India Equity Research Oil & Gas June 24, 2021

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COMPANY UPDATE

KEY DATA Rating HOLD ‘New Energy’ an ESG positive Sector relative Neutral Price (INR) 2,154 12 month price target (INR) 2,105 ’ (RIL) AGM highlighted a shift towards New Energy Market cap (INR bn/USD bn) 14,107/190.3 taking precedence over RJio platforms and retail. We view this as a Free float/Foreign ownership (%) 50.9/24.2 What’s Changed significant ESG positive. The market may have reservations in the near Target Price ⚊ term though on start of a new large, long-gestation venture capital- Rating/Risk Rating ⚊ like investment subduing already low RoE in the near term. INVESTMENT METRICS

55 AGM highlights: 1) Unleashing INR750bn path-breaking “New Energy” 35 investments including green hydrogen & fuel cells. 2) Gas ramp up 15 ahead of schedule and O2C’s carbon-neutral target of 2035. 3) Much- -5 -25 awaited JioPhone Next launch by Sept 2021 & plans for 5G technology. Sales Growth EPS Growth RoE PE (%) (%) (%) (x) 4) JioMart’s reiteration to partner small merchants. 5) Strong balance Oil & Gas RIL IN Equity sheet & zero net-debt ahead of March 2021. Maintain ‘HOLD’.

FINANCIALS (INR mn) “New energy” will provide the next leg of growth Year to March FY20A FY21E FY22E FY23E RIL announced 3-part plan for their New Energy business which would include building Giga, Revenue 59,67,430 46,69,240 71,12,314 91,41,076 advanced energy storage battery, electrolyser and a fuel cell factory. As per its plan, besides EBITDA 8,82,170 8,07,370 11,35,456 14,96,990 Adjusted profit 3,93,540 4,91,280 5,38,892 7,58,251 Electricity, Green Hydrogen will be a unique energy vector that can enable deep Dil. EPS (INR) 62.1 76.2 79.7 112.1 decarbonization of many sectors such as transportation, industry and power. RIL announced EPS growth (%) (7.1) 22.8 4.6 40.7 the appointment of Saudi Aramco’s Chairman on RIL’s board as an independent director. The RoAE (%) 9.3 9.1 7.6 9.7 chairman mentioned that his joining the board marks the beginning of internationalisation of P/E (x) 34.6 28.2 26.9 19.1 RIL. He said that the O2C business will benefit from the strong global growth environment. EV/EBITDA (x) 18.1 20.0 14.8 9.1 Div. yield (%) 0.3 0.3 0.4 0.7 RIL’s new Green Vision has immense benefits for the company’s existing O2C business as well. It will use solar energy on an economically attractive basis to decarbonise existing O2C business, which would accelerate RIL’s journey to become net carbon zero. PRICE PERFORMANCE JioPhone Next to be most affordable smartphone 2,325 53,000 2,200 49,200 While JioPhone Next will be the most affordable smartphone, we believe in 2,075 45,400 smartphones price is not the biggest hindrance. In our view, 5G launch will be a key 1,950 41,600 factor to watch for telecom operators. We expect limited 5G launch in 2022 with 1,825 37,800 1,700 34,000 larger rollout in 2024-25 considering the ecosystem is not ready. According to the Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Chairman, is on a hyper growth trajectory and likely to grow at least RIL IN Equity Sensex 3x in the next 3-5 years and will be among the top-10 retailers globally.

Outlook and valuations: In transition; retain ‘HOLD’ Explore: RIL is now entering into a new transition phase with a large new capex of INR750bn for “New Energy” business which would further enable it to be zero carbon by 2035. In its E&P business, RIL is now on course to bring its third Deepwater MJ field on-stream by FY23. It will produce 30mmscmd of gas to meet 20% of India’s gas demand. Upstream was a big positive as large satellite field started production ahead of schedule. We Financial model Podcast believe gas will be a key driver contributing INR100bn to EBITDA by FY24E. While

consumer-facing, RJio and retail optically contribute to half of RIL’s EBITDA by FY25; we still see huge scope for its O2C business to be a major contributor. We reiterate our ”Déjà Vu” with TP of INR2,105. We argue that RIL’s FAANG-like valuation ( Platforms Corporate access Video and Jio Retail) is misplaced as O2C and telecom make up ~70% of value. Strong balance sheet and zero net-debt ahead of March ‘21. Maintain ‘HOLD’.

Jal Irani Shubham Mittal Shubham Mittal Iqbal Khan +91 (22) 6620 3087 +91 (22) 4040 7495 +91 (22) 4063 5459 [email protected] [email protected] [email protected] [email protected]

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Financial Statements

Income Statement (INR mn) Balance Sheet (INR mn) Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E Total operating income 59,67,430 46,69,240 71,12,314 91,41,076 Share capital 63,392 64,450 67,616 67,616 Gross profit 19,15,030 17,42,230 19,95,711 26,08,599 Reserves 44,69,920 70,36,530 77,05,525 84,41,109 Employee costs 1,40,750 1,48,170 1,48,634 1,67,593 Shareholders funds 45,33,312 71,00,980 77,73,141 85,08,725 Other expenses 8,92,110 7,86,690 7,11,622 9,44,015 Minority interest 80,160 1,27,314 1,64,700 2,11,303 EBITDA 8,82,170 8,07,370 11,35,456 14,96,990 Borrowings 32,95,250 24,53,280 21,99,633 20,42,696 Depreciation 2,22,030 2,65,720 3,31,090 3,99,717 Trade payables 9,67,990 10,88,970 10,10,469 11,59,996 Less: Interest expense 2,20,270 2,11,890 1,89,456 2,00,986 Other liabs & prov 24,67,290 21,26,426 18,15,381 21,61,133 Add: Other income 1,39,560 1,63,270 1,49,516 1,81,619 Total liabilities 1,16,59,152 1,32,12,120 1,32,78,475 1,43,99,002 Profit before tax 5,79,430 4,93,030 7,64,426 10,77,905 Net block 43,59,200 45,10,660 45,95,948 46,55,054 Prov for tax 1,37,260 17,220 1,93,307 2,73,052 Intangible assets 9,67,380 9,01,920 16,16,709 16,18,617 Less: Other adj 0 0 0 0 Capital WIP 10,91,060 12,59,530 1,70,479 1,70,479 Reported profit 4,37,980 4,34,860 5,38,892 7,58,251 Total fixed assets 64,17,640 66,72,110 63,83,137 64,44,151 Less: Excp.item (net) 0 0 0 0 Non current inv 20,38,520 21,23,820 18,58,520 18,58,520 Adjusted profit 3,93,540 4,91,280 5,38,892 7,58,251 Cash/cash equivalent 10,38,350 16,98,430 24,67,140 31,87,655 Diluted shares o/s 6,339 6,445 6,762 6,762 Sundry debtors 1,96,560 1,90,140 2,19,179 2,55,935 Adjusted diluted EPS 62.1 76.2 79.7 112.1 Loans & advances 2,24,010 25,490 6,86,370 8,16,580 DPS (INR) 6.5 7.0 8.8 16.5 Other assets 17,44,072 25,02,130 18,44,089 20,16,122 Tax rate (%) 23.7 3.5 25.3 25.3 Total assets 1,16,59,152 1,32,12,120 1,32,78,475 1,43,99,002

Important Ratios (%) Free Cash Flow (INR mn) Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E Brent prices ($/bbl) 60.9 44.8 50.0 60.0 Reported profit 4,37,980 4,34,860 5,38,892 7,58,251 GDP (YoY %) 4.8 (6.0) 7.0 6.0 Add: Depreciation 2,22,030 2,65,720 3,31,090 3,99,717 USD/INR (average) 70.7 75.0 73.0 72.0 Interest (net of tax) 1,68,091 2,04,489 1,41,546 1,50,073 EBITDA margin (%) 14.8 17.3 16.0 16.4 Others (3,53,808) (5,52,425) 24,088 37,940 Net profit margin (%) 6.6 10.5 7.6 8.3 Less: Changes in WC 5,06,678 (90,795) 5,03,625 1,15,955 Revenue growth (% YoY) 5.2 (21.8) 52.3 28.5 Operating cash flow 9,80,970 2,61,850 15,39,242 14,61,937 EBITDA growth (% YoY) 5.1 (8.5) 40.6 31.8 Less: Capex 7,65,170 10,58,370 9,67,886 4,60,731 Adj. profit growth (%) (0.6) 24.8 9.7 40.7 Free cash flow 2,15,800 (7,96,520) 5,71,356 10,01,206

Assumptions (%) Key Ratios Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E Dom. Gas ($/mmbtu) 3.5 2.1 2.8 2.9 RoE (%) 9.3 9.1 7.6 9.7 Petchem EBITDA ($/mt) 137 84 138 156 RoCE (%) 10.6 8.0 9.6 12.2 ARPU (INR) 126.9 143.1 157.4 177.4 Inventory days 64 97 59 51 Chemical prod (mmt) 31.6 32.5 33.4 36.3 Receivable days 15 15 11 9 Retail Area (mn sq ft) 28.7 31.7 37.9 45.5 Payable days 92 128 75 61 Number of stores 11,784 12,962 15,555 18,666 Working cap (% sales) (12.2) (2.7) 5.4 3.5 RJIO subscribers (mn) 387.5 426.2 478.2 506.2 Gross debt/equity (x) 0.7 0.3 0.3 0.2 GRM ($/bbl) 8.9 6.2 7.7 9.0 Net debt/equity (x) 0.5 0.1 0 (0.1) Ref. throughput (mmt) 70.6 63.3 68.7 69.9 Interest coverage (x) 3.0 2.6 4.2 5.5

Valuation Metrics Valuation Drivers Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E Diluted P/E (x) 34.6 28.2 26.9 19.1 EPS growth (%) (7.1) 22.8 4.6 40.7 Price/BV (x) 3.0 1.9 1.9 1.7 RoE (%) 9.3 9.1 7.6 9.7 EV/EBITDA (x) 18.1 20.0 14.8 9.1 EBITDA growth (%) 5.1 (8.5) 40.6 31.8 Dividend yield (%) 0.3 0.3 0.4 0.7 Payout ratio (%) nm 0 0 0

Source: Company and Edelweiss estimates

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Key excerpts from “New Energy” business RIL has started work on developing the Green Energy Giga Complex on 5,000 acres in Jamnagar. It will be amongst the largest such integrated renewable energy manufacturing facilities in the world. RIL has 3-part plan for the new energy business:  The first part of the plan is to build four Giga factories, which will manufacture and fully integrate all the critical components of the New Energy ecosystem.  One, for the production of solar energy — It will build an integrated solar photovoltaic module factory. Over the next 3 years RIL will invest over INR600bn in these initiatives. RIL will thus create and offer a fully integrated, end-to-end renewables energy ecosystem. Its first Integrated Solar Photovoltaic Giga Factory will create solar energy which will start with raw silica and convert this to poly silicon which it will then convert into ingots and wafers. These wafers would be used to make high efficiency solar cells and finally assembled into solar modules of highest quality and durability. RIL is targeting to achieve costs that are lowest in the world to ensure affordability of its solar modules. RIL targets to enable at least 100GW of solar energy by 2030 for India’s total target of 450GW. A significant part of this will come from rooftop solar and decentralised solar installations in villages.  Two, for the storage of intermittent energy — It will build an advanced energy storage battery factory. Solar energy is available only during the day, while power is needed round the clock. Therefore, storage is an important piece of the puzzle. For this, RIL will launch its second initiative — an Advanced Energy Storage Giga Factory. It is exploring new and advanced electro chemical technologies that can be used for such large-scale grid batteries to store the energy that they will create.  Three, for the production of green hydrogen — RIL will build an electrolyser factory to manufacture modular electrolysers of highest efficiency and lowest capital cost. These can be used for captive production of green hydrogen for domestic use as well as for global sale. Besides Electricity, Green Hydrogen will be a unique energy vector that can enable deep decarbonization of many sectors such as transportation, industry and power. One of the most common methods of generating Green Hydrogen is by electrolysis of pure water through Electrolysers.  Four, for converting hydrogen into motive and stationary power – It will build a Fuel Cell Giga Factory. A Fuel Cell uses oxygen from air and hydrogen to generate electricity. The only emission of this process is non-polluting water vapour. RIL believes that Fuel Cells will progressively replace internal combustion engines. Fuel Cell engines can power automobiles, trucks and buses. They can also be used in stationary applications for powering data centres, telecom towers, emergency generators and micro grids and industrial equipment. Second part of RIL’s plan: Providing infrastructure and materials to support the four Giga factories.  Its Jamnagar complex will provide infrastructure and utilities to manufacture ancillary material and equipment needed to support these Giga factories so that all critical materials are available in time. This will also support independent manufacturers with right capabilities to be part of this nationwide ecosystem.

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 RIL will invest an additional INR150bn in value chain, partnerships and future technologies, including upstream and downstream industries. Thus, its overall initial investment from internal resources in the New Energy business will be INR750bn in 3 years. Their third part of plan:  Over the years, RIL has developed significant engineering, project management and construction capabilities combining physical and digital technologies.  It will repurpose these capabilities, along with major international organisations to execute and deliver world class, renewable energy solutions. RIL will build two additional divisions to further strengthen this ecosystem.  First, a dedicated Renewable Energy Project Management and Construction Division. The Renewable Energy Project Management and Construction Division will provide gigawatt scale end-to-end solutions for large renewable plants across the world. It will enable and partner with thousands of Green MSME. Entrepreneurs, who can deploy kilowatt to megawatt scale solutions in agriculture, industry, residences and transportation.  Second, a dedicated Renewable Energy Project Finance Division, which will provide finance solutions to the stakeholders in its ecosystem. This will achieve RIL’s goals by enabling a platform to source long-term global capital for these investments at the most attractive terms. RIL will seek support from relationship banks and global green funds for this purpose. RIL is also evolving a vision for NEW MATERIALS and GREEN CHEMICALS. It will kick- start this by strategically investing in India's first world-scale CARBON FIBER plant for supporting its hydrogen and solar ecosystems. The new Green Vision has immense benefits for RIL’s existing O2C business as well.  First, RIL will use solar energy on an economically attractive basis to decarbonise their existing O2C business and accelerate its journey to become net carbon zero.  Second, RIL will use Green Hydrogen and CO as raw materials to develop a road map for new Green Chemicals, Green Fertilizer and e-fuels.  Third, it will commercialise with global partners for world-beating proprietary Multi-zone Catalytic Cracking.  (MCC) Technology to optimise the fossil fuel transition to sustainable chemical and material building blocks.  Thus, it will transform RIL’s legacy business into sustainable, circular and net zero carbon materials business.

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Key takeaways from RJio business

 On the RJio front, the company made two key announcements- low-priced smartphone launch, and technology readiness for 5G rollout.

 The company announced that 4G smartphone, launched in collaboration with Google, will be “ultra-affordable” and is a step to expand the overall 4G smartphone market in India.

 The target group for this new offering would be the 300mn 2G customers. RJio also announced successful trial of 100% home-grown and comprehensive 5G solution which is fully cloud native, software defined, and digitally managed.

 It has successfully tested 5G solutions with speeds well in excess of 1gbps. The company did not give any timelines for the 5G launch and we expect meaningful rollout to begin in 2023-24 and will be subject to maturity of the ecosystem, in terms of user devices, use cases, operator technology ecosystem etc.

 Another key takeaway was the lack of any mentions of the consumer apps indicating a shift in focus to 5G and other technology platforms.

SOTP valuation: TP of INR2,105/share Base value Base value Base value % Comments (USD (INR bn) (INR/share) bn) Global Refining peers trade at 6.9x. Assumed GRM of Refining (@ EV/Q1FY23E EBITDA = 9.5x) 25.2 1,868 290 14% USD7.7/bbl, USD8.9/bbl in FY22/23 Global petchem peers trade at 7.1x. Assumed EBITDA Petchem (@ EV/Q1FY23E EBITDA = 9.5x) 45.4 3,362 522 25% of USD138/mt, USD156 in FY22/23 India Upstream 5.0 370 57 3% DCF basis. Includes CBM, R-Series and Satellite fields 20% premium to BP Plc's acquisition of 49% during BP Petro Retail @51% stake 1.2 91 14 1% 2019-20 Retail (@ EV/Q1FY23E EBITDA = 26x) 57.4 4,244 659 32% Indian retail peers trade at 26x JIO Mart 6.0 441 68 3% Valued at 35x gross margin, similar to D-Mart Retail + JIO Mart 63 4,685 727 Less: Minority Interest in Retail 8.4 620 96 RIL's holding in Retail business 49.0 3,624 562 RIL has 85.05% stake in RIL Retail Digital (Implied EV/EBITDA=11x) 70.1 5,188 805 Less: Minority Interest in Jio 23.5 1,739 270 DCF based EV of INR 5.2 trn; 33.52% stake held by PE RIL's holding in Digital business 46.6 3,449 535 26% funds

Net debt 3.5 259 40 2% Value of non operating assets 28.7 2,124 330 14% At book value SOTP (pre-holdco discount) 204 15,071 2,339 100% Before Holding co discount Less: Holding company discount (10%) 20.4 1,507 234 10% Holding company discount SOTP 183.3 13,564 2,105 CMP 12,864 2,147 Return on CMP (%) -2% Source: Edelweiss Research

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Breakdown of retail valuation

INR bn EBITDA Multiple Value Core retail 159.0 26.0 4133.3 Petro 1.2 26.0 32.3 Connectivity 16.4 5.0 81.8 Future Group acquisition 15.6 16.0 249.6 Combined Value 176.6 25.5 4,497.0 Shares 6,445 Source: Edelweiss Research

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Company Description RIL is the largest private player in the refining, petrochemical, E&P, digital and organized retail sectors in India. While RIL’s refining complex in Jamnagar is the largest in the world and among the most complex, it is also among the largest integrated petrochemical producers globally. Its consumer business (JIO and Retail), which has picked up the scale in the last 4-5 years will contribute 50% of the total EBITDA by FY25 which is currently dominated by Oil to Chemical business. RIL has a weight of 13% in BSE Sensex and is the only Indian company which has crossed USD150bn in valuations.

Investment Theme RIL’s strength lies in its ability to build businesses of global scale and execute complex, time-critical, and capital-intensive projects which will prove advantageous as it embarks on large investments in all segments.

We expect its consumer business (Digital and Retail) to contribute ~50% of EBITDA from FY25 given its strong expansion and customer base.

We are now giving rich valuations to JIO and Retail seeing its huge potential, though remain positive on their core O2C business (both refining and chemicals). We believe refining margins in Asia will rise due to a “paradigm shift in regional refining dynamics” from West to East, which will favour a complex refiner like Reliance. Global utilization rates have bottomed out in chemicals.

RIL is almost done with its capex cycle, investing in world-scale projects like petcoke gasification, off-gas crackers and telecoms, which are expected to drive future growth in months to come has started commissioning and remaining projects of KG- D6 will start soon.

Key Risks Slow down in global demand or larger than expected capacity additions could impact RIL’s refining and chemical margins. Delays in government approvals for India E&P or weak domestic gas prices could hamper progress in upstream.

Weak natural gas prices could lower the profitability of upstream assets. Rupee appreciation may impact negatively as RIL is positively leveraged to the depreciating currency. About half of RIL business is in unrelated diversifications, especially telecoms & related, which would attract a conglomerate discount.

Our reverse DCF calculation suggests that (especially) for and Retail the market is baking-in very high earnings growth expectation sustaining over the next 10 years, which by any measure is a tall ask.

Deleveraging to zero-debt has swung the needle to the other extreme, raising RIL’s WACC to match cost of equity (CoE). The sharp rise in WACC precipitates a negative economic spread for RIL even after we assume robust earnings growth.

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Additional Data Management Holdings – Top 10* Chairman and Mukesh D Ambani % Holding % Holding Managing Srichakra Comme 11.67 Reliance Indust 4.80 DirectorNon Executive Nita Ambani Non Independent KARUNA COMMERCI 8.61 Capital Group C 4.32 DirectorExecutive P M S Prasad Director Tattvam Enterpr 8.61 PETROLEUM TRUST 3.80 Executive Pawan Kumar Kapil Director Devarshi Commer 8.61 RELIANCE SERVIC 2.71 Auditor E&Y Life Insurance 5.86 FMR LLC 2.32

*Latest public data

Recent Company Research Recent Sector Research Date Title Price Reco Date Name of Co./Sector Title Wire-less present; gas for future ; OMC sequel: Golden era of 01-May-21 2,024 Hold 23-Jun-21 Oil & Gas Result Update refining; Sector Update Golden era of refining underway; 23-Jan-21 Profit beat, but…; Result Update 2,050 Hold 17-Jun-21 Oil & Gas Sector Update Channel checks: Morbi on export- 01-Nov-20 Painful revival; Result Update 2,055 Hold 15-Jun-21 Gujarat Gas led roll; Company Update

Rating Interpretation Daily Volume 175 2325 TP TP 2,105 2,105 TP 2035 140 1,844

1745 105

(INR) TP 1,415 1455 (Mn) 70

1165 35 875 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 0 RIL IN Equity Buy Hold Reduce Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20

Source: Bloomberg, Edelweiss research Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage Rating Rationale

Buy Hold Reduce Total Rating Expected absolute returns over 12 months

Rating Distribution* 167 57 18 243 Buy: >15%

>50bn >10bn and <50bn <10bn Total Hold: >15% and <-5%

Market Cap (INR) 209 44 3 256 Reduce: <-5% *1 stocks under review

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Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk. Research analyst has served as an officer, director or employee of subject Company: No ESL has financial interest in the subject companies: No ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer. A graph of daily closing prices of the securities is also available at www.nseindia.com Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited 9

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Additional Disclaimers

Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").

In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).

This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.

Disclaimer for Canadian Persons This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst.

This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.

ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Disclaimer for Singapore Persons In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors.

Disclaimer for Hong Kong persons This report is distributed in Hong Kong by Edelweiss Securities (Hong Kong) Private Limited (ESHK), a licensed corporation (BOM -874) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to Section 116(1) of the Securities and Futures Ordinance “SFO”. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The report also does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual recipients. The Indian Analyst(s) who compile this report is/are not located in Hong Kong and is/are not licensed to carry on regulated activities in Hong Kong and does not / do not hold themselves out as being able to do so.

Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved.

Aditya Narain Head of Research [email protected]

10 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited