps going ahead. It has a healthy dividend
150
HEROMOTOCO NIFTY payout of 54%, which provides a cushion to the investors to invest in the
140 company for long term. The company is trading at 7 times of FY17 expected
130 book value with a RoE of 36%. We maintain "BUY" rating on this stock with
a target price of Rs.3830.
120

110
Rs. In crore

100
Financials 3QFY17 2QFY17 3QFY16 QoQ YoY

90
Sales 6365 7796 7224 -18.4% -11.9%
EBITDA 1080 1369 1131 -21.1% -4.5%
80
Net Profit 772 1004 793 -23.1% -2.7%
Jul-16
Feb-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16

Nov-16
Apr-16
Mar-16

EBIDTA% 17.0% 17.6% 15.7%

Naveen Kumar Dubey PAT % 12.1% 12.9% 11.0%
naveen.dubey@narnolia.com
Narnolia Securities Ltd 5
Please refer to the Disclaimers at the end of this Report
 HEROMOTOCO
Investment Arguments
Improving demand scenario after demonetization impact- 2 wheelers industry have shown strong recovery after the cash
crunch issue. Hero itself posted 48%MoM growth in January sales numbers. Certain parts of South and West India have not
recovered till yet but we expect domestic market to fully recover by February end.
Increasing finance penetration- We expect that the increasing penetration of finance in the urban as well as in rural areas
aided by favorable interest rates will support the demand going ahead.
Focus on premium segment- HMCL has increased its R&D expenditure to develop technologically advanced in house
products. R&D team will focus on premium products where Hero has minimal presence and this segment has huge growth
potential. Hero has only 6% market share in this segment.
Cost cutting initiative to drive margins up- LEAP, the cost cutting initiative of Hero Motocorp has supported company to post
better margins despite rising commodity pressure. Management is targeting approx. 90 bps saving from this program in FY17.

Healthy dividend payout- Hero Motocorp is a debt free and cash rich company. It has a healthy dividend payout of 54%, which
provides cushion to the investors to invest in the company for long term.
Seventh Pay commission to boost demand- We expect approx.4.7mn government employees will be benefited in this
seventh pay commission pay-out. This will improve the living standard and will drive urban and rural demand for two wheelers
going forward. We expect as a market leader Hero can be bigger beneficiary after the implementation of 7th pay commission.

Concall Highlights

Management expects good single digit growth for first half and better second half for next financial.
Capex guidance for FY17: Rs 1200-1500 crore and Rs.1000-1100 crore for FY18.
Rs.350-400 crore of capex for Andhra Pradesh plant in FY18.
Rs.2000 crore of capex in FY18 for phase-II & III of Halol Plant, If the robust demand comes in.
Price hike in Janauary 2017 in the range of Rs.500-1500 covering rising commodity prices and BS-IV compliance.
EBITDA margin guidance above 15% in FY17.
Target of Rs.255 crore benefit from cost cutting program LEAP in FY17.
Other income for FY17 would be higher by 8-9 percent on an average.
The tax benefit for plants in Rajasthan and Gujarat will last for 7 years; and the benefit is restricted to the extent of investment
Scooters to continue outpace motorcycle growth going forward in FY17. Market share is 14%.
Dealer Inventory remained at 6-7 weeks.
Effective tax rate for FY17 will be slightly higher than FY16
Advertising and Promotion expenses stood 2.4-2.5% of total sales.

Plant Details
Plant Location Capacity
Haridwar 3060000
Gurgaon 2340000
Dharuhera 2340000
Neemrana 450000
Halol 1800000

Gujarat Plant- capacity expansion will include an initial capacity of 1.2 million (mn) units (phase 1: 0.75 mn units by Q3FY17;
phase 2: 0.45 mn units by FY17 end) & a final addition of 0.6 mn (phase 3) by FY18 beginning.
The Haridwar operations currently contribute towards 38% of HMCLs volumes. Once the excise benefits expire in FY18 end,
there will be a 100 bps impact on the EBITDA margins.
Narnolia Securities Ltd 6

Please refer to the Disclaimers at the end of this Report

 HEROMOTOCO

Financials Snap Shot

INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Net Revenue 25,275 27,538 28,614 28,807 EPS 105 118 155 172
Other Income 444 492 389 531 Book Value 282 328 398 477
Total Revenue 25,720 28,030 29,003 29,338 DPS 76 70 84 93
COGS 18,230 19,715 19,313 19,096 Payout (incl. Div. Tax.) 72% 59% 54% 54%
GPM 28% 28% 33% 34% Valuation(x)
Other Expenses 2,576 3,147 3,575 3,442 P/E 22 22 19 20
EBITDA 3,539 3,497 4,382 4,853 Price / Book Value 8 8 7 7
EBITDA Margin (%) 14% 13% 15% 17% Dividend Yield (%) 3% 3% 3% 3%
Depreciation 1,107 540 447 571 Profitability Ratios
EBIT 2,432 2,956 3,935 4,282 RoE 37% 36% 39% 36%
Interest 12 12 12 6 RoCE 43% 45% 49% 44%
PBT 2,864 3,437 4,312 4,806 Turnover Ratios
Tax 758 943 1,262 1,377 Asset Turnover (x) 2 3 2 2
Tax Rate (%) 26% 27% 29% 29% Debtors (No. of Days) 13 18 16 16
Reported PAT 2,103 2,365 3,094 3,429 Inventory (No. of Days) 13 16 14 14
Dividend Paid 1,519 1,402 1,682 1,864 Creditors (No. of Days) 33 38 36 36
No. of Shares 20 20 20 20 Net Debt/Equity (x) 0.0 0.0 0.0 0.0

BALANCE SHEET
FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Share Capital 40 40 40 40 OP/(Loss) before Tax 2864 3329 4312 4806
Reserves 5,583 6,500 7,913 9,477 Depreciation 1107 540 447 571
Net Worth 5,623 6,540 7,953 9,517 Direct Taxes Paid (649) (1000) (1104) (1377)
Long term Debt 24 12 146 146 Op before WC 3557 3586 4508 5330
Short term Debt - 88 84 85 CF from Op. Activity 2963 2250 3796 3981
Deferred Tax - - 228 228 Purchase of investment (9) 1354 26973 (142)
Total Capital Employed 5,647 6,552 8,099 9,663 Capex (941) (1156) (1708) (1151)
Net Fixed Assets 3,102 3,671 4,689 5,270 CF from Inv. Activity (1618) 12 (2286) (1780)
Capital WIP 855 719 653 653 Repayment of Borrowings
Debtors 921 1,372 1,282 1,291 Interest Paid (12) (11) (11) (6)
Cash & Bank Balances 120 216 179 510 Divd Paid (incl Tax) (1403) (2219) (1682) (1864)
Trade payables 2,291 2,855 2,792 2,811 CF from Fin. Activity (1414) (2231) (1561) (1870)
Total Provisions 1,594 801 884 890 Inc/(Dec) in Cash (69) 32 (50) 330
Net Current Assets 1,135 1,481 1,999 2,790 Add: Opening Balance 135 66 155 179
Total Assets 10,122 10,654 12,672 14,212 Closing Balance 69 98 104 510

Narnolia Securities Ltd 7

Please refer to the Disclaimers at the end of this Report

 Maintain BUY
IRB Infrastructure Developers Ltd. 9-Feb-17

Result Update Recent Update :-

CMP 235 Recently, the group of the social activist had advocated stopping toll
Target Price 265 collection on Mumbai-Pune Expressway, which contributes ~28% of the IRB
Previous Target Price 235 toll collection revenue. It was the relevant concern but MSRDC the awarding
authority of the project has scrapped the appeal raised by activist and stated
Upside 13%
that IRB Infrastructure is liable to collect toll as per the concession
Change from Previous 13% agreement.

Market Data IRB has collected Rs. 2880 Cr till November 2016 against the projection of
BSE Code 532947 Rs. 2869 Cr on Mumbai-Pune Expressway. But as per the concession
NSE Symbol IRB agreement, IRB has right to collect toll till August 2019. There is no such
clause in concession agreement to terminate the contract. Hence, it will not
52wk Range H/L 266/177
change our revenue estimate.
Mkt Capital (Rs Cr) 8,208
Av. Volume 287591
Nifty 8769
Strong Performance, nullify Demonetization Impact :-
Stock Performance IRB has reported better number than our expectation in Q3FY17. Net sales
1Month 3 Month 1Year grew by 5.8% YoY to Rs. 1411 Cr as compared to Rs.1333 Cr in the
Absolute 8.9 10.1 -0.5 corresponding quarter previous year despite of demonetization which led to
suspension of toll collection for 23 days. But on the contrary, average daily
Rel.to Nifty 2.4 6.1 -17.6
toll collection for December month (from 3rd Dec to 31st Dec) has grown by
3% to 7.79 Cr compare to 7.53 in October month. Total income from toll
Share Holding Pattern-% collection grew by 16% YoY (including 150 Cr of claim against toll loss during
3QFY17 2QFY17 1QFY17 the suspension of 23 days) compared to Q3FY16. While EPC revenue has
Promoters 57% 57% 57% grown by 3% YoY to Rs. 834 Cr. Things are improving faster post the
Public 43% 43% 43% demonetization and management has envisaged 5-6% traffic growth in next 3-
6 months which provides strong recovery in toll collection. We expect robust
revenue growth in EPC segment based on healthy order book (3.45x of TTM
construction revenue).

Company Vs NIFTY Actual toll collection for the Q3FY17 was Rs. 517 Cr and company has raised
130 a claim of Rs. 150 Cr for the revenue loss during the suspension period.
IRB NIFTY
120 Revenue and profitability loss on the state highways will compensate in cash
110 by the respective state authorities but NHAI compensates only for interest
100 and O&M expenses incurred during the period in cash for national highways.
90 Principal and profitability on national highways will compensate by way of
80 extension of the concession period.
70 In Rs. Cr
60 Financials Q3FY16 Q2FY17 Q3FY17 YoY (+/-) QoQ (+/-)
50 Sales 1333 1291 1411 6% 9%
40
EBITDA 688 709 743 8% 5%
PAT 170 142 184 8% 30%
EBIDTA% 51.6% 54.9% 52.7% 110 bps (220) bps
Sandip Jabuani PAT 12.7% 11.0% 13.1% 40 bps 210 bps
sandip.jabuani@narnolia.com
Narnolia Securities Ltd 8
Please refer to the Disclaimers at the end of this Report
 Investment Argument:-
Robust construction revenue visibility:-
Currently, 5 projects are under construction and in next 8-10 months time period another 3 projects in Rajasthan namely
Gujarat/Rajasthan, Kishangarh - Udaipur and Kishangarh - Gulabpura will come under execution. Order book stands at Rs. 12011
Cr i.e. 3.45x of TTM EPC revenue. All the projects are well on track and management confident to complete projects on time.
Current on-going projects will drive the revenue growth and we expect revenue growth of 40-45% in FY18E.

Strong Recovery in Toll Collection:-

IRB has witnessed encouraging traffic growth post the demonization. Average daily toll collection in month of December has
grown by 3% to Rs. 7.79 Cr compared to Rs. 7.53 Cr in month of October. IRB's most of the operation road projects are in
western part of the country which is seeing good recovery in traffic movement. Management expects 10-12% growth in BOT
revenue including 5-6% traffic growth.

InvIT will unlock Value:-

IRB has filed DRHP (Draft Red Hiring Prospectus) for its InvIT with SEBI and company is in an advanced stage to get approval.
IRB expect it to launch before March 2017. IRB is in the process to raise Rs. 4300 Cr through InvIT IPO. These proceed will be
utilized for the debt reduction and for the future projects.

Concall Highlights :-
Traffic growth is encouraging despite demonization.
December toll collection is up by 3% compare to October month.And management expect 5-6% traffic growth in next 3-6 months
Suspension of toll collection led to low depreciation and amortization as the company follows revenue pattern based policy.
One of the road projects reported 10% reduction in traffic growth due to demonization.
IRB is pre- qualified for the 11738 Cr worth of projects.
Q4FY17 will be much more promising than Q3FY17 in terms of traffic growth.
IRB has raised claim of Rs.150 Cr as toll collection was suspended for the 23 days.
Sufficient cash surplus for funding equity requirement of on-going and up-coming projects
Equity requirement is Rs.1700 Cr including 3 new projects over period of 4 years. ( Rs.170 cr in FY17, 500 cr each in
FY18,FY19 and FY20)
No major impact of demonization on EPC segment.
Work on Udaipur to Rajsthan/Gujarat border project will start from April, on Kishangarh Udaipur- Ahemdabad from June and
recently won project Kishangarh Gulabpura by October
Current average toll collection of 30lakh/day on Agra- Ethwah
IRB has received 139 Cr grant in Yedeshi Aurngabad during the quarter and it will complete before monsoon.
Waiting for SEBI approval for InvIT and expect to launch it before March 2017.

Outlook and Valuation :-

Encouraging traffic growth in Q3FY17 and strong recovery in economic activity nullify the demonetization impact. Most of the
project has seen improvement in traffic especially in a western part of the country. We expect 5-6% traffic growth in near term.
Recent development (regarding Mumbai Pune express) does not change our growth estimate. We continue to expect 11%
revenue growth in FY17E and robust 40-45% revenue growth in FY18E. The introduction of InvIT will help IRB to grow higher.
Hence, we maintain BUY rating on the stock with unchanged target price of 265/-

Narnolia Securities Ltd 9

Please refer to the Disclaimers at the end of this Report
Quartely Performance 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Net Sales 883 964 990 1,109 1,149 1,333 1,537 1,517 1,291 1,411 6% 9%
Other Operating Income - - - - - - - - - -
Net Sales 883 964 990 1,109 1,149 1,333 1,537 1,517 1,291 1,411 6% 9%
Contarct Site Exp 193 240 239 273 314 488 597 553 379 447 -8% 18%
RM Cost 75 75 103 126 138 64 51 76 82 85 31% 3%
COGS 268 314 341 399 452 552 648 629 461 532 -4% 15%
Employee Expenses 50 45 53 48 60 57 81 64 60 67 17% 11%
Other Expenses 42 49 25 33 32 36 68 50 60 69 89% 14%
Total Expenditure 360 408 420 480 544 646 797 743 582 667 3% 15%
EBITDA 523 555 571 629 605 688 740 774 709 743 8% 5%
Depreciation 180 179 172 202 203 226 222 221 227 180 -20% -21%
EBIT 343 377 399 427 402 461 517 553 482 563 22% 17%
Intreset 227 237 251 235 240 264 327 328 340 339 28% 0%
PBT 145 169 176 220 192 229 225 256 176 254 11% 45%
Tax 23 35 40 55 43 61 73 74 33 70 15% 109%
PAT 122 133 138 165 150 170 151 182 142 184 9% 30%

Margin Profile YoY (+/-) QoQ (+/-)

Gross Margin 69.60% 67.38% 65.53% 63.99% 60.65% 58.57% 57.86% 58.54% 64.28% 62.31% 374 (197)
EBIDTA 59.2% 57.6% 57.6% 56.7% 52.7% 51.6% 48.1% 51.0% 54.9% 52.7% 110 (220)
EBIT 38.9% 39.1% 40.2% 38.5% 35.0% 34.6% 33.7% 36.5% 37.3% 39.9% 530 260
PAT 13.8% 13.8% 14.0% 14.9% 13.0% 12.7% 9.8% 12.0% 11.0% 13.1% 40 210

Opearting Matrix YoY% QoQ%

Construction Order 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Ongoing BOT Projects 4,254 3,776 3,219 8,136 7,503 6,675 5,810 4,818 5,634 4,826 -28% -14%
Construction yet to comm. 5,402 5,403 7,551 2,133 2,133 8,828 2,133 2,133 3,987 5,436 -38% 36%
9,656 9,178 10,770 10,269 9,636 15,503 7,943 6,951 9,621 10,262 -34% 7%
BOT Projects in O&M 1,932 3,776 1,861 1,847 1,832 1,818 1,803 1,788 1,773 1,750 -4% -1%
Total 11,587 12,954 12,631 12,116 11,468 17,321 9,746 8,739 11,394 12,011 -31% 5%

Toll Collection at Major Projects YoY% QoQ%

Munbai- Pune 136 147 149 160 146 162 165 188 173 137 -15% -21%
Surat - Dahisar 131 145 147 151 145 156 162 161 148 111 -29% -25%
Tumkar Chitradurga 45 47 48 50 49 51 51 53 50 40 -22% -20%
Baruch - Surat 45 49 48 49 45 49 50 49 47 37 -25% -21%
Ahem.-Vadodra (NE-1) 35 42 43 44 37 53 86 88 83 69 31% -16%
Jaipur - Deoli 24 27 29 33 26 29 32 32 27 22 -24% -16%
Pathankot - Amritsar - 8 21 23 22 27 27 29 28 24 -12% -15%
Thane- Bhiwandi Bypass 17 19 19 20 19 20 21 20 19 15 -24% -19%
Omalur Salem Namakkal 19 21 19 19 18 17 21 20 19 15 -11% -22%
Talegaon Amravati 10 11 12 12 10 12 13 13 12 10 -15% -13%

Narnolia Securities Ltd 10

Please refer to the Disclaimers at the end of this Report

Order Book
Order book Book to bill

20,000 17,321 20

15,000 12,954 12,631 15

11,587 12,116 11,468 11,394 12,011
9,746
10,000 8,739 10

5,000 5

- -
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Order Book break up project wise

Yedeshi Aurangabad
6% 4%
9%
2% Kaithal Rajasthan Border
12% 2%
Solapur Yedeshi
Sindhudurg Airport
Agra Etawah
15% 17%
Gulabpura -Chittorgarh
Udaipur -Gj Border
O & M Contracts
17% 16% Kishangarh Gulabpura
Goa Kundapur

Revenue Mix

Narnolia Securities Ltd 11

Please refer to the Disclaimers at the end of this Report
 Financials Snap Shot
INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Net Revenue 3732 3847 5130 5694 EPS 14 15 18 18
Other Income 121 113 124 119 Book Value 107 124 137 151
Total Revenue 3853 3960 5254 5812 DPS 6 5 5 5
EBITDA 1754 2212 2661 3041 Payout (incl. Div. Tax.) 42% 30% 26% 26%
EBITDA Margin (%) 47% 57% 52% 53% Valuation(x)
Depreciation 477 707 853 935 P/E 7 15 13 15
EBIT 1277 1505 1807 2106 Price / Book Value 1 2 2 2
Interest 756 931 1063 1346 Dividend Yield (%) 6% 2% 2% 2%
PBT 642 686 868 878 Profitability Ratios
Tax 182 144 232 246 RoE 13% 12% 13% 12%
Tax Rate (%) 28% 21% 27% 28% RoCE 9% 10% 10% 10%
Reported PAT 459 543 636 633 Turnover Ratios
Dividend Paid 194 164 164 164 Asset Turnover (x) 0.2 0.1 0.1 0.1
No. of Shares 33 35 35 35 Debtors (No. of Days) 1 0 7 7
Inventory (No. of Days) 59 73 55 55
Creditors (No. of Days) 40 22 22 22
Net Debt/Equity (x) 2.64 2.48 2.62 2.68

BALANCE SHEET CASH FLOW

FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 332 351 351 351 OP/(Loss) before Tax 642 686 868 878
Reserves 3228 4009 4476 4942 Depreciation 477 707 853 935
Net Worth 3561 4361 4827 5293 Direct Taxes Paid 232 216 312 246
Long term Debt 9398 10804 12652 14192 Op. before WC change 1749 2216 2719 3159
Short term Debt 897 631 1189 1189 CF from Op. Activity 1656 1823 2342 2104
Deferred Tax 22 19 16 16 Non Current Investment 0 1 0 0
Total CE 12959 15165 17479 19485 Capex 3002 2311 3161 2261
Net Fixed Assets 13041 36599 39169 40494 CF from Inv. Activity (2743) (2295) (3175) (2261)
Capital WIP 48 80 78 78 Repayment of LTB 888 794 1140 0
Debtors 6 5 104 115 Interest Paid 740 1317 1435 1346
Cash Balances 1501 1580 1559 0 Divd Paid (incl Tax) 194 78 254 164
Trade payables 408 234 305 339 CF from Fin. Activity 1274 474 667 30
Total Provisions 289 219 169 324 Inc/(Dec) in Cash 186 2 (165) (127)
Net Current Assets 879 477 510 1349 Add: Opening Balance 257 443 445 1559
Total Assets 15712 39393 42181 42046 Closing Balance 443 445 279 1432

Narnolia Securities Ltd 12

Please refer to the Disclaimers at the end of this Report

 Neutral
DR.REDDY'S LABORATORIES LTD 8th Feb 2017

Company Update Dr. Reddy has reported revenue of Rs. 3707 Cr (decline by 7% YoY) in
CMP 3066 Q3FY17 from Rs. 3967 Cr in Q3FY16. Revenue from Global generics
Target Price 3325 segment declined by 9% YoY led by the lower contribution from North
Previous Target Price 3815 America and Venezuela. Revenue from US business has come down by
15% YoY on account of increased competition and pricing pressure. Delay
Upside 8%
in new launches and erosion in base business is a major area of concern
Change from Previous -13% in US business. During the quarter, company launched 5 new relatively
small products in the US market and management expects meaningful
Market Data launches in US market in coming fiscal.
BSE Code 500124 Business Highlights
NSE Symbol DRREDDY
52wk Range H/L 3689/2813 Sales from US business stood at ~Rs. 1659 Cr. in Q3FY17 vs Rs. 1942
Mkt Capital (Rs Cr) 50762 Cr. in Q3FY16. Limited meaningful launches in 9M FY17 coupled with
pricing pressure in 1HFY17 in key products has led to muted growth in US
Av. Volume(,000) 26.83
business in FY17.
Nifty 8768
Revenue from the Europe Business declines by 10% to Rs. 215 Cr in
Stock Performance Q3FY17 vs Rs. 193 Cr in Q3FY16.
1M 3M 12M In this quarter Domestic business grew to Rs. 595 Cr. from Rs. 580 Cr.
Absolute 3.6 5.6 5.0 Revenue from the Emerging Business declines by 7% to Rs. 595 Cr in
Rel.to Nifty -3.3 -14.0 -8.6 Q3FY17 vs Rs. 640 Cr in Q3FY16.
During the quarter, 16 DMFs were filed globally of which 1 was filed in
Share Holding Pattern-% US.Cumulative number of filings as on 31 Dec. 2016 was 782.
3QFY17 2QFY17 1QFY17 Net Debt/Equity is 0.31 as on 31 dec 2016.
Promoters 26.8 26.7 25.6
Public 73.2 73.3 74.4 Business Highlights
Others
Total 100.0 100.0 100.0 Management expects that global business to gain traction from FY18 on
the back of currency stabilization in emerging markets geographies, stable
Company Vs NIFTY macro economics and institutional business launches. In Q3FY17,
125
company commercialized 2 In-licensed products from the strategic
DRREDDY NIFTY
120
collaboration with Amazon. Remediation process at Srikakulam,
115
Mriyalguda and Duvvada facilities are over and the management expects
110 inspection at these facilities are expected in Feb/ Mar-17. Considering near
105 term uncertainties we recommend NEUTRAL rating in this stock with a
100 target price of Rs 3325.
95 in(Rs Cr) 2012 2013 2014 2015 2016
90
85
Sales 9815 11896 13415 15023 15698
80 EBITDA 2431 2720 3251 3494 3921
Jul-16
Feb-16

Sep-16
Jan-16

Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16
Mar-16

Net Profit 1301 1527 1963 2336 2151

EPS 77 90 115 137 126
Aditya Gupta ROE 26% 24% 25% 24% 18%
aditya.gupta@narnolia.com
Narnolia Securities Ltd 13
 Earnings Call Highlights of Q3FY17

During this quarter 5 relatively small products were launched. Management does not expect any benefit from meaningful launch
in Q4 but expects to launch 15+ launches in FY18.
Working Capital increases by ~Rs. 400 Cr due to new product inventory build-up and increase in receivables in some
geographies
R&D expenditure for the quarter is ~Rs. 498 Cr representing 13.4% of revenues.
Management expects 15 new launches in FY18 (including 4-5 meaningful launches).
Substantially ramped up R&D productivity and filed 9 ANDAs in this quarter and with this cumulative filing at the end of FY17
will be 25.

Business Overview
The Company is organized into the following businesses which are reportable segments:
Pharmaceutical Services and Active Ingredients: This segment includes active pharmaceutical ingredients and intermediates, also
known as active pharmaceutical products or bulk drugs, which are the principal ingredients for finished pharmaceutical products.
Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages are fixed in a form
ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes
contract research services and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the
specific customer requirements.

Global Generics: This segment consists of finished pharmaceutical products ready for consumption/ use by the patient, marketed
under a brand name (Branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations
(generics). This segment includes the operations of the Companys biologics business.

Proprietary Products: This segment consists of the Companys differentiated formulations business, New Chemical Entities (NCEs)
business, and the dermatology focused specialty business operated through Promius Pharma.

Others: This includes the operations of the Companys wholly-owned subsidiary, Aurigene Discovery Technologies Limited, a
discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation and
which works with established pharmaceutical and biotechnology companies in early-stage collaborations, bringing drug candidates
from hit generation through Investigational New Drug (IND) filing.

Narnolia Securities Ltd 14

Please refer to the Disclaimers at the end of this Report
 Update on ongoing US FDA matters

Key Risk to Target Price

Key Momentum For
Upside Risk Downside Risk
Stock
Clearance of Form 483
issues at Srikakulam API Regulatory delays
facility Margin improvement despite
affecting key US
increase in R&D
launches

Launch of key products Stabilisation of emerging market

like gCopaxone, economies/currency, mainly
Adverse foreign
gNexium, etc Russia/CIS (12% of sales)
exchange fluctuation

R&D investment breakup (FY16)

Generics Proprietary products Biologics R&D costs increasing.

3%
DRReddy remains committed to investing
14%
aggressively in R&D, to help build a robust
pipeline of complex generics and products
with significant entry barriers lending
83% competitive advantage over the long run.

R&D guidance is around 12% of sales as

About the Company per planned scale up in development
activities
Dr. Reddys is one of the largest Indian generic companies in the world with presence in more than 40 countries. USA is its
largest market and contributes more than 40% of its revenues. It has one of the largest portfolios among Indian generic players
and has enabled it to become a prominent generic player in the US. Russia and India are the two other key geographies, where it
has significant presence. Apart from strengths in developing niche generic products, vertical integration into APIs has enabled it
to become a global generic powerhouse. It operates 16 manufacturing bases (10 USFDA approved) and is actively supported by
an extensive R&D programme. It also has one of the deepest pipelines of biosimilars amongst leading global generic companies,
addressing global brand sales of USD30bn.The key therapeutic focus is on gastro-intestinal, cardiovascular, diabetology,
oncology, pain management, anti-infective and paediatrics.

Narnolia Securities Ltd 15

Please refer to the Disclaimers at the end of this Report
 Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue 11896 13415 15023 15698 EPS 90 115 137 126
Other Income 150 170 274 269 Book Value 375 462 578 687
Total Revenue 12046 13585 15297 15967 DPS 16.0 17.5 21.1 23.4
COGS 3454 3261 3712 3541 Payout (incl. Div. Tax.) 18% 15% 15% 19%
GPM 29% 24% 25% 23% Payout
Other Expenses 2751 2944 2995 4805 P/E 19.6 22.2 25.4 24.0
EBITDA 2720 3251 3494 3921 Price / Book Value 4.7 5.5 6.0 4.4
EBITDA Margin (%) 23% 24% 23% 25% Dividend Yield (%) 1% 1% 1% 1%
Depreciation 550 648 760 971 Profitability Ratios
EBIT 2169 2603 2734 2950 RoE 24% 25% 24% 18%
Interest 100 127 108 82 RoCE 28% 26% 24% 23%
PBT 2219 2646 2900 3137 Turnover Ratios
Tax 638 683 563 524 Asset Turnover (x) 0.88 0.84 0.81 0.78
Tax Rate (%) 29% 26% 19% 17% Debtors (No. of Days) 98.0 90.0 100.0 97.0
Reported PAT 1527 1963 2336 2151 Inventory (No. of Days) 67.0 66.0 62.4 60.0
Dividend Paid 272 298 359 399 Creditors (No. of Days) 29.6 24.3 21.1 22.0
No. of Shares 17 17 17 17 Net Debt/Equity (x) 0.2 0.3 0.1 0.1

BALANCE SHEET CASH FLOW STATEMENT

FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 85 85 85 85 OP/(Loss) before Tax 2165 2646 2900 2675
Reserves and surplus 6284 7780 9768 11616 Depreciation 550 648 760 971
Shareholders' funds 6369 7865 9853 11701 Direct Taxes Paid -555 -714 -546 -710
Long term Debt 1266 2076 1432 1069 OP before Wc 3228 3689 4554 4775
Total Borrowings 3165 4136 3617 3341 CF from Op. Activity 1378 1970 2524 4048
Non Current liabilities 193 299 492 404 Current investments -1156 -2509 -3701 -5516
Long term provisions 51 56 78 95 Capex -756 -1083 -1532 -1388
Short term Provisions 674 816 1144 1195 CF from Inv. Activity -1446 -1694 -2265 -1942
Current liabilities 3760 3730 4636 4565 Repayment of Debt 0 1010 0 0
Total liabilities 13487 16030 18598 20010 Interest Paid -126 -116 -109 -92
Net Fixed Assets 4616 5280 5906 7227 Divd Paid (incl Tax) -272 -298 -359 -411
Non Current Investments 0.40 0.40 145.60 146.00 CF from Fin. Activity -157 -24 -433 -1701
Long term Loans & Advances 149 232 418 519 Inc/(Dec) in Cash -225 251 -174 405
Current assets 8527 10326 11877 11820 Add: Opening Balance 746 611 757 154
Total Assets 13487 16030 18598 20010 Closing Balance 520 862 583 559

Narnolia Securities Ltd 16

Please refer to the Disclaimers at the end of this Report

 Hold
OIL AND NATURAL GAS CORPORATION LTD. 07-Feb-16

Company Update
Oil and Natural Gas Corporation has posted revenue growth of 9% YoY to
CMP 198
Rs. 20014 in 3QFY17. Profit after tax has grown to Rs. 4352 Cr from Rs.
Target Price 243 1466 Cr. (an increment of 197% YoY). In this quarter revenue from the
Previous Target Price 243 crude oil has increased by 21% YoY to Rs. 14768 Cr. The crude realization
Upside 23% rate went up to USD 52.64 per barrel from USD 44.34 per barrel. Revenue
Change from Previous - from the gas has declined by 19% YoY to Rs. 3455 Cr. on account of lower
gas realization of USD 2.5 per MMBTU from USD 3.82 per MMBTU.

Market Data
Q3FY17_Result Update
BSE Code 500312
NSE Symbol ONGC 16 Oil and gas discoveries notified till date in FY17.
52wk Range H/L 211/125
Crude oil production has slightly declined to 6.405 MMT from 6.527 MMT.
Mkt Capital (Rs Cr) 256985
Av. Volume(,000) 734
Gas production has increased from 5.771 BCM to 6.025 BCM in 3QFY17.
Nifty 8801
Gross realization in crude oil has increased from USD 44.34 per BBL to
Stock Performance USD 51.8 per BBl.
1M 3M 12M Subsidy burden for FY17 is NIL.
Absolute 2.3 42.6 47.1 In this quarter revenue from the LPG is Rs. 914 Cr vs Rs. 949 Cr in
Rel.to Nifty -4.6 23.1 33.5 3QFY16.
Royalty has increased to Rs. 2392 Cr in 3QFY17 from Rs. 1984 Cr in
3QFY16.
Share Holding Pattern-%
3QFY17 2QFY17 1QFY17 Effective tax rate in 3QFY17 is 30.4%
Promoters 69 69 69
Outlook
Public 31 31 31
Others Gas production in ONGC is expected to increase further on completion of
Total 100 100 100 development projects. Management has guided for Oil production of 26.2
MMT and 25.63 BCM Gas in FY18. Management is optimistic about spurt
in oil and gas prices in FY18. The company is on track to achieve
Company Vs NIFTY production volumes of 25.73 MT for FY17. Since no subsidy has been
150 ONGC NIFTY decided by the government for FY17, the benefits of higher crude would
140 flow into the company. Considering above arguments, we are optimistic on
130
long-term growth in this stock, hence we recommend HOLD rating in this
stock while maintaining our previous target price of Rs. 243.
120

110 Rs,Cr
100
Financials 2012 2013 2014 2015 2016
90 Sales 147285 162403 174477 160890 131517
80 EBITDA 48491 43499 49725 42301 41261
Net Profit 28144 24220 26507 18334 14123
Jul-16
Feb-16

Sep-16
Jan-16

Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16
Mar-16

EPS 33 28 31 21 17
Aditya Gupta P/E 8.2 11.0 10.3 14.3 13.2
aditya.gupta@narnolia.com
Narnolia Securities Ltd 17
Please refer to the Disclaimers at the end of this Report
 Management Speak/ Key take aways From Management Interview

OVL production is estimated at ~14mmt in FY18 v/s 8.9mmt in FY16, led by addition from recent acquisitions.
Management has maintained capex guidance of Rs. 29000 Cr in FY17
Management has guided for debt guidance of 400 Cr increment from FY16 level.
Royalty paid on crude oil in 9 months of FY17 is Rs. 6720 Cr and Rs. 439 Cr in Natural gas
Management is optimistic about spurt in oil and gas prices in FY18

Subsidy

Subsidy Burden
16202
Government has decided
13641
12622
1379613764 13200 no subsidy for FY17, and
9458 benefits will flow to the
company
1096
0 0 0 0 0 0 0

Operational Highlights

Volume Trend
Oil production (incl. JV)(MMT) Gas production (incl. JV)(BCM)

7.0 6.5 6.5 6.4 6.4 6.6 6.5 6.5 6.6 6.5 6.3 6.3 6.4 6.4
6.0
6.3 6.2 6.0 6.0 6.0
5.0 5.7 5.8 5.8 5.7 5.8 5.5 5.8
5.2
4.0
3.0
2.0
1.0
0.0

About the Company Business Segment Overview

ONGC is Indias largest national oil & gas company, primarily
engaged in the exploration, development and production of crude
oil and natural gas in both India and abroad. ONGC, through its
wholly owned subsidiary ONGC Videsh Ltd, has presence across
14 countries in E&P activities. The company is also present in
downstream refining and marketing operations in India through
its subsidiary MRPL, which operates a refinery with an installed
capacity of 15 MMTPA.ONGC dominates Indias oil & gas
production with more than two third share of the countrys
production of oil and oil equivalent gas. It contributes ~78% and
~73% to total oil and gas production, respectively, in India.
ONGC has 969 mmtoe of proved reserves and 1451 mmtoe of
2P reserves at FY13 end. Its total domestic production for FY13
aggregated 51.5 mmtoe.

Narnolia Securities Ltd 18

Please refer to the Disclaimers at the end of this Report
 Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue (Net of Excise Duty) 1,62,403 1,74,477 1,61,212 1,31,498 EPS 28 31 21 17
Other Income 5,491 6,894 5,925 7,023 Book Value 178 201 211 216
Total Revenue 1,67,893 1,81,371 1,67,137 1,38,521 DPS 11 11 11 7
COGS (1,120) (719) 1,723 725 Payout (incl. Div. Tax.) 39% 36% 51% 41%
GPM -1% 0% 1% 1% Valuation(x)
Other Expenses 1,06,755 1,16,169 1,04,795 82,414 P/E 11 10 14 13
EBITDA 43,499 49,725 42,342 42,051 Price / Book Value 2 2 1 1
EBITDA Margin (%) 27% 28% 26% 32% Dividend Yield (%) 4% 3% 4% 3%
Depreciation 11,763 16,581 18,033 18,009 Profitability Ratios
EBIT 31,735 33,144 24,309 24,042 RoE 16% 15% 10% 8%
Interest 484 624 2,864 2,157 RoCE 20% 16% 11% 10%
PBT 36,742 39,413 27,370 22,718 Turnover Ratios
Tax 12,752 12,760 9,697 8,417 Asset Turnover (x) 0.64 0.54 0.48 0.37
Tax Rate (%) 35% 32% 35% 37% Debtors (No. of Days) 35 34 43 27
Reported PAT 24,220 26,507 18,334 14,124 Inventory (No. of Days) 29 31 24 28
Dividend Paid 9,509 9,509 9,259 5,756 Creditors (No. of Days) 42 64 69 94
No. of Shares 856 856 856 856 Net Debt/Equity (x) 0 0 0 0

BALANCE SHEET CASH FLOW STATEMENT

FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 4,278 4,278 4,278 4,278 OP/(Loss) before Tax 36,742 39,413 27,370 22,718
Reserves and surplus 1,48,250 1,67,873 1,76,177 1,80,467 Depreciation 12,094 16,581 18,033 18,009
Shareholders' funds 1,52,528 1,72,151 1,80,454 1,84,744 Direct Taxes Paid 12,416 10,567 9,029 7,626
Long term Debt 8,843 31,681 47,575 46,272 OP before Wc 58,306 59,570 54,535 46,960
Total Borrowings 11,527 13,907 5,345 7,321 CF from Op. Activity 39,874 53,270 33,950 52,777
Non Current liabilities 14,849 18,552 19,357 21,547 Current investments (83) - - -
Long term provisions 161370 203832 228030 231016 Capex (17,961) (14,939) (16,906) (11,324)
Short term Provisions 1,64,703 2,09,603 2,23,186 2,36,529 CF from Inv. Activity (41,220) (63,633) (30,320) (37,977)
Current liabilities 39,745 53,827 32,660 32,508 Repayment of Debt 10,432 33,199 17,078 5,522
Total liabilities 15,396 16,028 18,816 9,687 Interest Paid (687) (709) (1,199) (1,466)
Net Fixed Assets 19,619 24,480 16,097 25,784 Divd Paid (incl Tax) 11,002 9,762 9,495 5,920
Non Current Investments 18,615 30,678 30,466 33,886 CF from Fin. Activity (6,927) 15,225 (10,641) (6,223)
Other non Current assets 26,350 31,357 35,039 40,937 Inc/(Dec) in Cash (8,273) 4,862 (7,010) 8,578
Current assets 27,400 19,941 20,191 15,227 Add: Opening Balance 27,874 19,601 12,727 5,720
Total Assets 2,53,461 3,24,911 3,38,292 3,56,211 Closing Balance 19,601 24,463 5,717 14,298

Narnolia Securities Ltd 19

Please refer to the Disclaimers at the end of this Report

 Hold
GLENMARK PHARMACEUTICALS LTD. 6th Feb 2017

Company Update Glenmark has posted revenue growth of 43% YoY to Rs. 2535 Cr
CMP 946 in Q3FY17 vs Rs.1778 Cr in the corresponding period of FY16 led
Target Price 1096 by growth in the revenue from US business by 102% to Rs. 1231
Previous Target Price 1096 Cr on account of new product launch of Zetia which contributes
Rs. 225 Cr in the US sales. The company has launched this
Upside 16%
product on 12 Dec 2016 and it has already received 180 days
Change from Previous 0%
exclusivity on this product. As per the management the company,
it will generate Rs. 1300-1700 Cr revenue post 50% profit sharing
Market Data with Par pharmaceuticals. In the last quarter company has filed 5
BSE Code 532296 ANDAs, and planned to file 10 ANDAs in Q4FY17.
NSE Symbol GLENMARK
Result Highlights of Q3FY17
52wk Range H/L 994/671
Mkt Capital (Rs Cr) 26729 India Business grew by 5.91 % to Rs. 517 Cr in 3QFY17.
Av. Volume(,000) 57 Revenue from sale of API to regulated and semi-regulated markets
Nifty 8740 globally was Rs. 192 Cr (an increment of 32% YoY). The good growth of
the business was due to the successful launch of Olmesartan with Mylan
under 180 days market exclusivity.
Stock Performance
1M 3M 12M The good growth was contributed by sale of Perindopril, Adapalene,
Absolute 5.8 25.7 10.1 Amiodarone.
Rel.to Nifty -0.2 8.5 -2.9 The effective tax rate for 3QFY17 is 27% and the company pays total tax
of Rs. 178 Cr.
Share Holding Pattern-% Europe Formulations Business grew by 10.98% to Rs. 1,95 Cr in
3QFY17 2QFY17 1QFY17 Q3FY17.
Promoters 46.5 46.5 46.5
Outlook
Public 53.5 53.5 53.5
Others Management expects that post re-monetization, revenue from India
Total 100 100 100 business to improve further and benefits from the launch of Zetia in US will
boost the revenue from US business in next 2 quarters. Good demand in
API business and management focus on Oncology, Respiratory and
Company Vs NIFTY
Dermatology segments will help the company to diversify its portfolio in API
140 GLENMARK NIFTY segment. The management plans to reduce debt up to some extent by
130 Q1FY18 on the back of growth in US business. Considering the long-term
120
opportunities, we recommend Hold rating in this stock while maintaining
our previous target price of Rs. 1096
110
Rs,Cr
100
Financials 2012 2013 2014 2015 2016
90 Sales 4021 5012 6005 6630 7650
80 EBITDA 714 1015 1091 1210 1433
Jul-16
Feb-16

Sep-16
Jan-16

Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16
Mar-16

Net Profit 464 628 546 474 702

EPS 17 23 20 17 26
Aditya Gupta P/E 18.0 20.0 28.1 45.0 30.7
aditya.gupta@narnolia.com
Narnolia Securities Ltd 20
Please refer to the Disclaimers at the end of this Report
 Concall Highlights

Company has maintained higher level of cash of ~ Rs. 1600 Cr in order to do re-financing in next 3-4 months.
Management has guided for lowering debt level in March 2017, but refrains from providing any specific number.
Capex guidance for FY17 is Rs. 600-700 Cr.
Tax rate guidance for 4QFY17 will be range of 28%.
Management expects that effect of demonetization will be normalized in April 2017.
Company has maintained higher level of cash of ~ Rs. 1600 Cr in order to do re-financing in next 3-4 months.

Sales and PAT Trend

Sales PAT
300 269 2500
143
250 214 2000
191 198 191 198
185
200 165 170
157 1500
150 131
115
1000
100
43
500
1238

1463

1602

1704

1487

1681

1701

1776

1655

1909

1778

2307

1655

1909

2214
50 11
0 0

Filings with USFDA

ANDA Filed ANDA Pending ANDA Approved

180 171
165
155
160
136
140
116 112
120 108
103
90 95
100 85
78 83
80 67 65 70
59
60 5053 53
4045 41 38
40
20
0
FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

About Company

Glenmark Pharmaceuticals is one of the most successful research focused pharmaceutical companies, with a business model
spanning drug discovery research, APIs and formulations in the domestic and international markets. Glenmark's R&D efforts
have been extremely productive.GPL almost has a leadership position in the Indian drug discovery space (both NCEs and
biologics). GPL has a presence in over 85 countries across the world including India, Europe, Brazil, Latin America (excluding
Argentina), Russia/CIS, Africa and Asia through branded generic formulations. In regulated markets such as US, Europe,
Argentina, etc it has a presence via its non-branded generics. GPLs formulation business is diversified over several therapeutic
segments such as dermatology, internal medicine, respiratory, diabetes, paediatrics, gynaecology, ENT and oncology. Its
manufacturing plants are located in Baddi (India), Nashik (India), Sao Paolo (Brazil) and Vysoke Myto (Czech Republic). In India,
GPL markets over 100 molecules and combinations in various therapy areas such as dermatology, respiratory, gynaecology,
pain management, diabetes, cardio-vascular, internal medicine, etc.Glenmark has reclassified it operations into 6 categories-
India, US, Europe, Latin America, ROW markets and APIs. Earlier the classification was on the basis of - 1) Specialty
businesses and 2) Generics businesses.
Narnolia Securities Ltd 21
Please refer to the Disclaimers at the end of this Report
 Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue (Net of Excise Duty)5012 6005 6630 7650 EPS 23.2 20.1 17.5 25.9
Other Income 6 5 20 20 Book Value 102.9 110.5 110.6 157.4
Total Revenue 5019 6010 6650 7670 DPS 2.4 2.3 2.3 2.3
COGS 1654 1873 1934 2361 Payout (incl. Div. Tax.) 10% 12% 13% 9%
GPM 33.0% 31.2% 29.2% 30.9% Valuation(x)
Other Expenses 1561 2015 2283 2477 P/E 20.0 28.1 45.0 30.7
EBITDA 1015 1091 1210 1433 Price / Book Value 4.5 5.1 7.1 5.1
EBITDA Margin (%) 20% 18% 18% 19% Dividend Yield (%) 1% 0% 0% 0%
Depreciation 127 217 260 269 Profitability Ratios
EBIT 888 874 950 1164 RoE 23% 18% 16% 16%
Interest 160 189 190 179 RoCE 19% 16% 17% 17%
PBT 739 697 780 1005 Turnover Ratios
Tax 111 151 119 303 Asset Turnover (x) 0.7 0.7 0.7 0.7
Tax Rate (%) 15% 22% 15% 30% Debtors (No. of Days) 119 131 138 100
Reported PAT 628 546 474 702 Inventory (No. of Days) 61 57 70 75
Dividend Paid 64 63 63 63 Creditors (No. of Days) 76 83 113 96
No. of Shares 27 27 27 27 Net Debt/Equity (x) 0.7 0.8 0.9 0.6

BALANCE SHEET CASH FLOW STATEMENT

FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 27 27 27 28 OP/(Loss) before Tax 739 697 594 1005
Reserves 2760 2969 3073 3737 Depreciation 127 217 260 269
Net Worth 2787 2997 3000 4270 Direct Taxes Paid 165 263 318 478
Long term Debt 1920 2429 2574 2487 OP before Wc 1081 1407 1067 1431
Short term Debt 2288 2782 2922 3275 CF from Op. Activity 648 854 482 345
Deferred Tax 262 259 402 344 Current investments -471 -377 -544 -890
Total Capital Employed 57 111 232 247 Capex -464 -368 -540 -880
Net Fixed Assets 33 260 59 63 CF from Inv. Activity -314 -56 3 452
Capital WIP 1834 2596 3364 3214 Repayment of Debt -256 -628 -691 -1340
Debtors 7171 8634 9688 11103 Interest Paid 147 194 179 180
Cash & Bank Balances 2768 3036 3270 3908 Divd Paid (incl Tax) 64 63 63 68
Trade payables 60 60 58 57 CF from Fin. Activity 195 -98 199 699
Total Provisions 636 873 774 987 Inc/(Dec) in Cash 379 388 141 163
Net Current Assets 3727 4763 5323 5910 Add: Opening Balance 226 407 623 694
Total Assets 7171 8634 9688 11103 Closing Balance 605 795 764 857

Narnolia Securities Ltd 22

Please refer to the Disclaimers at the end of this Report

 BUY
MARICO 6th Feb. 2017

Company Update Q3FY17 Result Update

CMP 256 MARICOs sales for this quarter declined by 7% YoY to Rs 1417 cr due to
Target Price 330 demonetization and price reduction in the Parachute Rigids Portfolio on
YoY basis in India and Bangladesh. Major positive for this quarter
Previous Target Price 330
remained 6% volume growth in Saffola franchisee. For Q3FY17, Value
Upside 29% added hair oil (VAHO)portfolios volume declined by 12%. Surprise came
Change from Previous NA from improvement in gross margin and it improved by 77 bps YoY to
51.6%. EBITDA margin improved by 28 bps YoY to 19.2% led by lower
Market Data COGS and ad expenses. Ad expense as percentage of sales declined by
43 bps YoY to 10.6% from 11.1%. In medium term, the companys
BSE Code 531642 management has guided for 20% plus EBITDA margin which is positive.
NSE Symbol MARICO PAT margin stood flat YoY to 13.5%. PAT for this quarter declined by 7%
52wk Range H/L 307/216 YoY to Rs 192 cr.
Mkt Capital (Rs Cr) 33,014 International Business
Av. Volume(,000) 1106 Overall international business grew by 2% in constant currency (CC) terms
Nifty 8,741 and value growth of 9% to Rs 336 cr in this quarter. Bangladeshs business
remained flat in CC terms with 7% volume growth.The near term outlook
for the Bangladesh business is looking promising with high single digit CC
Stock Performance
growth. Middle East and North Africa(MENA) business declined by 11%CC
1M 3M 12M during Q3FY17 due to 27% CC decline in Middle East business.
Absolute 0.8 -4.7 13.4 Management sees recovery in Middle East business in 2HFY18.South East
Rel.to Nifty -6.1 -7.4 -2.3 Asian business grew by 6% in CC terms. South African business grew by
4% in CC term despite challenging macro .

Share Holding Pattern-% Outlook and Valuation

3QFY17 2QFY17 1QFY17 Major positive for this quarter remained 6% volume growth of Saffola
Promoters 59.7 59.7 59.7 despite demand pressure due to demonetization. Management maintains
double digit growth guidance for Saffola in medium term which is one of
Public 40.1 40.0 40.0
the positive factor. Secondly, Companys guidance of 20% plus EBITDA
Others 0.2 0.3 0.3 margin for domestic business is commendable in an environment where
Total 100 100 100 most of the FMCG players are facing commodity headwinds. As far as
international business is concern, we expect that worse is over for MENA
and management is optimistic about high single digit Constant
Company Vs NIFTY currency(CC) from Bangladesh going forward. Presently company trades
140 MARICO NIFTY at 15 times of FY17E book value with 35% of RoE. Considering improving
130 business conditions after demonetization, better margin guidance for
domestic business and expected recovery from international business
120
going forward, we reiterate to BUY this stock with the target price for Rs
110 330.
Rs,Cr
100 Financials 3QFY17 2QFY17 (QoQ)-% 3QFY16 (YoY)-%
90 Sales 1417 1443 -2% 1530 -7%
80 EBITDA 272 253 8% 290 -6%
Net Profit 192 181 6% 206 -7%
EBITDA% 19% 18% 169 Bps 19% 28 Bps
Rajeev Anand PAT% 14% 13% 100 Bps 13% 9 Bps
rajeev.anand@narnolia.com
Narnolia Securities Ltd 23
Please refer to the Disclaimers at the end of this Report
 Concall Highlights(Q3FY17)
The company sees inflation led value growth going ahead.
South and West impacted less due to demonetization.
Company sees much better traction from Bangladesh going forward.
Management expects recovery from MENA region in 2HFY18.
The company expects 18% overall margin in the medium term.
Management guided for 6-8% near term volume growth for overall business.
The company is diversifying its products portfolio.
GST will lead to improvement in market share for Marico going forward.
A&P Expenses will be in the range of 10% going forward.
In the month Jan, company witnessed 90% of its demand recovery.
The company may initiate pricing growth for Egypt.
In medium term, the company would be comfortable at 20%+ EBITDA margin.
Parachute and Nihar: Despite headwinds of demonetization and steep increase in inputs costs, near term volume growth
prospects remain promising.
Copra prices went up by 17%on sequential basis and YoY decline of 5%. The company expects the copra prices to go up further
in Q4FY17.
Company will take prices up in near term considering the inflation in commodity prices.
Net Sales and PAT(in cr.)
2000 300
Sales(in cr) PAT(in cr)
1800 268
250
1600
229
1400 206 200
185 192
1200 181
160 153
1000 150
138
800 118 110
100
600
400
50
1623

1431

1452

1226

1750

1454

1530

1307

1754

1443

1417

200
0 0
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

EBITDA and PAT Margin

25.0%
EBITDA Margin% PAT Margin%
21.3%
18.9% 19.2%
20.0% 18.2% 17.5%
16.4% 16.3% 16.6%
15.7% 15.3%
13.6% 14.0% 13.4% 13.5%
15.0% 13.1% 12.5%
11.4% 11.0% 10.5% 10.6%
9.0%
10.0% 8.3%

5.0%

0.0%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Narnolia Securities Ltd 24

Please refer to the Disclaimers at the end of this Report

 Financials Snap Shot
INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Revenue 4687 5733 6132 5929 EPS(adjusted) 7.5 8.9 5.6 6.3
Other Income 58 59 93 101 Book Value(adjusted) 21.1 28.3 16.3 18.0
Total Revenue 4744 5792 6225 6029 DPS 2.2 4.7 4.1 3.8
COGS 2399 3119 3061 2849 Payout (incl. Div. Tax.) 29% 52% 72% 60%
GPM 48.8% 45.6% 50.1% 51.9% Valuation(x)
Other Expenses 1255 1419 1644 1537 P/E 16 23 46 43
EBITDA 748 870 1062 1148 Price / Book Value 5.6 7.2 16.1 14.9
EBITDA Margin (%) 16.0% 15.2% 17.3% 19.4% Dividend Yield (%) 1.9% 2.3% 1.6% 1.4%
Depreciation 77 84 102 96 Profitability Ratios
EBIT 671 786 961 1052 RoE 35.7% 31.4% 34.6% 34.7%
Interest 34 23 20 15 RoCE 41.6% 39.4% 45.8% 45.3%
PBT 695 822 1034 1138 Turnover Ratios
Tax 190 237 297 328 Asset Turnover (x) 1.6 1.8 1.8 1.6
Tax Rate (%) 27.4% 28.8% 28.7% 28.8% Debtors (No. of Days) 17 11 15 20
Reported PAT 485 573 725 807 Inventory (No. of Days) 121 116 110 105
Dividend Paid 142 300 522 484 Creditors (No. of Days) 39 36 40 42
No. of Shares 64 64 129 129 Net Debt/Equity (x) 0.2 0.1 0.0 0.0

BALANCE SHEET CASH FLOW STATEMENT

FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 64 65 129 129 OP/(Loss) before Tax 695 822 1,034 1,135
Reserves 1296 1760 1968 2194 Depreciation 77 84 102 96
Net Worth 1361 1825 2097 2323 Direct Taxes Paid (181) (210) (246) (328)
Long term Debt 252 169 0 0 Op. profit bef. WC changes 754 891 1,079 1,246
Short term Debt 274 165 153 140 CF from Op. Activity 660 665 833 901
Deferred Tax 10 8 10 10 Non Current investments (155) (121) (33) -
Capital Employed 1612 1994 2097 2323 Capital expenditure (785) (48) (7) (18)
Net Fixed Assets 638 590 583 565 CF from Inv. Activity (204) (179) (235) (220)
Capital WIP 4 0 0 0 Repaym of L T Borrowings (181) (83) (168) -
Debtors 223 177 252 325 Interest Paid (35) (23) (20) (15)
Cash & Bank Balances 406 205 310 382 Divd Paid (incl Tax) (142) (300) (502) (581)
Trade payables 503 564 669 682 CF from Fin. Activity (339) (625) (580) (609)
Total Provisions 86 104 115 115 Inc/(Dec) in Cash 144 (147) 17 72
Net Current Assets 777 893 967 1149 Add: Opening Balance 105 224 77 310
Total Assets 2965 3125 3433 3668 Closing Balance 224 77 91 382

Narnolia Securities Ltd 25

Please refer to the Disclaimers at the end of this Report
 N arnolia Securities Ltd
201 | 2nd Floor | Marble Arch Bu ild ing | 236B-AJC Bose
Road | Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com,
w ebsite : w w w .narnolia.com

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