India Strategy (Housing Boom Ahead) 20170428

Housing boom ahead
Market strategy, April 2017
India Research Team
Mahesh Nandurkar
Executive Director
+91 22 6650 5079
Chirag Shah
Investment Analyst
+91 22 6650 5055
Aashish Agarwal
Head of India Research
+91 22 6650 5075
For important disclosure information,

please refer to pages 154-155 of this presentation.
For important disclosure information, please refer to pages 154-155 of this presentation.

Contents
Page
Investment thesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Social-housing potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Improving affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Challenges & roadblocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Building materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Housing finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Property developers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Page 2

Executive summary
M
odis housing-construction initiative aims to build Challenges & roadblocks
50m new low-cost houses over the next five years. A key challenge to our thesis is the ability to execute,
The government will use subsidies and cheaper especially on the PMAY Urban scheme. But the expansion
loans to achieve its ambitious social-housing scheme, while of subsidy limits should incentivise private-sector
its success in recent state and municipal elections extends participation. Funding is another roadblock but strong
policy visibility to 2024. Better affordability also implies a political will should address this issue. Demonetisation has
broadbased property-market recovery from FY18. Our top impacted property-market sentiment but close to all-time-
picks are HDFC, Indiabulls Housing Finance, Crompton best affordability should kick-start demand.
Consumer, Astral, Godrej Properties and Sobha.
Mahesh Nandurkar Financiers, building materials and developers
Executive Director
+91 22 6650 5079 Key big picture numbers Housing finance and cement companies will be obvious
We expect close to 60m new houses to be built at a total beneficiaries of this multi-year theme. Aside from these, a
spend of Rs83tn (US$1.3tn) during FY18-24. This should host of building-materials subsegments such as tiles,
lead to c.2m new jobs and 10-12m tonnes of incremental sanitaryware, plywood, electrical lighting and other
cement demand each year and a cumulative home-loan household durables are likely to see strong demand over
disbursal of Rs50tn (US$800bn). the next three to five years.
Improving affordability Top stock picks

In the past five years, mortgage rates have dropped Our top BUYs on this theme are Housing Development
250bps, property prices have remained broadly stable and Finance Corp and Indiabulls Housing Finance as funding
per-capita incomes have posted a 10% Cagr. Housing plays; Astral and Crompton Consumer among materials
Chirag Shah subsidies further boost affordability. We expect slow producers; and Godrej Properties and Sobha from a
+91 22 6650 5055 property sales to reverse from 2HFY18 with the affordable- developer perspective. We also rate Ultratech Cement and
housing (unit price less than Rs5m) segment turning the Pidilite as Outperforms.
corner. The premium housing recovery should happen from
FY20.
Social-housing potential
The governments Housing for all programme is rolling
out. Pradhan Mantri Awas Yojana (PMAY) Rural has already
scaled up, constructing 2.5m houses during FY17, and is
likely to ramp up to 4m/year by FY24. PMAY Urban has
been a slow starter but the recent extension of the
housing-loan subsidy to people earning up to Rs1.8m/year See Mahesh and Chirag on CLSA TV
Aashish Agarwal should accelerate this component.
Head of India Research
+91 22 6650 5075
Page 3

Contributing analysts
Abhinav Sinha Aditya Jain Alok Srivastava

+91 22 6650 5069 +91 22 6650 5054 +91 22 6650 5037
Bhavesh Pravin Shah Prakhar Sharma Vivek Maheshwari

+91 22 6650 5009 +91 22 6650 5058 +91 22 6650 5053
We would like to thank Evalueserve for its help in preparing our research reports. Aniket Sethi (Cement, Oil & Gas); Dhruvesh Shah
(Capital Goods, Utilities, Power); Nikhil Gada (Midcaps); and Vishal Nathany (Financials) provide research support services to CLSA.
Page 4

Interview with Deepak Parekh
The government has given a huge thrust The rationalisation of provisions to encourage affordable-
to affordable housing. How do you see housing projects has led to a number of well-respected
this panning out for the sector and the developers who have, or are in the process of launching, such
Indian economy? projects. I cannot think of any other key sector that has a
100% deduction on profits and gains for a period of five years.
In over 40 years of my professional life, I have This makes me quite confident that supply will scale up rapidly.
never seen India in as strong a position as it is
today. The stable macroeconomic fundamentals The borrower has benefitted from lower interest rates and
Deepak Parekh combined with strong political capital have continued fiscal benefits on home loans. The widening of the
Chairman, HDFC made India very attractive for investors. governments Credit Linked Subsidy Scheme (CLSS) to include
the middle-income group is another gamechanger.
As far as housing is concerned, this government in its election
manifesto had emphasised its vision of Housing for All by
The burden for a borrower is always making the downpayment
2022. We have always maintained that the key role of the
and paying the initial equated monthly instalments (EMI). This
government is to create the enabling environment for
is where the upfront subsidy given to the borrower helps.
housing. I think the present government has delivered on
Another very sensible measure is allowing the withdrawal of up
this. To my mind, the Union Budget 2017-18 will go down in
to 90% of the employees provident fund to buy a house and
history as the affordable housing budget.
service the EMI.
What are the key changes you expect to see in the For the lenders, the granting of infrastructure status for
housing and housing-finance space? affordable housing means access to lower-cost, long-tenor
funding from external commercial borrowings, insurance
The government is rightly firing on all cylinders to boost companies and pension and provident funds. Masala bonds have
housing growth. Incentives have been given to all constituents opened up a new source of funding from overseas investors and
- developers, home-loan borrowers and lenders. One knows of the advantage is that the currency risk is not borne by
the multiplier effects that housing has on the economy. the lender.
Continued on the next page
Page 5

Interview with Deepak Parekh (contd)
How can housing be made more affordable for the What is your take on Indias future?
common man?
I have been saying this for a long time that we have to find Its very exciting. There are a lot of incremental reforms and
ways of ensuring that land prices come down. Banks and big, structural reforms happening simultaneously. As far as the
housing finance companies (HFCs) have been prohibited from urban agenda is concerned, there is greater inter-ministerial
funding land transactions. This regulation was brought in coordination. Even at the state level one is seeing an integration
about a decade ago, when there were fears of excess of transport, infrastructure and housing, which are all factors to
speculation in real estate. improve livability in our cities.
Developers have to resort to high-cost borrowing from private No doubt, there are many challenges given the acute housing
equity firms, nonbank finance companies or other sources to shortage. But the reason for optimism is that there is a clear
fund their purchase of land and these are at rates as high as vision and a clear path to achieve that vision.
18% to 20%. It is only after the approvals are in place that
banks and HFCs can fund the construction cost. If there are Right since the inception of HDFC, I have always maintained
sufficient checks and balances in place to allow banks and that there is nothing more beneficial for a country than building
HFCs to fund land transactions, the overall cost for the a property-owning democracy.
ultimate consumer will come down.
The other issue is the need to fast-track approvals. But I think

many states are now getting their act together. The states
that work faster on the ease of doing business will be the
ones to garner larger resources.
CLSA reached out to Mr Parekh to understand his views given his vast experience and expertise in the housing sector
Page 6

Huge latent demand for housing in India
280m households in 2016
But only 190-200m permanent-structure houses
Current population Demand for 3.4m

growth @ 1.3% pa houses pa
Ongoing nuclearisation Demand for 2.5m

@ 0.9% pa houses pa
Rising 4-5m houses pa will

income/aspirations - bridge half the housing
per-capita GDP growth gap in a decade
at 9-10% pa nominal
Total latent demand for housing 10m+ pa
Source: Census of India, MoSPI, NSSO, CLSA
Page 7

Two drivers of housing upturn
Best ever affordability including
government subsidies
80 (%) Affordability: Mortgage payment to post-tax Income ratio
60
41
39
40 33
36 34 34 32 Interest subsidy
30 32 30
28 30
27
24 23
27 26
22
extended to mid-
20 income group
Tax incentives for
0 constructing
affordable houses
FY18CL
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Central govt offers 90% of govt run
direct subsidy for pension fund EPFO
social housing can be withdrawn for
home purchase
Strong political will States sending
under Modis Housing projects/adding to
for All schemes
Target to build 50m Rural social housing
Mortgage rates down homes over five years picks up
250bps from 5-year
Stable property prices peak, effective 15%
for 3+ years reduction on
Steady income at mortgage payments
9-10% Cagr
Improving affordability Government support
Source: SBI, CLSA

Affordability refers to houses costing Rs3.0m
Page 8

Affordable house: More for less
Homes in the Rs2.0m-3.5m segment have become 10-15% cheaper since January 2017 . . .
. . . due to central governments expanded interest-subsidy scheme providing up to Rs235,000
loan-principal reduction for non-home owners with annual income up to Rs1.8m
. . . and mortgage cut by 50bps
Same buyer can afford a bigger house at lower stress on his income
FY12 FY18
Income (Rsm) 0.5 0.8 10% income Cagr
Loan limit (Rsm) 1.5 2.4 Assume at 3x annual income
LTV 70% 70% Remaining funded by equity
House price (Rsm) 2.1 3.4 Implied as above
Property rate
3,200 4,000 About 25% higher; c.5% Cagr
(Rs/sf)
House size (sf) 670 857 A 28% bigger house can be owned
Mortgage rate (%) 10.8 8.6 Rates near 12-year lows now
28% bigger
Loan subsidy (Rsm) 0.0 0.2 Loan subsidy introduced from Jan 17
house and much
Ex-subsidy loan
1.5 2.2 Impact of tax shield and subsidy
more affordable
amount (Rsm)
Monthly mortgage
15,279 18,926 28% bigger house for 24% higher costs
payment (Rs)
Mortgage payment
37 28 Much improved
to income ratio (%)
Source: CLSA Page 9

Residential mix to shift towards volume
Houses constructed
Flat
(m)
10.9m
6.3m 6.4m
4.5m
7.9% of 8.1% of GDP

Spend 4.6% of GDP 5.5% of GDP
GDP
Housing expenditure
(Rstn)
Flat
Premium Rs16.8tn
pickup
Affordable
Social pickup
Rs7.0tn Rs7.0tn pickup
Rs2.0tn
FY03 FY12 FY17 FY24

FY18 FY19 FY20
Source: Census of India, MoSPI, RBI, NHB, CLSA Page 10

Opportunity pyramid
House price range Market size (Rstn) Market size (Rstn)
Rs4.6trn
0.4m market
Premium
Rs3.3trn
>Rs0.5m 0.3m market
Rs 4.6trn
Affordable 1.0m market
Rs 1.6trn
Rs0.2-0.5m 0.5m market
Social
Rs2.1trn
<Rs0.2m 5.7m
market
Rs7.6trn
9.5m market
FY17 FY24
Number of Number of
houses houses
Source: Census of India, MoSPI, RBI, NHB, CLSA Page 11

Funding the US$1tn opportunity
3% of total funding by states 54% of funding to come from
housing loan
Compulsory contribution of 40%
to rural scheme Current annual disbursals at
States own scheme funding is on
Housing c.US$50bn; Total home loan
top for both urban and rural State loan book of US$200bn
housing Lack of income proof at lowest
end a challenge
36% of total funding should

Centre Equity
come from household's equity
7% of total funding to come
contribution
from the Centre
Current annual physical savings
Contributes Rs80-90k directly
at c.US$200bn
for rural social housing
Rural social housing does not
Up to Rs150k direct subsidy for
envisage any individual
urban social house
contribution ie, fully subsidised
Rs265k loan subsidy for
affordable house
Central Govt, State Govt,

US$85bn US$39bn
Housing Owners'
loan, equity,
US$689bn US$455bn
US$1,267bn funding
over FY18-24
Source: Ministry of Housing and Urban Poverty Alleviation, Ministry of Rural development, CLSA Page 12

Housing has deep sectoral/macro links
Housing GFCF (real) Cagr of 8%

Construction of 60m units
over FY18-24 Annual job creation of c.2m
Substantial
macro
benefits A 50-75bp tailwind to GDP
Total spend on housing over
7 years: US$1.3tn
Mortgage growth to stay above 15%
for 5-7 years
Multiple sector linkages
Adhesives &
Light
Sector Cement Steel Paints Wood Panel Tiles Plastic Pipes Construction
electricals
Chemicals
Demand linked
US$14bn US$12bn US$4.5bn US$3.7bn US$3.5bn US$2.1bn US$2.1bn US$1.1bn
to housing
FY14-17
3% 3% 9% 1% 8% 5% 8% 8%
industry Cagr
FY17-24 Cagr of
housing linked 12% 8% 15% 12% 11% 14% 13% 13%
demand
Note: Industry size data based on CLSA estimates for housing led demand in each building materials sub-sector. Light electricals
include switchgears/switches, fans, lightings & fixtures and water heaters. Volume.
Source: MoSPI, Ministry of Commerce, RBI, Ministry of Steel, AceEquity, CLSA Page 13

Opportunity for mortgage financiers
Indias mortgage market is underpenetrated With growth in loan disbursements . . .
Comparison of mortgage penetration
Disbursement of housing loans
Denmark 114
UK 75 FY11-17 FY18-24CL
US 68
Singapore 56
FY18
HK 45 FY24 8%
FY11 22% FY19
Germany 42 FY17 10%
9%
Taiwan 40 20% FY12
10%
S Korea 36 FY20
Rs18tn FY13 Rs50tn 11%
Malaysia 32 FY23
FY16 12%
Thailand 20 19% 19%
China 18 FY14 FY21

(% GDP) FY15 14% 14%
India 9 16% FY22
16%
0 20 40 60 80 100 120
Note: mortgage penetration is based on 2015
. . . mortgage loans to post a 17% Cagr HDFC, IBHFL & LIC are our top picks
45 (Rstn) Mortgage loans (LHS) (% GDP) 14 3.5 (Rsm) Ticket size of housing loans
3.2
40 Mortgage penetration
12 3.0
35 2.5 2.5
10 2.5
30
2.1
25 8
2.0 1.7
20 6
1.5 1.2 1.3
15
4
0.9
10 1.0
2
5
0.5
0 0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
0.0
Gruh Dewan Repco Can Fin LIC HF HDFC Ibulls PNB HF
Source: Government, banks, NHB, CLSA

Page 14

Organised developers to gain share
Organised developer RERA drives market Affordable housing Premium segment
growth driver share gains segment supply rises demand kicks in
Organised
Organised Organised
Organised
Unorganised Unorganised
Unorganised
Unorganised
FY20
FY17 FY18 FY19
onwards
Entire listed property space in India is <5% of total housing by value; <1% by volume
Sector consolidation post Real Estate Regulatory Act (RERA) implementation in 2017
Affordability improvement via loan subsidy raises buying power for bigger houses
Tax benefits to developers reduces cost of supplying low-cost houses by c.5%
Developers with mid-income residential product: Godrej, Sobha and Prestige
Source: Property companies, CLSA Page 15

Key issues/challenges
Government funding challenges for the PMAY (Urban) scheme
Total PMAY - FY18 budget supports 300-400k houses vs 3-4m of required annual pace
In full flow, the scheme may need US$10-15bn per annum or 0.5% of GDP versus 0.2% now
State government support critical

Land is a local issue; relaxing laws and speeding up approvals is important
With more states coming under the BJP rule, better state-centre coordination should address this issue
Credit Linked Subsidy Scheme (CLSS - interest grant) needs support from Public Sector Banks (PSB)
Only Rs6bn disbursed so far - lack of awareness as processing fees capped by the government
Gruh Finance, the largest player in the CLS space sanctioned c.6,000 loans in FY17; NBFC sector alone will not
be able to deal with the peak volumes; PSU banks will need to play a key role here
Administrative scale up needed for PMAY Urban scheme

Implementing departments (MHUPA, NHB and HUDCO) never had big tasks/workforces before
Automation/digital implementation should help here
Property sentiment is still weak

Property-price momentum lacking and affordability-led growth improvement might be slow
Page 16

Summary: Stock plays
Stock Market ADTO FY18 FY19 FY18 FY19 FY17-19 Rec Price 1Y target 1Y
cap (US$m) PE/PB1 PE/PB ROE ROE EPS Cagr (Rs) (Rs) upside
(US$bn) (X) (X) (%) (%) (%) (%)
Housing finance
HDFC 39.3 59.1 3.1 2.4 21 21 15.8 BUY 1,585 1,900 19.9
Indiabulls HFC 6.7 40.1 3.2 2.9 26 29 23.2 BUY 1,011 1,170 15.7
LIC Housing 5.3 17.3 2.5 2.1 19 19 16.4 BUY 676 810 19.9
Building materials
UltraTech 18.1 16.5 36.9 25.9 12 15 28.4 O-PF 4,231 4,575 8.1
Pidilite 5.8 5.4 37.6 32.3 27 26 14.1 O-PF 726 795 9.4
Crompton Consumer 2.2 4.8 35.6 28.9 63 57 29.9 BUY 220 270 22.6
Astral 1.0 3.2 37.0 27.4 21 23 35.2 BUY 548 685 25.1
Property
Source: CLSA
Godrej Prop 1.6 2.5 51.0 34.3 10 13 21.5 BUY 457 561 22.7
Sobha 0.6 3.0 21.9 16.9 6 8 22.7 BUY 385 501 30.0
PB for Housing finance companies. PE for all others. Source: CLSA. Stocks priced as on close of 26 April 2017
Page 17

Social housing potential
Section 1

Large opportunity - 10m/year of potential demand
280m households in 2016 - growing at 6-7m Household distribution 2011 Household addition 2001-11
per year due to population growth + Total 2011:
nuclearisation 247m Total 2001 - 11:
55m
Major quality gaps

Urban
35% urban and 44% rural households have max 1 32%
room - poor quality Urban
46%
Rural
Good-quality housing (4 rooms or more) only 16% Rural 54%
urban, 11% rural 68%
Potential demand growth of 10m/year appears

reasonable
Rural households by No. of rooms: 2011 Urban households by No. of rooms: 2011
(No. of rooms) 2011 Rural (No. of rooms) 2011 Urban
6+ 4 6+ 3
5 4 5 3
4 11 4 7
3 21 3 14
2 54 2 24
1 66 1 25
0 7 (m) 0 2 (m)
0 10 20 30 40 50 60 70 80 0 5 10 15 20 25 30 35
Source: Census of India, CLSA
Page 19

Governments answer - Housing for all
Modis poll promise: Housing for All by Centre government scheme targets 50m houses
2022 is the vision
Housing for all by 2022
Target to build 20m urban, 30m rural (PMAY)
houses by 2022
Existing rural scheme scaled up Urban Rural
1m/annum house construction pace

New scheme launched Revamped scheme launched
June 2015 November 2016
Reaching c.2.5m by FY17
20 m homes by 2022 30m homes by 2022
Big budgetary increases already Rs60bn FY18 budget Rs230bn FY18 budget
State contribution is land Expenditure split 60-40
Urban scheme new between centre/state
1.9m homes already sanctioned
Rs294bn centre support committed Several state-government schemes add/supplement

Getting private participation, state support Ashraya scheme for rural housing is successful adding 120k
Karnataka
important homes pa; housing site also provided for site-less households
Scale-up on cards Two-bedroom housing scheme started in November 2015 to

Telangana construct 260,000 two-bedroom units for a total cost of
Rs500,000+ per house - to be borne entirely by government
State govt schemes on top
Modi launched Chief Minister housing scheme to deliver 3.0m
Gujarat
houses; PMAY takes inspiration from here
Source: Ministry of Housing and Urban Poverty Alleviation, Ministry of Rural development, Respective state governments, CLSA Page 20

Funds have started flowing from centre . . .
Cumulative funding requirement: US$80- Central government budget for Housing for All
100bn for PMAY Urban & Rural 350 (Rsbn) PMAY - Rural PMAY - Urban
300
Urban - Rs150,000 per unit; states usually 60
top this up 250 58% Cagr
200
Rural - Rs120, 000 per unit; centre:states 49
150
share is 60:40 11
15 230
100
160
Funding started from FY17 50
79
130
111 101
0
Total central government spending FY13 FY14 FY15 FY16 FY17RE FY18BE
of Rs290bn (US$4.3bn) in FY18,

2.5x FY16 Central government projected spending on
Housing for All over FY18-24: US$85bn
Off balance-sheet funding also planned - PMAY Urban - PMAY Rural -
borrowing by NHB/NABARD CLSS Subsidy
30%
Unit
construction
46%
Scale up required ahead
Current spending pace is good for c.3m
houses (2.5m rural, 0.5m urban). As mix
becomes more urban (2m/annum) and rural
Total FY18-24 :
scales up more (3m/annum) . . . PMAY Urban -
EWS unit Rs5.6Trn /
construction US$85bn
24%
. . . expenditure needs to rise to c.Rs1.0tn
Note: BE: = Budget estimates; RE = Revised estimates or near final

Source: Ministry of Housing and Urban Poverty Alleviation, Ministry of Rural development, Ministry of Finance CLSA Page 21

. . . and also from the states
Total spend on housing has seen a steep Total expenditure on housing for all states
increase from FY15 300 (Rsbn)
250
Increase led by significant growth in
spending by MP, Bihar, Karnataka and 200
Tamil Nadu 150
100
Focus on housing visible in FY18 states
budget also: 50
0
Tamil Nadu is targeting 0.2m houses in FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16BE
FY18
Increase in spend on housing in FY18 budget
Karnataka targets to construct 0.7m 40 (% YoY)
houses in FY18 35
30
AP has set target to complete 0.1m houses
25
over FY18
20
Significant increase in budgeted spend on 15
housing in FY18 by several states 10
0
Note: BE = Budget estimates. Source: RBI, state governments, CLSA Tamil Nadu Bihar Karnataka Andhra Pradesh
Page 22

PMAY Urban
Renewed focus on urban housing Central-government schemes for Urban housing
since 2015 In situ slum Credit-linked subsidy Housing in Beneficiary-led
redevelopment (CLS) partnership individual house
State-government-run schemes PPP model using Interest New projects For individuals of
via local housing boards/local land as a
resource
subvention
subsidy
developed,
usually state
EWS category
requiring own
bodies govt/local body house
Extra FSI/TDR, if Claimed by driven
required to make individual on States prepare
Issue of land availability projects
financially viable
new/existing
house purchase
Benefit goes
directly in
separate projects
reducing cost No isolated
Centres innovations: EWS houses

made
Houses up to
110m carpet EWS houses
beneficiary to be
covered
allowed made
Max: Rs100k Max: Rs150k
Four types of schemes for a Max: Rs240k Max: Rs150k
pragmatic approach
Separate budgeting under

PMAY Urban: Rs60bn for FY18 Houses and grant sanctioned under PMAY Urban
1.8 (m) PMAY - Urban houses sanctioned (Rsbn) 300
Three schemes target EWS Central assistance granted (RHS)
(30m) homes - private 1.5 250
participation unlikely to happen 1.2 200
0.9 150
One scheme - Credit-linked
subsidy (CLS) - for Affordable 0.6 100
segment: Aimed to bridge 0.3 50

affordability gap; private
0.0 0
participation likely here
Feb 16
Feb 17
Jul 16
Nov 15
Apr 16
Nov 16
Dec 15
Mar 16
Mar 17
Jan 16
Jan 17
Oct 15
Oct 16
Source: Ministry of Housing and Urban Poverty Alleviation, Ministry of Finance CLSA Page 23

Urban social housing - Status
Sanctioned 1.8m homes with US$4bn PMAY Urban scheme: Key statistics (March 2017)
government support and costing
US$14bn Houses sanctioned
1.77m; as of March 2017 work
started on 0.54m or 30% of Eventual target: 20m
(m)
sanctioned houses
Execution started and money
disbursed on about 25-30% of Construction cost of
Rs957bn; the land cost is on top Average Rs539k/house
above (Rsbn)
sanctioned houses
Rs279bn; this is the total
Average project is about 500 houses Centres assistance
(Rsbn)
subsidy given by centre over Average Rs157k/house
project lifecycle
Average house cost around

Amount spent About 28% of centres
US$10,000. Central government (Rsbn)
Rs78bn; FY18 budget is Rs60bn
assistance has been spent
subsidy of US$2,000; further state-
government assistance needed to
accelerate
States taking early lead: State split of sanctioned houses (March 2017)
Southern states (TN, AP, Telangana, Tamil Nadu
13%
Karnataka): 37%
Center-West (Maha, Gujarat MP): 27% Others

23% MP
North India (UP), Bihar lagging Telangana
12%
5%
Andhra
Bihar Pradesh
5% 11%
Maharashtra
7% Karnataka
Gujarat West Bengal 8%
8% 8%
Source: Ministry of Housing and Urban Poverty Alleviation, Ministry of Finance, CLSA Page 24

Housing loan subsidy to help
CLSS (essentially housing loan subsidy) CLSS scheme categories
provides direct support EWS/LIG MIG 1 MIG 2
Scheme covers houses up to 110m carpet Size of house

(m)
60 Up to 90 Up to 110
(3 bedroom houses)
Household income
Rs235-267k support provided as direct limit (Rsm pa)
0.6 1.2 1.8
reduction in home-loan principal account

Interest subsidy
6.5 4.0 3.0
(%)
Effective cost reduction of 5-10% for
homes in the Rs2.5-5.0m Affordable Mortgage amount
for interest subsidy 0.6 0.9 1.2
segment (Rsm)
Benefits of the scheme CLSS subsidy transfer mechanism

No state-government intervention
Validation
agency Validates identity and
Individuals driven system eligibility of user
using Aadhar card
Greater private participation likely

Individual Housing finance
Budget targets c.50,000 homes in CY17; looking to buy a company or Documents
forwarded
NHB/HUDCO
house bank
extension/scale-up likely demand driven
Receives money
Upfront reduction
from government
in loan amount
and its own
with subsidy
borrowing
Source: Ministry of Housing and Urban Poverty Alleviation, CLSA Page 25

Gujarat case study . . .
In Gujarat, several civic bodies, including Ahmedabad Municipal Corporation (AMC),
Ahmedabad Urban Development Authority (AUDA), Vadodara MC, Vadodara UDA, Surat
MC, Surat UDA contribute land
Gujarat Housing Board also provides land for such projects
State government pitches in with c.Rs150,000 as the subsidy per unit, over and above
Rs150,000 per unit central government provides
PMAY Urban: EWS project at Vadodara EWS units: Good construction quality
Source: Gujarat Housing Board, CLSA Page 26

. . . Gujarat case study
Beneficiaries pay Rs0.3m, Rs0.6m and Rs2m for 30m, 40m and 60m house sizes.
The above is a huge discount to market and beneficiaries decided by lottery system.
Gujarats government launched an affordable housing scheme in 2012 (under Modi as
Chief Minister) under which 140,000 affordable units have been built. The cities of
Ahmedabad and Vadodara have seen construction of 10,000-plus low-cost units in
government projects (low-cost private excluded) over the past two years and the target
is to build 20,000-plus annually.
PMAY Urban: LIG project at Vadodara Private sector CLS eligible project at Ahmedabad
Source: Gujarat Housing Board, CLSA Page 27

PMAY Rural
Rural scheme builds upon existing Indira PMAY Rural scheme: Construction pace
Awas Yojana (IAY) scheme 4.5 (m) Houses completed under PMAY-Rural (erstwhile IAY)
4.0
PMAY Rural doubled subsidy amount to 3.5
Rs150k/house 3.0
2.5
Centre and states split costs at 60:40 2.0 4.0
1.5
Toilet scheme & rural employment scheme 1.0 1.8
2.5
converged 0.5 1.0 1.1 1.2
0.0
Pace of construction already doubled to FY13 FY14 FY15 FY16 FY17 FY19E
2.3m houses in FY17

PMAY Rural: Splitting of subsidy
On track to hit 4-5m pa construction pace State: Toilet
construction
Average house is 30m at under US$5,000 2%

Centre: PMAY
Rural
48%
Land availability not an issue State: PMAY

Rural
32% Total spending
Beneficiary identification already done at per house :
Rs150,000
village level
Centre:
MNREGS labour
Geo-tagging of units via Mobile App (in kind) Centre: Toilet
construction
12%
ensures progress tracking is fair 6%
Source: Ministry of Rural development, CLSA Page 28

Karnatakas own schemes have done well
Karnatakas government has been adding Number of houses constructed under social schemes
220,000 houses per year under social 350,000
(No.) No. of houses constructed (Rs'000s)
160
Govt expenditure per house (RHS)
schemes since FY11, largely in rural areas 300,000 148 140
120
States-owned schemes are adding 60% of the 250,000 121
100
houses; rest in collaboration with centre; 200,000
89
80
states share in spend at 75% 150,000
77 87
62
60
49
100,000
States own Ashraya scheme has been 40
successful, adding 120k homes pa; housing 50,000 20
site also provided for siteless households 0 0

FY11 FY12 FY13 FY14 FY15 FY16 FY17
Allocation per house to record a 20% Cagr

over FY11-17 to Rs148,000 per house Total spend on housing by Karnataka govt
40,000 (Rsm)
Spend on housing at a 30% Cagr 35,000
30,000
700,000 houses targeted for FY18 budget but
250,000 appears realistic based on housing 25,000
budget of Rs37bn 20,000
15,000
Non-availability of land, rising cost of land and 10,000

delay in selection of beneficiaries are key 5,000
challenges 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
April-December 2016 (9MFY17). Source: Government of Karnataka, CLSA Page 29

Telangana: Two-bedroom scheme - Funding?
Telangana state government scheme Details of the two-bedroom scheme
started in November 2015 to construct
260,000 two-bed housing units Eligibility and details Funding
1,426 houses completed so far; about

16,000 under construction For BPL families to be identified For Greater
by local bodies Hyderabad
Of Rs0.7m,
State government to bear total cost of Two-bedroom, hall, kitchen and Rs0.38m by state,
Rs500,000-plus per house two toilets with plinth area of
560sf
Rs0.15m by centre
under HFA and
Rs0.17m from
Funding is a concern Only for houseless families municipal body
Government to bear up to For other areas it is to

Centres PMAY funding directed here Rs530,000 in urban areas and be done by the state
Rs504,000 in rural ones
Of Rs0.53m,
Estimate total funding of Rs130bn but Up to Rs700,000 in some urban Rs0.38m by state,
only Rs5bn allotted in FY18 budget areas Rs0.15m by centre
under HFA
Costs to be met through external Rs125,000 infra cost and

Rs75,000 in urban areas
budgetary support as per state
Little interest from contractors so far;

government now also offering free sand
and lower-priced cement
Source: Government of Telangana, CLSA Page 30

Maharashtra - Adding over 0.2m houses pa
120,000 houses sanctioned/constructed Urban housing Rural housing
in urban areas in FY16
110,000 houses About 220,000 additions
Rural programmes adding over 200,000 sanctioned under PMAY per year
houses per year Urban
PMAY to add 170,000
houses in FY17
State's own scheme
States housing policy has estimated adding 20,000 houses
per year
Has added 120,000 per
year during FY13-15
shortage of 1.9m houses in the state Another 50,000 to be
added per year under
After a dip in spending strong pick up in Ramai Awas Yojana
spend in FY17
Total spend on housing by Maharashtra
FY18 spend budgeted at Rs30bn 40 (Rsbn)
35
35
FY18 target is to add 0.25m houses in 30
30
rural areas 25
20 20
20
Need to add 0.4m houses per year to 15
15
meet stated shortfall by 2022 10 7
5
Based on allocation for FY18, total
0
addition of 0.25m appears doable FY13 FY14 FY15 FY16 FY17 FY18
Source: Government of Maharashtra, CLSA Page 31

UP - Sharp spike in spending
Uttar Pradesh is the critical state with Uttar Pradesh total spend on housing
15% of Indias population 60 (Rsbn)
55
49
50
Housing spend has picked up; it 40
increased 7x during FY12-FY16 30
20
Rural programme added 0.45m 13 13
houses in FY17, the highest 10

1
7
among states 0
FY11 FY12 FY13 FY14 FY15 FY16
Expect more focus under the new Houses completed under PMAY (R) by UP
BJP government, which is prioritising 500,000 (No.) Houses completed under PMAY Rural
Average
social welfare 450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
Source: Government of Uttar Pradesh, Ministry of Rural development, CLSA FY11 FY12 FY13 FY14 FY15 FY16 FY17
Page 32

Improving affordability
Section 2

Home-ownership matrix
Profession Annual income House value Government
(Rsm) House size (m) Subsidy as % house value
(Rsm) scheme
Farm/rural labour 0.1 0.15 25 PMAY - Rural

1 100
Unskilled labour,
14 (Without
basic services 0.2 0.5
subsidy)/25
EWS 2 37
professional
Skilled
labour/service Tier-4 0.4 1.3 25 EWS 3 16
govt employee
Supervisor, Tier-3 4 10
govt employee; 0.6 2.1 35 CLSS - LIG
small proprietorships
Mid-tier professional, 5 6
small businesses, 0.9 3.2 45 CLSS - MIG 1
Tier-2 govt employee
6 3
Upper-mid pros,
1.8 6.3 79 CLSS - MIG 2
Tier-1 govt official
7
0
Higher-end pros,
3.6 12.6 140 None
mid-scale business
8 0 Govt. subsidy %
House value
Senior pros (CxOs),
12.0 42.0 300 None
large businessmen 0 20 40
Source: Ministry of Housing and Urban Poverty Alleviation, Ministry of Rural Development, state governments, CLSA Page 34

Housing market has been weak
Residential market volume sliding since Residential units launched in Top-7 cities
2013-14 60 (% YoY) Residential Units launched (Tr 12 months)
50
40
Inventory pileup in mid-premium/luxury 30
segment - just started shrinking

20
10
0
Pricing is weak: 2012-13 levels (10)

(20)
(30)
Government support should help bridge (40)

(50)
affordability gap
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
Residential inventory trend in Top-7 cities Residential units sold in Top-7 cities
50 (% YoY) 50 (% YoY) Residential Units sold (Tr 12 months)
40 40
30
30
20
20
10
10
0
0 (10)
(10) (20)
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
Source: REIS JLLM, CLSA Page 35

But affordability is now improving
Gradual improvement in affordability Mortgage rate
13 (%)
Mortgage rates down 150bps in two years; at 12

12-year lows
11
Every 100bp mortgage-rate cut is equal to 5-6% 10

price cut from affordability
9
12-year lows
House pricing gains trailing income growth in 8
past three years 7
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Affordability in FY18 best since FY05
Key assumptions on affordability

Affordability (MIG 2): Rs6.0m
Mass-premium quality house located in a metro 80 (%) Affordability: Mortgage payment to post-tax income ratio
city suburb
Rs6.0m home value; pricing flat YoY 60 56

54
49
45 46 46 45
41 41
Post tax household income +7.5% YoY in FY18 at 40 36
31
34
38
34 35
31
Rs1.3m per annum 28 27
20
House eligible for PMAY subsidy of Rs235k
0
LTV at 70%; mortgage rate at 8.5%
FY18CL
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Source: HDFC, SBI, CLSA Page 36

Affordability even better for mass segment
Much bigger improvement in affordability for Affordability trend (MIG I): Rs3.0m apartment
lower ticket sizes 80 (%) Affordability: Mortgage payment to post-tax income ratio
For a Rs2.0m house: 60
CLSS subsidy is c.10-12% of cost 40

41
39
36 34
33 34 32
30 32 30
28 30
27 27 26
Improves affordability levels to best ever 24 23 22
20
Key assumptions on affordability

0
FY18CL
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
2BHK house in non-metro; 1BHK in metro
Private developers but limited frills
Post-tax household income of Rs0.60m

Affordability trend (LIG): Rs2.0m apartment
(50k/month) for Rs2.0m house; Rs0.85m (%) Affordability: Mortgage payment to post-tax income ratio
60
(Rs70k/month) for Rs3.0m house
44
Houses eligible for PMAY subsidy of Rs235k 42
40 35
36 35 34
34 34
32 32 31
30
Interest-tax benefits (Rs200k/annum ceiling) 29
25 24
28 28
limited by ticket size 21

20
LTV at 70%; mortgage rate at 8.5%

0
FY18CL
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Source: HDFC, SBI, CLSA Page 37

Price vs distance equation
1 RK
80 Mumbai Delhi Bengaluru Ahmedabad
70
1 BHK
Distance from CBD / SBD (km)
60
2 BHK
50
2/3 BHK
40
Penthouse /
30
Villa
20
10
0
0.75 1.5 3.5 7.5 17.5 32.5 75+
Cost of the house (Rsm)

Note: RK - One room+kitchen; 1 BHK - One bedroom+hall+kitchen; 2BHK Two bedroom hall+hall+kitchen; 3 BHK - three
bedroom hall+hall+kitchen; Penthouse/Villa - Larger than 3BHKs. Source: Gruh Finance, Sobha, Oberoi Realty, CLSA Page 38

Tax relief to developers should help supply
Government incentivising affordable unit Calculation of benefits for developers
construction Rs/sf Without With Comment
benefits benefits
Changes from FY18 Land cost 500 500 Land in city suburb
Cost of construction 1,750 1,750 Mid-income quality
Definition of Affordable house: 60m carpet Other costs 500 500 Overheads
should cover 900-1,000sf ie, 2BHKs Interest cost (%) 10 9 Lower due to infra status
Interest during construction 550 495 Partly pre-sales funded
Affordable project see tax rates at effective 20% Total costs 3,300 3,245 About 2% cost savings
(minimum alternate tax rate) versus 34% peak Selling prices 4,000 3,814 5% lower selling prices
PBT 700 569 Tax rate of 20% (MAT) vs 34%
(full tax rate)
5Y project-completion timeline versus 3Y
PAT 455 455 Same absolute PAT levels
Infra status for such projects for cheaper loans
Change in selling prices assuming same profitability
Why is this necessary?
Developers find 1,000sf+ units profitable
After FY18 budget incentives 3.8
High inventory pile-up in premium segment
-5%
Governments own unit construction limited to
EWS - LIG (300-500sf) units
Similar benefits for 1,250sf houses last decade Before FY18 budget incentives 4.0
created good supply

(Rsm)
3.0 3.2 3.4 3.6 3.8 4.0 4.2
Source: CLSA Page 39

Developers getting in on the act
Source: Newspaper ad extracts, CLSA Page 40

Social sector to kickstart housing sector
Combination of improving affordability, House construction pace
effective government policies and
implementation, and pent-up demand
Houses constructed (m)

should reverse weak property market
Flat
Housing sector gross-fixed-capital 10.9m
formation (GFCF) remained flat over 6.3m 6.4m

FY12-17 and declined as a share of GDP 4.5m
from 8.1% to 4.6%
Our growth assumption takes this ratio

FY03 FY12 FY17 FY24
back up to 5.5% by FY24 Spend on housing
Key difference between FY18-24 and

FY03-12
Housing expenditure
FY18-24 should see high volume/low price
(Rstn)
inflation growth Flat
Rs16.8t
n
Driven by affordable housing, unlike

premium housing over FY03-12 Rs7.0t Rs7.0tn
n
Rs2.0t
n
Source: Census of India, MoSPI, RBI, CLSA Page 41

Housing construction to jump to 10m/year
Government policies to play a big role No. of houses made by value of house
in improving housing sector 12 (m Homes) Rs0.0m-2.0m Rs2.0m-Rs5.0m Rs5.0m+
0.4
10 1.0
Low cost (<Rs200k/unit) rural housing

construction already doubled to 2.5m 8
0.2
per year
0.3
6 0.5
0.8
9.5
4
Urban social-housing construction to 5.3 5.7
start rising from CY17 2
CLSS scheme to support affordable FY12 FY17 FY24
(Rs0.2-0.5m) segment-construction Spending on housing by value of house

jump by late FY18/early FY19 18 (Rstn) Rs0.0m-2.0m Rs2.0m-Rs5.0m Rs5.0m+
16
Demonetisation has delayed the 14
4.6
premium/mass premium housing- 12
segment recovery but things should 10 4.6
improve from CY18, thanks to 8
conducive affordability 6 2.5 2.1
4 1.8
1.6 7.6
2 2.8 3.3
0
FY12 FY17 FY24
Source: Census of India, MoSPI, RBI, CLSA Page 42

Multiple benefits to the economy
Job creation to
accelerate
Labour
productivity to
Capex cycle
improve on
revival
better quality of
house
Benefits of
housing sector
revival
Property Demand boost

developers to for building
benefit materials
Housing
finance growth
to edge up
Page 43

Job creation a positive spinoff
Construction best to absorb low-skilled farm/ Split of employment (FY12) by economic activity
rural labour Other services
11%
Construction of 60m units over FY18-24 implies

housing GFCF (real) Cagr of 8% Trade, hotels,
trans, comm
Every 1ppt growth in housing construction implies 16%
Agriculture
47%
200-300k new jobs; an 8% Cagr for housing
construction would drive annual job creation of Constr
11%
c.2m new jobs
Elect, water
1%
Thus, 20% of new people entering job market will Manuf Mining
be absorbed by housing construction activity 13% 1%
New jobs created/demand per annum New jobs seekers per annum
12 (m) Non Agri Agri 10 (m) New job seekers per year (%) 2.5
10 9 Average employment (RHS)
10
8 2.0
8 7
7
6 1.5
6
4 4 5
4 3 3
4 1.0
2
2 1 3
0 0
2 0.5
0
1
(1)
(2) (1) 0 0.0
FY78-83 FY83-88 FY88-94 FY94-00 FY00-12 next 5 years 1978-83 1983-88 1988-94 1994-00 2000-12 next 5 years
Source: NSSO, MoSPI, Census of India, CLSA Page 44

Challenges & roadblocks
Section 3

Property sentiment still weak
Stable/weaker pricing hits investment Residential pricing trend in Top-7 cities
demand 25 (% YoY) Average pricing change across 7 cities
20
15
Property markets peaked in 2013 10
5
Demonetisation hit demand hard 0

(5)
(10)
Volume down c.40% YoY in 4QCY16 (15)
(20)
Cash prevalence in property (10-40%)
Jul 08
Jul 09
Jul 10
Jul 11
Jul 12
Jul 13
Jul 14
Jul 15
Jul 16
Nov 08
Nov 09
Nov 10
Nov 11
Nov 12
Nov 13
Nov 14
Nov 15
Nov 16
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
- cash shortage hit the market hard
Low rental-yields a fundamental issue Rental yields vs post-subsidy mortgage rate

4.0 (%)
3.5
Rental yields in residential at 2-3% 3.5

3.0
3.0
Against this, deposit rates at 6-7%

2.5
2.5
2.0
2.0
Price appreciation one of the key 1.5
1.5
reasons to buy 1.0
0.5
Low ticket sizes (<Rs1m) have better
0.0
yields (4-5%) on better demand-supply 2.0 3.5 5.0 7.5 10.0
Source: JLLM REIS, CLSA Page 46

Capacity hurdles
Administrative scale up needed for Scheme allocation needs to go up
PMAY Urban scheme 1,200 (Rsbn) (bps) 35
Implementing departments (MHUPA, NHB, Housing for all scheme allocation

HUDCO) never had big tasks/workforce bps of GDP (RHS) 30
before 1,000
Automation to partially help 25

800
Financial constraints for now
20
Total PMAY - FY18 budget supports 300-400k
houses versus 3-4m of required annual pace 600
15
In full flow, scheme may need US$10-15bn
per annum or 0.5% of GDP
400
The 60m-plus house-interest subsidy is only 10
for one year currently
200
As the scheme implementation picks up, 5
more money maybe made available
State government support critical 0 0

FY18 FY24
Land is local issue; relaxing laws and
speeding up approvals important
Source: Ministry of Finance, RBI, CLSA Page 47

Credit flow still stymied
Mortgage issuance under CLSS yet to take off substantially
Only Rs6bn disbursed so far
Teething procedural issues

80+ data fields data to be captured - Banks may need to upgrade software/processes
CLSS subsidy cleared by NHB which may require more staff
Restricted incentives an issue?

Government caps CLSS processing fee at Rs3,000 for EWS/LIG; Rs2,000 for MIG for the subsidised loan
component
Fee levels are Rs10-15k for a normal loan
Processing costs for a small loan is actually higher: Small business/shopkeeper/farmer may not have
income or turnover proof; may be salaried but receiving cash/no payslip from employee
Poaching of loans post-CLSS handout also rampant
Support from state-owned banks needed for a larger scale

Gruh Finance, the largest player in the CLS space sanctioned c.6,000 loans in FY17; nonbanking-
financial-company or NBFC sector alone will not be able to deal with the peak volumes
Public-sector-undertaking (PSU) banks will need to play a key role here - missing now
Page 48

Building materials
Demand acceleration ahead

Housing-building materials market - Snapshot
Cement
(US$14bn)
Adhesives &
Construction Steel
chemicals (US$12bn)
(US$1.1bn)
Cables Paints
(US$1.2bn) (US$4.5bn)
Building
materials
Sanitary
Wood Panel
ware
(US$3.7bn)
(US$1.6bn)
Light Tiles
electricals (US$3.5bn)
(US$2.1bn)
Plastic Pipes
(US$2.1bn)
Note: Industry size data based on CLSA estimates for housing led demand in each building
materials subsector. Light electricals include switchgears/switches, fans, lightings &
fixtures and water heaters. Source: Companies, AceEquity, industry sources, CLSA Page 50

Housing-building materials - Key subsegments
Housing Industry size - Cagr Key players Remarks
materials (US$bn) FY14-17(%)
Cement 14 3 UltraTech, ACC, Fairly organised industry with low consolidation at national level
Shree Cement, Ambuja Five regions (north/south/east/west/centre) with regional dynamics
Fairly competitive industry but producer discipline to prevail
Demonetisation created demand pressures in past few months
Cement prices quite volatile
Housing is key driver with 60% contribution to cement demand
Paints 4.5 9 Asian Paints, Berger Paints, Share of organised industry is high though third of the market is unorganised
Akzo Nobel, Kansai Nerolac Decorative is over 70% of the market, while industrial is 30%
Industry structure is fairly stable with high entry barriers
Low-cost housing will support demand, although, part of incremental demand may be met by
unorganised players
Steel 12 3 Tata Steel, JSW Steel, Fragmented industry with many unorganised players in long-steel products
SAIL,JSPL Highly competitive domestic landscape along with import pressures
Government has taken multiple steps to improve the health of steel industry in past two years -
raising import duties, imposition of anti-dumping duties on flats and banning low-quality imports
Low-cost housing will support long steel demand, part of the incremental demand is likely to be met
by unorganised sectors, while bigger companies like Tata and JSW have a large proportion of flat
steel in their product mix
Wood Panel 3.7 1 Century, Greenply Highly fragmented market with a share of unorganised players at 60%; top-3 control only
20% of market
Raw-materials-sourcing capabilities key entry barrier
Capex requirement for plywood/ laminate manufacturing low but working-capital-intensive business
due to higher timber inventory holding requirement
Incremental shift of demand towards MDF - a low-cost option to plywood; threat of imports
relatively high in MDF versus plywood
Tiles 3.5 8 Kajaria, Somany, Industry witnessing rapid consolidation through acquisitions and JVs triggered by access to low-cost
HR Johnson gas and pollution-control issues
Increasing consumer preference for premium products by consumers - as evidenced by pickup in the
vitrified tiles segment
Anti-dumping measures (introduced in March 2016) and downward revision in gas price contracts
have provided margin tailwinds for the sector. Recent changes to anti-dumping duty structure not
material.
Share of replacement demand is relatively low; tiles is a relatively late-cycle beneficiary of housing-
market rebound
Note: Industry size data based on CLSA estimates for housing led demand in each building materials subsector. Light electricals
include switchgears/switches, fans, lightings & fixtures and water heaters.
Source: Companies, AceEquity, industry sources, CLSA. Page 51

Housing-building materials - Key subsegments
Housing Industry size - Cagr Key players Remarks
Materials (US$bn) FY14-17 (%)
Light 2.1 8 Havells, Crompton Lights electricals (lightings, fans, switchgears etc) have seen pronounced shift towards branded
electricals Consumer, Bajaj Electricals products; unorganised sector now contributes about 30% of industry
Premiumisation, product innovation, brand building and distribution expansion are key growth drivers
Share of replacement demand is high; switchgears demand directly linked to new housing
construction
Low penetration offers sufficient headroom for growth; companies with products positioned across
price points better placed
Plastic pipes 2.1 5 Astral, Supreme, Finolex Market moving towards high value added CPVC pipes vs PVC pipes
for plumbing Industries Entry barriers in the CPVC segment high; raw material (compounds) sourcing capabilities key
CPVC pipe-market fairly consolidated but share of unorganised players in PVC pipes segment high,
providing opportunity for branded players to gain market share
Companies expanding distribution reach to target opportunity from low-cost housing segment
Sanitaryware 1.6 13 HSIL, Cera Sanitaryware, New housing, government push towards sanitation key growth drivers
Parryware Roca High share of unorganised market (c.47%) as the price differential between organised and
unorganised players is significant; industry has witnessed increasing shift towards premiumisation
Faucets is a large market (2x size of sanitaryware) with high share of unorganised market (55%)
Premiumisation, product launches and network penetration pivotal for market-share gains
Adhesives & 1.1 8 Pidilite, Astral (Resinova) Adhesives is an ancillary product and mirrors growth of related industries
Construction Adhesives industry is fairly consolidated with organised players controlling two-thirds
chemicals
Construction chemicals is a nascent category in India with low penetration and high growth potential
Construction chemicals is moderately fragmented with top-6-7 players controlling 50%
Waterproofing is one of the large segments within construction chemicals; increasing awareness
should lead to higher consumption
Cables 1.2 5 Finolex Cables, Havells, Increasing presence for branded products owing to competitive pricing, superior product quality and
KEI Industries enhanced safety features
Market is price sensitive and operates on relatively low margins; largely linked to commodity prices
(copper and aluminium)
Strong brand and distribution reach essential for success in the residential segment
Share of replacement demand is relatively low; concentrated with organised players controlling 70%
Others Kirloskar Pumps, KSB Housing sector needs host of other building materials like domestic pumps, readymade doors &
Pumps, Sintex, Otis, windows, hardware accessories, elevators, aluminium panels, water tanks etc
Schindler, Mitsubishi Electric Share of unorganised players is relatively high in some of these segments
Expected growth in housing space will fuel demand growth
Note: Industry size data based on CLSA estimates for housing led demand in each building materials subsector. Light electricals
include switchgears/switches, fans, lightings & fixtures and water heaters.
Source: Companies, AceEquity, industry sources, CLSA. Page 52

Decoding the buildings-materials space
Cement Paints Tiles Wood panels Light electricals Plastic pipes
el
& Cables
Polished MDF Light electrical industry - product mix (%) HDPE
Commercial vitrified 7% CPVC 7%
15%
tiles Switchgears 11%
Rural Housing
Laminates Water
/Switches
35% 16% 19% Fans
Pumps
8%
20%
Industrial 11%
Ceramic
Product 30%
Domestic
Product segmentationInfrastructure tiles Plumbing
categories 20%
Decorative
42%
Appliances
12% Agri PVC PVC
Plywood
70% Cables 32% 50%
74% 37%
Urban Housing: Glazed
Urban Housing:
Tier 2 & other
Tier 1 cities
vitrified Lighting &
cities
20% 10% tiles Fixtures
12%
42%
Sector Cagr
3% 9% 8% 1% 7% 5%
(FY14-17)%
3%
30%
Share of unorganised 30% 50% 40%
players
60%
Market
dynamics Higher in electrical
Higher for
Importance of brand products
Moderate High Moderate plywood Moderate
building Moderate in consumer
Low for MDF
durables
10-20%
15-20% 15-25% 35%
Share of replacement 45-50%
demand 70-80%
Source: Companies, AceEquity, industry sources, CLSA Page 53

Decoding the buildings-materials space
Light electricals
Low Very low Cement Paints Tiles Wood panels Plastic pipes
el & Cables
Threat of Moderate
Low Very low High Moderate Low
imports/substitutes Higher for MDF
% market share of top-3

31% 85% 55% 20% 22% 31%
operators
Havells Crompton Supreme

UltraTech
10% consumer Finolex
Market 16% Century 11%
Industries
Ply 7%
dynamics Kajaria Bajaj 8%
ACC 21% 7%
Electricals
8% Greenply Ashirvad
Kansai Asian Paints HR 6%
7% 6%
Key players Ambuja
7%
16% 52%
Johnson V-Guard
19% Archidply 3% Astral
Shree
Berger
1% 6%
17% TTK
7%
Dalmia Prestige
6% Somany
3%
14%
ROEs 8-20% 30-36% 19-28% 15-35% 13-27%

11-30%
ROCEs 7-13% 27-32% 20-35% 15-30% 25-37%

22-32%
Financial Ebitda margins 10-20% 17-20% 8-18% 12-17% 6-13%
metrics 11-15%
Asset turnover 0.6-1.3x 2x-3x 1.3-1.8x 1.3-1.6x 1.4-2.6x 1.3-1.5x
Working capital days 15-40 days 30-40 days 30-40 days 30-100 days 30-105 days 15-75 days
Indicative-sector Cagr
12% 15% 11% 12% 13% 14%
potential (FY17-24)
Direct beneficiary of Demand push Demand push coupled Changing consumer Housing boost should Demand push coupled
low-cost housing coupled with with premiumisation will preference, GST, raw lead to demand boost with premiumisation
push premiumisation drive growth material security across all categories in will drive growth
Demand
Early stage demand will drive growth Relatively early stage would accelerate the light electrical sector Relatively early stage
drivers
beneficiary though beneficiary of demand market share gains Strong replacement beneficiary of demand
Remarks unorganised Organised players to for organised players, demand in fans & Organised players to
players may gain also benefit from however, demand lighting to continue also benefit from
share in affordable industry consolidation from housing push However, industry industry consolidation
housing expected to be back consolidation has largely
ended played out

Industry dynamics across key parameters
Entry Barriers from
Share of Share of replacement Industry
Segment Threat of imports GST benefits
Distribution network Brand equity retail sales demand consolidation
Cement
Plywood
MDF
Paints
Ceramics
Light & Electricals
Pipes
Sanitary ware
Adhesives
Legends
Very High High Medium Low Very Low
Source: Companies, industry sources, CLSA Page 55

Construction cost across housing segments
3,500 Indicative cost per square feet (Rs) Rs3,322
Steel TMT cost
Cement cost
Additives cost
3,000
Rs2,618 Tile cost
Plumbing cost
2,500 Cables cost
Switches and switchgears cost
Rs1,897 Electrical pipe cost
2,000 Sanitaryware cost
Rs1,586 Door cost
Rs1,373 Glass pane cost
1,500 Rs1,291
Ply & laminates
Rs979 Paints
Rs923 Adhesives & construction chemicals
1,000 Fans
Lighting & fixtures
Water heater
500 Elevator cost
Others cost
Labor cost
0
IAY Rural - PMAY ELIG - LIG/MIG1 MIG2 HIG Luxury
Non EWS Urban - Rural /
EWS Urban
Note: Additives includes costs of bricks, stone and sand

Source: CLSA estimates
Page 56

Demand for building materials from housing
Expected housing demand & expenditure Incremental materials demand, FY17-24F (Rsbn)
Cement
Houses constructed (m)
Cagr 11%
Steel TMT Cagr 9%

Flat
Paints Cagr 15%

10.9m
Ply & laminates Cagr 12%

6.3m 6.4m
4.5m
Tile Cagr 11%
Plumbing pipes Cagr 14%

FY03 FY12 FY17 FY24
Sanitaryware Cagr 12%

Spend on housing
Cables Cagr 13%
Adhesives & construction

Cagr 13%
chemicals
Housing expenditure
Fans Cagr 14%

(Rstn)
Flat Lightings and fixtures Cagr 14%

Rs16.8t
n
Switch & switchgears Cagr 8%
Rs7.0t Rs7.0t Water heater Cagr 12% (Rsbn)

n n
Rs2.0t 0 500 1,000 1,500

n
Source: Census of India, MoSPI, RBI, Companies data, CLSA estimates Volume growth Page 57

Companies are repositioning to benefit
Finolex
Astral is Cables has
aggressively recently
Havells
pushing its sales entered into
introduced
and distribution fans, lightings
Reo - A value & switchgears
towards
markets
brand for
affordable Greenply: MDF
affordable
New
housing provides lower

cost option to housing
furnishing
brands Centurys sub-
Pidilite & brand Sainik
Asian Paints serves the
Orient is value segment
are improving venturing into
penetration in lighting and
Emerging
the rural switchgear
market
Asian Paints
strategies Asian Paints &
Berger Paints
Crompton has broad have recently
product line entered into the
has fans &
ranging from waterproofing
lights
markets
Existing
value to luxury segment

offerings segment
across all
price points Century
launched ready-
Somany/ made furniture
Kajaria has and MDF to Kajaria has
HSIL has a wide cater to housing launched new
brands to product expansion products in
cater for range Sanitary ware
different
customers
Existing New
product/brand product/brand

GST - Gamechanger for organised segment
Simpler tax structure Price differential Supply-chain efficiencies
Indirect tax Unorganised segment has a competitive Elimination of present practices
Service tax consisted basically advantage over organised players because of
of three taxes, tax differentials Check posts at state borders
VAT which have been
subsumed by a Benefits for organised segment Additional setup (depots and C&F agents) by
Excise single tax - GST companies to bypass CST
Reduction in
Tight scrutiny on tax evasion practices by
effective tax rate unorganised players
Reduced
BENEFITS Reduced logistics
Increased compliance cost for the players inventory
Elimination of cost and transit
operating in unorganised market carrying costs
Easier tax calculation cascading effect time by elimination
and
of inter state check
infrastructural
Full input tax credit posts will help
Harmonised tax across Increased cost for unorganised players expenses by
nation
companies achieve
removal of
cost efficiency
additional set up
Reduced compliance
costs
Market Share gain for organised segment
How GST plays out for different Industries? Industry structure

Indirect Tax 120 (%) Organised Unorganised
Industry Remarks Impact
incidence
100
High logistics cost (20-25% of 25
C ement 28% 80
30
40
30
revenue) 50 47
60
Share of unorganised 60
Tiles 26%
segment 50% 40 75
70 70
60 53
50
Share of unorganised 20 40
Plastic Pipes 19%
segment 40% 0
Pipes
Sanitaryware
Wood panels
Paints
Adhesives
Light electricals
Tiles
High inventory cost from
Adhesives 25%
distribution inefficiency
High warehouse & logistics

Light Electricals 24%-27%
costs
Share of unorganised
Wood Panel 25%
segment 60%
Page 59
Source: Companies, industry sources, CLSA

Cement - Geographical play
Industry structure: High share of organised players (97%); Estimated sectoral mix for cement demand
mini cement plants comprise just 12mt capacity
Commercial
Demand drivers: Housing is the key driver with almost 60% 15%
contribution to cement demand
Rural Housing
35%
Cost structure: Higher energy costs (petcoke, diesel) could
restrict the improvement in unit Ebitda
Infrastructure
Entry barriers: High lead time to set up new capacities and 20%
requirement of a strong distribution network
Sector profitability: Sector unit Ebitda has not moved up in
the past decade despite a significant rise in capex
Urban Housing:
Tier 2 & other Urban Housing:
High volatility: Demand trend and importantly pricing varies cities Tier 1 cities
quite a bit, quarter to quarter 20% 10%
Trend in annual capacity increase Quarterly volatility in unit Ebitda

20 (% YoY) 1,400 (Rs/t)
18 1,200
16
1,000
14
12 800
10 600
8
400
6
200
4
2 0 1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
0
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
17CL
18CL
19CL
Source: Companies, industry sources, AceEquity, CLSA Page 60

Cement - Utilisation rates should improve
Cement-demand growth moderated to <4% over FY12-17 as Trend in industry utilisation - All India
against 8%+ in preceding 15 years
100 Average adjusted capacity utilisation (%)
We expect a gradual acceleration and expect demand growth to
average at 8-10% in the next seven years
90
Cyclical recovery, pickup in property markets, government focus
on affordable housing, smart cities & infra to help
80
Based on current announcements and plans, we expect lower
capacity adds over FY17-24, compared to the past decade
70
Demand pickup coupled with lesser incremental capacities should
steadily drive up industry utilisation from 64% in FY17CL to 75%
by FY20, which would further rise up ahead 60
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
FY11
FY13
FY15
17CL
19CL
Regional disparity would be high with lowest utilisation in the south
Cement demand growth Sector Ebitda per tonne to rise

1,200 (Rs/t)
14 (% YoY)
12 1,000
10
800
8
6 600
4
400
2
200
0
(2) 0
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
17CL
18CL
19CL
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
17CL
18CL
19CL

Paints - Attractive yet stable industry
Paint is an attractive industry which has posted double-digit Estimated volume growth for market leader,
volume growth for at least the past two decades
Asian Paints
20 (%)
Despite this, India still has low per-capita consumption, which
makes it an attractive story 18
16
Industry structure is stable with five players controlling most of 14
the organised market (unorganised: about 30%) 12
Stable structure also allows for high pricing power, particularly 10

in decorative industry, which is >70% of paint demand 8
6
Input prices have bearing on sector margins, to some extent 4
2
Industry would benefit from affordable housing though there is
a chance that unorganised players may have a greater share - 0
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
17CL
organised still would benefit over longer term on repaint
Split of organised & unorganised and Drivers of decorative paints

decorative & industrial
Others
10% New residential
FY16-Market segmentation (%) FY16-Split by use (%) 15%
Industrial
Industrial 5%
Unorganised 30%
30%
Commercial
25% Replacement
residential
45%
Organised Decorative
70% 70%

Wood panels - Rapid shift to organised players
Industry structure: Plywood is highly fragmented though the share of the organised sector is increasing rapidly. Changing
consumer preference, GST and raw-materials security should accelerate market-share gains for organised players. MDF is
emerging as an alternative product to plywood in India.
Entry barriers: Raw-materials sourcing arrangements, distribution reach and brand recall are key differentiators.
Demand drivers: Boost in readymade furniture market will lead to higher demand for MDF. Given longer replacement cycles
demand is largely dependent on the new-housing market.
Cost structure: For plywood manufacturing, three key raw materials are used: face veneer (25% of raw material cost); core
timber (60% of cost); and chemicals/adhesives (15% of cost). Sourcing face veneers is a challenge; core timber is abundantly
available from domestic sources.
Import duty: Anti-dumping duty was imposed on imports from Indonesia and Vietnam on plain MDF board in July 2015.
Wood-panel industry - At a glance Production capacity

Plywood Laminates MDF
Wood panel - Rs233bn Plywood - Rs180bn Laminates - Rs37bn MDF - Rs16bn
('000s (m sheets) (000s
CBM) CBM)
MDF Century 210 4.8 198

7%
Greenply 129 12.0 180
Laminates
Archidply 78 3.0 -
16%
Uniply 140 - -
Plywood Sarda 35 - -
77%
Uniply acquired Euro Dcor which has
capacity of c.90CBM in plywood
Product split - FY16 (%)

Wood panels - Rapid shift to organised players
Increase in share of organised players in the Share of MDF in wood-based-products market
past decade likely to increase in the long term
Wood based products market mix (FY16)
FY 06 FY 16
100 6
90 Plywood MDF
80
70 65
60
50 94
40
30
20 35
10
0
India Global
Competitive advantage for players with sourcing

Stronger
Better product
quality
distribution facility of face veneer
network
Share of raw material cost (%)

Better access
Product
to critical raw Face veneer (key raw material) is
differentiation adhesives primarily imported from countries
materials
15% like Myanmar
Face Ban on exports from Myanmar in 2014,

veneer impacted plywood players with no local
25% sourcing in Myanmar
Factors
Excise duty driving the Core timber
Brand Century and Greenply have competitive
reduction in shift towards awareness 60%
2008 advantage due to sourcing
organised arrangement in Myanmar
segment

Pipes - Beneficiary of affordable housing push
Industry structure: Share of unorganised players still high in PVC pipes; top-four players control 30% of the market. CPVC
pipes market (premium product) is consolidated due to technological barriers.
Market shifting towards premium products: Price difference between CPVC and PVC raw materials was quite high initially,
but in recent years the spread has narrowed significantly.
Entry barriers: Entry barriers are not that high in PVC pipes market. However, in CPVC, tie-ups with global suppliers for CPVC
compounds is a key technological barrier.
Demand drivers: Share of replacement demand is 35%. CPVC products are gaining market share.
Sector play on government housing scheme: Low plumbing costs in overall construction will boost demand for
CPVC products.
Plastic pipes - At a glance

Plastic pipes - Rs220bn Substantially organised Major housing revenue Pro-new construction
HDPE
7%
CPVC
11%
Plumbing
PVC
Agri PVC 50%
32%
FY16 - Product Split (%) FY16 -Market Segmentation (%) FY16 - Demand Driver (%) FY16 - Demand Split (%)

Pipes - Beneficiary of affordable housing push
Major market players Key players presence in housing market;
Astral is the leader
FY16-Indicative Market Share (%) (%) Housing Agriculture Industrials
Astral 100 5 5
10% 15
90
Supreme
80 35
Finolex 6%
4% 70
Ashirvad 60 70
9% 50
85
40
Others
71% 30 60
20
25
10
As per CLSA estimates 0

Supreme Astral Finolex Industries
How top companies are playing it out!
Company Capacity Category presence No. of Rev contribution Contributions from

(in m tonnes) plants from diff categories different products
Astral 1,27,762 Plumbing, industrials and recently 3 Housing: 85%, CPVC: 55%,
entered into agriculture Industrial:15% PVC: 45%
Supreme 4,00,000 Plumbing, agriculture and industrials 7 Housing: 60%, CPVC: 15%,
Agriculture: 35% and PVC: 80%,
Industrials: 5% others: 5%
Finolex 2,80,000 Mostly agriculture, recently entered 3 Agriculture: 70%, CPVC: 5%,
into plumbing Housing: 25% and PVC: 95%
Industrials: 5%
Ashirvad 1,08,000 Plumbing, agriculture and industrials 2 - -
Note: Indicative data. Source: Companies, industry sources, AceEquity, CLSA Page 66

Tiles - Industry consolidation accelerating
Industry structure: Organised-player penetration has improved with the top-3 controlling 55% of the overall market.
Significant consolidation has seen the leading players acquiring/forming JVs with the unorganised segment to boost capacity.
Demand shifting towards premium products: Increasing consumer preference for premium products as evidenced by a
pickup in demand for vitrified tiles (20% Cagr over FY10-16) versus ceramic tiles (10% Cagr). That said, most companies have
also launched vitrified tiles in the value segment to tap demand from low-cost housing segment.
Entry barriers: Strong distribution network, access to low cost fuel coupled with manufacturing tie-ups are key entry barriers.
Margin tailwinds: Fuel is the major operations costs in manufacturing tiles. Anti-dumping measures (introduced in Mar16)
and downward revision in gas price contracts have provided margin tailwinds for the sector. Recent changes to anti-dumping
duty structure not material.
Tiles - At a glance
Tiles - Rs260bn Industry developments Market control
Organised tiles industry growth (%)
Availability of cheaper
Chinese imports with 30-
35% price differential
Polished High volatilty in Market share - FY16 (%)
vitrified 40 (%) LNG prices
Anti-dumping duty on
Chinese ceramic
tiles 35 tiles expires
16% Govt-imposed
30 Anti-dumping anti-dumping Kajaria
duty imposed on Unorganised players
duty on
25 Chinese tiles affected due to pollution
Chinese 21%
notice in Morbi
Ceramic vitrified tiles
Others
tiles 20
46%
42% HR
15
Johnson
10 19%
Glazed
5
vitrified
tiles Somany
0
42% 14%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Tiles - Industry consolidation accelerating
Manufacturing capabilities Supply & demand structure
80 FY16 capacity (in msmpa) Demand drivers (%)
Tiles - market segmentation (%)
70 Replacement
15%
60
50
Unorganised Organised Commercial
40 players players 15%
50% 50%
30 Residential
70%
20
10
0
Kajaria Somany HR Johnson Asian Granito Orient Bell
Renegotiations of gas-price contracts has led to

Industry consolidation through JVs/outsourced manufacturing cost savings
FY16 - Manufacturing capacity (in msm) 18 Power & Fuel costs (% of total expenses)
In-house Through JVs/Outsourced
100 17
90
16
80 41
70 58 15
60 14
50
13
40
30 59 12
20 42
11
10
0 10
Kajaria Somany FY12 FY13 FY14 FY15 FY16 9MFY17
Kajaria numbers are used as indicative numbers to represent the industry

Source: Companies, industry sources, AceEquity, CLSA. Page 68

Light electricals - Organised players enjoy distribution strength
Industry structure: Organised players control 70% of the market.

Demand drivers: Replacement demand especially in fans & lighting is one of the key demand drivers in the sector.
Switchgears & cables demand is largely dependent on housing-sector growth.
Entry barriers: Robust distribution network coupled with strong brand presence are the key entry barriers. In the past few
years, penetration through technologically innovative products has also created strong entry barriers.
Manufacturing: Leading organised players operate on contrasting product sourcing strategies with a mix of in-house and
outsourced manufacturing.
Low-cost housing sector: Industry will strongly benefit from new housing demand. Organised players like Havells has already
launched value category brand Reo to capture demand from low-cost housing; Crompton Consumer will also benefit due to
products positioned across price points.
Light Electricals - At a glance

Light Electricals - Rs544bn Substantially organised Replacement demand-high
Light electrical industry - product mix (%)

Light electricals - market share (%) Demand split (%)
Switchgears/
switches
Unorganised
8%
30%
Water pumps Cables Replacement
20% 37% demand
New demand
45%
55%
Fans
11%
Organised
70%
Domestic Lighting &
appliances Fixtures
12% 12%

Light electricals - Organised players enjoy distribution strength
Growth across different segments Contrasting manufacturing strategies by

5%
major players
Domestic cables
100 (%) 95
In-house manufacturing
90
Lights & fittings 9%
80
70
Other appliances 11%
60
50
FY17CL 50
Fans 13%
FY14 40
Switches 12% 30
20
MCB 7% 10 5
0
0 20 40 60 80 100 Havells Crompton Bajaj Electricals
Stronger distribution network is key to scale up

Existing players entering newer categories 7,500 7,200 Distributor & Dealer network
Company Existing categories Entry into newer product categories

6,500
Anchor Switches Fans, switchgears, lighting and cables 6,000
5,500
Finolex Cables Cables Fans, switchgears and lighting 5,500
5,000
Crompton Fans, lighting and pumps Small appliances and premium fans
4,500
Orient Electric Fans and small appliances Switchgear and lighting 4,000
Polycab Cables Fans, switchgears and lighting 3,500
Usha International Fans and small appliances Pumps and lighting

2,500
Bajaj Electricals Fans and small appliances Pumps and premium fans Bajaj Legrand Havells Anchor CGCEL
Electricals Electricals

Adhesives - Consolidated market to benefit from housing demand
Industry structure: Adhesives is a highly consolidated industry with the top-3 players controlling 60% of the market.
Demand drivers: Adhesives is largely dependent on demand from housing, construction and packaging industry.
Cost structure: Vinyl acetate monomer (VAM) is the key raw material and its prices are linked to crude prices.
Entry barriers: Strong distribution network and brand recall are key to achieve penetration in consumer/housing market.
Waterproofing: Waterproofing is an underpenetrated market in India. Pidilite is the market leader in the category. New players
like Asian Paints, Astral have entered the segment as the category has huge scale-up potential.
Sector play on housing demand: Boost to housing demand will lead to growth from the woodwork-related industry in
adhesives. Construction chemical products (waterproofing) will also benefit from housing demand.
Adhesives & Construction chemicals - At a glance

Adhesives - Rs60bn Industry split by end use FY16 ($) Highly organised
Market share - FY16 (%)

Epoxy
adhesive Footwear
14% 5%
Do it yourself Unorganised
6% 25%
Epoxy
sealant Others
PVA - Packaging
6% 8%
Water 27%
Acrylics based
11% glue Transport
47% 8% Organised
Assembly 75%
10% Woodwork
18%
Rubber
adhesives Construction
22% 18%

Adhesives - Consolidated market to benefit from housing demand
Consolidated market with few players dominating Construction chemicals is an

underpenetrated market
Indian Adhesive market (%)
80 Market size of construction chemicals in India (Rsbn)
Astral
Huntsman
(Resinova) 70
4%
3%
Cagr=15%
60
3M 50
7%
Pidilite 40
Cagr=13%
30%
Henkel 30
20%
20
Others 10
36%
0
2009 2014 2019E
FY16 - Market share (%)
Adhesives & Market Major players Competitive Categories 2014 - Market Major players
Sealants size intensity size (Rsbn)
(Rsbn)
Polyvinyl acetate - Pidilite (Fevicol), Huntsman Pidilite (Dr Fixit LW+, Dr. Fixit Pidicrete), Sika
26 Low
White water based glue (Karpenter) Admixtures 15.4 (Viscocrete, Sikament, Sigunit),
Fosroc, BASF
Pidilite (Fevibond, Fevicol SP),
Rubber adhesive 12 High
Chandra Chemicals (Dendrite) Flooring 4.2 Pidilite (Dr Fixit repair mortar), BASF, Sika
Pidilite (FeviKwik), Pidilite (Dr Fixit Roofseal),

Acrylics 6 Medium Waterproofing 4.9
Resinova (Vetra) Sika (SikaBoom), SWC
Pidilite(M-Seal), Resinova (Bondset), Pidilite (Dr Fixit Microconcrete),

Epoxy sealant 3.5 High Repair & Rehabilitation 4.2
Huntsman (Araseal) Fosroc, Sika
Huntsman (Araldite), Pidilite (Roff Grout, Dr. Fixit modern tile adhesive),
Epoxy adhesives 8 Medium Miscellaneous 6.3
Resinova (Bondtite) Sika (Sika Tilofix), Fosroc
Market size Nos. are indicative. Source: Companies, industry sources, FICCI report on construction chemicals - 2015, CLSA Page 72

Sanitaryware - Industry overview
Industry structure: High share of unorganised market (c.47%) as the price differential between organised and unorganised
players is significant. Industry has witnessed increasing shift towards premiumisation.
Demand drivers: Demand is primarily driven by new housing. Various government schemes like Swachh Bharat Abhiyaan and
improving sanitation requirement, especially in rural areas, will be the incremental demand drivers.
Cost structure: Power & fuel are one of the major costs in sanitaryware. Renegotiations in gas-price contracts has significantly
reduced the cost and led to margin tailwinds for the industry.
Entry barriers: Entry barriers are moderate. Strong distribution network and capital & labour intensive nature of the business
remain the key entry barriers in the industry.
Low-cost housing sector: New housing-led demand growth will improve growth outlook for the industry. Organised players
like HSIL and Cera are well positioned to benefit due to their presence across different price points.
Sanitaryware & faucets - at a glance

Sanitaryware - Rs60bn Fairly organised Highly organised Major players
Sanitaryware - product mix (%) Market share - FY16 (%) Demand mix (%) Market share FY16 (%)
Replace
ment
demand
15% HSIL
Sanitary 18%
products Unorganised Organised Cera
37% 47% 53% 12%
Faucet Others
New 54%
63% demand
85%
Parryware
Roca
16%

ACC (ACC IB - Rs1,603.0 - SELL)
One of the only two pan-India players with a Cement capacity
presence across all five regions
36 Capacity (mtpa)
Recent expansion has lifted ACC capacity to 33m 32
tonnes, which should help near-term volume 28
growth in the east 24
20
ACC has been consistently losing market share
16
and this may continue as expansions have been
12
far & few
8
One of the most inefficient producers in India - 4
CY05
CY06
CY07
CY08
CY09
CY10
CY11
CY12
CY13
CY14
CY15
CY16
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
17CL
18CL
19CL
high cost base versus peers
Inefficiency a disadvantage in times of weak Financial summary

pricing but becomes an advantage in an upcycle
(Rsm) CY15 CY16 17CL 18CL 19CL
due to leverage effect
Net sales 114,328 109,364 119,155 136,478 154,039
A pick-up in demand led by affordable housing Ebitda 11,731 11,951 12,743 17,526 20,648
should push up industry utilisation and drive up Net profit 7,055 6,452 6,381 9,618 11,994
cement prices even while ACC may have limited EPS (Rs) 37.5 34.3 33.9 51.2 63.8
participation EPS (% YoY) (17.9) (8.6) (1.1) 50.7 24.7

ROE (%) 8.5 7.5 7.3 10.6 12.6
Potential merger with Ambuja should help PB (x) 3.6 3.5 3.4 3.2 3.1
deriving synergy benefits PE (x) 42.7 46.7 47.3 31.4 25.1
EV/Ebitda (x) 25 24 22 16 13
We see limited triggers in the near-term and EV/t (US$) 133 135 127 124 121
hence have a SELL rating
Source: CLSA, Company Page 74

ACC (ACC IB - Rs1,603.0 - SELL)
Key assumptions Balance-sheet summary
(Rsm) CY15 CY16 17CL 18CL 19CL (Rsm) CY15 CY16 17CL 18CL 19CL
Net worth 84,430 86,614 88,934 92,913 97,011
Total volumes (mt) 23.7 23.1 24.3 25.8 27.3
Equity capital 10,328 10,328 10,328 10,328 10,328
% YoY (2) (2) 5 6 6
Reserves 74,103 76,286 78,606 82,584 86,683
Blended realisations (Rs/t) 4,830 4,724 4,900 5,294 5,637
Loans 355 500 500 500 500
% YoY 2 (2) 4 8 6 Def tax liab 4,692 5,581 5,081 4,581 4,081
Material (Rs/t) (1,039) (978) (969) (1,017) (1,068) Total liabilities 89,477 92,696 94,516 97,994 101,593
Power & fuel (Rs/t) (1,011) (932) (997) (1,067) (1,156) Total fixed assets 76,559 77,232 75,151 72,820 70,241
Freight (Rs/t) (1,150) (1,147) (1,262) (1,328) (1,398) Gross block 113,525 140,705 75,455 73,440 71,186
Others (Rs/t) (1,134) (1,151) (1,147) (1,202) (1,260) Less depreciation 60,675 66,081 145,705 150,705 155,705
Net fixed assets 52,850 74,624 72,858 79,873 87,127
Total cost (Rs/t) (4,335) (4,208) (4,376) (4,615) (4,882)
CWIP 23,710 2,608 72,847 70,832 68,578
% YoY 3 (3) 4 5 6
Investment 14,757 18,042 18,042 18,042 18,042
Ebitda (Rs/t) 496 516 524 680 756 Cash & bank deposits 916 2,756 6,909 12,779 19,100
% YoY (4) 4 2 30 11 Net current assets (2,755) (5,334) (5,890) (6,266) (6,735)
Total Ebitda 11,731 11,951 12,743 17,526 20,648 Total assets 89,477 92,696 94,516 97,994 101,593
% YoY (6) 2 7 38 18
Depreciation (6,521) (6,052) (6,777) (7,015) (7,254)
Interest (673) (729) (925) (962) (1,010) Cashflow statement
Other income 4,834 3,346 3,699 4,191 4,750 (Rsm) CY15 CY16 17CL 18CL 19CL
PBT 9,371 8,517 8,741 13,740 17,134 Cash from operations 14,612 13,801 13,324 16,571 19,206
Cash from investments (10,739) (4,079) (4,185) (4,099) (3,979)
Tax (2,316) (2,065) (2,360) (4,122) (5,140)
Capex (11,643) (5,189) (5,000) (5,000) (5,000)
Tax rate (%) 24.7 24.2 27 30 30
Cash from financing (6,810) (4,212) (4,986) (6,602) (8,906)
Pre-ex earnings 7,055 6,452 6,381 9,618 11,994
Change of cash (2,936) 5,511 4,153 5,870 6,321
% YoY (18) (9) (1) 51 25 Cash start 15,864 12,928 18,439 22,592 28,461
EPS (Rs/sh) 37.5 34.3 33.9 51.2 63.8 Cash end 12,928 18,439 22,592 28,461 34,783
% YoY (18) (9) (1) 51 25 Free cashflow 2,970 8,612 8,324 11,571 14,206
Source: CLSA, Company
Page 75

Ambuja (ACEM IB - Rs246.4 - SELL)
Presence across four regions and has a Weak focus on capacity expansion
conspicuous absence from south India, which 35 (mt)
has highest capacity surplus 30
Ambuja has been consistently losing market 25
share and this may continue as expansions 20

have been far & few
15
Has announced expansion in Rajasthan but 10
progress has been painfully slow 5
Was an efficient firm in the past but Ambuja 0

CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 17CL 18CL 19CL
losing cost advantage
A pick-up in demand led by affordable housing Financial summary
should push up industry utilisation and drive (Rsm) CY15 CY16 17CL 18CL 19CL
up cement prices even while Ambuja may Net sales 93,880 200,940 221,251 253,351 285,978
Ebitda 14,489 28,693 31,274 41,761 48,889
have limited participation
Net profit 8,079 11,683 12,417 17,199 20,344
Restructuring has made ACC a subsidiary and EPS (Rs) 5.2 5.9 6.3 8.7 10.2
EPS (% YoY) (45.7) 13.0 6.3 38.5 18.3
Ambuja a direct play for LafargeHolcim
ROE (x) 7.9 7.8 6.3 8.4 9.5
PB (x) 3.7 2.5 2.4 2.3 2.2
Potential merger with ACC should help
PE (x) 47.3 41.9 39.4 28.4 24.0
deriving synergy benefits
EV/Ebitda (x) 23 20 18 13 11
EV/t (US$) 171 111 104 101 92
We see limited triggers in the near-term and
hence have a SELL rating Note: Consolidated numbers including ACC from CY16. Source: Company, CLSA
Page 76

Ambuja (ACEM IB - Rs246.4 - SELL)
(Standalone) (Rsm) CY15 CY16 17CL 18CL 19CL (Rsm) CY15 CY16 17CL 18CL 19CL
Total volume (mt) 21.8 21.5 22.3 23.7 25.1 Networth 102,714 195,455 201,061 209,914 220,194
% YoY (2) (1) 4 6 6 Deferred tax 5,656 10,534 10,534 10,534 10,534
Blended realisations (Rs/t) 4,303 4,267 4,542 4,904 5,222 Minority interest/
7 43,778 46,956 51,762 57,772
share in associates
% YoY (4) (1) 6 8 6
Total debt 350 373 5 5 5
Materials (Rs/t) (644) (604) (633) (663) (699)
Total liabilities 108,727 250,139 258,556 272,215 288,505
Power & fuel (Rs/t) (943) (853) (912) (958) (1,024)
Total fixed assets 65,866 112,996 111,672 111,483 103,729
Freight (Rs/t) (1,153) (1,152) (1,224) (1,272) (1,321)
Gross block 121,191 267,773 274,441 281,101 303,557
Others (Rs/t) (902) (924) (996) (1,045) (1,116)
Less depreciation 59,490 160,599 175,024 189,913 205,652
Total cost (Rs/t) (3,643) (3,533) (3,766) (3,938) (4,160)
Net fixed assets 61,702 107,174 99,417 91,187 97,905
% YoY 0 (3) 7 5 6 CWIP 4,164 5,822 12,255 20,296 5,824
Ebitda (Rs/t) 661 734 776 966 1,062 Investment 21,488 27,951 27,951 27,951 27,951
% YoY (21) 11 6 24 10 Goodwill on consolidation 106,858 106,858 106,858 106,858
Cash & bank deposits 28,533 16,962 26,678 40,131 63,846
Net current assets (7,160) (14,628) (14,603) (14,208) (13,880)
(Consolidated) (Rsm) CY15 CY16 17CL 18CL 19CL
Total assets 108,727 250,139 258,556 272,215 288,505
Consolidated Ebitda 14,489 28,693 31,274 41,761 48,889
Depreciation (6,298) (14,632) (14,425) (14,890) (15,738)
Interest (925) (1,405) (1,509) (1,612) (1,733) Cashflow statement
Other income 4,466 7,680 6,834 7,470 8,304
(Rsm) CY15 CY16 17CL 18CL 19CL
PBT 11,733 20,336 22,174 32,730 39,722
Cash from operations 15,566 28,151 23,910 29,798 34,259
Tax (3,654) (5,675) (6,683) (10,869) (13,562)
Cash from investments (2,131) (25,596) (5,507) (6,387) 1,254
Tax rate (%) 31 28 30 33 34
Capex (6,192) (8,853) (13,101) (14,701) (7,985)
Minority 0 (2,979) (3,075) (4,661) (5,816)
PAT 8,079 11,683 12,417 17,199 20,344 Change of cash 4,433 (7,053) 9,716 13,452 23,715
% YoY (46) 45 6 39 18 Cash start 45,589 50,022 42,968 52,685 66,137
EPS (Rs/sh) 5.2 5.9 6.3 8.7 10.2 Cash end 50,022 42,968 52,685 66,137 89,852
% YoY (46) 13 6 39 18 Free cashflow 9,374 (15,842) 10,810 15,098 26,274
Note: Consolidated numbers including ACC from CY16 for balance sheet and cashflow. Source: CLSA, Company
Page 77

Asian Paints (APNT IS - Rs1,104.7 - SELL)
Leadership in an attractive paint market Asian Paints dominates India decorative
paints segment
Historical industry volume growth: 1.5-2x of GDP Shalimar
growth Akzo Nobel 4%
10%
Stable industry structure provides high pricing

power
Berger
Very high entry barriers 18% Asian Paints
50%
Distribution reach is more than twice the next

competitors
Kansai Nerolac
Strong in decorative but has been raising efforts 18%
in industrial paints too in past few years

Financial summary
Ambitions of becoming a home-solution provider;
(Rsm) FY15 FY16 17CL 18CL 19CL
has forayed into kitchen and bathrooms
Net sales 141,828 155,341 152,926 174,833 205,105
Sharp increase in input prices in the past few Ebitda 22,354 28,086 29,771 34,125 39,897
months - pricing power should still allow it to Net profit 14,216 17,726 19,230 22,250 26,084
maintain margins in a band EPS (Rs) 15 18 20 23 27

EPS (% YoY) 16 25 8 16 17
Affordable housing is a strong theme but ROE (%) 32 33 32 32 33
unorganised players may have a greater share - PB (x) 22.3 18.9 16.5 14.5 12.6
Asian Paints to benefit over LT PE (x) 74.5 59.8 55.1 47.6 40.6
Ev/Ebitda (x) 46.8 37.0 34.6 30.0 25.3
Current valuations are rich and hence we have a
SELL rating Source: Company, CLSA
Page 78

Asian Paints (APNT IS - Rs1,104.7 - SELL)
FY15 FY16 17CL 18CL 19CL (Rsm) FY15 FY16 17CL 18CL 19CL
Domestic
Revenues (% YoY) 11.8 8.6 6.0 13.5 17.4 Networth 47,424 56,053 64,315 73,290 84,367
Gross margin (%) 44.7 48.4 46.2 45.2 44.8
Ebitda margin (%) 17.3 19.6 22.1 21.1 21.2 - Equity capital 959 959 959 959 959
Ebitda growth (% YoY) 13.1 23.3 13.8 8.2 17.8
- Reserves 46,464 55,093 63,356 72,331 83,408
Tax rate (%) 31.2 32.1 32.5 33.0 33.0
Pre-ex earnings (% YoY) 13.5 23.8 13.1 7.4 18.3 Deferred tax 1,799 2,171 2,351 2,531 2,711
Consolidated
Consol revenues (% YoY) 11.5 9.5 6.4 14.3 17.3 Minority interest 2,637 2,942 2,502 2,252 1,985
Gross margin (%) 43.8 47.2 44.7 44.4 43.8 Total debt 4,182 3,256 3,256 3,256 3,256
Ebitda margin (%) 15.8 18.1 19.5 19.5 19.5
Ebitda growth (% YoY) 11.9 25.6 6.0 14.6 16.9 Total liabilities 56,041 64,421 72,424 81,329 92,319
Tax rate (%) 30.9 31.9 34.1 32.8 32.8
EPS (Rs/sh) 14.8 18.5 20.0 23.2 27.2
EPS (% YoY) 15.6 24.7 8.5 15.7 17.2 - Gross block 38,664 49,128 51,228 53,328 60,428
- Less depreciation 14,522 17,074 20,492 24,257 28,609
Cashlow statement - Net fixed assets 24,142 32,054 30,736 29,071 31,819
- CWIP 1,960 1,108 5,180 7,180 1,180

Cash from operations 11,877 23,333 23,378 24,178 27,902 Goodwill 2,458 1,977 1,977 1,977 1,977
Cash from investments (4,728) (6,887) (4,504) (2,265) 1,107
Capex (4,377) (8,059) (6,172) (4,100) (1,100) Investment 432 433 433 433 433
Change of cash 1,388 7,264 7,545 8,235 13,544
Cash start 16,101 17,489 24,753 32,299 40,533 Net current assets 9,559 4,096 1,800 2,134 2,833
Cash end 17,489 24,753 32,299 40,533 54,077
Free cashflow 5,902 15,273 17,206 20,078 26,802 Total assets 56,041 64,421 72,424 81,329 92,319
Page 79

Astral (ASTRA IN - Rs547.7 - BUY)
Astral is a leader in residential pipes (CPVC) with a unique Astral has created a strong franchisee in the
competitive advantage of manufacturing its own compounds.
Astral is emerging into a strong building-materials franchise. Indian pipes market
Pipes - Leadership in an expanding market: Astral well 10Y revenue 10Y Ebitda
41% 40%
positioned to benefit from market shift to higher value added Cagr (%) Cagr (%)
CPVC pipes, as it completes its geographical penetration.
Astral has also entered into agricultural pipes.
10Y net- Net debt/
Strong competitive advantage: New captive compounding profit Cagr 38% Equity - 1x/0.1x
facility provides Astral with a competitive advantage in the (%) FY06/FY16
CPVC business. This should not only lead to margin
expansion but also improve working capital requirement.
Capacity
10Y CFO expansion
Adhesives - Distribution strength is underestimated: Cagr (%)
52%
over
~11x
Astral is aspiring to build Indias second-largest adhesives FY08-16
business franchise. Acquisitions of well-established brands in
India (Resinova in FY15) and UK (Seal IT) have helped it to
gain a strong foothold in the lucrative adhesives business. It Financial summary
aims to address the white-spaces by penetrating segments (Rsm) FY16 FY17 FY18CL FY19CL FY20CL
where leader PIDI has a relatively weaker footing.
Revenue 17,190 18,826 22,121 26,706 33,039
ROCE improvement levers: Ramp up in adhesives Ebitda 2,051 2,506 3,150 3,927 5,082
business will lead to strong operating leverage benefits and
improvement in returns ratio. We expect RoE to improve Net profit 1,014 1,308 1,771 2,391 3,326
from 14.5% in FY16 to 22% in FY19CL. EPS (Rs) 8.5 10.9 14.8 20 27.8
Valuations: Premium valuations at 28x PE FY19CL are EPS growth (%) 32.1 28.9 35.4 35 39.1
justified due to its strong EPS growth expectations (28% PE (x) 64.7 50.1 37 27.4 19.7
Cagr over FY17-20CL), improving returns profile and FCF
ROE (%) 14.5 16.7 20.5 22.6 25.2
generation. We estimates Astral can deliver c.56% return,
with a three-year view at 31x FY21CL PE. Net debt/equity (%) 10.1 13.7 (10.6) (32.4) (43.7)
Source: Company, CLSA
Page 80

Astral (ASTRA IN - Rs547.7 - BUY)
Profit & loss statement Balance-sheet summary
(Rsm) FY16 FY17CL FY18CL FY19CL FY20CL (Rsm) FY16 FY17CL FY18CL FY19CL FY20CL
Net revenue 17,190 18,826 22,121 26,706 31,082 Shareholders funds 7,816 7,802 9,451 11,637 14,218
Cogs 11,742 12,896 15,042 18,107 20,887 Equity capital 120 120 120 120 120
Gross profit 5,447 5,930 7,079 8,599 10,195 Reserves 7,696 7,683 9,331 11,517 14,099
Employee expenses 792 960 1,172 1,469 1,710 Minority interest 132 144 158 177 198
Other expenses 2,604 2,464 2,756 3,286 4,058 Debt 1,342 1,971 1,971 1,971 1,971
Ebitda 2,051 2,506 3,150 3,845 4,427 Long term 1,302 1,455 1,455 1,455 1,455
Ebitda margins (%) 11.9 13.3 14.2 14.4 14.2 Short term 39 516 516 516 516
Depreciation 423 527 584 641 697 Deferred tax liabilities 234 234 234 234 234
Finance cost Total current liabilities and provisions 4,338 3,889 5,341 7,248 8,438
305 248 197 177 168
Other income Total liabilities and equity 13,862 14,040 17,155 21,267 25,059
21 65 76 193 373
Gross block 6,159 6,859 7,559 8,259 8,959
Taxes 319 476 660 853 1,141
Accumulated depreciation 1,795 2,322 2,906 3,547 4,244
Profit after tax 1,024 1,320 1,785 2,367 2,794
Net block 4,364 4,537 4,653 4,712 4,715
Minority interest 10 12 15 19 21
Capital work-in-progress 165 138 138 138 138
Net profit 1,014 1,308 1,771 2,348 2,773
Net fixed assets 4,529 4,675 4,791 4,850 4,853
Adj EPS (Rs/share) 8.5 10.9 14.8 19.6 23.2
Goodwill 2,874 2,312 2,312 2,312 2,312
% growth in EPS 32 29 35 33 18
Investments 0 60 60 60 60
Long-term loans & advances 190 208 244 295 343
Cash & bank balances 542 899 2,973 5,741 8,177
Inventory 2,804 2,956 3,385 4,006 4,662
Cashflow statement Inventory days 60 57 56 55 55
Accounts receivable 2,308 2,259 2,610 3,071 3,574
(Rsm) FY16 FY17CL FY18CL FY19CL FY20CL
Receivable days 49 44 43 42 42
Net operating cashflow 1,957 558 2,918 3,662 3,355 Other current assets 25 25 25 25 25
Capital expenditure (1,229) (673) (700) (700) (700) Short term loans & advances 569 624 733 885 1,029
Net investing cashflow (2,003) (751) (736) (751) (748) Net current assets 1,909 2,874 4,385 6,479 9,031
Net financing cashflow 473 551 (107) (145) (170) Net current asset days (ex-cash) 1,368 1,975 1,411 738 854
Total assets 13,862 14,040 17,155 21,267 25,059
Cash at beginning of period 426 358 2,074 899 2,436
Net debt/equity (x) 0.10 0.14 (0.11) (0.32) (0.44)
Cash at end of period 115 542 899 2,973 5,741 ROE (%) 14.5 16.7 20.5 22.3 21.5
Free cashflow 542 899 2,973 5,741 8,177 ROCE (%) 19.7 21.6 24.9 27.1 27.5
Page 81

Crompton Consumer (CROMPTON IN - Rs220.2 - BUY)
Crompton Consumer (CGCEL) has set itself a target to be the CGCEL has opportunity to drive growth through
fastest-growing company in the sector with an aim to create
disproportionate stakeholder returns. It is a market leader in new products and premiumisation of existing
fans (26% share) and residential pumps (27%). categories
Significant progress on five dimensional strategy: The
new management team at the helm at CGCEL (post the spin
off from its erstwhile parent in October 2015) has achieved
significant progress on brand building, product innovation &
extension in core categories, improvement of the go-to
market capability, operational efficiency and building
organisational capabilities.
Products positioned across price points: With significant

replacement-demand contribution, CGCELs core categories
(fans, lightings, pumps) should benefit much from low-cost
housing demand. We expect a 17% revenue Cagr in FY17-20.
Scope for margin expansion: A shorter credit cycle could

help CGCEL negotiate better vendor terms; offset near-term Financial summary
margin headwinds from higher ad & distribution expenses (Rsm) FY16 FY17CL FY18CL FY19CL FY20CL
Revenue 18,117 39,791 46,628 55,331 64,060
Category addition could be a stock trigger: Expansion Ebitda 2,095 4,912 5,890 7,032 8,232
into a new category by leveraging its strong distribution Net profit 1,052 2,830 3,877 4,779 5,451
network and brand recall could lead to further stock rerating. EPS (Rs) 1.7 4.5 6.2 7.6 8.7
EPS growth (%) - 169 37 23.3 14.1
CGCEL - Our top pick: GCELs strong returns profile, robust PE (x) 131.2 48.8 35.6 28.9 25.3
growth expectations and improvement in FCF justify premium ROE (%) 46.0 76.4 63.3 57.1 49.4
valuations. We estimate CGCEL can deliver a 43% return with Dividend yield (%) 0.0 0.0 1.1 1.4 1.6
a three-year view at 31x FY21CL PE. Net debt/equity (%) 193.1 66.0 26.2 1.7 (19.2)
Six month data for FY16 as company was formed on 1-Oct-15. All FY17 growth
nos. calculated after annualising FY16 nos.
Source: Companies, AceEquity, CLSA
Page 82

Crompton Consumer (CROMPTON IN - Rs220.2 - BUY)

(Rsm) FY16 FY17CL FY18CL FY19CL FY20CL (Rsm) FY16CL FY17CL FY18CL FY19CL FY20CL
Cogs 12,702 27,456 32,407 38,731 44,842 Equity capital 1,254 1,254 1,254 1,254 1,254
Employee expenses 1,005 2,189 2,798 3,430 3,972 Debt 5,318 6,000 5,500 5,000 4,500
Other expenses 2,315 5,234 5,534 6,136 7,015 Long term 5,218 6,000 5,500 5,000 4,500
Short term 100 0 0 0 0
Ebitda 2,095 4,912 5,890 7,032 8,232
Ebitda margins (%) Total current liabilities and provisions 8,926 7,995 9,297 10,472 12,139
11.6 12.3 12.6 12.7 12.8
Depreciation Total liabilities and equity 16,531 19,112 21,931 25,091 29,093
63 111 126 142 161
Gross block 2,024 2,424 2,824 3,224 3,624
Finance cost 355 707 575 525 475
Other income 39 162 197 272 363
Net block 786 1,075 1,349 1,607 1,846
Taxes 525 1,426 1,508 1,859 2,507
Capital work-in-progress 1 1 1 1 1
Net profit 1,052 2,830 3,877 4,779 5,451 Net fixed assets 787 1,075 1,350 1,607 1,846
Adjusted EPS (Rs/share) 3.8 4.5 6.2 7.6 8.7 Goodwill 7,794 7,794 7,794 7,794 7,794
% growth in adjusted EPS 19 37 23 14 Long term loans & advances 178 196 229 272 315
Cash & bank balances 900 2,621 3,632 4,835 6,893
Inventory 2,100 1,990 2,565 3,043 3,523
Inventory days 21 18 20 20 20
Cashflow statement Accounts receivable 4,165 4,775 5,595 6,640 7,687
(Rsm) FY16 FY17CL FY18CL FY19CL FY20CL Receivable days 42 44 44 44 44
Net operating cashflow 1,757 1,457 3,805 4,440 5,618 Other current assets 7 7 7 7 7
Capital expenditure (15) (400) (400) (400) (400) Short-term loans & advances 556 611 716 849 983
Net investing cashflow 24 (417) (434) (443) (443) Net current assets (1,197) 2,009 3,217 4,902 6,955
Net financing cashflow (883) 682 (2,361) (2,794) (3,117) Net current asset days (ex-cash) (2,097) (613) (414) 67 62
Net increase/(decrease) in cash 898 1,721 1,010 1,203 2,058 Total assets 16,531 19,112 21,931 25,091 29,093
Cash at beginning of period 1 900 2,621 3,632 4,835 Net debt/equity (x) 1.9 0.7 0.3 0.0 (0.2)
Cash at end of period 900 2,621 3,632 4,835 6,893 ROE (%) 92 76 63 57 49
Free cashflow 1,742 1,057 3,405 4,040 5,218 ROCE (%) 53 51 49 51 51
Six month data for FY16 as company was formed on 1-Oct-15. All FY17 growth nos. calculated after annualising FY16 nos.
Page 83

Havells (HAVL IB - Rs485.1 - SELL)
Leader in the light electrical industry with a strong Havells market share across segments has
execution track record (18% 10-year revenue Cagr)
across categories. stagnated since FY15
FY06 FY15 FY16 Change in Change in
A distribution-led business model with focus on product (%) (%) (%) market market
share, share,
branding and being ahead of shifting consumer preference FY06-15 FY15-16
has been the companys winning formula. Domestic (consumer) MCBs 15 29 29 14 0
Levered to new housing demand: New housing-led Switches 5 20 20 15 0
demand growth (particularly switchgears & cables), new Domestic cables 6 14 14 8 0

category introduction and acceleration in Reo brand Industrial cables 6 11 11 5 0
(value segment) to drive 15%* FY17-20CL revenue Cagr. Consumer durables - fans 6 15 15 9 0
Lloyds acquisition: Recently announced acquisition of Lighting - CFL 10 11 10 1 (1)
Lloyds consumer durable business at an EV of Rs16bn; Lighting - luminaires 3 14 14 11 0

deal valued at 15x FY17 EV/ Ebitda. Acquisition would be
margin dilutive but PBT neutral on FY17CL estimates;
provides entry into sizeable white goods/large appliance
segment. Financial summary
(Rsm) FY16 FY17 FY18CL FY19CL FY20CL
Competitive intensity is rising: Market-share gains for
Havells have stagnated since FY15; competitive intensity Revenue 77,142 59,704 88,755 102,674 119,238
in core categories like switchgears (most profitable Ebitda 8,002 8,077 10,615 12,739 15,037
segment) is rising. Peak margins in switchgears and Adj net profit 4,848 5,669 6,816 8,401 10,314
cables businesses are now behind. Adj EPS (Rs) 7.8 9.1 10.9 13.5 16.5
Valuations leave no room for rerating; SELL: We like Adj EPS growth (%) 25.7 16.9 20.2 23.3 22.8
Havells growth story but believe its price adequately Adj PE (x) 62.5 53.4 44.5 36.1 29.4
factors in the positives. We find valuations at 36.1x ROE (Pre-exceptional %) 22.2 20.6 21.8 23.9 25.8
FY19CL earnings rich. Dividend yield (%) 1.2 1.0 0.9 1.1 1.4
Net debt/equity (%) (53.3) (49.6) 0.0 (14.9) (24.5)
Note: Revenue cagr calculated after adjusting for Lloyd revenues.

Source: Bloomberg, Company data, CLSA
Page 84

Havells (HAVL IB - Rs485.1 - SELL)
COGS 43,832 35,225 52,543 60,988 70,947 Equity capital 625 625 625 625 625
Employee expenses 8,595 4,955 6,657 7,393 8,347 Minority interest 84 84 84 84 84
A&P expenses 2,450 2,090 2,663 3,080 3,577 Debt 1,030 1,030 1,030 1,030 1,030
Other expenses 14,263 9,357 16,278 18,474 21,330 Long term 192 192 192 192 192
Ebitda 8,002 8,077 10,615 12,739 15,037 Short term 838 838 838 838 838
Ebitda margins (%) 10.4 13.5 12.0 12.4 12.6
Deferred tax liabilities 749 749 749 749 749
Depreciation 1,267 1,200 1,202 1,205 1,301
Total current liabilities and provisions 13,977 14,246 16,483 19,087 22,145
Finance cost 449 82 77 72 72
Total liabilities and equity 41,419 45,586 51,334 58,264 66,634
Other income 863 1,099 78 73 507
Taxes Gross block 15,186 17,686 19,286 20,886 22,486
2,300 2,250 2,636 3,172 3,897
Profit after tax 12,089 7,544 6,779 8,362 10,274 Accumulated depreciation 4,401 5,601 6,803 8,008 9,309
Minority interest 1 0 0 0 0 Net block 10,785 12,085 12,484 12,878 13,177
Share of profit from associates 0 25 37 38 40 Capital work-in-progress 214 0 0 0 0
Net profit 12,088 7,569 6,816 8,401 10,314 Net fixed assets 10,999 12,085 12,484 12,878 13,177
Adjusted EPS (Rs/share) (%) 7.8 9.1 10.9 13.5 16.5 Goodwill 204 204 16,204 16,204 16,204
% growth in adjusted EPS 26 17 20 23 23 Investments 2,575 2,575 2,575 2,575 2,575
Cash & bank balances 15,648 944 6,589 11,489 18,062
Inventory 8,371 10,150 12,870 13,348 15,501
Inventory days 40 62 53 47 47
Cashflow statement Accounts receivable 2,594 3,284 3,994 4,107 4,770
Receivable days 12 20 16 15 15
(Rsm) FY16CL FY17CL FY18CL FY19CL FY20CL
Net operating cashflow 11,723 4,871 6,504 11,465 11,674 Other current assets 359 359 359 359 359
Capital expenditure (2,221) (2,286) (1,600) (1,600) (1,600) Net current assets 12,853 15,856 2,665 6,452 11,293
Net investing cashflow 5,853 (205) (17,902) (1,745) (1,772) Net current asset days (ex-cash) (1,799) 208 1,721 (137) (196)
Net financing cashflow (10,698) (3,671) (3,306) (4,074) (5,002) Total assets 41,419 45,586 51,334 58,264 66,634
Cash at beginning of period 6,878 995 (14,704) 5,645 4,899 Net debt/equity (x) (0.5) (0.5) 0.0 (0.1) (0.2)
Cash at end of period 7,775 14,653 15,648 944 6,589 ROE (%) 22.2 20.6 21.8 23.9 25.8
Free cashflow 14,653 15,648 944 6,589 11,489 ROCE (%) 29.2 27.9 29.4 32.1 34.7
Financial data from FY18 includes estimates for Lloyd Business. Source: CLSA, Company
Page 85

Pidilite (PIDI IS - Rs726.4 - OUTPERFORM)
Pidilite (PIDI) is an impregnable franchisee, given its near Pidilites has expanded its product categories and
monopoly status in several segments where it operates.
Over the years, PIDI has identified and scaled-up several reduced dependence on wood-working adhesives
new product categories. Pidilite Segments
Category addition to accelerate: History of innovation 84% 16%

Industry Speciality
coupled with recent induction of several senior professionals

Consumer & Bazaar
Products
Products
gives confidence that PIDI is gearing up to expand its 19%

addressable opportunity.
54% 11% 10% 6%
Adhesives & Art Material & Construction Industrial Adhesives &

Stationery Chemicals Pigment Powders
Sealants Resins
Levered to new housing demand: Adhesives and

Construction chemicals - key segments of Pidilite are Consumer
Automative
Stationery
School
Waterproofing
Repairs
Packaging, Footwear,
Cigarette, Labelling, Azo, Bisarzo,
strongly linked to new housing demand. Construction Plumbing
Foaming
Fine Arts
Hobby
Coating &
Paint
Adhesives, Flocking,
Industrial Paint,Binders,
Carbazole,
Quinacridone
chemicals is a nascent category in India with low

Insulation Flooring
Coating,Chemicals
penetration and high growth potential.

Fevistick Highlighters Dr. Fixit
FeviKwik Pagel R FEVICOL,Trisol,
Oil Pastels
Turnaround visible in international businesses: PIDIs M-Seal Dr. Fixit Titebond VRG, Acrolite-Yellow
Canvas Rolls Labcol BL,
Fevicol SP4 Roofseal Acrolite Violet
Acrylic Colours Pidivyl,Pidisol,Kondicryl, Acrolite Red
overseas business (11% of FY16 revenue) is witnessing
Steelgrip Dr. Fixit
Pidivyl,Pidifix, Pidiflow
signs of a turnaround after being a drag on financials over

the past several years. PIDI is improving penetration in Financial summary
emerging markets (SAARC, SE Asia, Africa).
(Rsm) FY16 FY17CL FY18CL FY19CL FY20CL
Impact of higher crude prices: VAM prices (key raw Revenue 53,694 59,631 65,735 76,343 89,438
materials) are yet to rebound in line with crude prices. We Ebitda 11,739 12,989 14,113 16,053 18,519
expect gross margin to peak in FY17 and decline 0.8ppts Net profit 7,556 8,858 9,909 11,524 13,282
over FY17-19 (based on US$60/bbl in FY18).
EPS (Rs) 14.7 17.3 19.3 22.5 25.9
EPS growth (%)
Valuations: Premium valuations justified given its near 47.4 17.2 11.9 16.3 15.3
monopolistic status, strong ROE profile and improving FCF PE (x) 49.3 42.0 37.6 32.3 28.0
generation. We estimates Pidilite can deliver a 30% return, ROE (%) 29.9 28.8 26.8 26.2 25.4
with a three-year view at 31x FY21CL PE Net debt/equity (%) (0.2) (0.6) (11.4) (20.0) (27.9)
Source: Industry sources, Company, CLSA
Page 86

Pidilite (PIDI IS - Rs726.4 - Outperform)
Cogs 25,863 28,325 31,882 37,408 43,825 Equity capital 513 513 513 513 513
Employee expenses 5,743 6,378 7,099 8,321 9,749 Minority interest 427 1,104 1,104 1,104 1,104
Other expenses 10,349 11,939 12,641 14,561 17,345 Debt 1,258 1,001 1,001 1,001 1,001
Ebitda 11,739 12,989 14,113 16,053 18,519 Long term 509 78 78 78 78
Ebitda margins (%) 21.9 21.8 21.5 21.0 20.7 Short term 749 923 923 923 923
Depreciation 1,331 1,183 1,284 1,400 1,524 Deferred tax liabilities 702 724 724 724 724
Finance cost 133 113 98 95 95 Total current liabilities and provisions 8,865 10,763 11,537 13,398 15,696
Other income 510 1,171 1,241 1,692 2,198
Total liabilities and equity 39,082 47,276 54,600 64,080 75,158
Pre-tax exceptional items 0 0 0 0 0
Gross block 20,646 22,366 24,338 26,586 28,835
Taxes 3,221 3,988 4,052 4,712 5,802
Profit after tax 7,564 8,877 9,920 11,537 13,296
Net block 11,073 11,610 12,297 13,146 13,870
Minority interest 38 53 49 57 66
Capital work-in-progress 4,001 4,001 4,001 4,001 4,001
Share of profit from associates 29 34 38 45 51
Net fixed assets 15,075 15,611 16,299 17,147 17,872
Net profit 7,556 8,858 9,909 11,524 13,282
Goodwill 239 1,098 1,098 1,098 1,098
EPS (Rs/share) 14.7 17.3 19.3 22.5 25.9
Investments 6,490 11,207 11,207 11,207 11,207
% growth in EPS 47.4 17.2 11.9 16.3 15.3
Cash & bank balances 1,319 1,204 5,710 10,778 17,138
Inventory 6,290 6,559 7,560 9,161 10,733
Cashflow statement Inventory days 43 40 42 44 44
Accounts receivable 7,294 9,243 10,189 11,833 13,863
(Rsm) FY16 FY17CL FY18CL FY19CL FY20CL Receivable days 50 57 57 57 57
Net operating cashflow 8,645 10,093 9,990 11,487 13,437
Other current assets 469 469 469 469 469
Capital expenditure (1,997) (1,719) (1,972) (2,249) (2,249)
Net current assets 7,306 7,009 12,720 19,225 26,953
Net investing cashflow (4,523) (6,949) (2,125) (2,514) (2,576)
Net current asset days (ex-cash) 5,986 5,806 7,009 8,447 9,815
Net financing cashflow (3,563) (3,260) (3,358) (3,906) (4,502)
Net increase/(decrease) in cash 559 (115) 4,507 5,068 6,360 Total assets 39,082 47,276 54,600 64,080 75,158
Cash at beginning of period 760 1,319 1,204 5,710 10,778 Net debt/equity (x) 0.00 (0.01) (0.12) (0.20) (0.28)
Cash at end of period 1,319 1,204 5,710 10,778 17,138 ROE (%) 29.9 28.8 26.8 26.2 25.4
Free cashflow 6,648 8,734 8,018 9,239 11,189 ROCE (%) 41.5 40.7 37.1 36.3 36.0
Page 87

Ramco (TRCL IN - Rs700.8 - SELL)
Among the largest player in south; 12.5mtpa Not in the game of capacity expansion
of capacity; grinding even higher 14 (mt)
12
Utilisation rates at c.66% - yet to announce
10
next round of expansion but no risk to growth
8
South exposure is a concern, given low 6
utilisation rates in the medium term 4
2
Among the lowest cost producers - while
0
lower input prices helped, self-help measures
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
17CL
18CL
19CL
also drove up margins recently
Cement pricing to depend on industry Financial summary

discipline and hence, margin trend may be (Rsm) FY15 FY16 17CL 18CL 19CL
volatile Net sales 35,939 35,872 39,186 41,968 46,933

Ebitda 6,622 10,504 11,378 11,194 12,090
Should benefit from construction activity in AP Net profit 2,361 5,344 6,963 6,971 7,814
EPS (Rs) 9.9 22.4 29.2 29.3 32.8
& Telangana EPS (% YoY) 119.4 126.4 30.3 0.1 12.1
ROE (%) 9.5 19.5 20.6 17.5 17.0
Strong focus on deleveraging has led to PB (x) 6.3 5.4 4.5 3.9 3.4
interest cost savings PE (x) 70.3 31.1 23.8 23.8 21.2
EV/Ebitda (x) 29 18 16 15 14
Valuation factor in a lot of good news and EV/t (US$) 235 229 220 165 129
hence, we see limited near-term upside Source: CLSA, Company
Page 88

Ramco (TRCL IN - Rs700.8 - SELL)
Total volumes 7.7 7.2 8.4 8.8 9.3 Net worth 26,452 30,926 36,906 42,731 49,183
Equity capital 238 238 238 238 238
% YoY (11) (6) 16 5 6
Reserves 26,214 30,688 36,668 42,493 48,945
Blended realisations 4,687 4,958 4,671 4,764 5,026
Loans 27,119 22,056 16,556 9,056 7,056
% YoY 11 6 (6) 2 5 Def tax Liab 8,271 8,521 9,058 9,864 11,013
Material (Rs/t) (904) (847) (815) (856) (899) Total liabilities 61,841 61,503 62,520 61,651 67,252
Power & fuel (Rs/t) (918) (728) (641) (704) (787) Total fixed assets 51,382 50,517 48,848 47,389 45,984
Gross block 72,005 75,340 76,340 77,590 78,940
Freight (Rs/t) (1,038) (929) (919) (975) (1,033)
Less depreciation 23,250 26,291 28,960 31,669 34,424
Others (Rs/t) (963) (1,002) (940) (959) (1,012)
Net fixed assets 48,755 49,049 47,379 45,920 44,515
Total cost (Rs/t) (3,823) (3,506) (3,314) (3,493) (3,731) CWIP 2,627 1,468 1,468 1,468 1,468
%YoY 5 (8) (5) 5 7 Investment 3,558 3,654 3,654 3,654 3,654
Ebitda (Rs/t) 864 1,452 1,356 1,271 1,295 Cash & bank deposits 619 908 2,773 2,555 8,462
% YoY 45 68 (7) (6) 2 Net current assets 6,283 6,424 7,245 8,054 9,153
Total assets 61,841 61,503 62,520 61,651 67,252
Total Ebitda 6,622 10,504 11,378 11,194 12,090
%YoY 29 59 8 (2) 8
Depreciation (2,499) (2,670) (2,670) (2,709) (2,755) Cashflow statement
Interest (1,938) (1,802) (1,098) (735) (355) (Rsm) FY15 FY16 17CL 18CL 19CL
Other income 1,379 999 1,600 1,800 2,025 Cash from operations 9,561 10,628 8,867 8,613 8,948
Cash from investments (4,816) (2,327) 600 550 675
PBT 3,564 7,030 9,210 9,549 11,005
Capex (4,386) (2,490) (1,000) (1,250) (1,350)
Tax (1,204) (1,686) (2,247) (2,578) (3,192)
Tax rate (%) 34 24 24 27 29
Change of cash 172 289 1,866 (219) 5,907
Pre ex PAT 2,361 5,344 6,963 6,971 7,814 Cash start 446 619 908 2,773 2,555
EPS (Rs.sh) 9.9 22.4 29.2 29.3 32.8 Cash end 619 908 2,773 2,555 8,462
% YoY 119 126 30 0 12 Free cashflow 4,451 8,042 7,867 7,363 7,598
Page 89

Shree Cement (SRCM IB - Rs19,219.1 - Underperform)
Market leader in north with 27m tonnes of Strong focus on capacity expansions
capacity and has started to expand in east 40 (mt)
India recently 35
Plans to be a 40m-tonne firm in next 3-4 years 30
25
Set to foray into south (Karnataka) - has 20
started the work on a greenfield plant 15
10
Strong execution and industry leading timelines
5
in new capacity commissioning
0
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
17CL
18CL
19CL
All expansions from internal accruals - strong
and net-cash balance sheet
Financial summary
Consistent market-share gains
Among lowest-cost producers Net sales 64,536 55,678 82,353 94,436 113,255
Ebitda 13,438 13,203 23,967 26,764 33,712
Has a small presence in power which Net profit 4,263 4,549 12,821 15,430 20,750
contributes around 6% to overall Ebitda EPS (Rs) 122.4 130.6 368.0 442.9 595.6
EPS (% YoY) (45.8) 6.7 181.8 20.4 34.5
Aggressive depreciation impacts reported ROE (%) 8.5 7.9 19.5 20.0 21.9
earnings PB (x) 12.7 10.8 9.6 7.9 6.4
PE (X) 157.1 147.2 52.2 43.4 32.3
An exciting growth play but lot of good news is Ev/Ebitda (x) 49 49 27 24 19
already in the price - hence we have an EV/t (US$) 551 462 356 310 264
Underperform rating Note: FY16 is 9-month ended March 2016; Source: Company, CLSA
Page 90

Shree Cement (SRCM IB - Rs19,219.1 - Underperform)

Cement Net worth 52,764 61,802 69,773 84,731 104,591
Overall volumes (mt) 16.2 14.2 20.1 21.6 24.3 - Equity capital 348 348 348 348 348
- Reserves 52,416 61,454 69,425 84,383 104,242
% YoY 13 18 72 7 13
Loans 9,166 8,630 2,502 2,502 2,502
Def tax liab (1,952) (2,634) (3,634) (3,534) (3,434)
% YoY (3) (2) 10 6 8 Total liabilities 59,979 67,799 68,642 83,700 103,659
Total cost (Rs/t) 2,792 2,703 2,701 2,903 3,067 Total fixed assets 35,154 33,147 38,741 55,147 69,813
% YoY 2 (3) 0 7 6 - Gross block 86,496 95,981 110,981 130,981 168,981
Ebitda (Rs/t) 755 788 1,124 1,162 1,325 - Less depreciation 56,453 65,480 77,886 89,480 101,813
- Net fixed assets 30,043 30,502 33,096 41,502 67,168
% YoY (19) 4 43 3 14
- CWIP 5,111 2,645 5,645 13,645 2,645
Ebitda 12,207 11,219 22,563 25,052 32,242
Investment 16,626 23,662 12,000 12,000 12,000
% YoY (8) 23 51 11 29 Cash & bank deposits 3,075 2,830 12,124 11,636 18,492
Overall Net current assets 5,123 8,159 5,777 4,917 3,354
Total Ebitda (Rsm) 13,438 13,203 23,967 26,764 33,712 Total assets 59,979 67,799 68,642 83,700 103,659
% YoY (3) 31 36 12 26
Depreciation
Interest
(9,248) (9,084) (12,406) (11,594) (12,333)
Cashflow statement
(1,206) (751) (1,384) (1,183) (1,271)
Other income 1,379 1,201 4,818 5,300 5,830
Cash from operations 11,812 9,465 23,175 23,867 30,188
PBT 4,363 4,568 14,995 19,288 25,937 Cash from investments (13,501) (5,875) (13,182) (22,700) (21,170)
Tax 88 (550) (2,174) (3,858) (5,187) Capex (14,946) (7,019) (18,000) (28,000) (27,000)
Tax rate (%) (2) 12 15 20 20 Cash from financing (2,647) 3,201 (12,361) (1,655) (2,162)
PAT 4,451 4,019 12,821 15,430 20,750 Change of cash (4,336) 6,791 (2,368) (488) 6,856
% YoY (42) 20 139 20 34 Cash start 24,037 19,701 26,492 24,124 23,636
EPS (Rs/sh) 122.4 130.6 368 442.9 595.6 Cash end 19,701 26,492 24,124 23,636 30,492
% YoY (46) 42 111 20 34 Free cashflow (3,134) 2,446 5,175 (4,133) 3,188
FY16 is a nine-month period. Source: CLSA, Company
Page 91

UltraTech (UTCEM IS - Rs4,230.9 - Outperform)
Current capacity at 66m tonnes with a pan- Strong focus on capacity expansion
India presence 100 (mt) UltraTech JPA's cement assets acquisition
90
Capacity will rise to 88m tonnes in next 3-4 80
months through JP Associates acquisition 70
60
Work underway on other sites as well, and we 50
expect more announcements 40
30
UltraTech is among a few firms expanding, 20
which should be an advantage in an upcycle 10
0
Series of measures undertaken to drive cost FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 17CL 18CL
savings and focus continues

Financial summary
JPA acquisition would, however, be EPS dilutive (Rsm) FY15 FY16 17CL 18CL 19CL
for around eight quarters post consolidation Net sales 240,558 252,807 253,749 283,726 336,087
Ebitda 41,413 46,195 49,372 56,507 75,331
Company will lever-up to fund acquisition but Net profit 20,983 22,866 27,149 31,447 44,775
net gearing stays comfortable EPS (Rs) 76.5 83.3 98.9 114.6 163.1
EPS (% YoY) (0.6) 9.0 18.7 15.8 42.4
A pickup in demand, led by affordable housing, ROE (%) 11.6 11.4 11.9 12.2 15.4
should help pricing, although we believe that PB (x) 6.1 5.5 4.8 4.3 3.7
UltraTech would have limited participation PE (x) 55.2 50.7 42.7 36.9 25.9
EV/Ebitda (x) 29 26 23 20 15
EV/t (US$) 301 272 265 257 247
Only positive recommendation (O-PF) in the
sector with target of Rs4,575 Source: Company, CLSA
3Y TP at Rs6,125 (25x FY21 EPS), which

assumes 25% EPS Cagr (8% volume Cagr) Page 92

UltraTech (UTCEM IS - Rs4,230.9 - Outperform)
(Rsm) FY15 FY16 17CL 18CL 19CL (Rsm) FY15 FY16 17CL 18CL 19CL
Total volumes (m tonnes) 46 49 50 53 59 Networth 190,412 210,584 243,916 270,937 310,252
Equity capital 2,744 2,744 2,745 2,745 2,745
% YoY 8 7 1 7 10
Reserves 187,668 207,839 241,171 268,192 307,507
Deferred tax 27,859 32,215 27,726 31,157 31,247
% YoY 4 (2) (2) 5 9 Minority interest 182 155 97 125 142
Material (Rs/t) (773) (808) (805) (841) (885) Total debt 98,291 100,271 87,647 82,271 83,271
Power & fuel (Rs/t) (1,029) (861) (786) (826) (917) Total liabilities 316,744 343,224 359,386 384,490 424,912
Freight cost (Rs/t) (1,171) (1,204) (1,170) (1,229) (1,294)
Gross block 338,565 368,284 389,527 398,867 409,338
Others (Rs/t) (1,093) (1,082) (1,026) (1,046) (1,041) Less depreciation 115,667 127,851 141,336 155,324 169,755
Total cost (Rs/t) (4,066) (3,955) (3,787) (3,943) (4,137) Net-fixed assets 222,897 240,433 248,192 243,543 239,582
% YoY 5 (3) (4) 4 5 CWIP 22,500 14,728 9,215 20,596 36,608
Blended unit Ebitda (Rs/t) 850 883 939 1,008 1,235 Goodwill 10,531 11,062 10,851 11,062 11,062
Investment 45,000 43,976 66,905 71,982 71,982
% YoY 0 4 6 7 23
Total Ebitda 39,153 43,498 46,935 53,827 72,382 Net current assets 12,109 10,304 1,735 2,280 3,743
% YoY 8 11 8 15 34 Total assets 316,744 343,224 359,386 384,490 424,912
Depreciation (11,331) (12,890) (12,679) (13,103) (13,457)
Interest (5,475) (5,053) (5,714) (4,879) (4,529) Cashflow statement
Other income 6,515 5,015 9,354 8,250 9,281
PBT 28,863 30,570 37,896 44,095 63,678 (Rsm) FY15 FY16 17CL 18CL 19CL
Tax (8,715) (8,819) (11,482) (13,449) (19,740) Cash from operations 38,730 43,388 41,823 45,867 54,075
Standalone PAT 20,147 21,751 26,414 30,646 43,938 Cash from investments (58,844) (19,084) (6,496) (12,603) (17,347)
% YoY (2) 8 21 16 43 Capex (70,410) (21,948) (15,730) (20,721) (26,482)
Others (subs) 836 1,115 735 801 837 Cash from financing 16,717 (6,314) (12,842) (15,437) (9,820)
Consol PAT 20,983 22,866 27,149 31,447 44,775 Change of cash (3,397) 17,990 22,485 17,827 26,908
% YoY (1) 9 19 16 42 Cash start 51,893 48,496 66,486 89,183 106,798
EPS (Rs/sh) 76.5 83.3 98.9 114.6 163.1 Cash end 48,496 66,486 89,183 106,798 133,707
% YoY (1) 9 19 16 42 Free cashflow (31,680) 21,440 26,093 25,146 27,592
Note: Excludes JPA consolidation. Source: CLSA, Company
Page 93

Century (CPBI IN - N-R)
Century is largest manufacturer of plywood in India with Aggressive capacity build - Focus on MDF and
25% of the organised market. Century has also established laminate
itself as one of the leading laminate brands where it is
600 2012 2016
ramping up capacities by 50% (to 7.2m sheets).
500 Cagr 19%
With the recent entry into MDF business, Centurys product
portfolio has the entire gamut of wood-panel products. 400
Market-share gains to continue: Benefits from the 300

structural shift in market share in favour of organised Cagr 7%
players, led by GST implementation, superior brand recall, 200

raw-material security and recent aggressive capacity
100
expansion.
0
Products targeted at low-cost housing segments: Plywood Laminates MDF
Expanding into affordable segment through another line of ('000 CBM) ( in '0000 sheets) ('000 CBM)
products (Sainik; Maxima brands); 15-20% cheaper than
premium category. Financial summary
Competitive advantage: Sourcing face veneers (key raw (Rsm) FY15 FY16 FY17F FY18F FY19F
materials) is a key entry barrier in the plywood business.
Revenue 15,727 16,503 17,871 22,840 27,102
Centurys backward integration/long-term relationships
with suppliers of critical raw-material inputs ensures Revenue growth (%) 17.7 4.9 8.3 27.8 18.7
production stability Ebitda 2,559 2,890 2,958 3,973 4,752
Ebitda margins (%) 16.3 17.5 16.6 17.4 17.5

Asset-light operations: Century plans to expand
operations through an outsourcing model in the mid- to Net profit 1,490 1,672 1,717 2,121 2,771
low-end category wood-panel segment. EPS (Rs) 7 8 8 10 12
EPS growth (%) 147.2 12.1 2.8 23.2 31.2

Valuations: The market expects Century to deliver a 27%
EV/Ebitda (x) 22 14 21 16 13
EPS Cagr over FY17-19E, based on Bloomberg estimates;
and the stock is trading at 21x FY19 EPS. PE (x) 35 23 34 28 21
Source: Company, AceEquity, Bloomberg estimates Page 94

Century (CPBI IN - N-R)
Profit & Loss statement Balance-sheet summary
(Rsm) FY13 FY14 FY15 FY16 (Rsm) FY13 FY14 FY15 FY16
Net revenue 11,816 13,477 15,884 16,637 Shareholders funds 2,558 2,931 3,894 5,327
COGS 7,373 7,843 8,474 8,177 Equity capital 223 223 223 223
Gross profit 4,444 5,633 7,411 8,460 Reserves 2,336 2,708 3,671 5,104
Minority Interest 86 114 55 90
Employee expenses 1,219 1,612 2,009 2,391
Debt 5,325 5,532 4,706 4,241
Other expenses 1,991 2,439 2,843 3,181
Long term 2,312 2,033 842 688
Ebitda 1,234 1,582 2,559 2,888 Short term 3,013 3,499 3,863 3,553
Ebitda margins (%) 0 0 0 0 Deferred Tax liabilities 25 (7) (63) (130)
Depreciation 280 387 485 484 Total Current liabilities and provisions 1,599 2,239 2,013 2,128
Finance cost 404 603 456 481 Total liabilities and equity 9,593 10,810 10,605 11,655
Other income 72 37 177 58 Gross block 4,123 4,895 4,607 5,228
Taxes 46 (5) 296 301 Accumulated depreciation 1,396 1,731 2,151 2,601
Net block 2,728 3,164 2,456 2,627
Profit after tax 577 633 1,500 1,680
Capital Work-in-Progress 467 240 329 1,000
Minority Interest (25) (31) (9) (8)
Net fixed assets 3,195 3,404 2,785 3,652
Share of profit from associates (0.22) 0.63 (1.35) 0.00
Investments 77 31 4 2
Net Profit 552 603 1,490 1,672 Other non current assets 21 24 23 1
Adj. EPS (Rs/share) 2 3 7 8 Long term loans & advances 646 839 625 847
% growth in EPS (55) 9 147 12 Cash & Bank balances 1,020 387 374 389
Inventory 2,293 3,029 3,322 2,975
Inventory days 134 124 137 141
Cashflow statement Accounts Receivable
Receivable days
1,793
58
2,089
53
2,683
55
2,873
61
(Rsm) FY13 FY14 FY15 FY16 Other current assets 175 258 139 312
Cashflow from operations 604 338 1,488 2,928 Short term loans & advances 375 746 649 606
Cashflow from investment (1,581) (706) 128 (1,389) Net current assets 1,043 770 1,292 1,473
Capital expenditure (1,570) (643) 68 (1,498) Net current asset days (ex cash) 1 10 21 24
Cashflow from Financing 1,543 (281) (1,577) (1,525) Total assets 9,593 10,807 10,605 11,655
Cash at beginning of period 654 983 334 374 Net debt/equity (x) 1.68 1.76 1.11 0.72
Cash at end of period 1,220 334 374 389 ROE (%) 21.57 20.56 38.26 31.39
Free cashflow (966) (305) 1,556 1,431 ROCE (%) 6.87 14.45 24.07 26.26
Source: Company, AceEquity
Page 95

Dalmia Bharat (DBEL IN - N-R)
Fifth-largest cement firm with 25m tonne Capacity - Over the years
capacity in India 30 (mt)
Massive growth in capacity on the back of 25
organic/inorganic expansion, reflected in 24%

20
volume Cagr over FY12-16
15
Strong presence in Southern and Eastern
regions with focus on premium products 10
One of the highest unit Ebitda in the industry 5
(above Rs1,200/t in FY16) 0

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 17E
Simplified holding structure through mergers in
the past few years - effective tax rates should Financial summary
also come down
(Rsm) FY15 FY16 FY17F FY18F FY19F
Strong focus on operational efficiencies Net sales 35,141 64,380 73,735 84,310 96,050
Ebitda 6,036 15,786 18,542 21,279 25,098

Major capex cycle is likely to have come to an Net profit 31 1,908 2,928 5,548 8,282
end - near-term focus on improving utilisation EPS (Rs) 0.4 23.4 31.6 58.7 93.4
and deleveraging balance sheet EPS (% YoY) na na 35.1 85.9 59.2
Expected to be a key beneficiary of strong ROE (%) 0.1 5.4 7.3 12.2 16.2
demand from the proposed infrastructural PB (x) 1.1 1.8 4.8 4.2 3.6
PE (x) na 34.2 65.8 35.1 22.9

developments in the states of Andhra Pradesh
EV/Ebitda (x) 17.5 8.7 13.3 11.6 9.8
and Telangana
Source: Company, Bloomberg
Page 96

Dalmia Bharat (DBEL IN - N-R)
Gross revenues 31,605 34,252 39,986 73,275 Net worth 30,679 30,947 30,702 38,569
Preference capital held by others 7 7 7 7
Excise (3,699) (4,094) (4,845) (8,896)
Minority interest 5,174 4,457 7,470 3,569
Net revenues 27,906 30,158 35,141 64,380
Deferred capital inv subsidy 324 305 273 1,163
Material (4,125) (5,353) (6,644) (13,222) Loans 34,276 42,732 84,797 88,925
Power & Fuel (7,511) (7,732) (7,087) (8,829) Def tax liab 1,313 1,560 4,006 5,674
Freight charges (4,122) (5,311) (6,330) (11,474) Total Liabilities 71,774 80,007 127,254 137,906
Stores, spares etc (157) (192) (389) (643) Total fixed assets 48,072 54,973 77,376 78,818
Gross block 49,742 52,174 83,690 105,950
Repairs (626) (875) (1,229) (1,663)
Less depreciation 7,229 9,621 25,532 29,906
Staff (1,990) (2,257) (2,774) (5,065)
Net fixed assets 42,513 42,553 58,158 76,044
G&A (335) (511) (774) (1,179) Intangible assets 56 41 76 72
Others (2,699) (3,281) (3,889) (6,519) CWIP 5,503 12,379 19,142 2,702
Operating expenses (17,439) (20,158) (22,472) (35,371) Goodwill on consolidation 4,052 4,690 19,643 27,182
Ebitda 6,342 4,647 6,025 15,786 Investment 11,804 12,336 16,870 25,752
Cash & bank deposits 999 844 5,281 2,483
- Rs/tonne 1,057 694 858 1,235
Net current assets 6,847 7,165 8,085 3,671
Depreciation (2,059) (2,422) (2,716) (4,528)
Total assets 71,774 80,007 127,254 137,906
Ebit 4,282 2,226 3,309 11,259
Interest cost (2,314) (3,151) (4,344) (7,256)
Cashflow statement
Other income 769 697 933 1,642
Pre-ex PBT 2,738 (229) (101) 5,644 (Rsm) FY13 FY14 FY15 FY16
Exceptional Items - - (61) - Cash from operations 3,314 3,437 5,448 18,907
Reported PBT 2,738 (229) (162) 5,644
Cash from investments (6,276) (8,550) (20,099) (7,816)
Income taxes (1,336) (644) (469) (2,991)
Capex (3,398) (7,000) (4,953) (3,852)
Reported PAT 1,402 (873) (631) 2,653
Cash from financing 3,139 4,285 29,345 (5,002)
Share of associates 723 488 485
Share of minority interest (154) 302 176 (745) Change of cash 177 (828) 14,694 6,090
PAT 1,971 (84) 31 1,908 Cash start 7,185 7,362 6,534 21,228
EPS 24.3 (1.0) 0.4 23.4 Cash end 7,362 6,534 21,228 27,318
Source: Company
Page 97

JK Cement (JKCE IN - N-R)
Grey cement capacity of 10.5mt with presence Grey cement capacity trend
in north, west and south 12 (mt)
One of the two major players in white cement 10
with India capacity at 0.6m tonnes - has 8

international presence too at Fujairah (0.6mt)
6
Second-largest producer of wall putty with

4
India capacity at 0.7m tonnes
2
White cement and putty are less volatile than
cement business and have significantly better 0
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 17E 18E 19E
pricing and margins than grey cement - these
business form 30% of revenues Financial summary
(Rsm) FY15 FY16 17CL 18F 19F
Large captive power capabilities - 141MW Net sales 33,373 35,310 38,454 43,890 48,450
(including 23MW of Waste Heat Recovery) Ebitda 4,659 5,190 6,638 7,829 9,372
Net profit 1,569 1,015 2,239 3,008 3,895
Plans to commission railway in south to EPS (Rs) 22.4 14.5 31.0 43.5 61.3
reduce costs EPS (% YoY) 61.7 (35.3) 113.3 40.4 41.0

ROE (%) 9.2 6.0 11.8 14.4 17.8
PB (x) 2.8 2.8 3.6 3.1 3.2
Plans to lower power costs in its UAE plant by PE (x) 29.7 46.5 31.6 22.0 16.1
connecting to grid EV/Ebitda (x) 14.3 13.2 13.7 11.6 9.7
Source: Company, Bloomberg
Page 98

JK Cement (JKCE IN - N-R)
Gross revenues (sale of products) 33,426 32,017 38,595 40,978 Net worth 16,974 17,585 16,465 17,144
Equity capital 699 699 699 699
Excise (4,385) (4,202) (5,222) (5,668)
Reserves 16,275 16,885 15,766 16,445
Net revenues 29,040 27,815 33,373 35,310 Loans 12,718 23,205 26,087 26,495
Material (5,116) (5,625) (7,141) (6,756) Def tax liab 2,490 2,685 2,798 3,284
Total liabilities 32,182 43,474 45,351 46,924
Power & fuel (7,140) (6,739) (7,935) (7,408)
Total fixed assets 24,718 34,146 35,291 36,432
Freight (5,997) (6,334) (7,344) (7,474) Gross block 30,697 31,635 42,154 45,220
Stores, spares etc (806) (736) (820) (884) Less depreciation 7,079 8,520 8,794 10,331
Net fixed assets 23,618 23,115 33,360 34,888
Repairs (559) (625) (719) (795)
Intangible assets 25 11 20 20
Staff (1,579) (1,678) (2,025) (2,314) CWIP 1,075 11,020 1,912 1,524
G&A (441) (280) (312) (327) Investment 1,693 4,419 4,679 5,868
Cash & bank deposits 3,325 3,476 4,077 4,759
Others (1,883) (2,192) (2,638) (4,455)
Net current assets 2,447 1,434 1,303 (135)
Operating expenses (18,404) (18,584) (21,792) (23,657) Total assets 32,182 43,474 45,351 46,924
Ebitda 5,521 3,606 4,440 4,897
- Rs/tonne 863 582 617 628 Cashflow statement
Depreciation (1,283) (1,340) (1,366) (1,563)
(Rsm) FY13 FY14 FY15 FY16
Ebit 4,238 2,266 3,074 3,334 Cash from operations 3,844 1,874 4,364 5,157
Interest Cost (1,398) (1,526) (2,194) (2,696) Cash from investments (4,556) (8,688) (4,778) (1,901)
Other Income 566 622 712 793 Capex (3,569) (9,479) (4,847) (2,793)
Cash from financing (74) 8,739 815 (2,173)
PBT 3,406 1,363 1,592 1,431
Change of cash (785) 1,925 401 1,083
Income taxes (1,071) (392) (22) (416)
Cash start 4,375 3,590 5,515 5,916
PAT 2,335 970 1,569 1,015 Cash end 3,590 5,515 5,916 6,999
EPS 33.4 13.9 22.4 14.5 Free cashflow (1,309) (8,900) (3,384) 1,283
Source: Company
Page 99

Kajaria (KJC IN - N-R)
Kajaria is the market leader in Indias tiles industry with a Net realisation
strong distribution network, established brand and pan-
(Rs/m)
India presence. 390
380 377
Market shifting towards premium tiles: An increasing 371
374
shift towards premium vitrified tiles from ceramic tiles has 370
led to 13% growth in Kajarias net realisations over FY12- 360

354
9MFY17 and improved its margins profile.
350 347
Market-share gains to continue: Kajaria should benefit 340

from a structural shift in market share accelerating, led by 333
330
GST implementation and a superior brand and distribution
network. Kajaria has expanded capacity aggressively and 320
is well positioned to benefit from demand improvement.
310
FY12 FY13 FY14 FY15 FY16 9MFY17
Asset light model: Kajaria has followed an asset-light
expansion model and expand its capacity by 2.9x over
FY10-16 through acquisitions and JVs. Financial summary
Increasing presence in low-cost housing: Kajaria has (Rsm) FY15 FY16 FY17F FY18F FY19F
introduced tiles in the value segment to increase Revenue 21,746 24,088 25,266 28,788 33,297
penetration in smaller cities and tap demand from the Revenue growth (%) 18.3 10.8 4.9 13.9 15.7
low-cost housing Ebitda 3,555 4,634 4,986 5,641 6,601
Ebitda margins (%) 16.4 19.2 19.7 19.6 19.8
Capex intensity to reduce: Kajaria has incurred Net profit 1,756 2,292 2,504 2,994 3,617
cumulative capex of Rs7bn in F14-FY16, increasing its EPS (Rs) 11 14 16 19 23
capacity by 67% to 69msm. As per management, capex
EPS growth % 36.1 26.9 9.1 19.6 20.8
intensity is expected to come down leading to free
EV/Ebitda (x) 18.9 17.1 21.3 18.6 15.6
cashflows generation going forward.
PE (x) 58.0 45.7 41.9 35.0 29.0
Valuations: Kajaria is expected to deliver a 20% EPS

Cagr over FY17-19E based on Bloomberg estimates; stock
trades at 29x FY19 EPS.
Source: Company, AceEquity, Bloomberg estimates Page 100

Kajaria (KJC IN - N-R)
Net revenue 15,882 18,823 22,331 24,480 Shareholders funds 3,568 5,176 7,221 9,094
COGS 8,124 10,274 11,954 13,047 Equity capital 147 401 159 161
Gross profit 7,758 8,550 10,377 11,434 Reserves 3,421 4,775 7,062 8,933
Employee expenses 1,221 1,484 1,692 1,900 Debt 1,792 697 896 544
Other expenses 4,317 4,689 5,825 5,615 Long term 366 104 110 148
Ebitda 2,219 2,376 2,861 3,919 Short term 1,426 594 786 396
Ebitda margins (%) 14.0 12.6 12.8 16.0 Deferred tax liabilities 639 663 695 812
Depreciation 384 365 394 472 Total current liabilities and provisions 3,284 3,528 3,838 5,084
Finance cost 359 264 60 93 Total liabilities and equity 9,282 10,065 12,651 15,533
Other income 4 21 27 161 Gross block 7,505 8,118 8,577 10,175
Taxes 475 601 751 1,165 Accumulated depreciation 2,858 3,078 3,434 3,549
Net profit 1,005 1,167 1,684 2,349 Net block 4,647 5,041 5,142 6,626
Adj EPS (Rs/share) 6.8 7.7 10.6 14.8 Capital work-in-progress 68 119 37 58
% growth in EPS 25 13 37 40 Net fixed assets 4,716 5,160 5,179 6,684
Investments 372 450 792 1,089
Other non current assets 0 0 0 0
Long term loans & advances 362 386 1,087 1,532
Cash & bank balances 28 40 61 48
Inventory 1,765 1,518 2,020 2,200
Inventory days 79 58 54 59
Accounts receivable 1,366 1,583 1,918 2,523
Cashflow statement Receivable days 29 29 29 33
(Rsm) FY13 FY14 FY15 FY16 Other current assets 15 16 20 24
Cashflow from operations 871 1,491 90 2,867 Short-term loans & advances 658 912 1,574 1,433
Cashflow from investment (648) (883) (697) (2,153) Net current assets (877) (53) 968 749
Capital expenditure (302.69) (408.73) (819.00) (436.20) Net current asset days (ex-cash) (21) (2) 15 10
Cashflow from financing (256) (603) 629 (729) Total assets 9,282 10,065 12,651 15,533
Cash at beginning of period 55 22 27 49 Net debt/equity (x) 0.49 0.13 0.12 0.05
Cash at end of period 22 27 49 34 ROE (%) 31 27 27 29
Free cashflow 462 672 (346) 856 ROCE (%) 37 36 35 39
Source: AceEquity, Company
Page 101

Building materials: Valuation matrix
Company name Price Mcap Rating PE (x) PE/G (x) EV/Ebitda PB (x) Net D/E (%) ROE (%) EPS Cagr %
(LC) (US$m) FY18CL FY19CL FY19 FY18CL FY19CL FY18CL FY19CL FY16 FY18CL FY19CL (FY16-19E)
Cement
UltraTech 4,231 18,087 O-PF 36.9 25.9 0.6 20.1 14.7 4.3 3.7 16.0 12 15 25
ACC 1,603 4,693 SELL 47.3 31.4 0.6 21.9 15.6 3.4 3.2 (14.9) 7 11 11
Ambuja 246 7,605 SELL 39.4 28.4 0.7 18.0 13.3 2.4 2.3 (48.4) 6 8 19
Shree Cement 19,219 10,334 U-PF 43.4 32.3 0.9 24.2 19.0 7.9 6.4 (28.9) 20 22 66
Ramco Cement 697 2,536 SELL 23.8 21.2 1.8 15.4 13.6 3.9 3.4 68.4 18 17 14
Light Electricals
Havells 485 4,710 SELL 44.5 36.1 1.6 28.3 23.2 9.2 8.1 (53.3) 22 24 18
Crompton Consumer 220 2,152 BUY 35.6 28.9 1.2 23.7 19.6 19.3 14.3 193.1 63 57 28
TTK Prestige 6,396 1,187 SELL 44.7 35.8 1.4 28.0 23.6 8.4 7.3 (3.1) 20 22 21
Bajaj Electricals 348 549 N/R 25.0 19.4 0.7 13.7 11.7 3.8 3.4 101.7 16 18 24
Finolex Cables 538 1,271 N/R 19.0 16.5 1.1 16.8 13.4 4.2 3.6 (30.8) 25 27 14
KEI Industries 212 258 N/R 15.2 12.1 0.5 6.8 6.0 3.0 2.5 117.6 20 21 30
Paints
Asian Paints 1,105 16,270 SELL 47.6 40.6 2.4 30.0 25.3 14.5 12.6 (36.4) 32 33 14
Berger Paints 257 3,870 N/R 48.3 39.9 1.9 29.4 25.0 12.4 10.6 (2.3) 28 29 19
Kansai Nerolac 383 3,224 N/R 38.6 33.9 2.5 23.8 21.4 6.6 6.0 (40.4) 19 20 (12)
Akzo Nobel 2,037 1,487 N/R 33.1 28.6 1.8 22.1 19.9 9.0 8.3 (74.9) 29 30 17
Pipes
Astral 548 1,045 BUY 37.0 27.4 0.8 20.5 15.7 6.9 5.6 10.1 21 23 32
Supreme Industries 1,069 2,120 N/R 28.8 24.9 1.6 16.4 14.5 7.1 6.2 29.4 27 27 na
Finolex Industries 579 1,116 N/R 22.1 19.3 1.3 13.8 12.0 5.9 5.2 5.4 28 28 16
Adhesives
Pidilite 726 5,787 O-PF 37.6 32.3 2.0 25.1 21.7 9.3 7.8 (0.2) 27 26 15
Wood Panel
Century Ply 267 916 N/R 27.8 21.2 0.7 16.2 12.8 7.2 5.7 70.3 29 30 18
Greenply 286 540 N/R 23.6 20.5 1.3 13.1 10.1 3.8 3.2 34.0 17 17 9
Greenlam 684 256 N/R 28.4 20.9 0.6 11.6 9.3 4.9 4.0 106.2 19 21 28
Uniply 337 124 N/R 85.1 na na 42.6 na 11.9 na 96.9 14 na na
Ceramics
Kajaria Ceramics 664 1,646 N/R 35.2 29.2 1.4 19.1 16.3 8.0 6.7 27.6 24 24 16
Somany Ceramics 763 478 N/R 30.5 24.0 0.9 16.1 13.5 5.5 4.7 30.6 18 19 23
Sanitaryware
HSIL 347 381 N/R 16.2 12.6 0.4 8.0 6.8 1.7 1.5 44.3 10 13 30
Cera Sanitaryware 3,060 620 N/R 33.8 28.0 1.3 19.9 16.8 6.5 5.4 (18.5) 21 21 19
Note: Priced as of 26 April 2017; ACC and Ambuja are December year-end and FY18 refers to CY17 and FY19 refers to CY18.
Source: CLSA (for rated cos), Bloomberg estimates (for rest).
Page 102

Financials

Disbursements can triple in seven years
As we have discussed, housing sales could rise from Housing sales to rise 2.5x over FY17-24CL
Rs7tn in FY17 to Rs17tn by FY24 Disbursement of housing loans
This will be driven by market growth and impetus to FY11-17 FY18-24CL
affordable housing
FY18
8%
We estimate that if 70% of these sales are financed FY11
FY24
22% FY19
10%
FY17
through mortgages, disbursements can triple over 20%
9%
FY12
10%
FY17-24 to Rs11tn FY20
Rs18tn FY13 Rs50tn 11%
FY16 12% FY23
19%
Mortgage loans could post a 17% Cagr 19%
FY14 FY21
FY15 14% 14%
Penetration will rise from 9% to 12%, but still stay 16% FY22
16%
significantly below other markets
Over FY17-24, disbursements could triple . . . . . . and mortgage loans can enjoy a 17% Cagr
12 (Rstn) Mortgage loan disbursements 11 45 (Rstn) Mortgage loans (LHS) (% GDP) 14
40 Mortgage penetration
10 12
35
10
8 30
25 8
6
20 6
4
4 15
4
2
10
2
2
5
0 0 0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
Source: Government, banks, NHB, CLSA
Page 104

Growth market, success drivers and risks
Non-urban markets and low-mid income customers will be key drivers of demand for housing loans
Growth
markets Share of housing units with a value of Rs0.5-1m will rise from 20% currently to 24% by FY24
Distribution network, ability to assess income/ quality of borrowers will be key to success
Success PSU banks have a lead on branch-network and branding in smaller towns
drivers for
Housing finance companies have domain expertise in underwriting
lenders
Private banks can leverage ability to cross-sell to improve profitability of mortgage loans
Quality of underwriting is key as low ticket housing loans have higher default rates
Key risks NPL ratio in Rs0.2-0.5m housing loan is 2-3% vs. sub-1% in >Rs2.5m
Visibility on government's policies for supporting affordable housing will be key
Source: Government, banks, NHB, CLSA.
Page 105

Effective interest-cost is half of rack-rate
Extension of credit-linked subsidy scheme (CLSS) Housing subsidy lowers effective mortgage cost
to mid-income households will bring large pool of
eligible homebuyers into the fold of subsidies 2017 2012
Base case Tax-saver Base case

Effective interest cost of affordable housing loan
is down by 400bps in five years - Effective cost Income (Rsm) 0.8 0.8 0.5
can also be brought down to zero in a tax- Loan value (Rsm) 2.5 1.7 1.6
efficient scenario
LTV (%) 70 70 70
At 4%, effective-interest cost is much below rack- Price of house (Rsm) 3.6 2.4 2.2
rate of 8.6%
Real-estate price (Rs/ sf) 4,200 4,200 3,500
Size of house (sf) 850 578 634
Subsidy scheme expanded to include middle income Type of house 1 BHK

1 Room 1 Room
Kitchen Kitchen
Earlier New additions

Particulars EWS LIG MIG-1 MIG-2 Rack-rate (%) 8.6 8.6 10.8
Annual household income (Rsm) 0.3 0.6 1.2 1.8

Effective cost over actual loan tenure (%) 4 0 8
Max loan tenure (years) 20 20 20 20
Eligible loan for interest subsidy (Rsm) 0.3 0.6 0.9 1.2 EMI (post tax-saving) (Rs '000) 16 14 13
Max carpet area (m) 30 60 90 110

Effective tenure of loan (yrs) 20 10 20
Interest subsidy (%) 6.5 6.5 4 3
Discount rate for NPV (%) 9 9 9 9 Income (Rsm) 0.8 0.8 0.5
Note: Subsidy is based on MIG-2. Source: Government, CLSA
Page 106

Housing financiers in a sweet spot
Indias mortgage market is underpenetrated Home affordability is nearing best-in-decade level
Comparison of mortgage penetration 60 (%) EMI as % of post-tax income (%) 14
Denmark 114 Mortgage interest rate (RHS)
UK 50
75 12
US 68
40
Singapore 56
10
HK 45
30
Germany 42
8
Taiwan 40 20
S Korea 36
6
Malaysia 32 10
Thailand 20
0 4
China 18
FY18CL
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
India 9
(% GDP)
0 20 40 60 80 100 120
Note: mortgage penetration is based on 2015
HFCs access to funds is also improving . . . . . . and also benefits from sharp fall in funding costs
11 Cost of 5Y AAA-rated bond
Mutual funds Insurance funds Foreign funds
9.7
10
Debt mutual funds can AAA-rated HFCs Masala Bonds help to 9

now invest up to 40% excluded from sectoral- tap foreign funding
of assets in HFCs vs cap for investments in through INR
8
35% since Aug 2016 financial/insurance denominated bonds
(earlier 30%) sector 7.8
Strong demand 7
=> Additional Rs600bn Infra status to indicates good appetite
can be accessible to affordable housing is for future issuances 6
HFCs also a positive as well
5
Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17
Source: Government, European Mortgage Federation, Asian Development Bank, EconomyWatch.com, Bloomberg, CLSA Page 107

Lenders in housing finance
PSU banks and Housing Finance PSU banks and HFCs dominate the market
Companies (HFCs) control 80% of the Market share in housing loans
Foreign banks
market 2%
Private banks
Top-4 players control half of the 17%
market - SBI and HDFC lead

HFC and
NBFCs
39%
HFCs with focus on affordable housing PSU banks

42%
finance should benefit more
SBI and HDFC lead; new NBFCs are now listed Lenders with focus on affordable loans to benefit
(% of market) Market share in housing loans, FY16 3.5 (Rsm) Ticket size of housing loans
15 3.2
16 14
14 3.0
2.5 2.5
12
2.5
10 9 9 2.1
8 2.0 1.7
6 5 5 5 5
1.5 1.2 1.3
4 3 2 2 0.9
2 1 1 1
1.0
0
0
0.5
IHFL
HDFCB
Gruh
LICHF
PNBHF
SBI
Axis
ICICI
PNB
Can Fin
Repco
Dewan
BOB
ICICIHF
HDFC
0.0
Gruh Dewan Repco Can Fin LIC HF HDFC Ibulls PNB HF
Source: RBI, banks, companies
Page 108

Key players in housing finance
Rsm, FY16 HDFC Ibulls HF LIC HF PNB HF Gruh Fin Dewan HF Can Fin Repco HF
HDFC IN IHFL IN LICHF IN PNBHOUSI IN GRHF IN DEWH IN CANF IN REPCO IN
Price (Rs) 1,585 1,011 676 1,375 389 432 2,550 769
CLSA recommendation BUY BUY BUY No rec No rec No rec No rec No rec
Market cap (US$bn) 39.3 6.7 5.3 3.5 2.2 2.1 1.1 0.8
3M Avg TO (US$m) 59 40 17 7 2 14 4 2
Financials
Loans (Rsbn) 2,592 616 1,252 272 117 623 106 77
Net worth (Rsm) 340,700 106,939 91,460 21,445 8,353 50,170 8,780 9,548
Profit (Rsm) 70,931 23,447 16,608 3,276 2,436 7,292 1,571 1,501
Profitability
NIM (%) 3.4 5.8 2.5 3.0 4.1 3.0 3.2 4.4
ROA (%) 2.6 3.2 1.4 1.3 2.3 1.2 1.6 2.2
ROE (%) 20 24 20 18 31 15 19 17
Asset quality
Gross NPA (%) 0.7 0.9 0.5 0.2 0.3 0.9 0.2 1.3
Net NPA (%) 0.2 0.4 0.2 0.1 0.1 0.6 0.0 0.5
Avg ticket size (Rsm) 2.5 2.5 2.1 3.2 0.9 1.2 1.7 1.3
Loan mix
Individual (%) 64 52 88 61 85 72 83 80
LAP (%) 5 25 9 18 11 16 6 20
Corporate/ other (%) 31 23 3 21 4 12 11 0
Source: Companies
Page 109

HDFC (HDFC IB - Rs1,585.0 - BUY)
HDFC is a leading mortgage financier in India Sum-of-the-parts valuations
with a 15% market share Business Rs Remarks
HDFC Bank (21% stake) 627 Based on target price of Rs1,830
With a strong brand, expanding reach into HDFC Life Insurance (62% stake) 217 Based on 3.5x Price/ EV
smaller towns and competitive rates, it should HDFC General Insurance (51% stake) 29 25x PE
be a key beneficiary of the mortgage-demand HDFC Asset management (60% stake) 79 25x PE
uptick Gruh Finance (59% owned)

HDFC Real Estate Fund (100% owned)
53
5
Market value of stake
10% of AUM
Total Value of Subsidiaries 1,012
It is investing in new segments like affordable Value of the mortgage financing business 892 3.8x adjusted PB
housing and lending to the self-employed (as Target value 1,903
against salaried) people, which could expand

the target market
A rise in housing-loan demand to aid a 16% Summary financials

profit Cagr over FY17-20 Year to 31 Mar 16A 17A 18CL 19CL 20CL
Op income (Rsm) 115,821 125,732 140,947 163,679 190,625
Net profit (Rsm) 70,931 75,715 87,438 101,640 118,468
Net profit for FY16-17 includes one-time gains EPS (Rs) 45 48 55 64 75
on sale of stakes in insurance subsidiaries EPS growth (% YoY) 18 6 15 16 17
ROAA (%) 2.6 2.4 2.4 2.4 2.4
Strong asset quality and low-cost/income ratio Adj. RoAE (%)

PE (x)- reported
20
35
20
33
21
29
21
25
21
21
are key to sustaining 20%-plus core ROEs, PE (x)- adjusted 21 16 11 9 7
which will drive book growth and returns PB (x) reported 7.3 6.9 6.1 5.4 4.7
PB (x) adjusted 6.0 4.3 3.1 2.4 1.8
Dividend yield (%) 1.1 1.2 1.4 1.6 1.9
CAR (%) 16.6 15.0 14.4 13.7 13.1
Adjusted for investment in subs and 100% NPL coverage. Prices as on 26 April
2017. Source: Company, CLSA, Bloomberg
Page 110

Expect 17% loan Cagr over FY17-20 ROE of 20%-plus drives book growth
6,000 (Rsbn) Loans (LHS) Loan growth (% YoY) 18 2.8 (%) ROA (LHS) Core ROE (%) 25
16 2.6
5,000
14 2.4 20
4,000 12 2.2
15
10 2.0
3,000
8 1.8
10
2,000 6 1.6
4 1.4 5
1,000
2 1.2
0 0 1.0 0
FY16 FY17 FY18CL FY19CL FY20CL FY16 FY17 FY18CL FY19CL FY20CL
Valuations reflect strong growth and profitability 3Y target price Rs2,290; 44% total return
5.0 (x) HDFC's 12m forward Adj PB (on financing business) Risk free rate (%) 7.0
Risk premium (%) 5.5
Beta 1.0
4.5
Cost of equity (%) 12
Sustainable ROE (%) 21
4.0 Years of high growth phase 7
+1std, 3.8x
3.7 Profit growth in high growth phase (%) 17
3.5 Payout ratio of high growth phase (%) 40
Avg, 3.2x Long-term growth (%) 8.4
3.0 Terminal dividend payout ratio (%) 40
-1std, 2.7x
PB (x) 3.7
BVPS (Rs, FY21) 321
2.5 Value of financing business (Rs) 1,193
Value of subsidiaries (Rs) 1,012
2.0 Dividends (Rs) 77
Total value (Rs) 2,282
1.5 Total value rounded-off (Rs) 2,290
Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Current price (Rs) 1,585
3 year returns (Rs) (%) 44
Note: Adj for 100% NPL coverage and investment in subs (stake in HDFC Bank is
valued at market price). Source: Company, Bloomberg, CLSA
Page 111

Income statement Key ratios
Year to March (Rsm) FY16 FY17 FY18CL FY19CL FY20CL Year to March FY16 FY17 FY18CL FY19CL FY20CL
Interest income 280,753 311,259 347,087 396,202 462,059 EPS (Rs) 45 48 55 64 75
Interest expense 193,745 209,521 230,005 259,961 302,787 EPS growth (Rs) 18 6 15 16 17
Net interest income PPP / Share (Rs) 69 74 83 97 113
87,009 101,739 117,082 136,241 159,272
Other income BV/Share (reported) (Rs) 216 231 260 295 337
28,812 23,993 23,865 27,439 31,352
ABV/ share (for invest. in subs) (Rs) 161 173 201 235 274
- Fee income 3,742 4,304 4,820 5,398 6,046
ROAA (%) 2.6 2.4 2.4 2.4 2.4
- Profit on investments 16,478 10,021 7,500 8,250 8,828
ROAE (%) 22 21 22 23 24
Total income 115,821 125,732 140,947 163,679 190,625 Core ROAE (%) 20 20 21 21 21
Operating expenses 7,590 8,446 9,426 10,537 11,784 Spreads (%) 2.2 2.3 2.4 2.4 2.4
Pre-provision profit 108,231 117,286 131,521 153,143 178,841 NIM (%) 3.4 3.5 3.5 3.4 3.4
Provisions 7,150 6,691 5,299 6,386 7,597 Gross NPLs (% of loans) 0.7 0.8 0.8 0.8 0.9
PBT 101,081 110,594 126,222 146,756 171,244 Net NPLs (% of loans) 0.2 0.3 0.3 0.3 0.3
Tax 30,150 34,879 38,784 45,116 52,776 Coverage (% of gross NPLs; includes 74 67 68 68 68
Net profit 70,931 75,715 87,438 101,640 118,468 buffer provisions)
Capital Adequacy Ratio (% of RWA) 16.6 15.0 14.4 13.7 13.1
- Tier I CAR (% of RWA) 13.2 12.1 11.8 11.4 10.9
Balance sheet Cost-Income ratio (Excl Treasury) (%)

Fee income growth (% YoY)
7.6
29
7.3
15
7
12
7
12
6
12
As at March (Rsm) Fee (% total revenue) 3.2 3.4 3.4 3.3 3.2
FY16 FY17 FY18CL FY19CL FY20CL
Loans Cost Asset Ratio (%) 0.3 0.3 0.3 0.3 0.2
2,592,240 2,992,627 3,483,417 4,079,157 4,777,428
Loan Growth (% YoY) 13.6 15 16 17 17
Investments 153,454 187,221 197,862 209,364 221,813
Equity / Assets (%) 11.8 11.0 10.7 10.5 10.3
Current assets 82,185 90,404 99,444 109,389 120,327 Equity / Loans (%) 13 12 12 11 11
Cash 53,047 48,880 49,342 65,504 75,962 Provision/ avg. loans (%) 0.3 0.2 0.2 0.2 0.2
Net fixed assets 6,602 7,052 7,546 8,077 8,647 Tax rates (% of PBT) 30 32 31 31 31
Total assets 2,887,528 3,326,183 3,837,612 4,471,491 5,204,177 Yield on Loans (%) 10.8 10.4 10.0 9.8 9.8
Share Capital 3,160 3,170 3,170 3,170 3,170 Yield on investments (%) 12.3 11.6 11.4 11.3 11.3
Reserves & Surplus 337,540 362,308 409,068 464,710 530,644 Cost of funds (%) 8.6 8.1 7.6 7.4 7.3
Shareholders' Funds 340,700 365,478 412,238 467,880 533,814 Dividend per share (Rs) 17 19 22 26 30
Deposits 746,700 866,172 996,098 1,165,434 1,363,558 Dividend payout (% of profit) 38 40 40 40 40
Borrowings 426,780 354,017 389,419 428,361 480,176 Dividend yield (%) 1.1 1.2 1.4 1.6 1.9
- Domestic P/E (x) 35 33 29 25 21
329,831 247,373 272,111 299,322 338,233
P/E (adj. for subs) (x) 21 16 11 9 7
- International 96,949 106,644 117,308 129,039 141,943
P/ PPP (x) 23 21 19 16 14
Other Loans 1,208,450 1,546,712 1,825,120 2,171,815 2,562,742 P/ Book value (x) 7.3 6.9 6.1 5.4 4.7
Current liabilities & prov. 164,899 193,804 214,737 238,001 263,886 P/ Adj. BV (adj. for subs) (x) 6.0 4.4 3.1 2.4 1.8
Total liabilities 2,887,528 3,326,183 3,837,612 4,471,491 5,204,177 Value of subs & others (Rs/sh) 619 827 965 1,012 1,096
Page 112

Indiabulls (IHFL IS - Rs1,010.9 - BUY)
Indiabulls is an emerging player in housing Valuations reflect stronger growth and profitability
finance with a 3% market share 3.5 (x) Indiabulls - 12m fwd P/ABV
3.0 3.2
Fall in rates and upgrade to credit rating
+1std 2.6x
helped to lower funding cost; see scope for 2.5
more upgrades 2.0 Avg 2.0x
1.5
It has leveraged lower funding costs to derisk
-1std 1.4x
the book by raising its share of housing loans 1.0
0.5
Over the next three years it plans to increase
0.0
its share of housing loans from c.55% to 66% Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17
Expansion into new/smaller towns and Summary financials

use of digital platforms will aid growth at an
Year to 31 Mar 16A 17A 18CL 19CL 20CL
efficient cost Op income (Rsm) 42,541 52,910 66,159 82,361 103,057
Net profit (Rsm) 23,447 29,064 35,876 44,242 54,211
Asset quality has been strong with its gross EPS (Rs) 60 69 85 104 128
NPL ratio at 1% of AUMs; trends in LAP will EPS growth (% YoY) 9 14 23 23 23
Core ROAA (%) 3.2 2.9 2.9 2.8 2.7
be key Core RoAE (%) 24 23 26 29 31
PE (x)- reported 17 15 12 10 8
Over FY17-20CL, we see a 23% profit Cagr, PB (x) - reported 4.0 3.5 3.2 2.8 2.5
led by topline growth PB (x) - adjusted 4.0 3.5 3.2 2.9 2.6
Dividend yield (%) 4.2 2.7 4.0 4.7 5.7
CAR (%) 20.5 18.1 16.4 14.5 13.0
Valuations are at premium to its past average,
reflecting the improved outlook - high ROE will Adjusted for 100% NPL coverage. Prices as on 26 April 2017.
drive book growth and returns Source: Company, CLSA, Bloomberg
Page 113

Expect 31% loan Cagr over FY17-20 Asset quality of LAP segment will be key to watch
2,000 (Rsbn) Loans (LHS) Loan growth (%) 40 Distribution of AUMs, Mar-17
1,800 Others (CV)
0.2%
1,600 35
1,400
Corporate
1,200 30 22%
1,000
800 25 Home loans
600 LAP 56%
22%
400 20
200
0 15
FY16 FY17 FY18CL FY19CL FY20CL
High Core ROEs will drive book growth 3Y target price of Rs1,650; 58% total return
3.5 (%) Core ROA Core ROE (RHS) (%) 35 Risk free rate (%) 7.0
3.0 30 Beta 1.5
Cost of equity (%) 15
Sustainable ROE (%) 25
2.5 25
Years of high growth phase 7
Profit growth in high growth phase (%) 23
2.0 20 Payout ratio of high growth phase (%) 40
Long-term growth (%) 8.5
1.5 15 Terminal dividend payout ratio (%) 40
PB (x) 3.3
1.0 10 BVPS (Rs, FY21) 454
Value of financing business (Rs) 1,452
Dividends (Rs) 146
0.5 5 Total value (Rs) 1,598
Total value rounded-off (Rs) 1,650
0.0 0 Current price (Rs) 1,011
FY16 FY17CL FY18CL FY19CL FY20CL 3 year returns (Rs) (%) 58
Page 114

Year to March (Rsm) FY16 FY17 FY18CL FY19CL FY20CL Year to March FY16 FY17 FY18CL FY19CL FY20CL
Interest expense 49,714 64,108 79,956 99,944 127,762 EPS growth (% YoY) 9 14 23 23 23
Net interest income 30,342 37,624 48,580 61,568 78,868
BVPS (Rs) 254 286 316 356 406
Other income 12,199 15,286 17,578 20,793 24,189
- Fee income 3,179 3,625 4,168 4,794 5,513 Adj. BVPS (Rs) 255 287 315 351 396
- Profit on investments 7,676 10,046 11,553 13,863 16,220 ROA (%) 3.5 3.2 3.1 3.0 2.9
Total income 42,541 52,910 66,159 82,361 103,057 Core ROA (%) 3.2 2.9 2.9 2.8 2.7
Operating expenses 6,184 7,363 8,598 10,175 12,047 ROE (%) 27 25 28 31 34
Pre-provision profit 36,357 45,547 57,560 72,186 91,010 Core ROE (%) 24 23 26 29 31
Provisions 5,069 7,829 9,470 12,246 15,855 NIM (%) 5.8 5.4 5.3 5.3 5.2
PBT 31,289 37,718 48,091 59,940 75,154
Gross NPLs (% of loans) 0.9 0.9 1.0 1.0 1.0
Tax 7,760 8,633 12,191 15,671 20,915
Net Profit 23,529 29,086 35,900 44,269 54,239 Net NPLs (% of loans) 0.4 0.4 0.4 0.4 0.4
Less: minority / associates 82 22 24 26 29 Coverage (% of gross NPLs) 59 58 58 58 58
Net profit post minority 23,447 29,064 35,876 44,242 54,211 Capital adequacy ratio (% RWA) 20.5 18.1 16.4 14.5 13.0
- Tier-1 CAR (% RWA) 17.9 15.0 13.5 12.0 10.8
Cost/income ratio (%) 15 14 13 12 12
Balance sheet Fee income growth (% YoY)

Fee (% total revenue)
25
7.5
14
6.9
15
6.3
15
5.8
15
5.3
As at March (Rsm) FY16 FY17 FY18CL FY19CL FY20CL Cost asset ratio (%) 0.9 0.8 0.7 0.7 0.6
Loans 616,176 826,010 1,082,249 1,411,778 1,838,105 Loan growth (% YoY) 33 34 31 30 30
Investments 106,928 136,166 104,059 108,901 113,985 Equity/assets (%) 14 12 10 9 8
Current assets 10,829 16,283 17,911 19,702 21,672
Equity/loans (%) 17 15 12 11 9
Cash 29,017 56,825 74,676 98,854 129,897
Provision/ avg loans (%) 0.9 1.1 1.0 1.0 1.0
Net fixed assets 686 1,011 1,062 1,115 1,171
Goodwill 671 678 678 678 678 Tax rates (% of PBT) 25 23 25 26 28
Deferred tax asset 53 81 81 81 81 Yield on loans (%) 13.8 13.3 12.8 12.4 12.2
Total assets 764,360 1,037,054 1,280,715 1,641,109 2,105,588 Cost of funds (%) 9.3 8.8 8.3 8.0 7.8
Share Capital 843 848 848 848 848 Dividend per share (Rs) 42 27 40 48 58
Reserves & Surplus 106,097 120,377 133,209 149,912 171,133 Dividend payout (% of profit) 76 39 47 46 45
Shareholders' Funds 106,939 121,225 134,057 150,760 171,980 Dividend yield (%) 4.2 2.7 4.0 4.7 5.7
Borrowings 542,275 754,569 953,368 1,252,343 1,638,889
PE (x) 17 15 12 10 8
Other Loans 68,578 98,431 124,178 161,983 211,093
Current liabilities & prov. 46,568 62,829 69,112 76,023 83,626 P/ PPP (x) 12 9 7 6 5
Total liabilities 764,360 1,037,054 1,280,715 1,641,109 2,105,588 PB (x) 4.0 3.5 3.2 2.8 2.5
Total AUM 686,800 913,010 1,186,913 1,542,987 2,005,883 Adjusted PB (x) 4.0 3.5 3.2 2.9 2.6
Page 115

LIC Housing (LICHF IB - Rs675.8 - BUY)
LIC Housing Finance has a 9% market share Valuations reflect healthy ROEs
and is owned by LIC, which has a 40% stake 2.9 (x) LIC HF - 12m fwd P/ABV
2.6
With 85% of loans in housing finance, mostly 2.3
2.5
+1std 2.3x
in the affordable segment (Rs2m), LIC HF will
2.0
benefit from an uptick in affordable housing Avg 1.9x
1.7
-1std 1.6x
Asset quality has been strong with gross NPLs 1.4
at sub-1% of loans 1.1
0.8
Healthy ROA and the ability to leverage its 0.5
balance sheet, support its high 19% ROE Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17
Key to watch: Seasoning of LAP segment Summary financials

(+80% YoY growth; 12% of loans) and Year to 31 Mar 16A 17A 18CL 19CL 20CL
volatility in spreads due to limited Op income (Rsm) 31,903 38,489 45,299 52,814 61,572
Net profit (Rsm) 16,608 19,311 22,862 26,698 31,104
EPS (Rs) 33 38 45 53 62
We expect a 17% profit Cagr over FY17-20, EPS growth (% YoY) 20 16 18 17 17
led by topline growth ROAA (%) 1.4 1.4 1.4 1.4 1.4
ROAE (%) 20 19 19 19 19
PE (x)- reported 21 18 15 13 11
Valuations at a discount to other large PB (x) - reported 3.7 3.1 2.6 2.2 1.9
players; ROE-led book growth will drive PB (x) adjusted 3.5 2.9 2.5 2.1 1.8
returns Dividend yield (%) 0.8 0.9 1.1 1.3 1.5
CAR (%) 16.6 16.7 16.4 16.2 16.0
Adjusted for 100% NPL coverage. Prices as on 26 April 2017.
Source: Company, CLSA, Bloomberg
Page 116

Home loans constitute the bulk of the portfolio Expect 16% Cagr in loans over FY17-20
Distribution of loans 2,500 (Rsbn) Loans (LHS) Loan growth (%) 18
17
Project
LAP 2,000
4% 16
13%
1,500 15
14
1,000 13
Individual 12
83% 500
11
0 10
FY16 FY17CL FY18CL FY19CL FY20CL
Healthy ROE drives compounding of book 3Y target price of Rs950; 41% total return
1.6 (%) Core ROA Core ROE (RHS) (%) 24 Risk free rate (%) 7.0
1.4 Beta 1.2
20 Cost of equity (%) 14
1.2 Sustainable ROE (%) 19
16 Years of high growth phase 7
1.0 Profit growth in high growth phase (%) 17
Payout ratio of high growth phase (%) 17
0.8 12 Long-term growth (%) 8.4
Terminal dividend payout ratio (%) 40
0.6 PB (x) 2.2
8
BVPS (Rs, FY21) 429
0.4 Value of financing business (Rs) 921
4 Dividends (Rs) 26
0.2 Total value (Rs) 947
Total value rounded-off (Rs) 950
0.0 0 Current price (Rs) 676
FY16 FY17CL FY18CL FY19CL FY20CL 3 year returns (Rs) (%) 41
Page 117

(Rsm) FY16 FY17 FY18CL FY19CL FY20CL Key Ratios FY16 FY17 FY18CL FY19CL FY20CL
Interest expense 92,952 102,315 113,636 129,496 149,016 Earnings growth (% YoY) 20 16 18 17 17
Net interest income 29,867 36,340 42,977 50,154 58,504 PPP / Share 54 64 76 89 104
Other income 2,036 2,149 2,322 2,660 3,068 BV/share (Rs) 181 219 257 301 353
- Fee income 1,453 1,622 1,817 2,053 2,340 Adj BV / Share (Rs) 192 233 272 317 369
- Profit on investments 464 401 361 434 520 ROAA (%) 1.4 1.4 1.4 1.4 1.4
Total income 31,903 38,489 45,299 52,814 61,572 ROAE (%) 20 19 19 19 19
NIM (%) 2.5 2.6 2.7 2.7 2.7
Operating expenses 4,803 6,118 7,004 8,047 9,253
Pre-provision Profit 27,100 32,371 38,295 44,767 52,320
Net NPLs (% of loans) 0.2 0.1 0.2 0.2 0.3
Total Provision 1,465 2,813 3,301 3,902 4,711
Coverage (incl floating prov) 52 67 66 65 65
- Provision for NPL 1,108 0 1,856 2,241 2,800
Capital adequacy ratio (% RWA) 16.6 16.7 16.4 16.2 16.0
PBT 25,636 29,558 34,994 40,865 47,609
- Tier-1 CAR (% RWA) 13.4 13.5 13.5 13.4 13.4
Provision for Tax 9,028 10,247 12,132 14,167 16,505
Net profit 16,608 19,311 22,862 26,698 31,104 Fee /total inc (ex-Treasury) 4.6 4.3 4.0 3.9 3.8
Cost asset ratio (%) 0.4 0.4 0.4 0.4 0.4
Loan growth (% YoY) 16 15 16 17 17
Balance sheet Equity/assets (%) 7.0 7.4 7.4 7.5 7.5
Equity/loans (%) 7.3 7.7 7.7 7.8 7.8
Provision/avg loans (%) 0.1 0.2 0.2 0.2 0.2
Cash balances 39,268 44,633 50,503 56,818 68,752
Tax rates (% PBT) 35 35 35 35 35
Advances 1,251,730 1,445,340 1,677,375 1,959,543 2,285,104
Yield on advances (%) 10.5 10.3 10.0 9.9 9.8
Investments 2,768 5,269 6,059 6,968 8,013
Cost of funds (%) 9.0 8.6 8.3 8.2 8.0
Fixed assets 920 965 1,062 1,168 1,285
Spreads (%) 1.5 1.6 1.7 1.7 1.7
Current assets 10,291 10,040 11,546 13,278 15,270 PE (x) 21 18 15 13 11
Total Assets 1,304,978 1,506,248 1,746,546 2,037,776 2,378,424 PB (x) 3.7 3.1 2.6 2.2 1.9
Equity Capital 1,010 1,010 1,010 1,010 1,010 P/ABV (x) 3.5 2.9 2.5 2.1 1.8
Reserves & Surplus 90,450 109,760 128,862 151,108 177,013 DPS (Rs) 5.5 6.2 7.3 8.6 10.0
Shareholders' funds 91,460 110,770 129,872 152,118 178,023 Dividend payout (% of profit) 17 16 16 16 16
Deferred tax liability 8,109 9,173 10,572 12,207 14,111 Dividend yield (%) 0.8 0.9 1.1 1.3 1.5
Borrowings 1,109,312 1,263,350 1,464,703 1,710,843 1,999,291 Fee growth (%) 18 12 12 13 14
Current liabilities 96,097 122,955 141,398 162,608 186,999 P/PPP (x) 12.6 10.5 8.9 7.6 6.5
Total Liabilities 1,304,978 1,506,248 1,746,546 2,037,776 2,378,424 PPP/Total assets (x) (%) 2.1 2.1 2.2 2.2 2.2
Page 118

Dewan HF (DEWH IB - N-R)
Dewan Housing Finance (DHFL) is a part ROEs are expected to stabilise near 16-17%
of the Wadhawan group and focuses on 1.6 (%) ROAA ROAE (RHS) (%) 20
low-mid income and self-employed 1.4 18

16
segments for housing finance 1.2
14
1.0 12
With an average ticket size of Rs1.3m 0.8 10
and presence in smaller-towns, Dewan 0.6 8

6
HF is a player in the affordable-housing 0.4
4
finance market 0.2 2
0.0 0
15A 16A 17E 18E 19E
The company also has a stake in
businesses such as insurance, but is Summary financials
looking to simplify the structure Year to 31 Mar 15A 16A 17E 18E 19E
Net profit (Rsm) 6,213 7,292 9,104 11,222 13,374
A key risk might be the asset quality of EPS (Rs) 23 25 29 35 42
EPS growth (% YoY) 10 10 17 21 20
loans against property/ construction ROAA (%) 1.3 1.2 1.5 1.3 1.3
loans that form 30% of AUM ROAE (%) 15 15 19 16 17
PE (x) 19 17 15 12 10
Valuations at 1.8x FY18 PB are at a PB (x)

Dividend yield (%)
2.7
0.6
2.5
1.9
2.1
1.0
1.8
1.2
1.6
1.7
discount to other housing-finance
Prices as on 26 April 2017. Forecasts represent Bloomberg consensus.
companies Source: Company, Ace Equity, Bloomberg
Page 119

Dewan HF (DEWH IB - N-R)
Summary income statement Key ratios
Year to March (Rsm) FY12 FY13 FY14 FY15 FY16 Year to March FY12 FY13 FY14 FY15 FY16
Net interest income 3,989 6,674 8,879 12,564 14,806 BVPS (Rs) 87 126 139 159 172
Other income 2,715 2,977 3,020 2,718 3,683
ROA (%) 1.6 1.6 1.3 1.3 1.2
Total income 6,705 9,651 11,900 15,283 18,488
ROE (%) 17 17 16 15 15
Operating expenses 2,484 3,039 3,800 4,740 5,502
NIM (%) 2.9 2.7 2.7 2.9 3.0
-Employee Expenses 878 1,407 1,764 1,963 2,276
-Others 1,606 1,632 2,036 2,777 3,226
Net NPLs (% of loans) 0.0 0.5 0.5 0.7 0.6
Pre-provision profit 4,221 6,612 8,100 10,542 12,986
Provisions 237 505 749 1,112 1,965 Coverage (% of gross NPLs) 100 34 38 30 33
PBT 3,984 6,107 7,351 9,430 11,022 Capital adequacy ratio (% RWA) 17 17 17 17 17
Tax 920 1,588 2,061 3,218 3,730 - Tier-1 CAR (% RWA) 11 11 12 13 13
Net profit 3,064 4,519 5,290 6,213 7,292 Cost/income ratio (%) 37 31 32 31 30
Cost asset ratio (%) 1.3 1.1 1.0 1.0 0.9
Loan growth (% YoY) 38 73 19 26 21
Summary balance sheet Equity/assets (%) 9 9 8 8 7
As at March (Rsm) FY12 FY13 FY14 FY15 FY16 Equity/loans (%) 10 9 9 9 8
Loans 197,963 342,219 408,732 515,109 622,951 Provision/loans (%) 0.1 0.2 0.2 0.2 0.3
Other assets 17,611 15,790 29,893 31,039 55,581 Tax rates (% of PBT) 23 26 28 34 34
Total assets 215,573 358,009 438,625 546,148 678,531 Dividend per share (Rs) 1.7 2.4 4.0 2.8 8.0
Share Capital 1,168 1,282 1,284 1,457 2,918 Dividend payout (% of profit) 13 14 19 13 32
Reserves & Surplus 19,159 31,089 34,465 44,901 47,252 Dividend yield (%) 0.4 0.6 0.9 0.6 1.9
Shareholders' Funds 20,327 32,371 35,750 46,358 50,170 PE (x) 31 23 21 19 17
Borrowings/ other liabilities 195,246 325,639 402,876 499,790 628,361 P/PPP (x) 24 17 14 12 10
Total liabilities 215,573 358,009 438,625 546,148 678,531 PB (x) 5.0 3.4 3.1 2.7 2.5
Source: Company, Ace Equity
Page 120

Gruh Finance (GRHF IB - N-R)
Gruh Finance is a subsidiary of HDFC Ltd Gruh has among the highest ROEs across HFCs
(59% owned) and focuses at lower-ticket 2.8 (%) ROAA ROAE (RHS) (%) 34
mortgages with an average ticket size of 2.5 32

just Rs0.9m 30
2.2
With an average ticket size of Rs0.9m, 1.9

28
Gruh is a key player in affordable segment 26

1.6
24
With wide margins, efficient operations, low 1.3 22
credit costs and high leverage, Gruh has
been generating lofty ROA of 2% and
1.0 20
15A 16A 17E 18E 19E
ROE of 30% historically
Summary financials
Key risk are competition from new HFCs Year to 31 Mar 15A 16A 17A 18E 19E
and small-finance banks that are increasing Net profit (Rsm) 2,038 2,436 2,967 3,807 4,694
focus on this segment EPS (Rs) 6 7 8 11 13
EPS growth (% YoY) 14 19 22 31 17
ROAA (%) 2.4 2.3 2.3 2.6 2.5
Stock trades at premium to peers ROAE (%) 31 31 30 30 31
(10x March 18E PB), partly reflecting high PE (x) 69 58 48 36 31
PB (x) 20 17 13 10 8
profitability, growth and corporate- Dividend yield (%) 0.5 0.6 0.7 0.9 1.0
governance standards Prices as on 26 April 2017. Forecasts represent Bloomberg consensus.
Source: Company, Ace Equity, Bloomberg
Page 121

Gruh Finance (GRHF IB - N-R)
Other income 286 323 331 468 613
ROA (%) 3.0 2.8 2.7 2.4 2.3
Total income 2,041 2,460 3,025 3,826 4,680
Operating expenses 392 463 556 640 844 ROE (%) 34 33 32 31 31
-Employee Expenses 197 242 317 352 428 NIM (%) 4.6 4.4 12.3 4.2 4.1
-Others 195 221 239 288 416 Gross NPLs (% of loans) 0.5 0.3 0.3 0.3 0.3
Pre-provision profit 1,650 1,997 2,469 3,186 3,836 Net NPLs (% of loans) 0.0 0.1 0.0 0.0 0.1
Provisions 22 29 24 177 219
Coverage (% of gross NPLs) 100 67 100 100 67
PBT 1,628 1,968 2,445 3,008 3,617
Capital adequacy ratio (% RWA) 14 15 16 15 18
Tax 424 509 675 970 1,181
Net profit 1,203 1,459 1,770 2,038 2,436 - Tier-1 CAR (% RWA) 13 13 15 14 16
Cost asset ratio (%) 1.0 0.9 0.8 0.8 0.8
Loan growth (% YoY) 30 31 29 27 25
Equity/assets (%) 8 8 8 7 7
Summary balance sheet Equity /loans (%) 9 9 8 8 7
As at March (Rsm) FY12 FY13 FY14 FY15 FY16 Provision/loans (%) 0.1 0.1 0.0 0.2 0.2
Loans 43,301 56,918 73,439 93,493 116,508 Tax rates (% of PBT) 26 26 28 32 33
Other assets 2,191 1,209 1,754 2,042 2,628 Dividend per share (Rs) 1.2 1.2 1.5 2.0 2.3
Total assets 45,492 58,126 75,193 95,536 119,135 Dividend payout (% of profit) 34 31 31 36 34
Share Capital 353 357 360 727 727
Dividend yield (%) 0.3 0.3 0.4 0.5 0.6
Reserves & Surplus 3,503 4,553 5,712 6,388 7,626
PE (x) 114 95 79 69 58
Shareholders' Funds 3,856 4,910 6,072 7,115 8,353
Total liabilities 45,492 58,126 75,193 95,536 119,135 PB (x) 36 28 23 20 17
Page 122

PNB HF (PNBHOUSI IB - N-R)
PNB HF is the fifth-largest HFC in India. Its Expansion in ROE will be a key
promoter is Punjab National Bank (39% 1.8 (%) ROAA ROAE (RHS) (%) 20
stake) 1.5
18
16
Its positioning is at slightly higher level of

14
1.2
12
customers with an average ticket size of 0.9 10
Rs3.2m - nearly 30% higher than HDFC Ltd 8
0.6
6
Hence, PNB HF may look to invest in 0.3

4
capabilities to expand reach and assess 2
quality of borrowers
0.0 0
15A 16A 17E 18E 19E
A strong brand recall (PNB is among the Summary financials

largest PSU banks) and expansion of reach
Year to 31 Mar 15A 16A 17E 18E 19E
into Tier-2 towns can enable realisation of Net profit (Rsm) 1,941 3,276 5,435 7,770 10,209
this opportunity EPS (Rs) 23 28 37 48 59
EPS growth (% YoY) 2 24 29 31 22
A key risk might be any asset-quality ROAA (%) 1.3 1.3 1.5 1.6 1.7
pressures in the LAP/construction loans, ROAE (%) 15 18 14 13 14
which form 40% of AUM PE (x) 60 48 37 28 23
PB (x) 9.0 8.1 4.1 3.7 3.0
ROEs are tad below peer-group given an Dividend yield (%) 0.2 0.2 0.3 0.5 0.6
underleveraged capital-base; expansion in Prices as on 26 April 2017. Forecasts represent Bloomberg consensus.
ROE will be key to support valuations Source: Company, Ace Equity, Bloomberg
Page 123

PNB HF (PNBHOUSI IB - N-R)
Interest expense 3,137 4,589 7,959 12,502 18,379 EPS growth (% YoY) 12 (10) (3) 2 24
Other income 175 317 644 1,095 1,549 ROA (%) 1.9 1.5 1.4 1.3 1.3
Total income 1,473 2,074 3,245 5,301 8,617
ROE (%) 21 18 17 15 18
Operating expenses 354 662 1,150 1,976 2,762
NIM (%) na na 2.9 2.9 3.0
-Employee Expenses 154 254 404 671 753
Gross NPLs (% of loans) na na 0.3 0.2 0.2
-Others 200 408 746 1,305 2,010
Net NPLs (% of loans) na na 0.2 0.1 0.1
Pre-provision profit 1,119 1,412 2,094 3,326 5,854
Coverage (% of gross NPLs) na na 53 65 36
Provisions 63 125 304 381 811
Capital adequacy ratio (% RWA) na na 13 13 13
PBT 1,056 1,287 1,790 2,945 5,043
Tax 282 359 493 1,004 1,767 - Tier-1 CAR (% RWA) na na 10 10 9
Net profit 774 928 1,297 1,941 3,276 Cost/income ratio (%) 24 32 35 37 32
Cost asset ratio (%) 0.9 1.1 1.2 1.3 1.1
Loan growth (% YoY) 20 67 60 51 70
Summary balance sheet Equity/assets (%) 9 8 8 8 7

Equity/loans (%) 10 9 9 10 8
As at March (Rsm) FY12 FY13 FY14 FY15 FY16
Provision/loans (%) 0.2 0.2 0.4 0.3 0.4
Loans 39,564 66,115 105,761 159,591 272,005
Tax rates (% of PBT) 27 28 28 34 35
Other assets 4,648 10,295 9,480 30,762 24,720
Dividend per share (Rs) 2.2 2.1 2.3 2.3 3.2
Total assets 44,212 76,410 115,241 190,352 296,725
Share Capital 300 500 657 1,038 1,269 Dividend payout (% of profit) 9 11 12 12 12
Page 124

Repco HF (REPCO IB - N-R)
Repco is a south-India oriented housing Repco is profitable with ROE of 17%
financier, focusing on low-mid income 2.5 (%) ROAA ROAE (RHS) (%) 25
segments
2.2 20
With an average ticket size of Rs1.3m, 1.9 15

Repco is a key player in the affordable-
housing opportunity 1.6 10
Recently, management has stated that 1.3 5
80% of the loan book will be covered under

the recent affordable-housing scheme
1.0 0
15A 16A 17E 18E 19E
Repco has seen an 18% profit Cagr over Summary financials

past three years with 17% ROE seen for Year to 31 Mar 15A 16A 17E 18E 19E
FY17, as per consensus Net profit (Rsm) 1,231 1,501 1,796 2,199 2,720
EPS (Rs) 20 24 28 36 43
Key risks might be any asset-quality EPS growth (% YoY) 12 22 18 26 20
ROAA (%) 2.3 2.2 2.1 2.1 2.2
pressure in the LAP segment that form ROAE (%) 16 17 17 18 19
20% of AUMs PE (x) 39 32 27 21 18
PB (x) 5.9 5.0 4.3 3.7 3.1
Valuations are at premium to most HFCs, Dividend yield (%) 0.2 0.2 0.3 0.4 0.4
partly reflecting strong growth potential/ Prices as on 26 April 2017. Forecasts represent Bloomberg consensus.
higher ROE Source: Company, Ace Equity, Bloomberg
Page 125

Repco HF (REPCO IB - N-R)
Other income 134 147 198 236 297 ROA (%) 2.5 2.4 2.6 2.3 2.2
- Fee income 112 119 182 221 269 ROE (%) 22 17 16 16 17
Total income 1,166 1,402 2,106 2,613 3,336 NIM (%) 4.2 4.0 4.7 4.5 4.4
Operating expenses 194 242 388 547 643 Gross NPLs (% of loans) 1.4 1.5 1.5 1.3 1.3
-Employee Expenses 105 140 211 346 409 Net NPLs (% of loans) 1.0 1.0 0.7 0.5 0.5
-Others 89 102 177 201 234 Coverage (% of gross NPLs) 31 33 51 62 62
Pre-provision profit 972 1,160 1,718 2,065 2,693 Capital adequacy ratio (% RWA) 17 26 25 20 21
Provisions 155 92 227 203 392 - Tier-1 CAR (% RWA) 17 26 25 20 21
PBT 816 1,068 1,491 1,862 2,301 Cost/income ratio (%) 17 17 18 21 19
Tax 202 268 390 631 800 Fee income growth (% YoY) 13 6 53 22 22
Net profit 615 800 1,101 1,231 1,501 Fee (% total revenue) 10 8 9 8 8
Cost asset ratio (%) 0.8 0.7 0.9 1.0 0.9
Summary balance sheet Loan growth (% YoY)

Equity/assets (%)
35
11
26
17
31
16
29
13
28
12
As at March (Rsm) FY12 FY13 FY14 FY15 FY16 Equity/loans (%) 11 18 16 13 12
Loans 28,090 35,500 46,680 60,221 77,049 Provision/loans (%) 0.6 0.3 0.6 0.4 0.6
Other assets 358 2,312 494 536 583 Tax rates (% of PBT) 25 25 26 34 35
Total assets 28,448 37,813 47,174 60,757 77,632 Dividend per share (Rs) 1.1 1.1 1.2 1.5 1.8
Share Capital 464 622 622 624 625 Dividend payout (% of profit) 8 9 7 8 8
Page 126

Property
Renewed growth optimism

Multiple levers for organised developers
Organised developer RERA drives market Affordable housing Premium segment
growth driver share gains segment supply rises demand kicks in
Organised
Organised Organised
Organised
Unorganised Unorganised
Unorganised
Unorganised
FY20
FY17 FY18 FY19
onwards
Entire listed property space in India is <5% of total housing by value; <1% by volume
Sector consolidation post Real Estate Regulatory Act (RERA) implementation in 2017
Affordability improvement via loan subsidy raises buying power for bigger houses
Tax benefits to developers reduces cost of supplying low-cost houses by c.5%
Developers with mid-income residential product: Godrej, Sobha and Prestige
Source: Property companies, CLSA Page 128

Affordable: A new growth segment
Affordable segment untapped Home construction by value for housing segments
Listed developers operations limited to few FY24 4.6 4.6
cities/top-end segment
Long gestation period, weak demand make

low ticket sizes unattractive FY17 1.6 2.1
Rs2.0m-Rs5.0m
Rs5.0m+
Affordable segment seen as experimental for
listed developers FY12 1.8 2.5
(Rstn)
Potential to double addressable market 0 2 4 6 8 10

Source: RBI, MOSPI, CLSA
CLSS subsidy to boost affordability by up to
5-10% for Rs2-5m house Affordability in MIG (Rs3m house) segment
80 (%) Affordability : Mortgage payment to post-tax Income ratio
Ability/willingness of buyer to pay premium

for better developers to rise 60
41
Support emerging via easier rules, faster 40
32
39
33
36 34 34 32
approvals for affordable projects 30 30 30
27 28 27 26
24 23 22
20
RERA, GST to drive out weak hands in
affordable segment 0
FY18CL
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Potential addressable market may rise 4x in
seven years Source: HDFC, SBI, CLSA
Page 129

Tax relief to developers should help supply
New tax incentives target affordable Calculation of benefits for developers
Rs/sf Without With Comment
benefits benefits
Changes from FY18 Land cost 500 500 Land in city suburb
Cost of construction 1,750 1,750 Mid-income quality
Definition of affordable houses: 60m carpet Other costs 500 500 Overheads
should cover 900-1,000sf ie, 2BHKs Interest cost (%) 10 9 Lower due to infra status
Interest during construction 550 495 Partly pre-sales funded
Affordable projects tax effectively at 20% Total costs 3,300 3,245 About 2% cost savings
(minimum alternate tax rate) vs 34% peak Selling prices 4,000 3,814 5% lower selling prices
PBT 700 569 Tax rate of 20% (MAT) vs
34% (full tax rate)
Five-year timeline for project completion
PAT 455 455 Same absolute PAT levels
versus three years
Infra status for such projects for cheaper

loans Change in selling prices assuming same profitability
Why is this necessary?

After FY18 budget incentives 3.8
Developers find 1,000sf+ units profitable

-5%
High inventory pile-up in premium segment
Governments own unit construction limited Before FY18 budget incentives 4.0
to EWS - LIG (300-500sf) units

(Rsm)
Similar benefits for 1,250sf houses last
3.0 3.2 3.4 3.6 3.8 4.0 4.2
decade created good supply Source: CLSA
Page 130

Premium bottomed, gradual recovery
Inventory built in system, to take time to Residential units launch and sales in top-7 cities
work off 300,000 (No. of units)
250,000
Price gains are past but rental yields are 200,000

still low 150,000
Gradual recovery as affordability improves, 100,000
inventory falls 50,000 Tr-12 mth launches Tr-12 mth sales
0
Investor demand may take another two
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
years to kick in Mumbai, NCR, Bengaluru, Chennai, Pune, Hyderabad, Kolkata.
Source: REIS JLLM, CLSA
Rental yields vs post-subsidy mortgage rate Residential pricing trend in Top-7 cities
4.0 Gross rental yield (%) 25 (% YoY)
3.5
20
3.5
3.0 15
3.0
10
2.5
2.5 5
2.0
0
2.0
1.5 (5)
1.5
(10)
1.0 (15)
0.5 (20) Jul 08
Jul 09
Jul 10
Jul 11
Jul 12
Jul 13
Jul 14
Jul 15
Jul 16
Nov 08
Nov 09
Nov 10
Nov 11
Nov 12
Nov 13
Nov 14
Nov 15
Nov 16
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
0.0
2.0 3.5 5.0 7.5 10.0
Yields for representative residential properties in Mumbai, NCR and Bengaluru. Source: Cushman & Wakefield, Knight Frank, CLSA
Source: 99acres.com, CLSA
Page 131

Property companies overview
For 9MFY17 presales were down by 27- Residential as % SOTP
52% due to market weakness and 100 (%)
demonetisation 90
80
70
Expect gradual recovery in presales from 60
4QFY17 50
40
30
Residential property sales in FY18 are likely 20
to be up YoY across board 10
0
Godrej Sobha Prestige Oberoi Realty DLF
Strong premium (Rs10m+) markets only Properties
by FY19/20
Mid-income as % FY17 residential sales
(%)
Affordable product is limited to Rs5m-10m 80
bracket 70
60
Godrej Properties has low ticket sizes 50
(1BHKs, small 2BHKs) across most projects 40
30
Sobha has seen success in Dream Acres a 20
mid-income project
10
Prestige usually sells 75% in sub-Rs10m 0

Godrej Sobha Prestige Oberoi Realty DLF
category Properties
Source: Companies, CLSA
Limited mid-income sales for Oberoi, DLF
Page 132

DLF (DLFU IB - Rs187.4 - SELL)
DLF is leading lease-asset owner and a Presales at multiyear lows
residential developer based out of NCR 60 (Rsbn)
DLF has a traditional buy-and-hold model for 50
land and lease assets, which has kept ROE low 40
DLFs national ambitions have come down 30
over time with residential presales now 90%, 20

coming from the NCR luxury segment
10
Residential presales are on a multiyear low 0

FY12 FY13 FY14 FY15 FY16 FY17CL FY18CL FY19CL FY20CL
Current residential inventory/projects are in
the high-end (Rs10m+) and cannot take Earnings summary
advantage of the affordable segment Year to 31 Mar FY15 FY16 FY17CL FY18CL FY19CL
Revenue (Rsm) 76,487 92,599 81,556 87,712 96,034

Large landbank (200m sf+) gives option to
Net profit (Rsm) 6,081 6,285 4,403 6,526 8,906
launch affordable projects
EPS (Rs) 3.4 3.5 2.5 3.7 5.0
Deleveraging process is on but high valuations EPS (% YoY) (37.7) 3.3 (29.9) 48.2 36.5
and weak cashflows are a reason to SELL PE (x) 55.2 53.4 76.2 51.4 37.7
ROAE (%) 2.2 2.3 1.6 2.3 3.2

Strong presales growth built-in (3x in two
years) but stock still at 38x FY19 earnings PB (x) 1.2 1.2 1.2 1.2 1.2
Source: Bloomberg, Company data, CLSA
Page 133

Lease income scale up a brightspot Debt buildup is cashflow related
35 (Rsbn) Lease income (LHS) (m sf) 40 250 (Rsbn) 244
32
Area leased year end 30 240 231
30 35
28 230 225
222 221
30 216
220 214
25 23 210
21 210 203
25 199
20 18 200 191
16
16 20 190 186
15
180
15
170
10
10 160
5 5 150
Sep 14
Sep 15
Sep 16
Mar 14
Dec 14
Mar 15
Dec 15
Mar 16
Dec 16
Jun 14
Jun 15
Jun 16
0 0
FY12 FY13 FY14 FY15 FY16 FY17CL FY18CL FY19CL
Consistent deliveries pressured cashflows 3% ROE is a concern for valuation

70 (m sf) Devco Rentco 2.0 (x)
60 1.8
1.6
50
1.4
40 +1sd1.33x
1.2
30
avg1.05x
1.0
20
0.8 -1sd0.77x
10 0.6
0 0.4
Mar 14 Mar 15 Mar 16 Dec 16 Mar 18CL Apr 12 Feb 13 Dec 13 Oct 14 Aug 15 Jun 16 Apr 17
Source: Company data, CLSA
Page 134

(Rsm) FY15 FY16 FY17CL FY18CL FY19CL (Rsm) FY15 FY16 FY17CL FY18CL FY19CL
Revenue 76,487 92,599 81,556 87,712 96,034 Assets
Op Ebitda 30,237 38,664 37,587 38,900 42,249
Op Ebit 24,789 30,886 31,839 32,968 36,140 Cash & equivalents 28,506 34,671 33,659 13,509 17,221
Other income 5,194 5,593 5,816 5,924 6,035 Debtors 112,584 101,002 105,721 110,487 115,874
Interest expense (23,039) (26,154) (29,856) (29,569) (29,453)
Inventories 176,105 175,069 180,531 192,077 192,109
Profit before tax 6,945 10,325 7,798 9,323 12,722
Taxation (1,581) (4,193) (2,495) (2,797) (3,817) Other current assets 3,871 7,445 7,817 8,208 8,619
Minorities/Pref divs 299 367 (900) 0 0
Fixed assets 243,790 247,369 249,490 255,500 257,539
Net profit 5,663 6,498 4,403 6,526 8,906
Ratios Intagible assets 12,058 10,627 10,627 10,627 10,627
Revenue growth (% YoY) (7.8) 21.1 (11.9) 7.5 9.5
Other term assets 85,709 98,194 101,667 108,959 110,965
Ebitda growth (% YoY) 21.7 27.9 (2.8) 3.5 8.6
Ebitda margin (%) 39.5 41.8 46.1 44.3 44.0 Total assets 662,623 674,378 689,511 699,367 712,954
Net profit margin (%) 7.4 7.0 5.4 7.4 9.3
Liabilities & Equity
Dividend payout (%) 62.9 54.8 80.9 54.6 40.0
Effective tax rate (%) 22.8 40.6 32.0 30.0 30.0 Creditors 64,393 63,765 63,765 63,765 73,330
Ebitda/net int exp (x) 1.3 1.5 1.3 1.3 1.4 Other current liabs 59,853 50,977 46,730 47,028 51,418
Debt 262,941 284,918 299,918 307,224 302,224

Cashflow statement
Minorities/other equity 1,747 1,118 2,018 2,018 2,018
Net operating cashflow 19,534 31,122 16,820 12,407 44,553 Shareholder funds 273,689 273,600 277,081 279,333 283,965
Capital expenditure (12,068) (11,357) (7,869) (11,943) (8,149) Total liabs & equity 662,623 674,378 689,511 699,367 712,954
Net investing cashflow (31,363) (35,461) (31,910) (35,587) (31,566) Ratios
Net financing cashflow 10,757 10,504 14,078 3,032 (9,274)
Net debt/equity (%) 85.1 91.1 95.4 104.4 99.7
Cash at beginning of period 29,579 28,506 34,671 33,659 13,509
ROE (%) 2.1 2.4 1.6 2.3 3.2
Cash at end of period 28,507 34,671 33,659 13,510 17,222
Free cashflow 7,466 19,765 8,950 464 36,404 ROIC (%) 3.9 3.6 4.1 4.2 4.5
Page 135

Godrej Properties (GPL IB - Rs457.1 - BUY)
Godrej Properties is a pan-India residential Godrej pre-sales performance good in weak markets
developer. Based out of Mumbai, Godrej has 60 (Rsbn)
projects across all leading metros, including 50

Gurgaon, Noida and Bengaluru
40
GPLs projects have a good mix of low-ticket-

30
sized (1,000sf) apartments
20
Flagship, family land Mumbai project The

10
Trees, has sub-50m carpet 1BHKs
0
Joint development (JD) model of project FY12 FY13 FY14 FY15 FY16 FY17CL FY18CL FY19CL FY20CL
acquisitions working well across India Earnings summary

gives it the flexibility to add projects
Year to 31 Mar FY15A FY16A FY17CL FY18CL FY19CL
We value GPLs stake in groups Mumbai land Revenue (Rsm) 18,431 21,240 16,165 15,615 19,325
separately. Our 1-year target of Rs561
values FY19 earnings and steady state group Net profit (Rsm) 1,909 1,600 1,946 1,933 2,871
land earning potential at 30x earnings EPS (Rs) 9.6 8.0 9.0 8.9 13.3
EPS (% YoY) 11.1 (16.4) 12.3 (0.7) 48.6

Growing pre-sales/earnings at further 15%
Cagr over FY19-21 implies three-year target PE (x) 47.5 56.9 506 51.0 34.3
of Rs690 ROAE (%) 10.5 8.8 10.5 9.7 13.3
PB (x) 4.9 5.1 5.1 4.8 4.3

Strong growth potential, good corporate
governance to keep multiples high
Source: Company data, CLSA Page 136

A truly national developer Gearing has been steady
35 (Rsbn) Net debt Net debt/equity (RHS) (x) 2.0
33
33 1.9
31
31 1.8
Chandigarh 30
0.7, 1
29
29 1.7
28
NCR
16.0, 7
27 1.6
25 1.5
Dec 15 Mar 16 Jun 16 Sep 16 Dec 16
Ahmedabad Kolkata
22.8, 1 7.1, 4
Nagpur
PB band: Valuations to remain at a premium
2.8, 1 (x)
Mumbai 5.5
20.0, 17
Pune 5.0
18.9, 6
4.5
Hyderabad
10.0, 2 4.0
+1sd3.63x
Mangalore 3.5
0.8, 1 Bengaluru
23.3, 11
3.0 avg2.99x
Chennai Legends: 2.5

-1sd2.35x
3.7, 2
Total developable area (million sq.ft.) 2.0
Kochi
2.3, 1 No. of project: 54
1.5
(As on 31 December 2016)
Apr 12 Feb 13 Dec 13 Oct 14 Aug 15 Jun 16 Apr 17
Page 137

Revenue 18,431 21,240 16,165 15,615 19,325 Assets
Op Ebitda 2,572 1,390 2,615 2,206 3,497
Other income 835 1,290 1,250 1,300 1,300 Debtors 7,000 7,381 5,536 5,348 6,618
Interest expense (47) (400) (1,117) (1,142) (1,103)
Inventories 47,271 39,481 38,931 36,037 36,241
Taxation (904) (700) (832) (705) (1,126) Other current assets 10,507 10,598 14,204 17,868 21,441
Minorities/Pref divs (447) 160 178 435 478
Fixed assets 1,156 1,016 985 941 883
Net profit 1,909 1,599 1,944 1,930 2,867
Ratios Intangible assets 742 209 0 0 0
Revenue growth (% YoY) 48.9 15.2 (23.9) (3.4) 23.8
Other term assets - 2,960 3,000 3,000 3,000
Ebitda growth (% YoY) (24.7) (46.0) 88.1 (15.6) 58.6
Net profit margin (%) 10.4 7.5 12.0 12.4 14.8 Liabilities & Equity
Dividend payout (%) 20.9 0.0 22.3 25.2 18.9
Ebitda/net int exp (x) 54.4 3.5 2.3 1.9 3.2 Other current liabs 646 137 596 655 735
Debt 34,865 33,420 37,500 35,000 35,000

Cashflow statement
Minorities/other equity 2,279 0 0 0 0
Net operating cashflow (11,094) (2,444) (4,587) 2,238 (401) Shareholder funds 18,469 17,738 19,178 20,542 22,780
Capital expenditure (185) 15 (117) (117) (118) Total liabs & equity 73,631 66,014 67,146 68,036 73,174
Net investing cashflow 650 1,305 1,133 1,183 1,182 Ratios
Net financing cashflow 8,689 (1,445) 3,574 (3,069) (633)
Net debt/equity (%) 134.5 163.8 172.1 146.8 131.7
ROE (%) 10.5 8.8 10.5 9.7 13.2
Free cashflow (11,279) (2,429) (4,704) 2,121 (518) ROIC (%) 4.2 1.8 3.6 2.9 4.6
Page 138

Oberoi Realty (OBER IN - Rs394.4 - BUY)
Oberoi is a high-end residential developer Oberois presales are new launch driven
based out of Mumbai 25 (Rsbn)
Oberoi prefers the buy-and-hold land model of 20
development but with negligible leverage

15
Premium perception and consistent delivery

gives it a margin/pricing edge 10
5
Residential presales surged 7x over FY14-16
as new launches came through 0
High ticket sizes of products (Rs20m+) and
limited land outside Mumbai city makes it Earnings summary
unlikely to benefit near term from the Year to 31 Mar FY15A FY16A FY17CL FY18CL FY19CL
Affordable Housing scheme
Revenue (Rsm) 9,227 14,081 11,380 24,058 27,655
Oberois debt-free balance sheet opens up the Net profit (Rsm) 3,171 4,259 3,647 9,115 9,678
opportunity for growth outside Mumbai and in
EPS (Rs) 9.7 12.9 10.7 26.9 28.5
affordable segments
EPS (% YoY) 1.9 33.0 (16.3) 149.9 6.2
Expect presales to enjoy a 31% Cagr over
PE (x) 40.6 30.5 36.5 14.6 13.7
FY17-19 and unbooked revenue recognition of
Rs38bn to drive a 63% earnings Cagr ROAE (%) 7.0 8.6 6.7 15.2 14.1
PB (x) 2.8 2.4 2.4 2.1 1.8

Our NAV-based target price of Rs475 is at
15% premium to 12-month forward NAV
Source: Bloomberg, Company data, CLSA Page 139

Large unbooked revenue provide earnings visibility Oberoi firmly in the high end
45 (Rsbn) (Rsm) Average value of apartment sold
90
38 38
40 37 38 38
80
35 70
30 26 26 60
26
25 50
20 16 40
14 14
15 30
10 20
5 10
0 0
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Sep 14
Sep 15
Sep 16
Dec 14
Mar 15
Dec 15
Mar 16
Dec 16
Jun 14
Jun 15
Jun 16
Pricing has been flat for long PB multiples dont fully capture earnings upturn
30 (Rs/sf) 2.6 (x)
25 2.4
20 2.2
2.0
15 +1sd1.93x
1.8
10 avg1.7x
1.6
5
Exquisite Esquire Eternia Enigma Sky City -1sd1.46x
1.4
0
1.2
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
1.0
Page 140

Revenue 9,227 14,081 11,380 24,058 27,655 Assets
Op Ebitda 5,138 6,674 5,567 11,568 13,868
Cash & equivalents 2,937 3,953 6,339 11,577 11,260
Op Ebit 4,735 6,185 5,066 10,979 13,116
Other income 175 362 475 400 400 Debtors 828 1,170 1,091 2,307 2,652
Interest expense (18) (2) (57) (201) (364)
Inventories 34,817 39,306 45,687 48,668 50,690
Minorities/Pref divs - - - 1,681 932
Fixed assets 10,753 10,694 11,295 12,822 17,692
Net profit 3,171 4,259 3,647 9,115 9,678
Ratios Intangible assets 2,654 2,654 2,654 2,654 2,654
Revenue growth (% YoY) 15.6 52.6 (19.2) 111.4 15.0 Other term assets 0 0 0 - -
Net profit margin (%) 34.4 30.2 32.0 37.9 35.0 Liabilities & Equity
Dividend payout (%) 20.7 15.9 18.6 7.4 7.0
Creditors 14,758 17,867 22,034 26,695 29,250
Effective tax rate (%) 35.2 34.9 33.5 33.5 33.5
Ebitda/net int exp (x) 291.5 4,171.5 98.1 57.7 38.1 Other current liabs 841 44 836 839 842
Debt 9,016 6,415 8,915 8,915 6,415

Cashflow statement
Minorities/other equity 0 0 0 0 0
(Rsm) FY15 FY16 FY17CL FY18CL FY19CL Shareholder funds 46,343 53,043 55,873 64,171 73,033
Net operating cashflow (10,578) 1,256 1,350 6,090 7,289
Total liabs & equity 71,200 77,598 87,887 100,849 109,769
Capital expenditure 381 (430) (1,122) (2,117) (5,622)
Net investing cashflow 556 (68) (647) (35) (4,290) Ratios
Net financing cashflow 7,465 (172) 1,683 (817) (3,317) Net debt/equity (%) 13.1 4.6 4.6 (4.1) (6.6)
ROE (%) 7.0 8.6 6.7 15.2 14.1
Free cashflow (10,197) 826 228 3,974 1,667 ROIC (%) 6.7 7.4 5.9 12.1 13.4
Page 141

Prestige Estates (PEPL IN - Rs254.3 - BUY)
Prestige is a leading lease asset and Prestiges pre-sales at a multiyear low
residential developer based out of Bengaluru 50 (Rsbn)
45
Largest listed Bengaluru office asset holder - a 40
strong market 35
30
Lease assets are 2nd/3rd of value; resi 1st/3rd 25

20
Follows joint development model for new 15
projects, which gives flexibility 10

5
Residential presales surged 4x over FY11-15; 0

have dropped about 40% since then
Earnings summary
Some 70-80% of presales are in the mid-
income segment (Rs7-8m average) Year to 31 Mar FY15A FY16A FY17CL FY18CL FY19CL
Revenue (Rsm) 34,198 46,344 44,996 51,601 49,952

Prestiges traditional high-volume residential
model can help it take advantage of affordable Net profit (Rsm) 3,324 3,512 2,601 3,560 3,953
EPS (Rs) 9.1 9.4 6.9 9.5 10.5

Our 1 year target of Rs318 builds in pre-sales
sales back to FY15 levels in FY19; lease EPS (% YoY) 1.2 3.0 (25.9) 36.9 11.0
income valued at 9% implied cap rate PE (x) 28.0 27.2 36.7 26.8 24.2
ROAE (%) 9.8 8.8 6.1 8.0 8.3
PB (x) 2.4 2.3 2.2 2.1 1.9

Net gearing trend Mid-income residential segment big for Prestige
60 (Rsbn) Net debt Net debt/equity (RHS) (x) 1.4 40 (Rsbn) Mid income residential presales (%) 90
Mid-income resi as % total presales 80
1.2 35
50
70
30
1.0
40 60
25
0.8 50
30 20
0.6 40
15
20 30
0.4
10
20
10 0.2 5 10
0 0.0 0 0
Sep 15 Dec 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 FY12 FY13 FY14 FY15 FY16 9MFY17
Lease income buildout has been steady PB near average

1,600 (Rsm) Lease income (LHS) (Rsm) 6,000 3.0 (x)
1,400 Lease income trailing-12M
5,000 2.8
1,200 2.6
4,000
1,000 2.4
800 3,000 2.2
+1sd2.14x
600 2.0
2,000
400 1.8 avg1.78x
1,000 1.6
200
0 0 1.4 -1sd1.42x
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
1.2
1.0
Page 143

Revenue 34,198 46,344 44,996 51,601 49,952 Assets
Op Ebitda 9,939 10,424 9,085 10,574 11,714
Other income 986 838 875 950 1,000 Debtors 9,859 11,036 11,711 13,430 13,001
Inventories 42,599 50,976 62,995 62,762 67,103
Minorities/Pref divs (351) (371) (950) (650) (650)
Fixed assets 33,280 40,246 49,638 53,617 59,927
Net profit 3,316 3,577 2,601 3,560 3,953
Ratios Intangible assets 5,040 8,998 2,998 2,998 2,998
Revenue growth (% YoY) 34.2 35.5 (2.9) 14.7 (3.2)
Other term assets 1,096 765 1,096 1,096 1,096
Liabilities & Equity
Dividend payout (%) 17.0 12.6 21.6 18.4 19.0
Ebitda/net int exp (x) 3.1 2.9 2.8 3.0 3.1 Other current liabs 2,347 2,458 2,593 2,705 2,818
Debt 40,556 57,933 56,000 56,000 63,500

Cashflow statement
Minorities/other equity 3,975 3,234 3,234 3,234 3,234
Shareholder funds 38,206 41,439 43,365 46,137 49,190
Net operating cashflow (8,273) (9,219) 11,734 4,755 1
Capital expenditure (5,144) (8,550) (11,075) (5,902) (8,520) Total liabs & equity 123,558 144,503 166,263 176,244 189,281

Net financing cashflow 14,418 16,837 (2,608) (788) 6,600
Net debt/equity (%) 78.5 113.2 106.7 102.7 112.8
ROE (%) 9.8 9.0 6.1 8.0 8.3
Free cashflow (13,417) (17,769) 659 (1,147) (8,519) ROIC (%) 7.5 6.8 5.5 6.1 6.2
Page 144

Sobha (SOBHA IS - Rs385.4 - BUY)
Sobha is a leading residential property Sobha presales at a multiyear low
developer based out of Bengaluru 30 (Rsbn)
Entered mid-income housing segment in 2015

25
25 23
22 22
with launch of its Dream Acres project (sub- 21
20
19
20 19
1,000sf saleable, less than Rs5m ticket size) 17
15
In-house capability in precast technology to
cut execution time should support margins in 10
the Dream Acres project 5
Government support to affordable housing 0

boosts chances of expanding mid-income FY12 FY13 FY14 FY15 FY16 FY17 FY18CL FY19CL FY20CL
housing segment significantly

Earnings summary
Large 200m sf+ of landbank provides Year to 31 Mar FY15A FY16A FY17CL FY18CL FY19CL
flexibility to scale up
Revenue (Rsm) 24,406 19,566 21,862 25,781 30,802
Presales are at five-year lows and could
Net profit (Rsm) 2,380 1,619 1,473 1,694 2,197
rebound as the premium segment improves
EPS (Rs) 24.3 16.5 15.3 17.6 22.8
Our 1 year target of Rs501 builds in 20%
presales Cagr over FY17-19; 7x EV/Ebitda EPS (% YoY) 1.3 (32.0) (7.4) 15.0 29.7
PE (x) 15.8 2.3 25.1 21.9 16.9

Growing presales at 15% Cagr over next two
years implies three- year target at Rs718 ROAE (%) 10.1 6.5 5.7 6.3 7.7
At 17x FY19 PE, on a cyclically low earnings PB (x) 1.5 1.5 1.4 1.3 1.2
base, Sobha is attractive

9MFY17 presales split by unit ticket size Gearing has been steady
<5m 30 (Rsbn) Net debt Net gearing (RHS) 0.9
3%
25 0.8
25m+
21.1 20.9 20.6 20.6 20.8
16% 20.5 20.3
20 0.6
5m-10m 15 0.5
34%
15m-25m
21%
10 0.3
10m-15m 5 0.2
26%
0 0.0
Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16
Sales have rebounded from demonetisation lows PB band: At average valuations

1.2 (m sf) Area presold (Rsm) 8,000 2.2 (x)
Value of presales (RHS)
7,000
1.0 2.0
6,000
0.8 1.8
5,000
+1sd1.69x
0.6 4,000 1.6
3,000
0.4 1.4 avg1.39x
2,000
0.2 1.2
1,000
-1sd1.08x
0.0 0 1.0
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
0.8
Page 146

Revenue 24,406 19,566 21,862 25,781 30,802 Assets
Op Ebitda 6,173 4,430 4,001 4,652 5,602
Op Ebit 5,450 3,833 3,343 3,970 4,896 Cash & equivalents 1,774 1,605 1,265 829 872
Other income 149 343 375 375 375
Debtors 6,768 6,103 6,289 7,416 8,861
Profit before tax 3,716 2,539 2,218 2,514 3,250 Inventories 27,284 27,907 28,714 29,226 29,471
Taxation (1,277) (951) (865) (955) (1,202)
Fixed assets 3,596 6,057 6,007 6,283 8,531
Minorities/Pref divs (59) 30 120 135 150
Net profit 2,380 1,619 1,473 1,694 2,197 Other term assets 22,861 24,574 24,225 25,688 25,223
Ratios
Total assets 62,362 66,287 66,506 69,443 72,958
Revenue growth (% YoY) 12.3 (19.8) 11.7 17.9 19.5
Ebitda growth (% YoY) 2.5 (28.2) (9.7) 16.3 20.4 Liabilities & Equity
Ebitda margin (%) 25.3 22.6 18.3 18.0 18.2
Creditors 6,381 6,325 6,243 6,853 8,139
Dividend payout (%) 28.8 12.1 13.4 11.4 9.9 Other current liabs 9,297 9,445 8,746 9,610 10,902
Debt 20,588 22,209 22,709 22,709 21,709
Ebitda/net int exp (x) 3.3 2.7 2.7 2.5 2.8
Provisions/other LT liabs 1,631 2,538 2,538 2,538 2,538
Cashflow statement Minorities/other equity 148 156 0 0 0

Shareholder funds 24,318 25,614 26,271 27,733 29,670
Net operating cashflow (2,576) 2,846 1,674 2,203 5,904
Capital expenditure (658) (3,058) (608) (959) (2,954) Total liabs & equity 62,362 66,287 66,506 69,443 72,958

Net financing cashflow 5,568 1,299 (316) (231) (1,260)
Net debt/equity (%) 76.9 80.0 81.6 78.9 70.2
Cash at beginning of period 1,156 1,774 1,605 1,265 829
ROE (%) 10.1 6.5 5.7 6.3 7.7
Cash at end of period 1,774 1,605 1,264 829 872
Free cashflow (3,234) (211) 1,066 1,245 2,949 ROIC (%) 8.7 5.1 4.1 4.8 5.9
Page 147

Nila Infrastructures (NLHI IS - NR)
Nila is primarily a civic contractor with Nilas orderbook
specialisation in affordable housing 3,500 (Rsm)
3,014
3,000
Executes mix of public-private-partnership
(PPP) and EPC projects 2,500
2,095
2,026
2,000
Early entrant in affordable housing due to
1,500
Gujarat (Modis home state) presence 954
1,000
Completed about 2,300 units of affordable

630
500 287
housing in five cities across two states
0
Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Dec 16
5,818 units of affordable housing under
development Earnings summary
Order backlog of Rs3.0bn, +49% since Year to 31 Mar FY13A FY14A FY15A FY16A 9MFY17
March 2016; Rs2.2bn order inflow in Revenue (Rsm) 930 967 1,244 1,831 1,501
9MFY17 Net profit (Rsm) 128 119 121 171 151

EPS (Rs) 0.43 0.40 0.33 0.46 na
Some 55% of order backlog is affordable EPS (% YoY) 3.1 (7.6) (19.1) 41.4 na
housing; 45% is urban infrastructure PE (x) 41.4 44.8 55.3 39.1 na

ROAE (%) 13.2 11.2 9.0 10.4 na
Owns a 50-acre landbank for developing PB (x) 5.2 4.8 4.3 4.0 na
housing projects
Source: Company data, ACE Equity
Page 148

Nila Infrastructures (NLHI IS - Rs18.0 - NR)
Profit & Loss statement Balance-sheet summary
(Rsm) FY12A FY13A FY14A FY15A FY16A (Rsm) FY12A FY13A FY14A FY15A FY16A
Revenue 865 930 967 1,244 1,831
Assets
Op Ebitda 204 219 236 227 274
Op Ebit 197 211 226 214 260 Cash & equivalents 14 10 41 46 32
Other income 41 45 35 73 144
Debtors 135 167 258 309 364
Interest expense (57) (63) (79) (101) (145)
Profit before tax 181 193 182 187 259 Inventories 540 939 889 1,379 1,332
Taxation (56) (65) (63) (66) (88)
Fixed assets 314 323 323 331 334
Minorities/Pref divs 0 0 0 0 0
Net profit 124 128 119 121 170 Other term assets 668 681 784 1,363 1,613
Ratios
Total assets 1,671 2,120 2,295 3,427 3,674
Revenue growth (% YoY) 0.6 7.5 3.9 28.7 47.2
Ebitda growth (% YoY) 17.4 7.0 7.6 (3.5) 20.7 Liabilities & Equity
Ebitda margin (%) 23.6 23.5 24.4 18.3 15.0
Creditors 141 118 114 128 201
Dividend payout (%) 23.7 23.0 24.9 30.7 23.9 Other current liabs 114 169 141 486 277
Debt 394 709 819 1,090 1,363
Ebitda/net int exp (x) 3.6 3.5 3.0 2.3 1.9
Provisions/other LT liabs 99 107 120 145 135
Cashflow statement Minorities/other equity 0 0 0 28 28
(Rsm) FY12A FY13A FY14A FY15A FY16A Shareholder funds 922 1,016 1,100 1,550 1,672
Net operating cashflow (287) 27 (204) (18) (690)
Total liabs & equity 1,671 2,120 2,295 3,427 3,674
Capital expenditure (8) (8) (19) (11) (33)
Net investing cashflow 78 52 1 17 (122) Ratios
Net financing cashflow 161 (113) 198 21 801 Net debt/equity (%) 50.7 75.6 80.1 90.2 90.6
Cash at beginning of period 93 45 11 7 26
ROE (%) 14.2 13.2 11.2 9.0 10.4
Cash at end of period 45 11 7 26 15
Free cashflow (295) 19 (223) (29) (723) ROIC (%) 9.7 8.5 7.5 5.5 5.5
Source: ACE Equity, Company
Page 149

Developers: Valuation matrix
Company Current Target Rec Mkt cap 3M avg Perf 3M Perf 1Y PE (x) PE (x) PB (x) ROE
price price (US$m) T/O (%) (%) FY18CL FY19CL FY18CL (%)
(Rs) (Rs) (US$m) FY18CL
DLF 187 136 SELL 5,387 27 36.9 55.9 51.4 37.7 1.2 2.3
Godrej
457 561 BUY 1,581 3 40.7 51.0 51.0 34.3 4.8 9.7
Properties
Oberoi
394 475 BUY 2,098 2 27.2 33.5 14.6 13.7 2.1 15.2
Realty
Prestige
254 318 BUY 1,545 2 54.3 49.6 26.8 24.2 2.1 8.0
Estates
Sobha 385 501 BUY 576 3 48.5 55.7 21.9 16.9 1.3 6.3
Nila
Infrastruct 18 N/R N/R 110 1 6.8 31.3 na na na na
ures
Source: CLSA. Bloomberg for Nila Infra. Stock priced as on close of 26 April 2017
Page 150

Notes
Page 151

Upcoming CLSA Forums
China Forum 2017

15-17 May, Tianjin, China
Investors' Forum 2017

11-15 September, Hong Kong
India Forum 2017

13-15 November, Gurgaon
Page 152

Companies mentioned
ACC (ACC IB - RS1,603.0 - SELL) JK Cement (N-R)
Akzo Nobel (N-R) Jones Lang LaSalle (N-R)
Ambuja Cements (ACEM IB - RS246.4 - SELL) Jones Lang LaSalle India (N-R)
Anchor Electricals (N-R) Kajaria Ceramics (N-R)
Ashirvad Pipes (N-R) KEI Industries (N-R)
Asian Paints (APNT IS - RS1,104.7 - SELL) Kirloskar Pumps (N-R)
Astral (ASTRA IN - RS547.7 - BUY) KNP (N-R)
Bajaj Electricals (N-R) Kohler (N-R)
BASF India (N-R) KSB Pumps (N-R)
Berger Paints India (N-R) LIC Housing Finance (LICHF IB - RS675.8 - BUY)
Bombay Dyeing (N-R) Mitsubishi Electric (6503 JP - 1,539 - BUY)
Century Plyboards (N-R) NABARD (N-R)
Cera Sanitaryware (N-R) Nila (N-R)
Chandra Chemicals (N-R) Oberoi Realty (OBER IN - RS394.4 - BUY)
Crompton Consumer (CROMPTON IN - RS220.2 - BUY) Orient Electric (N-R)
Dalmia Bharat (N-R) Parryware Roca (N-R)
Dalmia Bharat Sugar (N-R) Pidilite (PIDI IS - RS726.4 - OUTPERFORM)
Dewan Housing Finance (N-R) Polycab Wires (N-R)
DLF (DLFU IB - RS187.4 - SELL) Prestige Estates (PEPL IN - RS254.3 - BUY)
Finolex Industries (N-R) Ramco Cements (TRCL IN - RS700.8 - SELL)
Fosroc (N-R) Resinova (N-R)
Godrej Interio (N-R) SAIL (N-R)
Godrej Prop (GPL IB - RS457.1 - BUY) SBI (SBIN IB - RS286.4 - BUY)
Greenply INdustries (N-R) Shree Cement (SRCM IB - RS19,219.1 - UNDERPERFORM)
Gruh Finance (N-R) Sika (N-R)
Havells India (HAVL IB - RS485.1 - SELL) Sika India (N-R)
HDFC (HDFC IB - RS1,585.0 - BUY) Sintex (N-R)
Hindustan Sanitaryware (N-R) Sobha (SOBHA IS - RS385.4 - BUY)
HR Johnson (N-R) Somany Ceramics (N-R)
HUDCO (N-R) Tata Steel (TATA IB - RS454.3 - BUY)
Huntsman India (N-R) TTK Prestige (TTKPT IN - RS6,395.5 - SELL)
Indiabulls HFC (IHFL IS - RS1,010.9 - BUY) UltraTech (UTCEM IS - RS4,230.9 - OUTPERFORM)
Jaguar (N-R) Usha International (N-R)
Jindal Steel & Power (N-R)
Page 153

Important notices
Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect my/our own personal views about the securities and/or the issuers and that no part of my/our compensation was, is, or will be
directly or indirectly related to the specific recommendation or views contained in this research report.
Important disclosures
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Neither analysts nor their household members/associates/may have a financial interest in, or be an officer, director or advisory board member of companies covered by the analyst unless disclosed herein. In circumstances where an analyst
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Unless specified otherwise, CLSA/CLST did not receive investment banking/non-investment banking income from, and did not manage/co-manage a public offering for, the listed company during the past 12 months, and it does not expect to
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Challenges & roadblocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Housing finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Property developers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Improving affordability Top stock picks

Abhinav Sinha Aditya Jain Alok Srivastava

Bhavesh Pravin Shah Prakhar Sharma Vivek Maheshwari

Continued on the next page

The other issue is the need to fast-track approvals. But I think

280m households in 2016

But only 190-200m permanent-structure houses

Current population Demand for 3.4m

Ongoing nuclearisation Demand for 2.5m

Rising 4-5m houses pa will

Total latent demand for housing 10m+ pa

Source: Census of India, MoSPI, NSSO, CLSA

80 (%) Affordability: Mortgage payment to post-tax Income ratio

Improving affordability Government support

Source: SBI, CLSA

Income (Rsm) 0.5 0.8 10% income Cagr

Loan limit (Rsm) 1.5 2.4 Assume at 3x annual income

LTV 70% 70% Remaining funded by equity

House price (Rsm) 2.1 3.4 Implied as above

Source: CLSA Page 9

7.9% of 8.1% of GDP

FY03 FY12 FY17 FY24

Source: Census of India, MoSPI, RBI, NHB, CLSA Page 10

Source: Census of India, MoSPI, RBI, NHB, CLSA Page 11

36% of total funding should

Central Govt, State Govt,

Housing GFCF (real) Cagr of 8%

Multiple sector linkages

China 18 FY14 FY21

Source: Government, banks, NHB, CLSA

Tax benefits to developers reduces cost of supplying low-cost houses by c.5%

Developers with mid-income residential product: Godrej, Sobha and Prestige

Source: Property companies, CLSA Page 15

State government support critical

Administrative scale up needed for PMAY Urban scheme

Automation/digital implementation should help here

Property sentiment is still weak

Major quality gaps

Potential demand growth of 10m/year appears

Existing rural scheme scaled up Urban Rural

1m/annum house construction pace

1.9m homes already sanctioned

Rs294bn centre support committed Several state-government schemes add/supplement

Scale-up on cards Two-bedroom housing scheme started in November 2015 to

of Rs290bn (US$4.3bn) in FY18,

Note: BE: = Budget estimates; RE = Revised estimates or near final

Tamil Nadu 150

Significant increase in budgeted spend on 15

housing in FY18 by several states 10

reducing cost No isolated

Centres innovations: EWS houses

Separate budgeting under

participation unlikely to happen 1.2 200

segment: Aimed to bridge 0.3 50

Average house cost around

Center-West (Maha, Gujarat MP): 27% Others

Scheme covers houses up to 110m carpet Size of house