INDIA DAILY

June 13, 2019 India 12-Jun 1-day 1-mo 3-mo Sensex 39,757 (0.5) 7.2 5.3 Nifty 11,906 (0.5) 6.8 5.0 Contents Global/Regional indices Dow Jones 26,005 (0.2) 2.7 1.2 Daily Alerts Nasdaq Composite 7,793 (0.4) 1.9 2.0 Company alerts FTSE 7,368 (0.4) 2.8 2.9 Avenue Supermarts: Analyst meet takeaways Nikkei 21,057 (0.3) (0.6) (1.1) Hang Seng 27,308 (1.7) (4.3) (5.2)  Store additions to increase FY2020 onwards KOSPI 2,094 (0.7) 0.7 (2.5)  Dmart remains unscathed despite higher competitive intensity Value traded – India

 Avenue e-commerce: scaling up quick with improving profitability Cash (NSE+BSE) 276 389 381 10,19 Derivatives (NSE) 3,715 6,731  Business on a strong footing; capital raise in the offing 2 Deri. open interest 3,703 3,029 3,467 Sector alerts

Insurance: Going strong Forex/money market  Private sector individual APE growth was strong at 27% in May 2019 Change, basis points 12-Jun 1-day 1-mo 3-mo  Net mutual fund equity inflows improve mom but remain muted Rs/US$ 69.7 29 (86) 7 Economy alerts 10yr govt bond, % 7.2 (3) (36) (36) Net investment (US$ mn) Economy: CPI inflation as expected, IIP growth surprises 11-Jun MTD CYTD  CPI inflation continues to firm up gradually FIIs 43 166 11,356 MFs 21 (99) 258  Core inflation continues to soften Top movers – 3mo basis

 IIP, surprisingly, posts a six-month high growth Change, %  Expect 25 bps cut in August; transmission of lower policy rates should be Best performers 12-Jun 1-day 1-mo 3-mo the focus TGBL IN Equity 255 (0.1) 27.7 25.8 SIEM IN Equity 1,260 (0.8) 19.9 19.6

TTAN IN Equity 1,289 0.3 12.6 19.5

POWF IN Equity 132 (1.1) 23.0 18.6

KMB IN Equity 1,484 (1.6) 6.8 17.6

Worst performers

RCOM IN Equity 2 (2.9) (26.1) (65.3)

RCAPT IN Equity 88 (5.9) (18.0) (53.1)

RELI IN Equity 64 (0.6) (36.4) (50.5)

RPWR IN Equity 6 0.8 5.3 (47.8)

YES IN Equity 135 (3.4) (12.9) (44.8)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. SELL Avenue Supermarts (DMART) Retailing JUNE 13, 2019 UPDATE Coverage view: Cautious

Analyst meet takeaways. In its annual analyst meeting, Dmart mentioned: (1) store Price (`): 1,311 additions lagged in FY2019 but should pick up going forward, (2) competitive intensity Fair Value (`): 965 has gone up meaningfully though Dmart’s EDLP/EDLC strategy enables it to maintain BSE-30: 39,757 SSSG without compromising much on margins, and (3) the e-commerce venture is becoming scalable though immediate focus is to ramp up further only in Mumbai.

Company data and valuation summary Avenue Supermarts Stock data Forecasts/Valuations 2019 2020E 2021E 52-week range (Rs) (high,low) 1,699-1,126 EPS (Rs) 14.5 19.8 25.9 Market Cap. (Rs bn) 817.9 EPS growth (%) 11.9 37.0 30.8 Shareholding pattern (%) P/E (X) 90.6 66.2 50.6 Promoters 81.2 Sales (Rs bn) 200.0 257.0 328.0 FIIs 5.9 Net profits (Rs bn) 9.0 12.4 16.2 MFs 2.9 EBITDA (Rs bn) 16.3 22.1 28.7 Price performance (%) 1M 3M 12M EV/EBITDA (X) 50.3 37.3 28.7 Absolute 4.8 (13.2) (18.5) ROE (%) 17.6 19.9 21.2 Rel. to BSE-30 (1.3) (18.1) (26.8) Div. Yield (%) 0.0 0.0 0.0

Store additions to increase FY2020 onwards

Dmart management mentioned that the company lagged behind its target in FY2019 on account of delayed permissions for some stores. Given the uncertain nature of approvals there may be some lumpiness in store additions, though the company is definitely looking to accelerate the pace of store additions. It is also consciously adding larger stores given good response to new stores. Land costs are certainly higher than Dmart’s historical land costs, which is driving up capex.

Dmart remains unscathed despite higher competitive intensity

Management remains confident that their proposition of low pricing coupled with superior product assortment will continue to find favor with their target segment (households with monthly income of

Avenue e-commerce: scaling up quick with improving profitability

Avenue E-commerce, the entity which has undertaken e-commerce operations in Mumbai, grew revenues by 225% yoy in FY2019. EBITDA loss of the entity remained similar yoy at ~Rs400 mn, indicating the business model is steadily stabilizing. Dmart is focusing on improving its tech platform, processes and customer experience, in order to make the model scalable and potentially replicable in many other cities. Dmart believes that the e-commerce model can find sizeable appeal in metro cities, while Tier II/III cities may see limited acceptance.

Business on a strong footing; capital raise in the offing Garima Mishra Management continues to focus on its core EDLP/EDLC strategy and does not want to initiate loyalty programs or wallets to attract customers. Private label and cash-and-carry formats are definitely on the strategy radar, but company will take time to execute on both objectives. Potential QIP as well as stake sale by promoter will be both explored to bring down promoter’s stake to 75% by March 2020. Rich valuations keep us cautious; SELL stays.

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Avenue Supermarts Retailing

Product mix – smaller cities see better throughput of non-FMCG

Food comprises the largest proportion of Dmart’s sales, and the intent is to continue using this category to attract customers. Depending on regions, share of non-food FMCG and general merchandise (GM) category keeps fluctuating. In general, the GM category can see better throughput in small towns where the value for customer is starkly more as supply of competing products (say kitchen appliances or apparel) is limited. Small towns can generate more value. They make more margins on general merchandise than food or non-food FMCG.

There is no thought to complicate the GM business. For instance Dmart will keep away from sale of large appliances, which require special in-store display and sales effort.

Fresh food (fruits, vegetables) as a category has never been the focus for Dmart as it needs wide shelf space, high refill rates and employee intensity. The fresh offering will always be a store-level decision, supported by data on demand and throughput.

Exhibit 1: Food comprises a major chunk of Dmart’s revenues Category-wise split of Dmart’s revenues, March fiscal year-ends (%)

Food Non-food FMCG General merchandise (incl. apparel) (% of total) 100

26.0 25.8 25.2 25.9 26.4 26.8 28.4 28.3 80

21.0 21.2 21.5 21.2 20.6 19.9 60 20.0 20.5

40

53.0 52.9 53.3 52.8 53.1 53.3 51.6 51.3 20

0 2012 2013 2014 2015 2016 2017 2018 2019

Source: Company, Kotak Institutional Equities

General merchandise category is the key margin lever

Food is the lowest margin category, but generates high throughput and witnesses very high inventory turnovers. Non-food FMCG category has better margins than food, but still trails the 15% gross margin Dmart reports on an overall basis. Apparel and GM have the highest margins, but lower inventory turnover also. However, Dmart manages inventory turns in this business better than competing apparel retailers.

FMCG brands with clear MRPs constitute ~40% of sales. The moat for every retailer is hence the assortment of remainder products, which cannot be compared easily across retailers.

From an FMCG perspective, most companies work with all large retailers. Dmart’s trading terms with vendors haven’t changed materially with suppliers and margins don’t change very frequently.

Cluster-based expansion strategy maintained

Dmart prefers investing in regions that they understand well. This is on account of better knowledge of customer tastes and preferences, and this aids faster store profitability. Supply chain costs get defrayed over a larger pool in the same region. Further, the ability to invest in real estate is far better in regions, which are well known to the company.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Retailing Avenue Supermarts

Land ownership model to continue; though some inclination towards store leasing

Land buying is extremely tricky and complicated in India and is reliant on deed execution, paperwork and government approvals. Dmart did lag behind on its internal targets in FY2019 when they opened 21 stores. This was largely on account of delayed permissions and other reasons, which were beyond the company’s control.

Over time, Dmart has built a good understanding of South India, and stores there are doing as well as Maharashtra and Gujarat. Dmart has a limited presence in the North, and will build up capabilities (land acquisition as well as customer understanding) with time.

Store addition to steadily improve, but may be lumpy

Permissions did not come on time and hence store addition lagged in FY2019. Dmart is certainly aiming for a better rate of store opening in the future, but this is always contingent on timely permissions. 2-3 years of normalized moving average of store additions is a better way of looking at store expansion trends. Dmart had guided for 18-20 store additions per year at the time of the IPO (March 2017); the company is now certainly aiming for higher annual store additions. The store addition should also be looked in the context of area addition – retail trading area grew by 19% compared to 14% growth in store count. This is on account of the fact that the company is consciously opening larger sized stores (~50,000 sq. ft in size compared to earlier average store size of 30,000 sq. ft).

Exhibit 2: Dmart is adding larger sized stores Store count and size, March fiscal year-ends, 2015-19

2015 2016 2017 2018 2019 Period-ending retail trading area (mn sq. ft) 2.7 3.3 4.1 4.9 5.9 Yoy growth (%) 25.5 21.7 21.7 19.4 Store count (#) 89 110 131 155 176 Yoy growth (%) 23.6 19.1 18.3 13.5 Average size per store (sq. ft) 29,845 30,316 30,992 31,871 33,523 Average size of new stores added (sq. ft) 32,310 34,536 36,667 45,714

Source: Company, Kotak Institutional Equities

Augmentation of the real estate acquisition team is a major priority, and the number of people in this team has been going up in tandem with store additions and future store addition ambitions. Project execution team has also seen additions, and the team is definitely more capable than what it was a couple of years back.

There is definitely a thought to take to leasing and there is some interest from builders, particularly in non-metro cities. Given Dmart’s space requirements, they don’t naturally fit into all malls, and hence developers have to find customized solutions for them. Dmart will, however, look to enter into long-term leases only (>9 years).

SSSG maintained despite higher competitive intensity

Level of discounting by competitors, both online and offline, increased in FY2019. Despite this Dmart posted a very strong SSSG print of 17.8%. The company understands that the experience of shopping in Dmart stores during weekends can be tough and it keeps introducing new innovations to make stores less crowded. Despite the experience, consumers are still flocking to stores. Another factor supportive of the SSSG is the inclusion of new stores in the calculation. Generally, new stores have much higher SSSGs than old stores. That said, some of Dmart’s oldest stores still post a respectable single digit SSSG. The general observation is that as a store matures and reaches revenues of Rs25,000 per sq. ft, SSSG will trend towards inflation rate.

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Avenue Supermarts Retailing

For some of the higher throughput stores, Dmart increased store timings last year. This is done on a case by case basis, and the additional revenue earned in the extra time has to more than compensate for the additional operating costs in the form of manpower, utilities, etc. incurred by the store. Overall response to this measure has been encouraging.

Despite larger store size, the revenue per sq. ft metric is growing very well and indicates that larger stores are seeing good customer response. The revenue per sq. ft metric should be seen as a blend – some of the older stores have very high revenue throughput, which pull up the average.

Exhibit 3: SSSG came in at a healthy 17.8% in FY2019 SSSG trend, March fiscal year-ends (%)

SSSG (%) (%) 35

31.6 30

26.1 25 22.4 21.5 21.2 20 20.3 17.8 15 14.2

10 2012 2013 2014 2015 2016 2017 2018 2019

Source: Company, Kotak Institutional Equities

Store IRR is the key monitorable

Internally, Dmart tracks store level profitably a lot more closely than simply the revenue per sq. ft figures. Overall thinking is very conservative on cost management in order to ensure that new stores grow profitably. Whenever a real estate decision is to be made, it is weighed in with respect to the store’s potential revenue generation and hence fixed asset turnover.

The IRR target isn’t the same for all regions. There’s a team which monitors IRR very closely and makes changes to store operations if the target isn’t met. Once the IRR target is achieved not much is tweaked – only attention then is on following ethical practices and customer satisfaction.

Loyalty programs, wallets, etc. not an immediate priority

Dmart is open to offering wallet payments to customers in partnership with banks. However, most banks/financial institutions expect the retailer to provide cashbacks or put some money in the wallet for the customer. Dmart is not keen on doing this as this will imply an additional cost of business and Dmart would rather focus on keeping product prices low. Dmart may, in future, offer their own wallet, but only if they can offer some value add to the customer.

Membership, loyalty programs etc. make sense where consumers have long lifetime value. Dmart customers are value focused and are loyal on account of the assortment and pricing they get within the store. Per Dmart, ~99.5% walk-ins convert into sales. There is thus no need at this time to introduce a loyalty program.

In general, Dmart’s target segment is families within a radius of 5 km of a store with – monthly household income of below Rs50,000. The company’s observation is that these customers are very loyal and are late adopters of e-commerce.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Retailing Avenue Supermarts

Dmart Ready: scaling up well in Mumbai

Dmart Ready provides a small sub-set of assortment generally available at large stores. These products are primarily food and FMCG. Technology for this venture is in place and is now fairly scalable and best in class. For now, Dmart is focusing on expanding in only Mumbai. Once the model stabilizes here, Dmart will look to expand to other cities.

Mumbai currently has 196 Dmart Ready stores with average store size of 200-300 sq. ft. Internally this is still being treated as a pilot. Dmart managed to control losses of this segment in FY2019 and is now looking at this as an alternate channel. Whatever is good for customer will do, however not a hard discounter and hence cost of delivery needs to be optimized more. This channel provides an opportunity to service a larger proportion of customers – those who may be looking for convenience, and those who may not be serviced by existing stores. This is however true of metro cities where online ordering has gained acceptance. Value of e-commerce for customers in Tier-II cities and beyond is very limited. Shopping at a large Dmart store is an experience for people, which online cannot match.

Consumers who know Dmart are less demanding than the typical e-commerce shopper. Dmart will remain a functional service and is hence working on minimizing post transaction interaction. Rs1,000 threshold for free delivery will remain as it helps the company to service only potentially profitable customers.

There is a 50% discount section offered on Dmart Ready and some brands are always available there for promotional or other reasons.

Exhibit 4: Sharp scale-up in revenues of Dmart Ready Financial snapshot of Avenue E-commerce, March fiscal year-ends (Rs mn)

2018 2019 Total revenues 446 1,442 COGS (409) (1,278) Employee expenses (128) (161) Other expenses (283) (401) Total expenses (820) (1,840) EBITDA (374) (398) Finance costs — — Depreciation and amortization (106) (111) PBT (480) (509)

Source: Company, Kotak Institutional Equities

Private label: can become meaningful only in the very long term

Dmart offers several white label products such as self-branded dry grocery, plasticware, utensils, etc. However these are not strictly private labels and are a function of the company’s procurement skills rather than branding skills.

Real private label arbitrage is in FMCG branded segment. Dmart has a minuscule presence in that segment. Brand name of Dmart is critical, and hence quality of FMCG product offered will be of paramount importance. Building a large private label business can take 10-20 years as it takes time to establish reliable vendor ecosystem. The biggest bottleneck currently is getting good quality vendors with long-term vision. Competing with an FMCG brand requires a private label to fill in an existing gap in the market without compromising on quality. There are some categories where cost of manufacturing to retail is 4X, and while these categories may be tempting to a retailer, these may often be the most challenging. In categories such as washing powder, FMCG companies such as HUL don’t make supernormal margins, making it difficult for a private label to gain share.

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Avenue Supermarts Retailing

Globally, nobody has managed to build a wide bouquet of private labels in 3-5 years. Costco, Aldi have been successful on account of investments over many decades. Dmart is certainly looking to increase its private label assortment, but it will take time for this to become a large contributor to revenues and profits.

Competitive pressure on the rise but Dmart is relatively unscathed

Dmart is currently not worried about competition as the market size is so large and the organized retail pie is growing at a much faster clip than overall retail. Further, there is no single successful model of retail and there is space for value retailers such as Dmart, convenience-based shopping providers such as e-tailers and local grocers and other experience-based shopping formats.

Indian cities are very populous, and in metro cities there has typically been no major revenue cannibalization by new stores.

Dmart believes that consumer affinity to a particular retailer does exist. Hence even though competitive intensity has increased meaningfully in the past 12-18 months, Dmart could still report a very healthy 17.8% SSSG print for FY2019.

Product pricing is not centrally decided and store manager has the power to modify prices. Pricing offered by competitors plays a role in ascertaining Dmart’s store-level pricing.

Dmart believes that brick and mortar stores have an advantage over e-tailers in grocery. Picking and delivery costs pile up and make grocery delivery a high cost business, and that is why this category has been the last to be penetrated by global e-tailers. Cost of establishment of offline stores turns out to be cheaper than cost of picking and delivery. This is however valid only for grocery. Categories such as electronics do not render this price advantage to offline retailers making it most prone to disruption. Dmart is still piloting the Dmart Ready platform in the hope of retaining loyal customers who do not mind paying something additional towards home delivery.

Focus on managing costs is of paramount importance

Dmart believes that despite rising competitive intensity, it has managed to sustain store profitability on account of its razor sharp focus on controlling costs. Company’s focus remains on reducing overheads, making stores more efficient and increasing the use of data and technology to make decisions. Further, it is also focusing on training initiatives within the company to establish a next line of leaders. Dmart is also focusing on decentralized decision making allowing every state and city to make their own decisions.

Capex to go up as store addition increases and property prices rise

Average investment size per property is increasing on account of impact of inflation on property prices, especially when compared to Dmart’s historical land cost. Overall, land and building form a disproportionately large part of overall capex incurred by Dmart.

Break-even of new stores depends on capital invested and type of city. Operating break- even is quick given rate of revenue acceleration is high – in many cases a new store can reach peak revenue potential in 6 months. Response to new stores is very good.

A new store incurs a capex of Rs1,200-2,000 per sq. ft as typical fit-out cost. Post this, refurbishment cost is not very high.

QIP + stake sale to bring down promoter stake

Dmart’s promoter has time till March 2020 to bring down their stake to 75% from the existing 81%. Dmart will seek shareholder approval to launch a QIP in the ensuing AGM. It has already received board approval to issue 25 mn shares via the QIP (potentially resulting in a 3.9% dilution and raising ~Rs33 bn for the company). Dmart’s promoter may also offload some stake via block sales/OFS.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Retailing Avenue Supermarts

Exhibit 5: Our estimates factor in a steady increase in store additions over FY2020-22 Key assumptions for Dmart, March fiscal year-ends, 2012-22E

2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Revenue Net revenues (Rs mn) 22,086 33,409 46,865 64,394 85,838 118,977 150,332 200,045 256,958 327,984 414,913 Yoy growth (%) 51 40 37 33 39 26 33 28 28 27 SSSG (%) 20 32 26 22 21 21 14 18 18 17 17 Revenue per sq. ft (Rs) 14,185 20,132 23,983 26,784 28,595 32,116 33,329 36,836 40,379 44,813 49,344 Margins Gross margin (%) 14.7 14.5 15.0 14.8 14.9 15.3 15.9 15.0 15.0 15.0 15.0 EBITDA margin (%) 6.2 6.4 7.3 7.1 7.7 8.2 9.0 8.2 8.6 8.8 8.9 Capital expenditure Period-ending store count (#) 55 62 75 89 110 131 155 176 203 233 268 New store additions (#) 10 7 13 14 21 21 24 21 27 30 35 Retail trading area (mn sq. ft) 1.6 1.8 2.1 2.7 3.3 4.1 4.9 5.9 6.8 7.8 9.0 Capital expenditure (Rs mn) 2,086 1,863 2,999 4,333 3,654 5,804 8,949 14,409 13,034 15,882 18,463 Working capital Inventory days (#) 32 30 29 31 29 29 28 29 29 29 29 Debtor + loans and advances days (#) 10 10 8 8 8 7 8 7 7 7 7 Creditor days (#) 19 16 14 11 14 13 12 12 12 12 12

Source: Company, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Avenue Supermarts Retailing

Exhibit 6: Consolidated income statement, balance sheet and cash flow, March fiscal year-ends, 2012-22E (Rs mn)

2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Income statement Net revenues 22,086 33,409 46,865 64,394 85,838 118,977 150,332 200,045 256,958 327,984 414,913 Gross profit 3,246 4,834 7,021 9,522 12,802 18,167 23,976 30,037 38,544 49,034 62,029 EBITDA 1,380 2,150 3,418 4,590 6,636 9,812 13,528 16,333 22,079 28,730 36,902 Depreciation (375) (458) (570) (815) (984) (1,278) (1,590) (2,125) (2,745) (3,458) (4,304) EBIT 1,006 1,692 2,848 3,775 5,652 8,534 11,938 14,208 19,334 25,272 32,598 Other income 139 143 158 183 179 286 693 484 262 216 343 Financial charges (260) (426) (557) (724) (913) (1,220) (595) (472) (597) (667) (713) Pre-tax profit 884 1,409 2,449 3,233 4,918 7,600 12,036 14,219 19,000 24,821 32,227 Taxation (282) (472) (835) (1,109) (1,715) (2,683) (4,158) (5,195) (6,650) (8,687) (11,279) Net income 602 937 1,614 2,124 3,203 4,917 7,878 9,025 12,350 16,134 20,948 Prior period items (7) 2 (0) (5) — — 385 — — — — Minority interest & associate profits — — — (0) (1) (129) (200) — — — — Reported net income 594 939 1,614 2,119 3,202 4,788 8,063 9,025 12,350 16,134 20,948 Year-ending number of shares - diluted (mn) 506 538 546 547 562 563 624 624 624 624 624 EPS (Rs) 1.2 1.7 3.0 3.9 5.7 8.5 12.9 14.5 19.8 25.9 33.6 Balance sheet Shareholders' funds 6,811 7,890 9,550 11,989 15,204 38,418 46,691 55,875 68,224 84,358 105,305 Minority interest 3 3 — 1 1 1 6 6 6 6 6 Total debt 3,807 5,261 6,408 9,043 11,923 14,973 4,393 6,950 7,093 8,593 8,193 Deferred tax liability 131 203 267 305 399 506 452 633 633 633 633 Total shareholders' funds + liabilities 10,752 13,356 16,226 21,337 27,527 53,898 51,542 63,463 75,956 93,590 114,137 Net fixed assets 8,640 10,428 12,605 16,262 21,752 27,033 35,307 47,591 57,880 70,305 84,464 Investments 227 160 155 152 293 531 845 346 646 946 1,246 Cash balances 479 616 554 380 351 18,843 5,602 2,191 184 326 582 Net current assets excluding cash 1,406 2,153 2,911 4,542 5,220 7,491 9,786 13,333 17,244 22,010 27,843 Total assets 10,752 13,356 16,226 21,337 27,527 53,898 51,542 63,463 75,956 93,590 114,137 Key ratios (%) Revenue growth NA 51.3 40.3 37.4 33.3 38.6 26.4 33.1 28.4 27.6 26.5 EBITDA growth NA 55.8 59.0 34.3 44.6 47.9 37.9 20.7 35.2 30.1 28.4 EPS growth NA 48.5 69.4 31.1 47.2 49.1 52.0 11.9 36.8 30.6 29.8 Gross margin 14.7 14.5 15.0 14.8 14.9 15.3 15.9 15.0 15.0 15.0 15.0 EBITDA margin 6.2 6.4 7.3 7.1 7.7 8.2 9.0 8.2 8.6 8.8 8.9 Tax rate 31.9 33.5 34.1 34.3 34.9 35.3 34.5 36.5 35.0 35.0 35.0 Debt/equity (X) 0.6 0.7 0.7 0.8 0.8 0.4 0.1 0.1 0.1 0.1 0.1 RoE 13 19 20 24 18 19 18 20 21 22 RoCE 10 13 14 16 14 16 16 18 20 21 Cash flow Operating profit before working capital changes 1,236 1,821 2,741 3,663 5,101 7,286 9,863 11,622 15,691 20,258 25,965 Change in working capital/ other adjustments (510) (746) (759) (1,631) (678) (2,271) (2,295) (3,547) (3,911) (4,766) (5,834) Capital expenditure (1,833) (2,246) (2,747) (4,473) (6,474) (6,559) (9,865) (14,409) (13,034) (15,882) (18,463) Free cash flow (1,106) (1,171) (765) (2,440) (2,052) (1,544) (2,296) (6,334) (1,253) (391) 1,669

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 ATTRACTIVE Insurance India JUNE 12, 2019 UPDATE BSE-30: 39,757

Going strong. May 2019 was a strong month for most of the private sector players with 27% yoy growth in overall APE (26% yoy in April 2019). Excluding ICICI Prudential Life (overall APE up 4% yoy), other large players reported 25-55% growth. A low base and focus on ULIPs coupled with moderate appetite for equity investments were the likely reasons. Overall inflows to equity mutual funds were better mom but broadly still muted. Against this backdrop, the sustenance of such high growth is crucial.

Private sector individual APE growth was strong at 27% in May 2019

Private sector players reported 27% yoy growth in individual APE in May 2019, significantly QUICK NUMBERS higher than 12-18% during the past three months. Overall industry growth was 13% as LIC reported 3% yoy decline.  Private sector APE was up 27% yoy in  HDFC Life reported strong increase in individual APE for a second straight month at 59% yoy May 2019 in May 2019 (31% in April 2019) after witnessing muted growth from November 2018 to March 2019. This pulled up its overall APE growth to 57%. Average ticket size in individual  Private players non-single segment was up 56% yoy and 7% mom. gained 300 bps mom market share  ICICI Prudential Life reported 1% yoy growth in May 2019 in individual APE; this compares in individual with 2% in April 2019 and 14% in March 2019. Average ticket size in individual non-single business to 58% in segment was down 4% yoy but up 5% mom. On considering overall (individual and group) May 2019 adjusted APE including accrued but not received premium, its APE, according to a company release, was up 5% yoy as compared to 9% in April 2019.  Net MF equity inflows increased  SBI Life’s individual APE growth was strong at 37% yoy in May 2019, despite a high base of slightly to `27 bn in 27% yoy growth in May 2018. The company moderated it overall growth momentum in May 2019 9MFY19 due to its focus on productivity and protection business. The overall business momentum picked up since December 2018 with 30-50% yoy growth in individual APE. SBI Life has guided to continue its focus on protection though yoy growth in protection will be lower in FY2020E (individual protection APE was up 5X in FY2019); in that sense, savings business APE will likely remain strong.

 Max Life’s growth in individual APE was strong at 23% yoy, somewhat lower than 28% growth in April 2019. The company has increased focus on ULIPs in recent quarters. Its ticket size in individual non-single segment was up moderately by 14% yoy.

 Birla SL reported 31% yoy growth in individual APE, lower than 46% growth in April 2019, as it continued to make inroads in HDFC Bank. Tata AIA was up 74%, higher than ~50% Nischint Chawathe growth observed in 4QFY19 though lower than 125% in April 2019. In its earnings call, Birla SL guided that it will continue to grow at a rapid pace within the bank though it may maintain FY2019 growth rates. M B Mahesh, CFA

Net mutual fund equity inflows improve mom but remain muted Dipanjan Ghosh Mutual fund inflows to equities improved marginally, with inflows at Rs27 bn in May 2019 versus Rs20 bn in April 2019 due to higher gross inflows. This compares to Rs95 bn in March 2019, Rs44-66 bn in December 2018-February 2019 and Rs86-107 bn in the preceding six Shrey Singh months. Interestingly, SIPs are broadly stable over the past few months at Rs80-82 bn; this meant that the non-SIP flows reported large net outflow.

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Insurance India

Exhibit 1: Private sector life insurance APE was up 28% in May 2019 APE in individual and group business, March fiscal year-ends, May 2018 – May 2019 (Rs mn)

May-19 YTD FY2020

yoy yoy yoy yoy yoy yoy growth growth growth growth growth growth Individual (%) Group (%) Total (%) Individual (%) Group (%) Total (%) Aegon Religare 64 17 1 (33) 64 17 114 9 4 (23) 118 10 Aviva 78 (22) 2 (73) 80 (26) 120 (26) 3 (82) 122 (31) Bajaj Allianz 1,178 38 204 66 1,381 41 1,903 6 346 55 2,249 12 Bharti Axa 422 29 22 4 445 27 738 21 37 (9) 775 19 Birla Sunlife 890 31 81 (33) 972 21 1,554 37 123 (23) 1,677 30 Canara HSBC 550 77 3 (76) 553 71 811 12 158 899 969 31 DHFL Pramerica 144 (46) 33 (64) 177 (51) 251 (50) 69 (62) 320 (53) Edelweiss 162 2 0 (93) 162 (0) 254 3 2 (86) 256 (1) Future Generali 203 45 35 63 238 48 304 17 59 82 363 24 HDFC Life 4,634 59 479 39 5,113 57 7,313 47 1,476 86 8,789 53 ICICI Prudential 4,026 1 215 177 4,241 4 7,485 1 433 243 7,918 5 IDBI Federal 170 (18) 9 64 178 (16) 254 (28) 18 51 272 (26) India First 366 41 121 253 487 65 731 27 232 234 963 49 Exide Life 399 3 6 (39) 405 2 671 (15) 8 (46) 679 (16) Kotak 717 15 225 82 942 26 1,252 1 468 120 1,720 19 Max Life 1,996 23 32 16 2,028 23 3,313 25 59 12 3,372 25 Reliance Life 537 11 5 (72) 542 8 1,426 32 10 (60) 1,436 30 SBI Life 5,586 37 276 44 5,862 37 9,484 42 761 138 10,244 47 Shriram Life 249 (10) 21 (8) 270 (10) 393 (4) 31 (19) 425 (5) Star Union Daichi 239 0 4 (3) 243 0 366 7 6 (10) 373 6 Tata AIA 1,533 74 7 3 1,540 73 2,518 91 14 (30) 2,532 89 Private players 24,996 27 1,801 41 26,798 28 42,635 23 4,357 82 46,992 27 Pvt. Ex-ICICI and SBI 15,384 33 1,311 30 16,695 32 25,666 25 3,164 62 28,829 28 LIC 18,385 (3) 10,398 71 28,783 15 33,084 6 13,200 58 46,283 17 Total Premium 43,381 13 12,199 65 55,580 21 75,718 15 17,557 63 93,275 22

Source: IRDA, Life council

Exhibit 2: Private sector individual APE increased ~27% yoy in May 2019 Yoy growth in adjusted individual business premium, March fiscal year-ends, May 2018 - May 2019 (%)

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Bajaj Allianz 17.2 18.6 19.6 33.4 18.3 25.9 0.0 23.0 21.0 33.2 64.1 (22.5) 38.0 Birla Sunlife 40.6 40.6 74.1 86.4 70.1 110.4 55.3 79.3 81.2 60.3 33.1 45.8 31.1 Canara HSBC (16.7) 2.7 0.8 17.7 6.6 19.5 (15.9) (6.3) 26.3 18.3 33.5 (36.6) 77.4 HDFC Life 11.3 3.7 3.1 6.6 20.2 36.5 (19.6) (3.6) 2.0 (6.1) 0.8 30.6 58.9 ICICI Prudential Life (30.0) (5.1) 3.8 6.0 0.1 (17.2) (23.9) (4.7) 8.9 8.4 13.7 2.0 0.8 India First 0.9 (1.4) 0.8 18.5 23.4 38.5 0.4 10.6 16.5 23.2 50.3 15.0 40.7 Kotak 5.8 3.6 4.4 (3.2) 1.7 15.6 16.0 1.3 (3.4) (0.8) 10.9 (12.5) 14.7 Max Life 19.7 19.7 41.4 22.2 30.4 27.0 12.8 7.0 35.1 26.7 15.2 27.7 23.1 Reliance Life 18.6 16.3 8.6 54.1 40.9 45.6 34.5 25.0 10.7 17.8 (10.9) 50.0 10.6 SBI Life 27.2 8.1 5.9 10.4 22.7 15.9 10.0 23.9 (0.1) 29.8 28.5 51.2 36.5 Star Union Daichi (9.3) (33.5) 11.4 (3.9) 3.7 (23.6) (21.4) 8.7 (20.5) 13.0 18.9 21.8 0.3 Tata AIA 32.4 55.2 52.1 80.6 60.8 58.8 58.6 130.1 45.6 51.8 53.8 124.8 73.7 Private sector 4.2 8.9 13.2 16.7 18.4 16.5 (1.0) 14.3 10.2 16.2 18.5 18.4 27.0 Pvt. ex-ICICI and SBI 16.4 15.0 21.1 24.4 23.3 32.1 4.0 16.0 16.2 15.2 17.2 15.2 32.6 LIC 20.6 (1.3) 1.5 12.4 13.1 (0.5) (12.4) 15.8 8.1 7.0 (0.5) 18.6 (2.6) Total 11.6 4.1 7.8 14.8 16.2 8.4 (6.3) 14.8 9.3 12.2 9.7 18.5 12.5

Source: IRDA, Life council

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 India Insurance

Exhibit 3: Industry’s APE growth slowed in FY2019 Adjusted premium equivalent of life insurance players, March fiscal year-ends, 2013-19

APE (Rs bn) YoY (%) Market share (%) 2013 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 Bajaj Allianz Life 14 11 9 9 12 17 20 (17) (18) (2) 34 34 23 2 2 2 2 2 3 Birla Sunlife 11 9 9 8 11 12 19 (17) (7) (3) 30 11 58 2 2 2 2 2 2 DHFL Pramerica 1 1 2 2 2 4 4 (17) 63 11 21 62 (11) 0 0 0 0 1 0 Exide 5 5 4 5 6 6 7 (3) (12) 10 27 2 7 1 1 1 1 1 1 HDFC Life 32 25 32 36 41 53 57 (22) 26 14 13 29 8 5 7 7 6 7 7 ICICI Prudential Life 34 33 46 51 65 75 72 (5) 41 10 27 15 (4) 6 10 10 10 10 9 Max Life 15 18 20 21 27 32 39 17 10 8 26 21 21 3 4 4 4 4 5 Reliance Life 10 12 13 10 7 7 9 19 8 (26) (24) 2 20 2 3 2 1 1 1 SBI Life 26 30 33 45 63 80 94 14 10 36 40 27 17 6 7 9 10 11 12 Private players 189 182 211 242 306 373 424 (3) 16 15 26 22 14 36 45 47 49 51 53 Private (ex. SBI, ICICI) 128 119 132 146 178 218 258 (7) 10 11 21 23 18 23 28 28 28 30 32 LIC 326 331 253 279 324 360 381 1 (23) 10 16 11 6 64 55 53 51 49 47 Total industry 515 513 464 521 630 733 804 (0) (9) 12 21 16 10

Source: IRDA, Life council

Exhibit 4: Private sector APE has been strong in May 2019 Yoy growth in individual APE, March fiscal year-ends, 2015-19, May 2018 - May 2019 (%)

2015 2016 2017 2018 2019 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Bajaj Allianz (22.6) (7.5) 40.9 38.3 24.7 17.2 18.6 19.6 33.4 18.3 25.9 0.0 23.0 21.0 33.2 64.1 (22.5) 38.0 Birla Sunlife (11.8) (7.7) 35.3 14.9 59.9 40.6 40.6 74.1 86.4 70.1 110.4 55.3 79.3 81.2 60.3 33.1 45.8 31.1 Canara HSBC 17.9 35.2 38.5 33.5 11.9 (16.7) 2.7 0.8 17.7 6.6 19.5 (15.9) (6.3) 26.3 18.3 33.5 (36.6) 77.4 HDFC Life 25.0 12.3 9.1 30.8 5.4 11.3 3.7 3.1 6.6 20.2 36.5 (19.6) (3.6) 2.0 (6.1) 0.8 30.6 58.9 ICICI Prudential Life 41.3 8.1 29.0 16.4 (4.9) (30.0) (5.1) 3.8 6.0 0.1 (17.2) (23.9) (4.7) 8.9 8.4 13.7 2.0 0.8 India First 5.5 38.1 82.3 42.9 18.3 0.9 (1.4) 0.8 18.5 23.4 38.5 0.4 10.6 16.5 23.2 50.3 15.0 40.7 Kotak 32.8 52.2 28.1 31.0 5.9 5.8 3.6 4.4 (3.2) 1.7 15.6 16.0 1.3 (3.4) (0.8) 10.9 (12.5) 14.7 Max Life 10.2 8.0 25.5 21.8 20.7 19.7 19.7 41.4 22.2 30.4 27.0 12.8 7.0 35.1 26.7 15.2 27.7 23.1 Reliance Life 7.3 (25.6) (22.8) 5.4 20.5 18.6 16.3 8.6 54.1 40.9 45.6 34.5 25.0 10.7 17.8 (10.9) 50.0 10.6 SBI Life 11.0 37.0 38.9 31.1 15.0 27.2 8.1 5.9 10.4 22.7 15.9 10.0 23.9 (0.1) 29.8 28.5 51.2 36.5 Star Union Daichi 18.6 (9.0) 64.4 (4.5) (1.9) (9.3) (33.5) 11.4 (3.9) 3.7 (23.6) (21.4) 8.7 (20.5) 13.0 18.9 21.8 0.3 Private sector 15.8 14.0 26.6 24.3 12.5 4.2 8.9 13.2 16.7 18.4 16.5 (1.0) 14.3 10.2 16.2 18.5 18.4 27.0 Pvt. ex-ICICI and SBI 9.8 9.5 21.8 24.9 17.9 16.4 15.0 21.1 24.4 23.3 32.1 4.0 16.0 16.2 15.2 17.2 15.2 32.6 LIC (26.3) 2.9 14.7 13.4 4.5 20.6 (1.3) 1.5 12.4 13.1 (0.5) (12.4) 15.8 8.1 7.0 (0.5) 18.6 (2.6) Total (10.4) 8.3 20.7 19.3 9.0 11.6 4.1 7.8 14.8 16.2 8.4 (6.3) 14.8 9.3 12.2 9.7 18.5 12.5

Source: IRDA, Life council

Exhibit 5: Private players’ regained market share mom in May 2019 Trend in adjusted individual business market share, March fiscal year-ends, May 2018 – May 2019 (%)

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Bajaj Allianz 2.2 2.2 2.0 2.2 2.1 2.5 2.4 2.6 2.3 2.5 3.2 2.2 2.7 Birla Sunlife 1.8 2.4 2.0 2.2 2.3 2.3 2.2 3.4 2.5 2.5 2.9 2.1 2.1 Canara HSBC 0.8 1.4 1.1 1.5 1.6 0.9 1.1 1.3 1.3 1.5 1.5 0.8 1.3 HDFC Life 7.6 6.6 6.6 6.6 8.9 8.9 6.3 6.7 7.9 6.8 7.0 8.3 10.7 ICICI 10.4 11.5 12.2 11.9 10.4 9.4 10.1 9.8 10.1 11.3 7.8 10.7 9.3 Prudential Max Life 4.2 5.5 4.7 4.9 6.0 4.5 5.2 5.4 5.6 6.8 7.2 4.1 4.6 Reliance Life 1.3 1.3 1.1 1.5 1.4 1.2 1.3 1.4 1.1 1.3 1.0 2.7 1.2 SBI Life 10.6 11.3 13.6 13.7 13.2 13.5 14.7 18.4 15.7 10.7 9.9 12.1 12.9 Tata AIA 2.3 2.8 2.7 3.0 2.9 2.8 3.0 3.9 3.2 3.4 4.3 3.0 3.5 Private sector 51.1 55.9 56.9 57.7 59.7 56.1 57.0 63.9 59.6 58.8 58.0 54.5 57.6 LIC 48.9 44.1 43.1 42.3 40.3 43.9 43.0 36.1 40.4 41.2 42.0 45.5 42.4

Source: IRDA, Life council

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Insurance India

Exhibit 6: Mixed trends in ticket size across players Average policy size in individual non-single segment, May 2018 – May 2019 (Rs)

May-18 Apr-19 May-19 YoY (%) MoM (%) Aegon Religare 13,871 31,416 29,333 111 (7) Aviva 50,041 58,263 52,811 6 (9) Bajaj Allianz 50,426 50,771 55,485 10 9 Bharti Axa 36,411 20,566 27,489 (25) 34 Birla Sun Life 45,493 67,096 57,129 26 (15) Canara HSBC Oriental 69,016 78,836 64,343 (7) (18) DHFL Pramerica 42,250 41,785 40,426 (4) (3) HDFC Life 39,212 57,241 61,314 56 7 ICICI Prudential 78,085 70,948 74,641 (4) 5 IDBI Federal 38,738 47,390 45,214 17 (5) IndiaFirst 33,350 47,352 38,955 17 (18) Exide Life 31,920 29,144 29,479 (8) 1 Kotak 51,744 63,682 50,128 (3) (21) Edelweiss Tokio 40,369 36,246 37,019 (8) 2 Max Life 46,148 50,717 52,463 14 3 Reliance 34,370 40,449 35,892 4 (11) SBI 50,199 52,726 54,252 8 3 Shriram 12,649 15,713 15,321 21 (2) Star Union 41,346 54,019 55,710 35 3 Tata AIA 60,569 51,442 54,310 (10) 6 LIC 14,482 15,604 15,616 8 0

Source: IRDA, Life council

Exhibit 7: 8% increase in ticket size yoy in YTD FY2020 Average policy-size in individual non-single segment, 2009-YTD 2020 (Rs)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD 2020 Bajaj Allianz 15,024 14,598 12,566 13,428 17,151 22,216 26,857 28,170 37,066 45,448 56,128 53,589 Exide 17,861 21,622 23,311 26,221 24,704 25,014 26,214 24,594 31,413 31,855 33,225 29,342 Reliance Life 13,796 13,713 10,704 10,330 12,951 19,145 25,145 24,544 25,380 33,636 38,891 38,608 SBI Life 33,625 30,880 37,099 25,266 27,315 27,499 28,103 34,098 47,109 54,929 58,977 53,611 Tata AIA 13,839 16,255 17,537 22,368 20,144 20,810 32,577 44,411 57,204 62,780 63,712 53,145 HDFC Standard 24,941 37,201 46,297 43,584 39,559 34,811 43,839 38,211 42,345 45,244 49,774 59,760 ICICI Prudential 19,686 29,081 28,462 27,533 34,570 41,948 72,582 88,373 94,759 93,116 81,902 72,889 Birla Sunlife 19,941 13,722 16,348 13,849 18,468 20,062 25,480 23,700 30,445 42,518 59,852 60,979 Aviva 18,057 29,427 30,961 28,200 30,032 29,012 39,995 42,580 57,923 70,440 64,861 54,617 Kotak 23,878 29,827 29,069 24,762 29,832 32,753 38,221 42,657 47,157 55,909 55,502 55,131 Max Life 13,198 16,546 20,869 25,973 29,564 32,999 38,909 44,569 51,057 55,836 58,749 51,757 Sahara Life 8,230 9,008 7,952 6,540 5,969 7,397 6,534 8,780 11,782 14,072 NA NA Shriram Life 16,928 21,982 18,767 12,897 12,700 13,627 13,727 13,815 18,820 17,382 16,617 15,462 Bharti Axa Life 14,229 24,840 20,868 19,952 22,030 29,960 40,491 40,464 39,017 40,695 36,973 24,027 Future Generali Life 12,903 13,308 10,859 15,566 13,673 16,842 34,786 42,945 44,659 19,704 52,925 71,719 IDBI Federal 29,239 35,271 28,082 25,994 21,763 24,845 29,066 30,856 36,158 40,836 45,328 45,914 Canara HSBC 82,635 62,624 62,372 66,162 49,016 54,072 53,981 57,487 67,193 78,115 70,658 68,373 Aegon Religare 12,910 32,576 28,402 25,374 22,015 26,883 36,630 28,475 22,807 24,278 24,236 30,225 DHFL Pramerica 12,102 18,645 19,021 13,525 13,134 16,897 25,838 27,324 28,332 37,979 41,575 40,985 Star Union Dai-ichi 29,220 29,529 30,483 19,333 18,608 27,033 39,855 41,301 50,424 50,941 59,081 55,108 Private Total 18,686 21,005 21,851 21,956 25,296 28,345 36,669 39,193 48,008 52,943 56,235 53,251 LIC 5,885 7,169 7,595 8,649 7,983 8,180 10,516 10,399 11,718 12,510 13,128 15,487 Grand Total 9,942 11,208 11,000 11,142 10,865 11,312 16,403 16,969 20,341 22,549 24,197 26,178

Source: IRDA, Life council

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 India Insurance

Exhibit 8: Net inflows in equity funds increased slightly in May 2019 Mutual fund inflows, monthly data, May 2018 – May 2019 (Rs bn)

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Equity (Equity oriented+ELSS+70% of balanced) Gross inflow 282 233 241 291 261 252 174 198 200 173 297 209 232 Redemptions 150 126 144 189 144 123 88 132 145 129 202 189 205 Net inflow 132 107 97 102 117 130 86 66 55 44 95 20 27

Note: (1) Equity included arbitrage funds for February 2018 and March 2018.

Source: AMFI, Kotak Institutional Equities

Exhibit 9: MF inflows to equity funds improved slightly in May 2019 Net MF flows (Equity + ELSS+70%balanced), March fiscal year-ends, May 2017 – May 2019 (Rs bn)

275 265 256 246 229 208 220 201 198 182 161 165 134 136 132 130 114 117 107 102 110 97 95 86 66 55 55 44 20 27

0

Jul-17 Jul-18

Jan-18 Jan-19

Jun-17 Jun-18

Feb-18 Oct-18 Oct-17 Feb-19

Sep-17 Apr-18 Sep-18 Apr-19

Dec-17 Dec-18

Nov-18 Nov-17

Mar-18 Mar-19

Aug-17 Aug-18

May-19 May-18 May-17

Source: AMFI, Kotak Institutional Equities

Exhibit 10: SIP inflows were flat mom in May 2019 SIP inflows (monthly data), March fiscal year-ends, May 2017 – May 2019 (Rs bn)

90 8282 80 80 80 81 81 81 77 76 76 77 78 73 71 66 67 64 66 62 59 55 56 52 54 49 46 47 43 43 41 39 40 41 42 37 35 34 32 33 33

30

Jul-16 Jul-17 Jul-18

Jan-17 Jan-18 Jan-19

Sep-16 Sep-17 Sep-18

Nov-16 Nov-17 Nov-18

Mar-17 Mar-18 Mar-19

May-17 May-18 May-19 May-16

Source: AMFI, Kotak Institutional Equities

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Insurance India

Exhibit 11: MF equity inflows peaked in FY2018 Net MF flows (Equity + ELSS+70%balanced), March fiscal year-ends, 2006 – YTD 2020 (Rs bn)

3,000

2,313 2,250

1,500 1,167 956 790 878 750 510 375 282 41 17 4 47 - (122) (144) (107)

(750)

2008 2009 2012 2013 2016 2006 2007 2010 2011 2014 2015 2017 2018 2019

YTD YTD 2020

Source: AMFI, Kotak Institutional Equities

Exhibit 12: Share of ULIPs dropped for most players in FY2019 Contribution of various products to APE, March fiscal year-ends, 2012-19 (% of total)

2012 2013 2014 2015 2016 2017 2018 2019 Bajaj Life Unit linked policies 12 12 10 24 29 62 64 53 Participating policies 60 49 51 21 19 20 20 25 Non participating policies 28 39 38 54 52 18 17 22

Birla SL Unit linked policies 59 43 45 35 48 33 36 NA Participating policies 0 2 14 16 13 22 18 NA Non participating policies 41 55 41 49 38 45 46 NA

ICICI Prudential Life Unit linked policies 56 60 66 85 84 86 84 82 Participating policies 18 7 18 13 13 10 11 9 Non participating policies 26 33 15 2 3 5 5 9

HDFC Life Unit linked policies 57 62 49 60 55 49 53 47 Participating policies 40 34 34 20 27 31 25 11 Non participating policies 3 5 17 21 18 20 23 42

Max Life Unit linked policies 12 10 21 26 27 32 41 42 Participating policies 76 74 67 58 59 55 45 41 Non participating policies 12 16 12 15 14 14 14 16

SBI Life Unit linked policies 44 35 32 40 54 71 67 69 Participating policies 21 22 31 40 30 16 24 18 Non participating policies 35 43 37 19 16 12 9 13

Kotak Life Unit linked policies 42 35 26 25 35 48 47 37 Participating policies 29 29 18 14 18 24 23 22 Non participating policies 30 36 56 60 47 28 30 41

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 India Insurance

Exhibit 13: Share of bancassurance increased for most major players in FY2019 Channel-wise contribution to individual new business premium, March fiscal year-ends, 2012-19 (% of total)

2012 2013 2014 2015 2016 2017 2018 2019 Bajaj Life Agency 66 76 84 92 90 90 79 65 Bancassurance 10 7 8 1 2 2 5 9 Corporate agents 19 13 5 1 1 1 1 3 Others 5 4 3 7 7 7 14 23 Birla SL Agency 70 66 65 67 81 75 69 45 Bancassurance 14 17 20 19 9 9 19 48 Corporate agents 15 17 4 2 5 6 1 0 Others — — 12 12 5 10 11 7 HDFC Life Agency 20 16 16 16 13 15 13 15 Bancassurance 64 72 70 67 68 61 59 42 Corporate agents 11 7 7 2 3 4 5 5 Others 4 5 7 14 16 19 23 37 ICICI Prudential Life Agency 44 34 28 25 23 23 26 22 Bancassurance 38 45 54 58 57 57 53 53 Corporate agents 10 13 10 5 4 4 3 3 Others 7.5 7 8 13 16 16 19 22 Max Life Agency 37 35 31 29 28 25 24 19 Bancassurance 40 48 51 57 59 62 64 69 Corporate agents 13 10 9 6 4 3 3 2 Others 9 7 8 8 9 10 10 9 SBI Life Agency 52 53 50 46 38 34 31 32 Bancassurance 44 44 47 52 61 65 67 67 Corporate agents 1 1 1 1 0 0 1 1 Others 2 3 2 1 1 1 1 1

Source: Company, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Insurance India

Exhibit 14: Agent productivity improves for most companies Agency data, March fiscal year-ends, 2014-18, 1QFY19-9MFY19

CAGR (%) 2014 2015 2016 2017 2018 1QFY19 1HFY19 9MFY19 (2014-9MFY19) Policies per agent (#) Bajaj Life 2.3 1.9 2.2 2.1 2.4 2.1 2.1 2.2 (1) Birla Sunlife 2.7 2.1 1.8 1.9 2.0 1.5 1.7 1.8 (8) Exide Life 3.9 3.4 3.1 2.0 1.9 1.5 1.6 1.7 (16) HDFC Standard Life 5.2 5.2 5.6 5.2 2.1 1.3 1.5 1.4 (24) ICICI Prudential Life 1.3 1.0 1.2 1.3 1.4 0.9 1.0 1.0 (4) Kotak Life 7.1 2.5 1.6 1.5 1.5 1.0 1.3 1.3 (30) Max Life 5.0 3.8 3.6 2.7 2.3 1.9 2.3 2.8 (11) Reliance Nippon Life 3.4 2.9 2.1 1.3 1.2 1.9 1.8 2.0 (10) SBI Life 5.5 4.8 5.2 4.7 5.2 3.0 4.1 4.3 (5) TATA AIA 2.1 1.5 2.3 2.8 3.8 2.1 3.6 3.3 10 Total of the above 3.2 2.6 2.7 2.3 2.2 1.6 2.0 2.0 (9) LIC 26.7 16.3 17.7 17.7 18.0 12.0 14.4 14.6 (12) Average size of policy (Rs) Bajaj Life 26,904 35,054 34,525 50,760 63,830 63,185 68,003 72,802 23 Birla Sunlife 22,434 28,402 31,066 38,536 45,823 43,279 43,425 45,656 16 Exide Life 29,008 41,668 29,409 54,928 39,841 45,924 42,588 42,066 8 HDFC Standard Life 12,106 17,368 11,954 18,320 56,394 70,570 66,315 67,327 44 ICICI Prudential Life 52,947 81,958 88,554 101,274 106,448 93,990 96,963 94,471 13 Kotak Life 30,089 33,420 34,577 38,354 43,373 44,878 41,852 43,117 8 Max Life 33,567 40,716 45,274 60,950 72,316 75,556 69,174 70,277 17 Reliance Nippon Life 20,102 24,672 23,619 24,679 34,919 38,104 41,671 42,334 17 SBI Life 28,366 36,987 40,690 49,492 49,919 53,071 49,029 51,294 13 TATA AIA 29,120 29,838 34,667 47,441 45,702 42,150 44,713 46,286 10 Total of the above 26,677 34,618 34,224 45,093 56,914 58,127 56,620 58,010 18 LIC 12,636 16,318 16,075 22,622 24,181 24,196 23,774 25,430 16 Premium per agent (Rs) Bajaj Life 62,336 66,686 76,129 108,097 155,958 132,734 140,100 159,750 22 Birla Sunlife 60,345 59,637 56,452 73,546 91,097 66,162 74,891 80,828 6 Exide Life 113,294 140,918 90,267 112,422 75,856 70,908 70,248 71,741 (9) HDFC Standard Life 62,969 91,110 66,701 95,073 119,221 91,010 98,462 95,361 9 ICICI Prudential Life 67,095 80,494 104,411 127,531 149,334 83,542 98,998 98,220 8 Kotak Life 213,797 84,549 54,367 57,169 66,481 45,650 52,942 57,343 (24) Max Life 166,402 155,588 163,550 165,933 168,807 146,943 161,097 199,184 4 Reliance Nippon Life 68,342 71,279 49,900 32,686 43,452 71,245 75,628 85,723 5 SBI Life 156,478 177,082 213,417 234,501 257,937 160,087 200,446 221,252 8 TATA AIA 60,341 45,645 78,330 132,211 175,066 87,285 159,421 152,334 22 Total of the above 84,167 91,438 91,953 105,868 127,749 95,609 111,166 118,744 8 LIC 337,096 266,440 284,819 399,628 434,128 290,043 341,870 372,236 2

Notes: (a) We have considered individual premium for the above calculation.

Source: Company, IRDAI, Life Insurance Council, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 India Insurance

Exhibit 15: Individual agent additions gained momentum in FY2019 Gross individual agent addition, March fiscal year-ends, 2014-19, 1MFY20

Gross individual agents added (#) YoY (%) 2014 2015 2016 2017 2018 2019 1MFY20 2015 2016 2017 2018 2019 1MF20 Aegon 3,631 3,106 3,518 726 — — — (14) 13 (79) NA NA NA Aviva 6,851 5,465 6,881 5,300 5,490 3,328 152 (20) 26 (23) 4 (39) (20) Bajaj 22,356 20,552 30,075 20,752 22,277 22,459 654 (8) 46 (31) 7 1 (5) Bharti Axa 10,704 10,564 11,791 11,583 16,586 23,678 1,154 (1) 12 (2) 43 43 (8) Birla Sunlife 31,918 22,911 20,992 22,735 24,999 25,652 1,061 (28) (8) 8 10 3 22 Canara HSBC NA NA NA NA NA NA NA NA NA NA NA NA NA DHFL 2,328 1,255 2,467 3,607 5,052 3,078 94 (46) 97 46 40 (39) (62) Edelweiss Tokio 3,930 3,939 5,102 6,137 10,498 12,818 501 0 30 20 71 22 48 Exide 24,642 20,698 32,278 27,736 28,478 28,074 858 (16) 56 (14) 3 (1) 15 Future Generali 8,316 3,930 4,852 4,100 3,421 2,539 108 (53) 23 (15) (17) (26) 8 HDFC Life 22,469 21,476 17,911 17,289 24,037 28,568 1,243 (4) (17) (3) 39 19 64 ICICI Pru 35,799 11,910 18,286 15,996 18,057 21,461 525 (67) 54 (13) 13 19 (24) IDBI Federal 4,432 4,945 4,477 4,243 4,439 5,002 178 12 (9) (5) 5 13 (29) IndiaFirst 862 566 449 489 362 405 7 (34) (21) 9 (26) 12 (36) Kotak 24,184 29,903 43,494 48,214 53,151 58,851 1,758 24 45 11 10 11 10 Max 22,826 21,524 26,171 26,096 25,497 30,362 1,321 (6) 22 (0) (2) 19 (14) Reliance Nippon 76,578 63,252 47,692 33,137 25,153 31,573 755 (17) (25) (31) (24) 26 (44) SBI Life 40,639 35,571 43,498 44,637 52,258 59,553 1,957 (12) 22 3 17 14 (27) Tata AIA 18,507 14,622 15,615 15,513 17,598 21,339 653 (21) 7 (1) 13 21 27 Private 374,152 305,205 345,715 311,420 338,682 379,738 13,037 (18) 13 (10) 9 12 (6) LIC 253,416 342,048 319,428 339,964 265,806 263,894 8,685 35 (7) 6 (22) (1) (4) Total 626,802 647,253 665,143 651,384 604,488 643,632 21,722 3 3 (2) (7) 6 (5)

Source: Company, IRDAI, Life Insurance Council, Kotak Institutional Equities

44% share of single premium for private players in May 2019

The share of single premium for private players decreased to 44% as compared to 55% in April 2019 (up 300 bps yoy). Among major private players, share of single premium declined for HDFC Life, SBI Life and Max Life while it increased for ICICI and Birla Sunlife.

Exhibit 16: Share of single premium in overall business declined mom for private players in May 2019 Share of single premium to total premium, March fiscal year-ends, May 2018 – May 2019 (%)

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Bajaj Allianz 47 61 60 67 71 72 52 48 45 51 66 58 58 Birla Sunlife 62 66 48 55 73 62 55 42 41 29 51 40 47 HDFC Life 64 72 71 66 64 62 69 67 60 63 68 80 61 ICICI Prudential 23 19 20 22 22 27 20 24 27 30 29 28 33 Max Life 30 28 28 27 24 28 27 28 22 22 20 34 29 Reliance Life 6 5 6 4 3 3 2 3 2 3 2 4 8 SBI Life 36 48 45 35 29 34 32 26 24 37 38 56 40 Private sector 41 46 42 40 43 44 38 36 35 37 41 55 44 LIC 80 82 86 79 79 79 78 79 78 76 71 71 67 Total 69 70 74 67 65 67 64 62 63 63 61 64 61

Source: IRDA, Life council, Kotak Institutional Equities

LIC regains market share in group business

The market share of private players in group business decreased to 15% from 48% in April 2019 (lower than 17% in May 2018). HDFC Life, ICICI Life and SBI Life lost significant market share in May 2019.

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Insurance India

Exhibit 17: Share of LIC rebounds mom to 85% Market share in group business, March fiscal year-ends, May 2018 – May 2019 (%)

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Bajaj Allianz 1.7 2.0 1.4 2.6 4.1 4.6 2.3 2.4 1.9 1.8 3.7 2.7 1.7 Birla Sunlife 1.7 2.2 0.8 1.4 4.4 2.6 2.0 2.1 1.4 0.7 1.7 0.8 0.7 HDFC Life 4.7 6.3 4.4 4.1 7.8 6.4 7.6 8.2 6.3 5.4 6.3 18.6 3.9 ICICI Prudential 1.1 1.1 0.9 1.7 1.5 1.7 4.8 2.3 2.3 2.2 1.8 4.1 1.8 Max Life 0.4 0.4 0.2 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.3 0.5 0.3 Reliance Life 0.2 0.0 0.0 0.0 0.2 0.1 0.1 0.0 0.1 0.4 0.2 0.1 0.0 SBI Life 2.6 4.2 3.8 3.1 2.8 3.9 4.4 4.5 3.4 3.7 3.1 9.1 2.3 Private sector 17 23 16 17 29 26 27 26 21 20 22 48 15 LIC 83 77 84 83 71 74 73 74 79 80 78 52 85

Source: IRDA, Life council, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 INDIA Economy Inflation JUNE 12, 2019 UPDATE BSE-30: 39,757

CPI inflation as expected, IIP growth surprises. Despite continuing to firm up, CPI inflation in August was as expected and remained well below the RBI’s target of 4%, reaffirming our call of another 25 bps cut in August. Further cuts would hinge on how the growth-inflation mix evolves. As per our base case, upside risks to food inflation in 2HFY20 could limit rate cuts beyond August. On the growth front, the strong IIP growth was surprising given the overall tepid industrial growth trend.

CPI inflation continues to firm up gradually

May CPI inflation inched higher to 3.05% (Kotak: 3.11%, consensus: 3.05%) as against an QUICK NUMBERS upward revised print of 2.99% in April. The continual gradual increase was on expected lines with food inflation contributing mostly to the increase (Exhibit 1). On a sequential basis, CPI  CPI inflation at inflation firmed up by 0.6% mom even with a favorable base effect led by food prices 3.05% in May; core increasing 1.2% mom (1.8% yoy against 1.1% in April) (Exhibit 2). While prices of fruits, inflation at 4.1% vegetables, cereals, pulses, spices and milk firmed up, price of eggs posted a sequential decline. High frequency data suggests that food prices have sustained their upward momentum in June.  IIP growth at 3.4% Even the MPC highlighted that the recent uptick in food prices has imparted an upward bias to in April inflation, revising its 1HFY20 inflation forecasts upwards by 10 bps to 3.0-3.1%. Fuel and light inflation softened marginally to 2.5% owing to lower oil prices (2.6% in April). We expect CPI  Expect MPC to cut inflation to average 3.6% in FY2020 with March 2020 inflation at around 4% (Exhibit 3). rates by 25 bps in August Core inflation continues to soften

Core inflation moderated to 4.1% in May (4.6% in April) with sequential increase at 0.1% mom (0.3% in April). Most of the fall in core inflation over the past few months has been on the back of lower fuel prices even as health and education components continued to impart positive impulses (Exhibit 4). Inflation across household goods and service, education and health segments further softened to 4.6%, 6.7% and 8%, respectively. While housing inflation stayed flat at 4.8% in May, inflation across the transport and communication segment moderated to 1.6% (2.5% in April). Factoring in a muted demand growth trajectory, we expect the core inflation trajectory to gradually moderate to around 3.5% by March 2020.

IIP, surprisingly, posts a six-month high growth

IIP growth firmed up to 3.4% in April (Kotak: (-)0.1%, consensus: 0.6%, March 0.4%) helped by a favorable base effect (Exhibit 5). Manufactured products growth was at 2.8% (0.1% in March) (Exhibit 6). We are a bit surprised with the growth in capital goods and consumer durables segments given the slowdown in the auto/auto ancillaries’ sector (contributing to around 30% of capital goods and 40% of consumer durables) (Exhibits 7-8). Suvodeep Rakshit

Expect 25 bps cut in August; transmission of lower policy rates should be the focus

Inflation is likely to remain around the RBI’s comfort zone of 4% in the near term given the Upasna Bhardwaj muted inflation- growth dynamics. Even though the recent increase in food prices has imparted an upward bias, moderation in core inflation has kept the headline inflation in check. The latest Avijit Puri inflation print along with the MPC’s accommodative stance and worries on weakening growth impulses reaffirm our call for another 25 bps cut in August. Further cuts beyond August would hinge on the growth-inflation dynamics. Our inflation trajectory in 2HFY20 remains marginally higher than that of RBI’s, which could limit rate cuts beyond August. For growth support, the RBI’s focus should be on improving transmission of the past rate cuts.

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. Economy India

Exhibit 1: Food inflation pushing up headline inflation Contribution to CPI inflation by major segments (%)

Food and beverages Misc. Others CPI 7

6

5

4

3

2

1

0

(1)

Feb-17 Feb-18 Feb-19

Nov-16 Nov-17 Nov-18

Aug-16 Aug-17 Aug-18

May-17 May-18 May-19 (2) May-16

Source: CEIC, Kotak Economics Research

Exhibit 2: Favorable base keeping inflation relatively muted Trend in momentum, base effect, and monthly change in CPI inflation (%)

Momentum Base effect Monthly change in CPI inflation 2.0

1.5

1.0

0.5

0.0

(0.5)

Jul-19 Jul-17 Jul-18

Jan-18 Jan-19

Jun-17 Jun-18 Jun-19

Oct-17 Feb-18 Feb-19 Oct-18

Apr-17 Sep-17 Sep-18 Sep-19 Apr-18 Apr-19

Dec-17 Dec-18

Nov-17 Nov-18

Mar-18 Mar-19

Aug-17 Aug-18 Aug-19

May-17 May-18 May-19 (1.0)

(1.5)

(2.0) Notes: (a) Momentum is mom growth while base effect is 12-m prior mom change with signs reversed.

Source: CEIC, Kotak Economics Research

KOTAK ECONOMIC RESEARCH 21 India Economy

Exhibit 3: CPI inflation likely to remain around the RBI's comfort level of 4% in FY2020 Headline and core CPI inflation (%)

CPI inflation Core CPI inflation 10

8

Mar-19: 5.1 6

Mar-20: 4.0 4 Mar-19: 2.9 Mar-20: 3.4 2

0

Jul-14 Jul-19 Jul-15 Jul-16 Jul-17 Jul-18

Jan-14 Jan-16 Jan-18 Jan-20 Jan-15 Jan-17 Jan-19

Oct-15 Oct-17 Oct-19 Oct-14 Oct-16 Oct-18

Apr-14 Apr-16 Apr-18 Apr-17 Apr-19 Apr-15

Source: CEIC, Kotak Economics Research estimates

Exhibit 4: Petrol prices pushing down core inflation while health and education continue to put upside pressure Top 10 positive and negative contributors to May 2019 core CPI inflation (excluding house rent) over May 2018 (bps)

100 0 Gold

(20) Diese

Shirts Saree

80 Petrol

Barber Bus fare (40)

60 Doctors' fee

(60) Undergarments

40 Cloth for shirt, etc. (80) 20 (100) 0 (120)

Books (140)

Taxi fare

CableTV Medicine

Medical tests (160)

Two-wheelers

Water charges

Hospital charges Privatetuition fees School tuitionfees (180)

Source: CEIC, Kotak Economics Research

22 KOTAK ECONOMIC RESEARCH Economy India

Exhibit 5: Favorable base effect supporting IIP growth in April Trend in momentum, base effect and monthly change in IIP growth (%)

Momentum Base effect Monthly change in yoy IIP growth 15

10

5

0

Jul-17 Jul-18

Jan-18 Jan-19

Jun-18 Jun-17

Oct-17 Oct-18

Feb-19 Feb-18

Apr-17 Sep-18 Sep-17 Apr-18 Apr-19

Dec-17 Dec-18

Nov-18 Nov-17

Mar-18 Mar-19 Aug-18

(5) Aug-17

May-17 May-18

(10)

(15)

Notes: (a) Momentum is mom growth while base effect is 12-m prior mom change with signs reversed.

Source: CEIC, Kotak Economics Research

Exhibit 6: Broad-based expansion pushed April IIP growth to 3.4% Sectoral classification of IIP growth, March fiscal year-ends, 2018-20 (%)

Mining (%) Manufacturing (%) Electricity (%) General (%) 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 April 3.0 3.8 5.1 2.9 4.9 2.8 5.4 2.1 6.0 3.2 4.5 3.4 May 0.3 5.8 2.6 3.6 8.3 4.2 2.9 3.8 June 0.1 6.5 (0.7) 6.9 2.1 8.5 (0.3) 7.0 July 4.5 3.4 (0.1) 7.0 6.6 6.6 1.0 6.5 August 9.3 (0.6) 3.8 5.2 8.3 7.6 4.8 4.8 September 7.6 0.1 3.8 4.8 3.4 8.2 4.1 4.6 October (0.2) 7.3 2.0 8.2 3.2 10.8 1.8 8.4 November 1.4 2.7 10.4 (0.7) 3.9 5.1 8.5 0.2 December 1.2 (1.0) 8.7 2.9 4.4 4.5 7.3 2.5 January 0.3 3.8 8.7 1.3 7.6 0.9 7.5 1.6 February (0.4) 2.2 8.4 (0.4) 4.5 1.3 6.9 0.1 March 3.1 0.8 5.7 0.1 5.9 2.2 5.3 0.4 Average 2.5 2.9 4.7 3.6 5.3 5.2 4.4 3.7

Source: CEIC, Kotak Economics Research

KOTAK ECONOMIC RESEARCH 23 India Economy

Exhibit 7: Auto sector has been in contraction over the past few months Trend in production growth of passenger vehicles, commercial vehicles and two-wheelers (%)

Passenger vehicles Commercial vehicles Two-wheelers 100

80

60

40

20

0 Jul-18

(20) Jul-17

Jan-17 Jan-18 Jan-19

Jun-17 Jun-18

Feb-17 Feb-18 Oct-18 Oct-17 Feb-19

Apr-17 Sep-18 Sep-17 Apr-18 Apr-19

Dec-17 Dec-18

Nov-17 Nov-18

Mar-17 Mar-18 Mar-19

Aug-18 Aug-17

May-19 May-17 May-18

(40)

Source: CEIC, Kotak Economics Research

Exhibit 8: Surprising growth in capital goods and consumer durables sector Use-based classification of IIP growth, March fiscal year-ends, 2018-20 (%)

Infrastructure and Consumer non- Primary goods Capital goods Intermediate goods construction goods Consumer durables durables 2018 2019 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 April 3.0 2.7 5.2 (4.8) 9.8 2.5 3.6 0.4 1.0 4.7 8.5 1.7 (0.7) 3.9 2.4 8.8 7.5 5.2 May 3.7 5.7 (1.6) 6.4 0.7 0.1 (0.1) 7.6 0.6 6.7 9.7 (1.6) June (0.3) 9.2 (6.1) 9.7 (1.2) 1.5 1.0 9.4 (3.5) 13.6 4.8 0.2 July 2.2 6.8 (1.1) 2.3 (2.8) 1.3 4.3 9.2 (2.4) 14.1 4.1 5.3 August 7.1 2.5 7.3 10.3 (0.5) 2.9 2.7 8.0 4.3 5.5 7.2 6.5 September 6.6 2.6 8.7 6.9 2.1 1.5 0.5 9.5 (4.1) 5.4 10.5 6.4 October 2.4 6.1 3.5 16.9 0.2 2.4 5.8 9.0 (9.0) 17.4 8.2 8.6 November 3.3 3.2 5.7 (4.1) 6.5 (4.1) 13.7 4.8 3.1 (3.0) 23.7 (0.3) December 3.8 (1.1) 13.2 4.2 7.5 (0.8) 6.5 9.0 2.1 4.1 16.8 6.5 January 5.9 1.4 12.4 (3.6) 5.4 (2.8) 7.5 6.4 7.6 2.5 10.7 3.8 February 3.7 1.3 16.6 (8.9) 3.4 (5.0) 13.0 2.1 7.5 1.2 7.4 4.2 March 3.0 2.6 (3.1) (8.4) 2.5 (2.5) 9.1 6.4 6.2 (3.1) 14.1 1.0 Average 3.7 3.6 4.2 3.5 2.3 (0.4) 5.7 7.5 1.0 5.7 10.5 4.0

Source: CEIC, Kotak Economics Research

24 KOTAK ECONOMIC RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks 25 Fair O/S ADVT

Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo Company Rating 12-Jun-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Automobiles & Components Amara Raja Batteries ADD 625 680 9 107 1.5 171 28 34 38 2.6 20 11.4 22 18.4 16.5 11.2 9.3 8.1 3.2 2.9 2.5 15.4 16.4 16.3 1.1 1.4 1.5 8.1 Apollo Tyres BUY 192 270 41 110 1.6 572 14.3 18 22 7.0 25 21 13.4 10.7 8.9 7.8 6.8 5.7 1.1 1.0 0.9 8.3 9.8 10.9 1.7 1.6 1.6 8.3 Ashok Leyland BUY 89 130 46 262 3.8 2,936 7.0 7.6 7.6 16 9.1 (0.2) 12.8 11.8 11.8 7.3 6.4 6.8 3.1 2.7 2.3 26 25 21 3.5 2.5 2.5 32 Bajaj Auto REDUCE 2,945 2,700 (8) 852 12 289 153 158 174 8.4 3.1 9.9 19.2 18.6 17.0 14 13 11.5 3.9 3.5 3.2 23 19.9 19.7 2.0 2.1 2.4 25 Balkrishna Industries BUY 796 870 9 154 2.2 193 40 42 48 6.0 6.7 14.4 20 18.8 16.4 10.7 10.2 8.9 3.3 2.9 2.6 17.5 16.5 16.6 1.0 1.1 1.2 8.3 Bharat Forge SELL 468 460 (2) 218 3.1 466 22 24 26 37 7.6 7.3 21 19.6 18.3 12 11.2 10.3 4.1 3.5 3.1 21 19.2 18.0 0.5 1.2 1.3 9.9 CEAT ADD 958 1,080 13 39 0.6 40 62 74 82 (5.0) 20 11.7 15.6 13.0 11.6 8.2 8.2 7.4 1.4 1.3 1.2 9.3 10.3 10.6 1.3 1.3 1.3 8.8 Eicher Motors SELL 20,106 16,200 (19) 549 7.9 27 816 881 892 1.9 8.0 1.3 25 23 23 17 16 15 7.7 6.2 5.1 36 30 25 0.1 0.1 — 37 Endurance Technologies SELL 1,183 900 (24) 166 2.4 141 36 42 49 24 17 17 33 28 24 15 12 10.6 6.5 5.4 4.6 19.3 19.4 19.1 0.5 0.6 0.7 1.5 Escorts BUY 575 1,000 74 51 1.0 89 54 61 67 40 11.4 10.6 10.6 9.5 8.6 7.0 5.8 4.9 1.7 1.5 1.3 16.0 15.6 15.1 0.4 1.6 1.7 22 Exide Industries SELL 210 210 0 178 2.6 850 9.0 10.0 11.0 10.1 10.6 10.2 23 21 19.1 13 11.2 10.1 3.0 2.8 2.5 13.5 13.6 13.9 1.1 1.7 1.9 6.7 Hero Motocorp SELL 2,728 2,400 (12) 545 7.9 200 166 169 178 (10.2) 1.9 5.3 16.4 16.1 15.3 9.8 9.4 8.7 4.2 3.8 3.5 27 25 24 3.2 3.1 3.3 31 Mahindra CIE Automotive ADD 241 245 2 91 1.3 378 14.5 15 17 48 4.8 11.3 16.6 15.9 14.3 9.5 8.5 7.5 2.1 1.9 1.7 13.7 12.6 12.3 ——— 0.5 Mahindra & Mahindra BUY 632 930 47 786 11.3 1,138 48 48 50 25 — 5.8 13.3 13.3 12.5 10.1 8.9 8.2 2.1 1.8 1.7 16.5 14.6 13.9 1.5 1.5 1.6 35 Maruti Suzuki REDUCE 6,849 6,600 (4) 2,069 29.8 302 248 259 312 (2.9) 4.4 20 28 26 22 15 14 10.7 4.5 4.0 3.6 17.1 16.0 17.1 0.9 0.9 1.1 98 Motherson Sumi Systems SELL 122 110 (10) 386 5.6 3,158 5.1 5.8 7.2 (6.3) 14.4 23 24 21 17.0 8.7 7.7 6.1 3.5 3.2 2.8 15.5 15.9 17.5 1.3 1.3 1.5 18.1 MRF REDUCE 55,710 50,000 (10) 236 3.4 4 2,667 3,070 3,336 (0.1) 15 8.7 21 18.1 16.7 9.4 8.0 7.0 2.2 2.0 1.8 11.0 11.3 11.1 0.1 0.1 0.1 6.3 Schaeffler India REDUCE 4,986 5,000 0 156 2.2 31 144 159 188 14.9 10.4 18 35 31 27 20 17 14 5.8 4.9 4.2 17.9 16.9 17.1 ——— 0.3 SKF ADD 1,934 2,000 3 99 1.4 51 65 78 91 13.5 19 17 30 25 21 19 17 14 5.8 4.8 4.1 19.8 19.2 19.2 0.6 0.7 0.9 0.6 Tata Motors BUY 169 270 60 574 7.6 3,396 (5.4) 18 27 (127) NM 45 NM 9.2 6.3 4.2 3.2 2.7 1.0 0.9 0.8 NM 9.9 12.8 ——— 84 Timken SELL 668 620 (7) 50 0.7 75 20 24 28 46 22 16 34 28 24 17 14 12 3.7 3.3 2.9 14.6 12.7 13.0 0.1 0.1 0.2 0.6 TVS Motor SELL 474 350 (26) 225 3.2 475 14.1 16 19 1.1 10.1 21 34 31 25 17 16 13 6.7 5.9 5.1 22 21 22 0.7 1.0 1.2 10.4 Varroc Engineering BUY 482 870 81 65 0.9 135 33 37 58 (0.2) 11.8 56 14.4 12.9 8.3 8.0 6.6 4.7 2.1 1.8 1.5 14.5 14.2 18.3 ——— 1.0 WABCO India SELL 6,138 6,100 (1) 116 1.7 19 149 211 210 3.4 42 -0.8 41 29 29 26 19 19 6.5 5.4 4.6 17.1 20 17.0 0.1 0.2 0.2 0.7 Automobiles & Components Neutral 8,085 116.2 (16.1) 31 17 24 18.2 15.6 9.6 8.0 6.9 3.0 2.7 2.4 12.6 14.7 15.2 1.1 1.2 1.3 453 Banks AU Small Finance Bank SELL 705 500 (29) 206 3.0 292 13.1 16 23 28 26 40 54 43 31 ——— 7.0 5.1 4.3 14.0 13.2 14.8 0.1 ——— Axis Bank REDUCE 812 730 (10) 2,127 30.7 2,572 18 45 55 1,593 148 23 45 18.0 14.7 ——— 3.5 2.9 2.4 7.2 16.1 16.6 0.1 0.3 0.4 96 Bandhan Bank SELL 555 475 (14) 662 9.5 1,193 16 20 25 45 20 28 34 28 22 ——— 6.0 5.7 4.8 19.0 23 23 0.5 0.6 0.8 0.0 Bank of Baroda ADD 121 145 20 415 6.0 2,652 1.6 14.4 18 118 778 22 74 8.4 6.9 ——— 0.8 1.2 1.0 1.0 13.5 13.2 — 2.4 2.9 45 Canara Bank ADD 269 315 17 202 2.9 753 4.6 53 72 108 1,046 36 58 5.1 3.7 ——— 1.3 0.8 0.6 1.0 10.4 12.7 ——— 23

City Union Bank ADD 217 215 (1) 159 2.3 735 9.3 10.7 12.0 4.4 15 11.7 23 20 18.1 ——— 3.6 3.2 2.8 15.2 15.3 15.1 0.2 0.9 1.0 2.5 Daily Summary India DCB Bank BUY 238 230 (3) 74 1.1 310 10.5 13.3 17 32 27 25 23 17.9 14.3 ——— 2.7 2.4 2.1 12.0 13.5 14.9 0.4 0.5 0.7 8.2 Equitas Holdings BUY 137 180 31 47 0.7 342 6.3 10.0 13.0 585 57 30 22 13.8 10.6 ——— 2.0 1.8 1.5 9.1 12.8 14.5 ——— 4.5 Federal Bank BUY 105 130 24 209 3.0 1,985 6.3 8.9 10.4 41 42 16 16.8 11.8 10.1 ——— 1.7 1.6 1.4 9.8 12.7 13.4 1.3 1.9 2.2 21 HDFC Bank ADD 2,427 2,400 (1) 6,623 95.5 2,723 77 93 112 14.9 21 20 31 26 22 ——— 4.5 4.0 3.5 16.5 16.0 16.9 0.6 0.7 0.9 127 ICICI Bank BUY 418 460 10 2,696 38.9 6,447 5.2 25 31 (45.6) 378 25 80 16.8 13.4 ——— 2.8 2.4 2.1 3.2 14.0 15.7 0.2 1.2 1.5 111 IndusInd Bank ADD 1,568 1,750 12 946 13.6 614 54 77 99 (10) 44 28 29 20 15.8 ——— 3.9 3.1 2.7 13.5 17.3 17.4 0.5 0.7 0.9 86 J&K Bank BUY 44 90 105 24 0.4 557 8.3 9.6 17 129 15 76 5.3 4.6 2.6 ——— 0.5 0.4 0.3 7.3 7.8 12.7 0.0 4.4 7.7 1.2 Karur Vysya Bank ADD 77 85 10 62 0.9 799 2.6 4.2 7.7 (45) 59 83 29 18.4 10.1 ——— 1.2 1.1 1.0 3.3 5.1 8.9 0.8 1.4 2.6 1.7

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Punjab National Bank ADD 79 105 33 365 5.3 4,604 (22) 9.4 13.7 51 143 46 NM 8.4 5.8 ——— 1.7 1.2 0.9 NM 9.9 12.7 ——— 45 RBL Bank SELL 659 560 (15) 281 4.1 427 20 28 35 34 40 22 32 23 18.9 ——— 3.8 3.4 3.0 12.2 15.0 16.1 0.4 0.6 0.7 21 State Bank of India BUY 344 410 19 3,072 44.3 8,925 1.0 37 52 113 3,736 41 356 9.3 6.6 ——— 2.1 1.6 1.2 0.4 13.9 16.9 0.0 0.1 0.2 126 Ujjivan Financial Services ADD 335 375 12 41 0.6 121 16 23 30 2,650 43 29 20 14.3 11.1 ——— 2.1 1.9 1.7 10.7 13.7 15.6 0.4 0.6 0.9 9.8 Union Bank ADD 75 105 41 131 1.9 1,763 (17) 6.3 20 63 137 211 NM 11.9 3.8 ——— 1.2 1.0 0.7 NM 4.4 12.8 0.0 1.3 3.9 14.3 YES Bank SELL 135 170 26 312 4.5 2,315 7.4 4.1 12.3 (59.5) (45) 203 18.1 33 10.9 ——— 1.3 1.4 1.2 6.5 3.5 10.0 2.0 0.8 2.4 158 -

Banks Attractive 18,654 268.9 373 307 33 63 15.6 11.7 2.3 2.0 1.7 3.6 12.6 14.6 0.4 0.7 0.9 902 June 13, 2019 13, June

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK ECONOMIC RESEARCH 25

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summa India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 12-Jun-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Building Products Astral Poly Technik SELL 1,337 720 (46) 160 2.3 120 16 21 25 11.8 27 18 82 64 54 42 34 29 13 11 8.9 17.1 17.8 17.8 0.1 0.1 0.1 1.4 Building Products Cautious 160 2.3 11.8 27 18 82 64 54 42 34 29 13 11 8.9 15.3 16.5 16.4 0.1 0.1 0.1 1.4 Capital goods ABB SELL 1,510 1,125 (25) 320 4.6 212 24 27 35 22 13.8 27 63 55 43 67 48 35 8.0 7.2 6.4 13.4 13.7 15.5 0.3 0.3 0.4 2.8 Ashoka Buildcon BUY 139 225 62 39 0.6 281 11.8 11.8 12.4 41 (0.4) 5.3 11.8 11.8 11.2 8.9 8.4 7.7 1.8 1.6 1.4 16.1 14.1 13.3 1.1 1.3 1.4 0.7 Bharat Electronics BUY 107 100 (7) 261 3.8 2,437 7.7 5.8 5.2 31.8 (24.4) (11.6) 13.8 18.3 21 8.7 9.9 10.0 2.8 2.7 2.5 22 15.1 12.6 3.2 1.9 1.7 19.1 BHEL REDUCE 68 66 (4) 237 3.4 3,482 3.5 2.9 3.9 51 (17.0) 34 19.5 24 17.6 8.8 7.1 5.4 0.8 0.7 0.7 3.8 3.2 4.2 2.9 2.1 2.5 17.8 Carborundum Universal SELL 355 310 (13) 67 1.0 189 13.1 16 18 14.8 21 15 27 22 19.5 15 12 10.6 3.9 3.5 3.2 15.1 16.5 17.0 0.8 1.3 1.5 1.0

Cochin Shipyard BUY 395 580 47 52 0.7 132 37 39 42 23 6.0 7.4 10.8 10.2 9.5 4.9 3.7 5.2 1.6 1.4 1.3 14.6 14.6 14.2 3.3 2.7 2.9 0.5 ry ry Cummins India SELL 752 660 (12) 208 3.0 277 26 29 33 9.1 9.2 14.4 29 26 23 23 21 18 5.0 4.7 4.4 18.0 18.7 20 2.3 2.1 2.4 4.7

Dilip Buildcon BUY 444 735 65 61 0.9 137 56 49 61 20 (11.8) 23 8.0 9.1 7.3 5.7 4.8 4.3 1.9 1.6 1.3 27 18.9 19.3 0.2 0.0 0.0 5.0

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IRB Infrastructure BUY 116 205 76 41 0.6 351 24 20 14.3 7.2 (17.2) (28.5) 4.8 5.8 8.1 6.2 6.1 6.5 0.6 0.6 0.6 14.2 10.7 7.2 3.0 3.4 3.2 6.2 2019 13, June Kalpataru Power Transmission BUY 509 570 12 78 1.1 153 30 37 45 66 23 21 16.7 13.6 11.2 7.4 6.0 4.8 2.5 2.1 1.8 16.1 17.0 17.6 0.6 0.7 0.8 0.8 KEC International BUY 322 340 5 83 1.2 257 19 23 29 5.7 21 26 17.0 14.0 11.1 8.4 7.2 6.1 3.4 2.8 2.3 22 22 23 0.9 0.8 1.0 2.2 L&T BUY 1,509 1,500 (1) 2,117 30.5 1,403 61 68 74 19 11.0 9.0 25 22 20 20 18 16 3.8 3.4 3.1 16.3 16.3 16.1 1.2 1.5 1.7 67

Sadbhav Engineering REDUCE 260 270 4 45 0.6 172 10.9 11.9 16 (15.7) 10.0 38.0 24 22 15.8 14 13 10.3 2.2 2.0 1.8 9.5 9.6 12.1 — — — 0.9 Siemens SELL 1,260 1,085 (14) 449 6.5 356 31 36 42 22 18 16 41 35 30 25 21 18 5.0 4.5 4.1 12.6 13.6 14.4 0.7 0.8 0.9 9.2 Thermax ADD 1,117 1,100 (2) 133 1.9 113 28 36 44 37 27 24 40 31 25 29 23 19 29 23 19 11.1 12.8 14.4 0.6 0.8 0.9 1.8 Capital goods Neutral 4,190 60.4 22 4.3 10.6 23 22 20.0 3.0 2.7 2.5 12.9 12.4 12.6 1.3 1.4 1.5 902 Commercial & Professional Services SIS REDUCE 945 825 (13) 69 1.0 75 29 35 42 28 22 21 33 27 22 20 15 13 5.6 4.7 4.0 18.8 19.1 19.4 0.3 0.3 0.4 0.5 TeamLease Services SELL 2,950 2,030 (31) 50 0.7 17 58 73 95 33 27 31 51 40 31 52 40 30 9.4 7.6 6.1 20 21 22 — — — 0.8 Commercial & Professional Services Cautious 120 1.7 32 23 24 38 31 25 26 20 17 6.7 5.6 4.6 17.5 18.0 18.5 0.2 0.2 0.2 1.3 Commodity Chemicals Asian Paints REDUCE 1,425 1,225 (14) 1,367 19.7 959 23 27 32 9.7 20 20 63 53 44 39 32 26 14 13 12 24 26 28 0.7 0.9 1.2 29 Tata Chemicals BUY 627 700 12 160 2.3 255 43 49 54 (9) 13.1 10.4 14.6 12.9 11.7 6.9 5.7 5.0 1.3 1.2 1.1 9.3 9.7 10.0 2.0 2.1 2.4 9.4 Commodity Chemicals Neutral 1,527 22.0 2.7 17 17 47 40 34 27 22 19 7.0 6.4 5.9 14.9 16.1 17.3 0.9 1.0 1.3 38 Construction Materials ACC SELL 1,579 1,400 (11) 297 4.3 188 53 65 73 9.3 21 13.0 30 24 22 16 13 11.6 2.8 2.6 2.4 10.1 11.1 11.6 0.9 1.0 1.2 21 Ambuja Cements REDUCE 221 192 (13) 438 6.3 1,986 7.3 9.9 11.5 (2.4) 36 16 30 22 19.2 11.0 8.4 7.2 2.0 1.8 1.7 6.7 8.5 9.1 0.7 0.7 0.7 11.7 Dalmia Bharat ADD 1,078 1,225 5 226 3.3 192 14.4 32 43 4.1 120 37 82 37 27 13 11.1 9.5 2.1 2.0 1.9 2.6 5.6 7.2 — — — 2.5 Grasim Industries ADD 888 1,020 15 584 8.4 657 63 81 104 36 30 28 14.2 10.9 8.5 10.3 6.1 4.7 1.0 1.0 0.9 7.3 9.2 10.7 0.8 0.8 0.8 21 India Cements REDUCE 97 116 19 30 0.4 310 2.2 8.6 9.7 (31.4) 283 13.2 43 11.4 10.0 10.0 5.8 5.5 0.6 0.6 0.5 1.3 5.0 5.4 0.8 0.8 0.8 12.5 J K Cement ADD 1,031 1,100 7 80 1.1 77 34 74 84 (21) 116 13.4 30 14.0 12.3 13 9.4 7.5 3.0 2.5 2.1 11.3 19.5 18.8 1.0 1.0 1.0 1.2 JK Lakshmi Cement ADD 361 432 20 42 0.6 118 4.1 26 33 (28) 544 27 89 13.8 10.9 12 6.5 5.4 2.9 2.4 2.0 3.3 19.0 20 0.2 0.6 0.6 0.5 Orient Cement ADD 115 106 (8) 24 0.3 205 2.3 7.7 10.8 7.5 230 41 50 15.0 10.6 11.4 7.4 6.3 2.2 2.0 1.8 4.6 14.2 17.8 1.3 1.7 1.7 0.5 Shree Cement SELL 20,546 14,750 (28) 716 10.3 35 323 465 602 (19) 44 30 64 44 34 26 18 15 7.5 6.5 5.6 12.2 15.7 17.6 0.3 0.3 0.3 8.5 UltraTech Cement SELL 4,569 2,960 (35) 1,255 18.1 275 89 133 166 (0.1) 49 25 51 34 27 22 16 14 4.5 4.0 3.5 9.1 12.4 13.7 0.2 0.2 0.2 38 Construction Materials Cautious 3,691 53.2 8.1 45 24 34 24 18.9 15 10.0 8.2 2.5 2.3 2.1 7.4 9.8 11.0 0.5 0.5 0.5 117

Source: Company, Bloomberg, Kotak Institutional Equities estimates

26 KOTAK ECONOMIC RESEARCH

26

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

27 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

Company Rating 12-Jun-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 240 200 (17) 151 2.2 627 5.9 7.1 8.4 15 20 18 40 34 28 26 22 19 14 11 8.4 40 35 33 0.8 1.0 1.0 3.0 Havells India SELL 782 520 (33) 489 7.1 625 12.6 16 19 13.5 25 20 62 50 41 40 32 26 12 10 8.9 19.8 22 23 0.6 0.7 0.8 16.1 Page Industries REDUCE 20,328 21,300 5 227 3.3 11 353 410 495 13.5 16 21 58 50 41 37 32 27 29 25 20 49 54 54 1.7 1.0 1.3 13.9 TCNS Clothing Co. ADD 791 770 (3) 49 0.7 65 21 19 23 34 (6.8) 21 38 41 34 27 22 17 8.3 6.7 5.4 25 17.9 17.5 — — — 0.4 Vardhman Textiles ADD 1,092 1,230 13 63 0.9 56 129 119 136 25.6 (8.4) 15.0 8.4 9.2 8.0 7.1 6.7 5.6 1.1 1.0 0.9 13.9 11.5 12.1 1.8 2.7 2.7 0.2 Voltas SELL 609 480 (21) 201 2.9 331 16 17 21 (9.1) 7.1 23 39 36 29 33 27 23 4.9 4.4 4.0 13.0 12.9 14.3 0.5 0.6 0.7 15.5 Whirlpool SELL 1,526 1,220 (20) 194 2.8 127 32 38 44 16 18 17 48 40 35 28 24 21 9.0 7.7 6.8 21 21 21 0.3 0.5 0.9 1.4 Consumer Durables & Apparel Cautious 1,372 19.8 12.7 11.3 41 37 31 27 23 20 7.4 6.5 18.0 17.7 18.5 0.8 0.8 51 Consumer Staples Bajaj Consumer Care BUY 336 410 22 50 0.7 148 15 17 19 5.0 16 11.9 22 19.3 17.3 17 15 13 11 10 10 46 54 60 4.2 4.2 4.8 2.4 Britannia Industries REDUCE 2,997 2,800 (7) 720 10.4 240 48 59 70 15 22 19 62 51 43 41 34 28 17 14 11 30 30 29 0.5 0.7 0.8 20 Colgate-Palmolive (India) ADD 1,174 1,310 12 319 4.6 272 27 30 35 12.5 13.4 15 44 39 34 26 22 20 22 22 22 49 57 66 2.0 2.2 2.6 7.1 Dabur India REDUCE 409 370 (10) 722 10.4 1,766 8.1 9.5 10.9 4.6 16 16 50 43 37 41 35 30 13 11 10.0 25 28 28 0.7 1.1 1.3 17.0 GlaxoSmithKline Consumer RS 7,745 — — 326 4.7 42 234 242 273 40 3.5 12.9 33 32 28 25 22 19 8.0 7.2 6.5 26 24 24 1.4 1.5 1.7 2.1 Godrej Consumer Products REDUCE 681 635 (7) 696 10.0 1,022 14.4 16 19 1.0 13.4 16 47 42 36 34 29 25 9.6 8.5 7.6 22 22 22 1.4 0.9 1.1 14.0 Hindustan Unilever REDUCE 1,847 1,575 (15) 3,999 57.7 2,160 28 32 37 18 15 14.9 66 57 50 46 39 34 52 46 39 83 85 84 1.2 1.3 1.5 38 ITC ADD 280 335 20 3,431 49.5 12,288 10.1 11.0 12.3 13.3 9.0 11.3 28 25 23 18 16 14 5.9 5.6 5.2 20 21 23 2.0 2.3 2.7 53 Jyothy Laboratories ADD 172 200 17 63 0.9 367 5.6 6.0 6.7 27 7.9 11.4 31 28 26 23 20 18 4.8 4.5 4.2 16.6 16.1 16.9 1.7 2.0 2.3 1.0 Marico ADD 376 380 1 485 7.0 1,290 7.3 8.5 10.0 17 16 17 51 44 38 37 32 27 16 15 14 34 35 38 1.3 1.5 1.7 11.9 Nestle India REDUCE 11,696 10,700 (9) 1,128 16.3 96 167 196 224 31 17 14.8 70 60 52 41 36 31 31 28 26 45 49 52 1.0 1.2 1.3 12.4 Tata Global Beverages ADD 255 240 (6) 161 2.3 631 7.0 8.4 9.4 (4.8) 20 12.4 36 30 27 20 18 16 2.2 2.1 2.0 6.1 7.1 7.6 1.0 1.2 1.4 12.3 United Breweries REDUCE 1,358 1,335 (2) 359 5.2 264 21 26 33 43 24 25 64 51 41 32 26 22 11 9.5 8.0 19.2 20 21 0.2 0.3 0.5 13.9 United Spirits REDUCE 573 550 (4) 416 6.0 727 9.4 12.3 16 24 31 26 61 46 37 34 28 24 13 9.0 6.2 24 23 19.9 0.0 0.3 0.4 13.8 Varun Beverages ADD 942 975 3 172 2.5 183 16 18 25 39 10.3 41 59 53 38 20 17 13 8.6 7.5 6.4 15.5 15.1 18.3 0.3 0.1 0.2 1.9 Consumer Staples Cautious 13,047 188.1 16 13.1 14.4 45 39 35 30 26 23 12 11 9.5 26 27 28 1.3 1.5 1.7 221 Diversified Financials Bajaj Finance SELL 3,506 2,500 (29) 2,033 29.3 577 69 92 122 60 32 33 51 38 29 — — — 10 8.3 6.6 22 24 26 0.2 0.3 0.3 70 Bajaj Finserv REDUCE 8,246 7,250 (12) 1,312 18.9 159 202 286 366 21 41 28 41 29 23 — — — 5.5 4.7 3.9 14.5 17.5 18.9 0.2 0.2 0.2 25 Bharat Financial Inclusion NA 990 — — 139 2.0 140 63 68 86 93 8.1 27 15.7 14.5 11.5 — — — 3.5 2.8 2.2 25 21 21 — — — 13.8 Cholamandalam ADD 1,479 1,475 (0) 231 3.3 156 76 89 105 29 17 19 19.5 16.7 14.1 — — — 3.9 3.2 2.7 21 20 20 0.4 0.7 0.8 7.4 HDFC ADD 2,182 2,175 (0) 3,759 54.2 1,721 56 62 71 (14) 11.5 14.1 39 35 31 — — — 4.9 4.5 4.1 13.6 13.4 14.0 1.0 1.1 1.2 102 IIFL Holdings REDUCE 153 185 21 49 0.7 318 19 14.8 18 (22.5) (24.0) 19 7.8 10.3 8.6 — — — 1.3 1.2 1.1 17.5 12.3 13.5 4.3 3.5 4.2 1.1 L&T Finance Holdings REDUCE 122 140 15 244 3.5 1,999 11.2 12.8 14.6 74 14.6 14.3 10.9 9.5 8.3 — — — 1.8 1.5 1.3 18.0 17.5 17.2 0.8 1.0 1.2 14.1 Daily Summary India LIC Housing Finance ADD 544 550 1 275 4.0 505 48 57 67 21.4 19 17 11.3 9.5 8.1 — — — 1.7 1.4 1.2 15.9 16.6 16.9 1.4 1.7 1.9 13.8 Magma Fincorp BUY 132 150 14 36 0.5 269 11.3 12.6 15 12.9 11.4 23 11.7 10.5 8.5 — — — 1.3 1.2 1.0 12.8 11.6 12.8 0.6 0.5 1.2 1.1 Mahindra & Mahindra Financial ADD 420 500 19 259 3.7 615 25 31 36 45 24 13.8 16.6 13.4 11.7 — — — 2.6 2.3 2.0 15.2 16.7 16.9 1.5 1.9 2.2 12.9 Muthoot Finance ADD 638 625 (2) 256 3.7 401 49 54 60 10.8 8.7 11.4 13.0 11.9 10.7 — — — 2.6 2.3 2.0 22.4 20 19.6 1.9 2.0 2.2 9.4 PNB Housing Finance REDUCE 810 700 (14) 136 2.0 168 71 69 77 9.7 (2.9) 11.5 11.4 11.7 10.5 — — — 1.8 1.7 1.5 16.9 14.5 14.4 1.1 0.4 0.4 8.6 Shriram City Union Finance ADD 1,492 1,900 27 98 1.4 66 150 156 189 39 4.3 21 10.0 9.5 7.9 — — — 1.7 1.5 1.3 16.6 15.1 16.0 1.5 1.3 1.6 0.4 Shriram Transport BUY 1,068 1,425 33 242 3.5 227 113 128 145 4.2 13.6 12.8 9.5 8.3 7.4 — — — 1.6 1.4 1.2 17.4 17.1 16.7 1.1 1.7 2.0 21 Diversified Financials Neutral 9,068 130.7 12.8 18 19 28 24 19.9 4.2 3.7 3.2 14.9 15.4 16.1 0.7 0.8 1.0 301

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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June 13, 2019 13, June

KOTAK ECONOMIC RESEARCH 27

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summa India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 12-Jun-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Electric Utilities CESC BUY 759 830 9 101 1.5 133 90 104 114 34.6 14.8 9.7 8.4 7.3 6.7 6.4 5.6 5.1 0.8 0.8 0.7 9.9 10.8 10.9 1.7 1.7 1.8 4.0 JSW Energy REDUCE 70 65 (7) 115 1.7 1,640 4.2 6.2 5.8 36 49 -7.4 16.8 11.3 12.2 6.3 4.9 4.4 1.0 0.9 0.8 6.0 8.3 7.1 — — — 1.4 NHPC ADD 25 27 9 250 3.6 10,260 2.5 2.9 3.1 3.7 17 5.1 9.8 8.4 8.0 8.0 7.2 7.1 0.8 0.8 0.8 8.5 9.4 9.5 5.8 6.0 6.4 1.6 NTPC BUY 134 165 23 1,330 19.2 9,895 11.2 11.5 13.2 7.4 2.2 14.8 12.0 11.7 10.2 11.7 9.8 8.1 1.2 1.2 1.1 10.6 10.2 11.0 4.5 2.6 2.9 30 Power Grid BUY 191 235 23 1,000 14.4 5,232 19 21 23 20 8.5 11.2 10.1 9.3 8.3 7.1 7.2 6.7 1.7 1.5 1.4 17.5 17.3 17.4 4.4 3.8 4.2 18.9 Tata Power BUY 66 85 28 179 2.6 2,705 2.1 5.0 6.8 (60.5) 138 34 31 13.2 9.8 10.0 8.6 8.5 1.1 1.0 0.9 3.6 7.8 9.6 — — — 7.5 Electric Utilities Attractive 2,974 42.9 9.0 10.6 12.3 11.4 10.3 9.2 1.3 1.2 1.1 11.0 11.3 11.7 4.0 3.0 3.3 64 Fertilizers & Agricultural Chemicals

Bayer Cropscience SELL 3,619 3,000 (17) 124 1.8 34 69 96 114 (20.8) 38 19 52 38 32 32 23 19 6.6 5.8 5.1 13.0 16.3 17.1 0.5 0.5 0.6 0.5 ry ry Dhanuka Agritech ADD 384 435 13 18 0.3 48 24 25 27 (8.0) 4.1 10.7 16.2 15.6 14.1 12 9.9 8.6 2.8 2.5 2.2 17.7 17.1 16.6 0.3 1.3 1.4 0.1

Godrej Agrovet ADD 501 540 8 96 1.4 192 11.5 14.7 18 (0.5) 28 25 44 34 27 22 17 14 4.7 4.2 3.7 11.8 13.0 14.4 0.9 0.7 0.9 1.0 -

PI Industries ADD 1,096 1,165 6 151 2.2 138 30 39 47 11.6 32 19 37 28 24 26 20 17 6.6 5.5 4.6 19.5 22 21 0.4 0.5 0.6 2.4 2019 13, June Rallis India ADD 149 160 8 29 0.4 195 8.4 9.8 10.6 (2.2) 16 8.9 17.6 15.2 13.9 11.5 10.5 9.0 2.2 2.0 1.9 13.2 14.1 14.0 1.7 1.9 2.0 0.6 UPL SELL 1,021 775 (24) 520 7.5 507 37 56 65 (12.9) 52 14.5 27 18.1 15.8 19 10.4 8.8 3.5 3.2 2.8 15.9 18.6 18.9 0.8 1.3 1.8 27 Fertilizers & Agricultural Chemicals Attractive 939 13.5 (9.4) 43 16 31 22 18.7 20 12 10.4 4.1 3.7 3.2 13.3 17.0 17.2 0.7 1.0 1.3 31

Gas Utilities GAIL (India) BUY 310 440 42 699 10.1 2,255 28 31 33 37 10.1 7.2 11.1 10.1 9.4 7.3 6.4 5.8 1.6 1.4 1.3 14.9 15.0 14.6 2.6 3.1 3.4 24 GSPL SELL 196 170 (13) 110 1.6 564 14.1 13.8 13.3 19 (1.8) (4.2) 13.9 14.1 14.8 5.8 5.7 5.6 1.9 1.7 1.6 14.7 12.9 11.2 1.0 1.1 1.0 1.4 Indraprastha Gas SELL 336 260 (23) 235 3.4 700 12.0 14.1 16 17 18 12.4 28 24 21 18 15 13 5.7 4.9 4.3 22 22 22 0.7 0.9 1.1 8.7 Mahanagar Gas ADD 876 950 8 87 1.2 99 56 61 64 16 8.2 4.7 15.6 14.4 13.8 9.3 8.3 7.8 3.6 3.2 2.9 25 23 22 2.3 2.8 3.3 5.5

Petronet LNG BUY 239 270 13 359 5.2 1,500 15 17 19 8.3 14.7 10.6 15.9 13.9 12.6 10.1 8.5 7.5 3.6 3.2 2.9 22 24 24 4.2 3.2 4.0 10.0

Gas Utilities Attractive 1,490 21.5 24 11.7 7.5 14.0 12.5 11.7 8.7 7.6 6.9 2.2 2.0 1.8 16.0 16.2 15.8 2.5 2.6 3.0 50 Health Care Services Apollo Hospitals ADD 1,382 1,365 (1) 192 2.8 139 17 26 34 101 55 29 81 52 41 21 19 16 5.8 5.4 5.0 7.2 10.7 12.8 0.4 0.7 0.9 12.4 Aster DM Healthcare BUY 138 240 74 70 1.0 505 6.6 7.7 11.6 140 17 49 21 17.9 12.0 10.7 9.0 7.1 2.2 2.0 1.7 11.1 11.5 15.3 — — — 0.1 Dr Lal Pathlabs SELL 1,075 925 (14) 90 1.3 83 24 27 32 17 13.8 18 45 40 34 28 24 20 9.5 8.1 6.9 23 22 22 0.6 0.6 0.7 1.2 HCG BUY 176 245 39 16 0.2 85 (3.5) (1.8) 0.5 (322) 47 126 NM NM 366 17 15 13 2.7 2.8 2.8 NM NM 0.8 — — — 0.1 Narayana Hrudayalaya BUY 222 265 19 45 0.7 204 1.9 4.5 7.5 (25) 139 64 117 49 30 19 15 12.0 4.2 3.9 3.4 3.7 8.3 12.2 — — — 0.4 Health Care Services Attractive 413 5.9 58 36 39 53 39 28 18 15 13 4.5 4.2 3.7 8.5 10.7 13.4 0.3 0.4 0.6 14.2 Hotels & Restaurants Coffee Day Enterprises NR 227 — — 48 0.7 211 2.9 3.5 8.1 (12.5) 19 132 77 65 28 16 9.3 8.8 1.9 1.0 1.0 2.5 2.0 3.6 — — — 0.8 Jubilant Foodworks BUY 1,333 1,410 6 176 2.5 132 24 30 41 66 26 35 55 44 33 28 23 17 14 11 8.6 29 28 30 0.4 0.4 0.5 30 Lemon Tree Hotels ADD 70 86 24 55 0.8 789 0.3 1.1 2.3 51 297 116 256 64 30 39 22 15 6.3 5.7 5.2 2.5 9.3 18.3 — — 1.4 1.2 Hotels & Restaurants Attractive 279 4.0 45 40 60 69 50 31 24 17 14 6.0 3.8 3.5 8.6 7.7 11.3 0.2 0.2 0.6 32 Insurance HDFC Life Insurance ADD 442 450 2 891 12.8 2,008 6.4 7.4 8.5 15 16 14.6 69 60 52 — — — 16 14 13 25 25 26 0.4 0.4 0.5 20 ICICI Lombard SELL 1,128 750 (34) 513 7.4 454 23 28 35 22 23 22 49 40 33 — — — 9.6 8.2 7.0 21 22 23 0.5 0.6 0.8 13.9 ICICI Prudential Life BUY 371 500 35 532 7.7 1,436 6.7 7.5 8.8 (40) 11.7 17 55 49 42 — — — 7.2 6.5 5.8 13.9 13.9 14.5 0.3 0.3 0.0 14.6 Max Financial Services BUY 439 530 21 118 1.7 269 1.8 5.4 5.3 (65.8) 197 -3.5 239 81 84 — — — 2.5 7.2 6.6 0.0 0.4 0.4 3.8 SBI Life Insurance BUY 700 800 14 700 10.1 1,000 13.3 15 18 15 17 14.8 53 45 39 — — — 9.4 8.0 6.8 19.0 19.1 18.7 0.3 0.4 0.4 15.4 Insurance Attractive 2,754 39.7 (4.4) 19 16 59 50 43 9.9 8.7 7.7 16.8 17.6 18.0 0.3 0.3 0.3 68 Source: Company, Bloomberg, Kotak Institutional Equities estimates

28 KOTAK ECONOMIC RESEARCH

28

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

29 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

Company Rating 12-Jun-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Internet Software & Services Info Edge REDUCE 2,214 1,870 (16) 270 3.9 122.0 26 31 37 14.7 20 20 86 71 59 75 54 44 12 10 9.3 14.2 15.4 16.6 0.2 0.4 0.4 7.7 Just Dial REDUCE 762 590 (23) 49 0.7 64.8 32 31 33 50 (1.9) 5.4 24 24 23 16 15 14 4.9 4.2 3.6 21 18.6 16.8 0.0 0.4 0.4 53 Internet Software & Services Attractive 320 4.6 25 11.4 15 61 55 48 51 41 35 9.6 8.5 7.5 15.7 15.4 15.7 0.1 0.4 0.4 61 IT Services HCL Technologies ADD 1,108 1,200 8 1,503 21.7 1,377 73 79 85 18 7.9 7.0 15.1 14.0 13.1 10.2 8.7 8.1 3.6 3.1 2.7 26 24 22 0.7 2.8 3.0 36 Hexaware Technologies REDUCE 346 345 (0) 103 1.5 297 20 22 25 19 10.6 14.3 17.6 15.9 14.0 13 11.2 9.5 4.3 3.8 3.4 27 25 26 2.5 2.9 2.9 6.2 Infosys ADD 754 750 (1) 3,291 47.4 4,353 35 38 43 9.5 6.9 13.3 21 19.9 17.6 15 14 12 5.1 5.1 4.7 24 25 28 4.0 2.9 3.2 99 L&T Infotech ADD 1,789 1,940 8 311 4.5 176 86 93 106 36 7.0 15.0 21 19.3 16.8 15 14 12 6.4 5.4 4.5 35 30 29 1.4 1.7 1.8 5.0 Mindtree ADD 975 1,030 6 160 2.3 165 46 51 60 33 11.7 18 21 19.1 16.1 14 11.6 9.7 4.9 4.2 3.6 25 24 24 1.3 1.6 1.9 24 Mphasis REDUCE 970 930 (4) 181 2.6 191 56 63 66 28 12.8 4.2 17.3 15.3 14.7 13 10.6 9.8 3.5 3.1 2.9 20 21 20 2.8 3.1 3.5 3.1 TCS REDUCE 2,261 1,940 (14) 8,484 122.3 3,790 83 93 101 23 12.1 8.9 27 24 22 20 18 16 9.4 8.7 8.2 35 37 38 1.3 2.9 3.1 96 Tech Mahindra ADD 748 850 14 664 9.6 901 48 54 61 11.9 12.1 13.1 15.7 14.0 12.4 9.3 8.3 7.1 3.3 3.0 2.6 22 22 23 1.9 1.9 2.2 33 Wipro REDUCE 298 270 (9) 1,799 25.9 6,021 15.0 18 19 18 17 9.9 19.9 17.0 15.5 13 11.7 10.4 3.2 3.1 2.6 17.2 18.2 18.2 0.5 0.5 0.7 35 IT Services Cautious 16,494 237.8 16 8.6 9.8 22 20 18.6 16 14 13 5.7 5.4 4.9 26 27 26 1.8 2.5 2.8 338 Media DB Corp. ADD 198 210 6 35 0.5 175 16 20 23 (11.0) 30 14.4 12.6 9.7 8.5 6.7 5.3 4.7 1.9 2.0 1.9 14.6 19.9 23 5.1 6.3 7.6 0.2 DishTV REDUCE 30 33 9 56 0.8 1,925 2.1 0.8 1.3 570 (60.8) 59 14.6 37 23 3.7 3.2 2.9 11 8.2 5.7 83 25 29 — — — 9.9 Jagran Prakashan REDUCE 111 110 (1) 33 0.5 296 8.9 11.1 13.0 (8.1) 25 17 12.5 10.0 8.5 5.2 4.4 3.7 1.8 1.7 1.7 13.4 17.6 20 4.5 8.1 8.1 0.3 PVR RS 1,722 — — 80 1.2 48 37 51 65 38 37 28 46 34 26 17 13 11.1 6.7 5.7 4.8 15.5 18.3 19.8 0.2 0.3 0.4 11.6 Sun TV Network REDUCE 523 575 10 206 3.0 394 36 36 40 26 (0.4) 10.6 14.4 14.5 13.1 9.5 9.2 8.2 3.9 3.5 3.1 29 25 25 2.9 3.3 3.8 19.7 Zee Entertainment Enterprises REDUCE 343 365 6 329 4.7 960 17 18 20 9.9 10.0 12.5 21 18.9 16.8 11.9 11.3 9.9 3.7 3.4 3.0 19.2 18.7 18.8 1.0 1.3 1.6 66 Media Attractive 739 10.7 27 3.0 15.0 17.9 17.4 15.1 8.9 8.0 7.1 3.8 3.4 3.1 21 19.8 20 1.7 2.2 2.5 108 Metals & Mining Hindalco Industries BUY 200 245 23 449 6.5 2,224 25 22 26 13.0 (12.2) 18 8.1 9.2 7.8 5.4 5.5 4.9 0.8 0.7 0.7 9.8 8.1 8.8 0.6 0.6 0.6 23 Hindustan Zinc REDUCE 242 220 (9) 1,022 14.7 4,225 19 19 19 (12.4) (0.8) 1.2 12.8 12.9 12.8 8.0 7.7 7.6 3.0 3.3 3.5 23 24 26 8.3 8.3 8.3 2.7 Jindal Steel and Power REDUCE 166 150 (9) 160 2.3 968 (1.7) 2.7 7.0 80 258.8 154 NM 60 24 6.9 6.9 6.2 0.5 0.5 0.5 NM 0.8 2.0 — — — 26 JSW Steel REDUCE 271 255 (6) 656 9.5 2,400 32 16 23 18 (49) 43 8.5 16.8 11.7 5.9 8.3 7.0 1.9 1.7 1.6 24 10.7 14.0 1.6 1.6 1.6 29 National Aluminium Co. BUY 50 60 21 92 1.3 1,866 9.3 5.3 5.0 81 (42.9) (5.7) 5.3 9.3 9.9 1.9 3.4 3.5 0.9 0.9 0.8 16.5 9.3 8.6 11.6 6.4 6.1 7.7 NMDC REDUCE 108 106 (1) 329 4.7 3,062 14.7 14.2 11.2 26 (4) (20.7) 7.3 7.6 9.6 4.2 4.5 5.4 1.3 1.2 1.1 17.9 16.0 11.8 5.1 5.3 4.2 7.2 Tata Steel ADD 506 515 2 575 8.3 1,146 91 66 71 31 (27.6) 7.7 5.5 7.7 7.1 5.3 5.7 5.5 0.9 0.8 0.8 16.7 10.9 11.4 2.0 2.0 2.0 72 Vedanta BUY 170 225 32 632 9.1 3,717 18 26 27 (16.0) 44 3.2 9.4 6.5 6.3 4.9 4.2 4.2 1.0 1.0 1.0 10.7 15.3 15.4 11.1 11.8 11.8 27 Metals & Mining Attractive 3,916 56.5 10.1 (11.1) 9.0 8.8 9.9 9.1 5.5 5.8 5.6 1.2 1.2 1.1 13.7 11.6 12.0 5.3 5.3 5.2 63

Daily Summary India Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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KOTAK ECONOMIC RESEARCH 29

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summa India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 12-Jun-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Oil, Gas & Consumable Fuels BPCL SELL 381 310 (19) 826 11.9 1,967 36 32 34 (10) (11.6) 5.8 10.5 11.9 11.2 8.0 8.9 8.2 2.0 1.9 1.7 20 16.4 16.0 3.8 3.4 3.6 37 Coal India BUY 257 290 13 1,584 22.8 6,163 28 31 31 151 8.0 0.7 9.1 8.4 8.3 6.2 6.6 6.1 6.0 5.8 5.6 69 70 68 5.1 9.7 9.7 34 HPCL SELL 302 220 (27) 460 6.6 1,524 40 28 30 (5) (29.3) 7.2 7.6 10.8 10.0 6.4 9.0 8.8 1.6 1.5 1.4 23 14.6 14.5 5.3 3.7 4.0 33 IOCL SELL 163 135 (17) 1,530 22.1 9,442 18 15 16 (12) (15.8) 5.7 9.0 10.7 10.2 5.6 6.3 6.1 1.4 1.3 1.2 15.5 12.4 12.3 5.5 3.7 3.9 35 Oil India BUY 181 240 32 197 2.8 1,084 30 33 33 22.0 8.6 (0.2) 6.0 5.5 5.5 3.7 3.4 3.4 0.7 0.7 0.6 11.7 12.4 11.7 5.5 8.1 8.1 4.6 ONGC BUY 171 210 23 2,149 31.0 12,580 24 25 25 38 3.5 (0.9) 7.1 6.9 6.9 3.8 3.6 3.3 0.9 0.8 0.8 13.0 12.7 11.7 4.1 5.0 5.0 35 Reliance Industries SELL 1,331 1,100 (17) 7,889 113.7 5,926 66 75 87 11.7 14.3 16 20 17.7 15.2 10.9 9.4 7.9 2.0 1.8 1.7 10.4 9.8 10.3 0.5 0.5 0.5 204 Oil, Gas & Consumable Fuels Attractive 14,636 211.0 19 2.2 6.8 12.2 11.9 11.2 7.0 6.8 6.2 1.7 1.6 1.5 14.1 13.3 13.1 2.4 2.8 2.9 382

Pharmaceuticals ry ry Aurobindo Pharma ADD 642 760 18 376 5.4 584 40 61 63 (3.1) 50 3.8 15.8 10.6 10.2 10.6 7.8 7.2 2.7 2.2 1.8 18.5 21 18.1 0.8 1.0 1.2 29

Biocon SELL 258 370 43 309 4.5 601 12.1 16 19 96 29 19 21 16.5 13.9 22 17 15 2.3 2.1 1.9 11.8 13.3 13.5 1.6 2.1 2.5 16.2 -

Cipla BUY 562 600 7 453 6.5 805 19 27 34 8.3 42 24 30 21 16.7 15 11.7 9.6 2.9 2.7 2.4 10.2 13.4 14.1 0.7 1.0 1.3 22 2019 13, June Dr Reddy's Laboratories REDUCE 2,590 2,450 (5) 430 6.2 166 113 133 159 92 17 20 23 19.5 16.3 14 11.0 8.1 3.1 2.7 2.4 14.1 13.9 14.6 0.8 0.8 0.9 30 Laurus Labs BUY 342 430 26 36 0.5 106 11.0 20 28 (30.9) 79 43 31 17.4 12.2 13 9.3 7.3 2.3 2.0 1.8 7.6 12.5 14.4 — — — 1.5 Lupin ADD 726 840 16 329 4.7 450 21 30 41 (45) 42 39 35 24 17.6 13 10.3 8.1 2.4 2.2 2.0 6.9 9.3 11.3 0.3 0.6 0.9 25

Sun Pharmaceuticals ADD 391 460 18 939 13.5 2,406 16 20 24 6.3 23 23 24 19.7 16.0 13 9.8 7.9 2.3 2.1 1.8 9.8 11.0 11.5 0.6 1.0 1.3 42 Torrent Pharmaceuticals ADD 1,544 1,840 19 261 3.8 169 26 54 71 -35.7 110 32 60 28 22 15 13 10.8 5.5 5.0 4.3 9.2 17.5 20 1.3 1.5 1.7 7.2 Pharmaceuticals Neutral 3,133 45.2 4.1 35 21 26 19.5 16.1 14 10.5 8.7 2.8 2.5 2.2 10.7 12.9 13.7 0.7 1.0 1.2 173 Real Estate Brigade Enterprises BUY 253 290 15 34 0.5 136 18 22 28 59 27 26 14.3 11.3 9.0 9.4 8.3 6.4 1.6 1.4 1.2 10.8 13.2 14.7 1.0 1.0 1.0 0.4

DLF ADD 185 200 8 431 6.2 2,207 5.9 8.4 11.1 (76) 41.2 33 31 22 16.6 25 21 17 1.2 1.2 1.1 3.8 5.4 6.9 1.1 1.1 1.1 42

Embassy Office Parks REIT ADD 357 365 2 276 4.0 22,904 0.2 14.8 18 (97) 9,197 20 2,239 24 20 21 18 16 36 1.2 1.3 2.8 5.0 6.2 — 6.4 7.3 0.0 Godrej Properties SELL 892 470 (47) 204 2.9 229 11.0 19 21 2 73 10.6 81 47 42 129 44 42 8.3 7.0 6.0 10.8 16.3 15.4 — — — 8.0 Oberoi Realty ADD 530 570 7 193 2.8 364 22 29 41 24 27 42 24 18.5 13.1 18 16 10.0 2.4 2.1 1.9 11.6 12.2 15.2 0.4 0.4 0.4 4.9 Prestige Estates Projects ADD 263 320 22 98 1.4 375 8.7 13.8 21 (12) 59 53 30 19.0 12.4 12 10.5 8.3 2.3 2.1 1.8 7.3 11.7 15.7 0.6 0.6 0.6 3.2 Sobha ADD 581 530 (9) 55 0.8 95 31 36 40 36 14.7 11 18.6 16.2 14.6 11.5 11.3 10.1 2.5 2.2 2.0 11.9 14.4 14.3 1.2 1.2 1.2 2.1 Sunteck Realty REDUCE 473 428 (10) 69 1.0 140 16 27 33 6.0 65 25 29 17.7 14.2 19 12 8.7 2.3 2.1 1.8 8.3 12.4 13.7 0.2 0.2 0.2 2.5 Real Estate Neutral 1,361 19.6 (41) 57 30 35 23 17.4 20 17 13 1.7 1.7 1.6 4.9 7.3 9.0 0.5 1.8 2.0 63 Retailing Aditya Birla Fashion and Retail BUY 218 220 1 168 2.4 773 4.2 2.8 4.1 173 -33.3 48 52 79 53 33 26 22 12 10 8.6 25 13.9 17.5 — — — 2.2 Avenue Supermarts SELL 1,311 965 (26) 818 11.8 624 14.5 20 26 11.9 37 31 91 66 51 50 37 29 15 12 9.7 17.6 19.9 21 — — — 0.0 Titan Company REDUCE 1,289 1,000 (22) 1,144 16.5 888 17 22 26 32 28 22 77 60 49 53 41 33 19 16 13 27 28 29 0.4 0.5 0.6 36 Retailing Cautious 2,131 30.7 32 24 27 78 63 50 50 38 30 16 13 11 21 21 22 0.2 0.3 0.3 39 Speciality Chemicals Castrol India SELL 145 145 (0) 144 2.1 989 7.2 7.7 8.1 4.2 7.7 5.4 20 18.8 17.9 14 11.5 10.8 12 11 10 65 63 60 3.4 3.8 4.0 3.7 Pidilite Industries REDUCE 1,280 1,025 (20) 650 9.4 508 18 22 26 (3.9) 26 18 72 57 49 47 37 32 16 14 12 23 25 26 0.5 0.6 0.7 12.4 S H Kelkar and Company BUY 141 190 35 20 0.3 145 6.1 7.6 9.0 (17.3) 24 19 23 18.6 15.6 17 13 11.0 2.4 2.2 2.0 10.3 12.2 13.3 1.2 1.4 1.9 0.8 SRF BUY 2,890 2,850 (1) 166 2.4 57 112 141 165 39 26 17 26 20 17.5 14 12 10.3 4.0 3.4 2.9 16.7 18.1 18.1 0.4 0.5 0.6 15.7 Speciality Chemicals Neutral 980 14.1 7.0 21 14.3 42 35 30 26 21 19 9.5 8.3 7.2 23 24 24 0.9 1.1 1.2 33 Source: Company, Bloomberg, Kotak Institutional Equities estimates

30 KOTAK ECONOMIC RESEARCH

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

31 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

Company Rating 12-Jun-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Telecommunication Services Bharti Airtel ADD 360 380 6 1,846 26.6 3,997 (6.3) (6.8) (1.7) NM NM NM NM NM NM 11.5 9.5 8.0 2.0 2.1 2.2 NM NM NM 0.7 1.7 1.7 44 Bharti Infratel REDUCE 273 275 1 505 7.3 1,850 13.1 13.0 14.6 (4.6) (0.8) 12.2 21 21 18.7 8.5 8.7 7.9 3.5 3.7 3.6 15.4 17.1 19.5 5.7 3.7 4.3 37 Vodafone Idea ADD 13 16 25 369 5.3 8,736 (19.1) (0.6) (4.0) NM NM NM NM NM NM 37 13 9.6 0.2 0.4 0.5 NM NM NM — — — 23 Tata Communications ADD 491 615 25 140 2.0 285 (10.3) (0.1) 3.3 NM 99 3,040 NM NM 151 9.1 8.3 7.7 NM NM -337.8 NM 1.8 NM 1.3 1.5 1.5 2.4 Telecommunication Services Cautious 2,861 41.2 NM 6.6 34 NM NM NM 13 10.0 8.4 2.0 1.5 1.7 NM NM NM 1.3 1.7 1.8 107 Transportation Adani Ports and SEZ REDUCE 425 395 (7) 880 12.7 2,071 22 22 26 17 3.4 15 19.6 18.9 16.5 15 14 11.9 3.6 3.1 2.7 19.7 17.5 17.3 0.5 0.4 0.4 23 Container Corp. SELL 541 495 (9) 330 4.8 609 16 18 22 12.1 8.2 22 33 31 25 23 18 15 3.2 3.0 2.8 10.1 10.1 11.6 1.6 1.7 1.7 6.3 Gateway Distriparks BUY 134 180 35 15 0.2 109 6.8 6.9 9.1 (11.1) 2 32 19.8 19.3 14.7 27 8.9 7.5 1.1 1.0 1.0 6.3 5.5 6.7 3.4 2.2 2.2 0.3 Gujarat Pipavav Port BUY 84 119 42 40 0.6 483 4.3 5.3 6.4 3.6 25 20 19.7 15.8 13.1 9.1 7.7 6.6 2.0 2.0 1.9 10.2 12.6 14.9 4.5 5.6 6.6 0.5 InterGlobe Aviation REDUCE 1,655 1,575 (5) 636 9.2 383 4 70 98 (93) 1,612 41 406 24 16.8 NM 15 9.6 9.1 6.5 4.8 2.2 32 33 — 0.2 0.6 53 Mahindra Logistics REDUCE 497 500 1 36 0.5 71 12.5 16 20 26 28 27 40 31 24 23 18 14 7.1 6.0 5.0 19.5 21 22 — — — 1.1 Transportation Attractive 1,937 27.9 (18) 47 24 32 22 17.6 23 14 11.4 4.2 3.6 3.1 13.2 16.6 17.7 0.6 0.7 0.8 85 KIE universe 117,272 1690.5 12.2 30 18 25 19.5 16.6 11.5 10.3 9.1 2.9 2.6 2.4 11.5 13.5 14.4 1.4 1.7 1.8

Notes: (a) We have used adjusted book values for banking companies. (b) 2019 means calendar year 2018, similarly for 2020 and 2021 for these particular companies. (c) Exchange rate (Rs/US$)= 69.36

Source: Company, Bloomberg, Kotak Institutional Equities estimates India Daily Summary Daily Summary India

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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June 13, 2019 13, June

KOTAK ECONOMIC RESEARCH 31 Disclosures n a merger or strategic transaction any, noare longer in effect for this stock Asof March 2019 31, , if, fair value , any, if for this stock,because is there notsufficient a

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Percentageof companies covered by Kotak Equities,Institutional within the specified category. Percentageof companies within each category whichfor Kotak Institutional Equities and or its affiliates has provided investment banking services within the previousmonths. 12 The * above categories are defined as expectfollows: this = Buy We stock to deliver more than 15% returns theover next months; 12 Add = expectWe this stock to deliver 5-15% returns over the next months; 12 Reduce =expectWe this stock to deliver -5-+5% returns over the next months; 12 =Sell expectWe this stock to deliver lessthan -5% returns over the next months. 12 targetOur prices are also on a 12-month horizon Thesebasis. ratings are used illustratively to comply with applicableregulations. As of 31/03/2019 Kotak InstitutionalEquities Investment Research had investmentratings on 204 equity securities. luded

pended temporarily.Such suspension is in compliance with applicable regulation(s) r r display is not or applicable. months. . The previous investment and rating

SELL 0.0% fair valuefair

20.6%

term volatility in stock prices related to movements in the market.Hence, a particular Ratingmay not , if, any,have been sus - h analyst’s fundamental overall outlook on the Sector.The coverage viewwill consist of one of the following fair valuefair 0.5% +5% returns over the next 12 months. 22.5%

- REDUCE month horizon basis. 5 - - 15% returns over the next 12 5% returns over the next months.12 The information is not available fo - -

take into account short ADD 28.9% 3.4% Kotak SecuritiesKotak has suspended coverage of this company.

are also on12 a Kotak SecuritiesKotak Research has suspended the investment and rating

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Kotak SecuritiesKotak does not cover this company.

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Attractive, Neutral, Cautious. BUY 4.4% 27.9% is company and in certain other circumstances. We expect this stock to deliver

We this expect stock to deliver5 We expect this to stock deliver < We expect this to stock deliver more than 15% returns over the next months.12

Fair Value estimates 0% 40% 30% 20% 10% 70% 60% 50% Source:Kotak Institutional Equities Kotak Institutional Equities Research Equities KotakInstitutional coverage universe Distributionof ratings/investment banking relationships RS = RatingRS Suspended. fundamental basis for determining an investment rating or and shouldnot be relied upon. = NA AvailableNot or Applicable.Not = NM Meaningful.Not NR = Rated.Not and/or Kotak Securities policies in circumstances when Securities Kotak or its affiliates is acting in an advisory capacity i involving th CS = Coverage Suspended. = NC Covered.Not strictly be in accordance with the Rating System all at times. definitions Other Coverage view. designations: ratings/identifiers Other ADD. REDUCE. SELL. Our Our Ratings System notdoes Ratings other and definitions/identifiers ratings of Definitions BUY. Disclosures

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We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange(MCX). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). Kotak Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us Details of Associates are available on website i.e. www.kotak.com Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES. Visit our website for more details We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: YES Nature of Financial interest: Holding equity shares or derivatives of the subject company. Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. A graph of daily closing prices of securities is available at https://www.moneycontrol.com/india/stockpricequote/ and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the"three years" icon in the price chart). Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com / www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: INZ000200137(Member of NSE, BSE & MSE) AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. Investments in securities market are subject to market risks, read all the related documents carefully before investing. In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at ‘[email protected]’ and for demat account related queries contact us at [email protected] or call us on: Toll free numbers 18002099191 / 1800222299 and 18002099292 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208. Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Mr. Manoj Agarwal) at [email protected] or call on 91- (022) 4285 8484. Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on 91-(022) 4285 8301. First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject. There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability for the contents of the First Cut Notes. For further disclosure please view https://kie.kotak.com/kinsite/index.php