Leaders of Tomorrow

MOMENTUM PICK
ICICI Securities – Retail Equity Research
February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 1
Biggest risk in today’s market is not being there in the market

MOMENTUM PICK
Nifty 50
Nifty 50thorugh
throughthe years
the years
16000 US China
trade war
Covid
crash
14000
Slowdown in
China, Demonetisation
12000 devaluation of
Yuan

10000 Change in
Downgrade in Indian
US credit Government
ratings
8000 Subprime
crisis

ICICI Securities – Retail Equity Research

6000

4000

2000

Source: NSE, Company, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 2
Nifty shifting orbits …

MOMENTUM PICK
Nifty currently trades at a PE of ~32x (based on FY20 EPS) and at a PE of Trend in Sectoral Weightages in Nifty
~38x on Trailing Twelve Months (TTM) basis, thereby helping build the public
Sectors/Year Mar-09 Mar-14 Mar-19 Dec-20
opinion that the broader markets are highly euphoric and running ahead of
Financial Services 11.8 27.5 38.9 38.8
fundamentals. We however dispel this notion, as we logically derive that
present absolute PE multiples make little sense especially when we had a blip IT 9.1 16.3 13.7 16.3
in corporate earnings in the recent past due to the Covid pandemic and are Oil & Gas 40.7 14.3 15.3 12.5
staging an impressive earnings CAGR (24%+ over FY21-23E) ahead of us. FMCG 6.4 12.6 11.3 11.5
Automobile 3.3 8.8 6.1 5.4
Our key focal points: Pharmaceuticals 2.5 5.2 2.4 3.6
Metals 5.4 4.8 3.7 2.5
(i) Nifty constituents have undergone major change in past decade. The Telecom 9.8 1.7 1.5 2.0
weights of capital efficient sectors such as FMCG, Financials (private
banks), IT and Pharma have increased from 29% in March 2009 to 70% in
December 2020.
Target PE of few individual constituents based on FY23EPS

ICICI Securities – Retail Equity Research

(ii) These sectors command higher PE multiples as markets prefer Earnings Nifty Stocks Target PE (x) Nifty Stocks Target PE (x) Nifty Stocks Target PE (x)
visibility and consistency Adani Ports 16.0 SBI Life 45.3 HDFC Bank Ltd 19.3
Asian Paints Ltd 58.2 Titan Co. 58.0 Reliance Industries 17.7
(iii) Better performing business segments within existing companies is not Bajaj Auto Ltd 18.9 Tata Steel 9.2 TCS 29.4
captured by current PE. Companies like L&T, SBI etc. have multiple Bajaj Finance Ltd 46.5 Sun Pharma 21.9 Divis Lab 40.0
Bharti Airtel Ltd 32.3 NTPC Ltd 5.4 Axis Bank Ltd 17.5
business lines and hence SoTP (Sum of the parts) based valuations of
Dr Reddy's 26.0 Maruti 28.0 Shree Cement 39.8
these names are not captured by the PE ratio alone.
Nestle India Ltd 63.3 Indusind 37.2 ITC Ltd 17.0
Infosys Ltd 25.4 Britannia 44.5 Grasim Industries 34.7

Overall Nifty PE 26.2

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 3

FII inflows at historical high, market sentiments bouyant…
FII Inflows/Outflows (2020)
January 12123 100 % of stocks above 200 SMA Nifty 500
February 1820
10400

MOMENTUM PICK
March -61973 80
April -6884 8400
May 14569 60
June 21832 6400
July 7563 40
4400
August 47080
September -7783 20 2400
October 19541
0 400
November 60358
December 62016
January (till
23630 Greater than 90% of the NSE500
26th Jan 2021)
FII Inflow s/Outflow s stocks are trading above their 200
2020 170262
SMA. This has never happened in
2019 101122 previous bull runs. This highlights
broad based participation and

ICICI Securities – Retail Equity Research

2018 -33014 15000
2017 51252 Nifty at all-time high clearly indicates strong market sentiments.
2016 20568 13000 improvement of sentiments
2015 17808
2014 97054 11000
2013 113136
9000
2012 128360
2011 -2714 7000
2010 133266
2009 83424 5000
2008 -52987
2007 71487 3000
2006 36540
1000
2005 47181
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jul-19
Jan-20
Jul-20
2004 38965
2003 30459
2002 3630

Source: NSE, NSDL, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 4
Positive conditions for a broad based market rally…

Interest rates at all time low Asset quality concerns peaked out
10
India 10 Year G-Sec Yield %

MOMENTUM PICK
9
12 10.8
10.3
8 10 9.0
8.5 8.5
7.6 7.8
8
7
(%)

(%)
6
4.6
6 3.8
4 3.1 3.2
2.2 2.3 2.6 2.5
5 2

4 0

Sep-20

Sep-20
Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20
Nov-2011

Aug-2014
Nov-2014

Aug-2017

Aug-2019
Mar-2018

Mar-2020
Apr-2011

Apr-2013

Sep-2015

Apr-2016
Dec-2010

Dec-2015

Dec-2017

Dec-2019
Feb-2012

Feb-2015

Feb-2017

Jun-2018
Jun-2015
Jan-2013

Jan-2014

Jan-2019
Jul-2011

Jul-2016
Oct-2016

Oct-2018
May-2012
Jul-2012
Oct-2012

Jul-2013
Oct-2013

May-2014

May-2017

May-2019

Jul-2020
Oct-2020
Corporate debt at lowest levels

ICICI Securities – Retail Equity Research

Historical GDP growth rate of India
Industry loans as % to total
50 15.0
45.1 45.8 45.6 11.0
44.2 44.3 10.3
45 42.8 10.0 8.0 8.3
6.6 7.4 7.0 7.0
6.4 6.1

%
39.5 5.5
40 4.2
5.0
36.6
(%)

35 33.5 -
32.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
29.9
30 (5.0)

25 (10.0) Real GDP growth rate (Annual % change) (7.7)

Nov-10

Nov-12

Nov-13

Nov-14

Nov-15

Nov-17

Nov-18

Nov-20
Nov-11

Nov-16

Nov-19

Source: NSE, RBI, IMF, WorldBank, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 5
Capacity utilisation trend for core sectors

MOMENTUM PICK
Steady demand from core industries should improve capacity utilisation in steel sector Focus on infrastructure to provide headroom for cap utilisation levels in cement sector

Steel Capacity utilisation Capacity utilisation (%)

82%
80
80%
78%
75
76%
74%
70

ICICI Securities – Retail Equity Research

72%
70%
65
68%
66%
60
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Capacity utilisation Capacity utilisation (%)

Source: Company, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 6
In long term, all market cap types & sectors have performed…

450% 392%
400% 360% Performance between 2009-2015
Broader Indices 1 year 3 year 5 year 10 year
350%

MOMENTUM PICK
Nifty 50 16.6% 26.3% 86.0% 155.3% 300% 277% 266%
231%
Nifty 100 16.1% 23.2% 85.1% 161.9% 250% 210%
189% 178% 173%
200%
Nifty midcap 100 16.4% -0.2% 69.5% 168.0% 150%
100% 77%
Nifty smallcap 100 14.8% -19.9% 44.1% 101.8% 44%
50% 16%
0%
-50%
-34%
-100%

NSEINFR Index
NSEPHRM Index

NSEFIN Index

NSEBANK Index

NSEMCAP Index

Nifty Index
SENSEX Index
NSEIT Index

NSESMCP Index

NSEMET Index

NSEREAL Index
NSE100 Index

NSENRG Index

ICICI Securities – Retail Equity Research

Sectoral Indices 1 year 3 year 5 year 10 year 250% 231% Performance between 2015-2020
Nifty Realty -4.3% -10.2% 103.4% 6.5% 198% 191%
200%
Nifty Bank -0.5% 11.3% 99.9% 187.7% 172% 170% 169% 167% 162% 153%
Nifty Metal 20.6% -23.0% 91.6% -25.6% 150% 136%
122% 117% 114%
Nifty Financial Services 4.2% 31.2% 131.3% 254.6%
100%
Nifty Energy 7.9% 15.3% 95.7% 88.6%
Nifty Infra 13.5% 3.2% 53.8% 23.7% 50%
Nifty IT 57.4% 95.2% 128.7% 270.8%
Nifty Pharma 49.0% 30.4% 6.9% 167.6% 0%

NSEMCAP

NSEINFR Index
NSESMCP
NSEFIN Index

Nifty Index

NSEBANK Index
SENSEX Index

NSEMET Index
NSEIT Index

NSEREAL Index

NSEPHRM
NSE100 Index
NSENRG Index

Index

Index
Index
Source: Bloomberg, ICICI Direct Research
February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 7
Favorable government policies

MOMENTUM PICK
Capex plan under National Infrastructure plan PLI scheme boost for favorable domestic manufacturing

25 Annual phasing of investment under NIP S e c tors Es tima te d Ex p (| c rore )

21.5 21.3 Mobile phone manufacturing 47240
20 14.4 16.5
6.0 6.2 15.4 API & others 6940
14.4
(| Lakh Crore)

13.2
15 4.2 Manufacturing of Medical devices 3420
4.6 4.0 3.6
4.4 4.7 1.9
9.0 Advanced Cell Chemistry Battery 18100
10 2.3 2.2 1.6
2.6 3.1 2.7 1.7
3.0 3.3 2.2 Electronic/Technology products 5000
1.3 3.8 1.7 3.6 2.5 2.4 3.3
5
3.3 Automobiles & Auto Components 57042
4.4 3.0 4.4 4.7 5.0 4.7 Pharmaceutical Drugs 15000

ICICI Securities – Retail Equity Research

2.3 1.7
0
FY20 FY21 FY21IDE FY22 FY23 FY24 FY25 Telecom & Networking products 12195
Textile products 10683
Energy & Power Roads Railways Urban & Housing Others Food products 10900
High Efficiency Solar PV Modules 4500
White Goods (Acs & LED) 6238
Specialty Steel 6322
Total 203580

Source:: Budget Documents, Media reports, ICICIDirect Research

8
What we will not touch: stocks and sectors impacted by
disruption
Declining trend in Li-ion battery costs Renewable capacity & solar tariff in India

Renewable capacity

MOMENTUM PICK
1,000 917
Advancements in battery technology & scale 95000 91153
benefits through higher EV adotion has driven 89229
800 721 90000 87027
663 battery costs lower globally
588 85000
600
US$/kWh

381 80000 77641

400 293
219 75000
180 156 69022
135 70000
200
65000
0
60000
2011

2012

2014

2015

2016

2017

2018
2013

2019

2020
55000
Li-ion battery costs
50000
2018 2019 2020 Sep-20 Dec-20

ICICI Securities – Retail Equity Research

Countrywide PLFs for thermal power plants

Plant load factor (Coal & Lignite)

77.5 75.1
80.0 73.3
69.9
70.0 65.6 64.5 62.3 59.9 60.7 61.1
56.0
60.0 50.8
50.0

40.0

30.0

Source: BNEF.com Statista,CEA, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 9

What are small-caps?

Small-caps are essentially the companies which rank 251 and beyond in the pegging order of listed companies on market capitalization basis.

MOMENTUM PICK
Participation
across the
value chain
Opportunities
Large Caps – Top 100 companies by for industries
market cap
(As of Dec 2020: MCap ~>=₹ 29,000
crore) Economic
growth Growth opportunities spur new
winners on an ongoing basis …

ICICI Securities – Retail Equity Research

Mid Caps – 101st – 250th companies by market
cap
(As of Dec 2020: MCap between ₹ 29,000
crore and ~₹8,400 crore) Large caps
become
mega-caps
Small Caps – 251st and beyond
companies by market cap Mid caps
(As of Dec 2020: MCap ~<=₹ 8,400 grow into
crore) large caps
Small caps
grow into mid
caps

Source:: SEBI, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 10

Small-cap offers superior growth and wealth creation
opportunities

Midcap Opportunity in Tractor Space

MOMENTUM PICK
Leader with 43% market
share grows to 50% market Implied profit
share in next 5 years  1.9x multiplication = >2x
Industry today’s size
growing at
10% CAGR 
1.6x present
size in next 5 Smaller player with 11%
years market share grows to 15% Implied profit
Implied profit
market share in 5 years  multiplication
multiplication = >2.5x
= >2.5x
2.2x today’s size

ICICI Securities – Retail Equity Research

Small-Cap Opportunity in Power tiller Space

Industry Leader with 50% market

growing at share grows to 70% market Implied profit
15% CAGR  share in 5 years due to import multiplication = >3.5x
2x present size restrictions 2.8x today’s size
in next 5 years

Source:: ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 11

Small-cap – at the cusp of mean reversion

While large cap index and mid cap index have rescaled previous peak (as of January 2021), small cap index remains well below its life high (~23% from
top) signalling that previous peak is still some distance away …

MOMENTUM PICK
25,000
Attained a new peak
20,000

15,000
Index value

Attained a new peak

10,000

ICICI Securities – Retail Equity Research

5,000
~23% below top
0
Jan-08

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-21
Jan-09

Jan-10

Jan-20
Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20
Nifty 50 Nifty MidCap 100 Nifty SmallCap 100

Source:: NSE, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 12

Historical data suggest reasonable headroom for small-cap
outperformance

Nifty 50 Nifty Midcap 100 Nifty Small Cap 100 Small Cap Alpha (% )
CY Year end index YoY Returns Year end YoY Returns Year end YoY Returns Over Nifty

MOMENTUM PICK
Over Nifty
value (% ) index value (% ) index value (% ) Midcap
• Historically, small caps have bounced
2020 13,982 15 20,842 22 7,088 21 7 (0)
back strongly from every year of
2019 12,168 12 17,103 (4) 5,835 (10) (22) (5) negative/low returns.
2018 10,863 3 17,876 (15) 6,449 (29) (32) (14)
2017 10,531 29 21,134 47 9,093 57 29 10 • In recent times, CY20 performance (up
2016 8,186 3 14,351 7 5,781 2 (1) (5)
21%) came on the back of two years of
double-digit decline i.e. -29% in CY18 and
2015 7,946 (4) 13,397 6 5,653 7 11 1
-10% in CY19.
2014 8,283 31 12,584 56 5,273 55 24 (1)
2013 6,304 7 8,071 (5) 3,403 (8) (15) (3) • There remains significant headroom for
2012 5,905 28 8,505 39 3,710 37 9 (2) continued recovery in the small cap
2011 4,624 (25) 6,112 (31) 2,712 (34) (9) (3) space
2010 6,135 18 8,857 19 4,101 18 (0) (2)
• Interestingly small cap’s are yet to

ICICI Securities – Retail Equity Research

2009 5,201 76 7,433 99 3,486 107 31 8 generate meaningful alpha over their
2008 2,959 (52) 3,736 (59) 1,684 (71) (19) (12) larger counterparts namely Nifty 50 and
2007 6,139 55 9,200 77 5,801 87 33 10 Nifty Midcap

1.00

As against an average long period beta of ~0.7x of 0.80

Beta (x)
Nifty Small Cap 100 vs. Nifty 50, the present small 0.60
cap index beta stands at ~0.5x i.e. near to average-2
std dev; near to its bottom range. The same is 0.40
indicative of potential outperformance of Small caps 0.20
vis-à-vis bellwether index
CY05

CY07
CY08
CY09
CY10
CY11

CY13
CY14
CY15
CY16

CY18
CY19
CY20
CY06

CY12

CY17
(Small Cap beta = small cap index value/Nifty index Small Cap beta Average small cap beta +2 SD -2 SD
value)
Source:: NSE, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 13

Small-caps provide strong earnings visibility at reasonable
valuations

MOMENTUM PICK
35
30
25
20 Low interest rate scenario is a key tailwind to overall equities
YoY Earnings growth (% )

15 (TINA factor). Within equities, small caps offer superior earnings

10 potential, with FY21E-23E CAGR seen at ~27%. This compares
19.1

30.2
16.2
26.7

18.4
21.5
28.0

24.2
18.8
27.3
5 to ~24% CAGR seen at large caps and ~19% CAGR seen at mid
9.1

7.1

0 caps

2 year CAGR
FY21E

FY22E

FY23E

(FY21-23E)
Nifty Nifty MidCap 100 Nifty SmallCap 100

ICICI Securities – Retail Equity Research

35 32.4
29.7
30
26.6 22.8
25 22.4 19.2
19.2
20 23.5
21.9 Consequent to relative price underperformance recently and
P/E (x)

15 15.8
17.3 higher expected earnings up ahead, valuations for small caps vis-
10 13.5 a-vis narrower indices are at attractive levels (~14x P/E on FY23E
5 EPS). This provides margin of safety on small caps.
0
FY20

FY21E

FY22E

FY23E

Nifty Nifty MidCap 100 Nifty SmallCap 100

Source:: NSE, ICICI Direct Research

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 14

Our past history of well researched stocks turning multi-baggers

Phillips Carbon Black turned ~8x vs. small cap index

return of ~50% during last small cap run (2016-2018)

MOMENTUM PICK
1500 12,000
1200 10,000
A leader in supplying carbon black, an 8,000
900
essential compound for manufactruing tyres 6,000
600
4,000
Details Initiation Peak 300 2,000
Date 11-Jul-16 12-Jan-18 0 0

Jan-17

Jan-18
Oct-16

Oct-17
Jul-16

Jul-17
Apr-17
Price 175 1455
Mcap 600 crore 5,000 crore
Phillips Carbon Black (LHS) Nifty Small Cap 100 (RHS)
RoCE 6% 17%

Affle India turned ~3x vs. small cap index return of 75%

ICICI Securities – Retail Equity Research

during current small cap run (mid may 2020 onwards)
5000 8,000
7,000
4000 6,000
Affle is a technology platform that enables 3000 5,000
advertisers to do targeted advertising 4,000
2000 3,000
Details Initiation Peak 1000 2,000
1,000
Date 18-May-20 16-Dec-20 0 0

Sep-20
Sep-20

Dec-20
Oct-20
Oct-20
Jun-20
Jun-20
Jun-20
May-20
May-20

Jul-20
Jul-20

Nov-20
Nov-20
Nov-20
Aug-20
Aug-20
Price 1275 4007
Mcap 3,250 crore 10,200 crore
Affle India (LHS) Nifty Small Cap 100 (RHS)
RoCE 32% 32%

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 15

Our small-cap investment philosophy

Constructed applying bottom up style of investing methodology.

MOMENTUM PICK
Its key parameters include:

• Capital efficient businesses (subjective) with well defined path of higher return ratios in future. Expansion of sustainable ROCE.
• Dominant market share position
• Robust growth prospects
• Low on debt & leverage
• Sound Financials; healthy B/S, positive cash generating businesses
• Run exhaustive check in terms of management pedigree and other corporate governance parameters
• Time horizon – We believe stocks show reasonable performance over 3-5 years

ICICI Securities – Retail Equity Research

• Valuation - We do not follow necessarily a contrarian approach, so we do not aim to buy cheapest stock and sell expensive
stocks. Stocks are cheap and expensive for a reason
• Robust balance sheet, here the income growth should be faster than the balance sheet growth
• Other Criteria
a) Multi-bagger approach
b) Universe of 15-20 companies
c) No sector will be more than 25% of the portfolio
d) Individual stocks should not be more than 10% and less than 3% of portfolio while investing

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 16

“Leaders of Tomorrow” portfolio

“Leaders of Tomorrow” portfolio

Name of the company CMP No of shares Value Weightage %

MOMENTUM PICK
Auto 5.2%
Minda Corporation 93 275 25,575 5.2%
For our small cap portfolio offering, we have chosen businesses that are
Consumer Durable 16.8%
capital efficient, are strong cash generators (all companies CFO positive
Bajaj Electrical 1,022 30 30,660 6.2%
in FY20), possess strong B/S (average debt:equity as of FY20 at ~0.3x)
Amber Enterprises 2,963 10 29,630 6.0%
Huhtamaki India 302 75 22,650 4.6%
Capital Goods 9.6% Diversified industry exposure
Elgi Equipment 170 120 20,400 4.1%
Timken India 1,345 20 26,900 5.5% Portfolio Sectoral Mix
Cement 4.9%
Sagar Cement 688 35 24,080 4.9%
Infrastructure 10.0% 9.5% 5.2%
Brigade Enterprises 286 80 22,880 4.6% 8.8% 16.8%
PNC Infra 264 100 26,400 5.4%

ICICI Securities – Retail Equity Research

IT 10.7%
Teamlease Services 3,419 8 27,352 5.6% 10.9%
Birlasoft 253 100 25,300 5.1% 9.6%
Financial Services 13.6%
CSB Bank 219 100 21,900 4.4% 4.9%
13.6%
CAMS 1,873 11 20,603 4.2%
10.0%
IEX 271 90 24,390 5.0% 10.7%
Logistics 10.9%
Auto Consumer Durable Capital Goods
Mahindra Logistics 495 50 24,750 5.0%
TCI Express 962 30 28,860 5.9% Cement Infrastructure IT
Pharma 8.8% Financial Services Logistics Pharma
Advance Enzymes 369 60 22,140 4.5%
Indoco Remedies 302 70 21,140 4.3% Chemicals
Chemicals 9.5%
Rallis India 267 90 24,030 4.9%
Sudarshan Chemicals 509 45 22,905 4.7%
Total 492,545 100.0%

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 17

Robust financial health - a hallmark of our portfolio

Strong operational performance expected from small cap portfolio in coming years …

MOMENTUM PICK
Net sales are expected to grow at 18.7% CAGR over
75,000 FY21E-23E
For the small cap portfolio, margins are expected to
16.0%
expand from ~12% in FY20 to ~14.5% by FY23E
60,000
₹ crore

14.0%
45,000

30,000 12.0%

%
49,505

60,456
52,445

69,778
15,000 10.0%

11.9%

13.3%

14.3%

14.5%
0 8.0%
FY21E

FY22E

FY23E
FY20

FY21E

FY23E
FY22E
FY20

ICICI Securities – Retail Equity Research

25.0% The portfolio comprises of companies which are seen
PAT is seen growing at 31% CAGR over FY21E-23E
6,000 undergoing rapid return ratio improvement

4,500 20.0%
₹ crore

%
3,000
15.0%

14.5%

17.2%

17.1%

20.0%

18.3%

21.5%
1,500
2,620

4,377

5,345
3,116

10.0%
0

FY21E

FY22E

FY23E
FY22E

FY23E
FY21E
FY20

RoE RoCE

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 18

Companies – What we like about them

Company View
Minda Corporation (MCL) is a leading auto ancillary player with a history of capital efficient operations, net debt free B/S (September 2020) and presence across
new model launches like Mahindra Thar & Bajaj Chetak. We like MCL primarily on account of; its well-diversified presence across segments with 2-W, CV, PV

MOMENTUM PICK
Minda Corporation and aftermarket constituting ~53%, 23%, 10%, 14% of its sales (FY20), respectively. In the recent past, MCL also took a hard call by letting go its loss making
and capital inefficient European business (Minda KTSN) with its base business i.e. mechatronics and wiring harness largely immune to EV risk. We are also
enthused by MCL’s intent to clock ~12% margins & ~20%+ RoIC, going forward
We like Bajaj Electricals for its strong recovery in H1FY21 performance of electrical consumer durable business. We believe Bajaj Electricals will be among few
fast moving electrical goods (FMEG) players who are going to report 100% sales recovery in FY21 due to strong rural penetration despite sales loss for almost 40
Bajaj Electrical
days in FY21 amid pandemic. Also, the management effort to keep limited exposure in the project business, improved balance sheet condition (D/E at 0.5x) and
strong distribution networks bodes well for stock, going forward
Amber Enterprises is the key supplier to all the top 10 AC brands and commands ~24% volume market share of ACs sold in India during FY20. We see a long
term play in Amber given a significant business opportunity arising through import restrictions on RAC and its components (business opportunity of ~| 10,000
Amber Enterprises
crore) and India’s AC export opportunities (market share may cross | 27,000 crore in the next 10 years from mere | 450 crore in FY19). With revenue, PAT
CAGR of 19%, 26%, respectively, in FY20-23E, we believe the stock is available at attractive valuation (27x earnings of FY21 EPS)

HIL is the leading player in the flexible packaging industry, providing packaging & labelling solutions to its clients through its ~18 plants and two R&D centres
across India. The major client includes Nestlé, HUL, P&G, Mondelez, Coca Cola, etc. A leadership position in the domestic flexible packaging industry, strong
Huhtamaki
client base and focus on launching innovating products will be key drivers of revenue & PAT growth in CY20E-22E. Healthy balance sheet (D/E: 0.4x, RoE:

ICICI Securities – Retail Equity Research

~25%, RoCE: ~24%), strong future cashflows and backing of a strong promoter strengthen our belief on Huhtamaki India to command higher valuation

Overall, Elgi’s strategy to expand in new geographies in Europe, continued growth momentum in the US, Australia and expected rebound in South East Asia &
Gulf markets are expected to contribute significantly to incremental growth in coming years. A rebound was visible in Q2FY21 performance with air compressor
international sales (including exports from India) contributing ~57% to total air compressor sales registering growth of ~39% to | 253 crore YoY. Margins are
Elgi Equipments
expected to improve due to ramp-up in international business, operating cost reduction initiatives to lead incremental revenue, future growth and positive
operating leverage. Going ahead, further traction in the international market, new products like oil free compressors (AB series) would aid growth while green
shoots of revival visible in India business would further aid topline
Timken India is the leading tapered roller bearings manufacturer in India with a strong presence & leadership position in freight segment bearings. Upcoming
thrust on Infrastructure, railways (conversion of conventional coaches to LHB coaches), DFC and upcoming metro projects augur well for the company. Also, a
Timken India
revival in CV and overall auto segment is also expected to provide further fillip. We like the stock due to its MNC brand, high return ratios & a debt free balance
sheet combined with a robust outlook
Sagar Cement is a mid-sized cement player (5.75 MT) with cement plants located in Andhra region. The company has a presence in Andhra Pradesh (34%),
Telangana (25%), Tamil Nadu (12%) and Karnataka (11%), with the company’s brand Sagar Cements being a renowned one in southern India. The company also
has a presence in Maharashtra (9%) and Odisha (8%), thereby being well-diversified in terms of sales flow. The company’s cost of production (CoP) is one of the
Sagar Cement lowest in the south market. In the past three years, the company has also initiated further cost efficiency measures like setting up of coal based CPP of 18 MW
at its plant in Mattampally, Nalgonda and expansion of grinding unit in Bayyavaram to 1.5 MT. The company is aiming to reach 10 MT capacity by FY25E. While
the full benefit of new capacities would start flowing in from FY23E, we expect expansion led revenue CAGR of 20.5% in FY20-22E. Further, strong management
profile, cost efficiency and healthy BS should augur well, going ahead

February 17, 2021 ICICI Securities Ltd. | Retail Equity Research 19

Companies – What we like about them

Company View

The residential segment has displayed a strong recovery and continued momentum is likely to aid overall cash generation. The company is in various stages of

MOMENTUM PICK
Brigade Enterprise discussions to lease 1.4 msf area over the next six months, which will boost its rental revenues. Reopening of economy is likely to boost retail and hospitality
segment, albeit gradually. Brigade has comfortable debt-equity and sufficient liquidity from operational commercial assets (and likely operational assets)

PNC remains our preferred pick in the EPC space given its robust order book, healthy return ratios and lean balance sheet (debt free on standalone).
Notwithstanding its asset monetisation plan fructification, sufficient internal accruals from current order book is enough for equity infusion. The Increased
PNC Infratech
allocation to MoRTH in Union Budget (up 17% YoY at | 1.08 lakh crore) will help in expanding road network as well as higher order inflows opportunity for road
EPC players like PNC
TeamLease Services (TLS) is one of India’s leading providers of human resource services in the organised segment. TLS’ services span the entire human
resources supply chain covering employment, employability and education. Employment services include temporary staffing solutions, IT staffing and regulatory
consultancy for labour law compliance while employability offerings include learning and training solutions. The company is expected to be a key beneficiary of
Teamlease Services
formalisation of the economy. This, coupled with increase in outsourcing, consolidation of market and market share gains are other long term revenue drivers for
the company. In addition, we expect specialised staffing revenues to improve led by a revival in IT services and reducing competitive intensity. Further,
improving cashflows and margins are other key positives. Hence, we have a positive view on the stock
Birlasoft, an IT service company, caters to diverse sectors and geographies. In terms of geographies, Birlasoft generates, 82% from America, 8.7% from Europe
and 9.7% from Rest of the World (RoW). In terms of verticals, the company generates 40.7% from manufacturing, 17.1% from BFSI, 17.0% from energy &
utilities and 25% from life-sciences. Birlasoft has also aligned sales structure across verticals to improve cross selling opportunities, multi service deals and

ICICI Securities – Retail Equity Research

Birlasoft client mining. The company is also hiring leaders from Tier 1 companies, which will help strengthen its leadership, improve client mining and drive operational
efficiency. This, coupled with focus on annuity type revenues, healthy deal pipeline, consistent improvement in order book, focus on niche verticals and
expansion in Europe & APAC bode well for long term revenue growth of the company. Further, improving margin trend and healthy cash balance prompt us to be
positive on the stock
Promoted by Fairfax India Holding Corporation, CSB Bank is one of the oldest private sector banks with strong base in Kerala, Tamil Nadu and Karnataka. The
bank is engaged in diversified lending including Corporate, MSME and retail with predominant focus on gold loans at Rs 5644 crore; i.e ~43% of advances. This
enables the bank to improve yields as well as granularity of book. Given current uncertain environment, the bank has witnessed an uptick in proforma GNPA at
CSB Bank
3.42%. However, provision coverage of ~91% coupled with provision buffer of | 145 crore i.e ~1.1% of advances. Focus on high yielding assets, improvement
in granularity of liabilities and adequate provision buffer to keep earnings trajectory and return ratio healthy. Therefore, we remain positive on growth prospects
and fundamentals of business.
CAMS is India’s largest registrar and transfer agent (RTA) of mutual funds with a market share of ~70% based on average assets under management. Apart
from this, CAMS also provides services to alternative investment funds (AIFs), insurance companies, banks and NBFC. Leadership in mutual funds business
CAMS
and focus on entering other avenues enables delivering sustained business growth at ~13-14% CAGR and sustain RoE ahead of 30%. Prefer business model
without any credit risk and sustainable growth potential
Indian Energy Exchange is India's premier electricity exchange with a market share of ~ 95% in the short term exchange market. With the launch of new
products such as RTM, GTAM, the company has been able to capitalise on the enormous opportunity that lies in the power market. Currently, share of short
IEX
term electricity market is at only ~11%. We expect short term market to have a much larger share of the pie in the future. IEX, being the leading power
exchange will be the prime beneficiary for this shift from long term to short term market

February 17, 2021 20

ICICI Securities Ltd. | Retail Equity Research
Companies – What we like about them

Company View

Post pandemic, companies are reviewing their supply chains and increasingly looking at Omni-channel presence & B2C models. Specialised 3PL companies in

MOMENTUM PICK
such environments can provide reduced logistics costs, better turnaround time to each client on greater efficiency, lower capex, better utilisation level vs. each
company’s internal logistics operations. MLL continues to expand operations with its existing clients and also acquire new clients, helped by increased
Mahindra Logistics
customer focus on tech backed solutions to their supply chain operations. With a changing client profile (addition of non-auto clients), MLL has been able to
leverage the situation by enhancing high margin warehousing, value-added services component in its revenue mix. MLL has strengthened its already strong
liquidity position on balance sheet and continues to improve its cash conversion cycle
Express logistics continues to remain beneficiary of the normalisation of the business cycle. We expect the company to report a revival in revenue growth
driven by new branch additions & expansion of clients in SME segment. TCI Express is expected to tide over the current volatility by continued automation,
TCI Express enhancing technological capabilities and reducing field footprints. The management’s singular focus on carrying profitable shipments in the B2B segment along
the surface route, has consistently led to stable operational performance, even amid lower volumes scenario (as seen in H1). Low leverage, a robust growth
trajectory and high core return ratios (FY22E RoCE at 28%, healthy FCF yield), position TCIEL as one of the preferred picks in the logistics space
Advanced Enzyme is poised to capture the growing opportunities in the enzymes and probiotics space backed by proven capabilities and stable financials that
have been fairly consistent, thanks to a mix of organic and inorganic growth strategy employed by the management. Strong margins and healthy return ratios
Advanced Enzymes reflect the pricing power and balance sheet strength of the company. Going ahead, the management intends to augment its R&D capability for better facilitation
and strengthening of in-house R&D capability, which bodes well in the long run in its quest to improve scalability and a possible foray into more complex

ICICI Securities – Retail Equity Research

enzymes

After going through rough patches in FY18-19, where Indoco faced headwinds on the domestic front (structural issues) and exports front (regulatory setbacks),
the situation is returning to normalcy. While FY21 growth in the domestic market is likely to be impacted amid Covid-19, exports are likely to deliver robust
Indoco Remedies
growth on the back of strong pipeline and visible launch schedule as reflected in the upbeat management guidance. Also, normalisation of exports dispatches is
likely to improve operating leverage as well. With better visibility, we expect the company to maintain consistency and generate strong FCF

The company plans to incur a capex of | 800 crore over the next five to six years. The majority of this capex would go towards building capacity for export
business. This incremental capex can have asset turn of 2-2.5x, providing decent visibility for the topline growth. Further, backward integration capex would aid
Rallis India
gross margins, to a certain level, and thereby translates into better operating visibility. In turn, this can support bottomline performance and return ratios for the
coming future. This should help the company to demand better valuations. Thus, we remain positive on the stock
The company’s operations and demand from end users are reverting back to normal as the economy opens up. The company’s H2 is also likely to benefit amid
some pent-up demand. Amid strong demand, the company is trying to expedite its growth capex plans of | 585 crore (which have been bit delayed amid Covid),
Sudarshan Chemicals which gives a visibility and management commitment towards future growth. Sudarshan’s consistent track record, with favourable macro factors and robust
domestic demand are key catalysts for it. Margins are also likely to improve due to backward integration and change in product mix towards margin accretive
products

February 17, 2021 21

ICICI Securities Ltd. | Retail Equity Research
 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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