STRATEGY

Portfolio Perspectives: Safe and selective

India Equity Research | Strategy

India should be a moderate returns market (+7%, June 2020 – see note),
and so stock/portfolio selections should make an even bigger difference.
To capture this, we launch Portfolio Perspectives—an active performance
product. Our opening gambit is play safe and selective. We recommend:
a) going more Overweight (OW) on Staples—likely fiscal stimuli post
elections; b) downgrading IT to Neutral—35%+ outperformance (18m),
weak margins and global growth overhang; c) upgrading Telecom—time
has come (see note); d) staying OW on quality and ‘recovering corporate’
banks; e) turning Neutral on cement; and f) raising Underweight on
Discretionary—demand has only just dipped. This portfolio should be
election ‘resistant’; for more dramatic macro/election scenarios, we give
aggressive/defensive portfolios. And, ofcourse, our top stock picks.

Valuations over earnings so far

India’s moved from its lows (+12% since October 2018) and has had stronger global
inflows than domestic after a few years. It’s also moved up on valuations, even as
earnings have continued to falter and downgrades have followed. While the market has
had its moments of risk appetite, it’s largely been a quality-focused, large-cap and
defensive portfolio that has charged—with IT, Reliance and banks as the leaders, and
auto, industrials and metals making the rear. We believe, the portfolio bias ‘Safe and
Selective’ should remain the theme.

IT to Telecom: It’s the time and theme

Our most decisive portfolio recommendation is a switch from IT (downgrade to Neutral)
to Telecom (upgrade to Overweight); a reversal of stance that has played well over the
year. While IT is a typical hedge, there has been business momentum and our analyst is
bullish. After 35% outperformance since end 2017, do not overlook risks of a global
slowdown (IT reacts with a lag), lack of pricing/margins in spite of demand and weak
INR and decadal-low margins with decadal-high valuations, all of which suggest the best
is done. In contrast, Telecom has probably seen the worst—on competition, pricing,
leverage and cash flow—and with consolidation and likely pricing gains ahead, should
see better times. Time to swap and also pick our top stocks. Aditya Narain
+91-22- 6620 3061
[Link]@[Link]
Top picks for the time
Prateek Parekh, CFA
Large caps +91-22-6623 3469
Bharti Airtel, Britannia Industries, Dr. Reddy’s Labs, Divi’s Laboratories, Hindustan [Link]@[Link]

Unilever, ICICI Bank, Infosys, Kotak Mahindra Bank, State Bank of India and Siemens. Padmavati Udecha
+91-22-6620 3103
Mid caps [Link]@[Link]

Gujarat Gas, JK Cement, Mahindra Logistics, SIS, Sobha and Vesuvius India.

May 15, 2019

Edelweiss Research is also available on [Link], Edelweiss Securities Limited

1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
 Strategy

Table 1: Model portfolio

Stocks Mkt Cap Price Portfolio Nifty wt Rel wt P/E (x) P/E (x) P/B (x) P/B (x) RoE (%) RoE (%) Div Yld (%)
(USD bn) (INR) (%) (%) (bps) FY20E FY21E FY20E FY21E FY20E FY21E FY20E
Consumers 15.8 11.8 400
Marico 6 351 1.8 0.0 179 42.8 37.9 14.1 12.6 34.3 35.2 1.4
Nestle 14 10,300 4.0 0.0 400 52.4 45.4 24.4 22.0 49.0 50.9 1.3
Hindustan Unilever 52 1,702 4.0 2.7 135 49.9 42.5 45.9 9.9 92.8 38.9 1.6
ITC 50 289 4.0 5.6 (162) 25.0 22.9 5.7 5.3 23.5 23.8 2.2
Britannia Industries 9 2,677 2.0 0.7 130 48.6 42.1 13.1 11.3 28.7 28.7 0.6
BFSI 41.3 38.4 288
Axis Bank 27 732 4.0 3.2 79 18.7 14.0 2.4 2.1 14.2 16.2 0.3
HDFC 48 1,952 7.0 7.0 0 30.0 25.2 4.6 4.2 16.0 17.6 1.3
HDFC Bank 88 2,287 11.0 10.9 13 23.6 18.8 3.7 3.3 16.6 18.1 0.8
ICICI Bank 34 376 10.0 5.5 454 14.3 11.5 2.0 1.8 15.2 16.7 1.3
Kotak mahindra Bank 38 1,389 5.0 4.1 89 32.1 26.9 4.2 3.7 14.0 14.7 0.4
State Bank of India 39 307 4.4 2.5 183 11.9 8.2 1.3 1.1 11.5 14.4 1.3
Health Care 5.0 2.4 250
Dr Reddy's Labs 7 2,803 3.0 0.8 218 17.6 15.0 2.8 2.4 17.3 17.4 0.7
Lupin 5 800 1.0 0.0 100 18.5 14.5 2.3 2.0 13.0 14.9 1.3
Divi's Laboratories 6 1,625 1.0 0.0 100 23.5 20.6 5.4 4.6 24.6 24.0 1.2
Telecommunication Services 3.2 1.7 150
Bharti Airtel 20 319 3.2 1.2 199 1970.6 48.5 1.7 1.6 1.3 4.1 1.6
Industrials 4.3 4.3 0
Siemens 5 1,051 1.3 0.0 132 36.3 32.7 4.2 3.8 11.9 12.2 0.8
Larsen & Toubro 26 1,318 3.0 3.7 (68) 18.3 15.7 2.6 2.3 15.5 15.5 1.4
Cement 1.0 1.0 0
UltraTech Cement 17 4,338 1.0 1.0 (2) 27.2 20.5 3.7 3.1 14.4 16.5 0.3
Information Technology 14.3 14.3 0
HCL Tech 21 1,084 2.0 1.3 70 13.6 11.9 3.3 2.9 25.0 26.0 4.4
Infosys Technologies 45 720 8.0 6.0 201 16.6 14.8 4.3 4.1 27.5 28.2 4.5
L&T Infotech 4 1,710 1.0 0.0 100 18.0 16.4 5.2 4.5 31.3 29.3 2.3
Tata Consultancy Services 113 2,131 3.3 4.9 (163) 22.6 20.5 8.2 7.5 37.4 38.0 3.1
Autos 3.2 6.2 (300)
Bajaj Auto 12 2,973 1.1 0.9 21 17.5 15.9 3.8 3.5 22.5 22.7 3.2
Maruti Suzuki India 28 6,525 1.1 1.9 (84) 24.1 22.0 3.9 3.5 16.8 16.6 1.4
Hero MotoCorp 7 2,511 1.0 0.7 28 14.1 13.4 3.5 3.3 26.4 25.3 3.8
Metals & mining 0.0 2.7 (270)
Energy 10.8 12.8 (200)
Indraprastha Gas 3 296 1.0 0.0 100 19.9 17.3 4.2 3.6 22.6 22.2 1.0
Reliance Industries 111 1,232 8.8 9.4 (62) 13.5 10.3 1.7 1.5 12.9 15.1 0.6
Gujarat Gas 2 158 1.0 0.0 100 21.4 16.8 4.2 3.5 21.1 22.7 0.9
Utilities 1.0 2.7 (175)
NTPC 17 124 1.0 1.1 (15) 9.5 8.4 1.1 1.0 11.6 12.4 0.0
Chemicals 0.0 1.5 (152)
Model Portfolio 99.9 100.0 0
Nifty 100.0 0

Chart 1: Changes in model portfolio

Change in relative weights from last update (bps)
300 250
197
200 150
100
100 50
(bps)

(100)
-100 -117
(200)
-200
(300) -250
Consumers Telecom BFSI Cement Energy Industrials Chemicals Autos IT

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Table 2: Top picks

Current Current Dividend
Target Price P/B (x) P/E (x) RoE (%)
Company market cap market yield (%)
(USD Mn) (INR) price (INR) FY20E FY21E FY20E FY21E FY20E FY21E FY20E
Large caps
Bharti Airtel 20,573 406 337 1.8 1.7 2,082 51 1 4 1.5
Britannia Industries 9,206 3,261 2,698 13.2 11.4 49 42 29 29 0.6
Dr Reddy Labs 6,619 3,450 2,808 2.8 2.4 18 15 17 17 0.7
Divi's Laboratories 6,099 1,850 1,618 5.3 4.6 23 20 25 24 1.2
Hindustan Unilever 52,084 2,039 1,694 45.7 9.9 50 42 93 39 1.6
ICICI Bank 34,828 493 380 2.1 1.8 14 12 15 17 1.3
Infosys Technologies 44,250 880 714 4.3 4.0 16 15 27 28 4.6
Kotak Mahindra Bank 37,486 1576 1,383 4.2 3.6 32 27 14 15 0.4
State Bank of India 39,875 371 315 1.3 1.1 12 8 11 14 1.3
Siemens 5,510 1,450 1,090 4.3 4.0 37 34 12 12 0.7

Mid caps/Small caps

Gujarat Gas 1,582 207 162 4.3 3.6 22 17 21 23 0.9
JK Cement 926 992 844 2.2 2.0 19 17 12 13 0.9
Mahindra Logistics 465 610 458 5.6 4.7 31 25 20 20 0.5
Security and Intelligence Services India 893 1,202 858 4.2 3.6 23 19 20 20 0.5
Sobha Limited 601 619 446 1.3 1.3 14 97 10 1 0.8
Vesuvius India 323 1,414 1,120 2.8 2.5 22 19 13 14 1.0
Source: Edelweiss research
Note: Price as on May 14, 2019

Chart 2: Portfolio performance since inception Chart 3: Portfolio performance since last change
12
20

9
15

10 6
(%)
(%)

5 3

0 0

(5) (3)
Aug 17 Nov 17 Mar 18 Jul 18 Oct 18 Feb 19 May 19 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19
Portfolio return Nifty return Portfolio return Nifty return

Source: Bloomberg, Edelweiss research

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Market rally has been largely led by valuations

India’s moved from its lows (+12% since October) and has had stronger global inflows than
domestic after a few years. It’s also moved up on valuations – even as earnings have
continued to falter and downgrades have followed. As a result, Nifty valuations have become
one standard deviation expensive and are now very close to all-time highs. The saving grace,
however, is that India’s valuation premium to EMs has compressed and is much lower now at
47% (closer to long-term average) versus the 70% peak six months ago.

While the market has had its moments of risk appetite – its largely been a quality-focused,
large cap and defensive portfolio that has led – with IT, Cement, Reliance and banks as the
leaders , and Autos, Metals and Industrials making the rear.

Chart 4: Nifty rally has been valuation- rather than earnings-led

116

113
(re-based to 100)

Markets have re-rated despite 110

persistent earnings downgrades
107

104

101

98
Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19
Forward PE Forward EPS

Source: Bloomberg, Edelweiss research

Chart 5: Valuations are now 1SD expensive and close to long-term average
20

18

16
Valuations are close to post
(x)

Lehman highs
14

12

10
May 09 May 11 May 13 May 15 May 17 May 19
India 12M fwd PE Average +1 SD -1 SD
Source: Bloomberg, Edelweiss research

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Chart 6: Although relatively moderate valuation premium is comforting

70

60
Although valuation premiums have
compressed
50

(%)
40

30

20
May 09 May 11 May 13 May 15 May 17 May 19
India forward PE premium to MSCI EM 9-year avg.

Chart 7: IT remains one of the most consistent outperformers

2019 YTD Performance (%)
14 11
8
9
IT, Energy and Financials have been
4 2
(%, YoY)

consistent outperformers 1

(2)
-1
-3
(7) -4 -5
-7 -8
(12) -10

Telecom
Energy

Industrials
Health care
MSCI India
Financials

CD
IT

Materials

Staples
Utilities

Chart 8: IT remains one of the most consistent outperformers

26 23
20
12M Performance (%)
13
14
8 4 3 2 1
(%, YoY)

2
(4)
(10) -7
-10
(16) -12
(22)
(28) -24 -25
Telecom
Financials

Materials
Staples
Energy

Utilities
Industrials
Health care

MSCI India

CD
IT

Source: Bloomberg, Edelweiss research

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Downgrading IT to Neutral
IT has been one of the few bastions over the last 1.5 years, outperforming Nifty by 35% since
end-2017, and bottom up, our analyst remains bullish (see note). However, there are now
headwinds emerging, which could be a challenge for relative stock performance

a) IT is not immune to global growth slowdown. Historically, Indian IT has responded to

global growth slowdowns with a lag (although our IT analyst expects the impact to be
lesser this time around). Furthermore, flattening yield curves do not augur well for US
banks’ profits, which are among IT companies’ major clients.

Chart 9: Slowing DM IIP suggests growth overhang ahead Chart 10: Weak US banks’ profits to weigh on BFSI revenues
4 18 150 40

3 16 120 30
14 90
2
20

(%, YoY)
(%)

(%)
12

(bps)
60
1
10 10
30
0 8
0 0
(1) 6
Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 (30) (10)
DM IIP growth (advanced by 4 quarters) Mar 91 Mar 98 Mar 05 Mar 12 Mar 19
TCS constant currency growth (RHS) US5Y - 2Y US banks' net profits (%, YoY, RHS)
Source:Bloomberg,Company reports, Edelweiss research

b) Margin contraction despite peak macro tailwinds warrants some caution. In FY19, the
Indian IT sector’s margins contracted despite significant tailwinds, namely improving
growth and a weakening INR. This contraction in IT margins amid macroeconomic
tailwinds is unusual, and does stand-out, in the backdrop of all-time high valuations in
our view.

Chart 11: IT sector’s margins have seldom contracted when USDINR has weakened and growth has slowed
(15) 27
20 27.0

17 26.5
(9)
(%, YoY, 4QMA)
(%, YoY, 4QMA)

26.0 26
(%, 4QMA)
(%, 4QMA)

14
25.5 (3)
11
25.0 25
8 3
24.5

5 24.0 9 24
Sep 11 Mar 13 Sep 14 Mar 16 Sep 17 Mar 19 Apr 10 Oct 11 Apr 13 Oct 14 Apr 16 Oct 17 Apr 19
TCS CC growth (%, YoY) EBITDA Margins (RHS) USD INR EBITDA Margins (RHS)
Source: Capitaline, Bloomberg, Company reports, Edelweiss research
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Chart 12: Big disconnect between IT sector’ margins and valuations

22 27

20
26

(%, 4QMA)
Peak constant currency growth,

(x)
decadal-low margins and 18
decadal-high valuations render Mind 25
risk-reward unattractive in IT the
16
gap

14 24
Apr 10 Oct 11 Apr 13 Oct 14 Apr 16 Oct 17 Apr 19
IT 12M fwd PE EBITDA Margins (RHS)

Source: Capitaline, Bloomberg, Company reports, Edelweiss research

c) IT is not a defensive amid global growth slowdown. In fact, in such situations

historically, Indian IT has underperformed Nifty, despite INR depreciation. As a matter of
fact, the sector’s both absolute and relative performance are highly correlated to
constant currency growth and, hence, any weakness thereof implies little margin of
safety, particularly given decade-high valuations.

This combination of peaking constant currency growth, decadal-low margins and

decadal-high valuations suggests limited relative upside potential. This backdrop drivers
our downgrade, to a Neutral weightage in our portfolio.

Chart 13: IT relative valuations correlate to CC growth… Chart 14: …and underperform even if INR depreciates
1.4 20 1.4 75

1.3 IT underperforms 70
1.3 17 despite INR
1.2 depreciation 65
1.2
14
(%, YoY)

(x)

(x)
1.1 60
(x)

1.1
11
1.0 1.0 55

0.9 8 0.9 50

0.8 5 0.8 45
Mar 11 Mar 13 Mar 15 Mar 17 Mar 19 Mar 11 Mar 13 Mar 15 Mar 17 Mar 19
MSCI IT relative to MSCI India MSCI IT relative to MSCI India
TCS constant currency growth (RHS) USD INR (Inverted, RHS)

Source: Bloomberg, Company reports, Edelweiss research

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Upgrading Telecom to overweight

The brutal price war since Reliance Jio’s launch in FY18 has dragged industry revenue by 38%
and led to significant deterioration of balance sheets of almost all telecom operators.
However, industry revenue seems to be stabilising and we now see light at the end of tunnel.

Chart 15: Industry ARPUs have fallen substantially leading to sharp decline in industry revenue and stretched balance sheets
500 135
35
30.7
460 120 28
(INR bn)

420 105 21

(INR)

(x)
380 90 14
8.4
340 75 7 4.3

0
300 60
Bharti Airtel RJIO Vodafone Idea
Dec 12 Jun 14 Dec 15 Jun 17 Dec 18
FY19 Net debt to EBITDA
Industry revenue Industry ARPU (RHS)
Source: Capitaline, Company reports, Edelweiss research

We expect Reliance Jio to start increasing prices from H2FY20 as: 1) Reliance’s consolidated
balance sheet (RIL) is now more geared (see chart below) – and management has started the
process of deleveraging by planning to spin of some its telecom investments 2) it has big
investment plans for FTTH rollout as well as e-commerce; and 3) it will be reaching its
aspired 400mn subscriber base target and with the sector now consolidated with 4) As the
market leader, Jio will be the primary influencer of sector trends.

Chart 16: Reliance’ balance sheet – Has levered up

3,500

2,800

2,100
(INR bn)

Big gap requires

easy liquidity
1,400

700

0
FY13 FY14 FY15 FY16 FY17 FY18 FY19
RIL's adjusted net debt RIL's EBITDA

Source: Capitaline, Company reports, Edelweiss research

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Our analyst has recently detailed this potential turn (see note) and we believe pricing and
In FY12 as well, tightening global revenue trends will be more optimistic than is currently factored in by the market. We think
liquidity and stretched balance Bharti is best poised to play the Telecoms pricing recovery given its strong balance sheet and
sheets ended price war. Will history adequate network investments. Hence, we are increasing our weighting on the same; it is
repeat itself? now one of the top picks in our investment universe.

This has played through top down too, in the past. We have seen tightening global liquidity
and stretched balance sheets ending price wars. A case in point is FY12–16. In this phase as
well, easy global liquidity, low telecom penetration spurred excessive competition and led to
a sharp decline in ARPU, suboptimal ROCEs and stretched balance sheets of incumbents.

It was the European debt crisis of FY12 that put an end to this, with players shifting focus
from growth to profitability. As a result, we saw Industry ARPUs rising and operators
deleveraging. Global liquidity has started to slow again, will history repeat itself?

Chart 17: European debt crisis ended price war in FY12... ...eventually forcing players to deleverage

130 30 150 4.5

European debt
crisis ended price 140 4.0
120 war 20
130 3.5
(%, YoY)

(INR)
(INR)

(x)
110 10 120 3.0

110 2.5
100 0
100 2.0

90 1.5
90 -10
FY10 FY11 FY12 FY13 FY14 FY15
Mar 10 Mar 12 Mar 14 Mar 16
Telecom ARPU (INR) Global liquidity* (%, YoY, RHS) Telecom ARPU Telecom Net debt to EBITDA (RHS)

Chart 18: Global liquidity is slowing again

50

40

30
Global liquidity is tightening again Global liquidity is
(%, YoY)

20 slowing again

10

(10)
Dec 03 Dec 06 Dec 09 Dec 12 Dec 15 Dec 18
Global liquidity* (%, YoY)

Source: Capitaline, BIS, Company reports, Edelweiss research;

Note: Global liquidity is foreign bank claims on EMs

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Annexure 1: Aggressive portfolio for a favourable election outcome

Stocks Mkt Cap Price Portfolio Nifty wt Rel wt P/E (x) P/E (x) P/B (x) P/B (x) RoE (%) RoE (%) Div Yld (%)
(USD bn) (INR) (%) (%) (bps) FY20E FY21E FY20E FY21E FY20E FY21E FY20E
Cement 6.0 1.0 500
UltraTech Cement 17 4,338 4.0 1.0 300 27.2 20.5 3.7 3.1 14.4 16.5 0.6
JK Cement 1 839 2.0 0.0 200 19.2 16.4 2.2 2.0 11.9 12.7 0.6
BFSI 41.0 38.4 250
Axis Bank 27 732 5.0 3.2 184 18.7 14.0 2.4 2.1 14.2 16.2 0.3
HDFC 48 1,952 6.0 7.0 (101) 30.0 25.2 4.6 4.2 16.0 17.6 1.3
HDFC Bank 88 2,287 9.0 10.9 (187) 23.6 18.8 3.7 3.3 16.6 18.1 0.8
ICICI Bank 34 376 10.0 5.5 449 14.3 11.5 2.0 1.8 15.2 16.7 1.3
IndusInd Bank 12 1,393 3.0 1.6 138 15.0 11.8 2.6 2.2 18.8 20.0 0.6
Kotak mahindra Bank 38 1,389 1.0 4.1 (311) 32.1 26.9 4.2 3.7 14.0 14.7 0.4
State Bank of India 39 307 5.0 2.5 246 11.9 8.2 1.3 1.1 11.5 14.4 1.3
Mahindra & Mahindra 3 369 2.0 0.0 200 13.7 11.6 2.0 1.8 14.8 16.2 1.8
Financial Services
Industrials 10.3 4.3 600
Larsen & Toubro 26 1,318 6.0 3.7 232 18.3 15.7 2.6 2.3 15.5 15.5 1.4
Siemens 5 1,051 2.3 0.0 232 36.3 32.7 4.2 3.8 11.9 12.2 0.8
Adani Ports and Special 11 365 2.0 0.6 136 15.6 13.5 2.7 2.3 18.7 18.5 0.0
Economic Zone
Real Estate 2.0 0.0 200
Sobha Limited 1 439 1.0 0.0 100 13.6 95.3 1.3 1.3 9.8 1.3 0.8
DLF 5 164 1.0 0.0 100 19.6 10.5 0.9 0.9 5.0 8.6 0.9
Autos 8.0 6.2 180
Bajaj Auto 12 2,973 1.0 0.9 11 17.5 15.9 3.8 3.5 22.5 22.7 3.2
Mahindra & Mahindra 11 618 3.0 1.3 171 13.1 12.2 1.8 1.6 14.8 14.0 1.4
Maruti Suzuki India 28 6,525 2.0 1.9 6 24.1 22.0 3.9 3.5 16.8 16.6 1.4
Hero MotoCorp 7 2,511 2.0 0.7 128 14.1 13.4 3.5 3.3 26.4 25.3 3.8
Health Care 2.5 2.4 0
Dr Reddy's Labs 7 2,803 1.5 0.8 68 17.6 15.0 2.8 2.4 17.3 17.4 0.7
Divi's Laboratories 6 1,625 1.0 0.0 100 23.5 20.6 5.4 4.6 24.6 24.0 1.2
Metals & mining 2.7 2.7 0
Tata Steel 8 472 1.0 0.8 19 9.7 9.7 0.8 0.8 7.2 7.1 0.6
Jindal Steel & Power 2 154 1.7 0.0 170 23.4 19.6 0.5 0.5 2.1 2.5 0.6
Telecommunication Services 1.7 1.7 0
Bharti Airtel 20 319 1.7 1.2 49 1970.6 48.5 1.7 1.6 1.3 4.1 1.6
Energy 7.8 12.8 (500)
Reliance Industries 111 1,232 7.8 9.4 (162) 13.5 10.3 1.7 1.5 12.9 15.1 0.6
Information Technology 10.3 14.3 (400)
HCL Tech 21 1,084 1.0 1.3 (30) 13.6 11.9 3.3 2.9 25.0 26.0 4.4
Infosys Technologies 45 720 6.3 6.0 32 16.6 14.8 4.3 4.1 27.5 28.2 4.5
Info Edge 1 1,331 1.0 0.0 100 57.1 46.4 8.9 7.7 16.8 17.9 0.3
Tata Consultancy Services 113 2,131 2.0 4.9 (294) 22.6 20.5 8.2 7.5 37.4 38.0 3.1
Consumers 7.8 11.8 (400)
Marico 6 351 2.0 0.0 200 42.8 37.9 14.1 12.6 34.3 35.2 1.4
Hindustan Unilever 52 1,702 1.8 2.7 (86) 49.9 42.5 45.9 9.9 92.8 38.9 1.6
Britannia Industries 9 2,677 2.0 0.7 130 48.6 42.1 13.1 11.3 28.7 28.7 0.6
Future Consumer 1 39 2.0 0.0 200 353.0 86.9 0.0 0.0 0.8 7.5 0.0
Utilities 0.0 2.7 (273)
Chemicals 0.0 1.5 (152)
Model Portfolio 100.0 100.0 0
Nifty 100.0 0
Source: Edelweiss research

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Annexure 2: Defensive portfolio in case of an unfavourable election outcome

Stocks Mkt Cap Price Portfolio Nifty wt Rel wt P/E (x) P/E (x) P/B (x) P/B (x) RoE (%) RoE (%) Div Yld (%)
(USD bn) (INR) (%) (%) (bps) FY20E FY21E FY20E FY21E FY20E FY21E FY20E
Consumers 18.8 11.8 700
Marico 6 351 1.0 0.0 100 42.8 37.9 14.1 12.6 34.3 35.2 1.4
Nestle 14 10,300 5.8 0.0 579 52.4 45.4 24.4 22.0 49.0 50.9 1.3
Hindustan Unilever 52 1,702 6.0 2.7 335 49.9 42.5 45.9 9.9 92.8 38.9 1.6
ITC 50 289 5.0 5.6 (62) 25.0 22.9 5.7 5.3 23.5 23.8 2.2
Britannia 9 2,677 1.0 0.7 30 48.6 42.1 13.1 11.3 28.7 28.7 0.6
Information Technology 18.8 14.3 450
HCL Tech 21 1,084 2.0 1.3 70 13.6 11.9 3.3 2.9 25.0 26.0 4.4
Infosys Technologies 45 720 10.0 6.0 401 16.6 14.8 4.3 4.1 27.5 28.2 4.5
L&T Technology Services Ltd 2 1,673 1.0 0.0 100 21.7 17.7 6.3 5.3 31.0 32.6 1.9
Tata Consultancy Services 113 2,131 5.8 4.9 87 22.6 20.5 8.2 7.5 37.4 38.0 3.1
Health Care 6.0 2.4 350
Dr Reddy's Labs 7 2,803 3.0 0.8 223 17.6 15.0 2.8 2.4 17.3 17.4 0.7
Lupin 5 800 1.5 0.0 145 18.5 14.5 2.3 2.0 13.0 14.9 1.3
Divi's Laboratories 6 1,625 1.5 0.0 150 23.5 20.6 5.4 4.6 24.6 24.0 1.2
Telecommunication Services 3.7 1.7 200
Bharti Airtel 20 319 3.7 1.2 249 1970.6 48.5 1.7 1.6 1.3 4.1 1.6
Utilities 2.7 2.7 0
NTPC 17 124 2.7 1.1 160 9.5 8.4 1.1 1.0 11.6 12.4 0.0
Autos 2.2 6.2 (400)
Mahindra & Mahindra 11 618 1.1 1.3 (19) 13.1 12.2 1.8 1.6 14.8 14.0 1.4
Hero MotoCorp 7 2,511 1.1 0.7 38 14.1 13.4 3.5 3.3 26.4 25.3 3.8
BFSI 34.0 38.4 (450)
Axis Bank 27 732 3.0 3.2 (16) 18.7 14.0 2.4 2.1 14.2 16.2 0.3
HDFC 48 1,952 8.0 7.0 99 30.0 25.2 4.6 4.2 16.0 17.6 1.3
HDFC Bank 88 2,287 11.5 10.9 63 23.6 18.8 3.7 3.3 16.6 18.1 0.8
ICICI Bank 34 376 5.0 5.5 (46) 14.3 11.5 2.0 1.8 15.2 16.7 1.3
Kotak mahindra Bank 38 1,389 5.0 4.1 89 32.1 26.9 4.2 3.7 14.0 14.7 0.4
State Bank of India 39 307 1.5 2.5 (109) 11.9 8.2 1.3 1.1 11.5 14.4 1.3
Metals & mining 0.0 2.7 (270)
Industrials 3.3 4.3 (100)
Larsen & Toubro 26 1,318 2.3 3.7 (136) 18.3 15.7 2.6 2.3 15.5 15.5 1.4
Siemens India 5 1,051 1.0 0.0 100 36.3 32.7 4.2 3.8 11.9 12.2 0.8
Energy 10.6 12.8 (220)
Indraprastha Gas 3 296 0.8 0.0 80 19.9 17.3 4.2 3.6 22.6 22.2 0.5
Reliance Industries 111 1,232 8.8 9.4 (62) 13.5 10.3 1.7 1.5 12.9 15.1 0.6
Gujarat Gas 2 158 1.0 0.0 100 21.4 16.8 4.2 3.5 21.1 22.7 0.6
Chemicals 0.0 1.5 (152)
Cement 0.0 1.0 (102)
Model Portfolio 100.0 100.0 0
Nifty 100.0 0
Source: Edelweiss research

11 Edelweiss Securities Limited

 Strategy

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ADITYA
Digitally signed by ADITYA NARAIN
DN: c=IN, o=EDELWEISS SECURITIES LIMITED,
Aditya Narain ou=HEAD RESEARCH, cn=ADITYA NARAIN,
serialNumber=e0576796072ad1a3266c2799
0f20bf0213f69235fc3f1bcd0fa1c30092792c2
Head of Research
NARAIN
0, postalCode=400005,
[Link]=6b7d777d3c8c77e0e2c454e91543f9
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Date: 2019.05.15 14:22:57 +05'30'

Recent Research

Date Title
15-May-19 Strategy Elections Selections

05-Apr-19 Q4FY19 Results Some pick up, but big churn

Preview

21-Feb-19 Q3FY18 result "Tough and could get rough"

review

01-Feb-19 Strategy Budget: Going the consumption way

All price charts cannot be included given the large number of companies in our coverage. Specific charts may be available upon request.

12 Edelweiss Securities Limited

 Strategy
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