Today's top research idea Market snapshot Research covered Piping hot news

24 Pages·2017·1.77 MB·English

by  Prashant Waghpanje

23 February 2018

Market snapshot Today’s top research idea

Equities - India Close Chg .% YTD.% Ajanta Pharma – Growth ingredients in place; EM execution + US
Sensex 33,820 -0.1 -0.7 approvals hold key
Nifty-50 10,383 -0.1 -1.4

Nifty-M 100 19,375 -0.5 -8.3  We remain positive on AJP, considering its strong pipeline for the US market
Equities-Global Close Chg .% YTD.% and continued better-than-industry growth in branded generics in India, Africa
S&P 500 2,704 0.1 1.1
and Asia.
Nasdaq 7,210 -0.1 4.4
 Rejigged strategies by the company in a favorable business environment have
FTSE 100 7,252 -0.4 -5.7
started yielding results in Asia, while its enhanced focus on Anglo Africa is
DAX 12,462 -0.1 -3.5
expected to support growth in Africa’s branded generics business.
Hang Seng 12,529 -1.2 7.0
 AJP has also re-strategized to improve growth in dermatology in the domestic
Nikkei 225 21,736 -1.1 -4.5
Commodities Close Chg .% YTD.% formulations segment, and remains on track to outperform industry.
Brent (US$/Bbl) 66 1.7 -1.2  Although growth in the US business has been muted due to pricing pressure,
Gold ($/OZ) 1,332 0.6 2.2 AJP remains aggressive on building a product pipeline for future growth.
Cu (US$/MT) 7,127 0.7 -1.1  We value AJP at 25x 12M forward earnings to arrive at a price target of
Almn (US$/MT) 2,202 -0.4 -2.4
INR1,840. Re-iterate Buy.
Currency Close Chg .% YTD.%
USD/INR 65.0 0.4 1.8
USD/EUR 1.2 0.4 2.7 Research covered

USD/JPY 106.8 -1.0 -5.3
YIELD (%) Close 1MChg YTDchg Cos/Sector Key Highlights
10 Yrs G-Sec 7.7 0.04 0.4
Ajanta Pharma Growth ingredients in place; EM execution + US approvals hold key
10 Yrs AAA Corp 8.3 0.03 0.4
Sanofi India Revenue largely in-line; margin miss due to one-off
Flows (USD b) 22-Feb MTD YTD
Automobile PV volume momentum intact
FIIs -0.4 -1.5 0.9
DIIs 0.2 1.9 1.8 Healthcare IPM – growth continues to recover on higher volumes
Volumes (INRb) 22-Feb MTD* YTD*
Cash 405 388 411
F&O 14,040 9,235 8,071 Piping hot news
Note: YTD is calendar year, *Avg
JSW Group offers highest bid for Jaypee Infratech
 The JSW Group has emerged as the highest bidder for Jaypee Infratech, offering
little over Rs 9,900 crore to banks amid claims from home buyers that they
should be considered on a par with financial lenders in the resolution plan …
Chart of the Day: Automobile – PV volume momentum intact
Premiumisation trend continues in Indian PV market.

Research Team ([email protected])

Investors are advised to refer thr ough important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on ww w.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
In the news today
Kindly click on textbox for the detailed news link

1 2

Power Pipeline: Over 20,000 Trying to get Fortis back on track, not going anywhere: Singh
MW of projects face an brothers
uncertain future Fortis Healthcare founders Malvinder Mohan Singh and Shivinder Mohan
Lower-than-expected growth in Singh have said they are not shying from their responsibilities and even
demand for electricity, coupled though they have resigned from the posts of executive chairman and non-
with the overcapacity of installed executive vice-chairman, respectively, they are trying to get Fortis
power projects, has precipitated a Healthcare back on track.…
situation where more than 20,000
MW of under-construction coal-
based power projects in the
private sector are staring …
3
4

Brookfield, Macquarie, IRB Will India’s diamond cutting
among bidders for NHAI’s TOT operations shift to Israel,
project Belgium?
India’s attempt to bridge its The diamond trade fears that part
infrastructure investment gap of the diamond cutting and
through the marque toll-operate- polishing business may shift to 5
transfer (TOT) highways model has Belgium and Israel in the wake of
gained traction with Brookfield, the multi-crore Nirav Modi scam

Macquarie Group, and a joint that has tarnished the image of ITC merges tobacco leaf, agri-
venture between Holland’s Roadis the industry among the business units
and National Infrastructure and international community… ITC merged its tobacco leaf and
Investment Fund (NIIF) …
agri-business divisions to scale it
up, considering the critical back-
end support the combination
could provide to the
6 7
conglomerate’s expansion in the

FMCG sector, particularly

Federal Bank to acquire a packaged food, where it has
DoT announces strategic plan
26% stake in Equirus Capital ambitions to become the
for 7 telecom PSUs, including
country’s largest…
Kochi-based private lender
BSNL, MTNL
Federal Bank Ltd on Thursday
he department of
said in a stock exchange filing
telecommunications (DoT) on
that it would acquire a 26% stake
Thursday unveiled a strategic plan
in Mumbai-based investment
to create synergies among its
bank Equirus Capital Pvt. Ltd.
seven public sector units (PSUs)
Financial details of the
which includes …
transaction were not disclosed…
23 February 2018 2
22 February 2018

Update | Sector: Healthcare
Ajanta Pharma

BSE SENSEX S&P CNX CMP: INR1,352 TP: INR1,840(+36%) Buy

33,820 10,383
G rowth ingredients in place; EM execution + US approvals hold key
We recently met Ajanta Pharma’s (AJP) management to get updates on its business

segments. Rejigged strategies by the company in a favorable business environment have
Stock Info started yielding results in Asia, while its enhanced focus on Anglo Africa is expected to
Bloomberg AJP IN
support growth in Africa’s branded generics business. AJP has also re-strategized to
Equity Shares (m) 88
improve growth in dermatology in the domestic formulations segment, and remains on
52-Week Range (INR) 1870 / 1106
track to outperform industry. We maintain our estimates and re-iterate our Buy rating,
1, 6, 12 Rel. Per (%) -8/3/-39
with a price target of INR1,840, driven by superior execution in branded generics and a
M.Cap. (INR b) 125.4
robust product pipeline for the US market.
M.Cap. (USD b) 1.9
Avg Val, INRm 325.0
Free float (%) 29.3  AJP has employed a three-pronged strategy – enhanced focus on Anglo Africa,
bringing on board more medical representatives (MRs) and specific therapy
Financials Snapshot (INR b)
focus by MRs – to improve growth in its branded generics business in Africa.
Y/E Mar FY18E FY19E FY20E
The company has guided for growth of 12-13% YoY (better than industry
Net Sales 20.8 24.9 29.7
EBITDA 6.5 7.7 9.4 growth of 5-7%) over the next 12-15 months.
PAT 4.8 5.8 7.2  The company has also added a considerable number of MRs for the Asia
EPS (INR) 54.0 65.8 81.4 market. It also intends to add more therapies. This, along with increased
Gr. (%) -5.8 21.9 23.6
traction in existing products, has led AJP to guide for mid-teens growth in the
BV/Sh (INR) 223.1 279.1 348.2
Asia market over the next 12-15 months.
RoE (%) 27.0 26.2 25.9
RoCE (%) 26.9 26.1 25.9  Dermatology (26% of domestic formulation business in FY17) has exhibited a
P/E (x) 25.0 20.5 16.6 subdued performance due to stable sales of Melacare group of products and
P/BV (x) 6.1 4.8 3.9 increased attrition rates. With a leadership change in this division, controlled

attrition and addition of new products, AJP expects this business to recover
Shareholding pattern (%)
over the next 9-12 months. AJP remains on track to outperform industry in
As On Dec-17 Sep-17 Dec-16
Promoter 70.7 70.7 73.8 other key therapies (e.g. Cardiology and Ophthalmology) as well.
DII 5.9 5.4 2.0  With nine ANDA filings YTD for the US market, AJP now has filed 33 ANDAs on
FII 12.7 12.2 10.4
a cumulative basis till date. AJP intend to file 12-15 ANDAs annually over the
Others 10.7 11.7 13.8
next 2-3 years. The company launched three products recently, taking
FII Includes depository receipts
cumulative launches to 17, out of the 20 approved products. Although pricing

Stock Performance (1-year) pressure affected its business in 9MFY18, new launches would aid future
Sanofi India growth, in our view.
Sensex - Rebased
5,300  AJP has consistency adhered to compliance norms for the US market.
Considering zero 483s in the recent USFDA inspection at the Dahej facility and
4,800
ongoing product approvals from the Paithan facility, we expect minimal
regulatory hurdles over the medium-term for the US market.
4,300
 Valuation and view: We remain positive on AJP, considering its strong pipeline
3,800 for the US market and continued better-than-industry growth in branded
7 7 7 7 8
1 1 1 1 1
b- y- g- v- b- generics in India, Africa and Asia. We value AJP at 25x 12M forward earnings to
e a u o e
F M A N F arrive at a price target of INR1,840. Re-iterate Buy.

23 February 2018 3
22 February 2018

Q4CY17 Results Update | Sector: Healthcare
Sanofi India

BSE SENSEX S&P CNX CMP: INR4,825 TP: INR5,600(+16%) Buy
33,820 10,383
Bloomberg SANL IN Revenue largely in-line; margin miss due to one-off
Equity Shares (m) 23  Sanofi’s (SANL) 4QCY17 revenue increased ~13% YoY to INR6.7b (~2.8%
M.Cap.(INRb)/(USDb) 111.1 / 1.7
miss). Revenue growth adjusted for GST was 14%. EBITDA rose 25% YoY to
52-Week Range (INR) 5130 / 3901
1, 6, 12 Rel. Per (%) 8/13/-2 INR1.3b (8.8% miss), with the margin expanding ~190bp YoY to 20%. SANL
Avg Val, INRm 43.0 incurred one-time expense of INR162m for abundant precaution (related to
Free float (%) 39.6 legal case), adjusting for which margin would have been 22.5%. PAT
increased 50% YoY to INR760m, led by healthy revenue growth and margin
Financials & Valuations (INR b) improvement. For CY17, sales, EBITDA and PAT stood at INR24.9b (+5.5%
Y/E Dec 2017 2018E 2019E
YoY), INR5.4b (+1.7% YoY) and INR3.3b (+9.8% YoY), respectively.
Net Sales 24.9 28.1 31.0
 High-single-digit revenue growth, coupled with margin improvement:
EBITDA 5.4 6.2 7.1
According to AIOCD, secondary sales growth for SANL stood at ~9.3% YoY, in
PAT 3.3 3.7 4.3
EPS (INR) 141.7 161.8 186.9 line with industry (+9.5% YoY). The company’s key therapeutic areas grew
Gr. (%) 9.8 14.2 15.5 strongly YoY during the quarter: Anti-Diabetic portfolio grew by 14%,
BV/Sh (INR) 881.8 962.4 1,068.1 Vaccines by 22% and Respiratory by 19%. High growth in brands like Lantus,
RoE (%) 16.1 16.8 17.5
Combiflam, Allegra and Amaryl M, and new product launches should drive
RoCE (%) 16.2 16.4 17.3
SANL’s revenue growth, in our view.
P/E (x) 34.0 29.8 25.8
P/BV (x) 5.5 5.0 4.5  Higher margins attributed to lower raw material and employee costs:
EBITDA margin expanded to 20% in 4QCY17 (below est. of ~21.4%, primarily
due to one-time expense) from 18% in 4QCY16, mainly on account of lower
Estimate change raw material expense (-200bp YoY as % of sales) and employee cost (-300bp
TP change YoY), partly offset by higher other expenditure (+200bp YoY). We expect

Rating change EBITDA margin to normalize at 21-23% over CY16-19E (22.3% in CY16).

 Margin improvement is key: We have modeled 9% sales growth, 10%
EBITDA growth and 13% earnings growth over CY16-19E. We maintain Buy
with a TP of INR5,600 @ 30x CY19E (v/s INR5,000 @ 30x 1HCY19E).

Quarterly Performance (Consolidated) (INR Million)
Y/E December CY16 CY17 CY16 CY17 Est. Var.
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4QE vs Est
Net Sales 5,444 6,080 6,242 5,920 5,529 6,006 6,675 6,704 23,686 24,914 6,894 -2.8%
YoY Change (%) 11.4 10.6 6.6 4.1 1.6 -1.2 6.9 13.2 8.0 5.2 16.5
EBITDA 1,291 1,458 1,447 1,073 1,015 1,154 1,837 1,344 5,281 5,372 1,473 -8.8%
Margins (%) 23.7 24.0 23.2 18.1 18.4 19.2 27.5 20.0 22.3 21.6 21.4
Depreciation 301 300 300 412 253 255 257 257 1,313 1,022 339
Interest 1 7 3 4 4 0 0 11 15 11 11
Other Income 256 164 148 152 159 284 208 182 708 807 -55
PBT before EO Items 1,245 1,315 1,292 809 917 1,183 1,788 1,258 4,661 5,146 1,068 17.8%
Extra-Ord Expense 0 0 0 0 0 0 0 0 0 0 0
PBT after EO Items 1,245 1,315 1,292 809 917 1,183 1,788 1,258 4,661 5,146 1,068 17.8%
Tax 439 462 486 304 317 446 625 498 1,691 1,886 347
Effective tax Rate (%) 35.3 35.1 37.6 37.6 34.6 37.7 35.0 39.6 36.3 36.6 32.5
Reported PAT 806 853 806 505 600 737 1,163 760 2,970 3,260 721 5.3%
Adj PAT 806 853 806 505 600 737 1,163 760 2,970 3,260 721 5.3%
YoY Change (%) 66.5 32.9 11.2 -28.3 -25.6 -13.6 44.3 50.5 24.9 9.8 42.9
Margins (%) 14.8 14.0 12.9 8.5 10.9 12.3 17.4 11.3 12.5 13.1 10.5

23 February 2018 4
Sector Update | 22 February 2018

Automobiles

PV volume momentum intact
Growth driven by compact UVs, compact car and compact sedan segment
We analyzed the brand-wise data for the domestic PV industry. PV industry
volume momentum continued with ~8% growth FY18YTD, driven by compact UVs,
compact sedan and compact car segments grew 28.5%, 7.5% and 7.4% YoY,
respectively. However, the mini segment declined 1.6%, and the mid-size and UV-2
segments grew just 1% and 0.4% YoY, respectively. Key highlights:
 Premiumization trend continues with share of product priced >INR800k
increasing to ~43% of domestic PV volumes (v/s ~41% in FY17).
 MSIL’s market share has corrected in last couple of month to ~49% now (partly
impacted by old Swift phase-out), with FY18YTD share at ~50%. Baleno ramp-
up continues with record volumes of 17.7k units (+70% YoY) while Ignis
recording all-time high volumes of ~5.4k units (+13% YoY).
 Ciaz sales recovered sharply post adverse GST rate on hybrids, with monthly
volumes are back at 5.1k units, enabling it to partially regain lost market share
in the mid-size segment (29.5% in January 2018).
 TTMT’s PV volume growth of 18.2% YoY in YTDFY18 was led by new products,
which grew 145% YoY, despite phasing out of old models (decline of
~52%).TTMT’s market share recovery continues with ~7.7% market share in
Jan-18 (v/s 5.7% market share in FY17).
 While M&M is witnessing good growth for Bolero (~33% YTD) and Scorpio
(~9% YTD) benefitting from rural recovery, it market share loss continues with
UV market share at ~25.4% in FY18YTD (v/s ~29.4% in FY17; ~26.2% in Jan-18).
Kenichi Ayukawa,

MD and CEO,
Record Baleno and Ignis dispatches drive MSIL’s market share in compact segment
Maruti Suzuki, said:
 MSIL’s compact segment volumes grew 23.3% YoY in YTDFY18, primarily led by
“Simply looking at the model-
increase in Baleno and Ignins volumes.
wise sales, still Alto is number
 Baleno volumes grew 64% YoY in YTDFY18 to an average of 15.8k units per
one! Other bigger size vehicles
month (v/s 9.8k units in YTDFY17). In January 2018, Baleno volumes came in at a
are becoming popular and the
first time customers are record 17.8k units.
directly buying the Dzire, Swift  Ignis volumes grew 13.3% YoY in January 2018 to a record 5.5k units.
or the Baleno. Still there are  Consequently, MSIL’s market share in the compact segment has increased by
customers who prefer small
7pp to 52% in YTDFY18 (v/s 45% in YTDFY17).
cars and we have to take care
 Growth in other compact models like Swift and Celerio remained muted at 0.3%
of those people. Some
YoY each. With the launch of new Swift, its volumes are expected to increase
customers are directly buying
the Swift or the Dzire but some gradually – already has bookings of 40k units. Inventory build-up due to this is
are upgrading from Alto, visible in dispatches of 14.2k units in January against 11.8k units in December.
Wagon R to Swift and Dzire or  Good initial response to MSIL’s S-Cross (facelift) also helped volumes to average
Ciaz. We have these kind of
~3,750 units/month since the October 2017 launch.
customers and have to take
Ciaz volumes back to 5k units; regains some market share lost to Honda
care of them.”
 GST impact on mild hybrid models has been partially offset by rise in sale of
petrol variants. As a result of the same, Ciaz volumes had witnessed limited
impact post increase in tax under GST.
23 February 2018 5
 Its volumes in January 2018 came in at 5.1k units (v/s 3.5k in 3QFY18), winning
back some market share lost (29.5% in January 2018 v/s 23.4% in 3QFY18).
 Hyundai also gained market share in the mid-size segment, with the launch of
new Verna in August 2017, resulting in average market share at 24% in August-
January (v/s 4% in the previous three months).

TTMT phasing out old models; focus on revamping product portfolio

 TTMT’s PV volumes grew 18.2% YoY in YTDFY18 to 167.2k units.
Mayank Pareek,
 This was led by healthy response to new products – volumes of Tiago, Hexa,
Passenger Car Business unit,
Tata Motors, said: Tigor and Nexon grew 145%.
“While Tiago continues to lead the  The decline of 52.4% in old models indicates the company’s strategy to phase
growth in cars at 27%, the Nexon out old models to revamp the product portfolio.
and HEXA have attracted new set  Nexon (compact UV) has received healthy response since its launch in August
of SUV buyers, resulting in 188%
2017, resulting in market share of 4.4%. Its volumes were 4.9k units in January
growth in UVs. We continue to be
2018, the highest ever since launch.
optimistic and hope this growth
 Its market share in the PV segment (ex-vans) increased to 5.8% in YTDFY18 (v/s
momentum continues.”
5.3% in YTDFY17).
MM’s UV-1 market share under pressure; recovery in UV-2 segment continues
 MM continued to lose market share in the UV-1 segment to 20.3% in YTDFY18
(v/s 24.7% in YTDFY17), as KUV100 volumes declined 33% YoY, despite the
launch of KUV100 NXT in October 2017.
 However, on the back of rural recovery, Baleno’s volumes grew 33% YoY in
YTDFY18, partially negating the weakness in KUV100 and Quanto models.
 MM’s market share in the UV-2 segment expanded to 43.4% (v/s 41.7%), as
Scorpio volumes grew 9.2% YoY v/s muted industry growth of 0.1% YoY in the
UV-2 segment in YTDFY18.
Ford Ecosport – highest ever volumes of 6.8k units since launch in June 2013
 Ford reported highest-ever monthly volumes of 6.8k for its compact UV,
Ecosport, since its launch in June 2013 (v/s average of 3.5k in April-December
2017).
 Consequently, its market share in the UV-1 segment increased to 11% in January
2018 (v/s average of 6.9% in April-December 17).
 The growth in volumes was led by the launch of all new Ecosport in November
2017, priced similar to old model.
Renault sales declined 21% in YTDFY18, as Duster and Kwid struggle
 Duster sales declined significantly by 26% YoY in YTDFY18, resulting in persistent
market share decline in the UV-1 segment.

 Sales of Kwid too declined 20.4% YoY in YTDFY18, resulting in a market share
Kenichi Ayukawa,
loss of 3.4% YoY to 14.2% in YTDFY18.
MD and CEO, Maruti Suzuki,
MSIL gains share across segments except mid-size
said:
 MSIL gained market share in every segment except mid-size, as Ciaz sales were
“We will try to maintain our
impacted due to increase in GST.
market share. Nobody wants to
see any reduction in volumes and  Its market share in the compact segment expanded the most by 7% to 52% in
we are not much concerned about YTDFY18 (v/s 45.3% in FY17).
the target of maintaining the
 Its market share in the compact sedan segment too expanded by a healthy 5%
market share. We try to expand
our business across the country. to 60.8% in YTDFY18 (v/s 55.5% in FY17).
Hence, eventually or fortunately
we are getting additional market
share.”

23 February 2018 6
 Initial signs of rural recovery benefitted MSIL the most, resulting in market share
gains of 230bp to 71% in YTDFY18 (68.7% in FY17) in the mini segment, taking
away share from Renalut’s Kwid.
 Brezza continues to help market share expansion in the UV-1 segment. In
YTDFY18, market share expanded 105bp to 39.6% (38.6% in YTDFY17).
 MSIL has lost market share in the mid-size segment to 30.6% in YTDFY18 (v/s
33.3% in YTDFY17), led by dual impact of (a) competitive pressure post launch of
Hyundai’s new Verna, and (b) increase in pricing post GST, leading to decline in
volumes. Hyunai has gained ~9% share of the segment, with the launch of new
Verna. Honda’s market share increased ~100bp to 29.3% in YTDFY18.
Valuation and view
 We prefer 4Ws over 2Ws and CVs due to stronger volume growth and a stable
competitive environment.
 While we expect 2W volumes to benefit from a rural recovery in the near term,
competitive intensity remains high in the segment due to changing customer
preferences.
 Our top picks in Autos are MSIL & MSS in large caps and AL & AMRJ in mid-
caps. We also like MM as the best bet on a rural market recovery.

23 February 2018 7
Sector Update | 23 February 2018

Healthcare

IPM – growth continues to recover on higher volumes
 Indian pharmaceutical market's (IPM) secondary sales continued to grow at a
healthy rate in January, led by strong volume growth, though price growth
continued to drag. IPM grew 9.5% YoY in January 2018 and 8.3% YoY over
November-January 2018.
 Volume growth has been increasing for the last two quarters, after declining in
the April-July 2017 quarter. In January 2018, volume growth was 6.7% YoY.
Growth in new products has remained stable in the last 3-4 quarters (up 2.9%
YoY in January). Prices continued to decline for the second quarter. In January
2018, the price decline was 1.4% YoY.
 Moving annual total (MAT) growth for January was 5.6% YoY against 5.5% YoY in
December.
Lupin, Mankind and Alkem witness highest growth
 Lupin’s secondary sales (+16.5%) posted robust growth for January, followed by
Mankind (+16.4%), Alkem (+13.5%), Sun Pharma (+12%), Abbott India (+10.6%),
Glenmark (+12.6%), and Sanofi India (+12.8%), which registered growth higher
than IPM.
 Over 60% of the companies posted high-single-digit to mid-double-digit growth
during the month.
Respiratory, Vaccines and Hormones lead among therapies
 Respiratory (7.5% of IPM) posted significant growth of 19.3% YoY in January,
followed by Vaccines (+15.9%; 1.9% of IPM) and Hormones (+15.1%; 1.7% of
IPM). Except for Anti-Neoplastics (2.1% of IPM), which remained muted for the
month, all therapies reported growth in January.
 50% of the therapies reported growth higher than IPM during the month.
DPCO v/s non-DPCO market (January 2018)
 In value terms, secondary sales grew 5.1% YoY for DPCO-listed products and
10.2% YoY for non-DPCO products during the month. Volumes grew 4.2% YoY
for DPCO-listed products and 8.4% YoY for non-DPCO products in January.
FDC ban impact (January 2018)
 FDC-banned drugs (~2.4% of IPM) grew 18.1% in January, while non-banned
drugs grew 9.3% YoY. Secondary sales for Indian companies increased 9.2% YoY,
while those of MNCs grew 10.7% YoY in January.

Exhibit 1: Volume led high industry growth
Volume Growth (%) Price Growth (%) New Product Growth (%) Total Growth (%)
13.1
10
8.2
7.8
7.4
5.1
3.4 3.1 3.5 6.7
4
1.7 3.6 3.3 2.9 0.6 2.62 .8 2.9
1.3 1.1
-0.4
-1.4
-1.9
3M-Oct 16 3M-Jan 17 3M-Apr 17 3M-Jul 17 3M-Oct 17 3M-Jan 18

Source: AIOCD, MOSL

23 February 2018 8
In conversation

1. MOTHERSON SUMI : Currently focusing on return on capital
employed; Vivek Chaand Sehgal, Chairman
 Do not see any weakness on the sales front.
 Some weakness likely in certain small sectors.
 Don't monitor costs on a quarter-to-quarter basis.
 Coming towards the end of capital expenditure cycle.
 Advanced planning and quality checks will continue going ahead.
 The 3 new plants will add $ 1 billion to the topline.
 Currently focusing on return on capital employed (RoCe).

2. NSE : Don't believe move by Indian exchanges is anti-
competitive; Vikram Limaye, MD & CEO
 Haven’t received any letter from Sebi asking to give data on PSU banks.
 Regulators would be looking into it in terms of how to prevent these things from
happening going forward.
 Press release which was announced was to make all participants and
stakeholders aware that the exchange is focused on making sure that there is an
orderly transition and it is not disruptive for market or investors. In that regard
the exchange is in touch with all stakeholders whether its exchanges, index
providers, investors etc.

3. UCO BANK : Expect another 3-4 quarters before reporting net
profit; Ravi Krishan Takkar, MD & CEO
 Bank’s Hong Kong branch discounted the bills under letter of credit (LCs) open
by Punjab National Bank (PNB) in Mumbai. These LCs were issued on behalf of
Gitanjali Group of companies.
 Sure that PNB would honour the commitment in these LCs.
 Regarding Gitanjali’s default, in bank’s case it is not a Letter of undertaking
(LOU), it is an LC. Therefore, in this case the liability is primarily on PNB.
 Gitanjali Group is only an applicant from the PNB point of view. Bills have
started to fall in due for payment. Have lodged claim with PNB and hopeful that
things should be sorted out.
 Main focus is on recovery which will affect the balance sheet.
 Major portion of non-performing assets (NPAs) are from corporate sector which
are in National Company Law Tribunal (NCLT).

4. NALCO : Expect caustic prices to cool down going ahead; TK
Chand, CMD
 Q3 aluminium prices averaged around USD 2,100 per tonne.
 Seeing some increase in input prices that will support price of final product.
 Current caustic soda price is around Rs 39,000 per tonne. However, expect
caustic prices to cool down going ahead.
 Expecting aluminium realisations to improve this year.
 Will be making 13 shipments in Q4.

23 February 2018 9
From the think tank

1. How banking frauds can be nipped in the bud
 The Nirav Modi case has once again cast the spotlight on the dark corners of the
Indian banking universe. The details of what exactly went wrong are still trickling
into the public domain, yet the information available till now suggests that there
was a failure at different levels—internal controls, corporate governance and
weak regulatory capabilities. The authorities should not let this crisis go waste, but
use it as an opportunity to minimize the risk of such frauds in the future. Here are
some ideas that could be considered. First, the basic line of defence against fraud
is the internal controls in a bank. Most banking regulation across the world works
on this principle. India is no exception. Technology should be seen as a game
changer. It can reduce the chances of human connivance, and can be used to
detect outlier lending or guarantees. A good technology system should make it
impossible—or at least extremely difficult—for individual employees to bypass
controls, as seems to have happened in the Punjab National Bank case.

2. Swachh Bharat’s waste management problem
 To anyone tuned into Davos last month, Indian leaders presented an impressive
picture of a country open for business. “If you want wealth with wellness, come
to India”, was the message. For those closer to the ground, however, the quality
of life in India’s towns and cities seems distinctly suspect. Here is one important
aspect of this: India generates over 150,000 tonnes of municipal solid waste
(MSW) per day, with Mumbai being the world’s fifth most wasteful city. Yet,
only 83% of waste is collected and less than 30% is treated. According to the
World Bank, India’s daily waste generation will reach 377,000 tonnes by 2025.
Blame urbanization and industrialization, but the consequences of India’s
megacities producing tonnes of waste are tangible and troubling.

3. Why TRAI’S predatory price order makes little sense
 Given how modern competition law has moved beyond the old concepts of market
share—enshrined in the old MRTP law in the case of India—to measure the abuse
of dominance, it is odd to find telecom regulator Trai sticking to the old market-
share model when it comes to examining allegations of predatory pricing. Indeed,
the Competition Act talks of the Competition Commission of India (CCI), while
examining whether there has been an adverse impact on competition, looking at
whether there are attempts to create “barriers to new entrants in the market” or
attempts to drive “existing competitors out of the market”, among other factors.

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