Nascent signs of recovery

160 Pages·2017·3.53 MB·English

by  S Rajendran

E mkay
India Equity Research
©
February 23, 2018
Quarterly Review
Q3FY18 Results Review
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Refer to important disclosures at the end of this report
Nascent signs of recovery

Please click on sector to read:

Agrochemicals & Fertilizers Consumer Non-Banking Financial Services Retail This report is solely produced by Emkay Global. The following
person(s) are responsible for the production of the recommendation:

Automobiles Eng. & Capital Goods Oil & Gas Specialty Chemicals
Dhananjay Sinha
Banking IT Services Pharma Telecommunications
Head, Institutional Research,
Economist and Strategist
Cement Media & Entertainment Ports Others
[phone]
Construction & Infrastructure Metals & Mining Power [email protected]

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be
distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA
Q3FY18 Results Review Nascent signs of recovery

Surprises

Positive Surprises Negative Surprises
Apcotex Industries Jubilant FoodWorks Bank of Baroda
Bharti Airtel KNR Construction BHEL
BPCL Mahindra Finance Dynamatic Technologies
Dr. Reddy's Lab Mindtree Emami
Firstsource Solutions Navin Fluorine Glenmark Pharma
Future Lifestyle NCC Jsw Energy
GE T&D India NHPC Lupin
GHCL OCL India Motherson Sumi
HPCL PNC Infratech Punjab National Bank
HT Media PVR Tata Communications
Indian Oil Sanghi Industries Tata Motors
Infosys Shoppers Stop Triveni Turbine
ITD Cementation Sterling Tools
Jindal Stainless Tata Steel
JSW Steel UPL
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 2
Q3FY18 Results Review Nascent signs of recovery
Nascent signs of recovery
 Signs of improving demand amid restraining factors: Q3FY18 corporate performance reveals recovery in demand conditons, partly
aided by a favorable base effect (from last year’s demonetization setback), along with fiscal stimulus and improvement in global trade.
Positive momentum reflected in pick-up in rural demand, translating into improved performance by Automobile, Consumer companies.
Improvement in global conditions, coupled with fiscal support benefitted sectors such as Metals, Ports, Construnction and Rural. While
there has been some pick-up in lending activities, public sector banks (PSBs) are still experiencing multiple headwinds. The restraining
factors include: a) lingering impact of GST transition, b) re-emergence of cost pressures, c) land acquisition issues, d) pricing power still
remains feeble, e) asset quality issues for PSBs continue amind rising G-Sec yields, and f) persisting distress in the Agriculture sector
despite government policy interventions.
 Sales growth in Q3FY18 (Sensex companies, ex-Oil & Finanicals) at 10.4% despite favorable base of demonetization: The
emergence of cost pressures has resulted in cost-control efforts (through lower marketing spends) that have aided in improving the
margins. However, most companies are projecting stronger outlook on the back of further recovery in rural demand and capital outlay
by government. Consumption space is likely to drive overall corporate performance even as momentum in commodity space sustains.
 Construction & Infrastructure and Metals sectors witnessed material expansion in EBITDA margins while sectors such as Pharma and
Auto Ancillaries were a drag.
 Sales growth for Emkay Universe: Sales growth (ex-Oil & Financials) stood at 11.3% yoy vs 9.4% yoy in Q2FY18, and was largely
driven by Large Cap companies. Higher sales growth came from Auto Ancillary and Cement companies due to improved demand
conditions and a favourable base effect. In contrast, Telecom sector once again disappointed.
 Margins under pressure for Emkay Universe: Operating profit (EBITDA) grew by 12.8% yoy (8% yoy in Q2FY18), backed by margin
expansion of 26bps yoy. Commodity-oriented sectors like Metals & Mining, which benefited from rising prices, partly offset rising cost
pressures. Nearly 9-10 out of 15 sectors under our coverage reported expansion in margins at both EBITDA and APAT levels. Cost-
control measures to some extent countered the impact of rising Raw Material prices. However, we believe that the margin pressure may
resurface Q4FY18 given the elevated RM prices and hardening of short-term interest rates. APAT growth for the Emkay Universe
improved sharply to 14.6% yoy from 4.1% yoy in Q2FY18. Core earnings for the Emkay Universe (ex-top 5 and bottom 5) grew by 10.2%
yoy. Overall, Q3FY18 saw a positive surprise of 2% on APAT.
 Strong and weak earnings: Tata Communications, Tata Steel, INOX Leisure, NIIT, NHPC and JSW Steel were better performing
companies. At the bottom of the table were India Cement, Lupin and Glenmark Pharma.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 3
Q3FY18 Results Review Nascent signs of recovery

 Emkay Universe has undergone 119 earnings changes for FY18E, with 73 downgrades and 46 upgrades
■ Large-cap earnings changes: The key large-cap upgrades are JSW Steel (24%), Tata Steel (23%) and Infosys (15%). The key
large cap downgrades include Coal India (-20%), Lupin (-19%) and Sun Pharma (-14%).
■ Mid-cap earnings changes: The highest upgrades include Mindtree (10%), SRF (10%) and Delta Corp (7%). Sharp downgrades
have been seen for PVR (-16%), Jagran Prakashan (-15%) and DB Corp (-14%).
 Emkay Universe FY19E earnings estimates have undergone 120 changes, with 73 downgrades and 47 upgrades
 Key rating upgrades: HDFC Bank, Siemens, Bajaj Auto, OCL and ENIL.
 Key rating downgrades: Axis Bank, Titan, Thermax, The Ramco Cements and Bayer Cropscience.
Outlook: Sustainability of growth recovery is pivoted on the following factors: a) strengthening of external trade due to cyclical improvement
in global growth, b) Higher central & state government spending in the run-up to the upcoming elections (boosting consumption both in
urban as well as rural areas), and d) depreciation in INR/USD currency. The government’s sharpening focus on the revival of Agriculture
and Rural sectors is likely to reinforce momentum in rural-centric companies. Companies in sectors such as Auto, Consumer Staples and
Asset Financing NBFCs are banking on strong consumption demand. Additionally, export-driven sectors are likely to benefit from currency
depreciation and improving global growth prospects. Recent pick-up in international commodity prices is likely to translate into higher
realizations, but margin pressure is expected to accentuate going forward. The Banking sector is likely to see further gains in the market
share of private lenders even as PSBs continue to face headwinds such as persisting credit cost, treasury losses and setback from the
recent adverse developments.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 4
Q3FY18 Results Review Nascent signs of recovery

Q3FY18 – Sectoral Assessments
 Agri Inputs and Chemicals: Q3FY18 had been a disappointing quarter for the agrochemical industry primarily due to lower pest attacks,
muted growth in South India and higher inventory to weigh on pesticides consumption, which in turn resulted in muted revenue growth
for the industry.Q4FY18 is generally a lean quarter for Agrochemicals companies. While on the Fertiliser side, rising prices of Phos Acid,
Ammonia and Sulphuric Acid are likely to put pressure on margins, as the current agrarian distress will leave little room to increase
fertiliser prices to pass on the higher costs. We fine-tune estimates for our coverage companies to factor in the weaker than anticipated
performance of the segment. Subsidy disbursement has been quick this year and we expect the companies to receive major portion of
ongoing subsidies for the current year, which will improve balance sheet and profitability. However, we believe that the disbursement of
prior period subsidies will continue to get delayed. Channel inventory of Complex Fertilisers and Urea is low, which will drive volume
growth in FY19. We prefer Deepak Fertilisers and Coromandel in the fertiliser space and on the agro-chemicals space we like Insecticides
India and UPL.
 Automobile: Revenue growth was robust at 19% yoy (Emkay Est: 16%) for companies under coverage, due to strong rural demand,
higher realizations and low base of demonetization. Most automotive companies reported double-digit revenue growth, with best
performers being Ashok Leyland (58% yoy), Motherson Sumi (36% yoy), Exide Industries (33%), Bajaj Auto (26% yoy), Eicher Motors
(24% yoy) and TVS Motor (24% yoy). Management commentary has been positive on demand outlook, with expectation of 8-10% volume
growth in 2Ws, PVs and Tractors in FY19. Growth in MHCVs witnessed a turnaround in Q3FY18, and is expected to remain positive in
subsequent quarters. EBITDA margin expanded on yoy basis due to operating leverage benefits. However, margin contracted on 100
bps qoq (Emkay Est: 80bps) for companies under coverage, mainly led by lower scale, increase in discounts/incentives and higher RM
costs. A few companies that witnessed better margins qoq were Apollo Tyres (+180bps qoq) and Ashok Leyland (+100bps qoq). Earnings
for companies under our coverage grew by 13% yoy, which was below EBITDA growth of 27%, primarily due to fall of 37% yoy in other
income and higher tax rate. Going forward, we believe that the stage is set for strong growth in automobile demand, led by: 1) increase
in Government infrastructure spending and focus on rural economy, 2) strong rural demand and higher disposable income in view of 7th
Pay Commission awards, and 3) new launches. Our top picks are Ashok Leyland, Mahindra & Mahindra, Hero MotoCorp, Tata
Motors and Exide Industries.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 5
Q3FY18 Results Review Nascent signs of recovery

Q3FY18 – Sectoral Assessments (contd.)
 Banking: Adjusted for one-offs, mostly in the interest income, there were no surprises in core earnings in our coverage universe.
However, the divergence in asset quality caused significant deviation in bottomline for PSBs. On the balance sheet side, banks were
expected to report an improved loan momentum given the weak, post-demonetisation base of Q3FY17. Most banks in our coverage
universe reported strong qoq and yoy growth momentum. However, SBIN with its 2.5% yoy loan growth, remained an exception overall.
Asset quality surprise was also the highest in SBIN, which reported Rs232bn divergence while ICICIBC confirmed our expectations that
it would not report any material divergence in GNPAs. ICICIBC management has presented one of the most confident commentaries on
asset quality in FY18. Overall, we continue to like private retail banks (HDFCB, IIB) and prefer ICICIBC over AXSB to play corporate
revival. Amongst PSBs, we like SBIN (attractive valuations) and BOB (strong growth, better capital, attractive valuations).
 Cement: Profitability of cement companies under our coverage universe got impacted in the quarter due to increase in input costs.
Average EBIDTA/t for our coverage companies declined by 4.1% yoy to Rs734/tn. Opex/tn was up 5% yoy for our coverage universe
led by higher energy cost (increase in pet coke price/ban on pet coke use for some time in Rajasthan and imported coal price) and freight
cost (ban on overloading and increase in diesel price) which impacted profitability of the companies despite better realization and strong
volume growth. Impacted by higher costs, Ramco/Ultratech/JK Cement/ /India Cements/Shree Cement reported
26.1%/19.3%/17%/11.3%/8.5% yoy decline in EBITDA/tn. ACC and Ambuja were the outliers among large players with 15.4%/13.1%
yoy jump in EBITDA/tn. Amongst smaller players, Star Cement/Sanghi Industries reported 69.6%/60.2% yoy growth in EBITDA/tn. Sales
volume for our coverage universe grew 20.1% yoy led by favorable base effect and inorganic growth from UltraTech. On a like-to-like
basis, volume growth would have been approx. 14.8%. Average realisation for our coverage universe was up 4.9% yoy (but, down 3.4%
qoq). Realization growth was better with companies having higher sales in Gujarat (18%/3.5% yoy increase for Sanghi Industries/Ambuja
Cements) and North East markets (16.5% yoy increase for Star Cement). Our top picks: Shree Cement, UltraTech, Grasim Industries,
JK Cement, Star Cement and OCL India.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 6
Q3FY18 Results Review Nascent signs of recovery

Q3FY18 – Sectoral Assessments (contd.)
 Construction & Infrastructure: Q3FY18 execution was a mixed bag with few companies clocking double digit YoY revenue growth
owing to pick up in execution, while other companies saw a muted to negative growth owing to varied issues such as land acquisition
delays, GST issues etc. Most of the companies in our coverage universe have a comfortable order book position of 2.5-3x trailing FY17
revenue and focus going forward will be largely on execution as opposed to quantum of order wins. We continue to prefer players with
low debt, controlled working capital cycle and 2-3 years revenue visibility in terms of order book. Our top picks in the sector are NBCC,
Sadbhav Engg, PNC Infratech, IRB Infrastruture and ITD Cementation
 Consumer: Most of the FMCG companies in our coverage universe reported double digit volume growth albiet on a softer base of
demonetisation quarter. Currency depreciation/devaluation which has been an overhang on the International operations for the past few
quarters seems to be receding. There are green shoots of recovery in rural demand and companies expect rural demand to pick up led
by fiscal stimulus by the government. As for the Paint companies, volume growth was disappointing especially for Asian Paints. This
was due to early onset of festive season in Q2. Prudent cost management enabled the consumer companies to report improvement in
EBIDTA margins. Companies are building on the new product launches & innovative product pipeline to take advantage of recovery.
We continue to believe that overall growth in consumer space to improve led by revival in rural growth (normal monsoon & increased
government spends in rural). We expect consumer staple companies to benefit from GST in terms of gaining market share, driving
premiumisation and improved efficiencies which augurs well for both revenue growth and operating margins. We maintain our positive
stance on staples and have Emami, GCPL & HUL as our top picks.
 Engineering and Capital Goods: Companies in our Engineering & Capital Goods (ECG) universe reported revenue growth of 11% yoy
to Rs235bn. While EBITDAM improved by 50bps yoy to 8.9%, the EBIDTA increased by 18% yoy to Rs21bn. The net profits also
increased by 19% yoy to Rs12bn. Order inflows and backlog both improved by 71% and 16% yoy to Rs307bn and Rs1.78tn respectively.
Bulk of the order flows were propelled by the public sector driven push in Power Transmission, Transportation and Renewables. Order
flows from the private sector capex remains muted.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 7
Q3FY18 Results Review Nascent signs of recovery

Q3FY18 – Sectoral Assessments (contd.)
 IT Services: The revenue performance of Tier I players in Q3FY18 was inline to above estimates though on moderate estimates.
However, tight cost control and utilization supported margins across players despite cross currency headwinds. The performance of Tier
II players was better than Tier I names in Dec'17 quarter. Tier II players reported US$ revenue growth in range of of 1.4%-8.5% QoQ
V/s 0%-3.1% growth for Tier I players. Except for Hexaware, other Tier II IT services names under Emkay coverage reported better than
expected operating margins supported by growth leverage. We highlight that EBIT margins for Tier II players (except Hexaware) in
Dec'17 quarter improved on YoY basis (up 40-210bps YoY) while operating margins for Tier I players (except TechM) were down on
YoY basis (80-350bps YoY). The commentary across players indicated better growth confidence with stabilizing to improving outlook for
retail and BFSI vertical (among Tier I, only TCS indicated low growth visibility for BFSI). We continue to like TCS (best play from valuations
perspective), Mphasis (valuations are rich, but would outperform as would deliver strong earnings in subsequent quarters) and LTI
(sustained financial outperformance to support valuations) on this front, and are also confident of their long-term prospects based on
their superior score on our proprietary ABCDEF framework as envisaged in our thematic note on IT Services Vendors.
 Media & Entertainment: Except print and radio industry advertisement growth was healthy for Broadcasters and multiplexes. Print and
radio industry continued to be impacted by slowdown in recovery in local advertiser, GST transition and RERA. Among broadcaster, Sun
TV, content cost was higher on account of sharp focus on commissioned-based content production model. In case of multiplexes, GST
implementation restrict comparison of operating performance on yoy basis on account of input credit. Advertisement revenue registered
double digit growth with INOX surpassing the expectations. Slowdown in footfalls was partially offset by higher ATP. For comparable
properties Footfalls declined 6% yoy while ATP registered 8% yoy growth. ENIL revenue declined 1.5% yoy, 2% below expectation.
Continued focus on yield improvement impacted utilization in legacy stations, which was down 13.4% yoy. However, yield improvement
was 8.6% yoy and the same has improved by 8-9% in 9MFY18. MBL revenue growth at 5% yoy was also lower than estimate of 10%
yoy. Dish TV once again disappointed with sub-par operating performance and KPI's. Muted revenue and higher S&D costs impacted
EBITDA.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 8
Q3FY18 Results Review Nascent signs of recovery

Q3FY18 – Sectoral Assessments (contd.)
 Metals & Mining: Both offtake and realization in ferrous sector has improved on the back of strong domestic demand. Flat product prices
remain firm during the quarter while Long product prices picked up at the fag-end of the quarter and is expected to stay strong in Q4 due
to pick up in construction activity. As expected; there was some degree of cost pressure on both coking coal and iron ore front. However,
higher sales volume helped EBITDA/tn to improve. In non-ferrous space; LME continues to be strong however premium realized over
LME has fallen down due to which top line came in below than expected. Among mining companies; NMDC reported strong numbers
on back of better realization while Coal India and MOIL was nimbled down due to subdued realizations and lower than expected offtake.
Jindal Stainless Hisar, Jindal Stainless, Tata Steel, Vedanta, Hindalco, MOIL and Coal India are our preferred pick.
 Non-Banking Financial Services: In Q3FY18, NBFCs under our coverage universe delivered a largely positive set of results. Asset
financing NBFCs witnessed stabilization in asset quality and pickup in growth momentum. While growth for housing finance companies
displayed signs of revival, the margin and asset quality trends were not so encouraging. Going forward, we expect healthy growth
momentum to continue for asset financing NBFCs. Meanwhile asset quality may witness some volatility for players yet to migrate to 90-
dpd NPL recognition by Mar-18. We remain cautious on HFCs given the intense competitive landscape and growth momentum taking
longer than anticipated to pick up for most HFCs barring few. Even under affordable housing segment, growth remains lackluster due to
supply side constraints. We continue to prefer Bajaj Finance, Cholamandalam Finance and Magma Fincorp as our preferred picks in
the NBFC space.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018 | 9
Q3FY18 Results Review Nascent signs of recovery

Q3FY18 – Sectoral Assessments (contd.)
 Oil & Gas: OMCs reported significant inventory gains due to which reported numbers were above estimates, however core performance
wise IOCL fared better with only 6% marketing margin dip versus 14%/20% for HPCL/BPCL QoQ. Upstream earnings missed estimates
on very high DD&A for ONGC and lower sales and realization and higher DD&A for Oil India. Gas sector saw in inline performance by
CGD players IGL and Gujarat Gas as higher than expected volumes were offset by lower margins. Petronet LNG reported robust volumes
as Dahej operated at 112% utilization. GAIL and GSPL recorded healthy gas volumes, up QoQ, but reported earnings of former was hit
by provisions and lower realization in the petchem and LPG segments partially offset by lower/higher interest/other income. GSPL in
turn saw in line EBITDA due to higher expenditure. RIL delivered strong results with petchem and Jio beating estimates on the back of
higher volumes/margins and lower expenses respectively. Jio reported positive bottom-line. GRM was in-line.
 Pharmaceutical: PBM consolidation driven pricing pressure is now passé; long-term issues confronting the industry are: USFDA’s
propensity to ensure at least 3 competitors for every off-patent product, which is enough to make a serious dent in the high margin/ROE
dynamics of the sector. We believe that sector M&As are the only way to relieve industry pressure, but meaningful M&As are gridlocked.
A cyclical sector-level rebound is likely but structural dynamics continue to deteriorate. Our top sector picks are ARBP (BUY, TP Rs750)
and GRAN (BUY, TP Rs155).
 Ports: India’s West coast container market volumes grew by 15% YoY in Q3FY18 wherein JNPT grew 7% YoY. While, Pipavav port
witnessed a growth of 4% YoY in container volume. Mundra and Hazira continued to capture market share on the West coast growing
26% YoY and 31% YoY respectively. Revenues for Adani Ports & SEZ (consolidated) grew by 22% YoY, driven by higher container
volumes. Gujarat Pipavav revenue declined 4% YoY, on account of one-off rebate of Rs79mn given for container cargo. EBITDA margins
for Adani Ports & SEZ (66.4%, +236 bps YoY) rose on account of improved cargo mix during the quarter. Port EBITDA margins also
improved by 281 bps YoY to 70.5%, driven by higher share of containers in volume mix. EBITDA margins for Gujarat Pipavav (58.2%, -
350 bps YoY) reflected the rebate given during the quarter. Net profit for Adani Ports & SEZ grew by 7% YoY on higher volumes offset
by higher tax outgo. While net profit for Gujarat Pipavav (down 22.5% YoY) declined on lower operational profitability. We recommend
Buy with a TP of Rs174/share for Gujarat Pipavav Port and Accumulate with a TP of Rs450/share for Adani Ports & SEZ.

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed
to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

ED: HEMANT MARADIA SA: DHANANJAY SINHA February 23, 2018| 10