October 27, 2020

Golden Large Cap Portfolio

Update

ICICI Securities – Retail Equity Research MOMENTUM PICK

 Story of the stock

Titan Company (TITIND) HDFC Bank (HDFBAN)

• Titan Company is a major player in the organised jewellery market with • HDFC Bank has efficiently focused on retail business and has garnered

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share of ~6%. Tanishq’s penetration is still at a very nascent stage in the strong liability franchise to yield superior profitability over the years.
Indian jewellery market. This provides immense opportunity for Titan to Seasoned portfolio and management experience led to higher than industry
enhance its market share, going forward. Recent regulatory changes such advances growth at ~22.2% CAGR in FY17-20
as gold hallmarking, GST have turned out to be highly favourable for • Advances were at | 10.4 lakh crore as on September 2020 with major
organised players like Titan, leading to market share gains from traction towards well rated corporates. Furthermore, the bank has been
unorganised players. The market share gains are visible as Tanishq reported consistently growing faster than industry. Enriched customer experience,
robust revenue CAGR of 19% in FY16-20 strong network of 5430 branches and focus on digitisation has enabled to
• Since the outbreak of the pandemic, perception of gold as an asset class build a strong liability franchise with CASA comprising ~42% of deposits.
has seen healthy traction. Demand for plain gold jewellery, gold coins has Such high CASA enables to garner superior NIM above 4% consistently.
zoomed owing to a surge in gold prices. Overall recovery rate for jewellery Prudent asset quality has been core to the bank and the same has
division for Titan rose from 77% in June to 98% in Q2FY21. The recovery safeguarded the bank from NPA issues faced by industry in recent fiscal
rate has been encouraging given the challenging times • A relatively lower moratorium at ~9% and collection efficiency at ~97%
• Despite various headwinds, Titan continued on its store addition spree by bodes well. The bank has maintained contingent provisions worth | 6304
opening 14 Tanishq stores in H1FY21. Given Titan’s robust balance sheet crore (~75 bps of advances) which provides cushion against delinquency
(net cash surplus) the liquidity stress faced by regional unorganised players shocks post moratorium period. Substantial exposure to highly rated

ICICI Securities – Retail Equity Research

can play out as an opportunity for Titan corporates, adequate provisioning coupled with lower moratorium provides
• We expect Tanishq to be in a positive trajectory in Q3FY21E itself on the comfort on the bank’s asset quality. Improving collection is seen keeping
back of strong demand during the festive season. Over the years, the the quantum not meaningful
company has consistently exhibited its ability to gain market share amid a • Adequate capital at 19.1%, coupled with operational flexibility adds to the
tough industry scenario. We build in revenue CAGR of 13% in FY20-23E, comfort on earnings volatility amid current uncertain scenario and provides
mainly driven by growth in jewellery segment (15% CAGR). RoCE is the bank with ammunition for future balance sheet growth. We remain
expected to revert back to 30%+ levels by FY23E positive on the stock
| Crore FY20 FY21E FY22E FY23E | Crore FY18 FY19 FY20 FY21E FY22E
Revenue 21051.5 18846.1 26515.2 30718.2 NII 40,095 48,243 56,186 63,573 74,683
PPP 32,625 39,750 48,750 53,777 62,263
EBIDTA 2466.6 1542.6 3270.4 3814.7
PAT 17,487 21,078 26,257 28,703 34,715
EPS | 16.9 9.4 24.5 28.8
ABV (|) 199.8 268.0 305.4 343.5 380.6
P/E(x) 72.1 129.4 49.8 42.4 P/E 36.1 31.4 25.4 23.3 19.2
P/B (x) 16.2 15.1 12.1 10.1 P/ABV 6.1 4.5 4.0 3.5 3.2
RoE (%) 22.5 11.7 24.4 23.8 RoA 1.8 1.8 1.9 1.8 1.9
RoCE (%) 28.7 15.5 32.0 31.4 RoE 17.9 16.5 16.4 15.7 17.0

October 27, 2020 ICICI Securities Ltd. | Retail Equity Research 2

 Story of the stock

Asian Paints (ASIPAI) Hindustan Unilever (HINLEV)

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• Asian Paints is India’s largest paint company with group revenue of • With the acquisition of Horlicks & Boost, HUL’s food portfolio has now
~| 20,000 crore. The company derives ~98% revenue from the decorative become 30% of overall sales. The acquired brands command 65% gross
paints business while 2% business comes from the home improvement margin, which is much higher than HUL’s existing gross margins. Moreover,
business (kitchen and bathroom fittings). In the last 10 years, Asian Paints we believe the company would be able to cut common & redundant cost to
has recorded volume CAGR of ~10% led by strong repainting demand in India get synergistic benefit. We believe benefit of acquisition would be
(drives ~70% of total demand) and improving trend of Indian urbanisation. reflected in operating margins expansion going forward. Barring periodic
We believe, barring short-term hiccups, the long term growth story of cost inflation, we believe commodity cost increase would be easily pass on
decorative paint with shortening repainting cycle, rising aspirations and (which would not impact operating margins in the long run)
urbanisation level in India remains intact. This is evident from strong
• Covid-19 induced lockdown disrupted the manufacturing & distribution for a
demand for paints post re-opening of the economy from pandemic led
short period of time. On the demand side, there has been a significant
lockdown. Despite sporadic lockdowns in many regions, Asian Paints gained
increased in sales of health, hygiene & nutrition product portfolio.
market share due to its strong supply chain network and over 1,50,000
However, on the other hand, discretionary & out of home consumption
retail touch points across India
categories have seen a considerable demand destruction. We believe 80% of
• Asian Paints witnessed a robust expansion in EBITDA margin by ~500 bps the company’s portfolio is likely to witness robust demand condition in the
over the last five years mainly supported by benign raw material prices and long run with structure growth in health & hygiene space
various cost optimisation measures. We believe the EBITDA margin of Asian

ICICI Securities – Retail Equity Research

Paints will remain elevated supported by improving product mix (with • HUL has been able to leverage strong brands in hygiene (Lifebuoy, Domex,
demand returning back into urban markets) and rationalisation of fixed Vim, Surf Excel) space to drive growth. It would continue to witness strong
costs double digit growth in the health, hygiene space. Moreover, margins
improvement post consolidation of nutrition brands would drive earnings.
• We are structurally positive on the paint industry and market leader given
With robust earning growth, negative working capital, stronger cash flows
the sustained volume CAGR of ~11% in FY20-23E and strong balance sheet
and high dividend payout, it has all the ingredients of improving its return
(with surplus cash) condition
ratios in next three to five years (which has dipped considerably after
acquisitions)
| Crore FY20 FY21E FY22E FY23E | Crore FY20 FY21E FY22E FY23E
Net sales 20211.3 20275.0 24834.5 28413.8 Net sales 38785.0 43245.1 49715.9 53614.6
EBITDA 4161.8 4339.7 5295.7 6169.2 EBITDA 9600.0 10879.4 12749.6 14093.4
EPS (|) 29.0 28.9 35.9 41.9 EBITDA % 24.8 25.2 25.6 26.3
Net Profit 6738.0 7609.0 9114.6 10151.4
P/E(x) 72.5 72.8 58.5 50.1
EPS | 31.2 32.4 38.8 43.2
P/B (x) 19.9 17.6 16.0 14.0
P/E(x) 69.7 67.1 56.0 50.3
RoE (%) 27.4 24.2 27.3 27.9
RoNW % 85.7 18.6 21.9 23.9
RoCE (%) 30.5 28.1 31.7 33.1
RoCE (%) 89.5 24.5 28.5 31.2

October 27, 2020 ICICI Securities Ltd. | Retail Equity Research 3

 Story of the stock

Nestlé India (NESIND)

• Nestlé witnessed sudden surge in demand for noodles as consumption for

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packaged instant food increased significantly given demand surge for ‘at
home’ consumption products. Though initially the company faced supply
issues due to closure of factories in April, supplies improved significantly.
Further, new launches across categories are gaining traction (71 new
products launched in last five years contributing 3.4% to the sales). The
company expanded its breakfast ready to eat in Maggi Poha & Maggi Upma,
which would have gained traction during pandemic. We believe the
company has been net beneficiary of change in consumption trend in last
six months. We expect packaged food category would continue to drive
growth, going forward
• Commodity inflation for Nestlé has been largely milk based given all other
raw material have not seen sharp ups & downs. Milk prices were surging
prior to pandemic. However, with the significant demand destruction due
to shutting down of cafes, restaurants & ice crème shops, milk prices
crashed & benefited in terms of margin expansion. Over a long period of

ICICI Securities – Retail Equity Research

time, the company has sufficient pricing power to pass on moderate
inflation immediately. We believe the operating margins territory should
remain upward
• In CY20, the company announced a dividend of | 196 /share, which is ~88%
dividend payout. Moreover, it has announced | 2600 crore capex for the
next three to four years, which would drive growth over the longer period
of time. We remain positive on the stock
Key Financials CY18 CY19 CY20E CY21E CY22E
Net Sales 11216.2 12295.3 13351.8 14667.3 16109.7
EBITDA 2759.8 2864.3 3252.8 3620.4 4022.3
EBITDA Margin % 24.6 23.3 24.4 24.7 25.0
Net Profit 1606.9 1969.6 2154.5 2443.3 2740.3
EPS (| ) 166.66 204.27 223.45 253.40 284.21
P/E 95.2 77.7 71.0 62.6 55.8
RoNW % 45.6 101.9 119.1 139.2 160.6
RoCE (%) 42.9 56.9 59.9 66.6 73.7

October 27, 2020 ICICI Securities Ltd. | Retail Equity Research 4

 MOMENTUM PICK
ICICI Securities – Retail Equity Research
Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai – 400 093
[email protected]

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