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October 15, 2020 India 14-Oct 1-day 1-mo 3-mo Sensex 40,795 0.4 4.5 13.2 Nifty 11,971 0.3 3.9 12.7 Contents Global/Regional indices Dow Jones 28,514 (0.6) 1.9 6.1 Daily Alerts Nasdaq Composite 11,769 (0.8) 5.2 11.5 Result FTSE 5,935 (0.6) (2.8) (5.7) Infosys: Blowout quarter Nikkei 23,536 (0.4) 0.3 2.6 Hang Seng 24,534 (0.5) (0.8) (3.7)  Revenue, EBIT and net profit beat; revenue growth broad-based on KOSPI 2,364 (0.7) (3.3) 7.3 sequential comparison Value traded – India  Raises FY2021E revenue guidance to 2-3%, EBIT margin guidance to 23- Cash (NSE+BSE) 530 578 615 15,16 24% Derivatives (NSE) 23,410 15,658 0  Raise FY2021-23E EPS by 8-9%; fair value to Rs1,400 Deri. open interest 4,467 4,173 3,664 Company alerts

Petronet LNG: Opportunity beckons as concerns overdone Forex/money market  Attractive global LNG contracts on offer, while Tellurian faces multitude of Change, basis points problems 14-Oct 1-day 1-mo 3-mo Rs/US$ 73.3 (1) (34) (182)  CMP = sub-85% utilization of Dahej even as it remains >100% and no 10yr govt bond, % 6.2 (1) (19) 9 ramp-up for Kochi Net investment (US$ mn)

 Robust earnings/FCF trajectory to translate into sustainable higher dividends 13-Oct MTD CYTD

payout FIIs 256 1,077 5,117 Sector alerts MFs (91) (540) 2,145 Top movers Banks: Deposit ownership: Slower share gains Change, %

 Retail remains steady; improvement in private sector deposits Best performers 14-Oct 1-day 1-mo 3-mo

APHS IN Equity 2,228 (1.2) 33.2 52.0  Government deposit accretion has slowed; private banks lose market share in this segment JSTL IN Equity 291 0.2 0.4 49.1 AL IN Equity 73 (0.9) (6.0) 48.5

 Private banks continue to chip away retail deposits but lose share in current HCLT IN Equity 890 (1.1) 12.3 44.7

accounts DIVI IN Equity 3,130 (0.3) (1.7) 40.7  Variance in household current and saving deposit growth a sign of Worst performers dichotomy YES IN Equity 13 (0.4) (11.3) (36.9) IHFL IN Equity 155 5.8 (16.4) (27.8)  Growth spread out across regions; metro/urban still remain dominant BHARTI IN Equity 413 (0.5) (14.9) (26.7) source of deposits BHEL IN Equity 28 (1.2) (22.3) (24.0)

Construction Materials: Price trend changes course with demand support PLNG IN Equity 210 (2.5) (12.6) (17.9)  Dealer checks - demand recovery underpins price hikes in October 2020

 Demand tailwinds continue after a strong September 2020

 Costs remain on an uptrend

 Stocks gradually pricing the buoyancy; ACEM and Dalmia our preferred picks

[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. BUY Infosys (INFO) IT Services OCTOBER 15, 2020 RESULT Sector view: Attractive

Blowout quarter. Infosys impressed with excellent results and a significant beat on CMP (`): 1,137 revenues, EBIT and net profit. Large deal TCV hit a new high. The company raised Fair Value (`): 1,400 FY2021E revenue and margin guidance. The results capture the success of turnaround BSE-30: 40,795 efforts initiated by Salil Parekh in 2018. This has resulted in success in all dimensions viz: operations, large deals, capability augmentation and talent retention. Expect the company to lead the industry on growth. We raise FY2021-23E EPS by 8-9% and FV to Rs1,400/share valuing the stock at 25X December 2022E EPS. BUY

Infosys Stock data Forecasts/valuations 2021E 2022E 2023E 52-week range (Rs) (high,low) 1,166-509 EPS (Rs) 43.7 48.9 55.4 Mcap (bn) (Rs/US$) 4,843/66.1 EPS growth (%) 12.2 12.0 13.2 ADTV-3M (mn) (Rs/US$) 12,284/168 P/E (X) 26.0 23.2 20.5 Shareholding pattern (%) P/B (X) 6.6 6.0 5.4 Promoters 13.2 EV/EBITDA (X) 17.1 15.4 13.5 FIIs 47.9 RoE (%) 26.8 27.0 27.6 MFs/BFIs 13.9/11.5 Div. yield (%) 2.3 2.6 3.1 Price performance (%) 1M 3M 12M Sales (Rs bn) 987 1,123 1,286 Absolute 16 45 45 EBITDA (Rs bn) 268 296 333 Rel. to BSE-30 10 28 35 Net profits (Rs bn) 186 208 236

Revenue, EBIT and net profit beat; revenue growth broad-based on sequential comparison Infosys delivered another strong quarter with sequential revenue growth of 4% in c/c and 2.2% on yoy comparison. The growth was broad-based across verticals and geos on sequential basis. The company added five clients jn the US$100 mn bucket sequentially during 2QFY21, impressive. EBIT margin increased 270 bps qoq and 370 bps yoy after paying 100% of variable compensation and one-time incentive to junior level employees. What was remarkable was the 100 bps contribution to margins from the increase in realization (pricing proxy), an unusual sight in a recession. Sequential increase was also aided by increase in utilization rate (+80 bps) and offshore mix (+80 bps). Net profit of Rs48.4 bn was 10.5% higher than our estimate and grew 20.6% yoy. OCF generation was strong at 121% of net profit. FCF generation was strong at US$674 mn.

Raises FY2021E revenue guidance to 2-3%, EBIT margin guidance to 23-24% Infosys raised FY2021E revenue growth guidance to 2-3% from 0-2% earlier. Revenue growth implied in 3Q and 4Q at 2% at the upper end of the band, modest noting that Vanguard mega-deal will flow into revenues fully in the December 2020 quarter. Further Infosys made three acquisitions that will also contribute to revenues. Management indicated 2H seasonality and furloughs as the reason though it does seem it has kept an unduly high cushion in the guidance. FY2021 EBIT margin guidance band is raised to 23-24% from 21-23% earlier. Increase in EBIT margin band for FY2021E is on account of strong operational performance and deferral of many costs such as wage revision, discretionary spending and aggressive focus on cost take-outs. Infosys has announced across-the-board wage increase effective January 2021. It believes that the FY2021E EBIT margin may not be sustainable. We detail our thoughts later. Kawaljeet Saluja

Raise FY2021-23E EPS by 8-9%; fair value to Rs1,400 Sathishkumar S

We raise FY2021-23 EPS estimate by 8-9% on the back of—(1) 3-8% increase in revenue estimates on the back of strong demand, (2) 70-190 bps increase in EBIT margin estimates, and (3) cross- currency tailwinds. We value the stock at 25X December 2022E EPS. We increase our fair value to Rs1,400 from Rs1,115 earlier. We expect Infosys to lead the industry on growth. We base this confidence on success in strategic priorities viz: scaling digital, large deal success, sales and [email protected] marketing augmentation driving better account mining and stability in management ranks. BUY. 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. Infosys IT Services

Margins—400 bps increase in two quarters, an outcome no one would have imagined

We are surprised with the magnitude of margin increase. The cost savings were well-known

 240 bps savings in travel costs over two quarters

 Reduction in G&A costs and non-manpower costs contributing an additional 160 bps

 Rupee depreciation that aided EBIT margin by 40 bps over two quarters

 Deferral of wage increases

 Rationalization of subcon costs that contributed 10-15 bps

These factors helped in keeping a lid on absolute costs.

What surprised was the magnitude of revenue recovery. What could be the possible reason? Possibly pent-up demand noting the broad-based sequential recovery in revenues in 2QFY21. Results of other IT companies demonstrated a similar broad-based growth. We can possibly attribute this to clients catching up on IT spending after scaling back spending in June 2020 quarter. Stimulus provided by the governments and central bank in various economies could have led to faster stabilization of business of clients and confidence to spend on IT initiatives.

Over a fixed cost, the entire incremental revenues effectively flowed into the bottom line. What surprised even more was that Infosys reported an increase in realization (proxy for pricing) in September 2020 quarter. The management attributed the increase to (1) higher working days, (2) improvement in productivity and (3) moderated discount environment. It is unusual for pricing to go up in normal times, let alone a recession. We can only provide a reasonable guess for increase in realization—

 Clients may not have felt the heat in the business barring the directly impacted verticals given the stimulus provided by various Central Banks/ Governments. Clients when faced with near-death situations are brutal on pricing. We saw the evidence of this in GFC from financial services clients and from a broad spectrum of clients in 2000-01

 Time to market could have become a bigger consideration. Technology is playing a pivotal role in keeping lights on and driving businesses of organizations. Ensuring secure, scalable infrastructure and operational resilience is the need of the hour. As a result time- to-market consideration could have become a bigger consideration putting the pricing pressure debate on the back burner

Our earlier assumption was that cost savings and operational efficiencies were the need of the hour to offset potential pricing pressure. Pricing never corrected barring a select few verticals. Net results—the savings were retained by the organization.

How much of the margin expansion is sustainable? We expect a 100-120 bps higher sustainable margin

We believe that September 2020 quarter margin represents a peak and will decline over the coming quarters. Benefits of many of the costs saved such as travel, facilities costs, lower selling and marketing and deferral of wage revisions will fade away over a period of time. Utilization rate can vary considerably and may not be a sustainable margin lever. Retention of some of the benefits will depend on the competitive environment and operational rigor:

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 IT Services Infosys

 Offshore shift. Infosys’ effort shifted by 190 bps offshore. Offshore profitability is close to 3X of onsite profitability. Noting the increased comfort of clients with remote working, it is not difficult to imagine that clients would be receptive to higher level of location agnostic delivery. The offshore shift could be sustained in our view

 Travel and other operational costs could sustain at lower levels. While the recent quarter’s travel costs may not sustain, it may not go back to the pre-Covid levels either.

 Pyramid management. Organizations have used the downturn in correcting the pyramid

The retention of some of the benefits will be a function of competitive intensity. This intensity is a function of growth environment. A strong demand environment (our base case) can allow retention of some of the benefits. It is possible for an organization to work at a higher margin in such a case. We raise our EBIT margin and believe that 23% is sustainable for Infosys compared to 22% earlier.

The levers for 23% sustainable margins are- (1) higher automation and reduction of manual processes, (2) higher offshore mix, (3) pyramid correction with focus on correcting the onsite pyramid and (4) reduction in subcontracting expenses. Infosys’ employee pyramid is fairly higher at the middle level and can be improved. We expect reasonable progress on pyramid correction initiatives which will be visible in the company’s annual sustainability report next year. We do not expect a major part of the 2QFY21 margin benefit to sustain. We forecast 23.2% and 23% EBIT margin for FY2022 and FY2023 respectively.

Net new deals in 2QFY21 equate to cumulative new deals in the prior five quarters

Infosys’ new deal wins hit a new high of US$2.7 bn. Net new deals at US$2.7 bn was 2.2X of the previous high achieved in Sep-18. The value of new deals won in the quarter is equal to net new deals of the previous five quarters. Even adjusting for US$1.5 bn Vanguard deal, value of net new deals was remarkably strong at US$1.2 bn. Infosys won 16 large deals, highest ever, in 2QFY21 with six deals in financial services, three deals in retail , two deals each in communications and hi-tech and one deal each in EURS, manufacturing and others verticals. Geography-wise 11 deals were in North America, four deals in Europe and one deal in RoW.

Broad-based growth in the quarter

Infosys reported strong revenue growth in 2QFY21 that was quite broad based across verticals and geographies. Growth was led by financial services (+7.8% qoq), retail (+10.6% qoq), hi-tech (+11% qoq) and lifesciences (+7.7% qoq). Recovery was sluggish in communications, E&U and manufacturing. Platforms business grew at a strong clip (+13.7% qoq, +39.2% yoy) and now contributes 7.5% to revenues. Geography-wise RoW and Europe led growth at +9.8% and +7.4% qoq respectively. Revenue growth was quite strong in North America as well at +4.7% qoq.

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Strong execution on strategic roadmap creates sustainable growth engine

Infosys has delivered strongly on the strategic roadmap laid out in 2018 by the CEO. The strategy focused on creating a sustainable growth engine by leveraging existing strengths, building muscle in areas where it lagged competition, scaling digital and localization. The transformation journey was not easy and required considerable effort and cost. Execution has been on point. We outline key highlights of the transformation below—

 Acceleration in large deals. Large deals are critical to provide kicker to growth especially as spending on legacy IT declines. Consistent large deal wins has been a key highlight under Salil and instrumental in driving strong growth. Large deals TCV on ttm basis in Sep-20 was US$8.4 bn an increase of ~3X compared to Sep-17. Focus on large deal wins was a key CEO agenda. Proactive deal proposals with holistic propositions across verticals, good alignment of delivery and sales in cross-functional teams and use of deal architects and consultants to help structure multi-year deals were the key in large deals’ success story. The company has hit a sweet spot in our view on large/ mega-deals.

 Enhanced digital competencies. Infosys has done a good job in correcting perceived lack of mindshare in digital and has closed the gap with industry leaders. Tuck-in acquisitions such as Wongdoody and Brilliant Basics in experience design and the likes of Fluido and Simplus in Salesforce have helped augment competencies in key areas. Infosys has strong partnerships with all three cloud hyperscalers and with key SaaS vendors. Infosys is strong in end-to-end cloud services and is well positioned to be the primary orchestrator of cloud transformation for clients. The company has developed capabilities to participate in all layers of transformation spending and is well positioned to participate in digital spending of clients.

 Reinforced BPO and platforms. Infosys traditionally lacked muscle in BPO. Platforms business was a notch below competition. BPO and platforms businesses have been reinforced by acquisitions/JV. Infosys acquired a 75% stake in Stater, captive arm of ABN AMRO, in March 2019, providing a strong fillip to both BPO and platforms business. Infosys also formed a JV with Hitachi to expand presence in Japan. Eishtec acquisition helped increase European presence. Organic BPO business has also performed well. BPO contribution to revenues has increased to 7.8% in FY2020 from 5.2% in FY2018. We do note that Infosys has some way to go in building a sustainable growth story in BPO.

While Infosys had a modest legacy IMS practice, the company invested in public/ private/ hybrid cloud capabilities and has a fair share of wins. Infosys doubled down on investments to capture new opportunities and create a well-rounded portfolio of services.

The above themes together with historical strength of a strong high quality client base, strong C-suite connect, robust internal systems and processes and good account management has helped build a strong foundation enabling sustainable growth leadership. We forecast above-industry growth for Infosys in FY2022 and FY2023 at 12.3% and 11.6% in c/c respectively.

Acquisition aggression—a sign of concern?

Infosys has announced three acquisitions in the past few days entailing cash outflow of ~US$200 mn or 7-8% of FCF. The aggressive acquisitions do bring into focus the questionable past track record wherein acquisitions such as Lodestone, Panaya and Skava failed to deliver the desired results. Will the results be any different now? We believe so.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 IT Services Infosys

A quick historical context of the earlier acquisitions—(1) Lodestone was one of the larger acquisitions of Infosys. Infosys’ strategy shift and material leadership changes meant that the acquisition could not be fully leveraged. It is debatable that Infosys could have created a multiplier effect even with stable leadership and consistent strategy given the struggles of offshsore pureplays in creating a sustainably growing consulting practice. Exhibit 14 details the performance of Lodestone and (2) Panaya and Skava—Infosys paid US$200 mn and US$120 mn for these acquisitions. The performance of these acquisitions has deteriorated sharply. Kallidus, Inc. subsidiary reported revenues of US$14.9 mn in CY2019, just 1/4th of CY2016 revenues of US$56 mn. Panaya’s revenues have nearly halved in CY2019 to US$8.3 mn from US$16.5 mn a year back.

The acquisitions since 2017 are focused on IT services. Exhibit 15 details the performance of a few acquired entities. Exhibit 16 details the list of acquisitions all of which are in core IT services segment and fit the strategic focus of the management. The leverage from these acquisitions also seems reasonably clear. While acquisitions always contain integration risks, the current acquisitions are in known areas and carry lower risk than the past. Noting the aggressive acquisition path adopted by Infosys, we will monitor this aspect closely.

Higher localization in US to offset pressure from new H-1B visa regulations

Infosys has steadily increased the number of local workers in the US. Management indicated that 37% of employees in the US are visa dependent implying 63% localization. The company will increase localization rate and has recently committed to hiring an additional 12,000 US workers, over the next two years bringing a hiring commitment in the US to 25,000 over five years. Infosys indicated that localization approach of the company is a significant differentiator in the market and helps better navigate regulatory changes on H-1B visa. The company is striving to build an onsite pyramid to contain cost of local operations in the US.

Key highlights from earnings call

 Margin walk-through. EBIT margin improved 270 bps to 25.4% in 2QFY21 on account of 100 bps tailwinds from better price realization, 80 bps tailwinds from higher utilization and 80 bps tailwinds from higher offshore effort due to temporary travel restrictions. Benefit from lower SG&A and other costs were offset by higher depreciation and cross- currency headwinds. Infosys indicated that employees were provided 100% variable pay and a one-time special bonus during the quarter. Infosys expects wage hikes and promotions, increased hiring, higher travel and overhead costs to impact margins in 2HFY21.

 Wage hikes and promotions. Wage hikes will be effective Jan 1, 2021. Infosys indicated that promotions at junior levels were initiated in 2QFY21. Promotions will be extended to all levels during 2HFY21.

 Vertical-wise outlook. (1) Financial services- Infosys indicated strong demand in mortgage servicing, call center technology and operations and lending services to cater to government relief programs. Large digital transformation programs are picking up. Vanguard deal ramp up along with ramp up of other large wins will drive revenue growth in the next 1-2 quarters. Infosys indicated increased demand for Finacle platform from banks. (2) Retail- Infosys has maintained a cautious stance on recovery due to weak liquidity positions of a few clients and possibility of increased furloughs. (3) Communications- Infosys indicated stress in media, entertainment, advertising and OEM segments. Large deal wins will help in stabilizing revenues. Pipeline of deals is strong. (4) EURS- Infosys indicated spending pressure in O&G, TTH and resources sub-verticals. Pipeline of deals is strong helped by cost take-out opportunities. (5) Manufacturing- Infosys indicated pockets of recovery although it expects overall recovery to remain sluggish.

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

 Large deals. Infosys won 16 large deals, highest ever, in 2QFY21 with 6 deals in financial services, 3 deals in retail , 2 deals each in communications and hi-tech and 1 deal each in EURS, manufacturing and others verticals. Geography-wise 11 deals were in North America, 4 deals in Europe and 1 deal in RoW.

 Large deal pipeline. Infosys indicated that large deal pipeline remains strong as clients look to accelerate digital transformation programs and continue focus on automation and cost efficiency.

 Deals. Infosys CEO indicated three major types in the deal pipeline- (1) Deals related to digital transformation of which cloud migration, cloud deployment, cloud native app development and SaaS implementation are major components. (2) IT estate modernization with focus on automation and cost efficiency and (3) vendor consolidations deals. Infosys indicated higher net new deals in the pipeline compared to last 1-2 years. Deal pipeline has reasonably good number of large deals as well as deals of other sizes.

 Onsite-offshore. Infosys expects onsite work to pick up once travel resumes. The company also indicated that there is better understanding of offshoring possibility. However the impact of the onsite-offshore dynamic is difficult to predict. Infosys indicated that some of the work around experience and design normally done in close proximity to the client can also be offshored.

 M&A. Infosys indicated that higher M&A activity in recent months was not by design. The company is constantly on the look-out for M&A and has clear priority areas such as ServiceNow, Salesforce and Adobe where the company perceives strong growth opportunities and good organic business within the company.

 Revenue productivity. Infosys indicated that revenue productivity per employee had increased 100 bps during the quarter due to (1) higher working days, (2) productivity improvement via automation and (3) moderation in discounts to clients

 Client metrics. US$100 mn clients increased by 5 qoq and 3 yoy to 30. US$50 mn clients was flat qoq and declined by 1 yoy to 60

 Capital allocation. Infosys declared interim dividend of Rs12/ share, 50% higher than previous year.

 Headcount. Headcount increased by 935 on net basis to 240,208. Infosys added 5,500 employees on gross basis- 3,500 freshers and 2,000 laterals.

 DSO. DSO (excluding unbilled) reduced by 2 to 69. Management indicated robust collections during the quarter

 WFH. 99% of workforce continues to work from home. Infosys indicated that margin implications of higher WFH are still hazy. Benefit of lower travel and SG&A can be offset by higher investments in technology, communications and security.

 Renewals vs new deals. New wins accounted for 86% of large deals in 2QFY21. Infosys indicated that there is a healthy mix of renewals and new deals in the pipeline. Management indicated that net new deal percentage has likely increased compared to historical levels.

 Vendor consolidation. Infosys indicated small vendor consolidation deals in the pipeline. These will not drive material revenue growth for the company. Infosys has had good conversations with clients on vendor consolidation. Infosys expects vendor consolidation activity to span multiple quarters. Infosys can benefit due to resilient operations, strong WFH delivery and strong financial position.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 IT Services Infosys

 Legacy shrinkage. Infosys indicated that overall of IT spends of clients are not increasing. Clients are taking costs out of legacy systems through automation and other measures and investing in digital transformation initiatives. The company indicated that almost every large deal win has legacy modernization component. Infosys expects pace of legacy modernization to accelerate to take full advantage of new technologies and drive innovation in client organizations.

 Attrition. Attrition has reduced to 7.8% due to Covid impact and increased employee engagement from Infosys. The company expects considerable pick up in attrition levels post Covid.

Exhibit 1: Infosys quarterly results (IFRS), March fiscal year-ends (Rs mn)

% chg. 2QFY21 2QFY21E 2QFY20 1QFY21 KIE yoy qoq 1HFY21 1HFY20 % chg. FY2020 FY2021E % chg. Revenues (US$ mn) 3,312 3,246 3,210 3,121 2.0 3.2 6.1 6,433 6,341 1.5 12,781 13,324 4.2 Revenues 245,700 240,879 226,290 236,650 2.0 8.6 3.8 482,350 444,320 8.6 907,910 987,480 8.8 Cost of revenues (149,160) (150,870) (143,520) (149,470) (1.1) 3.9 (0.2) (298,630) (284,500) 5.0 (578,380) (610,932) 5.6 Gross profit 96,540 90,009 82,770 87,180 7.3 16.6 10.7 183,720 159,820 15.0 329,530 376,548 14.3 S&M expenses (11,360) (12,787) (11,620) (11,460) (11.2) (2.2) (0.9) (22,820) (23,360) (2.3) (47,120) (48,993) 4.0 G&A expenses (14,350) (14,931) (14,760) (14,510) (3.9) (2.8) (1.1) (28,860) (28,550) 1.1 (59,730) (59,568) (0.3) Total SG&A expenses (25,710) (27,718) (26,380) (25,970) (7.2) (2.5) (1.0) (51,680) (51,910) (0.4) (106,850) (108,561) 1.6 EBITDA 70,830 62,292 56,390 61,210 13.7 25.6 15.7 132,040 107,910 22.4 222,680 267,986 20.3 Depreciation (8,550) (7,560) (7,270) (7,560) 13.1 17.6 13.1 (16,110) (14,080) 14.4 (28,940) (33,163) 14.6 EBIT 62,280 54,732 49,120 53,650 13.8 26.8 16.1 115,930 93,830 23.6 193,740 234,823 21.2 Other income 5,220 5,254 5,840 4,270 (0.6) (10.6) 22.2 9,490 12,800 (25.9) 28,030 22,940 (18.2) Profit before tax 67,500 59,986 54,960 57,920 12.5 22.8 16.5 125,420 106,630 17.6 221,770 257,763 16.2 Provision for tax (18,920) (15,896) (14,590) (15,200) 19.0 29.7 24.5 (34,120) (28,240) 20.8 (53,680) (69,334) 29.2 Net profit 48,580 44,089 40,370 42,720 10.2 20.3 13.7 91,300 78,390 16.5 168,090 188,429 12.1 Share in profit of associates (130) (250) (180) (390) (520) (220) (450) (790) Extraordinaries — — — — — — — — Net profit - reported 48,450 43,839 40,190 42,330 10.5 20.6 14.5 90,780 78,170 16.1 167,640 187,639 11.9 Tax rate (%) 28.0 26.5 26.5 26.2 EPS (Rs/ share) 11.4 10.3 9.4 10.0 10.4 20.8 14.3 21.4 18.3 17.0 38.9 43.7 12.2 As % of revenues Gross profit margin 39.3 37.4 36.6 36.8 38.1 36.0 36.3 38.1 EBITDA margin 28.8 25.9 24.9 25.9 27.4 24.3 24.5 27.1 EBIT margin 25.3 22.7 21.7 22.7 24.0 21.1 21.3 23.8 S&M expenses 4.6 5.3 5.1 4.8 4.7 5.3 5.2 5.0 G&A expenses 5.8 6.2 6.5 6.1 6.0 6.4 6.6 6.0 SG&A expenses 10.5 11.5 11.7 11.0 10.7 11.7 11.8 11.0

Billing rates (US$/annum) Total employees 240,208 236,486 239,233 1.6 0.4

Source: Company, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibit 2: Key changes to estimates, March fiscal year-ends, 2021-23E (Rs mn)

New Old Change (%) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Revenues 987,480 1,122,634 1,286,394 975,488 1,080,192 1,196,647 1.2 3.9 7.5 EBITDA 267,986 295,852 333,049 244,693 269,885 300,263 9.5 9.6 10.9 Depreciation (33,163) (35,176) (37,736) (30,702) (32,116) (33,593) 8.0 9.5 12.3 EBIT 234,823 260,676 295,313 213,991 237,769 266,670 9.7 9.6 10.7 Net Profit 185,719 208,005 235,512 172,516 192,658 216,681 7.7 8.0 8.7 EPS (Rs/ share) 43.7 48.9 55.4 40.5 45.2 50.9 7.9 8.2 8.9

Revenues (US$ mn) 13,324 14,968 16,706 12,916 14,213 15,541 3.2 5.3 7.5 Revenue growth (%) 4.2 12.3 11.6 1.1 10.0 9.3 Revenue growth (c/c, %) 3.4 12.3 11.6 2.1 10.0 9.3 Revenue growth (organic c/c, %) 2.5 12.0 11.6 1.6 10.0 9.3 Volume Growth (%) 6.7 11.3 10.9 3.0 9.6 8.5

Billing Rates (US$/ manmonth) Onsite 11,830 12,141 12,263 12,044 12,120 12,181 (1.8) 0.2 0.7 Offshore 3,759 3,829 3,867 3,904 3,929 3,949 (3.7) (2.5) (2.1)

Margins (%) EBITDA 27.1 26.4 25.9 25.1 25.0 25.1 EBIT 23.8 23.2 23.0 21.9 22.0 22.3 INR/ USD rate 74.1 75.0 77.0 75.5 76.0 77.0 (1.9) (1.3) —

Source: Company, Kotak Institutional Equities estimates

Exhibit 3: Revenue growth by segments (Sep 2020)

Revenues Growth (%) C/C Growth (%) (US$ mn) (qoq) (yoy) % of total (yoy) Total revenues 3,312 6.1 5.8 100.0 2.2 by geography North America 2,010 4.7 4.2 60.7 1.9 Europe 805 7.4 8.9 24.3 0.6 India 99 9.8 38.0 3.0 20.4 ROW 397 9.8 1.5 12.0 3.7 by verticals Financial Services 1,060 7.8 7.8 32.0 2.9 Retail 493 10.6 (0.2) 14.9 (0.3) Communications 417 (0.2) (3.4) 12.6 (1.8) Energy, Utilities, Resources and Servcies 407 2.0 0.1 12.3 (3.7) Manufacturing 301 1.7 0.3 9.1 (8.2) Hi Tech 301 11.0 25.0 9.1 24.4 Life Sciences 225 7.7 17.9 6.8 7.4 Others 106 9.5 30.2 3.2 24.8 by service line Services 3,064 5.5 3.8 92.5 Products & platforms 248 13.7 39.2 7.5 Digital 1,567 12.8 40.2 47.3 Core 1,745 0.8 (13.3) 52.7 Revenues from clients Top 5 clients 374 1.6 (1.2) 11.3 Top 10 clients 619 2.8 (1.1) 18.7 Top 25 clients 1,133 4.9 3.7 34.2

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 IT Services Infosys

Exhibit 4: Segmental revenue growth across geographies (Sep 2020)

Energy&Utilities Financial Services Retail&CPG Communication Resources & Svcs Manufacturing Hi-Tech Life Sciences Others Total YoY US$ revenue growth (%) 3.7 0.6 (0.7) (2.9) (7.1) 24.7 8.7 25.3 3.2 YoY US$ revenue growth by geography (%) North America 4.1 1.9 (17.4) (1.3) (14.6) 24.9 14.9 50.0 2.0 Europe (1.8) (1.4) 51.6 (4.1) 8.9 — (1.5) 40.0 4.1 India 10.4 — 42.9 (33.3) 28.6 (50.0) 29.4 16.3 ROW 8.0 (3.6) 9.2 (10.0) (46.2) 100.0 — 11.6 4.2

QoQ US$ revenue growth (%) 7.8 10.1 — 2.3 1.3 11.4 8.2 8.3 6.1 QoQ US$ revenue growth by geography (%) North America 6.2 12.9 (8.8) 1.8 (7.6) 11.3 11.6 17.4 4.8 Europe 8.4 3.7 13.3 2.9 15.4 50.0 — — 7.6 India 8.2 100.0 25.0 — — — 10.0 11.1 ROW 12.8 8.0 9.2 — (12.5) — 33.3 4.3 8.8 Geography-wise revenue breakup across verticals (%) North America 57.8 65.9 52.3 56.4 52.3 94.4 68.4 26.0 60.7 Europe 20.6 28.3 22.5 34.6 44.7 2.0 29.3 6.7 24.4 India 5.0 0.4 2.4 0.2 0.7 3.0 0.4 21.2 3.0 ROW 16.6 5.5 22.8 8.8 2.3 0.7 1.8 46.2 11.9 YoY US$ revenue growth by offerings (%) Digital 24.9 21.5 22.9 22.8 11.6 70.5 45.3 60.9 27.5 Core (10.0) (15.0) (16.1) (18.3) (18.1) (1.3) (7.7) 11.7 (11.9) QoQ US$ revenue growth by offerings (%) Digital 10.8 19.2 3.6 11.5 (0.7) 31.6 24.0 32.1 12.9 Core 5.3 1.7 (3.2) (4.9) 3.1 (3.2) (0.8) (1.5) 0.7 Service-offering wise revenue breakup across verticals (%) Digital 47.2 51.6 48.9 47.5 44.7 49.5 41.3 35.6 47.3 Core 52.8 48.4 51.1 52.5 55.3 50.5 58.7 64.4 52.7

Source: Company, Kotak Institutional Equities

Exhibit 5: Infosys: Quarterly EBIT margin (%) trend

EBIT margin (%) 33

31

29

27 25.4 25

23

21

19

Jun-14 Jun-15 Jun-16 Jun-17 Jun-11 Jun-12 Jun-13 Jun-18 Jun-19 Jun-20

Dec-11 Dec-12 Dec-13 Dec-17 Dec-18 Dec-19 Dec-14 Dec-15 Dec-16

Source: Company, Kotak Institutional Equities

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibit 6: Infosys: Segmental EBIT margin trend

Sep-20 EBIT Change (%) C/C growth (%) Contribution margin (%) qoq yoy yoy to revenues (%) Financial services 30.0 315 411 2.9 32.0 Retail 35.6 470 550 (0.3) 14.9 Communication 21.4 181 40 (1.8) 12.6 EURS 27.3 (86) (36) (3.7) 12.3 Manufacturing 29.2 680 701 (8.2) 9.1 Hi-tech 29.8 83 693 24.4 9.1 Lifesciences 33.8 357 683 7.4 6.8

Source: Company, Kotak Institutional Equities

Exhibit 7: Infosys: Near term revenue and margin estimates

Revenues (US$ mn, LHS) EBIT margin (%, RHS) 3,700 25.3 26 3,600 25 24.3 3,500 24 3,400 23.2 22.7 22.8 3,300 23 21.9 3,200 3,611 22 21.2 3,484 3,100 3,407 3,312 21 3,000 3,243 3,197 3,121 20 2,900

2,800 19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20E Mar-21E Jun-21E

Source: Company, Kotak Institutional Equities

Exhibit 8: Infosys has sustained elevated large deal win TCV in last few quarters

10,000 TTM TCVs (US$ mn)

9,024

8,942 8,699

9,000 8,352

8,054 7,881 8,000

7,000 6,283

6,000 5,620 4,829

5,000

4,205

3,907

3,531 3,486

4,000 3,334

3,072 3,072

2,973 2,973

2,909 2,909

2,858

2,788 2,445

3,000 2,298

2,213 2,213

1,927 1,927 1,915 2,000

1,000

Jun-16 Jun-17 Jun-20 Jun-15 Jun-18 Jun-19

Sep-15 Sep-16 Sep-19 Sep-20 Sep-17 Sep-18

Dec-14 Dec-15 Dec-18 Dec-19 Dec-16 Dec-17

Mar-15 Mar-18 Mar-19 Mar-17 Mar-20 Mar-16

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 IT Services Infosys

Exhibit 9: Infosys: Record high deal win TCV courtesy Vanguard deal

TCVs (US$ mn) 3,400 3,145 3,000 2,847 2,714 2,600

2,200 2,029 1,813 1,744 1,800 1,5701,568 1,650

1,400 1,227 1,207 1,116 983 962 905 1,000 809 806 779 688 664 657 731 600 414 213

200

Jun-15 Jun-18 Jun-16 Jun-17 Jun-19 Jun-20

Sep-16 Sep-17 Sep-19 Sep-20 Sep-15 Sep-18

Dec-14 Dec-15 Dec-17 Dec-18 Dec-16 Dec-19

Mar-17 Mar-20 Mar-16 Mar-18 Mar-19 Mar-15

Source: Company, Kotak Institutional Equities

Exhibit 10: Infosys: Travel costs remain at extremely low levels

Travel costs (Rs bn, LHS) Travel cost as a % of revenues (RHS) 10 5 4.4 3.8 8 4 3.1 3.2 3.0 2.9 2.9 2.9 2.8 2.8 2.8 2.9 6 2.7 2.7 2.6 2.7 3

4 8.3 2 7.4 6.7 6.0 6.0 6.3 6.0 6.0 6.2 5.2 5.0 4.7 5.3 4.8 5.0 4.9 2 0.5 0.6 1

1.2 1.5

0 0

Jun-16 Jun-19 Jun-17 Jun-18 Jun-20

Sep-16 Sep-19 Sep-20 Sep-17 Sep-18

Dec-16 Dec-17 Dec-18 Dec-19

Mar-18 Mar-19 Mar-20 Mar-17

Source: Company, Kotak Institutional Equities

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibit 11: Infosys: Uptick in branding and marketing costs but below pre-Covid levels

Branding & marketing costs (Rs mn, LHS) 1,600 0.8 0.7 Branding & marketing costs as a % of revenues (RHS) 1,400 0.6 0.6 0.6 0.7 0.6 0.6 1,200 0.5 0.5 0.5 0.6 0.5 0.5 1,000 0.4 0.4 0.5 0.4 0.4 0.4 0.4 800 1,370 0.4 1,350 1,420 1,290 0.2 600 1,160 1,290 1,2001,250 0.3 920 950 920 400 810 760 780 720 0.2 680 670 590 200 0.1

- -

Jun-17 Jun-18 Jun-16 Jun-19 Jun-20

Sep-17 Sep-18 Sep-16 Sep-19 Sep-20

Dec-16 Dec-17 Dec-18 Dec-19

Mar-17 Mar-18 Mar-20 Mar-19

Source: Company, Kotak Institutional Equities

Exhibit 12: Lower employee costs due to wage hike, promotion and new hiring deferrals and higher offshore effort

Employee costs (Rs bn, LHS) Employee costs as a % of revenues (RHS) 160 57.5 58

140 57 56.4 56.3 120 56.1 56.0 55.7 55.5 55.6 55.5 56 100 55.3 54.8 54.7 80 54.5 54.7 54.5 55 54.4 54.3 54.1 136 127 130 129 134 60 116 121 123 105 112 54 93 96 94 93 94 96 99 101 40 53 20

- 52

Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

Sep-16 Sep-17 Sep-18 Sep-19 Sep-20

Dec-16 Dec-17 Dec-18 Dec-19

Mar-19 Mar-20 Mar-18 Mar-17

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 IT Services Infosys

Exhibit 13: Increased localization will help curb impact of change in H-1B visa regulations

Localization rate in Americas (%) 70 62.9

60 56.7

50 40.2 40 35.2 34.8 28.9 30

20

10

0 2015 2016 2017 2018 2019 2020

Source: Company, Kotak Institutional Equities

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibit 14: Performance of Lodestone, Panaya and Kallidus

2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Revenues 15 15 16 16 8 Revenues 63 66 48 41 50 EBIT 0 0 1 0 0 EBIT 2 1 2 2 4 Net profit 0 1 0 1 0 Net profit 2 1 2 3 4 Growth (%) Growth (%) Revenues 147.7 (1.9) 8.8 1.9 (49.5) Revenues 10.8 4.5 (27.4) (13.5) 20.4 EBIT 111.7 4.9 14.5 (28.6) 10.1 EBIT 97.3 (47.9) 66.7 27.3 52.8 Net profit 12.0 164.2 (58.0) 93.5 (45.5) Net profit 222.6 (49.3) 105.1 47.7 46.2 Margins (%) Margins (%) EBIT 3.0 3.2 3.4 2.4 5.1 EBIT 3.5 1.7 4.0 5.9 7.5 Net profit 1.6 4.3 1.7 3.2 3.4 Net profit 2.7 1.3 3.7 6.3 7.6 Employee headcount Key metrics of Kallidus, December fiscal year ends, US$ mn Consultants 265 277 235 205 215 2015 2016 2017 2018 2019 Management 7 8 13 11 11 Revenues 32 56 30 15 15 Total 272 285 248 216 226 EBIT 6 25 (14) (18) (11) Net profit 4 15 (10) (12) (7) Key metrics of Infosys Consulting GmbH, December fiscal year ends, EUR mn Growth (%) 2015 2016 2017 2018 2019 Revenues 73.5 (47.4) (50.0) 1.0 Revenues 80 74 90 86 65 EBIT 320.9 (156.9) 24.9 (38.2) EBIT (0) (6) (1) (0) 4 Net profit 307.5 (169.8) 18.4 (43.2) Net profit (1) (6) (1) (0) 4 Margins (%) Growth (%) EBIT 18.2 44.1 (47.8) (119.3) (73.0) Revenues (4.3) (7.7) 21.9 (4.6) (24.7) Net profit 11.3 26.6 (35.3) (83.6) (47.0) EBIT (47.7) 1,189.9 (78.9) (69.6) (1,193.0) Net profit (65.0) 730.0 (79.8) (63.9) (1,018.7) Margins (%) EBIT (0.6) (8.5) (1.5) (0.5) 6.8 Net profit (0.9) (8.1) (1.3) (0.5) 6.2 Employee headcount Consultants 278 232 201 162 Administrative 18 15 14 13 Total 296 247 215 175

Key metrics of Infosys Consulting AG, December fiscal year ends, CHF mn 2015 2016 2017 2018 2019 Revenues 143 97 70 60 57 EBIT 13 1 3 8 9 Net profit 10 (0) 2 6 8 Growth (%) Revenues 9.1 (32.5) (27.3) (14.8) (4.7) EBIT 92.4 (93.6) 297.2 131.0 17.6 Net profit 154.4 (101.5) (1,697.9) 177.1 18.3 Margins (%) EBIT 9.0 0.9 4.7 12.7 15.6 Net profit 6.9 (0.1) 3.3 10.7 13.3

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 IT Services Infosys

Exhibit 15: Performance of recent acquisitions

Key metrics of Fluido, Dec fiscal year ends, EUR mn 2017 2018 2019 2020 2018 2019 Revenues 2 6 10 12 Revenues 28 37 EBIT (1) (1) 0 1 EBIT (0) 1 Net profit (1) (1) 0 1 Net profit (1) 1 Growth (%) Growth (%) Revenues 162.8 58.2 18.2 Revenues 31.9 EBIT (32.1) (125.6) 504.1 EBIT (815.7) Net profit (31.6) (166.4) 119.0 Net profit (209.8) Margins (%) Margins (%) EBIT (46.4) (12.0) 1.9 9.9 EBIT (0.4) 2.2 Net profit (43.8) (11.4) 4.8 8.9 Net profit (2.3) 2.0 Average employees # 26 36 65 92 Number of employees 219 284

Key metrics of Wongdoody, Dec fiscal year ends, US$ mn 2018 2019 Revenues 25 34 EBIT 3 4 Net profit 3 3 Growth (%) Revenues 36.3 EBIT 2.4 Net profit 7.3 Margins (%) EBIT 13.8 10.4 Net profit 10.2 8.1

Top client (%) 53 37

Parent (%) 3 23

Key financial metrics for Stater, EUR mn, December fiscal year ends Key financial metrics for Stater, EUR mn, December fiscal year ends 2018 2019 Stater Stater Revenues 163 166 Revenues EBIT 15 21 EBIT Net profit 11 15 Net profit Growth (%) Growth (%) Revenues 1.6 Revenues EBIT 40.1 EBIT Net profit 40.9 Net profit Margins (%) Margins (%) EBIT 9.0 12.4 EBIT Net profit 6.6 9.1 Net profit

Key financial metrics for Stater, EUR mn, December fiscal year ends Key financial metrics for Stater, EUR mn, December fiscal year ends 2018 2019 Stater Stater Revenues 163 166 Revenues EBIT 15 21 EBIT Net profit 11 15 Net profit Growth (%) Growth (%) Revenues 1.6 Revenues EBIT 40.1 EBIT Net profit 40.9 Net profit Margins (%) Margins (%) EBIT 9.0 12.4 EBIT Net profit 6.6 9.1 Net profit

Source: Company, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibit 16: Infosys: List of acquisitions since 2017

Deal size Acquisitions Country Acquired in Description (US$ mn) Brilliant Basics UK Aug-17 Global digital product and customer experience studio NA Wongdoody US Apr-18 Full-service creative and consumer insights agency. NA Trusted Source, Temasek subsidiary (60% stake, JV) Singapore Sep-18 IT services 12 Fluido Finland Sep-18 Salesforce consulting, implementation and training services provider in Nordics region NA Hitachi Procurement service (81% stake, JV) Japan Dec-18 Hitachi’s fully owned subsidiary that handles indirect materials purchasing functions for the Hitachi Group. JPY 2762 Stater (75% equity stake) Netherlands Mar-19 Mortgage admininstration services provider EUR 127.5 Eishtec Ireland Oct-19 BPO NA Simplus US Feb-20 Salesforce consulting and implementation 250 GuideVision Czech Republic Sep-20 Servicenow consulting and implementation EUR 30 Kaleidoscope Innovation US Sep-20 Engineering product design 42 Blue Acorn iCi US Oct-20 CX, commerce and analytics 125

Source: Company, Kotak Institutional Equities

Exhibit 17: Infosys: Quarterly receivable days trend

Billed receivables Total receivables 110

100 95 90

80

70 67 60

50

40

Sep-10 Sep-12 Sep-14 Sep-17 Sep-19 Sep-09 Sep-11 Sep-13 Sep-15 Sep-16 Sep-18 Sep-20

Mar-11 Mar-14 Mar-16 Mar-18 Mar-12 Mar-13 Mar-15 Mar-17 Mar-19 Mar-20 Mar-10

Source: Company, Kotak Institutional Equities

Exhibit 18: Infosys reported highest ever net new large deal win TCV in 2QFY21

Net new deal TCV (US$ mn, RHS) Net new (%, LHS) 100 3,000 86 2,500 80 68 69 60 56 2,000 60 47 1,500 35 2,705 40 30 32 30 32 1,000 19 20 1,217 10 1,082 924 500 643 580 495 234 290 525 471 285 331

0 0

Jun-19 Jun-20 Jun-18

Sep-19 Sep-20 Sep-17 Sep-18

Dec-19 Dec-17 Dec-18

Mar-19 Mar-20 Mar-18

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 IT Services Infosys

Exhibit 19: Infosys: Yoy constant-currency growth (%) trend

Infosys YoY c/c revenue growth (%) 15

12

9

6

3 2.2

0

Jun-16 Jun-17 Jun-20 Jun-15 Jun-18 Jun-19

Sep-15 Sep-19 Sep-20 Sep-16 Sep-17 Sep-18

Dec-17 Dec-18 Dec-15 Dec-16 Dec-19

Mar-17 Mar-18 Mar-19 Mar-20 Mar-16

Source: Company, Kotak Institutional Equities

Exhibit 20: Number of US$100 mn clients increases by 5 qoq to 30

Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Client metrics Number of active clients 1,191 1,204 1,214 1,222 1,252 1,279 1,336 1,364 1,384 1,411 1,458 1,487 New clients added in the period 79 73 70 73 101 101 112 96 84 84 110 96 Repeat business % 98.3 97.6 99.5 98.2 96.6 95.2 99.0 98.1 97.2 95.9 99.0 98.0 Million $ clients 630 634 627 633 651 662 680 693 705 718 729 745 10 Million $ clients 198 198 200 205 214 222 228 228 232 234 236 242 50 Million $ clients 56 57 56 58 59 60 59 61 61 61 60 60 100 Million $ clients 20 20 24 23 23 25 27 27 28 28 25 30

Source: Company, Kotak Institutional Equities

Exhibit 21: Infosys: Strong growth in ex-top clients in 2QFY21

4 qtr CQGR Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 % Revenue (US$ mn) Top client 94 101 105 114 102 101 100 103 97 99 106 NA NA Top 5 clients NA NA NA NA NA NA 379 369 366 361 368 374 0.2 Top 10 clients 529 539 544 567 574 603 626 616 613 598 602 619 0.1 Top 25 clients 973 993 988 1,014 1,013 1,071 1,093 1,111 1,109 1,090 1,080 1,133 0.5 Ex- Top 10 clients 2,226 2,266 2,287 2,354 2,413 2,457 2,505 2,594 2,630 2,599 2,519 2,693 0.9 Total 2,755 2,805 2,831 2,921 2,987 3,060 3,131 3,210 3,243 3,197 3,121 3,312 0.8 Growth (qoq %) Top client 1.0 7.8 3.7 8.8 (10.9) (0.6) (0.8) 2.5 (5.3) 1.9 7.1 NA Top 5 clients NA NA NA NA NA NA NA (2.6) (0.7) (1.4) 1.9 1.6 Top 10 clients (0.6) 1.8 0.9 4.3 1.2 5.1 3.9 (1.6) (0.6) (2.5) 0.8 2.8 Top 25 clients (1.0) 2.1 (0.5) 2.6 (0.1) 5.8 2.0 1.6 (0.1) (1.7) (0.9) 4.9 Ex- Top 10 clients 1.4 1.8 0.9 2.9 2.5 1.8 1.9 3.5 1.4 (1.2) (3.1) 6.9 Total 1.0 1.8 0.9 3.2 2.3 2.4 2.3 2.5 1.0 (1.4) (2.4) 6.1

Source: Company, Kotak Institutional Equities

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibit 22: Strong growth momentum continues in digital services

Digital revenues (LHS, US$ mn) Digital revenue C/C Y-o-Y growth rate (RHS, %) 1,800 41.1 41.9 40.8 45 38.4

1,500 33.5 33.1 31.7 36

1,200 25.6 25.5 25.4 27 900 1,567 18 1,317 1,340 1,389 600 1,229 1,034 1,118 906 941 719 752 804 9 300 634 687

- 0

Jun-17 Jun-20 Jun-18 Jun-19

Sep-17 Sep-18 Sep-19 Sep-20

Dec-18 Dec-19 Dec-17

Mar-20 Mar-19 Mar-18

Source: Company, Kotak Institutional Equities

Exhibit 23: Sharp fall in attrition rate precipitated by Covid crisis and employee engagement efforts of Infosys

Quarterly annualized voluntary attrition (%) 30

26

22 20.2 18.3 18 15.8 15.3

14 11.7

10 7.8

6

2

(2)

Jun-19 Jun-20

Sep-19 Sep-20 Dec-19 Mar-20

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 IT Services Infosys

Exhibit 24: Marginal reduction in subcontracting costs as a % of revenue in 2QFY21

Subcontractng costs as a % of revenue 8

7 6.7 6

5

4

3

2

1

0

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

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

Source: Company, Kotak Institutional Equities

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibits 25: Infosys: Key operating metrics

Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Revenues (US$ mn) 2,921 2,987 3,060 3,131 3,210 3,243 3,197 3,121 3,312 Revenues (Rs mn) 206,090 214,000 215,390 218,030 226,290 230,920 232,670 236,650 245,700 Exchange rate (Re/US$) 70.6 71.6 70.4 69.6 70.5 71.2 72.8 75.8 74.2 Revenue by verticals- New classification Financial Services 32.2 32.5 31.6 31.4 31.9 31.5 31.3 31.5 32.0 Retail 16.8 16.4 15.9 15.8 15.2 15.3 15.5 14.3 14.9 Communications 12.3 11.9 13.5 13.8 13.1 13.0 13.0 13.4 12.6 Energy, Utilities, Resources and Servcies 12.3 12.8 12.7 13.0 13.1 12.8 12.9 12.8 12.3 Manufacturing 9.6 10.1 10.0 9.6 10.1 10.3 10.1 9.5 9.1 Hi Tech 7.5 7.3 7.7 7.7 7.6 7.6 7.9 8.7 9.1 Life Sciences 6.4 6.2 6.0 6.1 6.4 6.7 6.4 6.7 6.8 Others 2.9 2.8 2.6 2.6 2.6 2.8 2.9 3.1 3.2 Revenue by service offerings (%)- NEW Services 94.9 94.5 94.6 94.3 93.6 94.0 93.7 93.0 92.5 Digital 28.9 29.3 31.4 NA NA NA NA NA NA Core 66.0 65.2 63.2 NA NA NA NA NA NA Products & platforms 5.1 5.5 5.4 5.7 6.4 6.0 6.3 7.0 7.5 Digital 2.1 2.2 2.4 NA NA NA NA NA NA Core 3.0 3.3 3.0 NA NA NA NA NA NA Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Digital 31.0 31.5 33.8 35.7 38.3 40.6 41.9 44.5 47.3 Core 69.0 68.5 66.2 64.3 61.7 59.4 58.1 55.5 52.7 Revenue by geography (%) North America 60.3 60.4 61.2 61.6 61.4 61.3 61.6 61.5 60.7 Europe 24.0 24.2 24.0 23.6 24.1 24.4 24.4 24.0 24.3 India 2.5 2.6 2.3 2.3 2.7 2.8 2.6 2.9 3.0 ROW 13.2 12.8 12.5 12.5 11.8 11.5 11.4 11.6 12.0 Revenue by project type (%)- NEW Fixed price 52.0 53.0 53.3 NA NA NA NA NA NA Time and Material 48.0 47.0 46.7 NA NA NA NA NA NA Onsite-offshore effort split Onsite 28.4 28.7 28.7 28.7 28.2 27.7 27.6 28.0 26.1 Offshore 71.6 71.3 71.3 71.3 71.8 72.3 72.4 72.0 73.9 Client metrics Top 5 client contribution to revenues (%) 12.1 11.5 11.3 11.3 11.8 11.3 Top 10 client contribution to revenues (%) 19.4 19.2 19.7 20.0 19.2 18.9 18.7 19.3 18.7 Top 25 client contribution to revenues (%) 34.7 33.9 35.0 34.9 34.6 34.2 34.1 34.6 34.2 Number of active clients 1,222 1,252 1,279 1,336 1,364 1,384 1,411 1,458 1,487 New clients added in the period 73 101 101 112 96 84 84 110 96 Repeat business % 98.2 96.6 95.2 99 98.1 97.2 95.9 99 98 Million $ clients 633 651 662 680 693 705 718 729 745 10 Million $ clients 205 214 222 228 228 232 234 236 242 50 Million $ clients 58 59 60 59 61 61 61 60 60 100 Million $ clients 23 23 25 27 27 28 28 25 30 Per-capita productivity (IT Services and Consulting) - Reported (US$) Onsite 147,858 147,267 147,856 NA NA NA NA NA NA Offshore 49,054 48,367 48,416 NA NA NA NA NA NA Blended 77,122 76,736 76,966 NA NA NA NA NA NA Currency-wise revenues (%) USD 67.1 67.3 67.9 67.7 67.5 67.3 67.6 67.1 65.9 GBP 4.9 5.1 5.1 5.0 4.9 4.9 5.0 4.7 4.8 Euro 12.1 11.7 11.7 11.9 12.4 12.7 12.6 12.8 13.5 AUD 8.5 7.8 7.3 7.3 6.9 6.7 6.1 6.8 7.4 Utilization measures (IT Services and Consulting) Including trainees 80.2 79.8 78.9 80.3 81.6 80.4 79.0 78.2 80.6 Excluding trainees 85.6 83.8 82.3 83.1 84.9 84.4 83.5 81.2 83.6 Employee metrics Total Employees (Consolidated) 217,739 225,501 228,123 229,029 236,486 243,454 242,371 239,233 240,208 S/W professionals (Consolidated) 214,727 215,412 222,851 229,658 228,449 225,167 226,067 S/W professionals (IT Services & Consulting) 171,554 177,136 179,624 180,231 186,119 191,252 190,210 NA NA Sales and support 13,396 13,617 13,635 13,796 13,922 14,066 14,141 Infosys BPO 35,717 37,418 37,335 NA NA NA NA NA NA Gross additions 19,721 18,773 14,203 NA NA NA NA NA NA Net additions 7,834 7,762 2,622 906 7,457 6,968 (1,083) (3,138) 975 Attrition quarterly annualized (standalone, %) 19.9 17.8 18.3 21.5 19.4 17.6 18.2 NA NA Attrition quarterly annualized (consolidated, %) 22.2 19.9 20.4 23.4 21.7 19.6 20.7 NA NA Voluntary Attrition % (Annualized - IT Services) 20.2 18.3 15.8 15.3 11.7 7.8 Deal wins TCVs (US$ mn) 2,029 1,570 1,568 2,714 2,847 1,813 1,650 1,744 3,145 Large deal wins 12 14 13 13 13 14 12 15 16

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 IT Services Infosys

Exhibits 26: Condensed consolidated financials for Infosys, March fiscal year-ends (Rs mn), 2016-2023E

2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model Revenues 624,410 684,850 705,220 826,760 907,910 987,480 1,122,634 1,286,394 EBITDA 170,780 186,050 190,100 208,890 222,680 267,986 295,852 333,049 Depreciation (14,590) (17,030) (18,620) (20,100) (28,940) (33,163) (35,176) (37,736) Other income 31,250 30,790 31,930 26,130 28,030 22,940 27,193 30,238 Pretax profits 187,441 199,811 203,411 214,921 221,771 257,764 287,870 325,552 Tax (52,520) (55,980) (56,740) (57,648) (53,680) (69,334) (77,185) (87,359) Profit after tax 134,921 143,831 146,671 157,273 168,091 188,430 210,686 238,193 Diluted earnings per share (Rs) 29.5 31.4 32.3 35.4 38.9 43.7 48.9 55.4 Balance sheet Total equity 578,260 689,820 649,230 649,480 654,500 729,719 810,223 896,985 Assets held for sale — — 3,240 — — — — — Minority interest — — 10 580 3,940 4,730 5,410 6,090 Current liabilities 173,150 141,660 141,010 190,600 259,560 269,306 282,761 299,064 Total liabilities and equity 751,410 831,480 793,490 840,660 918,000 1,003,755 1,098,395 1,202,139 Cash 326,970 226,250 198,180 195,680 186,490 249,402 300,056 356,509 Other current assets 258,790 276,940 299,660 349,500 385,300 413,093 458,334 506,056 Deferred taxation 5,330 3,330 7,410 7,000 7,760 7,760 7,760 7,760 Goodwill 44,760 36,520 22,110 35,400 52,860 52,860 52,860 52,860 Tangible fixed assets 96,640 124,920 144,500 140,470 197,670 192,721 191,464 191,034 Investments 18,920 163,520 121,630 112,610 87,920 87,920 87,920 87,920 Total assets 751,410 831,480 793,490 840,660 918,000 1,003,755 1,098,395 1,202,139 Free cash flow Operating cash flow, excl. working capital 120,090 126,080 124,854 139,960 177,180 198,652 218,667 245,690 Working capital changes (21,460) (16,240) (1,114) (5,121) (19,380) (18,047) (31,787) (31,419) Capital expenditure (27,230) (27,600) (19,980) (24,450) (33,070) (28,214) (33,919) (37,306) Acquisitions (7,470) — (600) (7,560) (5,110) — — — Other income 23,810 29,570 31,930 19,170 28,030 22,940 27,193 30,238 Free cash flow 87,740 111,810 135,090 121,999 147,650 175,332 180,155 207,203 Key ratios and assumptions Revenue growth (US$ terms) (%) 9.1 7.4 7.2 7.9 8.3 4.2 12.3 11.6 Re/US$ rate 65.7 67.1 64.5 70.1 71.0 74.1 75.0 77.0 EBITDA margin (%) 27.4 27.2 27.0 25.3 24.5 27.1 26.4 25.9 EBIT margin (%) 25.0 24.7 24.3 22.8 21.3 23.8 23.2 23.0 RoAE 24.9 22.7 21.9 24.2 25.5 26.9 27.1 27.7 RoIC 54.4 45.7 39.3 41.2 40.6 44.3 46.7 49.3

Source: Company, Kotak Institutional Equities estimates

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY Petronet LNG (PLNG) Gas Utilities OCTOBER 14, 2020 UPDATE Sector view: Attractive Opportunity beckons as concerns overdone. We believe availability of competitive CMP (`): 210 long-term contracts in global LNG markets may deter PLNG from pursuing investment in Tellurian’s project, with the latter anyway facing several challenges in its progress. The Fair Value (`): 300 sharp correction in PLNG stock offers an opportunity to BUY as it trades at a discount to BSE-30: 40,795 NPV of long-term contracts, even as volumes remain robust and well above contractual commitments. We expect the robust earnings/FCF trajectory to translate into higher dividends, as PLNG may find limited investment avenues meeting its threshold IRR.

Petronet LNG Stock data Forecasts/valuations 2021E 2022E 2023E 52-week range (Rs) (high,low) 292-170 EPS (Rs) 18.3 21.7 24.0 Mcap (bn) (Rs/US$) 316/4.4 EPS growth (%) 3.7 18.5 10.7 ADTV-3M (mn) (Rs/US$) 1,011/14 P/E (X) 11.5 9.7 8.8 Shareholding pattern (%) P/B (X) 2.7 2.6 2.5 Promoters 50.0 EV/EBITDA (X) 6.2 5.3 4.9 FIIs 29.2 RoE (%) 24.3 27.2 28.6 MFs/BFIs 7.9/0.1 Div. yield (%) 6.5 8.2 9.7 Price performance (%) 1M 3M 12M Sales (Rs bn) 265 329 352 Absolute (11) (21) (17) EBITDA (Rs bn) 44 51 55 Rel. to BSE-30 (16) (30) (22) Net profits (Rs bn) 27 33 36

Attractive global LNG contracts on offer, while Tellurian faces multitude of problems We see limited merit in PLNG pursuing equity investment in Tellurian’s Driftwood LNG project to secure long-term volumes as there are several long-term contracts on offer in the global LNG markets at competitive prices with ~10% linkage to Dated Brent crude, which are economically attractive as compared to Tellurian’s pricing commitment of ~US$6/mn BTU. On the other hand, we understand Tellurian is facing several challenges in its ambitious Driftwood LNG project—(1) Total remains the sole equity partner so far and it has taken up 1 mn ton out of 11 mn tons offered by Tellurian—Total has been gradually reducing its stake in Tellurian Inc., now below 14% from initial 19% and Total’s CEO recently indicated apprehensions on the progress of Driftwood project; it may consider backing out of the project if FID is not concluded by June 2021, (2) Tellurian barely managed to avoid insolvency by securing an extension on the maturity of a term loan to November 2021, albeit with stricter terms and higher interest rate; the company has reduced its staff by 38% and scaled back midstream plans to reduce its outlay and (3) Tellurian has seen several senior-level exits, and even the person instrumental in signing MoU with PLNG has quit recently.

CMP = sub-85% utilization of Dahej even as it remains >100% and no ramp-up for Kochi The PLNG stock is trading at a discount to NPV of its long-term contracts with RasGas, Gorgon and tolling customers, post recent sharp correction; we compute NPV of Rs221/share modeling committed volumes of 17.2 mtpa across both terminals until FY2029, 12.2 mtpa in FY2030-34 and 9.7 mtpa in FY2035-37, assuming discount rate of 11% and annual 5% escalation in tariffs. At CMP, the stock is effectively implying an improbable scenario of (1) sub-85% utilization for Dahej terminal and (2) no improvement in utilization of Kochi terminal from ~17% achieved in FY2020, in the long run. Dahej terminal has operated well above contracted levels with >100% utilization notwithstanding competition from existing and new terminals and Kochi’s utilization Tarun Lakhotia is all set to rise with the commissioning of pipeline to Mangalore currently underway.

Robust earnings/FCF trajectory to translate into sustainable higher dividends payout Hemang Khanna

We expect PLNG to deliver a healthy 10% CAGR in EPS over the next five years driven by gradual ramp-up in volumes across both terminals and 5% annual escalation in tariffs for Dahej. This will result in significant FCF generation and sustainable higher dividends payout, given limited capex projects being undertaken by the company; discussions on potential large-scale investments in overseas projects, like Bangladesh and Tellurian, continue to show limited progress with PLNG seeking high threshold equity IRR of 16% with contractual commitments. [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. Gas Utilities Petronet LNG

Exhibit 1: Recent LNG deals and offers for LNG have been at ~10% slope to Brent Details of recent long-term LNG contracts

Volumes Slope Duration Seller Buyer (mn tons) Linkage (%) DES/FOB Start (# years) Date Qatargas Sinopec 1.0 Dated Brent crude 10-10.19 DES 2022 10 Sep-20 Chevron CPC 1.0 Dated Brent crude 10.2-10.3 DES 2023 10 Jul-20 Centrica Shenergy 0.5 Dated Brent crude 10.5 DES 2024 15 Aug-20 Santos Dated Brent crude 10-10.7 FOB 2024 10 Woodside ENN group 1.0 Dated Brent crude 11.5 DES 2025 10 Apr-19

Source: Industry journals, Kotak Institutional Equities estimates

Exhibit 2: PLNG stock is below its NPV of long-term contracts DCF-based valuation of long-term contracts for PLNG (Rs mn)

2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2037E Volumes (mn tons) RasGas 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 2.5 Gorgon 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 Tolling contracts 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 Total 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 12.2 9.7 Tariffs (Rs/mn BTU) RasGas 52.4 55.0 57.7 60.6 63.7 66.9 70.2 73.7 77.4 Gorgon 83.1 87.3 87.3 87.3 87.3 87.3 87.3 87.3 87.3 87.3 87.3 Tolling contracts 49.2 51.7 54.3 57.0 59.8 62.8 66.0 69.3 72.7 76.4 107.5 Operating costs 7.0 7.4 7.7 8.1 8.5 8.9 9.4 9.8 10.3 12.0 17.9 DCF valuation Gross contribution 46,759 49,097 51,232 53,474 55,828 58,300 60,895 63,620 66,481 38,464 51,520 Operating costs (6,125) (6,431) (6,753) (7,090) (7,445) (7,817) (8,208) (8,618) (9,049) (7,429) (8,845) EBITDA 40,634 42,666 44,480 46,384 48,383 50,483 52,687 55,002 57,432 31,036 42,675 Depreciation (7,999) (8,038) (8,382) (8,908) (9,226) (9,353) (9,484) (9,617) (9,754) (9,900) (10,988) Pretax profits 32,635 34,628 36,097 37,476 39,157 41,129 43,203 45,385 47,678 21,135 31,687 Adjusted tax expense (8,364) (8,875) (9,252) (9,605) (10,036) (10,541) (11,073) (11,632) (12,220) (5,417) (8,121) Net profits 24,271 25,753 26,845 27,871 29,121 30,588 32,130 33,753 35,458 15,718 23,566 Operating cash flow 32,270 33,791 35,228 36,779 38,347 39,941 41,614 43,370 45,212 25,619 34,553 Capital expenditure (481) (490) (500) (510) (521) (531) (542) (552) (563) (575) (660) Free cash flow 31,789 33,300 34,728 36,268 37,827 39,410 41,072 42,817 44,649 25,044 33,893 Discounted cash flow 30,446 28,733 26,995 25,391 23,858 22,393 21,025 19,741 18,545 9,371 6,105

Now Discount rate (%) 11.0% Total company value 277,856 Net debt (35,741) Equity value 313,596 Shares outstanding (mn) 1,500 Equity value of regasification business (Rs) 209 Equity value of 26% stake in Dahej Port (Rs) 9 Fair value of PLNG (Rs) 218

Source: Kotak Institutional Equities estimates

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Petronet LNG Gas Utilities

Exhibit 3: LNG consumption is recovering from Covid-related lows Sector-wise consumption of imported LNG, March fiscal year-ends, 2014-21YTD (mcm/d)

Fertilizers Power CGD Industrial/others (mcm/d) 100 90 80 70 36 38 35 37 60 35 34 34 50 34 28 28 6 6 7 40 13 25 11 12 11 26 11 12 11 8 10 30 6 8 9 5 7 8 7 7 1 20 8 3 31 31 2 24 26 26 29 10 18 21 21 24 13 15 - FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 Apr-20 May-20 Jun-20 Jul-20 Aug-20

Source: PPAC, Kotak Institutional Equities

Exhibit 4: Spot LNG prices have recovered from lows led by a rebound in demand and constraints in supply due to terminal shutdowns Comparative price of LNG contracts, spot LNG and fuel oil in calorific equivalent terms, January 2018 onwards (US$/mn BTU)

Spot LNG RasGas LNG Gorgon LNG US LNG Fuel oil Propane (US$/mn BTU) 16 14 12 10 8 6 4 2

0

Jul-18 Jul-20 Jul-19

Jan-18 Jan-19 Jan-20

Jun-18 Jun-20 Jun-19

Feb-18 Oct-18 Oct-20 Feb-19 Oct-19 Feb-20

Apr-18 Sep-18 Apr-20 Sep-20 Apr-19 Sep-19

Dec-18 Dec-19

Nov-18 Nov-20 Nov-19

Mar-18 Mar-20 Mar-19

Aug-18 Aug-20 Aug-19

May-18 May-20 May-19

Source: Reuters, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 Gas Utilities Petronet LNG

Exhibit 5: PLNG’s dividend pay-out has increased in recent years given limited capex requirements PLNG’s EPS, dividend per share and pay-out, March fiscal year-ends, 2016 onwards (Rs, %)

Dividend per share EPS Dividend pay-out % (RHS) (Rs) (%) 25 90 80 20 70 60 15 50 40 10 30

5 20 10 0 - 2016 2017 2018 2019 2020 2021E 2022E

Source: Company, Kotak Institutional Equities estimates

Exhibit 6: PLNG stock is trading at inexpensive 10.5X forward EPS 12-month forward consensus P/E valuation of PLNG, April 2013 onwards (X)

12-month forward consensus P/E for PLNG (X) (X) 19

17

15

13

11

9

7

Oct-13 Oct-14 Oct-16 Oct-18 Oct-19 Oct-15 Oct-17 Oct-20

Apr-13 Apr-15 Apr-18 Apr-20 Apr-14 Apr-16 Apr-17 Apr-19

Source: Bloomberg, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Petronet LNG Gas Utilities

Exhibit 7: We expect recovery in volumes during FY2022 Key assumptions for Petronet LNG, March fiscal year-ends, 2016-23E

2016 2017 2018 2019 2020 2021E 2022E 2023E Volume assumptions (mn tons) Contract LNG volumes 5.4 8.3 9.5 9.1 8.5 8.6 8.8 8.8 Spot LNG volumes 1.8 1.0 0.5 0.5 0.6 0.3 0.8 1.1 Tolling volumes 4.2 5.1 6.6 7.1 9.0 8.5 9.3 9.9 Total volumes 11.4 14.3 16.6 16.6 18.1 17.3 18.9 19.8 Dahej 11.1 14.0 16.0 16.1 17.2 16.3 17.4 17.7 Kochi 0.3 0.3 0.6 0.5 0.8 1.1 1.5 2.0 Total volumes 11.4 14.3 16.6 16.6 18.1 17.3 18.9 19.8 Price assumptions (US$/mn BTU) LNG purchase price (FOB) 9.4 6.0 7.3 9.5 8.7 5.9 6.8 6.9 Landed cost (incl. import tariff) 10.3 6.7 8.0 10.1 9.3 6.4 7.3 7.5 Re-gasification charges for Dahej 0.63 0.64 0.70 0.68 0.70 0.69 0.72 0.75 Re-gasification charges for Dahej (Rs/mn BTU) 41.0 43.1 45.2 47.5 49.9 52.4 55.0 57.7 Tolling contract charges for Dahej 0.61 0.66 0.64 0.66 0.65 0.68 0.70 Tolling contract charges for Dahej (Rs/mn BTU) 41.0 42.5 44.7 46.9 49.2 51.7 54.3 Re-gasification charges for Kochi 1.06 1.08 1.47 1.42 1.12 1.10 1.15 1.13 Re-gasification charges for Kochi (Rs/mn BTU) 69.2 72.7 94.8 99.6 79.1 83.1 87.3 87.3 Blended sales price 10.9 7.4 8.8 10.8 10.1 7.1 8.1 8.3 Other assumptions Exchange rate (Rs/US$) 65.5 67.1 64.5 69.9 70.8 75.5 76.0 77.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Gas Utilities Petronet LNG

Exhibit 8: We value PLNG stock at Rs300 using DCF methodology Calculation of equity value using discounted cash flow analysis (Rs mn)

2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Volumes (mn tons) Dahej 16.3 17.4 17.7 18.0 18.3 18.7 19.0 19.4 19.7 20.0 Kochi 1.1 1.5 2.0 2.4 2.5 2.6 2.7 2.8 2.9 3.0 Total 17.3 18.9 19.8 20.3 20.8 21.2 21.7 22.1 22.6 23.0 DCF valuation EBITDA 43,953 50,539 55,185 59,215 63,037 67,077 71,336 75,827 80,562 85,365 Adjusted tax expense (9,473) (11,280) (12,354) (13,220) (14,100) (15,084) (16,117) (17,215) (18,374) (19,549) Change in working capital (556) (3,793) (2,983) (3,056) (3,153) (3,270) (3,424) (3,586) (3,756) (3,925) Operating cash flow 33,925 35,466 39,847 42,939 45,784 48,723 51,795 55,026 58,432 61,892 Capital expenditure (3,962) (7,971) (10,461) (7,327) (3,148) (3,227) (3,307) (3,390) (3,475) (3,562) Free cash flow 29,963 27,494 29,386 35,612 42,636 45,496 48,488 51,636 54,958 58,331 Discounted cash flow-now 28,538 23,277 22,115 23,814 25,344 24,039 22,773 21,550 20,388 19,235 Discounted cash flow-1 year forward 26,187 24,879 26,800 28,511 27,044 25,619 24,251 22,936 21,639 Discounted cash flow-2 year forward 27,989 30,150 32,086 30,424 28,822 27,283 25,811 24,344

Now +1-year +2-years Discount rate (%) 12.5% 12.5% 12.5% Total PV of free cash flow 231,071 247,101 267,781 Terminal value assumption Growth in perpetuity 0.0% 0.0% 0.0% Sensitivity of 12-month fair value to WACC and perpetual growth FCF in 2029E 58,331 58,331 58,331 Perpetual growth (%) Exit FCF multiple (X) 8.0 8.0 8.0 300 -2.0% -1.0% 0.0% 1.0% 2.0% Exit EV/EBITDA multiple (X) 5.5 5.5 5.5 11.5% 306 315 326 339 355 Terminal value 466,645 466,645 466,645 12.0% 295 303 313 324 338 PV of terminal value 153,876 153,876 153,876 12.5% 284 292 300 310 323 Total company value 384,947 400,977 421,658 13.0% 274 281 289 298 309

WACC(%) 13.5% 265 272 278 287 296 Net debt (1,089) (14,842) (21,037) Equity value 386,037 415,819 442,695 Shares outstanding (mn) 1,500 1,500 1,500 Equity value of regasification business (Rs) 257 277 295 Equity value of 26% stake in Dahej Port (Rs) 8 9 11 Fair value of PLNG, including dividends (Rs) 266 300 337

Source: Kotak Institutional Equities estimates

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Petronet LNG Gas Utilities

Exhibit 9: Profit model, balance sheet, cash model, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model (Rs mn) Net sales 271,334 246,160 305,986 383,954 354,520 265,221 328,592 351,866 EBITDA 15,863 26,823 33,194 34,425 43,515 43,953 50,539 55,185 Other income 1,733 2,566 3,174 4,503 3,726 3,996 4,114 4,118 Interest (2,388) (2,097) (1,630) (989) (4,032) (3,018) (2,665) (2,327) Depreciation (3,216) (3,691) (4,117) (4,112) (7,761) (7,999) (8,038) (8,382) Pretax profits 11,992 23,602 30,621 33,826 35,447 36,932 43,949 48,593 Extraordinary items 724 — (70) (1,490) (581) — — — Current tax (1,904) (5,129) (6,593) (7,895) (8,600) (9,730) (11,665) (12,827) Deferred tax (955) (1,416) (3,180) (2,887) 710 222 217 211 Adjusted net profits 9,133 17,057 20,826 22,547 26,456 27,424 32,501 35,978 Earnings per share (Rs) 6.1 11.4 13.9 15.0 17.6 18.3 21.7 24.0 Balance sheet (Rs mn) Total equity 66,140 80,939 97,205 100,661 109,530 116,386 122,886 128,283 Deferred taxation liability 5,886 7,302 10,482 13,360 8,883 8,661 8,444 8,233 Total borrowings 40,146 36,038 27,367 18,195 11,170 9,915 8,291 7,358 Currrent liabilities 12,090 14,013 21,484 18,632 57,407 54,080 56,217 56,906 Total liabilities and equity 124,261 138,291 156,537 150,848 186,990 189,041 195,838 200,780 Cash and equivalents 21,829 3,273 8,625 29,603 44,320 53,180 54,114 53,304 Current assets 17,922 20,951 24,191 31,220 62,165 59,394 65,324 68,997 Total fixed assets 83,610 84,716 82,499 80,133 77,014 72,976 72,909 74,988 Investments 900 29,351 41,222 9,893 3,491 3,491 3,491 3,491 Total assets 124,261 138,291 156,537 150,848 186,990 189,041 195,838 200,780 Free cash flow (Rs mn) Operating cash flow, excl. working capital 12,015 21,851 25,228 25,175 26,209 31,205 36,209 40,031 Working capital 19,340 (3,273) 2,947 (4,907) (1,843) (556) (3,793) (2,983) Capital expenditure (9,714) (5,442) (1,753) (1,628) (408) (3,962) (7,971) (10,461) Free cash flow 21,641 13,137 26,422 18,640 23,958 26,688 24,444 26,587 Investments 993 (26,444) (11,027) 867 7,294 — — — Other income 245 199 3 1 2,524 3,996 4,114 4,118 Ratios (%) Debt/equity 56 41 25 16 9 8 6 5 Net debt/equity 25 37 17 (10) (28) (35) (35) (34) RoAE 14.5 21.3 21.2 19.4 23.2 22.5 25.4 26.9 RoACE 11.9 20.3 22.7 23.5 31.2 34.0 42.7 45.1 Adjusted CROCI 16.7 20.8 25.5 23.3 34.1 33.9 36.8 34.4

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 ATTRACTIVE Banks India OCTOBER 15, 2020 UPDATE BSE-30: 40,795

Deposit ownership: Slower share gains. The ownership data for deposits shows a few key trends: (1) deposit outflow seen by a few private banks in 4QFY20 has probably reflected in slower market share loss for PSUs with private banks losing market share in government deposits. (2) Private banks continue to do well especially on household deposits. (3) Foreign banks gained CA share for the third year in a row. (4) Small businesses are is likely struggling more than salaried as seen from CA vs SA growth trends.

Retail remains steady; improvement in private sector deposits

Key insights from RBI’s ownership of deposits report: (1) Overall deposits grew 9% yoy (vs 10% QUICK NUMBERS yoy in FY2019), driven by current account deposits growing by 8% yoy and savings deposits by  Savings deposits 10% yoy, while term deposits grew 8% yoy. (2) CASA ratio improved marginally yoy to 41.7% with the share of savings deposits at a decade high of 32%. (3) Contribution from households grew 10% yoy; was stable at 63%, government sector declined to 12% while private sector improved to 11%. current account (4) Regional distribution shows marginal loss for metro/urban areas. deposits grew ~8% yoy Government deposit accretion has slowed; private banks lose market share in this segment  Government share Government sector deposit growth comprising of central, state and local governments has declined to ~12%; slowed considerably to -1% and -3% in FY2020 and FY2019 after growing at 9% and ~30% in households share FY2018 and FY2017. The slowdown is largely driven by term deposits whereas current and steady at 63% saving deposit growth has been flattish. As a result, the share of government deposits is at a multi-year low of ~8% (vs ~10.5% in FY2018). Further, private banks lost market share in  Private banks lose FY2020, after four years of gain. On their small base, SFBs have maintained market share. marginal market Private banks continue to chip away retail deposits but lose share in current accounts share in current; overall CASA Private banks continued to gain market share in household deposits (albeit slower pace) to 24% market share with significant headroom to grow as PSU banks still maintain 70% share. The pace of CASA improves market share shift away from PSU banks declined (~80bps vs 240bps in FY2019), with PVT banks gaining a small share (~25bps vs 200bps yoy) but relatively bigger gains for foreign banks (~50bps vs 20bps yoy). At the margin, the share loss was contained in both current and savings account, with private banks losing share in CA and gaining in SA while foreign banks gaining CA share for the third year in a row. Small Finance Banks have started to make some inroads. M B Mahesh, CFA They have gained market share, especially in the finance segment (4% market share) leading to contribution from this segment at elevated levels at 37% compared to 48% for households. Nischint Chawathe Variance in household current and saving deposit growth a sign of dichotomy

Dissecting the current account deposit growth shows headline growth is driven by corporates Abhijeet Sakhare whereas household sector (i.e. SME) with 35% share declined 2% yoy. In contrast household savings deposits (82% of overall SA) grew 10% yoy compared to 9% in FY2018-19, reflecting a Ashlesh Sonje steady rise in savings, a trend reflected in household term deposit growth (10% yoy) as well. Dipanjan Ghosh Growth spread out across regions; metro/urban still remain dominant source of deposits

We looked at the state-wise share and growth of household deposits (Exhibit 13). Compared to the earlier strong deposit growth in central and eastern regions of India, we now see a relatively more even household deposit growth across regions. Metro and urban centers control ~75% of deposit market share over the past five years, possibly reflecting challenges in rural/semi-urban focused deposit strategy. Large frontline banks with a diversified footprint are well-positioned. [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. Banks India

Exhibit 1: Varied deposit growth across select client segments in FY2020; Growth in government deposits low at 4% yoy Break-up and growth in deposits across client segments, March fiscal year-ends, 2007-20 (%)

2007 2008 2009 2010 2012 2013 2014 2015 2016 2017 2018 2019 2020 Proportion of deposits (%) Government 14.5 13.5 14.0 13.5 14.6 13.9 14.0 14.4 12.8 14.2 13.5 13.0 12.4 Public sector 4.6 4.0 4.7 3.9 4.7 3.8 4.6 4.1 4.1 4.0 3.1 3.8 4.0 Private corporate 11.2 13.0 14.5 14.8 14.6 12.4 9.9 10.1 10.8 10.3 10.1 10.4 11.3 Financial 10.5 10.3 8.9 10.0 9.4 10.0 9.8 8.2 7.0 5.5 5.9 6.2 5.5 Household 57.4 58.1 58.3 58.0 58.1 59.6 59.7 60.1 61.5 63.2 63.3 63.2 63.5 Foreign 6.4 5.1 4.3 3.7 3.3 4.1 6.6 7.2 7.8 6.8 7.2 7.1 7.3 Growth in deposits Government 25.2 14.6 26.2 15.9 42.9 5.9 15.0 13.1 (2.2) 23.4 1.5 6.5 3.7 Public sector 19.6 6.1 43.0 — 60.6 (9.6) 37.0 (0.4) 9.4 7.7 (18.4) 38.3 14.2 Private corporate 39.2 42.4 35.7 21.6 31.5 (5.4) (9.1) 12.5 17.4 5.8 4.8 13.5 17.6 Financial 34.7 21.4 4.4 34.6 24.9 18.8 10.9 (7.2) (6.0) (13.7) 14.6 17.1 (3.5) Household 22.6 24.4 22.2 19.1 32.8 14.3 14.1 11.0 12.3 14.1 7.2 10.0 9.3 Foreign 10.7 (3.3) 4.1 3.4 16.1 41.2 80.7 21.1 18.0 (2.2) 12.7 9.1 11.1 Notes: (a) Government includes central, state and local government, public sector corporations and others. (b) Private corporate sector is primarily non-financial companies. Financial sector includes banks, financial institutions (mutual funds, insurance companies, provident and pension funds and other financial intermediaries), financial companies (NBFCs and HFCs) and cooperative credit societies. (c) Household sector includes individuals, un-incorporated enterprises and non-profit institutions serving households.

Source: RBI, Kotak Institutional Equities

Exhibit 2: Current account balances increased 8% yoy; private corporates at 34% of total current balances Contribution of current account balances across various client segments, March fiscal year-ends, 2008-20 (%)

2008 2014 2020 Foreign, Gov't, Foreign, Gov't, Foreign, Gov't, 3.4 14.8 3.3 9.5 2.2 10.0 Public, Public, 5.7 4.8 Public, 5.5 Househo ld, 34.8 Househo Househo ld, 40.9 ld, 42.1 Private, Private, 19.0 27.6 Private, 36.2

Finance, Finance, Finance, 16.4 11.8 11.9

Source: RBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 India Banks

Exhibit 3: Term deposit balances grew 8% yoy as household deposits (58% of total term) grew 10% yoy Contribution of term deposit balances across various client segments, March fiscal year-ends, 2008-20 (%)

2008 2014 2020 Foreign Foreign, Gov't, Foreign, Gov't, Growth (%) Gov't, 9.2 8.3 Public, , 5.2 15.3 7.6 9.9 2019 Public, 4.3 5.5 1.9 Public, 76.0 3.6 Private, 22.4 Private, 13.1 19.8 11.3 Private, 9.4 11.6 4.6 Finance, Househ 7.3 old, Finance, 51.5 Househo ld, 52.5 13.3 Finance Househ , 12.8 old, 57.8

Source: RBI, Kotak Institutional Equities

Exhibit 4: Households continue to prefer term deposits over Exhibit 5: Private corporates continue to hold money primarily savings balances in term deposits Break-up of household deposits, March fiscal year-ends, 2006-2019 Break-up of deposits, March fiscal year-ends, 2006-2020 (%) (%) Current Saving Term Current Saving Term 75 76 75 76 80 73 73 70 68 68 66 67 56 56 57 57 57 58 64 51 54 56 56 53 52 53 53 47 41 42 42 42 48 39 37 42 35 36 37 37 35 37 32 25 25 26 26 25 28 20 19 20 21 20 19 22 16 10 7 6 8 8 14 10 8 8 5 4 5 5 5 7 6 7 5 6 6 6 5 2 1 2 -

-

2006 2010 2013 2014 2016 2017 2019 2008 2012 2015 2018 2020

2010 2012 2013 2014 2015 2019 2020 2008 2016 2017 2018 2006

Source: RBI, Kotak Institutional Equities Source: RBI, Kotak Institutional Equities

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Exhibit 6: Public banks have a higher reliance on government and household deposits compared to private banks Client segment wise break-up of deposits, March fiscal year-ends, 2012-20 (%)

2012 2013 2014 2015 2016 2017 2018 2019 2020 PSU Banks Gov't 18.1 16.8 17.1 17.6 16.2 17.0 16.5 15.7 15.4 Public co 5.8 4.4 5.5 5.3 5.0 4.5 3.3 3.6 3.9 Private 10.1 9.3 7.5 7.7 5.8 5.3 4.3 3.4 3.7 Finance 8.8 9.2 8.8 7.9 6.0 3.5 2.8 3.7 3.3 Household 60.8 62.0 63.1 62.4 66.5 68.5 70.6 71.8 72.1 Foreign 2.3 2.7 3.5 4.3 5.5 5.6 5.8 5.4 5.5 Private Banks Gov't 3.7 5.6 5.6 4.9 5.6 9.8 9.0 10.3 9.2 Public co 1.9 2.7 2.1 1.4 2.7 3.6 3.2 5.3 5.5 Private 28.4 20.3 15.6 14.9 20.2 17.7 17.7 18.3 19.4 Finance 12.8 14.3 14.5 8.9 10.7 10.2 13.0 11.3 9.2 Household 49.0 51.6 50.8 55.8 50.6 51.6 49.1 49.3 50.9 Foreign 6.1 8.2 13.5 15.4 12.9 10.7 11.2 10.8 11.3 Small Finance Banks Gov't 0.4 7.4 8.6 5.4 Public co - 0.8 2.1 1.1 Private 1.9 5.5 7.9 6.9 Finance 28.4 41.9 42.1 36.8 Household 62.7 43.5 39.4 47.8 Foreign 6.6 1.6 2.0 3.1 Regional Rural Banks Gov't 7.4 6.2 6.5 6.8 5.1 4.9 5.3 5.8 5.7 Public co 0.4 0.2 0.2 0.2 0.2 - 0.2 0.6 0.7 Private 0.5 0.9 0.4 0.5 0.6 0.6 0.4 0.6 0.9 Finance 0.8 1.0 0.9 1.1 1.9 1.8 2.5 2.0 2.9 Household 91.1 91.6 91.9 91.4 92.2 92.4 91.4 91.2 90.1 Foreign 0.2 0.3 0.2 0.2 0.2 0.3 0.3 0.3 0.5 Foreign Banks Gov't 5.3 4.2 3.2 7.8 0.2 0.8 0.2 0.1 0.2 Public co 0.6 0.4 2.9 0.1 0.2 0.2 0.1 0.1 0.2 Private 44.1 41.5 32.7 38.0 50.9 58.7 63.3 63.9 64.9 Finance 11.1 11.2 10.7 14.8 9.0 13.3 10.9 8.8 10.0 Household 28.6 27.8 19.1 14.9 16.2 16.3 14.5 14.6 14.1 Foreign 10.9 15.3 34.3 24.5 23.6 10.9 11.0 12.6 10.8 Industry Gov't 14.6 13.9 14.0 14.4 12.8 14.2 13.5 13.0 12.4 Public co 4.7 3.8 4.6 4.1 4.1 4.0 3.1 3.8 4.0 Private 14.6 12.4 9.9 10.1 10.8 10.3 10.1 10.4 11.3 Finance 9.4 10.0 9.8 8.2 7.0 5.5 5.9 6.2 5.5 Household 58.1 59.6 59.7 60.1 61.5 63.2 63.3 63.2 63.5 Foreign 3.3 4.1 6.6 7.2 7.8 6.8 7.2 7.1 7.3

Source: RBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 India Banks

Exhibit 7: Government balances move from PSU banks to private banks, while households continue to prefer PSU banks Break-up of share of deposits with various types of banks, March fiscal year-ends, 2014-20 (%)

2014 2015 2016 2017 2018 2019 2020 Government PSU Banks 90.2 89.6 89.2 82.5 81.4 75.3 76.3 RRB 1.3 1.4 1.2 1.1 1.3 1.5 1.6 Private 7.4 6.8 9.5 16.1 17.1 22.9 21.8 SFBs 0.0 0.1 0.3 0.3 Foreign 1.0 2.2 0.1 0.2 0.1 0.1 0.1 Private companies PSU Banks 56.3 55.6 37.6 35.7 28.3 20.5 20.4 RRB 0.1 0.1 0.2 0.2 0.1 0.2 0.3 Private 29.5 29.3 40.3 39.9 44.9 51.3 50.9 SFBs — — — 0.0 0.1 0.3 0.4 Foreign 14.1 15.0 21.9 24.2 26.5 27.7 28.1 Finance companies PSU Banks 67.1 70.8 60.4 44.9 32.2 37.1 36.3 RRB 0.3 0.4 0.8 1.1 1.5 1.1 1.8 Private 28.0 21.6 32.8 43.4 57.1 52.8 49.1 SFBs — — — 0.2 1.4 2.6 3.9 Foreign 4.7 7.2 6.0 10.3 7.9 6.4 8.9 Household PSU Banks 78.2 76.0 76.3 74.9 74.1 71.2 70.0 RRB 4.4 4.5 4.7 4.9 4.9 4.8 4.8 Private 16.0 18.5 17.8 19.0 19.9 22.7 23.7 SFBs — — — 0.0 0.1 0.2 0.4 Foreign 1.4 1.0 1.2 1.1 1.0 1.0 1.1 Foreign companies PSU Banks 39.0 43.9 50.0 56.6 53.4 47.5 46.4 RRB 0.1 0.1 0.1 0.1 0.1 0.1 0.2 Private 38.6 42.5 35.7 36.5 40.0 44.2 45.9 SFBs — — — 0.0 0.0 0.1 0.2 Foreign 22.3 13.6 14.2 6.8 6.5 8.0 7.2

Source: RBI, Kotak Institutional Equities

Exhibit 8: Region-wise composition of deposition largely stable; metropolitan regions are largest contributors of deposits Region-wise break-up of deposits, March fiscal year-ends, 2006-20 (%)

2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2017 2018 2019 2020 Rural 10.8 9.6 9.1 7.8 8.8 9.0 9.5 9.7 9.9 10.4 10.3 10.4 10.5 10.7 Semi urban 14.2 13.5 13.0 13.6 13.0 13.5 14.2 14.3 14.9 15.4 16.1 16.1 16.2 16.3 Urban 21.2 20.5 20.6 22.1 20.3 20.7 21.5 21.7 22.3 22.8 21.4 21.6 21.5 21.8 Metropolitan 53.8 56.4 57.3 56.5 57.8 56.8 54.8 54.3 52.8 51.5 52.2 51.9 51.8 51.1

Source: RBI, Kotak Institutional Equities

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Exhibit 9: Deposits per branch are significantly higher in urban India Branches, accounts and deposits/ branch in rural, semi-urban and urban India, March fiscal year-ends, 2004-2020

Rural Semi-urban Urban/metro Deposits/ Deposits/ Deposits/ Branches Accounts branch Growth Branches Accounts branch Growth Branches Accounts branch Growth (#) (bn) (Rs mn) (%) (#) (bn) (Rs mn) (%) (#) (bn) (Rs mn) (%) 2004 32,107 0.14 61 11 15,252 0.12 176 9 21,286 0.20 492 19 2005 31,967 0.14 67 10 15,619 0.13 189 8 22,383 0.20 553 12 2006 30,610 0.14 74 11 15,471 0.12 195 3 24,695 0.22 633 14 2007 30,393 0.15 83 13 16,352 0.13 219 12 26,454 0.24 751 19 2008 30,898 0.17 98 18 17,695 0.15 243 11 29,106 0.27 865 15 2009 31,549 0.20 115 17 19,021 0.17 279 15 31,232 0.29 970 12 2010 32,320 0.22 130 13 20,601 0.19 298 7 34,039 0.32 1,036 7 2011 33,367 0.25 148 14 22,725 0.21 315 6 36,025 0.35 1,160 12 2012 35,936 0.28 160 8 25,818 0.24 326 3 39,051 0.38 1,194 3 2013 39,233 0.34 171 7 28,529 0.28 343 5 41,517 0.43 1,292 8 2014 44,653 0.41 176 3 31,663 0.34 360 5 44,649 0.48 1,350 4 2015 48,536 0.49 189 7 34,131 0.40 386 7 47,815 0.54 1,399 4 2016 50,102 0.58 201 7 35,974 0.47 411 6 48,782 0.60 1,458 4 2017 48,384 0.60 232 15 38,101 0.54 454 11 53,731 0.68 1,466 1 2018 49,401 0.64 245 6 38,626 0.57 479 6 53,882 0.70 1,554 6 2019 50,224 0.67 270 10 39,344 0.59 524 9 55,806 0.72 1,652 6

Source: RBI, Kotak Institutional Equities

Exhibit 10: Private banks steadily grabbing CASA market share from PSU Banks Market share of CASA deposits, March fiscal year-ends, 2006-20 (%)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Current deposits PSU Banks 61.3 61.0 66.9 67.0 63.3 65.5 62.5 60.9 57.3 55.4 54.1 50.7 47.5 43.9 42.1 RRB 1.3 1.3 1.3 1.3 1.3 1.3 1.6 1.3 1.2 1.0 1.0 1.4 1.2 0.9 0.7 Private 14.9 17.5 23.6 24.1 22.2 24.2 24.5 27.2 31.2 33.5 32.5 36.3 38.6 40.8 40.2 Small Finance Banks 0.0 0.1 0.2 0.2 Foreign 11.6 10.2 11.5 12.1 15.3 13.5 11.3 10.6 10.2 10.1 12.4 11.6 12.6 14.3 16.7 Savings deposits PSU Banks 83.3 82.5 80.2 79.7 78.2 77.2 74.9 74.0 73.5 75.0 71.9 71.9 69.9 67.5 66.8 RRB 6.4 6.5 6.5 6.5 6.4 6.6 5.9 6.0 5.6 5.8 5.5 5.4 5.2 5.4 5.4 Private 7.4 8.2 10.2 10.8 12.5 13.0 16.6 17.7 18.5 17.9 20.6 21.1 23.3 25.4 26.0 Small Finance Banks 0.0 0.1 0.2 0.2 Foreign 2.8 2.8 3.1 3.0 2.9 3.2 2.6 2.3 2.5 1.3 1.9 1.6 1.5 1.4 1.5 CASA PSU Banks 79.8 79.0 75.0 74.4 73.0 72.0 71.2 70.4 69.4 69.8 67.5 66.9 64.7 62.2 61.4 RRB 4.8 4.9 4.9 4.9 4.9 4.9 4.6 4.7 4.5 4.5 4.4 4.4 4.3 4.4 4.4 Private 9.8 11.0 14.4 14.9 15.5 16.6 19.0 20.3 21.7 22.1 23.6 24.7 26.8 28.8 29.1 Small Finance Banks 0.0 0.1 0.2 0.2 Foreign 5.6 5.1 5.8 5.8 6.7 6.5 5.2 4.6 4.4 3.6 4.5 3.9 4.1 4.3 4.9

Source: RBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 India Banks

Exhibit 11: Region-wise composition of household deposits has been stable State wise movement of household sector deposits, March fiscal year-ends, 2014-20 (%)

Market share (%) Household deposits to total deposits (%) Household deposits YoY (%) CAGR (%) 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 (2013-20) Central region 15.4 15.9 16.5 16.6 16.6 16.6 72 76 77 77 78 78 8.5 15.7 18.2 7.9 10.6 9.0 12.5 Chhattisgarh 1.2 1.2 1.3 1.3 1.3 1.3 65 70 69 67 69 67 8.1 14.6 18.7 6.8 11.7 8.2 12.1 Madhya Pradesh 3.3 3.4 3.5 3.5 3.5 3.5 62 70 75 75 77 78 8.9 17.2 19.2 5.7 11.4 9.1 12.4 UP 9.8 10.1 10.4 10.6 10.6 10.6 77 80 79 80 81 80 7.7 15.7 17.7 8.8 10.1 9.0 12.6 Uttarakhand 1.2 1.2 1.2 1.2 1.2 1.2 69 70 70 71 71 70 15.2 13.0 18.1 7.2 11.3 8.8 12.6 Eastern region 14.7 15.2 15.3 15.2 15.0 14.9 71 73 73 73 72 73 12.0 15.9 15.0 6.2 9.1 8.3 12.2 Andaman & Nicobar 0.0 0.0 0.0 0.0 0.0 0.0 75 76 71 69 69 70 12.8 16.6 14.9 12.1 10.2 12.5 12.9 Bihar 3.0 3.2 3.2 3.2 3.2 3.2 73 76 73 74 73 75 11.1 19.3 15.1 7.2 10.3 9.4 12.8 Jharkhand 1.8 2.0 2.0 2.0 1.9 1.9 69 72 72 72 71 72 11.3 20.0 14.2 7.2 7.7 8.7 12.7 Odisha 2.2 2.2 2.3 2.3 2.4 2.4 61 63 62 63 62 63 10.0 16.8 16.4 9.3 12.1 12.2 14.1 Sikkim 0.1 0.1 0.1 0.1 0.1 0.1 62 74 71 69 70 74 5.9 33.3 7.7 18.4 8.2 10.5 11.4 WB 7.6 7.7 7.7 7.5 7.4 7.2 74 75 77 77 77 77 13.1 13.1 14.8 4.5 8.1 6.4 11.3 NE region 2.1 2.1 2.1 2.2 2.2 2.2 70 73 72 71 71 71 9.9 15.0 16.6 8.3 10.0 9.3 11.8 Arunachal Pradesh 0.1 0.1 0.1 0.1 0.1 0.1 74 72 70 69 66 67 7.3 9.5 30.9 9.1 19.4 6.9 14.1 Assam 1.3 1.3 1.4 1.4 1.4 1.4 71 76 75 74 74 73 11.2 15.1 16.3 8.3 8.3 9.9 12.1 Manipur 0.1 0.1 0.1 0.1 0.1 0.1 64 66 63 58 58 60 4.0 10.4 21.2 7.9 10.5 7.0 9.3 Meghalaya 0.2 0.2 0.2 0.2 0.2 0.2 66 64 63 64 62 64 13.5 8.5 10.1 7.5 8.5 6.3 8.7 Mizoram 0.0 0.1 0.1 0.1 0.1 0.1 65 71 68 64 68 66 (22.3) 70.7 15.8 14.6 18.1 24.0 16.5 Nagaland 0.1 0.1 0.1 0.1 0.1 0.1 80 77 74 70 74 70 9.1 8.3 18.1 (0.0) 16.7 3.8 9.5 Tripura 0.2 0.2 0.2 0.2 0.2 0.2 68 69 70 73 72 74 13.0 16.0 15.4 10.8 10.2 7.9 11.8 North region 21.3 21.3 21.4 21.1 21.0 21.2 64 64 64 63 63 51 10.8 12.1 14.8 5.4 9.5 10.5 11.4 Chandigarh 0.6 0.6 0.5 0.5 0.5 0.5 57 61 61 62 64 64 13.1 7.8 8.9 6.3 10.9 8.0 8.5 Haryana 3.1 3.1 3.4 3.5 3.7 3.8 76 75 74 71 72 70 17 12 23 12 13 13 15.0 HP 0.9 0.9 0.9 1.0 0.9 0.9 79 79 78 79 77 77 16.9 13.9 17.4 8.3 9.4 9.4 13.1 J&K 1.2 1.3 1.3 1.1 1.1 1.1 89 92 92 77 76 77 15.3 17.7 15.4 (8.3) 12.5 9.1 12.8 NCT of Delhi 7.9 7.9 7.6 7.4 7.1 7.1 48 48 48 47 47 51 5.5 12.6 9.3 5.0 4.8 10.4 9.3 Punjab 4.1 4.0 4.1 3.9 3.9 3.8 83 81 82 81 82 27 10.5 10.6 16.9 1.8 9.6 8.2 10.6 Rajasthan 3.5 3.5 3.6 3.6 3.8 3.9 81 80 78 79 80 83 15.2 11.1 17.8 8.0 13.8 12.0 13.2 Southern region 22.7 23.0 22.8 23.6 23.7 23.9 60 61 62 64 63 63 12.6 13.8 13.3 10.9 10.2 10.2 11.1 Andhra Pradesh 2.9 2.7 2.8 3.0 2.8 2.8 48 75 75 78 75 76 12.2 3.3 17.2 15.3 4.2 9.3 (0.5) Karnataka 7.1 7.2 7.0 7.1 7.2 7.3 60 61 61 62 62 61 13.1 13.5 11.5 8.6 11.1 11.9 12.0 Kerala 3.2 3.1 3.1 3.1 3.1 3.1 53 50 51 51 50 49 13.3 9.3 13.5 6.4 10.9 8.9 8.1 Lakshadweep 0.0 0.0 0.0 0.0 0.0 0.0 80 81 79 75 72 71 10.6 17.3 6.8 (1.3) 5.9 (0.6) 7.5 Puducherry 0.1 0.1 0.1 0.2 0.2 0.2 73 71 70 68 71 71 9.6 15.3 12.9 8.5 15.1 11.6 12.7 TN 6.7 6.9 6.8 6.7 6.8 6.9 66 69 69 68 69 68 9.7 16.7 12.2 5.5 12.4 9.6 10.8 Telangana 2.7 3.0 3.0 3.6 3.6 3.6 74 49 52 63 63 63 19.1 23.7 16.4 29.2 8.5 9.7 17.5 AP+Telengana 5.6 5.6 5.8 6.6 6.4 6.4 58 59 61 69 68 68 15 13 17 23 7 10 12.0 Western region 23.7 22.5 21.8 21.4 21.5 21.2 48 48 52 51 50 50 10.8 6.5 10.8 5.1 10.5 7.9 9.1 Dadra & Nagar Haveli 0.0 0.0 0.0 0.0 0.0 0.1 85 60 67 66 67 62 15.3 (19.8) 30.6 6.7 3.6 20.4 Daman & Diu 0.0 0.0 0.0 0.0 0.0 - 63 63 61 58 59 7.1 13.6 11.3 2.4 10.9 Goa 0.6 0.6 0.6 0.5 0.6 0.5 64 62 62 61 63 62 11.8 6.8 9.8 4.1 13.8 6.0 9.3 Gujarat 6.6 6.5 6.5 6.3 6.2 6.2 74 73 73 71 73 73 11.9 9.7 15.5 2.7 8.7 8.8 10.6 Maharashtra 16.4 15.4 14.7 14.5 14.7 14.4 41 42 46 45 44 44 10.3 5.3 8.8 6.2 11.1 7.6 8.6 Total 60 62 63 63 63 60 11.0 12.3 14.1 7.2 10.0 9.3 11.1

Source: RBI, Kotak Institutional Equities

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH ATTRACTIVE Construction Materials India OCTOBER 14, 2020 UPDATE BSE-30: 40,795

Price trend changes course with demand support. Channel checks with cement dealers suggest pan-India prices increased 2% mom in October after four consecutive months of correction. A price hike in October is also an aberration to historic trends. A strong demand recovery in September 2020 (10-12% yoy) and continued demand tailwinds in early October 2020 underpin the price strength. Cost headwinds should hit from end of 3QFY21 and price hikes, if sustained, would offset the impact on margins and drive earnings upgrades.

Dealer checks – demand recovery underpins price hikes in October 2020 Our dealer checks suggest all-India cement prices increased 2% in October 2020 pan-India led by North and Central India. Dealers indicate fading monsoons, easing of lockdown restrictions and recovery in non-trade demand as primary drivers for price hikes. Historically, prices have remained muted in October and the current hike is an aberration. Region-wise price trends. Prices in North and Central markets increased 5% mom on a sharp uptick in demand led by easing of lockdown restrictions and return of migrant labor to metro cities supporting non-trade demand. Prices remained stable mom in East and West India while prices in South increased 2% mom after strong demand recovery in September 2020. Historically, cement prices correct by ~2-3% qoq in 3Q due to seasonality. However, in 3QFY21E prices are up 1% qoq led by higher prices in North and Central markets. Further, difference between trade and non-trade prices has narrowed due to recovery in non-trade demand but still remains above historic levels.

Demand tailwinds continue after a strong September 2020 As per DIPP, demand declined 15% yoy in August 2020 and declined by 29% yoy YTD FY2021. However, our checks suggest that strong demand in September 2020 (+10-12% yoy) more than offset the weakness in early 2QFY21. South, where demand was worst-hit in April-August 2020, too witnessed 3-5% yoy demand growth in September 2020 led by Andhra-Telangana. Initial feedback suggests that demand tailwinds have continued in October 2020. We expect industry volumes to decline by 12.5% yoy in FY2021E. We see grinding and clinker capacity addition at 4%/3% CAGR over FY2020-23E versus demand at 3% CAGR. Utilization drops to 55% in FY2021E and recovers to 65% by FY2023E (Exhibit 10).

Costs remain on an uptrend Spot variable costs bottomed in June 2020 and continue to see an increase in October 2020. Both thermal cost and pet coke prices saw a surge of 4%/8% mom in October 2020, respectively. Pet coke prices have increased by 44% from June 2020 bottom and are up 18% yoy in INR terms. Diesel prices moderate sequentially in October 2020 but remain high with prices up 9% yoy. Raw material – fly ash has seen sequential correction with recovery in power generation whereas slag prices remain range-bound. Factoring consumption lag and inventory, costs inflation should hit cement companies from end of 3QFY21E and mainly in 4QFY21E. Sumangal Nevatia Stocks gradually pricing the buoyancy; ACEM and Dalmia our preferred picks Prayatn Mahajan Spot cement spreads in October 2020 have partially recovered from September 2020 lows due to price hikes. Price strength, if sustained, would offset cost headwinds and keep margins stable in 2HFY21. The recent outperformance of cement stocks is partially pricing the buoyancy and stock prices are now moving towards Fair Value. We prefer ACEM and Dalmia Bharat from a one-year perspective. SRCM remains our top SELL in the sector.

[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. India Construction Materials

Exhibit 1: All-India prices increased 2% mom in October 2020 pan-India led by North and Central markets Monthly cement prices across regions in India, October 2019–20 (Rs per 50 kg bag)

Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 North 346 347 343 354 359 358 358 375 369 363 353 352 371 Central 352 345 339 350 355 357 357 369 359 362 354 349 362 East 339 337 331 342 344 341 341 352 345 341 338 333 332 West 319 318 308 318 331 331 331 357 353 353 341 333 332 South 343 339 333 340 360 351 351 419 395 390 401 397 404 All India average 340 338 331 341 352 349 349 382 369 367 365 360 368 Change per bag (%, mom) North 0 0 (1) 3 2 (0) — 5 (2) (2) (3) (0) 5 Central (1) (2) (2) 3 1 1 — 3 (3) 1 (2) (2) 4 East (2) (1) (2) 4 0 (1) — 3 (2) (1) (1) (2) (0) West (1) (0) (3) 3 4 0 — 8 (1) 0 (3) (2) (0) South (1) (1) (2) 2 6 (2) — 19 (6) (1) 3 (1) 2 All India average (1) (1) (2) 3 3 (1) — 10 (3) (1) (0) (1) 2 Change per bag (%, yoy) North 13 17 20 19 25 31 31 33 3 2 1 2 7 Central 11 11 15 14 19 24 24 25 (2) (1) (1) (2) 3 East 1 (2) (4) (2) 0 1 1 2 (6) (5) (3) (3) (2) West 0 2 (1) (1) 6 9 9 13 2 5 4 3 4 South 1 0 1 2 5 7 (1) 16 8 10 15 14 18 All India average 5 5 5 6 10 13 10 18 2 4 5 5 8

Source: Industry, Kotak Institutional Equities estimates

Exhibit 2: Current price trends suggest realizations to increase by 1% in 3QFY21E versus a yoy fall historically Quarterly trend in cement prices in India across geographies, 3QFY19- 21E (Rs per 50 kg bag)

3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 North 301 306 355 350 345 357 367 356 371 Central 329 333 367 358 345 354 362 355 362 East 330 329 365 351 336 343 346 337 332 West 306 311 347 330 315 327 347 342 332 South 329 346 372 350 338 351 388 396 404 All India average 320 328 363 348 336 347 367 364 368 Change per bag (%, qoq) North (1) 2 16 (1) (1) 3 3 (3) 4 Central (2) 1 10 (2) (4) 3 2 (2) 2 East (3) (0) 11 (4) (4) 2 1 (3) (2) West (3) 2 12 (5) (4) 4 6 (1) (3) South (3) 5 8 (6) (3) 4 11 2 2 All India average (3) 2 11 (4) (3) 3 6 (1) 1 Change per bag (%, yoy) North (3) (0) 19 15 15 17 4 2 7 Central 4 4 14 7 5 6 (1) (1) 5 East 0 (2) 8 3 2 4 (5) (4) (1) West 1 2 9 4 3 5 0 4 5 South (2) (0) 6 3 3 1 4 13 19 All India average (0) 0 11 6 5 6 1 5 9

Source: Industry, Kotak Institutional Equities estimates

38 KOTAK INSTITUTIONAL EQUITIES RESEARCH Construction Materials India

Region-wise cement price trends and dealer feedback

 North—prices increase by Rs18/bag. Cement prices in the North increased by Rs18/bag to Rs371/bag in October 2020—channel checks indicate improved demand and tight supply as the primary reasons for such a sharp increase in prices. Some dealers indicated a shortage in stock to cater to the increased re-stocking demand. Dealers cite retail demand for small job works as the primary source of demand. Dealers now operate with very high inventory levels and are have started working on credit. Regions like Delhi, Haryana, Punjab and Rajasthan report of Rs15-20 price increase. Dealers expect prices to moderate as supply normalizes hereon with improvement in demand.

 Central—prices increase by Rs13/bag. Cement prices in the Central region increased by Rs13/bag in October 2020. Dealer checks indicate strong volume recovery from September continuing in October. Inventory levels at the dealer level have increased in anticipation of higher festive demand and higher prices going forward. Weakness in rural demand is partially offset by improved urban and governmental demand. Gradual resumption of infrastructure projects offset volume loss in rural markets impacted by regional festivities. Regions like UP, MP report of Rs10-15 increase in prices.

 West—prices remain flat. Cement prices remained flat mom in October. Dealers highlight moderation in demand after some improvement in September 2020. Sequential demand uptick was mostly from cities like Surat, Ahmedabad, and Nagpur as markets come out of extended lockdowns. Cities like Mumbai, Pune, Rajkot and Baroda highlight weaker mom volumes in October due to heavy monsoons and lack of credit in the market. Dealers highlighted that there is higher than normal inter-regional movement of cement to Southern India (due to elevated prices in South) and from East (due to weak prices in East), which is hampering prices. Dealers are expecting a sharp hike in prices going into the festive season.

 South—prices increase by Rs7/bag. Most states continue witness poor volumes coming into October after a strong September. Kerala and Karnataka report of a sharp price increase of Rs15-20/bag while Andhra Pradesh witnessed a price hike of Rs8/bag led by buoyant demand in September. Demand continues to decline mom and dealers expect prices to correct going forward given weak demand, intense monsoons and widening gap between trade and non-trade prices. Negligible progress on government projects, acute shortage of construction labor, lack of credit and delayed government payments were cited as the primary reasons for the low demand. Dealers in some states have resorted to strikes to revolt against such sharp increases in price.

 East—prices remain flat. Cement prices in East remained flat at Rs332/bag in October 2020. Eastern markets witnessed strong volume growth in September, which has continued in October 2020. Moreover, increasing spread of Covid-19 in the region has led to more stringent lockdowns hampering construction activity. Demand remains weak in Bihar, Calcutta and Guwahati while demand in Odisha remains strong led by government projects. Prices remain stable in West Bengal, Odisha and Bihar. Dealers expect trade prices to increase in the coming weeks as demand is expected to remain stable in October 2020.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39 India Construction Materials

Exhibit 3: As per DIPP, cement volumes declined 15% yoy in August 2020 Monthly cement production volumes in India, FY2016-21 (mn tons, %)

Demand (mn tons) (LHS) % yoy (RHS) 3 MA % (RHS)

35 40

30 20

25 0

20 (20)

15 (40)

10 (60)

5 (80)

0 (100)

Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20

Jun-17 Jun-19 Jun-20 Jun-18

Feb-18 Feb-19 Feb-20 Feb-17

Dec-16 Aug-18 Aug-19 Dec-19 Aug-20 Aug-16 Aug-17 Dec-17 Dec-18

Source: DIPP, Kotak Institutional Equities estimates

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH Construction Materials India

Exhibit 4: 2020 monsoon remains in normal zone at +9% versus long term average as on September 30, 2020 Cumulative rainfall surplus/deficiency in sub-divisions, 2019 and 2020 (%)

18-Sep-19 25-Sep-19 2-Oct-19 16-Sep-20 23-Sep-20 30-Sep-20 India 4 5 10 7 8 9 East and North East India (18) (17) (13) 2 4 7 Arunachal Pradesh (12) (11) (14) 2 3 8 Assam & Meghalaya (13) (12) (11) 10 12 19 Bihar (17) (17) 4 15 18 25 Gangetic West Bengal (29) (26) (21) (5) (4) (7) Jharkhand (29) (30) (17) (14) (12) (14) Nagaland, Manipur, Mizoram and Tripura (26) (25) (25) (32) (31) (32) Sub-Himalayan West Bengal and Sikkim (11) (8) (6) 27 30 33 North West India (13) (14) (7) (14) (16) (16) East Rajasthan 48 48 55 (2) (2) (1) East Uttar Pradesh (19) (15) 1 (11) (12) (6) Haryana, Chandigarh and Delhi (42) (44) (42) (7) (9) (10) Himachal Pradesh (14) (16) (9) (19) (21) (23) Jammu & Kashmir (23) (26) (22) (26) (29) (31) Punjab (5) (7) (1) (9) (11) (14) Uttaranchal (23) (24) (17) (17) (18) (19) West Rajasthan 13 12 19 31 29 28 West Uttar Pradesh (30) (29) (26) (33) (35) (36) Central India 28 29 33 17 20 19 Chhattisgarh 5 5 10 8 10 9 East Madhya Pradesh 12 15 26 (3) (2) (1) Gujarat region 24 24 34 10 13 12 Konkan and Goa 53 53 51 24 27 27 Madhya Maharashtra 54 56 54 29 33 28 Marathwada (19) (13) (13) 22 31 30 Odisha 2 3 6 0 1 (0) Saurashtra and Kutch 43 43 67 132 130 126 Vidarbha 7 9 11 (12) (9) (10) West Madhya Pradesh 54 58 63 11 12 13 South Peninsula 19 21 19 18 23 22 Andaman & Nicobar Islands 42 48 39 (2) 3 4 Coastal Andhra Pradesh 4 8 7 23 21 23 Coastal Karnataka 24 22 21 8 18 17 Kerala 12 12 12 3 11 8 Lakshadweep 18 18 18 37 41 37 North interior Karnataka 19 23 21 49 48 48 Rayalaseema (4) 13 10 86 83 83 South interior Karnataka 20 23 22 25 25 22 Tamil Nadu and Pondicherry 10 17 16 39 31 29 Telangana region 0 4 5 43 44 46

Source: Companies, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 41 India Construction Materials

Exhibit 5: Spot spreads in cement have improved mom due to higher prices Spreads (cement prices less energy and freight costs) and EBITDA/ton for Indian cement companies, 2016- 2020 (Rs/ton)

Spreads: Cement price (-) energy costs (-) freight costs 4,500 1,500 EBITDA/ton (Rs) [RHS] 1,400 1,300 4,000 1,200 1,100 3,500 1,000 900 800 3,000 700 600

2,500 500

Jun-17 Jun-19 Jun-18 Jun-20

Oct-16 Feb-17 Oct-17 Feb-19 Oct-19 Feb-18 Oct-18 Feb-20 Oct-20

Apr-18 Apr-20 Apr-17 Apr-19

Dec-17 Dec-19 Dec-16 Dec-18

Aug-18 Aug-20 Aug-17 Aug-19

Notes: (1) EBITDA/ton computation is based on average reported by companies under our coverage till 1QFY21.

Source: Kotak Institutional Equities estimates

Exhibit 6: Domestic pet-coke prices remained flat mom in October 2020 despite higher international prices Domestic pet coke prices, 2017 - 2020 (Rs/ton)

Pet Coke Prices (Rs/ton) (LHS) Mom % (RHS) 3 MA % (RHS) 12,000 100%

10,000 80% 60% 8,000 40% 6,000 20% 4,000 0%

2,000 -20%

0 -40%

Jun-18 Jun-19 Jun-20

Oct-17 Feb-19 Feb-20 Oct-20 Feb-18 Oct-18 Oct-19

Apr-18 Apr-20 Apr-19

Dec-17 Dec-18 Dec-19

Aug-19 Aug-20 Aug-18

Source: Industry, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH Construction Materials India

Exhibit 7: International pet-coke prices increased by 8% mom in October 2020 and are up 23% YTD FY2021 US pet coke prices (CFR basis), 2017 - 2020 (US$/ton)

Pet Coke Prices (US$/ton) (LHS) mom % (RHS) 3 MA % (RHS) 130 40% 120 30% 110 20% 10% 100 0% 90 -10% 80 -20% 70 -30% 60 -40% 50 -50%

40 -60%

Jun-18 Jun-19 Jun-20

Oct-17 Feb-18 Oct-19 Feb-20 Oct-18 Feb-19 Oct-20

Apr-18 Apr-19 Apr-20

Dec-18 Dec-17 Dec-19

Aug-18 Aug-20 Aug-19

Source: Industry, Kotak Institutional Equities estimates

Exhibit 8: Imported coal costs increased 6% mom in October 2020 Coal prices at Richard Bay (US$/ton, %), October FY2016-21

Richard Bay (US$/ton) (LHS) Mom % (3mma) (RHS) 120 60%

110 50% 40% 100 30% 90 20% 80 10%

70 0% -10% 60 -20% 50 -30%

40 -40%

Jun-17 Jun-19 Jun-18 Jun-20

Oct-16 Oct-18 Oct-20 Oct-17 Oct-19

Feb-17 Feb-18 Feb-20 Feb-19

Apr-17 Apr-19 Apr-20 Apr-18

Dec-17 Dec-19 Dec-16 Dec-18

Aug-18 Aug-19 Aug-20 Aug-17

Source: Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 43 India Construction Materials

Exhibit 9: Retail diesel prices in India declined 3% mom in October 2020 Average retail price of diesel in major cities in India (Rs/liter)

Diesel Prices (Rs/Litrer) 85

80

75

70

65

60

55

50

Jun-17 Jun-18 Jun-19 Jun-20

Oct-16 Feb-17 Oct-17 Feb-18 Oct-18 Feb-19 Oct-19 Feb-20 Oct-20

Apr-17 Apr-18 Apr-19 Apr-20

Dec-16 Dec-17 Dec-18 Dec-19

Aug-17 Aug-18 Aug-19 Aug-20

Source: Company, Kotak Institutional Equities estimates

Exhibit 10: Expect cement demand to fall by 13% in FY2021E due to Covid-led demand disruption Cement capacity, demand and supply, FY2017-23E (mn tons)

2017 2018 2019 2020 2021E 2022E 2023E CAGR (20-23) Cement capacity (mtpa) 457 471 483 506 530 547 564 4% Cement production 280 298 337 334 293 337 364 3% Growth yoy (%) (1) 6 13 (1) (12) 15 8 Capacity utilization (%) 61 63 70 66 55 62 65 -1% Consumption 275 293 333 330 288 332 359 3% Growth yoy (%) (1.2) 6.5 13.4 (0.8) (12.6) 15.3 8.1 Exports 6.3 6.0 6.0 6.1 6.2 6.2 6.3 1% Imports 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1%

Source: Company, Kotak Institutional Equities estimates

44 KOTAK INSTITUTIONAL EQUITIES RESEARCH Construction Materials India

Exhibit 11: We estimate EBITDA/ton for cement companies to increase by 2% in FY2021E due to increase in realizations Realization/ton, costs/ton, EBITDA/ton and volumes (Rs/ton, mn tons), FY2017-23E

yoy growth (%) FY2017 FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E FY2019 FY2020 FY2021E FY2022E FY2023E Realisation (Rs/ton) ACC 4,780 5,069 5,212 5,419 5,393 5,533 5,605 3 4 (0) 3 1 Ambuja 4,392 4,552 4,697 4,870 4,809 4,942 5,090 3 4 (1) 3 3 Ultratech 4,853 4,557 4,916 5,392 5,446 5,610 5,778 8 10 1 3 3 Shree Cement 3,897 4,172 4,533 4,776 4,848 4,993 5,068 9 5 1 3 1 JK Cement 5,689 4,950 5,173 5,709 5,676 5,795 5,957 4 10 (1) 2 3 JK Lakshmi Cement 3,755 3,963 3,933 4,102 4,092 4,274 4,411 (1) 4 (0) 4 3 Dalmia Cement 4,839 5,059 5,077 5,039 5,307 5,173 5,307 0 (1) 5 (3) 3 Orient Cement 3,377 3,858 3,925 4,171 4,213 4,268 4,396 2 6 1 1 3 Average 4,448 4,522 4,683 4,935 4,973 5,073 5,201 4 5 1 2 3 Costs (Rs/ton) ACC (Blended) 4,139 4,340 4,494 4,585 4,520 4,632 4,710 4 2 (1) 2 2 Ambuja 3,595 3,712 3,915 3,973 3,859 3,900 3,977 5 1 (3) 1 2 Ultratech 3,848 3,717 4,046 4,244 4,224 4,223 4,323 9 5 (0) (0) 2 Shree Cement 2,752 3,088 3,507 3,302 3,403 3,381 3,464 14 (6) 3 (1) 2 JK Cement 4,682 4,130 4,331 4,475 4,537 4,483 4,616 5 3 1 (1) 3 JK Lakshmi Cement 3,280 3,507 3,520 3,352 3,366 3,481 3,592 0 (5) 0 3 3 Dalmia Cement 3,596 3,858 4,037 3,942 4,016 3,929 4,016 5 (2) 2 (2) 2 Orient Cement 3,057 3,337 3,446 3,515 3,499 3,528 3,601 3 2 (0) 1 2 Average 3,619 3,711 3,912 3,924 3,928 3,945 4,037 5 0 0 0 2 EBITDA (Rs/ton) ACC 641 728 718 834 873 900 895 (1) 16 5 3 (1) Ambuja 797 840 782 897 951 1,041 1,113 (7) 15 6 10 7 Ultratech 1,005 840 870 1,148 1,223 1,386 1,455 4 32 7 13 5 Shree Cement 1,145 1,084 1,026 1,474 1,445 1,612 1,604 (5) 44 (2) 12 (1) JK Cement 1,007 820 841 1,235 1,139 1,312 1,341 3 47 (8) 15 2 JK Lakshmi Cement 475 457 413 750 726 793 819 (9) 81 (3) 9 3 Dalmia Cement 1,243 1,200 1,040 1,097 1,194 1,244 1,291 (13) 6 9 4 4 Orient Cement (196) 377 487 660 718 744 800 29 36 9 4 7 Average 765 793 772 1,012 1,034 1,129 1,165 (3) 31 2 9 3 Volumes (mn tons) ACC 23 26 28 29 25 30 33 8 2 (15) 22 10 Ambuja 21 23 24 24 22 25 29 5 (1) (10) 18 15 Ultratech 52 67 86 82 76 94 103 27 (4) (7) 23 9 Shree Cement 20 22 25 24 22 28 31 13 (4) (8) 26 10 JK Cement 8 9 10 10 10 12 13 4 (1) 2 24 8 JK Lakshmi Cement 8 9 11 11 9 11 12 16 (3) (13) 14 10 Dalmia Cement 15 17 19 19 24 21 24 10 3 28 (13) 15 Orient Cement 6 6 6 6 5 6 6 12 (10) (15) 15 10 Average 19 22 26 26 24 28 31 16 (2) (6) 17 11

Source: Companies, Kotak Institutional Equities estimates

Exhibit 12: Valuation summary for coverage companies

Market cap. CMP (Rs) Target price EPS (Rs) P/E (X) EV/EBITDA (X) EV (US$/ton) Company (US$ mn) 14-Oct (Rs) Rating 2019 2020 2021E 2022E 2019 2020 2021E 2022E 2019 2020 2021E 2022E 2019 2020 2021E 2022E Large-cap. stocks ACC 3,959 1,550 1,550 BUY 80 70 61 79 19 22 25 19 12.8 10.2 11.5 8.9 106 100 99 82 Ambuja Cements 6,650 247 235 BUY 7 11 9 12 35 23 26 20 15.2 12.5 13.5 10.1 98 95 95 83 UltraTech Cement 16,571 4,443 4,600 BUY 92 133 134 220 48 33 33 20 19.7 15.5 15.0 10.2 182 173 162 152 Shree Cement 9,954 21,040 16,000 SELL 323 435 382 651 65 48 55 32 27.7 19.1 20.5 14.2 263 235 198 192 Mid-cap. stocks Dalmia Bharat 2,092 802 1,075 BUY 16 14 18 39 51 57 44 21 9.5 8.7 8.5 6.5 95 94 83 62 JK Cement 1,644 1,731 1,550 ADD 34 84 101 131 51 21 17 13 17.9 12.5 12.9 8.7 182 141 131 124 JK Lakshmi Cement 431 270 340 BUY 4 19 24 28 67 14 11 9 10.9 5.9 6.8 5.3 54 48 47 44 Orient Cement 161 58 75 ADD 2 5 6 7 25 12 9 9 7.8 6.0 5.0 4.2 41 39 37 36

Source: Companies, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 45

September 2020: Results calendar India Daily Summary Daily Summary India

Mon Tue Wed Thu Fri Sat Sun KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK 12-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 18-Oct Wipro Infosys Mindtree Bajaj Consumer Care Avenue Supermarts Federal Bank HDFC Bank HCL Technologies Oberoi Realty Tata Communications 19-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct 25-Oct ACC Hindustan Unilever Bajaj Finance Ambuja Cements ICICI Lombard Britannia Industries Hindustan Zinc Bajaj Finserv Asian Paints JSW Steel

HDFC Life Insurance L&T Infotech Colgate-Palmolive (India) Bajaj Auto -

L&T Technology Mahindra CIE Automotive DB Corp. Bajaj Holding & Investment 2020 October 15, Rallis India Syngene International Bharti Infratel UltraTech Cement Biocon

Crompton Greaves Consumer HDFC AMC Hexaw are Technologies L&T Finance Holdings Mphasis 26-Oct 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 1-Nov

Mahindra & Mahindra Financial Amara Raja Batteries Axis Bank Cholamandalam IOCL DCB Bank SBI Life Insurance Bharti Airtel Carborundum Universal Maruti Suzuki Mahindra Logistics ICICI Bank Torrent Pharmaceuticals Castrol India Cummins India SIS Sanofi India Dr Reddy's Laboratories TVS Motor SKF GlaxoSmithkline Pharmaceuticals Tata Motors Hero Motocorp IIFL Wealth L&T Marico PI Industries RBL Bank Schaeffler India Supreme Industries Titan Company 2-Nov 3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 8-Nov HDFC Dabur India Pidilite Industries Godrej Consumer Products Bosch The Ramco Cement Godrej Properties Gujarat Gas Cipla Kansai Nerolac 9-Nov 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 15-Nov Endurance Technologies Exide Industries

Source: NSE, Kotak Institutional Equities

46 KOTAK INSTITUTIONAL EQUITIES RESEARCH 46

Kotak Institutional Equities: Valuation summary of KIE Universe stocks 47 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 14-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Automobiles & Components Amara Raja Batteries REDUCE 730 700 (4) 125 1.7 171 34 44 49 (10.9) 27.3 12.9 21 16.6 14.7 11.3 9.1 7.9 3.0 2.7 2.4 15.2 17.1 17.0 1.2 1.5 1.7 9.7 Apollo Tyres BUY 129 140 9 74 1.0 638 2.9 9.9 15.1 (64.7) 238.7 51.8 43.8 12.9 8.5 7.2 5.4 4.1 0.7 0.7 0.7 1.8 5.6 8.1 1.0 2.1 2.1 14.4 Ashok Leyland BUY 73 85 16 215 2.9 2,936 (0.4) 3.0 6.6 (134.0) 807.7 123.2 NM 24.7 11.1 32.6 11.4 6.3 3.0 2.8 2.4 NM 11.6 23 0.0 1.2 2.7 47 Bajaj Auto BUY 3,054 3,900 28 884 12 289 154 188 219 (12.6) 21.9 16.5 19.8 16.3 14.0 14.5 11.3 9.3 4.1 3.7 3.3 21 24 25 3.0 3.7 4.3 40 Balkrishna Industries SELL 1,380 1,150 (17) 267 3.6 193 48 58 71 (3.4) 21.7 21.0 28.8 23.7 19.5 16.3 13.4 11.1 4.8 4.3 3.8 17.6 19.3 21 1.6 1.8 1.9 15.9 Bharat Forge SELL 444 340 (23) 206 2.8 466 1 14 21 (87.3) 1,341.4 53.6 465.8 32.3 21.0 37.6 17.1 12.5 3.9 3.6 3.1 0.8 11.6 15.9 0.0 0.7 0.7 22 CEAT BUY 1,005 940 (6) 41 0.6 40 44 68 89 (30.5) 56.9 30.1 23.1 14.7 11.3 8.8 7.2 6.2 1.3 1.3 1.1 5.9 8.8 10.6 1.2 1.2 1.2 3.4 Eicher Motors SELL 2,254 1,920 (15) 616 8.4 272 59 83 107 (11.7) 39.8 28.9 38.0 27.2 21.1 29.0 20.5 15.3 6.4 5.3 4.4 18.0 21 23 0.6 0.6 0.6 68 Endurance Technologies REDUCE 1,120 875 (22) 158 2.1 141 29 46 57 (27.6) 59.6 22.1 38 24.1 19.7 15.8 11.3 9.3 4.7 4.0 3.5 12.2 16.8 17.5 0.4 0.7 0.8 1.5 Escorts BUY 1,232 1,300 5 110 2.3 101 55 74 88 1.4 34.2 17.8 22.2 16.6 14.1 12.9 9.3 7.5 2.5 2.2 2.0 11.2 13.4 13.9 0.7 0.9 1.1 42 Exide Industries REDUCE 161 155 (4) 137 1.9 850 7.8 9.1 9.9 (21.7) 16.5 9.0 20.6 17.7 16.2 11.1 9.7 8.9 2.1 1.9 1.8 10.2 11.2 11.4 2.2 2.2 2.2 9.1 Hero Motocorp SELL 3,311 2,700 (18) 661 9.0 200 132 170 203 (17.0) 29.0 19.4 25.1 19.4 16.3 15.7 11.8 9.7 4.4 4.0 3.7 18.1 22 24 2.6 3.1 3.7 62 Mahindra CIE Automotive SELL 137 95 (30) 52 0.7 378 1.6 7.5 11.3 (83.0) 366.5 49.9 84.9 18.2 12.1 13.4 7.4 5.4 1.1 1.0 1.0 1.3 5.9 8.2 — — — 0.6 Mahindra & Mahindra BUY 624 725 16 776 10.6 1,138 30 42 48 26.3 40.8 13.8 20.8 14.7 13.0 12.9 9.6 8.1 1.9 1.7 1.5 9.5 12.1 12.4 0.5 1.0 1.2 54 Maruti Suzuki SELL 7,002 4,500 (36) 2,115 28.9 302 140 225 284 (25.0) 60.2 26.6 50 31 25 29.9 17.9 13.5 4.1 3.8 3.4 8.5 12.6 14.4 0.7 0.8 1.0 114 Motherson Sumi Systems ADD 111 115 4 349 4.8 3,158 1.6 6.6 8.6 (55.6) 302.2 29.5 67.1 16.7 12.9 10.5 5.1 4.1 3.1 2.5 2.0 4.6 16.7 17.4 1.1 1.3 1.5 23 MRF SELL 58,904 58,500 (1) 250 3.4 4 2,159 2,896 3,578 (35.7) 34.2 23.5 27 20.3 16.5 10.0 7.9 6.4 1.9 1.7 1.6 7.2 9.0 10.1 0.1 0.1 0.2 13.7 Schaeffler India SELL 3,505 3,150 (10) 110 1.5 31 83 128 148 (29.7) 55.1 15.6 42 27 24 20.6 14.1 12.1 3.4 3.1 2.7 8.4 11.9 12.3 — — — 0.9 SKF REDUCE 1,454 1,550 7 72 1.0 49 43 58 72 (26.2) 33.6 25.3 34 25 20 24.5 17.6 13.8 4.9 4.2 3.6 14.5 16.7 17.9 7.4 0.7 0.8 1.0 Tata Motors SELL 131 90 (31) 470 5.9 3,829 (20.5) 3.9 11.9 1.0 118.8 208.5 NM 33.8 11.0 6.6 4.3 3.7 0.9 0.8 0.8 NM 2.5 7.3 — — — 131 Timken SELL 1,050 825 (21) 79 1.1 75 22 35 42 (34.2) 60.6 21.7 49 30 25 27.9 18.3 15.0 5.8 4.9 4.2 11.0 17.6 18.2 0.1 0.1 0.2 0.8 TVS Motor SELL 462 285 (38) 219 3.0 475 7.4 14.7 18.7 (43.1) 98.4 27.4 62 31 25 22.5 15.1 12.6 5.8 5.1 4.5 9.5 17.3 19.3 0.7 0.8 1.0 18.7 Varroc Engineering BUY 312 380 22 42 0.6 135 (13) 22 38 (7,121.8) 267.2 72.4 NM 14.3 8.3 10.6 5.7 4.3 1.5 1.4 1.2 NM 9.5 14.2 — — — 1.7 Automobiles & Components Cautious 8,025 109.8 (30.3) 154.1 32.9 56.3 22.2 16.7 13.5 8.9 7.2 2.8 2.6 2.3 5.0 11.6 13.8 1.1 1.3 1.6 695 Banks AU Small Finance Bank SELL 740 590 (20) 227 3.1 304 19.7 23.0 31.2 (11.3) 17.0 35.6 38 32 24 — — — 4.8 4.2 3.6 12.8 13.2 15.5 — — — 7.5 Axis Bank BUY 471 600 27 1,442 19.7 2,822 35.1 41 49 509.3 17.8 17.5 13 11.4 9.7 — — — 1.5 1.4 1.2 11.1 11.9 12.7 1.1 1.3 1.5 168 Bandhan Bank REDUCE 321 330 3 517 7.0 1,610 20.2 20.6 25.1 7.3 2.4 21.4 15.9 15.5 12.8 — — — 2.9 2.5 2.0 19.3 16.5 17.0 — — — 94 Bank of Baroda ADD 42 65 55 194 2.7 4,627 7.3 17.3 19 516.4 137.1 9.3 6 2.4 2.2 — — — 0.4 0.3 0.3 5.0 11.1 11.0 3.5 8.2 9.0 19.5 Canara Bank REDUCE 89 90 2 129 1.8 1,454 (5.0) 7.5 21.7 76.9 249.7 188.9 NM 11.8 4.1 — — — 0.4 0.4 0.4 NM 2.1 5.8 — — — 14.5 City Union Bank ADD 142 140 (1) 105 1.4 737 5.6 10.2 11.6 (13.8) 82.6 13.6 25 14.0 12.3 — — — 2.1 1.9 1.6 7.5 12.7 13.0 0.7 1.3 1.4 5.0 DCB Bank BUY 76 150 98 23 0.3 310 9.3 10.3 15.1 (14.7) 10.4 46.8 8.1 7.4 5.0 — — — 0.7 0.7 0.6 8.7 8.9 11.9 1.2 1.4 2.0 3.1 Daily Summary India Equitas Holdings BUY 52 100 93 18 0.2 342 5.5 8.8 16.2 (8.0) 58.7 84.6 9.3 5.9 3.2 — — — 0.6 0.6 0.5 6.6 9.6 15.6 — — — 6.6 Federal Bank BUY 53 80 51 105 1.4 1,993 6.1 6.9 10.4 (21.2) 12.7 50.8 8.7 7.7 5.1 — — — 0.7 0.7 0.6 8.1 8.6 12.0 2.6 2.9 4.4 28 HDFC Bank ADD 1,212 1,200 (1) 6,668 91.0 5,483 49 54 64 2.9 10.3 18.6 25 22 19 — — — 3.5 3.2 2.8 14.9 14.6 15.5 0.8 0.9 1.0 198 ICICI Bank BUY 407 470 16 2,806 38.3 6,893 22.0 25 27 79.4 12.9 10.3 19 16.4 14.9 — — — 2.1 1.9 1.7 11.7 11.4 11.5 1.1 1.2 1.3 188 IndusInd Bank ADD 623 600 (4) 471 6.4 756 26 64 78 (59.2) 147.6 21.6 24 9.7 8.0 — — — 1.3 1.1 1.0 5.3 11.8 13.0 0.6 1.6 1.9 158 Karur Vysya Bank BUY 30 65 117 24 0.3 799 4.2 6 9 41.4 55.6 40.8 7 4.6 3.3 — — — 0.4 0.4 0.3 4.9 7.4 9.8 3.6 5.6 7.9 1.5 Punjab National Bank REDUCE 28 33 17 265 3.6 9,411 1 5 7 5.7 885.4 34.5 53 5.4 4.0 — — — 0.5 0.5 0.4 0.7 6.0 7.4 — — — 13.8 RBL Bank BUY 173 270 56 88 1.2 509 10.3 20 24 3.4 97.2 18.8 17 8.5 7.2 — — — 0.9 0.8 0.8 4.8 9.0 9.9 0.8 1.6 1.9 61 State Bank of India BUY 200 340 70 1,785 24.4 8,925 24 29 40 49.2 17.9 38.4 8 7.0 5.1 — — — 0.9 0.8 0.7 8.9 9.6 11.9 0.1 0.1 0.1 166 Ujjivan Financial Services BUY 208 490 136 25 0.3 121 33.6 44 - 24.9 31.6 (100.0) 6 4.7 - — — — 1.0 0.9 — 17.0 19.3 NM 2.0 2.9 0.0 8.8 Ujjivan Small Finance Bank ADD 31 39 25 54 0.7 1,750 2 2 3 (12.3) 2.5 82.3 19 18.4 10.1 — — — 1.8 1.7 1.4 9.3 8.7 13.9 0.0 0.0 0.0 0.0

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Union Bank REDUCE 24 25 4 154 2.1 6,407 (1) 0 4 86.0 135.5 901.5 NM 57.1 5.7 — — — 0.4 0.4 0.4 NM 0.5 4.7 (0.7) 0.3 2.6 1.6 YES Bank SELL 13 10 (22) 323 4.4 25,055 (1) (0) 0 89.7 84.7 190.1 NM NM 69.9 — — — 1.3 1.3 1.2 NM NM 1.4 0.0 0.0 0.0 41 Banks Attractive 15,423 210.5 97.0 36.1 27.2 19 13.8 10.8 1.4 1.3 1.2 7.5 9.4 10.8 0.7 0.9 1.1 1,183 -

Source: Company, Bloomberg, Kotak Institutional Equities estimates 2020 October 15,

KOTAK INSTITUTIONAL EQUITIES RESEARCH 47

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary 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 14-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Building Products Astral Poly Technik SELL 1,151 765 (34) 173 2.4 151 18.3 25 31 11.3 37.9 24.6 63 46 37 34.4 25.9 20.6 10.0 8.4 7.1 17.0 20.0 21 0.2 0.3 0.5 2.6 Building Products Cautious 173 2.4 11.3 37.9 24.6 63 46 37 34.4 25.9 20.6 9.9 8.4 7.1 15.8 18.4 19.4 0.2 0.3 0.5 2.6 Capital goods ABB SELL 859 840 (2) 182 2.5 212 9 21 26 (50.0) 140.4 22.5 98 41 33 63.1 26.2 21.1 5.1 4.7 4.4 5.3 12.1 13.7 0.7 0.8 1.0 2.4 Ashoka Buildcon BUY 62 130 111 17 0.2 281 9.3 11.4 12.4 (32.8) 23.3 8.3 6.7 5.4 5.0 4.5 3.6 2.9 0.6 0.6 0.5 9.6 10.9 10.8 2.4 3.0 3.2 1.9 Bharat Electronics BUY 91 130 42 223 3.0 2,437 6.2 6.9 7.0 (16.7) 11.3 1.4 14.7 13.2 13.0 8.4 7.2 6.6 2.0 1.9 1.7 14.5 14.9 13.9 2.6 2.8 2.9 19.5 BHEL SELL 28 28 0 97 1.3 3,482 (2.2) 2.4 2.7 48.4 208.5 14.1 NM 11.8 10.3 (18.0) 4.9 4.2 0.3 0.3 0.3 NM 2.8 3.2 (3.5) 3.4 3.5 24 Carborundum Universal ADD 241 285 18 46 0.6 189 12.1 15.2 17.4 (15.9) 26.0 14.1 20.0 15.8 13.9 11.0 8.7 7.4 2.3 2.1 1.9 11.8 13.7 14.3 1.4 1.8 2.0 1.3 Cochin Shipyard BUY 325 530 63 43 0.6 132 38 46 38 (21.6) 21.8 (16.8) 8.5 7.0 8.4 4.2 4.2 4.4 1.1 1.0 0.9 12.9 14.3 11.0 3.6 3.9 4.3 2.0 Cummins India BUY 438 500 14 121 1.7 277 18 26 29 (28.8) 41.2 14.2 24 17.1 15.0 27.6 17.2 15.0 2.8 2.7 2.6 11.9 16.1 17.6 2.3 3.2 3.7 8.4 Dilip Buildcon BUY 335 545 63 46 0.6 137 27 46 65 (12.3) 73.2 40.4 12.5 7.2 5.2 5.3 3.9 3.2 1.2 1.0 0.8 9.6 14.7 17.5 0.1 0.3 0.4 2.1 IRB Infrastructure BUY 110 150 37 39 0.5 351 15 12 9 (26.7) (22.8) (21.0) 7.3 9.4 11.9 6.3 5.8 4.9 0.5 0.5 0.5 7.7 5.7 4.3 3.5 2.2 2.5 4.0 -

Kalpataru Power Transmission BUY 235 470 100 36 0.5 153 25 40 44 (1.2) 57.4 11.8 9.4 5.9 5.3 4.2 3.6 3.1 1.0 0.9 0.8 10.9 15.4 15.1 1.4 2.0 2.3 1.5 October 15, 2020 October 15, KEC International BUY 327 360 10 84 1.1 257 24.5 30 34 11.6 24.3 12.6 13.3 10.7 9.5 7.8 6.4 5.7 2.5 2.1 1.8 21 21 20 0.8 1.0 1.1 2.1 L&T BUY 915 1,210 32 1,285 17.5 1,403 33 61 73 (47.3) 83.8 19.7 27 14.9 12.5 21.3 15.4 14.4 1.9 1.7 1.6 7.5 12.1 13.4 1.7 2.1 2.5 62 Sadbhav Engineering BUY 50 105 112 8 0.1 172 4.7 10.9 11.9 12.8 130.1 9.3 10.5 4.5 4.2 6.1 3.8 3.3 0.4 0.4 0.3 3.8 8.3 8.4 — — — 0.5

Siemens SELL 1,235 1,000 (19) 440 6.0 356 32 36 43 70.6 11.7 17.5 38 34 29 25.7 22.9 19.4 4.3 4.0 3.6 11.7 12.1 13.0 0.7 0.8 1.0 13.1 Thermax BUY 716 810 13 85 1.2 113 14 29 36 (24.9) 102.5 24.2 51 25 20 32.7 17.7 14.4 32.7 17.7 14.4 5.2 10.3 12.3 1.3 2.1 2.6 0.8 Capital goods Attractive 2,752 37.6 (28.9) 70.1 15.0 26 15.5 13.5 1.7 1.6 1.5 6.6 10.4 11.2 1.3 1.9 2.2 146 Commercial & Professional Services SIS BUY 354 395 12 52 0.7 149 14 19 23 (10.2) 36.2 26.3 26 19.1 15.1 11.8 9.9 8.4 3.3 2.9 2.4 13.6 16.1 17.4 0.2 0.3 0.3 0.7 TeamLease Services ADD 2,360 2,450 4 40 0.6 17 49 67 93 140.9 36.5 38.1 48 35 25 33.9 26.5 20.3 6.1 5.2 4.3 13.7 16.1 18.7 — — — 1.3 Commercial & Professional Services Attractive 92 1.3 10.1 36.3 29.8 32 24 18.2 16.1 13.3 11.0 4.1 3.5 3.0 12.8 15.0 16.3 0.1 0.1 0.2 2 Commodity Chemicals Asian Paints REDUCE 2,071 1,800 (13) 1,987 27.1 959 21.9 36.1 42.1 (19.4) 64.9 16.6 95 57 49 55.8 37.4 32.8 17.7 15.2 13.2 19.7 29 29 0.5 0.8 1.0 64

Berger Paints SELL 606 430 (29) 588 8.0 971 6.2 9.4 11.1 (8.5) 51.7 18.2 98 64 55 58.2 41.0 35.2 19.1 16.2 13.8 21 27 27 0.3 0.5 0.6 12.5 Kansai Nerolac ADD 474 485 2 256 3.5 539 8.1 12.6 14.7 (18.6) 55.3 17.0 59 38 32 36.7 24.8 21.5 6.3 5.8 5.2 11.2 16.0 17.0 0.6 0.9 1.1 1.9 Tata Chemicals ADD 318 330 4 81 1.1 255 23.1 35.2 39.3 (27.0) 52.2 11.9 13.8 9.0 8.1 5.2 4.0 3.5 0.6 0.6 0.6 4.5 6.6 7.1 2.5 3.9 4.3 12.5 Commodity Chemicals Neutral 2,912 39.7 (19.1) 59.6 16.2 78 49 42 41.3 28.9 25.4 9.2 8.3 7.5 11.8 17.0 17.9 0.5 0.9 1.0 90 Construction Materials ACC BUY 1,550 1,550 0 291 4.0 188 61.4 79.5 83.6 (15.1) 29.5 5.2 25 19.5 18.5 11.5 8.9 7.9 2.4 2.3 2.1 9.8 12.0 11.9 2.0 2.6 2.7 22 Ambuja Cements BUY 247 235 (5) 490 6.7 1,986 9.5 12.4 14.6 (10.2) 31.0 17.6 26 19.8 16.9 9.4 6.9 5.5 1.9 1.8 1.6 7.6 9.2 10.0 0.6 0.6 0.6 14.1 Dalmia Bharat BUY 802 1,075 34 150 2.0 192 18.4 38.5 60.6 31.9 109.3 57.3 44 21 13.2 7.7 5.9 4.7 1.4 1.3 1.2 3.3 6.6 9.6 — — — 1.8 Grasim Industries ADD 764 700 (8) 502 6.9 657 42.5 71.6 99.6 (19.3) 68.5 39.1 18.0 10.7 7.7 8.7 5.9 4.4 0.8 0.8 0.7 4.8 7.6 9.8 0.1 0.3 0.6 31 J K Cement ADD 1,731 1,550 (10) 134 1.8 77 52.2 96.1 115.6 (18.7) 84.0 20.2 33 18.0 15.0 13.7 9.3 7.9 4.0 3.3 2.8 12.6 20 20 0.6 0.6 0.6 2.1 JK Lakshmi Cement BUY 270 340 26 32 0.4 118 16.0 27.4 35.2 (32.0) 71.4 28.6 16.9 9.9 7.7 6.1 4.7 4.0 1.7 1.5 1.3 10.6 16.2 17.9 0.9 1.5 2.0 1.1 Orient Cement ADD 58 75 30 12 0.2 205 3.7 6.3 9.0 (12.9) 72.1 41.4 15.7 9.1 6.5 5.9 4.8 3.8 1.0 1.0 0.9 6.6 10.8 14.0 3.5 3.5 3.5 0.3 Shree Cement SELL 21,040 16,000 (24) 759 10.4 36 382.0 651.5 720.3 (12.2) 70.5 10.6 55 32 29 22.2 15.5 13.7 5.5 4.8 4.2 10.3 15.8 15.3 0.5 0.5 0.5 18.9 UltraTech Cement BUY 4,443 4,600 4 1,282 17.5 289 133.7 219.9 284.3 0.6 64.4 29.3 33 20 15.6 15.0 10.2 8.2 3.0 2.6 2.3 9.4 13.9 15.6 0.3 0.5 0.6 32 Construction Materials Attractive 3,652 49.8 (10.1) 59.6 26.8 30 18.9 14.9 11.9 8.4 6.7 2.1 1.9 1.7 7.1 10.3 11.6 0.5 0.6 0.7 123

Source: Company, Bloomberg, Kotak Institutional Equities estimates

48 KOTAK INSTITUTIONAL EQUITIES RESEARCH 48

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

49 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 14-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 279 210 (25) 175 2.4 627 6.9 8.8 10.1 (12.8) 27.1 15.5 40 32 28 30 24 21 9.1 7.5 6.1 26 26 24 0.0 0.9 0.9 3.1 Havells India SELL 697 490 (30) 437 6.0 626 8.7 13.8 16.2 (26.1) 58.5 17.7 80 51 43 52 35 29 9.4 8.5 7.6 12.2 17.7 18.7 0.4 0.7 0.8 17.1 Page Industries REDUCE 20,677 18,250 (12) 231 3.1 11 240 407 474 (22.2) 70.0 16.3 86 51 44 53 34 29 25.0 20.1 16.8 31 44 42 0.6 1.1 1.4 15.2 Polycab ADD 810 875 8 121 1.6 149 40 53 58 (21.5) 30.7 10.5 20 15.3 13.9 14 10 9 2.8 2.4 2.1 14.7 16.8 16.2 0.7 0.9 1.0 2.9 TCNS Clothing Co. REDUCE 377 380 1 23 0.3 66 0 14 17 (99.8) 69,289.2 24.5 18,813 27 22 25 10 8.4 3.5 3.0 2.5 0.0 11.9 12.6 — — — 0.3 Vardhman Textiles ADD 771 720 (7) 44 0.6 57 25 90 104 (70.8) 260.6 16.1 31 8.6 7.4 11.7 5.6 4.8 0.7 0.7 0.6 2.3 8.0 8.7 1.6 2.6 3.2 0.3 Voltas SELL 674 530 (21) 223 3.0 331 12.9 19.7 22.8 (20.8) 52.8 16.1 52 34 30 48 28 24 4.9 4.4 4.0 9.6 13.5 14.2 0.5 0.7 0.9 19.5 Whirlpool SELL 2,140 1,700 (21) 272 3.7 127 30 49 61 (21.3) 67.1 24.4 72 43 35 49 30 24 9.7 8.7 7.9 14.1 21 24 0.4 0.9 1.4 1.9 Consumer Durables & Apparel Cautious 1,525 20.8 (28.7) 62.5 55 34 29 35 23 19 5.9 5.2 10.7 15.5 16.2 0.5 0.9 60 Consumer Staples Bajaj Consumer Care ADD 181 200 11 27 0.4 148 12.8 13.1 14.1 2.1 2.7 7.7 14.1 13.8 12.8 10.8 10.4 9.2 3.5 3.2 2.9 27 24 24 3.3 4.4 5.0 3.4 Britannia Industries ADD 3,790 4,150 10 912 12.5 240 81 86 100 36.7 6.3 16.6 47 44 38 35 33 29 17.1 13.6 11.0 39 34 32 0.7 0.9 1.1 38 Colgate-Palmolive (India) ADD 1,447 1,550 7 394 5.4 272 31 36 42 8.1 18.0 14.9 47 40 35 30.2 25.9 22.8 24.5 23.3 22.1 52 60 65 2.0 2.4 2.7 15.2 Dabur India REDUCE 517 415 (20) 914 12.5 1,767 9.5 11.0 12.3 10.2 15.3 11.9 54 47 42 44 37 33 12.7 11.6 10.5 24 26 26 1.2 1.4 1.5 23 Godrej Consumer Products ADD 700 750 7 716 9.8 1,022 15.4 18.5 21.2 11.8 20.3 14.6 45 38 33 31 26 23 7.9 7.2 6.5 18.6 19.9 21 1.0 1.4 1.6 13.2 Hindustan Unilever ADD 2,158 2,500 16 5,071 69.2 2,343 35 45 53 12.3 28.1 17.1 62 48 41 43 34 29 11.7 11.1 10.6 32 24 27 1.5 1.9 2.2 70 ITC BUY 168 260 55 2,065 28.2 12,318 10.6 12.5 13.8 (7.9) 17.9 9.8 15.8 13.4 12.2 11.0 9.1 8.2 3.1 3.0 2.9 19.2 22 24 5.4 6.4 7.0 73 Jyothy Laboratories ADD 142 160 13 52 0.7 367 5.5 6.0 6.9 17.5 9.1 13.5 26 23 21 17.6 16.2 14.4 4.0 3.8 3.6 16.1 16.6 17.7 2.5 2.8 3.2 1.5 Marico ADD 362 390 8 467 6.4 1,290 8.8 9.7 10.5 8.2 11.2 8.1 41 37 34 29 26 24 14.4 13.3 13.1 36 37 39 1.9 2.2 2.5 14.5 Nestle India REDUCE 15,673 16,000 2 1,511 20.6 96 227 270 317 10.9 19.1 17.4 69 58 49 46 40 35 61.5 49.2 39.9 100 94 89 1.1 1.3 1.6 28 Tata Consumer Products ADD 490 470 (4) 451 6.2 922 9.8 11.9 13.5 22.3 22.4 12.9 50 41 36 26 24 22 3.1 3.0 2.8 6.4 7.4 8.0 0.7 0.9 1.0 36 United Breweries ADD 971 1,120 15 257 3.5 264 4.9 20.3 26.3 (70.0) 318.8 29.5 200 48 37 56 25 20 7.2 6.3 5.6 3.6 14.1 16.0 0.1 0.6 0.9 10.7 United Spirits ADD 524 620 18 381 5.2 727 8.6 14.0 16.9 (25.0) 62.8 20.6 61 37 31 32 23 20 8.4 6.8 5.9 14.6 20 20 — — 1.0 17.9 Varun Beverages BUY 675 825 22 195 2.7 289 6.5 25.5 32.5 (60.0) 291.5 27.7 104 27 21 21 12 10 5.5 4.6 3.9 5.4 18.9 20 0.2 0.3 0.4 2.7 Consumer Staples Attractive 13,411 183.0 3.1 23.2 13.9 41 33 29 29 23 21 8.1 7.5 7.1 19.8 23 24 1.9 2.3 2.6 348 Diversified Financials Bajaj Finance REDUCE 3,372 2,800 (17) 2,032 27.7 600 74 131 173 (28) 77 32 46 26 19.5 — — — 5.6 4.7 3.9 13.0 19.8 22 0.2 0.4 0.5 306 Bajaj Finserv BUY 6,100 7,600 25 971 13.2 159 252 402 522 19 60 30 24 15.2 11.7 — — — 2.8 2.4 2.0 12.1 16.8 18.7 0.2 0.2 0.2 59 Cholamandalam BUY 250 300 20 205 2.8 820 13.9 20.2 24.6 8 45.0 22.0 17.9 12.4 10.1 — — — 2.5 2.1 1.7 13.1 16.7 17.5 0.6 0.9 1.1 24 HDFC ADD 1,980 2,075 5 3,555 48.5 1,732 64 73 92 (38.0) 14 27.2 31 27 21 — — — 3.7 3.4 3.1 12.3 12.9 15.0 1.1 1.3 1.6 120

IIFL Wealth ADD 926 1,200 30 81 1.1 88 33.4 48.7 65.1 41 45.8 33.6 28 19.0 14.2 — — — 2.6 2.6 2.4 9.7 13.7 17.5 2.3 3.4 3.5 0.6 Daily Summary India L&T Finance Holdings ADD 63 90 43 126 1.7 2,005 5 9 14 (44.2) 85 57.1 13.3 7.2 4.6 — — — 0.8 0.7 0.7 6.3 10.9 15.3 2.3 2.6 2.6 12.9 LIC Housing Finance ADD 286 375 31 145 2.0 505 44.0 71.5 83.5 (8) 62.6 16.7 6.5 4.0 3.4 — — — 0.9 0.8 0.7 11.6 16.8 17.1 2.6 4.2 4.9 21 Muthoot Finance REDUCE 1,155 1,100 (5) 463 6.3 401 77 87 102 2.4 13 16.8 15.0 13.3 11.3 — — — 3.3 2.8 2.3 24 23 22 1.3 1.5 1.8 51 Shriram City Union Finance BUY 856 1,300 52 57 0.8 66 101 177 192 (33.3) 75 8.3 8.5 4.8 4.5 — — — 0.8 0.7 0.6 8.9 14.1 13.6 1.5 3.1 3.4 0.8 Shriram Transport BUY 667 1,050 58 169 2.3 253 73.2 107.4 142.5 (34) 46.6 32.8 9.1 6.2 4.7 — — — 0.9 0.8 0.7 9.5 12.2 14.5 1.6 2.4 3.2 42 Diversified Financials Attractive 8,024 109.5 (22.7) 39.9 24.9 25 18.1 14.5 2.9 2.6 2.3 11.4 14.2 16.0 0.8 1.1 1.3 673

Source: Company, Bloomberg, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -

October 15, 2020 October 15,

KOTAK INSTITUTIONAL EQUITIES RESEARCH 49

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary 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 14-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Electric Utilities CESC BUY 583 820 41 77 1.1 133 108 124 135 10 14.8 8.3 5.4 4.7 4.3 4.5 3.9 3.4 0.6 0.5 0.5 11.0 11.4 11.3 2.2 2.2 2.5 3.0 JSW Energy BUY 60 65 8 99 1.3 1,640 4.8 5.3 5.6 (25) 12 4.7 12.6 11.3 10.8 5.9 5.1 4.7 0.8 0.7 0.7 6.5 6.8 6.6 0.0 — — 2.1 NHPC ADD 20 26 31 199 2.7 10,045 3.0 3.2 3.3 5.9 9 1.2 6.7 6.2 6.1 7.9 7.1 6.5 0.6 0.6 0.6 9.3 9.8 9.5 8.8 9.4 9.5 1.5 NTPC BUY 79 130 64 783 10.7 9,895 13.0 15.4 16.6 17.3 18.3 7.7 6.1 5.1 4.8 7.4 5.8 4.9 0.6 0.6 0.5 11.0 12.0 11.9 4.6 5.9 6.3 33 Power Grid BUY 157 220 40 822 11.2 5,232 22.0 25 28 6 16.1 8.9 7.2 6.2 5.7 6.2 5.5 5.0 1.2 1.1 1.0 17.2 18.3 18.1 6.8 7.9 8.6 23 Tata Power BUY 53 70 32 169 2.3 2,705 4.4 6.3 7.1 0 42 12.9 11.9 8.4 7.4 8.0 7.4 6.9 0.7 0.7 0.6 6.4 8.5 8.8 0.0 — — 22 Electric Utilities Attractive 2,149 29.3 9.1 17.1 7.8 7.0 6.0 5.5 0.8 0.7 0.7 11.4 12.3 12.3 5.2 6.1 6.5 84 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 5,655 3,400 (40) 254 3.5 45 134.2 149.9 166.0 3.8 11.7 10.8 42 38 34 30 27 24 8.3 7.1 6.1 21 20 19.2 0.5 0.5 0.6 3.1 Dhanuka Agritech SELL 731 650 (11) 35 0.5 48 37.0 40.8 45.8 24.4 10.4 12.2 19.8 17.9 15.9 14.7 13.0 11.3 4.1 3.6 3.1 23 21 21 1.3 1.7 2.2 1.6 Godrej Agrovet SELL 532 420 (21) 102 1.4 192 14.9 17.5 20.4 29.1 17.2 17 36 30 26 18 15 13 4.2 3.8 3.4 12.3 13.0 13.6 1.0 1.1 1.3 1.5 -

PI Industries SELL 2,038 1,600 (21) 309 4.2 152 45.6 57.8 69.2 38.0 27 20 45 35 29 30 24 20 9.6 7.9 6.5 24 25 24 0.3 0.5 0.7 8.0 October 15, 2020 October 15, Rallis India SELL 275 265 (4) 54 0.7 195 11.3 14.8 18.0 25.0 30.9 21.4 24.4 18.6 15.3 16.4 12.8 10.4 3.4 3.0 2.6 14.7 17.0 17.9 1.0 1.1 1.2 4.8 UPL SELL 511 390 (24) 390 5.3 765 31.9 36.5 40.2 37.6 14.2 10.3 16 14.0 12.7 8.1 7.4 6.6 2.2 1.9 1.7 14.2 14.6 14.4 1.6 1.8 2.0 35 Fertilizers & Agricultural Chemicals Cautious 1,144 15.6 31.8 16.7 13.1 26 22 19.6 12.7 11.3 10.0 3.9 3.4 3.0 15.1 15.5 15.5 0.9 1.1 1.2 54

Gas Utilities GAIL (India) BUY 83 140 69 373 5.1 4,510 7.6 11.0 12.4 (42.1) 44.8 12.3 10.8 7.5 6.7 7.9 5.5 4.7 0.8 0.8 0.7 7.7 10.6 11.2 4.8 6.0 7.3 17.6 GSPL SELL 179 200 12 101 1.4 564 13.2 11.8 8.0 (23.1) (10.6) (32.2) 13.6 15.2 22.4 5.1 5.3 6.9 1.4 1.3 1.2 10.6 8.7 5.6 1.1 1.3 1.1 2.9 Indraprastha Gas SELL 373 380 2 261 3.6 700 14.4 20.7 23.1 (13.9) 44.1 11.5 26.0 18.0 16.2 17.9 12.6 11.1 4.5 3.9 3.4 18.6 23 22 0.8 1.2 1.7 22 Mahanagar Gas ADD 792 1,115 41 78 1.1 99 53.8 81.3 86.6 (27.9) 51.1 6.5 14.7 9.7 9.2 9.5 6.1 5.4 2.4 2.1 1.9 17.0 23 22 2.5 4.3 5.2 13.4 Petronet LNG BUY 210 300 43 315 4.3 1,500 18.3 21.7 24.0 3.7 18.5 10.7 11.5 9.7 8.8 6.2 5.3 4.9 2.7 2.6 2.5 24 27 29 6.5 8.2 9.7 13.8 Gas Utilities Attractive 1,129 15.4 (26.2) 31.7 8.7 13.3 10.1 9.3 8.2 6.3 5.6 1.5 1.4 1.3 11.5 14.1 14.4 3.9 5.0 5.9 70 Health Care Services Apollo Hospitals BUY 2,228 1,840 (17) 310 4.2 139 -18.1 32 60 (198) 277 86 NM 69.4 37.4 41.5 19.5 16.1 9.7 9.0 7.4 NM 13.4 21 (0.3) 0.6 1.1 35 Dr Lal Pathlabs SELL 2,058 1,330 (35) 171 2.3 83 30.1 39.3 42.9 11.4 30.5 9.1 68.3 52.3 47.9 43.3 32.3 30.3 14.2 11.9 10.2 22 25 23 0.4 0.6 0.6 5.2 HCG BUY 125 150 20 16 0.2 143 (8.7) (2.4) (1.7) 28 73 27 NM NM NM 12.8 7.1 6.1 1.9 1.9 2.0 NM NM NM — — — 0.2 Metropolis Healthcare SELL 1,916 1,340 (30) 98 1.3 51 36.5 42.0 45.2 21.6 15.0 8 52.5 45.7 42.4 32.8 28.7 26.1 15.1 12.4 10.4 32 30 27 0.6 0.7 0.7 3.5 Narayana Hrudayalaya BUY 355 345 (3) 73 1.0 204 -7.4 7.6 10.8 (227.9) 202 42 NM 46.9 32.9 66.0 15.7 12.9 7.4 6.4 5.3 NM 14.6 17.7 — — — 1.1 Health Care Services Attractive 734 10.0 (89) 1,402 40 711.0 47.3 33.9 26.4 15.9 13.6 7.0 6.3 5.5 1.0 13.4 16.1 0.0 0.5 0.7 46 Hotels & Restaurants Jubilant Foodworks ADD 2,315 2,500 8 306 4.2 133 13 34 44 (45) 163.1 30 178.9 68.0 52.2 40.9 26.1 21.5 25.4 19.3 15.4 14.7 32 33 0.2 0.5 0.6 30 Lemon Tree Hotels BUY 28 35 23 23 0.3 790 -1.2 0.6 1.0 (932) 147 77 NM 49.0 27.6 35.5 12.0 8.3 3.1 3.0 2.8 NM 6.2 10.6 — 0.9 1.4 0.7 Hotels & Restaurants Attractive 328 4.5 (76) 579 35 445.0 65.6 48.5 40.2 23.0 18.3 17.0 14.0 11.7 3.8 21 24 0.2 0.5 0.7 31 Insurance HDFC Life Insurance REDUCE 572 560 (2) 1,156 15.8 2,010 6.8 7.4 7.8 5.8 8.2 6.3 84 78 73 — — — 15.1 13.9 12.8 18.8 18.7 18.3 0.3 0.3 0.3 28 ICICI Lombard SELL 1,247 950 (24) 567 7.7 454 32.1 34.3 37.9 22 7 11 39 36 33 — — — 7.6 6.6 5.7 21 20 18.7 0.3 0.6 0.6 8.5 ICICI Prudential Life BUY 425 500 18 610 8.3 1,436 8.5 9.6 9.9 14 13.2 3.4 50 44 43 — — — 7.2 6.3 5.7 15.2 15.2 14.0 0.3 0.4 0.4 13.4 Max Financial Services NR 596 — — 161 2.2 343 9.5 26.7 16.0 (6) 180 (40) 62 22 37 — — — — — — 13.5 38 17.3 — 1.1 0.3 14.5 SBI Life Insurance BUY 811 1,050 30 811 11.1 1,001 15.5 16.6 17.7 8.9 7.4 6.5 52 49 46 — — — 8.7 7.6 6.7 18.0 16.7 15.5 — 0.3 0.3 17.7 Insurance Attractive 3,304 45.1 (30.9) 22.0 (0.6) 55.7 45.7 46 9.3 7.6 7.2 16.7 16.6 15.6 0.2 0.3 0.3 82

Source: Company, Bloomberg, Kotak Institutional Equities estimates

50 KOTAK INSTITUTIONAL EQUITIES RESEARCH 50

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

51 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 14-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Internet Software & Services Info Edge SELL 3,747 2,800 (25) 482 6.6 128.3 26.7 43.1 52.8 (0.7) 61.3 22.4 140.2 86.9 71.0 130.5 80.0 63.4 10.5 9.7 8.8 9.8 11.6 12.9 0.2 0.3 0.4 22 Just Dial ADD 409 400 (2) 25 0.3 61.8 24.7 29.9 35.5 (41.1) 21.0 18.8 16.6 13.7 11.5 8.5 5.9 4.2 2.1 1.8 1.6 12.2 14.1 14.5 — — — 8.0 Internet Software & Services Cautious 507 6.9 (17.6) 48.9 21.5 102.3 68.7 56.5 94.5 62.8 51.2 8.8 7.9 7.1 8.6 11.6 12.6 0.2 0.3 0.3 30 IT Services HCL Technologies ADD 890 900 1 2,416 33.0 2,716 44.6 48.4 52.9 9.3 8.7 9.2 20.0 18.4 16.8 12.2 11.0 9.9 4.0 3.5 3.0 22 20 19.2 1.2 1.5 1.5 99 Hexaware Technologies REDUCE 467 375 (20) 140 1.9 302 23.3 24.6 26.4 9.7 5.8 7.3 20.1 19.0 17.7 13.3 11.8 10.6 4.4 3.8 3.4 23 22 21 1.7 2.1 2.6 7.6 Infosys BUY 1,137 1,400 23 4,843 66.1 4,250 43.7 48.9 55.4 12.2 12.0 13.2 26.0 23.2 20.5 17.1 15.4 13.5 6.6 6.0 5.4 27 27 28 2.3 2.6 3.1 168 L&T Infotech ADD 3,331 2,800 (16) 581 7.9 176 91.0 110.6 130.3 5 21.5 17.8 36.6 30.1 25.6 24.0 20.9 17.9 9.2 7.8 6.5 27 28 28 0.9 1.0 1.2 10.3 Mindtree REDUCE 1,552 980 (37) 256 3.5 165 54.9 62.5 67.0 43 14 7 28.3 24.8 23.2 17.1 15.2 14.3 6.8 5.7 4.9 26 25 23 1.1 1.2 1.3 23 Mphasis REDUCE 1,426 1,100 (23) 266 3.6 187 64.3 70.6 77.7 1 9.9 10.1 22.2 20.2 18.3 14.5 12.9 11.6 4.2 3.8 3.4 19.6 19.6 19.5 2.5 2.5 2.5 9.6 TCS REDUCE 2,810 2,800 (0) 10,543 143.9 3,750 86.6 99.6 110.7 0 15.0 11.2 32.5 28.2 25.4 22.7 20.1 18.0 12.4 10.4 9.6 38 40 39 1.2 2.1 3.2 170 Tech Mahindra BUY 849 845 (0) 739 10.1 880 40.8 51.3 61.0 (11.0) 25.7 18.9 20.8 16.6 13.9 11.8 9.3 7.7 3.1 2.8 2.5 15.7 17.9 19.0 1.8 2.0 2.2 64 Wipro ADD 350 380 8 2,003 27.3 5,649 18.0 20.0 21.9 8.6 10.7 9.6 19.4 17.5 16.0 12.7 11.5 10.2 3.7 3.1 2.7 18.7 19.1 18.2 0.6 1.4 1.4 89 IT Services Attractive 21,787 297.3 4.6 12.2 11.6 26.8 23.9 21.4 17.8 15.8 14.1 6.9 6.0 5.4 26 25 25 1.4 2.1 2.7 640 Media DB Corp. REDUCE 77 81 5 13 0.2 175 5.3 14.1 14.2 (66.5) 166.7 1.2 14.5 5.5 5.4 4.7 2.3 2.4 0.8 0.8 0.8 5.4 14.3 14.6 2.6 15.6 16.9 0.3 Jagran Prakashan REDUCE 36 37 2 10 0.1 281 3.9 7.3 8.4 (43.6) 87 NA 9.2 4.9 NA 1.9 1.1 NA 0.5 0.5 NA 5.7 10.3 11.5 5.5 13.8 13.8 0.3 PVR BUY 1,246 1,650 32 69 0.9 55 -70.7 53.3 67.1 (344) 175 26 NM 23.4 18.6 (40.5) 9.5 8.0 3.1 2.8 2.5 NM 12.6 14.1 (0.6) 0.4 0.5 45 Sun TV Network REDUCE 439 435 (1) 173 2.4 394 38.5 40.2 42.3 8 4.6 5.1 11.4 10.9 10.4 7.6 7.2 6.8 2.9 2.8 2.7 26 26 26 5.7 6.3 6.8 16.3 Zee Entertainment Enterprises ADD 186 250 34 179 2.4 960 11.5 17.3 19.1 2.9 50.8 10.4 16.2 10.8 9.8 9.7 6.5 5.4 1.8 1.6 1.4 11.4 15.7 15.5 1.9 2.1 2.4 108 Media Cautious 444 6.1 (21.3) 64.3 9.1 18.3 11.1 10.2 10.3 6.4 5.7 2.0 1.9 1.7 11.1 16.9 17.1 3.1 4.2 4.5 171 Metals & Mining Hindalco Industries BUY 174 285 64 391 5.3 2,220 16.2 26.7 32.3 (8.9) 65.1 21 10.8 6.5 5.4 6.3 4.7 4.0 0.6 0.6 0.5 6.0 9.2 10.1 0.6 0.6 0.6 42 Hindustan Zinc BUY 213 290 36 900 12.3 4,225 15.3 20.1 21.3 (5.0) 31.5 5.9 13.9 10.6 10.0 7.7 5.9 5.5 2.7 2.7 2.7 17.5 25 27 7.2 9.4 10.0 5.8 Jindal Steel and Power BUY 190 280 47 194 2.6 1,020 12.8 20.4 21.7 267 60 6 14.9 9.3 8.8 5.6 4.8 4.4 0.6 0.5 0.5 4.0 6.0 6.0 — — — 38 JSW Steel ADD 291 300 3 703 9.6 2,402 12.6 24.7 31.4 25.0 96 26.9 23.0 11.8 9.3 9.2 6.4 5.5 1.8 1.6 1.4 8.0 14.2 15.7 0.7 0.7 0.7 35 National Aluminium Co. SELL 30 26 (13) 56 0.8 1,866 0.9 1.5 2.6 23 61 74.0 32.6 20.2 11.6 5.1 5.6 5.0 0.5 0.5 0.5 1.7 2.7 4.6 0.0 2.5 4.3 6.8 NMDC REDUCE 80 110 38 245 3.3 3,062 13.5 11.1 12.3 (7.4) (18.4) 12 5.9 7.2 6.5 3.9 4.7 4.4 0.8 0.8 0.7 14.5 11.1 11.7 8.5 6.9 7.7 11.5 Tata Steel BUY 376 550 46 427 5.8 1,146 (0.6) 69.1 84.3 (102) 11,559 22 NM 5.4 4.5 8.6 5.2 4.8 0.6 0.6 0.5 NM 11.0 12.2 2.7 3.4 3.7 82 Vedanta BUY 98 165 68 366 5.0 3,717 11.6 17.8 20.7 77 54 16.5 8.5 5.5 4.7 4.5 3.5 3.1 0.7 0.6 0.6 7.9 11.9 13.3 12.4 11.5 15.1 47 Metals & Mining Attractive 3,282 44.8 (2.3) 77.9 17.0 14.3 8.0 6.9 6.7 5.0 4.4 1.0 0.9 0.9 6.9 11.5 12.4 4.6 5.1 5.8 268 Daily Summary India

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -

October 15, 2020 October 15,

KOTAK INSTITUTIONAL EQUITIES RESEARCH 51

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary 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 14-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Oil, Gas & Consumable Fuels BPCL BUY 333 480 44 722 9.9 1,967 35 37 39 229.9 6.0 5.8 9.6 9.0 8.6 7.8 7.4 6.8 1.8 1.6 1.5 19.5 18.8 18.2 5.2 5.5 5.8 74.2 Coal India BUY 111 195 76 681 9.3 6,163 20 18 18 (28) (8.4) 2.5 5.6 6.2 6.0 5.1 5.3 4.7 2.1 2.2 2.3 37.8 35.4 37.6 18.1 18.1 18.1 20.2 HPCL BUY 169 260 54 257 3.5 1,524 34 29 32 371.9 (13.2) 10.1 5.0 5.8 5.2 6.7 6.9 6.2 0.8 0.8 0.7 17.0 13.7 14.0 10.0 8.7 9.6 23.0 IOCL BUY 75 110 47 703 9.6 9,181 9.6 12.9 13.9 343.8 34.3 7.4 7.8 5.8 5.4 5.5 4.8 4.5 0.7 0.7 0.6 9.2 11.6 11.7 5.8 7.8 8.4 27.8 Oil India SELL 84 70 (17) 91 1.2 1,084 3 6 10 (85) 103.6 56.9 28.0 13.8 8.8 8.1 7.0 5.7 0.4 0.4 0.4 1.3 2.7 4.1 1.1 2.9 4.6 1.3 ONGC SELL 67 60 (10) 843 11.5 12,580 4 7 12 (74) 101.4 76.2 19.1 9.5 5.4 4.5 3.4 2.6 0.4 0.3 0.3 1.9 3.8 6.4 2.9 4.3 7.2 20.1 Reliance Industries ADD 2,288 2,150 (6) 13,558 185.0 5,926 67 93 110 (0.1) 40.0 18.2 34.3 24.5 20.7 16.1 11.0 10.7 2.7 2.4 2.4 8.3 10.8 12.1 0.3 0.3 0.3 613.6 Oil, Gas & Consumable Fuels Attractive 16,855 230.0 2.9 34.1 19.2 21.8 16.3 13.7 10.7 8.0 7.6 1.8 1.6 1.5 8.1 9.6 11.1 1.7 1.9 2.1 780 Pharmaceuticals Aurobindo Pharma REDUCE 810 790 (2) 475 6.5 586 55 59 62 12.9 8 4.7 14.8 13.8 13.1 9.0 7.9 7.1 2.4 2.1 1.9 16.3 15.3 14.2 0.9 1.1 1.3 50.5 Biocon SELL 447 225 (50) 536 7.3 1,202 8.2 10.1 11.6 32 23 15.8 54 44 38 24.6 19.9 17.5 6.6 5.9 5.3 12.1 13.3 13.8 0.6 0.8 0.9 36.0 Cipla BUY 782 840 7 630 8.6 806 28.2 33 45 47.3 16 38 28 23.8 17.2 15.3 13.2 9.6 3.5 3.2 2.7 12.7 13.3 16.0 0.7 0.8 1.1 96.2 -

Dr Reddy's Laboratories SELL 5,123 3,700 (28) 852 11.6 166 157 203 267 21 29 31.5 33 25.2 19.2 18.5 14.2 11.1 4.8 4.1 3.5 14.8 16.4 18.1 0.5 0.6 0.6 157.4 October 15, 2020 October 15, Laurus Labs REDUCE 325 175 (46) 174 2.4 535 10.9 11.1 13 128.6 1 19 30 29.4 24.8 18.6 17.5 14.5 7.4 5.9 4.8 24.8 20.1 19.2 — — — 31.7 Lupin ADD 1,036 1,000 (3) 470 6.4 450 28 44 52 30.3 54 20 37 24 19.9 16.1 11.3 9.3 3.4 3.0 2.7 9.3 12.8 13.5 0.4 0.6 0.8 60.4 Sun Pharmaceuticals REDUCE 502 510 2 1,205 16.4 2,406 19.7 23.1 28 17.6 17 22 26 22 17.9 13.9 11.7 9.7 2.6 2.3 2.1 10.2 11.3 11.8 0.2 0.9 1.1 77.6

Torrent Pharmaceuticals REDUCE 2,758 2,450 (11) 467 6.4 169 72 89 105 25.3 24 18 38 31 26 19.4 16.5 14.6 8.3 7.1 6.0 21.7 22.8 22.8 0.9 1.1 1.3 31.1 Pharmaceuticals Attractive 4,808 65.6 24.9 20 22 28 24 19.5 15.4 12.8 10.6 3.7 3.2 2.8 12.8 13.7 14.6 0.5 0.8 1.0 541 Real Estate Brigade Enterprises BUY 162 235 45 33 0.5 204 6.8 15 17 6 114 15 23.8 11.1 9.6 10.2 5.3 4.7 1.4 1.3 1.2 6.0 12.0 12.6 1.5 1.5 1.5 0.6 DLF BUY 159 200 26 394 5.4 2,475 4.8 8.5 9.8 303 75 15 33 18.8 16.3 44.4 26.1 26.1 1.1 1.1 1.0 3.4 5.8 6.4 1.3 1.3 1.3 29.1 Embassy Office Parks REIT ADD 356 400 12 274 3.7 772 13.1 15.0 15.6 32 14 4 27 24 23 16.0 14.7 13.2 1.3 1.4 1.5 4.6 5.6 6.2 7.4 8.3 9.5 2.8 Godrej Properties SELL 874 690 (21) 220 3.0 252 12.2 15.8 32.1 14.0 29 103.5 71 55 27 82.5 142.8 47.2 4.3 4.0 3.5 6.2 7.5 13.7 — — — 8.7 Mindspace REIT ADD 304 330 9 180 2.5 593 14 16 18 69.4 9.5 13 21.0 19.2 16.9 17.3 14.0 12.6 1.1 1.1 1.1 9.1 5.7 6.5 2.7 6.7 7.2 — Oberoi Realty ADD 390 450 15 142 1.9 364 22 28 34 14.1 28.8 21 18.0 14.0 11.6 14.2 11.9 8.7 1.5 1.4 1.2 8.8 10.3 11.3 0.5 0.5 0.5 2.5

Prestige Estates Projects ADD 261 275 5 105 1.4 401 6.6 10.2 18 (39.0) 54 81 39 26 14.1 8.3 7.1 5.8 1.9 1.8 1.6 4.9 7.2 11.9 0.6 0.6 0.6 2.6 Sobha BUY 257 400 56 24 0.3 95 32 40 59 9 24.7 45.9 7.9 6.4 4.4 4.5 4.2 3.6 0.9 0.8 0.7 12.1 13.6 17.4 2.7 2.7 2.7 1.5 Sunteck Realty BUY 254 300 18 37 0.5 140 8.8 18.1 20 23.5 105 9 29 14.1 12.9 22.3 12.4 11.6 1.2 1.1 1.0 4.2 8.1 8.1 0.4 0.4 0.4 2.5 Real Estate Attractive 1,410 19.2 96.7 39 24 28 20 16.3 17.1 13.7 11.6 1.4 1.4 1.3 4.9 6.7 8.0 2.3 3.0 3.3 50 Retailing Aditya Birla Fashion and Retail BUY 132 150 13 109 1.5 773 (4.1) 2.7 4.4 (92.4) 165.6 62.8 NM 49 30 17.0 8.7 7.6 6.7 5.4 4.8 NM 12.4 17.2 — — — 3.8 Avenue Supermarts SELL 1,975 1,530 (23) 1,279 17.5 648 19.2 39 47 (8.7) 105.2 18.6 103 50 42 68 34 28 10.4 8.6 7.1 10.6 18.7 18.5 — — — 24.6 Titan Company BUY 1,223 1,270 4 1,086 14.8 888 9.0 20 26 (46.8) 127.6 29.8 137 60 46 72 38 30 15.1 12.8 10.7 11.5 23.1 25.3 0.2 0.5 0.7 54.5 Retailing Attractive 2,474 33.8 (35.0) 166.2 25.6 144 54 43 60 31 25 11.8 9.8 8.1 8.2 18.1 18.9 0.1 0.2 0.3 83 Speciality Chemicals Castrol India BUY 106 165 56 105 1.4 989 5.1 8.9 9.7 (39.5) 75.0 9.1 20.9 11.9 10.9 13.4 7.9 7.2 7.6 7.4 7.3 36.5 63.0 67.5 4.7 8.0 9.0 1.9 Pidilite Industries REDUCE 1,487 1,400 (6) 755 10.3 508 18.3 28 34 (20.4) 54.9 18.3 81 52 44 56 37 32 15.1 12.9 11.1 19.7 26.7 27.0 0.4 0.7 0.8 19.2 S H Kelkar and Company BUY 88 105 20 12 0.2 141 5.3 6.5 7.3 14.3 22.0 13.2 16.5 13.6 12.0 8.6 6.9 6.4 1.4 1.3 1.2 8.8 10.0 10.8 1.1 2.0 2.9 1.5 SRF ADD 4,372 4,000 (9) 251 3.4 57 150 193 244 8.7 28.4 26.5 29.1 22.7 17.9 16.9 13.6 11.0 4.4 3.7 3.1 16.2 17.8 19.1 0.4 0.4 0.5 16.5 Speciality Chemicals Attractive 1,124 15.3 (17.1) 48.5 18.4 47 32 27.0 29.2 20.6 17.6 8.7 7.5 6.5 18.3 23.6 24.2 0.8 1.3 1.5 39

Source: Company, Bloomberg, Kotak Institutional Equities estimates

52 KOTAK INSTITUTIONAL EQUITIES RESEARCH 52

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

53 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 14-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Telecommunication Services Bharti Airtel BUY 413 710 72 2,255 30.8 5,456 4.8 13.8 24.8 86.0 86.0 86.0 86.0 29.8 16.7 6.6 5.4 4.4 3.7 3.5 3.0 3.8 12.1 19.5 1.5 1.5 1.5 172.7 Bharti Infratel ADD 190 215 13 351 4.8 1,850 16.3 17.5 18.7 (1.1) 7.4 6.9 11.6 10.8 10.1 4.6 4.3 4.0 2.6 2.6 2.5 22.2 23.7 25.2 8.4 9.0 9.5 36.1 Vodafone Idea RS 8 — — 241 3.3 28,735 (7.3) (6.3) (4.0) NM NM NM NM NM NM 9.9 8.0 6.1 (1.1) (0.6) (0.5) 251.4 57.2 24.6 — — — 70 Tata Communications BUY 861 975 13 245 3.3 285 29.9 37.3 45.8 28.7 24.5 22.9 28.7 23.1 18.8 8.0 6.9 6.0 NM 61.7 16.2 NM NM 136.3 0.5 0.7 0.8 2.1 Telecommunication Services Attractive 3,092 42.2 59.4 56.4 208.6 NM NM 45.1 7.2 6.0 4.9 6.1 8.2 8.3 NM NM 18.5 2.1 2.1 2.2 281 Transportation Adani Ports and SEZ BUY 349 415 19 709 9.7 2,032 19.3 22.5 24.6 (28.4) 16.5 9.7 18.1 15.5 14.2 13.0 11.1 9.6 2.5 2.2 1.9 14.4 14.9 14.4 1.0 0.9 1.0 21.5 Container Corp. SELL 365 350 (4) 222 3.0 609 7.7 12.6 17.1 (54.7) 63.8 35.6 47 29 21 21.8 15.0 11.6 2.2 2.1 2.0 4.6 7.4 9.7 1.1 1.9 2.5 15.3 Gateway Distriparks BUY 94 135 44 12 0.2 125 4.2 3.6 6.6 0.4 (15.1) 82.6 22.1 26.0 14.2 6.4 6.7 5.5 0.8 0.8 0.8 3.8 3.0 5.4 3.2 3.2 3.2 0.2 GMR Infrastructure BUY 24 26 10 143 2.0 6,036 (5.8) (2.8) (1.6) (95.8) 52.7 41.4 NM NM NM (137.7) 23.6 16.5 (2.6) (2.1) (2.3) 88.2 26.9 16.3 — — — 7.2 Gujarat Pipavav Port BUY 84 111 32 40 0.6 483 4.5 5.8 6.7 (24.9) 27.3 15.7 18.4 14.5 12.5 8.1 7.1 6.1 1.9 2.0 2.0 10.6 13.5 15.7 5.1 6.5 7.4 0.5 InterGlobe Aviation BUY 1,343 1,520 13 517 7.1 383 (202.0) 70.9 107.8 (3,015.5) 135.1 52.1 NM 19 12.5 NM 4.7 3.2 (70.4) 25.9 3.2 NM 433.4 102.0 — — — 48 Mahindra Logistics ADD 340 305 (10) 24 0.3 71 5.3 10.9 14.5 (40.8) 106.4 33.1 65 31 24 19.5 13.1 10.5 4.2 3.8 3.4 6.7 12.9 15.4 — — — 0.5 Transportation Attractive 1,667 22.8 (235.0) 203.3 40.5 NM 25 17.5 37.6 10.3 8.3 4.5 3.9 3.3 NM 16.0 18.7 0.7 0.8 1.0 93 KIE universe 122,231 1668.3 8.6 44.0 21.9 28 19.8 16.2 13.3 10.2 9.0 2.6 2.4 2.2 9.3 12.2 13.7 1.4 1.7 2.0

Notes: (a) We have used adjusted book values for banking companies. (b) 2021 means calendar year 2020, similarly for 2022 and 2023 for these particular companies. (c) Exchange rate (Rs/US$)= 73.28 Source: Company, Bloomberg, Kotak Institutional Equities estimates India Daily Summary Daily Summary India KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -

October 15, 2020 October 15,

KOTAK INSTITUTIONAL EQUITIES RESEARCH 53 Disclosures of of the following trategic transaction As of June 30, 2020 n a merger or s any, noare longer in effect for this stock , if, fair value , any, if for this stock,because is there notsufficient a

fair valuefair

.

Percentage of companies covered by Kotak Institutional Equities, the specifiedwithin category. Percentage of companies each within category for which Kotak Institutional Equities and or its affiliates has provided investment banking services the previouswithin months.12 * The above categories are defined as follows: Buy = We expect this stock to deliver more returns than 15% over the next months;12 Add = We expect this stock to deliver returns 5-15% over the next months;12 Reduce = We expect this stock to deliver returns over -5-+5% the next months;12 Sell = We expect this stock to deliver less returns overthan -5% the next months.12 Our target prices are also on a horizon 12-month basis. These ratings are used illustratively to comply with applicable regulations. As of 30/06/2020 Kotak Institutional Equities Investment Research had investment ratings on 203 equity securities. luded

r r display is not or applicable. months. . The previous investment and rating

SELL 1.5%

19.2% fair valuefair

term volatility in stock prices related to movements in the market.Hence, a particular Ratingmay not , if, any,have been suspended temporarily.Such suspension is in compliance with applicable regulation(s) - 0.5% 11.8% fair valuefair +5% returns over the next 12 months.

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

ake into account short ADD 23.6% 0.5% Kotak SecuritiesKotak has suspended coverage of this company.

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

The information is not meaningful and is therefore exc

Kotak SecuritiesKotak does not cover this company.

The investment and rating

The coverage view represents each analyst’s fundamental overall outlook on the Sector.The coverage viewwill consist of one

Attractive, Neutral, Cautious. BUY 4.4% 45.3% We expect this stock to deliver

We this expect stock to deliver 5 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% 50% 40% 30% 20% 10% 70% 60% Source: Kotak Institutional Equities Kotak Institutional Equities Research coverage universe coverage Research Equities Institutional Kotak Distribution of ratings/investment banking relationships and shouldnot be relied upon. = NA AvailableNot or Applicable.Not = NM Meaningful.Not and/or and/or Kotak Securities policies in circumstances when Securities Kotak or its affiliates is acting in an advisory capacity i involving this company and in certain other circumstances. CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. fundamental basis for determining an investment rating or Other definitions Other Coverage view. designations: ratings/identifiers Other NR = Rated.Not REDUCE. SELL. Our Our Ratings System notdoes t strictly be in accordance with the Rating System all at times. Ratings other and definitions/identifiers ratings of Definitions BUY. ADD. Disclosures

Corporate Office Overseas Affiliates Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc 27 BKC, Plot No. C-27, “G Block” 8th Floor, Portsoken House 369 Lexington Avenue Bandra Kurla Complex, Bandra (E) 155-157 Minories 28th Floor, New York Mumbai 400 051, India London EC3N 1LS NY 10017, USA Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1 212 600 8856

Copyright 2020 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. 1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and 2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. 3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at [email protected]. This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment. Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. 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: Infosys, Petronet LNG - 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, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262. 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. 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