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[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. SELL ONGC (ONGC) Oil, Gas & Consumable Fuels SEPTEMBER 02, 2020 RESULT Sector view: Attractive

Lower costs save the day. ONGC managed to report modest profits in 1QFY21 amid a CMP (`): 80 sharply lower crude price environment contrary to our expectation of a modest loss Fair Value (`): 60 reflecting a meaningful decline in operating costs and exploratory write-offs, both well BSE-30: 39,086 below the usual run-rate. We broadly retain our EPS estimates and reiterate SELL on the stock with an unchanged Fair Value of Rs60. Potential recovery in global crude prices or deregulation of domestic gas prices are key risks to our negative stance.

ONGC Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 150-50 EPS (Rs) 13.5 3.5 7.1 Mcap (bn) (Rs/US$) 1,011/13.9 EPS growth (%) (42.9) (73.9) 101.4 ADTV-3M (mn) (Rs/US$) 1,777/24 P/E (X) 6.0 22.9 11.4 Shareholding pattern (%) P/B (X) 0.4 0.4 0.4 Promoters 60.4 EV/EBITDA (X) 2.8 5.0 3.8 FIIs 8.1 RoE (%) 7.3 1.9 3.8 MFs/BFIs 6.1/11.4 Div. yield (%) 6.2 2.4 3.6 Price performance (%) 1M 3M 12M Sales (Rs bn) 1,782 1,342 1,679 Absolute 3 (5) (34) EBITDA (Rs bn) 630 345 449 Rel. to BSE-30 (1) (18) (37) Net profits (Rs bn) 169 44 89

Sharp decline in operating expenses and exploratory write-offs result in modest profits

ONGC’s revenues were in line with our estimate at Rs130.1 bn, declining 51% yoy in 1QFY21 led by—(1) 2.6% yoy reduction in oil sales volumes and 15.2% reduction in gas sales volumes and (2) sharp 57% decline in oil realizations and 35% decline in domestic gas price. EBITDA declined 61% yoy to Rs59.1 bn, albeit 11% above our estimate reflecting lower-than-expected employee cost and other expenses. The management indicated that some of the cost savings related to operating expenses are sustainable contrary to its historical trends and has guided for a yoy lower run-rate in FY2021, even as variable costs and certain provisions may increase from 1QFY21 levels. ONGC reported standalone net income of Rs4.96 bn (EPS of Rs0.4) versus our estimate of modest loss, further boosted by lower-than-assumed exploratory write-offs, which was partly offset by lower other income and higher tax rate at 45%. Consolidated net income was higher at Rs10.9 bn (EPS of Rs0.9), including—(1) Rs22.5 bn of net income from HPCL, (2) Rs3.3 bn of loss from OVL and (3) Rs5.2 bn of net loss from MRPL. Oil and gas volumes continue to decline, although production guidance remains optimistic

Overall crude oil sales volumes declined 2.6% yoy to 5.15 mn tons reflecting 1.3% decline in production from own fields and 18.6% decline in production from JVs. Overall natural gas sales volumes declined sharply by 15.2% yoy to 4.2 bcm, reflecting 12.7% decline in production from own fields and 32.6% decline in production from JVs partly attributed to lower off-take amid lockdowns. Value-added-products (VAP) sales volumes reduced 28.6% yoy to 0.68 mn tons amid lower demand. OVL reported 10% decline in crude oil as well as gas production volumes to 2.23 mn tons and 1.2 bcm, respectively. The management has maintained rather optimistic production guidance for FY2021—(1) oil volumes to decline modestly by 3% yoy to 22.69 mn tons and (2) gas production volumes to remain steady yoy at 24.9 bcm. Tarun Lakhotia

Retain FY2021-23 EPS estimates and FV of Rs60; SELL stays Hemang Khanna We broadly retain our FY2021-23 EPS estimates as lower oil and gas volumes in FY2021 have been largely offset by reduction in operating expenses and exploratory write-offs. We retain SELL rating on the stock with an unchanged Fair Value of Rs60; our reverse valuation suggests the stock is pricing in Dated Brent crude recovering to over US$48/bbl. Lower operating costs and write-offs for a quarter aside, we see limited upside to earnings and cash flows without any sharp recovery in global crude prices and/or change in domestic gas pricing formula, both of which are key risks to our negative stance on the stock. [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. ONGC Oil, Gas & Consumable Fuels

Exhibit 1: ONGC’s interim results, March fiscal year-ends (Rs mn)

(% chg.) yoy 1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 (% chg.) Net sales 130,113 129,553 265,547 214,562 0.4 (51.0) (39.4) 629,148 962,136 (34.6) Total expenditure (71,036) (76,254) (114,427) (128,683) (6.8) (37.9) (44.8) (356,563) (469,267) (24.0) Increase/(decrease) in stock in trade 1,115 — 141 (4,678) — (2,470) Raw materials (a) (3,967) (4,061) (6,392) (5,882) (2.3) (37.9) (32.6) (19,095) (25,881) (26.2) Staff expenditure (4,985) (6,273) (6,082) (6,115) (20.5) (18.0) (18.5) (23,313) (25,203) (7.5) Statutory levies (29,809) (29,053) (62,361) (48,070) 2.6 (52.2) (38.0) (145,562) (225,708) (35.5) Other expenditure (33,391) (36,866) (39,733) (63,938) (9.4) (16.0) (47.8) (168,592) (190,004) (11.3) EBITDA 59,077 53,299 151,120 85,879 10.8 (60.9) (31.2) 272,585 492,869 (44.7) Other income 4,368 6,331 7,475 13,256 (31.0) (41.6) (67.0) 58,132 61,050 (4.8) Interest (4,918) (7,065) (6,461) (8,695) (30.4) (23.9) (43.4) (24,928) (28,237) (11.7) DD&A (49,492) (54,189) (61,563) (80,370) (8.7) (19.6) (38.4) (228,028) (273,005) (16.5) Depletion (28,963) (28,974) (33,215) (25,396) (0.0) (12.8) 14.0 (132,450) (134,159) (1.3) Depreciation (9,310) (8,652) (8,570) (8,920) 7.6 8.6 4.4 (40,378) (35,150) 14.9 Dry wells written off (5,679) (11,875) (14,519) (26,434) (52.2) (60.9) (78.5) (42,500) (69,958) (39.2) Survey expenses (5,590) (4,688) (8,778) (3,950) 19.3 (36.3) 41.5 (12,750) (16,879) (24.5) Impairment loss and others 50 — 3,520 (15,670) 50— (16,860) Pretax profits 9,035 (1,624) 90,572 10,070 (656.3) (90.0) (10.3) 77,762 252,677 (69.2) Extraordinary/prior-period adjustment — — — (48,991) — (48,991) Current tax (3,360) 275 (23,370) (8,478) (13,709) (70,487) Deferred tax (715) 131 (8,159) 16,415 (3,888) 1,246 Net income 4,960 (1,218) 59,043 (30,983) (507.2) (91.6) (116.0) 60,165 134,445 (55.2) Adjusted net income 4,960 (1,218) 59,043 8,017 (507.2) (91.6) (38.1) 60,165 166,782 (63.9) Adjusted EPS (Rs) 0.4 (0.1) 4.7 0.6 (507.2) (91.6) (38.1) 4.8 13.3 (63.9) Tax rate (%) 45.1 25.0 34.8 20.4 22.6 34.0

Volume data Subsidy loss — — — — — — Crude production ex JVs ('000 tons) 5,068 5,137 5,240 (1.3) (3.3) 20,628 Crude production - JVs ('000 tons) 597 733 579 (18.6) 3.1 2,725 Gas production ex JVs (mcm) 5,351 6,128 5,828 (12.7) (8.2) 23,748 Gas production - JVs (mcm) 194 288 211 (32.6) (8.1) 1,149 Crude production ('000 tons) 5,665 5,870 5,819 (3.5) (2.6) 23,353 Gas production (mcm) 5,545 6,416 6,039 (13.6) (8.2) 24,897 Crude sales ex JVs ('000 tons) 4,443 4,574 4,388 4,693 (2.9) 1.3 (5.3) 17,750 17,977 (1.3) Crude sales - JVs ('000 tons) 707 715 898 741 (1.1) (21.3) (4.6) 3,452 3,360 2.7 Gas sales ex JVs (mcm) 4,124 4,132 4,772 4,517 (0.2) (13.6) (8.7) 18,164 18,528 (2.0) Gas sales - JVs (mcm) 112 177 224 146 (36.6) (50.0) (23.3) 842 874 (3.7) Crude sales ('000 tons) 5,150 5,289 5,286 5,434 (2.6) (2.6) (5.2) 21,203 21,337 (0.6) Gas sales (mcm) 4,236 4,309 4,996 4,663 (1.7) (15.2) (9.2) 19,006 19,402 (2.0) LPG (000 tons) 277 237 249 260 1,100 1,011 Naphtha/NGL (000 tons) 218 249 331 274 1,062 1,176 C2/C3/C4 (000 tons) 161 277 326 304 975 1,224 SKO (000 tons) 7 14 22 5 30 55 Others (000 tons) 17 21 24 23 87 92 Total VAP sales ('000 tons) 680 797 952 866 (14.7) (28.6) (21.5) 3,255 3,558 (8.5)

Pricing data Gross crude price realization (US$/bbl) 28.7 29.4 66.3 49.0 (2.2) (56.7) (41.4) 37.8 58.6 (35.6) Domestic gas price (US$/mn BTU) 2.7 2.7 4.1 3.6 0.0 (35.1) (25.9) 2.3 3.8 (39.4)

Notes: (a) Represents consumption of stores & spares.

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Oil, Gas & Consumable Fuels ONGC

Exhibit 2: ONGC’s own crude production has moderated in recent months Daily crude production volumes from ONGC's fields, April 2012 onwards (ktoe/d)

(ktoe/d) Crude oil production 70

60

50

40

30

20

10

0

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

Oct-12 Oct-15 Oct-19 Oct-13 Oct-14 Oct-16 Oct-17 Oct-18

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

Apr-14 Apr-17 Apr-18 Apr-12 Apr-13 Apr-15 Apr-16 Apr-19 Apr-20

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

Aug-15 Aug-18 Aug-13 Aug-14 Aug-16 Aug-17 Aug-19 Aug-12

Source: MoPNG, Kotak Institutional Equities

Exhibit 3: ONGC’s own gas production has moderated in the recent months Daily gas production volumes from ONGC's fields, April 2012 onwards (mcm/d)

(mcm/d) Natural gas production 80

70

60

50

40

30

20

10

0

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

Oct-12 Feb-13 Feb-15 Oct-15 Oct-17 Feb-18 Oct-13 Feb-14 Oct-14 Feb-16 Oct-16 Feb-17 Oct-18 Feb-19 Oct-19 Feb-20

Apr-15 Apr-18 Apr-12 Apr-13 Apr-14 Apr-16 Apr-17 Apr-19 Apr-20

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

Aug-12 Aug-15 Aug-18 Aug-14 Aug-16 Aug-17 Aug-19 Aug-13

Source: MoPNG, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH ONGC Oil, Gas & Consumable Fuels

Exhibit 4: OVL’s oil and gas volumes declined in 1QFY21 Production volumes of OVL, March fiscal year-ends, 2018-20

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Crude oil (mn tons) Vietnam, Block 06.1 0.005 0.005 0.030 — 0.003 0.003 0.003 0.002 0.002 Sudan, GNOP 0.066 0.068 0.063 0.060 0.058 0.039 — — — Sudan, Block 5A — 0.008 0.045 0.078 0.106 0.144 0.165 0.147 0.185 Russia, Sakhalin-1 0.528 0.624 0.663 0.674 0.639 0.640 0.640 0.636 0.642 Columbia, MECL 0.139 0.135 0.106 0.178 0.166 0.168 0.165 0.173 0.154 Venezuela, Sancristobal 0.070 0.067 0.065 0.055 0.050 0.043 0.031 0.023 0.015 Venezuela, Carabobo 0.031 0.029 0.030 0.024 0.025 0.020 0.022 0.019 0.008 ACG fields 0.168 0.165 0.163 0.160 0.145 0.154 0.147 0.149 0.134 Imperial Energy 0.055 0.054 0.050 0.048 0.054 0.050 0.047 0.045 0.044 Russia, Vankor 1.055 1.060 1.049 0.976 0.935 0.894 0.853 0.810 0.728 Brazil, BC-10 0.133 0.106 0.138 0.138 0.118 0.134 0.145 0.145 0.162 Lower Zakum,UAE 0.176 0.190 0.205 0.186 0.190 0.197 0.211 0.202 0.160 Total crude oil 2.426 2.511 2.607 2.577 2.489 2.486 2.429 2.351 2.234 Natural gas (bcm) Vietnam, Block 06.1 0.368 0.333 0.376 0.473 0.501 0.492 0.437 0.418 0.430 Russia, Sakhalin-1 0.129 0.116 0.182 0.195 0.131 0.110 0.182 0.194 0.131 Brazil, BC-10 0.008 0.007 0.009 0.009 0.008 0.008 0.009 0.010 0.010 A1 & A3 Myanmar 0.206 0.063 0.177 0.251 0.263 0.263 0.277 0.253 0.245 Russia, Vankor 0.425 0.430 0.405 0.400 0.392 0.367 0.372 0.358 0.349 ACG, MECL, IEC & PIVSA 0.043 0.045 0.045 0.041 0.045 0.047 0.044 0.045 0.037 Total natural gas 1.179 0.994 1.194 1.369 1.340 1.287 1.321 1.278 1.202

Source: Company, Kotak Institutional Equities

Exhibit 5: Production and operating costs have increased over the past few years Production and operating costs per barrel, March fiscal year-ends, 2016-22E (US$/boe)

(US$/bbl) Operating costs Production costs 12 10.7 10.1 9.8 9.7 10 9.2 9.1 9.0

8

6

4

2

0 2016 2017 2018 2019 2020 2021E 2022E

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Oil, Gas & Consumable Fuels ONGC

Exhibit 6: Capex has remained elevated over the past few years Standalone capex per barrel versus DD&A expenses, March fiscal year-ends, 2016-22E (US$/boe)

(US$/bbl) DD&A Capex 18 15.7 16 14.7 14 12.1 11.6 12.0 12 11.2 10.4 10.2 9.9 9.8 9.6 10 8.1 7.9 8.3 8

6

4

2

0 2016 2017 2018 2019 2020 2021E 2022E

Source: Company, Kotak Institutional Equities estimates

Exhibit 7: We expect sharp decline in domestic gas prices in the upcoming revision Domestic gas price, 2HFY15 onwards (US$/mn BTU)

(US$/mn BTU) India domestic gas price (NCV) 6 5.6 5.2 5 4.2 4.1 4 3.7 3.6 3.4 3.4 3.2 3 2.8 2.8 2.7 2.0 1.9 2

1

0

E E

2HFY16 1HFY17 2HFY17 1HFY19 2HFY19 1HFY21 2HFY21 1HFY16 1HFY18 2HFY18 1HFY20 2HFY20 1HFY22 2HFY15

Source: PPAC, Bloomberg, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH ONGC Oil, Gas & Consumable Fuels

Exhibit 8: We assume lower oil realizations and domestic gas prices in FY2021-22 Key assumptions, March fiscal year-ends, 2016-23E

2016 2017 2018 2019 2020 2021E 2022E 2023E Macro assumptions Exchange rate (Rs/US$) 65.5 67.1 64.5 69.9 70.8 75.5 76.0 77.0 Subsidy loss (Rs bn) 11 — — — — — — — Import tariff on crude oil (%) — — — — — — — — Pricing and volumes assumptions Crude price Crude price, Dated Brent (US$/bbl) 47.5 49.0 57.6 70.2 60.9 40.0 45.0 50.0 Gross realized crude price, India (US$/bbl) 48.3 50.3 57.3 70.2 60.8 39.1 44.3 49.4 Net realized crude price, India (US$/bbl) 47.1 50.3 57.3 70.2 60.8 39.1 44.3 49.4 Natural gas price Natural gas price, India (Rs/cu m) 12.2 8.2 7.6 9.9 10.5 7.0 6.0 7.6 Natural gas price, India (US$/mn BTU) 4.7 3.1 3.0 3.6 3.8 2.3 2.0 2.5 Sales volumes—Domestic fields Crude oil - own fields (mn tons) 19.8 19.8 19.7 18.5 18.0 17.8 18.6 18.4 Crude oil - JV (mn tons) 4.3 4.0 3.9 4.0 4.3 3.5 4.1 4.5 Natural gas - own fields (bcm) 16.1 17.0 18.6 19.6 18.5 18.2 22.2 21.8 Natural gas - JV (bcm) 1.0 0.9 0.9 0.9 0.9 0.8 0.9 0.8 Sales volumes—Overseas fields Crude oil (mn tons) 5.5 8.4 9.4 10.1 9.8 10.0 9.7 9.6 Natural gas (bcm) 3.4 4.4 4.8 4.7 5.2 4.9 4.8 4.8 Total sales Crude oil (mn tons) 29.7 32.3 33.0 32.6 32.0 31.2 32.4 32.5 Natural gas (bcm) 20.5 22.3 24.3 25.2 24.6 23.9 27.9 27.4 Total sales (mn toe) 48.1 52.4 54.9 55.3 54.2 52.7 57.5 57.2 Total sales (mn boe) 351 382 401 404 396 385 419 417 Crude oil (%) 62 62 60 59 59 59 56 57 Natural gas (%) 38 38 40 41 41 41 44 43

Source: Company, Kotak Institutional Equities estimates

Exhibit 9: ONGC's earnings are highly sensitive to oil and gas prices and exchange rate assumptions EPS sensitivity of ONGC to crude, gas price and exchange rate, March fiscal year-ends, 2021-22E 2021E 2022E Downside Base case Upside Downside Base case Upside Exchange rate Exchange rate (Rs/US$) 74.5 75.5 76.5 75.0 76.0 77.0 Net profits (Rs mn) 39,050 45,307 51,563 81,280 88,383 95,486 Earnings per share (Rs) 3.1 3.6 4.1 6.5 7.0 7.6 % upside/(downside) (13.8) 13.8 (8.0) 8.0 Average crude realization Net crude realization (US$/bbl) 38.1 39.1 40.1 43.3 44.3 45.3 Net profits (Rs mn) 35,591 45,307 55,023 78,540 88,383 98,225 Earnings per share (Rs) 2.8 3.6 4.4 6.2 7.0 7.8 % upside/(downside) (21.4) 21.4 (11.1) 11.1 Natural gas prices Natural gas price (US$/mn BTU) 1.8 2.3 2.8 1.5 2.0 2.5 Net profits (Rs mn) 31,064 45,307 59,549 72,606 88,383 104,160 Earnings per share (Rs) 2.5 3.6 4.7 5.8 7.0 8.3 % upside/(downside) (31.4) 31.4 (17.9) 17.9

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Oil, Gas & Consumable Fuels ONGC

Exhibit 10: We compute Fair Value of ONGC at Rs60/share Fair Value of ONGC, March 2022E (Rs/share)

March 2022E consolidated EPS 7.0 Less: income from investments valued separately 0.4 March 2022E EPS (adjusted) 6.6 P/E (X) 11 Valuation of operating business 73 Write-off of acquisition cost for Mozambique block (24) Valuation of investments 11 IOCL 7 PLNG 3 GAIL 1 Fair value 60

Source: Kotak Institutional Equities estimates

Exhibit 11: Combined financials of ONGC, OVL and MRPL, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020E 2021E 2022E 2023E Profit model (Rs mn) Net sales 1,295,756 1,394,116 1,557,541 2,053,357 1,781,934 1,342,091 1,678,643 1,849,352 EBITDA 472,852 539,958 573,182 760,518 630,337 345,112 449,113 565,137 Other income 82,532 60,913 84,521 81,363 68,371 65,637 79,239 80,737 Finance cost (31,505) (28,659) (41,559) (46,951) (57,563) (54,942) (58,719) (59,249) Depreciation, depletion and amortization (230,932) (236,807) (285,510) (321,142) (351,259) (308,502) (350,783) (373,315) Pretax profits 292,947 335,405 330,635 473,787 289,886 47,305 118,851 213,311 Current tax (68,608) (69,177) (69,194) (148,499) (102,516) (5,572) (24,316) (45,994) Deferred tax (16,258) (37,264) (32,418) (22,093) 13,724 (2,651) (5,976) (10,263) Net profits 151,355 222,987 231,504 287,287 111,944 39,082 88,559 157,053 Adjusted net profits after minority interests 174,218 216,692 223,468 296,326 169,344 44,174 88,986 156,749 Adjusted EPS (Rs) 13.6 16.9 17.4 23.6 13.5 3.5 7.1 12.5

Balance sheet (Rs mn) Equity 2,019,567 2,261,254 2,290,529 2,402,550 2,312,275 2,340,144 2,425,140 2,521,248 Deferred tax liability 208,099 238,457 283,946 297,288 269,869 272,520 278,496 288,760 Liability for abandonment cost 235,593 235,206 259,746 276,394 276,394 276,394 276,394 276,394 Borrowings 392,148 568,924 818,939 808,261 738,382 799,382 816,882 827,382 Other liabilities 550,109 414,469 445,286 471,397 606,300 623,915 654,623 668,276 Total liabilities and equity 3,405,517 3,718,311 4,098,446 4,255,890 4,203,221 4,312,354 4,451,535 4,582,060 Cash and equivalent 250,199 130,554 32,430 16,974 10,522 80,169 115,195 205,100 Current assets 620,530 628,481 699,369 816,509 908,874 880,193 926,081 949,768 Fixed and intangible assets 2,062,589 2,331,733 2,490,533 2,552,212 2,511,653 2,566,969 2,592,625 2,609,558 Goodwill 167,378 167,378 98,753 100,946 121,915 134,767 167,378 167,378 Investments 301,401 444,588 760,477 753,514 631,549 631,549 631,549 631,549 Deferred expenditure 3,420 15,577 16,884 15,735 18,708 18,708 18,708 18,708 Total assets 3,405,517 3,718,311 4,098,446 4,255,890 4,203,221 4,312,354 4,451,535 4,582,060

Free cash flow (Rs mn) Operating cash flow, excl. working capital 358,988 386,698 453,380 549,020 466,729 210,805 273,445 353,533 Working capital changes 145,704 (30,051) (3,459) (104,149) 151,459 46,296 (15,180) (10,034) Capital expenditure (313,908) (466,654) (400,224) (330,171) (407,943) (290,026) (283,804) (283,888) Investments (668) (104,608) (59) (1,530) (2,550) — — — Other income 39,917 45,828 62,980 49,828 42,148 65,637 79,239 80,737 Free cash flow 230,033 (168,788) 112,617 162,998 249,843 32,713 53,700 140,349

Ratios (%) Debt/equity 19.4 25.2 35.8 33.6 31.9 34.2 33.7 32.8 Net debt/equity 7.0 19.4 34.3 32.9 31.5 30.7 28.9 24.7 RoAE 7.0 9.1 9.0 11.0 4.6 1.7 3.4 5.7 RoACE 8.7 9.5 9.3 11.2 6.6 2.9 4.5 6.6

Key assumptions Exchange rate (Rs/US$) 65.5 67.1 64.5 69.9 70.8 75.5 76.0 77.0 Net realized crude price, India (US$/bbl) 47.1 50.3 57.3 70.2 60.8 39.1 44.3 49.4 Natural gas price, India (US$/mn BTU) 4.7 3.1 3.0 3.6 3.8 2.3 2.0 2.5 Subsidy loss (Rs bn) 11 — — — — — — —

Source: Company, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH ONGC Oil, Gas & Consumable Fuels

Exhibit 12: Consolidated financials of ONGC, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020E 2021E 2022E 2023E Profit model (Rs mn) Net sales 1,240,742 1,257,846 3,227,058 4,213,853 4,250,014 2,781,211 3,411,579 3,671,172 EBITDA 459,811 473,917 659,369 854,946 611,687 424,269 529,465 656,872 Other income 81,448 79,153 74,681 81,488 85,316 66,212 81,582 82,205 Finance cost (37,656) (29,534) (49,990) (58,367) (69,998) (69,132) (75,418) (78,627) Depreciation, depletion and amortization (232,305) (229,747) (321,597) (348,767) (356,583) (345,623) (395,754) (421,207) Pretax profits 271,298 293,789 362,462 529,299 270,422 75,727 139,876 239,243 Extraordinary items (77,714) 11,372 6,466 (15,529) (90,285) — — — Effective tax (71,226) (101,079) (135,380) (209,183) (75,080) (26,878) (46,608) (74,136) Net profits 122,358 204,082 233,548 304,587 105,057 48,849 93,268 165,107 Share of associates/minority interest 6,394 897 (12,489) 363 10,544 (3,542) (4,885) (7,813) Adjusted net profits after minority 177,872 197,374 216,966 314,156 168,256 45,307 88,383 157,294 Adjusted EPS (Rs) 13.9 15.4 16.9 25.0 13.4 3.6 7.0 12.5

Balance sheet (Rs mn) Equity 1,978,136 2,211,895 2,040,189 2,181,408 2,069,677 2,090,918 2,143,127 2,239,798 Minority interest 26,518 41,243 156,060 181,062 178,128 181,670 186,556 194,369 Deferred tax liability 281,028 311,020 415,059 473,668 461,382 467,514 477,320 491,796 Borrowings 445,477 556,819 1,012,461 1,021,064 1,036,579 1,121,579 1,185,079 1,212,079 Other liabilities 694,697 581,079 978,580 1,099,819 1,293,215 1,312,096 1,400,343 1,441,475 Total liabilities and equity 3,425,856 3,702,056 4,602,349 4,957,021 5,038,981 5,173,777 5,392,424 5,579,516 Cash and equivalent 246,890 130,136 50,628 51,034 57,041 125,969 158,433 247,547 Fixed and intangible assets 1,509,467 1,599,858 2,118,473 2,187,779 2,149,357 2,465,027 2,628,611 2,617,595 Capital WIP 576,685 571,693 615,119 690,564 838,324 668,390 572,889 621,349 Other assets 758,946 788,772 1,144,705 1,358,453 1,487,668 1,381,050 1,472,401 1,506,183 Investments 333,869 611,597 673,425 669,190 506,592 533,342 560,092 586,842 Total assets 3,425,856 3,702,056 4,602,349 4,957,021 5,038,981 5,173,777 5,392,424 5,579,516

Free cash flow (Rs mn) Operating cash flow, excl. working capital 367,075 368,225 536,135 672,518 537,784 334,391 417,245 518,585 Working capital 71,864 (23,127) 2,543 (99,639) 133,674 125,499 (3,104) 7,350 Capital expenditure (403,920) (304,106) (339,781) (445,542) (595,722) (491,359) (463,836) (458,651) Free cash flow 35,019 40,992 198,897 127,337 75,736 (31,468) (49,696) 67,283 Other income 35,579 40,921 70,633 112,837 68,293 66,212 81,582 82,205

Ratios (%) Debt/equity 22.8 25.7 53.7 51.0 54.8 58.7 60.6 59.3 Net debt/equity 10.2 19.7 51.0 48.5 51.8 52.1 52.5 47.2 RoAE 9.0 9.4 10.2 14.9 7.9 2.2 4.2 7.2 RoACE 7.2 7.4 7.7 9.3 5.2 2.5 3.7 5.4

Key assumptions Exchange rate (Rs/US$) 65.5 67.1 64.5 69.9 70.8 75.5 76.0 77.0 Net realized crude price, India (US$/bbl) 47.1 50.3 57.3 70.2 60.8 39.1 44.3 49.4 Natural gas price, India (US$/mn BTU) 4.7 3.1 3.0 3.6 3.8 2.3 2.0 2.5 Subsidy loss (Rs bn) 11 — — — — — — —

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 ADD Jubilant Foodworks (JUBI) Hotels & Restaurants SEPTEMBER 03, 2020 RESULT Sector view: Attractive

Emergence of ‘trust economy’ lends more power to the story. Covid-19 adds a CMP (`): 2,251 ‘share gain’ leg to the already-powerful ‘exemplary execution in a fast-growing end- Fair Value (`): 2,500 market’ story of JUBI. Restaurant mortality in the QSR and casual dining space is likely BSE-30: 39,086 to jump sharply and consumer preference shift towards more trusted brands, this (1) positions JUBI well and (2) will likely reduce the pace of fragmentation in the food- delivery market for a number of years. The pandemic is also likely to result in the company finding some fresh, structural cost savings. ADD stays (revised FV: Rs2,500).

Jubilant Foodworks Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 2,286-1,138 EPS (Rs) 23.6 12.9 34.1 Mcap (bn) (Rs/US$) 298/4.1 EPS growth (%) (2.2) (45.1) 163.1 ADTV-3M (mn) (Rs/US$) 1,916/26 P/E (X) 95.5 173.9 66.1 Shareholding pattern (%) P/B (X) 26.3 24.7 18.8 Promoters 41.9 EV/EBITDA (X) 33.1 39.8 25.3 FIIs 36.2 RoE (%) 26.1 14.7 32.3 MFs/BFIs 11.9/3.5 Div. yield (%) 0.3 0.2 0.5 Price performance (%) 1M 3M 12M Sales (Rs bn) 39 33 44 Absolute 31 32 89 EBITDA (Rs bn) 9 7 11 Rel. to BSE-30 26 15 81 Net profits (Rs bn) 3 2 5

1QFY21—decent quarter; sales recovery tracking well in current quarter Revenues declined 60% yoy to Rs3.8 bn led by 61.4% decline in SSG (KIE -68%). Key highlight is recovery in monthly sales from Apr to Aug 2020 on like-for-like basis: 38.9%, 50.9%, 62.7%, 77.8% and 89.3%. In Aug 2020, delivery was up 11% yoy, takeaway was up 61% yoy and dine-in was down 81% yoy (all like-for-like; negligible dine-in was largely due to lockdown restrictions). GM was up 255 bps yoy to 78% led by RM tailwinds, lower discounts and introduction of delivery fee starting June. Renegotiation of rent aided cost savings of Rs294 mn (about 30% of rent outgo). Variabalization of manpower costs and cut in discretionary expenses cushioned profitability. EBITDA was Rs241 mn (KIE: negative Rs1 bn) and EBITDA margin stood at 6.3%. Net loss was contained at Rs726 mn (KIE: Rs1.67 bn).

JUBI— in a sweet spot and pushing structural improvements JUBI will emerge stronger from the Covid crisis as (1) consumer reluctance to dine in would strain financials forcing several restaurants out of business (about 20% of restaurants listed on food delivery platforms have not opened since April), (2) Pizza lends well to delivery and travels better than most food items, (3) trusted brands would gain over dark/cloud kitchens as confidence in food safety will influence consumer preferences, (4) owned delivery fleet lends competitive advantage to JUBI, (5) JUBI’s value-positioning has improved as food-delivery companies have reduced discounting, (6) pressure on commercial real estate could open up attractive long-term lease opportunities, and (7) attrition and wage pressure on the delivery employees’ side could recede for a while. Rohit Chordia

Additionally, JUBI is taking initiatives to drive structural improvement in its business model and Jaykumar Doshi economics. For instance, introduction of delivery fee of Rs30 has found acceptance. JUBI has variabalized manpower costs and is in the process of renegotiating lease rentals. Network optimization is underway wherein JUBI plans to shut down 105 unprofitable stores (mostly Aniket Sethi dine-in centric stores) and open 100 new stores (delivery/takeaway-centric format). RM price environment is benign. We forecast 320 bps expansion in EBITDA margin over FY2020-22E

We increase FY2021-23 EPS estimates by 12-46% and revise FV to Rs2,500 We reduce store count as we factor network optimization, increase profitability in view of gross margin expansion and cost optimization initiatives revise DCF-based FV to Rs2,500 from Rs1,750. Maintain ADD. [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. Jubilant Foodworks Hotels & Restaurants

Conference call takeaways

 Current situation. About 1,126 stores (83% of total store count) are operational and servicing nearly 100% of its delivery area. Delivery/takeaway sales have fully reversed and registered strong growth in the month of August. Dine-in is still subdued due to lockdown restrictions in most markets. Monthly like-for-like (LFL) sales recovery (restaurants temporarily closed due to Covid-19 removed from respective months in last year): Apr to Aug 2020: 38.9%, 50.9%, 62.7%, 77.8% and 89.3%. Overall sales recovery (compared to the previous year): Apr to Aug 2020: 24.1%, 39.8%, 56.1%, 69.8% and 84.6%. Please refer to exhibit 3 for additional details. JUBI management expects normalcy by 4QFY21.

 Gross margin outlook has improved. JUBI reported 78% gross margin in 1QFY21, the highest in the company’s history and about 300 bps above its normative gross margin of 75%. The management attributed gross margin improvement to (1) a benign RM price environment, (2) lower discounting/schemes, and (3) introduction of delivery fee of Rs32 per order. The management expects benign RM price environment to continue, (2) delivery fee has found acceptance and is here to stay as customers are willing to pay for convenience. Food delivery platforms have driven this change in consumer mindset, (3) discounts/schemes may partially come back once the environment normalizes. That said, we believe that competitive intensity on this front will be much lower than that pre-Covid levels as food delivery platforms are unlikely to go back to heavy-discounting. Thus, Domino’s value-positioning will relatively strengthen even after factoring lower discounting + delivery fee. We have modeled gross margin of 78% and 77.3% for FY2021E and FY2022E as against 75% in FY2020.

 Cost measures. JUBI has variabalized manpower costs and moved away from full-timers and part-timers to flexi-timers. Under this arrangement, the company compensates its store-level workforce on an hourly basis and manages costs better during off-peak hours. Network optimization is underway— JUBI will close 105 unprofitable stores and open 100 new stores in FY2021, maintaining overall store count. These 105 stores that will be shut are dine-in heavy (say 2/3rd sales from dine-in); over 50% are in malls and balance in tech parks/private channels. New stores will have delivery/takeaway centric design except for in tier 2/3 towns wherein JUBI would continue to open stores with sizeable dine-in capacity. Rent renegotiation/waivers reduced rental costs by Rs294 mn (about 30% of total lease costs) in 1QFY21. The management indicated that negotiations are underway aiming at permanent reset in rent. Additionally, JUBI is planning to get out of AMCs and move to incidence based costs. Optimization of logistics and warehousing costs is underway. Discretionary expenses are tightly controlled in the current environment. We believe that variabalization of manpower costs, rent renegotiation and network optimization would drive sustainable cost savings

 Near-term trends. (1) Organized players in the food business will benefit as consumers will look for trusted and credible players. Secondly, competitive intensity will reduce as some players can look to exit, especially casual-dining formats. (2) Social-distancing measures will mean dine-in business continues to be impacted. (3) Consumers are looking less for discounts and more for trust.

 Store openings. JUBI plans to open 100 new Domino’s stores in FY2021 and shutdown 105 unprofitable ones, keeping overall store count intact. Further, JUBI is planning 15 Hong’s Kitchen stores, 5 new Domino’s store each in Sri Lanka and Bangladesh. Store addition would accelerate in FY2022.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Hotels & Restaurants Jubilant Foodworks

 M&A strategy. JUBI management indicated that the company is conservative when it comes to M&A. That said, it is looking at M&A opportunities that have emanated due to Covid. Separately, JUBI management indicated that it sees significant potential in its existing cuisines/markets and new cuisines it has entered— (1) Domino’s can scale up to 3,000 stores (about 1,350 at present) in India in the medium term, (2) there is opportunity for 300-400 stores combined in Sri Lanka and Bangladesh in the medium term, (3) Hong’s Kitchen has the potential to become a large and successful Chinese fast- casual chain, (4) JUBI is also piloting Biryani under a new brand.

 Foray into FMCG. During the quarter, JUBI launched ready-to-cook products (masala paste, gravy mixtures and cooking sauces) under the brand CHEFBOSS. The management indicated that it has expertise and supply-chain capabilities required for ready-to-cook and ready-to-eat products. It is a small start but the company is focused about this venture.

 Other data points. (1) Online ordering stood at 99% in 1QFY21, up 1,000 bps qoq and 1,800 bps yoy, (2) mobile ordering within online stood at 98% for 1Q, +200 bps qoq and +900 bps yoy, (3) app downloads stood at 37.5 mn, +4.4 mn qoq and +15.9 mn yoy and (4) the management has indicated that store closures would not have any material impact in terms of one-time costs on FY2021 financials.

Exhibit 1: Interim standalone results of Jubilant Foodworks, March fiscal year-ends (Rs mn)

(% chg.) 1QFY21 1QFY21E 1QFY20 4QFY20 KIE yoy qoq FY2021E FY2020 (% chg.) EOP # of stores (excluding DD) 1,354 1,335 1,249 1,335 1,345 1,335 1 # of cities present in 288 — 276 282 Same store sales growth (%) (61.5) (68.0) 4.1 (3.4) 650 bps -6560 bps -5810 bps (21.4) 2.7 -2407 bps Net sales 3,803 3,246 9,401 8,979 17 (60) (58) 32,666 38,858 (16) Net operating revenues 3,803 3,246 9,401 8,979 17 (60) (58) 32,666 38,858 (16) Material cost (836) (795) (2,307) (2,296) 5 (64) (64) (7,147) (9,707) (26) Gross Profit 2,967 2,451 7,093 6,682 21 (58) (56) 25,519 29,151 (12) Gross margin (%) 78.0 75.5 75.5 74.4 252 bps 256 bps 360 bps 78.1 75.0 310 bps Employee cost (1,499) (1,457) (1,842) (1,960) 3 (19) (24) (7,824) (7,846) (0) Other expenditure (1,228) (1,993) (3,061) (3,027) (38) (60) (59) (10,689) (12,534) (15) Total expenditure (3,562) (4,246) (7,210) (7,284) (16) (51) (51) (25,660) (30,087) (15) EBITDA 241 (999) 2,191 1,695 (124) (89) (86) 7,006 8,771 (20) EBITDA margin (%) 6.3 (30.8) 23.3 18.9 3711 bps -1698 bps -1255 bps 21.4 22.6 -113 bps Other income 127 140 153 204 (10) (17) (38) 570 688 (17) Interest (419) (435) (395) (410) (1,660) (1,635) — Depreciation (908) (930) (808) (916) (2) 12 (1) (3,769) (3,441) 10 Pretax profits (960) (2,224) 1,141 573 (57) (184) (268) 2,146 4,383 (51) Tax 233 552 (393) (121) (58) (159) (293) (637) (1,154) (45) PAT (726) (1,673) 748 452 (57) (197) (261) 1,510 3,229 (53) Extraordinary items — — — (242) — (475) Net profit (reported) (726) (1,673) 748 210 (57) (197) (445) 1,510 2,754 (45) EPS (5.5) (12.7) 5.7 3.4 (57) (197) (261) 13.7 20.9 (34) Income tax rate (%) 24.3 24.8 34.4 21.1 -52 bps -1015 bps 320 bps 29.7 26.3 333 bps Costs as a % of sales Material cost 22.0 24.5 24.5 25.6 -253 bps -257 bps -361 bps 21.9 25.0 -311 bps Employee cost 39.4 44.9 19.6 21.8 -549 bps 1981 bps 1757 bps 24.0 20.2 376 bps Rent — 4.5 — — -455 bps 0 bps 0 bps 0.0 0.0 0 bps Other expenditure 32.3 56.8 32.6 33.7 -2457 bps -27 bps -143 bps 32.7 32.3 46 bps

Source: Company, Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Jubilant Foodworks Hotels & Restaurants

Exhibit 2: Key changes to model, Jubilant Foodworks (consolidated), March fiscal year-ends, Rs mn

FY2020-22E Revised Earlier Change (%) CAGR (%) / Change (bps) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Revised Earlier Revenues (Rs mn) 33,081 44,244 52,280 35,235 46,496 54,056 (6.1) (4.8) (3.3) 6.1 8.8 EBITDA (Rs mn) 7,290 11,273 13,474 6,719 10,889 12,803 8.5 3.5 5.2 13.5 11.5 EBITDA (%) 22.0 25.5 25.8 19.1 23.4 23.7 318 bps 112 bps PAT (Rs mn) 1,721 4,545 5,945 1,182 4,037 5,249 45.6 12.6 13.3 20.6 13.7 EPS (Rs/share) 12.9 34.1 44.4 8.9 30.2 39.2 45.6 12.6 13.3 20.2 13.3

Revenue growth (%) (15.8) 33.7 18.2 (10.3) 32.0 16.3 SSG (%) (21.4) 29.8 9.1 (16.6) 24.5 8.2 Store count EOP 1,390 1,530 1,680 1,455 1,590 1,730

Source: Kotak Institutional Equities estimates

Exhibit 3: Sales recovery trends in 1HFY21E so far

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Hotels & Restaurants Jubilant Foodworks

Exhibit 4: Store re-opening in 1HFY21E so far

Source: Company, Kotak Institutional Equities

Exhibit 5: SSG print impacted by Covid

40 26.525.9 30 17.8 20.5 14.6 20 6.6 4.6 4.2 6.5 5.5 6.0 4.1 4.9 5.9 10 1.9 3.2 2.0 2.9 (3.2) (3.3) (3.4) - (7.5) (10) (20) (30) (40) (50) (60) (61.4)

(70)

4QFY15 1QFY16 4QFY16 1QFY17 3QFY17 4QFY17 3QFY18 4QFY18 3QFY19 4QFY19 3QFY20 4QFY20 2QFY16 3QFY16 2QFY17 1QFY18 2QFY18 1QFY19 2QFY19 1QFY20 2QFY20 1QFY21 3QFY15

Source: Company, Kotak Institutional Equities

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Jubilant Foodworks Hotels & Restaurants

Exhibit 6: JUBI- EBITDA margin trends

30

23.823.9 25 23.3

18.9 20 18.4 17.2 16.616.7 17.1 16.4 14.1 15 13.1 12.9 11.8 11.411.5 11.7 10.2 9.5 9.6 9.7 9.9 10 `

5 6.3

0

3QFY15 4QFY15 2QFY16 1QFY17 3QFY17 4QFY17 2QFY18 1QFY19 3QFY19 4QFY19 2QFY20 1QFY21 3QFY16 4QFY16 2QFY17 1QFY18 3QFY18 4QFY18 2QFY19 1QFY20 3QFY20 4QFY20 1QFY16 Notes: (1) Adoption of Ind-AS 116 starting boosted EBITDA margin by about 750-800 bps starting FY2020.

Source: Company, Kotak Institutional Equities

Exhibit 7: Per store quarterly cost/profit economics for Jubilant Foodworks

Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Per store basis analysis (Rs mn) Net revenues 7.27 7.41 7.64 6.95 7.41 7.62 7.93 6.58 2.85 Cost of materials 1.85 1.88 1.87 1.66 1.82 1.88 1.99 1.68 0.61 Gross profit 5.42 5.53 5.77 5.28 5.59 5.74 5.94 4.90 2.15 Employee costs 1.31 1.43 1.46 1.36 1.45 1.52 1.55 1.44 1.09 Rent 0.71 0.70 0.71 0.70 0.17 0.16 0.15 0.16 0.11 Other expenses 2.18 2.16 2.20 2.04 2.25 2.25 2.34 2.06 1.35 EBITDA 1.21 1.24 1.40 1.19 1.73 1.81 1.90 1.24 0.17 D&A 0.31 0.32 0.31 0.32 0.64 0.65 0.66 0.67 0.66 EBIT 0.90 0.92 1.10 0.86 1.09 1.17 1.24 0.57 (0.48) yoy % change Net revenues 26.4 20.1 12.9 4.3 1.9 2.9 3.8 (5.2) (61.5) Cost of materials 36.2 18.0 8.3 (2.8) (1.9) 0.2 6.5 1.2 (66.6) Gross profit 23.4 20.9 14.4 6.8 3.1 3.8 2.9 (7.3) (61.4) Employee costs 5.4 7.8 7.9 11.8 10.4 6.3 6.5 6.0 (25.0) Rent 6.9 13.1 6.6 (4.0) (76.8) (77.2) (78.9) (77.9) (35.0) Other expenses 21.0 22.6 18.2 6.7 2.9 4.0 6.4 1.2 (40.0) EBITDA 79.2 43.1 20.5 8.7 42.9 46.2 35.3 4.8 (89.9) D&A (20.6) (2.0) (8.4) (0.6) 104.7 99.9 114.8 109.2 3.6 EBIT 218.0 70.9 32.1 12.6 21.5 27.3 13.1 (34.0) (144.5)

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Hotels & Restaurants Jubilant Foodworks

Exhibit 8: JUBI added 19 (net) Domino’s stores in 1QFY21 Exhibit 9: End-June 2020 store count at 1,354

50 1,600

1,400 40 42 41 40 1,200

38 39

1,354 1,335 1,335 36 36 1,325

35 35 1,000 1,283 1,249 30 34 1,227

33 1,200

32 1,167

1,144

1,127 1,127 1,134

1,125 1,125 1,125

1,117 1,117

1,107 1,081

800 990

1,049 1,026 27 950

26 911 876

20 23 23 838 22 600 797 ` 761 ` 19 400 10 10 10 10 200 8 - 2 7

- -

2QFY15 3QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 1QFY18 2QFY18 4QFY18 1QFY19 2QFY19 3QFY19 1QFY20 2QFY20 4QFY20 1QFY21 1QFY15 4QFY15 4QFY17 3QFY18 4QFY19 3QFY20

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 3QFY20 4QFY20 1QFY21 2QFY17 3QFY17 4QFY19 1QFY20 2QFY20 1QFY17

Source: Company Source: Company

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Jubilant Foodworks Hotels & Restaurants

Exhibit 10: Profit model, balance sheet, cash model of Jubilant Foodworks (consolidated), March fiscal year-ends, 2016-2023E

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model Net revenues 20,928 24,380 25,834 30,184 35,631 39,273 33,081 44,244 52,280 EBITDA 2,551 2,637 2,411 4,401 5,998 8,756 7,290 11,273 13,474 Other income 75 116 147 231 474 696 578 721 1,009 Interest expense — — — — — (1,652) (1,660) (1,664) (1,785) Depreciation (1,011) (1,282) (1,554) (1,664) (1,575) (3,523) (3,851) (4,105) (4,554) Pretax profits 1,615 1,470 1,004 2,968 4,897 4,277 2,358 6,226 8,144 Tax (504) (501) (346) (1,047) (1,717) (1,154) (637) (1,681) (2,199) Net income 1,111 969 658 1,921 3,180 3,123 1,721 4,545 5,945 Extraordinary items — — (80) 42 — (335) — — — Reported Net income 1,111 969 578 1,962 3,180 2,788 1,721 4,545 5,945 Earnings per share (Rs) 8.4 7.4 5.0 14.6 24.1 23.6 12.9 34.1 44.4 Balance sheet Total shareholder's equity 6,714 7,620 8,053 9,677 12,622 11,327 12,102 16,011 20,194 Total borrowings — — — — — — — — — Deferred tax liability 624 729 693 550 500 (746) (746) (746) (746) Total liabilities and equity 7,338 8,350 8,746 10,227 13,122 10,581 11,355 15,265 19,448 Net fixed assets 7,572 8,546 8,609 8,034 8,252 8,989 9,042 9,628 10,305 Investments 746 908 936 2,631 1,808 512 512 512 512 Cash 389 332 354 1,290 4,943 6,559 6,644 10,920 15,219 Net current assets (1,369) (1,436) (1,153) (1,729) (1,881) (5,479) (4,842) (5,795) (6,587) Total assets 7,338 8,350 8,746 10,227 13,122 10,581 11,355 15,265 19,448 Free cash flow Operating cash flow, excl. working capital 2,273 2,425 1,979 3,178 4,271 7,360 3,153 5,999 7,312 Working capital changes 488 (308) 57 912 (14) (82) (637) 953 792 Capital expenditure (2,872) (2,273) (2,009) (1,193) (1,671) (2,830) (2,123) (2,762) (3,052) Free cash flow (111) (156) 26 2,897 2,585 4,448 394 4,190 5,052 Growth Revenue growth 20.5 16.5 6.0 16.8 18.0 10.2 (15.8) 33.7 18.2 EBITDA growth 2.2 3.4 (8.6) 82.5 36.3 46.0 (16.7) 54.6 19.5 EPS growth (6.1) (12.8) (32.2) 191.7 65.6 (2.2) (45.1) 163.1 30.3 Ratios Gross margin (%) 74.8 76.2 75.6 74.6 75.1 75.0 78.0 77.3 77.3 EBITDA margin (%) 12.2 10.8 9.3 14.6 16.8 22.3 22.0 25.5 25.8 Net profit margin (%) 5.3 4.0 2.5 6.4 8.9 8.0 5.2 10.3 11.4 ROE (%) 18.2 13.5 8.4 21.7 28.5 26.1 14.7 32.3 32.8 ROCE (%) 23.1 17.3 10.0 28.8 37.9 26.4 12.7 23.3 24.1 Key assumptions No of stores 930 1,097 1,180 1,171 1,259 1,370 1,390 1,530 1,680 Store addition yoy 178 167 83 (9) 88 111 20 140 150 SSG (%) 0.1 3.2 (2.4) 13.9 16.4 2.7 (21.4) 29.8 9.1 No of employees 27,122 27,719 26,604 27,539 28,286 31,395 32,490 35,763 39,662

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 ADD J K Cement (JKCE) Construction Materials SEPTEMBER 02, 2020 RESULT Sector view: Attractive

New plants cushion market weakness. JKCE’s 1QFY21 EBITDA was 12% above our CMP (`): 1,487 estimates due to lower-than-expected costs despite weaker realizations. The recently Fair Value (`): 1,550 commissioned 4.2 mtpa capacity helped JKCE outperform the market with just 19% BSE-30: 39,086 yoy volume decline in 1QFY21. The company expects volumes to grow in FY2021E led by new plants against an industry decline of 10-15% yoy. JKCE would complete all its existing expansion in FY2022E and strong FCF would allow it to evaluate future growth projects. We revise Fair Value to Rs1,550 (from Rs1,525) and maintain ADD rating.

J K Cement Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 1,615-795 EPS (Rs) 64.2 52.2 96.1 Mcap (bn) (Rs/US$) 115/1.6 EPS growth (%) 83.6 (18.7) 84.0 ADTV-3M (mn) (Rs/US$) 138/2 P/E (X) 23.1 28.5 15.5 Shareholding pattern (%) P/B (X) 3.8 3.4 2.9 Promoters 58.1 EV/EBITDA (X) 11.4 12.1 8.1 FIIs 13.4 RoE (%) 17.3 12.6 20.1 MFs/BFIs 21.2/2.2 Div. yield (%) 0.5 0.7 0.7 Price performance (%) 1M 3M 12M Sales (Rs bn) 58 59 74 Absolute (1) 24 44 EBITDA (Rs bn) 12 11 16 Rel. to BSE-30 (5) 7 38 Net profits (Rs bn) 5 4 7

1QFY21—EBITDA outperformance on lower costs

JKCE reported revenues of Rs9.7 bn (-27% yoy, -34% qoq), EBITDA of Rs2.15 bn (-29% yoy, -34% qoq) and net income of Rs777 mn (-49% yoy, -51% qoq), against our estimate of Rs9.8 bn, Rs1.9 bn and Rs703 mn, respectively. White cement volumes declined by 48% yoy versus a decline of 19% yoy for grey cement, impacting blended realization. Blended realization declined to Rs5,464/ton (-5% yoy, flat qoq), lower than our estimate of a 4% qoq increase and lower than a 2-3% increase reported by the industry due to lower white cement volumes. Blended costs declined to Rs4,245/ton (-4% yoy, flat qoq) with lower other expenses (-27% yoy, -28% qoq), lower power and fuel cost (-24% yoy, -14% qoq) and lower freight costs (-7% yoy, -6% qoq), offset by higher material costs. Blended EBITDA of Rs1,219/ton (-7% yoy, -1% qoq) was higher than our estimate of Rs1,125/ton.

Volumes from expansion projects to buffer loss from Covid-19

JKCE commissioned 3.5 mtpa in 4QFY20 out of the total planned expansion of 4.2 mtpa. Work at 0.7 mtpa Balasinor GU is 80% complete and the plant should commission by 3QFY21E. This will increase its total capacity to 14.7 mtpa, +40% from FY2019 level. JKCE witnessed a volume growth of ~20% yoy in July and August 2020 versus an industry decline of 7% in July as reported by DIPP. Higher capacity would help in gaining market share; we expect JKCE’s grey cement volumes to increase by 2% yoy in FY2021E against industry decline of 13% yoy. Out of the total Rs20 bn project capex, the company has spent Rs15.1 bn till June FY2021 and would spend Rs8 bn in FY2021E. The company expects to get all clearance for its future expansion project in Madhya Pradesh by December 2020 and approach the board for approval in 4QFY21. Sumangal Nevatia

Revise Fair Value to Rs1,550 (Rs1,525 earlier); maintain ADD Prayatn Mahajan We tweak our EBITDA estimates by (1)%/2% for FY2021/22E mainly led by higher volumes and higher realizations, offset by higher costs. Our Fair Value increases to 1,550/share from Rs1,525/share at an unchanged 8X EV/EBITDA FY2022E. Strong earnings growth reduces net debt/EBITDA from 1.9X in FY2020 to 1X by FY2022E with debt peaking in FY2021. JKCE provides strong growth visibility and a play on the high-margin, high-growth white cement segment. The stock trades at 8X EV/EBITDA or at EV of US$116/ton FY2022E. Maintain ADD. [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. J K Cement Construction Materials

Exhibit 1: JK Cement's EBITDA declined 29% yoy on lower volumes Quarterly results for JK Cement (standalone), March fiscal year-ends, 2019-21E (Rs mn)

Change (%) 1QFY21 1QFY21 1QFY20 4QFY20 KIE yoy qoq FY2021E FY2020 (% chg) Net sales 9,650 9,791 13,280 14,587 (1) (27) (34) 55,394 54,638 1 Raw materials (1,268) (1,522) (2,286) (2,369) (17) (45) (46) (9,773) (9,273) 5 Change in stock (684) 43 462 298 — 665 Employee costs (950) (888) (968) (987) 7 (2) (4) (4,240) (3,909) 8 Power costs (1,531) (1,658) (2,621) (2,690) (8) (42) (43) (10,188) (10,091) 1 Freight costs (1,755) (1,810) (2,474) (2,818) (3) (29) (38) (10,524) (10,321) 2 Other expenses (1,307) (2,028) (2,357) (2,745) (36) (45) (52) (9,550) (9,894) (3) Total Costs (7,497) (7,864) (10,245) (11,312) (5) (27) (34) (44,275) (42,822) 3 EBITDA 2,153 1,927 3,035 3,275 12 (29) (34) 11,119 11,815 (6) EBITDA (%) 22.3 19.7 22.9 22.5 20.1 21.6 Other income 203 271 172 271 (25) 18 (25) 770 859 (10) Interest cost (572) (572) (534) (572) 0 7 0 (2,183) (2,229) (2) Depreciation (580) (577) (494) (577) 1 17 1 (2,714) (2,144) 27 PBT 1,204 1,049 2,179 2,397 15 (45) (50) 6,993 8,302 (16) Tax (427) (346) (641) (801) 23 (33) (47) (2,120) (2,516) (16) Adjusted PAT 777 703 1,538 1,596 11 (49) (51) 4,873 5,785 (16) Exceptional items — — — (1,594) — (1,782) Reported PAT 777 703 1,538 2 11 (49) 34,259 4,873 4,004 22 Adjusted EPS (Rs) 10 9 20 0 11 (49) 34,259 70 52 34 Per ton analysis Grey cement volumes (mn tons) 1.6 1.5 2.0 2.4 6 (19) (33) 8.5 8.3 2 White cement volumes (mn tons) 0.2 0.2 0.3 0.3 (12) (48) (42) 1.3 1.3 (1) Total volumes (mn tons) 1.8 1.7 2.3 2.7 3 (24) (34) 9.8 9.6 2 Grey Cement Realization (Rs/ton) 4,648 — 4,670 4,618 (0) 1 4,635 4,635 — White Cement Realization (Rs/ton) 11,953 — 11,604 12,086 3 (1) 11,917 11,917 — Blended Realizations (Rs/ton) 5,463 5,715 5,750 5,468 (4) (5) (0) 5,676 5,709 (1) Blended Costs (Rs/ton) 4,244 4,591 4,436 4,240 (8) (4) 0 4,537 4,475 1 Blended EBITDA (Rs/ton) 1,219 1,125 1,314 1,228 8 (7) (1) 1,139 1,235 (8) Cost Analysis (Rs/ton) Raw materials 1,105 863 790 776 28 40 42 1,002 899 11 Employee 538 519 419 370 4 28 45 434 408 6 Power and Fuel 867 968 1,135 1,008 (10) (24) (14) 1,044 1,054 (1) Freight and handling 994 1,057 1,071 1,056 (6) (7) (6) 1,078 1,078 — Other expenses 740 1,184 1,021 1,029 (37) (27) (28) 979 1,034 (5) Total Costs 4,244 4,591 4,436 4,240 (8) (4) 0 4,537 4,475 1

Source: Company, Kotak Institutional Equities estimates

Changes in our estimates

Exhibit 3 highlights key changes in our estimates.

We have changed our EBITDA estimate by -1%/+2%/+3% for FY2021/22/23E led by

 Increase in our cement volumes estimates by 2% for FY2021/22/23E factoring higher volumes from newly commissioned projects.

 Increase in our grey cement realization estimates by 1%/0%/1% for FY2021/22/23E factoring current price performance.

 Increase in our cost estimates by 2%/1% for FY2021/22E factoring the sharp increase in fuel and pet coke prices.

Our Fair Value increases to Rs1,550/share from Rs1,525/share at an unchanged 8X EV/EBITDA FY2022E.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Construction Materials J K Cement

Conference call takeaways

 Price outlook. The company indicated that prices have moderated by Rs10-15/bag in August in their key markets from 1QFY21 due to seasonality. The company expects prices to start inching up by end-September as monsoons ease. Prices for white cement remain stable mom in August. Non-trade prices declined much sharper as compared to trade prices.

 Volume guidance. Given the pandemic, the company remains uncertain on the demand outlook for FY2021. However, the company expects to reach FY2020 volume due to increased volumes from its newly commissioned plants. The company saw a 20% yoy increase in volumes in July and August in the grey cement segment while volumes remained under pressure in the white cement segment (flat yoy in July-August 2020) due to extension of lockdowns in urban areas.

 Cost guidance. The company expects fuel costs to start inching up from 3QFY21E onwards as pet coke prices have increased to US$95/ton on supply constraints. Freight costs are also expected to remain elevated due to higher diesel prices. However, the company expects to achieve fixed cost reduction of ~Rs600 mn in FY2021E through reduced spends on sales promotion and other corporate overheads.

 Capex guidance. For FY2021, the company expects to spend Rs8 bn with Rs3.5 bn as a spillover of the expansion projects, Rs2.5 bn towards upgradation of the clinker line at Nimbahera and the balance towards plant maintenance and land acquisition.

 Update on expansion projects.

. The 1 mtpa grinding unit at Nimbahera and the 2.5 mtpa Mangrol clinker unit, 1 mtpa Mangrol GU and 1.5 mtpa Aligarh GU have been commissioned and commercial dispatches have started.

. Work at 0.7 mtpa Balasinor GU is 80% complete and work has resumed at site. It is expected to commission by 3QFY21E.

. Nimbahera Line 3 upgradation work also has resumed and is expected to complete in 2QFY22.

. The planned WHRS plant at Mangrol will get commissioned by 3QFY21, increasing the WHRS capacity at site from 10 MW to 25 MW.

. The company has incurred a capex of Rs15.09 bn till June FY2021.

. The putti capacity expansion at Katni from 0.4 mn tons to 0.7 mn tons is expected to commission in October 2020.

 Net debt declines. Standalone net debt declined to Rs13.4 bn from Rs15.9 bn in March 2020 while leverage declined to 1.22X sequentially from 1.35X earlier.

 Trade mix. Trade sales stood at 75% in 1QFY21 versus 69% in 4QFY20 and 73% in 1QFY20, whereas in August trade sales dropped to 65%. Blended cement mix stood at 78% in 1QFY21.

 White segment/putty—volumes decline sharply. The white cement segment witnessed a sharp 48% yoy volume decline with total sales at 0.18 mn tons in 1QFY21 (-42% qoq). Management attributed the extension of lockdowns in urban India as the reason for the fall in demand. This resulted in a sequential decline in white cement prices by 1%. However, prices remain stable yoy in August and the company maintained stable volumes yoy in July and August.

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH J K Cement Construction Materials

 Incentives. The company shall be eligible for incentives for its investment in Aligarh project for 7 years. Management expects to receive annual incentives of ~Rs200 mn.

 Future capex plans in Central India remain on track. The company highlighted that it has two limestone mines in the Central region with limestone reserves of 400 mn tons. The company highlighted that it has received environmental clearance for the said mines. It expects to get the mining lease and environmental clearance for the cement plant by December 2020. The company plans to complete the land acquisition for the said expansion in FY2021. As per the sustainability report, the company plans to set up a 3- 3.5 mtpa integrated plant. After all the clearances by December 2020, the board could consider the expansion in 4QFY21.

 Debottlenecking at Nimbahera to complete by FY2022. The company has plans to debottleneck kiln no.3 in future by replacing the pre-heater, raw mill and coal mill. This would increase the clinker output from 5,000 tons to 6,000 tons per day, reduce power consumption by 12 units of power and consume 40-50 kcal/kg lower fuel. The planned investment is Rs3.25 bn. The company shall also be eligible for tax benefits under SGST scheme in the state of Rajasthan where the cement is sold. The project shall be completed by 2QFY22 (4QFY20 earlier). Kiln no.3 will be shut for ~45-60 days during the upgradation.

Exhibit 2: Blended cement EBITDA/ton declined 1% qoq to Rs1,219/ton on lower prices Quarterly realization (Rs/ton) and EBITDA (Rs/ton) of blended cement at JK Cement, 1QFY16-1QFY21

Blended cement realization (Rs/ton) Blended cement EBITDA (Rs/ton) - (RHS) 6,000 1,400 5,800 1,200 5,600 5,400 1,000 5,200 5,000 800 4,800 600 4,600 4,400 400 4,200

4,000 200

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 4QFY17 4QFY19 3QFY20 1QFY21 3QFY17 4QFY20

2QFY18 4QFY18 1QFY19 2QFY19 3QFY19 1QFY20 1QFY18 3QFY18 2QFY20

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Construction Materials J K Cement

Exhibit 3: JK Cement (consolidated), changes in estimates, March fiscal year-ends, 2021-23E

Revised estimate Old estimate % Change 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Volume and realizations (mn tons, Rs/ton) Cement sales - grey cement (mn tons) 8.5 10.6 11.4 8.3 10.4 11.2 2 2 2 Cement sales - White cement (mn tons) 1.3 1.5 1.6 1.3 1.5 1.6 4 (1) (1) Blended Cement Realisation (Rs/ton) 5,676 5,795 5,957 5,616 5,767 5,926 1 0 1 Blended Cement Costs (Rs/ton) 4,537 4,483 4,616 4,433 4,455 4,598 2 1 0 Blended Cement EBITDA (Rs/ton) 1,139 1,312 1,341 1,183 1,312 1,328 (4) (0) 1 Earnings estimates (Consolidated) (Rs mn) Revenues 58,994 73,666 81,387 57,174 72,148 79,685 3 2 2 EBITDA 11,430 16,154 17,775 11,597 15,890 17,314 (1) 2 3 PAT 4,036 7,428 8,931 4,001 7,125 8,487 1 4 5 EPS 52.2 96.1 115.6 51.8 92.2 109.8 1 4 5

Source: Company, Kotak Institutional Equities estimates

Exhibit 4: JK Cement, assumptions, March fiscal year-ends, 2017-23E (mn tons, Rs mn)

% Change yoy 2017 2018 2019 2020 2021E 2022E 2023E 2018 2019 2020 2021E 2022E 2023E Capacity (mn tons) Grey cement 10.5 10.5 10.5 14.0 14.7 14.7 14.7 0 0 33 5 0 0 White cement 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0 0 0 0 0 0 Wall Putty - India 0.7 0.7 0.9 0.9 1.2 1.2 1.2 0 29 0 33 0 0 Wall Putty +White Cement 1.3 1.3 1.5 1.5 1.8 1.8 1.8 0 15 0 20 0 0 Volumes (mn tons) Grey cement 6.8 8.1 8.4 8.3 8.5 10.6 11.4 19 3 -1 2 25 8 White cement (Including Putty) 1.1 1.2 1.3 1.3 1.3 1.5 1.6 8 9 4 -1 15 7 Total Sales 7.9 9.3 9.6 9.6 9.8 12.1 13.0 18 4 (1) 2 24 8 Utilization 65% 77% 80% 59% 58% 72% 78% Grey Realization (Rs/ton) 3,666 3,963 4,107 4,635 4,635 4,792 4,935 8 4 13 — 3 3 Blended Realization (Rs/ton) 5,689 4,950 5,173 5,709 5,676 5,795 5,957 (13) 4 10 (1) 2 3 Blended EBITDA (Rs/ton) 1,007 820 841 1,235 1,139 1,312 1,341 (19) 3 47 (8) 15 2 Costs (Rs/ton) 4,682 4,130 4,331 4,475 4,537 4,483 4,616 (12) 5 3 1 (1) 3

Source: Company, Kotak Institutional Equities estimates

Exhibit 5: Our Fair Value of Rs1,550/share is based on 8X FY2022E EBITDA JK Cement, valuation details, June 2022E fiscal year-ends

Multiple EV Rs mn (X) Rs mn Rs/share Valuation EBITDA (Rs mn) 16,559 8 133,881 1,733 Net Debt (Rs mn) (14,098) (182) Equity value (Rs mn) 119,783 1,550 Fair value (Rs/share) 1,550

Source: Company, Kotak Institutional Equities estimates

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH J K Cement Construction Materials

Exhibit 6: JK Cement (consolidated), financial summary, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model (Rs mn) Net sales 37,904 47,524 48,535 52,587 58,016 58,994 73,666 81,387 EBITDA 5,453 8,245 7,875 8,345 12,134 11,430 16,154 17,775 Other income 500 0 1,281 804 853 764 775 1,059 Interest (3,038) (3,027) (2,841) (2,611) (2,764) (2,707) (2,314) (1,921) Depreciation (1,896) (2,169) (2,313) (2,413) (2,880) (3,450) (3,702) (3,828) Pretax profits 1,020 3,049 4,002 4,124 7,344 6,038 10,913 13,085 Tax (486) (1,137) (976) (1,488) (2,511) (2,120) (3,591) (4,249) Net profit before minority 534 1,913 3,026 2,636 4,834 3,919 7,322 8,836 Less: Minority interest (30) (58) (40) (67) (130) (117) (106) (95) Adjusted net income 597 1,899 3,024 2,703 4,964 4,036 7,428 8,931 Earnings per share (Rs) 8.5 27.2 43.2 35.0 64.2 52.2 96.1 115.6 Balance sheet (Rs mn) Equity 699 699 699 773 773 773 773 773 Reserves and surplus 15,556 16,896 19,049 26,249 29,504 32,768 39,422 47,580 Borrowings 33,296 33,517 29,405 29,731 32,840 32,840 32,840 32,840 Deferred tax liability 3,284 2,111 2,670 3,123 4,173 4,173 4,173 4,173 Currrent liabilities 10,211 10,780 9,432 10,954 12,443 12,687 13,647 14,342 Total liabilities and equity 63,144 64,043 64,560 74,316 85,420 88,811 96,320 105,078 Net fixed assets 42,218 45,417 44,194 45,074 52,207 57,257 58,055 56,727 Capital work in progress 3,211 1,267 1,043 5,744 5,295 3,795 1,795 1,795 Cash 4,807 4,272 5,725 4,556 6,345 6,349 13,181 22,164 Current assets 12,102 12,283 10,344 11,955 12,686 12,522 14,402 15,503 Investments 806 803 1,189 4,383 3,763 3,763 3,763 3,763 Other Current Assets - - 2,065 2,604 5,125 5,125 5,125 5,125 Total assets 63,144 64,043 64,560 74,316 85,420 88,811 96,320 105,078 Net Debt 27,874 28,630 23,065 21,232 23,180 23,176 16,344 7,360 Free cash flow (Rs mn) Operating cash flow, excl. working capital 2,295 2,733 5,277 5,288 8,625 7,369 11,024 12,663 Working capital 1,189 388 1,193 (681) 2,820 408 (919) (407) Capital expenditure (3,442) (1,256) (1,443) (6,313) (12,428) (7,000) (2,500) (2,500) Free cash flow 42 1,865 5,027 (1,706) (982) 777 7,604 9,756 Ratios EV/Ton (US$/ton) 181.5 178.1 177.5 175.5 133.2 124.5 115.9 108.0 EV/EBITDA 24.2 16.1 16.1 16.3 11.4 12.1 8.1 6.9 P/E 164.0 58.5 35.9 42.5 23.1 28.5 15.5 12.9 P/B 6.4 5.9 5.3 4.3 3.8 3.4 2.9 2.4 FCF Yield 0.0 1.8 4.8 -1.5 -0.9 0.7 6.6 8.5 EBITDA margin (%) 14.4 17.4 16.2 15.9 20.9 19.4 21.9 21.8 PAT margin (%) 1.7 3.7 6.0 5.1 8.6 6.8 10.1 11.0 Net debt/equity (X) 1.7 1.6 1.2 0.8 0.8 0.7 0.4 0.2 Net debt/EBITDA (X) 5.1 3.5 2.9 2.5 1.9 2.0 1.0 0.4 RoACE (%) 3.8 7.6 8.4 7.2 10.2 8.0 12.0 12.2 CRoCI (%) 10.1 12.1 11.1 11.1 14.8 11.4 14.6 15.3

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 BUY Bajaj Auto (BJAUT) Automobiles & Components SEPTEMBER 02, 2020 UPDATE Sector view: Cautious

Annual report analysis. Bajaj Auto’s annual report analysis highlights the company’s CMP (`): 2,881 success in the export markets. The company has also maintained its market share in the Fair Value (`): 3,400 motorcycle segment led by increase in market share in the premium motorcycle BSE-30: 39,086 segment. The company is well-placed to capture market share in the electric scooter segment with the launch of Chetak. Maintain BUY rating; FV of Rs3,400 (unchanged).

Bajaj Auto Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 3,315-1,789 EPS (Rs) 176.2 154.1 187.9 Mcap (bn) (Rs/US$) 834/11.4 EPS growth (%) 15.0 (12.6) 21.9 ADTV-3M (mn) (Rs/US$) 2,701/37 P/E (X) 16.3 18.7 15.3 Shareholding pattern (%) P/B (X) 4.2 3.8 3.5 Promoters 53.7 EV/EBITDA (X) 13.0 13.5 10.5 FIIs 13.7 RoE (%) 24.5 21.4 23.9 MFs/BFIs 3.3/6 Div. yield (%) 4.2 3.2 3.9 Price performance (%) 1M 3M 12M Sales (Rs bn) 299 267 334 Absolute (4) 3 3 EBITDA (Rs bn) 51 48 60 Rel. to BSE-30 (8) (11) (1) Net profits (Rs bn) 51 45 54

Key takeaways from annual report

 Bajaj Auto’s revenues declined by 1% yoy in FY2020 led by double-digit volume decline in the domestic motorcycle industry. The company improved its market share in the premium segment from 32.3% in FY2019 to 37.3% in FY2020 due to launch of the new Pulsar 125, which continued to do well and attracted a new set of customers. However, the company lost 150 bps market share in the executive motorcycle segment as Discover failed to meet consumers’ expectations. Overall, the company lost 20 bps yoy market share in the domestic motorcycle segment in FY2020.

 The company’s volumes declined by 8.5% yoy in the three-wheeler segment led by (1) 9% yoy decline in the passenger segment and (2) 1.8% yoy decline in the goods segment. The company’s market share increased by 40 bps yoy in FY2020. In the diesel category, the company’s market share stood at 40% in FY2020. The company sold 240,467 vehicles in petrol and alternate fuel version and had 88% market share in this segment in FY2020.

 The company reported 3% yoy revenue growth in the export segment led by (1) 10% yoy growth in export motorcycle volumes and (2) 22% yoy decline in the export three-wheeler segment in FY2020. Growth in the export motorcycle segment was led by (1) strong growth in African countries (+16% yoy) with >20% yoy growth in Nigeria, Ethiopia and Uganda. The company also improved its dominant position in Africa and launched the CT brand in Kenya and Guinea Conakry to fulfill the need for greater mileage for some customers and (2) stable growth in ASEAN and LATAM regions, partly offset by slowdown in South Asia (-19% yoy) due to slowdown in Sri Lanka and regulatory headwinds in Bangladesh. The export three- wheeler segment remained under pressure due to regulatory issues in Egypt. Also, the government has scrapped MEIS export incentives from August 2020 and we expect the Hitesh Goel company to lose Rs1.2 bn in FY2021E but the company is likely to increase price in export markets to offset the negative impact. Rishi Vora  In CY2019, KTM Industries (includes Husqvarna) achieved revenues of EUR1,520 mn (+4% yoy growth) led by 7% yoy growth in sales volumes.

No change in FY2021-23E EPS estimates; maintain BUY rating

We have kept our FY2021-2E EPS estimates unchanged. Maintain BUY rating; Fair Value remains unchanged at Rs3,400 based on 16X September 2022E core EPS . [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. Bajaj Auto Automobiles & Components

Domestic motorcycle industry remained under pressure in FY2020

Domestic motorcycle industry volumes declined by 17.5% yoy in FY2020 due to (1) increase in cost of ownership of vehicles, (2) inventory correction and (3) impact in the month of March from Covid-led shutdown. In the recent past, the motorcycle industry has been subjected to several regulations, which have increased the cost of ownership – (1) compulsory five-year third party insurance that was introduced in October 2018, (2) rigorous braking norms from April 2019 and (3) stringent emission norms under BS-VI from April 2020. The economy market share in the domestic motorcycle industry volumes further increased to 29.3% in FY2020 from 25.1% in FY2018 (28.6% in FY2019), led by (1) aggressive pricing strategy adopted by Bajaj Auto coupled with economic downturn and (2) increasing number of first-time motorcycle buyers in the economy segment. The executive motorcycle segment lost marginal market share on a yoy basis, whereas the premium motorcycle segment maintained its market share on a yoy basis in FY2020.

Bajaj Auto’s revenues declined by 1% yoy in FY2020 led by double-digit volume decline in the domestic motorcycle industry. The company improved its market share in the premium segment from 32.3% in FY2019 to 37.3% in FY2020 due to launch of the new Pulsar 125, which continued to do well and attracted a new set of customers. However, the company lost 150 bps market share in the executive motorcycle segment as Discover failed to meet consumers’ expectations. Overall, the company lost 20 bps yoy market share in the domestic motorcycle segment in FY2020.

The company launched its first electric scooter under the Chetak brand in January 2020. Chetak is equipped with 3kWh IP67 rated high-tech lithium ion battery with NCA cells, which can provide peak power of 4.1kW. The scooter offers two drive modes – Eco and Sports – and reverse assist mode to ensure that all the demands of drivers are satisfied. Regenerative braking via intelligent braking systems helps maximize its range to above 95 kms per charge. We believe the company has good opportunity to enter the scooter segment and leverage the benefit of first-mover advantage in the electric scooter segment.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 Automobiles & Components Bajaj Auto

Exhibit 1: Bajaj Auto gained 500 bps yoy market share in the premium motorcycle segment in FY2020 Domestic motorcycle market share of major two-wheeler players, March fiscal year-ends, 2015-20 (%)

Market share (%) 2015 2016 2017 2018 2019 2020 Economy bike segment market share Hero 53.5 48.1 55.1 59.5 55.8 62.4 Honda — — — — — — Bajaj 24.7 35.7 32.5 28.5 35.2 32.2 TVS 20.7 15.8 12.5 12.1 9.0 5.4 Others 1.2 0.4 — — — — Total - Economy segment 100.0 100.0 100.0 100.0 100.0 100.0 Executive bike segment market share Hero 66.3 71.3 69.5 69.4 72.1 71.0 Honda 22.5 21.4 20.8 23.6 21.8 24.0 Bajaj 8.4 3.9 5.1 3.2 2.1 0.6 TVS 0.6 1.1 2.6 2.0 3.0 4.0 Others 2.3 2.2 2.1 1.8 1.0 0.5 Total - Executive segment 100.0 100.0 100.0 100.0 100.0 100.0 Premium bike segment market share Hero 8.0 5.8 4.3 2.5 1.4 1.5 Honda 13.1 9.0 11.4 14.0 13.2 11.1 Bajaj 34.9 35.5 32.6 28.0 32.3 37.3 TVS 10.2 11.7 11.7 13.8 14.6 13.8 Royal Enfield 16.3 22.3 25.8 27.7 25.0 24.7 Others 17.6 15.7 14.1 14.1 13.6 11.5 Total - Premium segment 100.0 100.0 100.0 100.0 100.0 100.0 Total motorcycle market share Hero 52.9 52.4 51.3 51.5 50.7 52.0 Honda 16.3 14.0 13.8 15.5 13.5 13.9 Bajaj 16.5 17.7 17.7 15.2 18.7 18.5 TVS 6.3 6.7 7.0 7.3 7.4 6.7 Others 4.9 4.6 4.3 4.2 3.7 3.0 Total - motorcycles 100.0 100.0 100.0 100.0 100.0 100.0

Source: SIAM, Kotak Institutional Equities

Domestic three-wheeler market growth aided by goods segment

The company’s volumes declined by 8.5% yoy in the three-wheeler segment led by (1) 9% yoy decline in the passenger segment and (2) 1.8% yoy decline in the goods segment. The company’s market share increased by 40 bps yoy in FY2020. In the small and large diesel category, the company’s market share stood at 89% and 29%, respectively in FY2020. Overall in the diesel category, the company’s market share stood at 40% in FY2020. The company sold 240,467 vehicles in petrol and alternate fuel version and had 88% market share in this segment in FY2020. We believe the near term will remain challenging for the domestic passenger three-wheeler segment as people might prefer personal mobility with fear of contracting the virus while using public transport.

The company successfully launched its QUTE quadricycle in four states – Gujarat, Odisha, Rajasthan and Kerala, and clocked sales volume of 942 units in FY2020.

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Auto Automobiles & Components

Exhibit 2: Bajaj Auto remains the largest player in domestic three-wheeler market in FY2020 Domestic three-wheeler market share of major three-wheeler players, March fiscal year-ends, 2015-20 (%)

2015 2016 2017 2018 2019 2020 Passenger three-wheeler market share Atul Auto Limited 5.2 5.1 4.6 3.8 4.3 4.4 Bajaj Auto Ltd 54.2 57.5 59.7 67.0 64.3 63.8 Mahindra & Mahindra Ltd 7.9 8.1 7.9 7.1 8.5 9.0 Piaggio Vehicles Pvt Ltd 27.4 24.8 24.0 18.6 19.6 20.1 Scooters India Ltd 1.3 1.1 0.8 0.3 0.3 0.4 TVS Motors 4.1 3.5 3.1 3.2 2.9 2.3 Total - passenger three-wheelers 100.0 100.0 100.0 100.0 100.0 100.0 Goods three-wheeler market share Atul Auto Limited 17.8 20.6 16.6 16.4 15.3 15.6 Bajaj Auto Ltd — 1.4 12.0 19.3 23.8 27.0 Mahindra & Mahindra Ltd 22.8 19.9 18.7 15.2 14.1 13.4 Piaggio Vehicles Pvt Ltd 53.4 53.4 49.8 47.9 44.8 42.0 Scooters India Ltd 6.0 4.8 3.0 1.2 1.9 2.0 Total - goods three-wheelers 100.0 100.0 100.0 100.0 100.0 100.0 Total three-wheeler market share Atul Auto Limited 7.5 7.9 7.1 6.2 6.3 6.4 Bajaj Auto Ltd 44.1 47.4 49.5 58.1 56.9 57.3 Mahindra & Mahindra Ltd 10.7 10.2 10.2 8.6 9.5 9.8 Piaggio Vehicles Pvt Ltd 32.3 29.9 29.5 24.0 24.2 23.9 Scooters India Ltd 2.1 1.7 1.2 0.4 0.6 0.7 TVS Motors 3.3 2.9 2.4 2.6 2.4 1.9 Total - Premium segment 100.0 100.0 100.0 100.0 100.0 100.0

Source: SIAM, Kotak Institutional Equities

Export market remains resilient

The company reported 3% yoy revenue growth in the export segment led by (1) 10% yoy growth in export motorcycle volumes and (2) 22% yoy decline in the export three-wheeler segment in FY2020. Growth in the export motorcycle segment was led by (1) strong growth in African countries (+16% yoy) with >20% yoy growth in Nigeria, Ethiopia and Uganda. The company also improved its dominant position in Africa and launched the CT brand in Kenya and Guinea Conakry to fulfill the need for greater mileage for some customers, (2) strong growth in ASEAN region (+3% yoy) aided by growth in the Philippines and in new markets like Malaysia, (3) stable growth in LATAM (+3% yoy) led by strong growth in Mexico and Central America, partly offset by economic turmoil in Argentina and (4) slowdown in South Asia (-19% yoy) due to slowdown in Sri Lanka and regulatory headwinds in Bangladesh.

Three-wheeler segment exports remained under pressure due to regulatory issues in Egypt. However, newer markets like Philippines, Iraq and Cambodia continue to grow at >20% yoy for the company. The company also launched newer models such as Maxima, Cargo and Qute, which more than doubled their volumes in FY2020.

Government scraps MEIS export incentives

Bajaj Auto used to receive around ~4% of the export revenues as incentives under MEIS scheme. However, due to liability under MEIS reaching unsustainable level (reached Rs450 bn in FY2020), the commerce department has blocked the MEIS module from accepting new applications for shipping bills from July 23, 2020. The government has capped incentives to Rs20 mn till December 2020. As a result, we expect the company to lose around Rs1-1.2 bn in FY2021E. The government will be announcing a new scheme RODTEP in January 2021, which will detail out incentives for exports for companies. Bajaj Auto has a strong pricing power in export markets and we believe over a period of time, the company can pass on these impact in the markets.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Automobiles & Components Bajaj Auto

Exhibit 3: Export revenues grew by 3% yoy in FY2020; volume grew by 16% CAGR over FY2017-20 Geographical mix of exports, March fiscal year-ends, 2017-20 (Rs mn, %)

2017 2018 2019 2020 Growth CAGR (%) Geographical export revenue Africa 37,649 39,782 55,672 64,745 19.8 ASEAN 9,450 9,703 13,030 13,438 12.5 Latin America 11,307 17,465 16,583 17,102 14.8 South Asia and Middle East 20,394 30,079 33,166 26,875 9.6 Total 78,800 97,030 118,450 122,160 15.7 Geographical export revenue mix Africa 47.8 41.0 47.0 53.0 ASEAN 12.0 10.0 11.0 11.0 Latin America 14.3 18.0 14.0 14.0 South Asia and Middle East 25.9 31.0 28.0 22.0 Total 100.0 100.0 100.0 100.0

Source: Company, Kotak Institutional Equities

Exhibit 4: Bajaj Auto has more than 50% export market share in the motorcycle segment in FY2020 Export two-wheeler & three-wheeler market share of major players, March fiscal year-ends, 2015-20 (%)

2015 2016 2017 2018 2019 2020 Exports two-wheeler market share Hero 8.1 8.5 7.7 7.3 6.3 5.1 Honda 7.7 8.1 12.1 12.4 11.6 9.3 Bajaj 61.9 58.8 52.2 49.5 51.7 53.1 TVS 13.2 14.4 15.6 17.5 19.0 19.3 Others 9.1 10.2 12.4 13.3 11.4 13.3 Total two-wheeler 100.0 100.0 100.0 100.0 100.0 100.0 Exports three-wheeler market share Atul Auto Limited 0.4 0.4 0.8 0.9 1.0 0.7 Bajaj Auto Ltd 69.8 69.2 70.3 69.9 66.7 59.1 Mahindra & Mahindra Ltd 0.7 0.3 0.5 0.8 0.7 0.3 Piaggio Vehicles Pvt Ltd 6.6 6.0 6.5 6.4 6.9 7.4 TVS Motors 22.3 23.6 21.0 21.6 24.6 32.3 Others 0.3 0.5 0.9 0.4 0.1 0.2 Total - goods three-wheelers 100.0 100.0 100.0 100.0 100.0 100.0

Source: SIAM, Kotak Institutional Equities

Exhibit 5: Government has scrapped MEIS export incentives from FY2021E onwards Export incentives and export revenues, March fiscal year-ends, 2015-20 (Rs mn, %)

2015 2016 2017 2018 2019 2020 Export data (Rs mn) Export incentives 4,094 3,306 2,895 3,434 4,571 4,586 Export revenues 94,104 97,740 78,800 97,030 118,450 122,160 Export incentives as a % of export revenues 4.4 3.4 3.7 3.5 3.9 3.8

Source: Company, Kotak Institutional Equities

Capacity utilization declined as volumes remained under pressure in FY2020

The company has kept its production capacity unchanged at 6.33 million units in FY2020. The company had increased its three-wheeler capacity at the Waluj plant from 840,000 in FY2018 to 930,000 in FY2019. Capacity utilization for the two-wheeler segment stood at 73% and capacity utilization for the three-wheeler segment stood at 71% in FY2020.

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Auto Automobiles & Components

Exhibit 6: No change in capacity in FY2020 Details of plant-wise capacity expansion, March fiscal year-ends, 2018-20 (units)

Plant Products manufactured 2018 2019 2020 Waluj Boxer, CT, Platina, Discover, V 2,400,000 2,400,000 2,400,000 Waluj Passenger Carrier, Good Carrier and QUTE 840,000 930,000 930,000 Chakan Pulsar, Avenger, KTM, Dominar 1,200,000 1,200,000 1,200,000 Pantnagar CT, Platina, Discover, V, Pulsar 1,800,000 1,800,000 1,800,000 Total 6,240,000 6,330,000 6,330,000

Source: Company, Kotak Institutional Equities

Exhibit 7: Capacity utilization of two-wheeler segment stood at 73% in FY2020 Details of capacity utilization, March fiscal year-ends, 2015-20 (mn units, %)

2015 2016 2017 2018 2019 2020 Bajaj Auto two-wheeler segment capacity utilization Production (mn units) 3.3 3.3 3.2 3.4 4.2 3.9 Capacity (mn units) 4.6 4.6 4.6 5.4 5.4 5.4 Capacity utilization (%) 71.5 72.7 69.8 62.8 78.4 73.0 Bajaj Auto three-wheeler segment capacity utilization Production ('000 units) 524.4 527.0 445.6 591.5 776.7 662.8 Capacity ('000 units) 660.0 660.0 660.0 840.0 930.0 930.0 Capacity utilization (%) 79.4 79.8 67.5 70.4 83.5 71.3

Source: Company, Kotak Institutional Equities

Bajaj Auto maintains its EBITDA margin profile

EBITDA margin declined by 10 bps yoy in FY2020 due to decline in volumes resulting in negative operating leverage, partly offset by a richer product mix (higher mix of exports segment). Increase in gross margin was largely due to a richer product mix and higher forex realizations. Employee cost as a percentage of sales increased to 4.8% in FY2020 from 4.2% in F0219 due to lower volume off-take. R&D as a percentage of sales stood at 1.6% in FY2020.

Working capital for the company improved to 34 days in FY2020 versus 41 days in FY2019. Creditor days came down to 40 days in FY2020 versus 47 days in FY2019 and inventory days declined to 53 days in FY2020 from 57 days in FY2019. Also, the company’s debtor days decreased to 21 days in FY2020 from 31 days in FY2019; FY2019 was an aberration as the company had to support dealers due to weak retail demand scenario in 2HFY19.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 Automobiles & Components Bajaj Auto

Exhibit 8: EBITDA margin remained flattish yoy at 17% in FY2020 Details of other expenses, March fiscal year-ends, 2015-20 (%)

2015 2016 2017 2018 2019 2020 Revenue growth (%) 7.0 5.0 (3.5) 15.6 19.7 (1.5) Raw materials % of net sales 68.7 66.7 67.2 69.0 71.8 70.2 Yoy change (%) 7.1 1.4 (2.9) 19.1 25.4 25.4 Packing and forwarding % of net sales 1.8 1.6 1.4 1.6 1.9 1.9 Yoy change (%) 21.8 (11.3) (16.6) 33.2 42.2 0.5 Employee costs % of net sales 4.2 4.1 4.7 4.3 4.2 4.8 Yoy change (%) 23.5 2.2 8.7 7.2 17.4 10.7 Power and fuel % of net sales 0.5 0.5 0.5 0.4 0.4 0.4 Yoy change (%) 8.0 5.2 (20.1) 3.9 14.7 1.4 Publicity and sales promotion % of net sales 1.5 2.0 1.8 1.8 1.5 1.7 Yoy change (%) 22.6 35.1 (9.0) 10.6 1.3 10.2 Discount and commissions % of net sales 0.4 0.2 0.2 0.4 0.3 0.4 Yoy change (%) 28.0 (51.2) 28.4 100.3 (23.0) 40.1 Repair and maintenance % of net sales 0.9 0.9 0.8 0.6 0.5 0.7 Yoy change (%) 38.1 (1.6) (7.7) (14.8) (6.3) 33.5 Consumable stores % of net sales 0.6 0.6 0.5 0.5 0.5 0.4 Yoy change (%) 5.4 0.1 (13.0) 2.7 20.0 (7.9) Others % of net sales 2.3 2.3 2.5 2.2 1.9 2.5 Yoy change (%) 15.7 2.1 6.4 1.9 6.8 29.0 EBITDA margin 19.0 21.2 20.3 19.2 17.1 17.0

Source: Company, Kotak Institutional Equities

Exhibit 9: R&D to sales ratio remained stable at 1.6% in FY2020 R&D expense, March fiscal year-ends, 2015-20 (Rs mn, %)

2015 2016 2017 2018 2019 2020 R&D (in Rs mn) 3,614 3,352 3,676 3,727 4,564 4,751 Net sales (in Rs mn) 211,039 221,517 213,735 247,003 295,673 291,115 R&D as a % of sales 1.7 1.5 1.7 1.5 1.5 1.6

Source: Company, Kotak Institutional Equities

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Auto Automobiles & Components

Exhibit 10: Debtor days declined from 31 days in FY2019 to 21 days in FY2020 Details on working capital days, March fiscal year-ends, 2015-20 (days)

Creditor days Debtor days Inventory days 80

70

60

50

40

30

20

10

0 2015 2016 2017 2018 2019 2020

Source: Company, Kotak Institutional Equities

Salary of key personnel remained stable at 1% of PBT in FY2020 versus 0.9% of the PBT in FY2018. Key personnel include Rajiv Bajaj (MD), Rahul Bajaj (Chairman), Pradeep Shrivastava (ED) and Rakesh Sharma (ED).

Exhibit 11: Salary of key personnel as a % of PBT stood at 1% in FY2020 Key personnel salary details, March fiscal year-ends, 2015-20 (Rs mn, %)

2015 2016 2017 2018 2019 2020 Salary of key personnels 401 422 499 441 559 667 PBT 49,162 55,474 53,355 58,146 63,612 65,802 Salary of key personnels as a % of PBT 0.8 0.8 0.9 0.8 0.9 1.0

Source: Company, Kotak Institutional Equities

India becomes the biggest market for KTM in CY2018

In CY2019, KTM Industries (includes Husqvarna) achieved revenues of EUR1,520 mn (+4% yoy growth) led by 7% yoy growth in sales volume. Sales volume growth was led by (1) 9% yoy growth in Europe, (2) 35% yoy growth in India and (3) 4% yoy growth in the US. Strong volume growth was due to new launches of the KTM Duke 790 and the first HUSQVARNA Road Motor cycles. EBIT increased to EUR132 mn (+2% yoy) and PAT increased to EUR96 mn (+12% yoy) in CY2019.

KTM crossed 60,000 units in India. The company strengthened its presence in the 125cc premium sport bikes with the launch of RC125. Also, KTM revamped its existing models with the launch of the 2020 range. Duke200 was revamped in a completely new form and Duke390 was revamped with a Quickshifter+.

Exhibit 12: KTM Industries revenues increased by 4% yoy in CY2019 KTM key financial summary, calendar year-ends, 2014-19 (EUR mn)

2014 2015 2016 2017 2018 2019 KTM Financials (EUR mn) Volumes (in units) 158,760 183,170 203,423 238,408 261,454 280,099 Net sales 1,086 1,224 1,343 1,533 1,463 1,520 ASPs (EUR per vehicle) 6,842 6,680 6,602 6,430 5,594 5,427 EBITDA 148 178 198 219 211 241 EBIT 93 113 122 133 129 132 PAT 55 65 89 84 85 96

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Automobiles & Components Bajaj Auto

Exhibit 13: Bajaj Auto’s total volumes are expected to grow at 6% CAGR over FY2020-23E Bajaj Auto’s total volumes are expected to grow at 6% CAGR over FY2020-23E

2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Sales volume (units) Motorcycles 3,757,105 3,422,403 3,291,315 3,358,252 3,179,521 3,369,334 4,236,873 3,947,568 3,419,335 4,171,535 4,758,489 Domestic 2,463,874 2,099,230 1,770,009 1,898,957 1,960,980 1,974,577 2,541,320 2,078,348 1,774,422 2,115,393 2,291,119 Platina 484,600 465,111 486,568 275,276 383,542 435,180 626,781 578,237 520,413 598,475 640,369 CT100 — — 29,189 590,067 452,712 466,897 742,199 480,204 432,184 497,011 531,802 Discover 1,311,843 992,176 557,942 238,098 303,032 244,315 133,786 29,495 29,495 29,495 29,495 Pulsar/Avenger/KTM 667,431 641,943 696,310 795,516 821,694 828,185 1,038,554 990,412 792,330 990,412 1,089,453 Export two-wheelers 1,293,231 1,323,173 1,521,306 1,459,295 1,218,541 1,394,757 1,695,553 1,869,220 1,644,914 2,056,142 2,467,370 Total two-wheelers 3,757,105 3,422,403 3,291,315 3,358,252 3,179,521 3,369,334 4,236,873 3,947,568 3,419,335 4,171,535 4,758,489 RE 60 — — — 334 2,000 — — — — — — Domestic three-wheelers 226,131 186,912 234,345 256,320 253,147 369,637 399,453 365,759 223,394 303,951 346,244 Passenger three-wheelers 223,287 186,856 234,345 254,995 239,985 346,846 368,825 335,656 201,394 281,951 324,244 Goods three-wheelers 2,844 56 — 1,325 13,162 22,791 30,628 30,103 22,000 22,000 22,000 Export three-wheelers 253,926 260,762 285,541 280,000 191,236 267,820 383,177 301,885 286,791 358,488 394,337 Total three-wheelers 480,057 447,674 519,886 536,320 444,383 637,457 782,630 667,644 510,184 662,439 740,581 Total vehicles 4,237,162 3,870,077 3,811,201 3,894,906 3,625,904 4,006,791 5,019,503 4,615,212 3,929,519 4,833,975 5,499,070 Growth (yoy %) Motorcycles (2.0) (8.9) (3.8) 2.0 (5.3) 6.0 25.7 (6.8) (13.4) 22.0 14.1 Domestic (4.0) (14.8) (15.7) 7.3 3.3 0.7 28.7 (18.2) (14.6) 19.2 8.3 Platina (9.5) (4.0) 4.6 (43.4) 39.3 13.5 44.0 (7.7) (10.0) 15.0 7.0 CT100 — — — — (23.3) 3.1 59.0 (35.3) (10.0) 15.0 7.0 Discover (0.3) (24.4) (43.8) (57.3) 27.3 (19.4) (45.2) (78.0) — — — Pulsar/Avenger/KTM (6.7) (3.8) 8.5 14.2 3.3 0.8 25.4 (4.6) (20.0) 25.0 10.0 Export two-wheelers 2.0 2.3 15.0 (4.1) (16.5) 14.5 21.6 10.2 (12.0) 25.0 20.0 Total two-wheelers (2.0) (8.9) (3.8) 2.0 (5.3) 6.0 25.7 (6.8) (13.4) 22.0 14.1 Domestic three-wheelers 11.4 (17.3) 25.4 9.4 (1.2) 46.0 8.1 (8.4) (38.9) 36.1 13.9 Export three-wheelers (18.7) 2.7 9.5 (1.9) (31.7) 40.0 43.1 (21.2) (5.0) 25.0 10.0 Total three-wheelers (6.8) (6.7) 16.1 3.2 (17.1) 43.4 22.8 (14.7) (23.6) 29.8 11.8 Total vehicles (2.6) (8.7) (1.5) 2.2 (6.9) 10.5 25.3 (8.1) (14.9) 23.0 13.8

Source: Company, Kotak Institutional Equities estimates

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Auto Automobiles & Components

Exhibit 14: We expect the company to deliver 8% EPS CAGR over FY2020-23E Profit model, balance sheet and cash flow statement, March fiscal year-ends, 2013-23E (Rs mn)

2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model (Rs mn) Net sales 204,684 205,147 216,120 225,865 217,636 252,189 303,576 299,187 266,720 334,015 384,731 EBITDA 41,064 44,710 41,166 47,820 44,223 48,374 51,925 50,962 48,169 60,414 71,139 Other income 3,244 3,412 10,736 10,736 12,220 12,933 14,389 17,336 13,771 14,735 16,151 Interest (5) (5) (65) (11) (14) (13) (45) (32) — — — Depreciation (1,640) (1,796) (2,674) (3,072) (3,073) (3,148) (2,657) (2,464) (2,478) (2,638) (2,812) Profit before tax 42,662 46,321 49,162 55,474 53,355 58,146 63,612 65,802 59,461 72,512 84,478 Extra-ordinary items — — (3,403) — — (320) 3,420 — — — — Taxes (12,227) (13,887) (12,711) (16,177) (15,080) (17,145) (20,280) (14,802) (14,865) (18,128) (21,120) Net profit 30,436 32,433 33,049 39,298 38,276 40,681 46,752 51,000 44,596 54,384 63,359 Adjusted net profit 30,436 32,433 36,452 39,298 38,276 40,905 44,366 51,000 44,596 54,384 63,359 Adjusted earnings per share (Rs) 105.2 112.1 126.0 135.8 132.3 141.3 153.3 176.2 154.1 187.9 218.9 Balance sheet (Rs mn) Equity 79,020 96,080 106,922 132,666 170,341 191,039 217,799 199,255 217,093 238,847 264,190 Deferred tax liability 1,151 1,432 1,416 2,028 3,136 3,234 5,427 3,464 3,464 3,464 3,464 Total borrowings 2,105 1,466 1,699 — — — — — — — — Current liabilities 42,511 48,498 45,587 30,172 34,671 43,922 50,578 45,014 31,703 37,043 40,617 Total liabilities 124,786 147,476 155,623 164,865 208,149 238,195 273,804 247,733 252,260 279,353 308,270 Net fixed assets 20,277 20,386 20,190 21,383 20,440 19,349 18,120 17,592 17,614 17,976 18,165 Investments 64,305 85,496 104,149 102,606 147,315 175,883 191,594 181,960 191,855 207,548 230,143 Cash 5,589 4,955 5,862 8,595 2,937 7,780 9,228 3,083 3,989 5,665 4,886 Other current assets 33,913 35,524 23,891 31,388 37,012 35,184 54,863 45,099 38,803 48,165 55,077 Miscellaneous expenditure 703 1,115 1,532 893 447 — — — — — — Total assets 124,786 147,476 155,623 164,865 208,149 238,195 273,804 247,733 252,260 279,353 308,270 Free cash flow (Rs mn) Operating cash flow excl. working capital 26,557 31,419 27,611 30,816 30,859 32,157 31,925 34,855 40,167 48,892 56,672 Working capital changes (5,213) 4,039 (6,138) 5,753 2,533 10,451 (7,030) 3,763 (7,016) (4,022) (3,338) Capital expenditure (5,082) (2,201) (2,697) (2,651) (1,994) (1,826) (1,635) (2,828) (2,500) (3,000) (3,000) Free cash flow 16,262 33,257 18,777 33,917 31,398 40,782 23,260 35,790 30,652 41,870 50,334 Ratios Gross margin (%) 29.6 32.4 31.3 33.3 32.8 31.0 28.2 29.8 30.7 30.8 31.3 EBITDA margin (%) 20.1 21.8 19.0 21.2 20.3 19.2 17.1 17.0 18.1 18.1 18.5 PAT margin (%) 14.9 15.8 16.9 17.4 17.6 16.2 14.6 17.0 16.7 16.3 16.5 Debt/equity (X) 0.0 0.0 0.0 — — — — — — — — Net debt/equity (X) (0.0) (0.0) (0.0) (0.1) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) Book Value (Rs/share) 273.0 332.0 369.5 458.4 588.6 660.1 752.6 688.5 750.1 825.3 912.9 RoAE (%) 43.2 36.5 32.1 32.3 24.8 22.1 22.4 23.9 21.1 23.5 24.8 Gross profit per vehicle (Rs/vehicle) 14,291 17,173 17,743 19,332 19,690 19,489 17,053 19,307 20,842 21,296 21,909 EBITDA per vehicle (Rs/vehicle) 9,691 11,553 10,801 12,278 12,196 12,073 10,345 11,042 12,258 12,498 12,937

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 ATTRACTIVE Banks India SEPTEMBER 03, 2020 UPDATE BSE-30: 39,086

Negligible activity with suspension of the act. A total of 3,911 cases have been admitted under the insolvency process as of 1QFY21, with only 76 new cases being admitted in 1QFY21. 53% of all closed cases (955 out of 1803) till date were via liquidation while only 250 (14%) cases were resolved with an average haircut of ~55% on admitted claims. With recent amendments, we expect the number of fresh cases being admitted to stay low.

New admitted cases drop in 1QFY21; 43% of cases admitted so far are by financial creditors

In the wake of the Covid pandemic, the IBBI has suspended initiation of insolvency proceedings QUICK NUMBERS against firms that default during the six-month period starting on March 25, 2020. This amendment and the disruptions from the lockdown resulted in fewer new cases (only 76 in  New cases admitted 1QFY21 vis-à-vis 435 in 4QFY20) being admitted to NCLT in 1QFY21. Out of the total admitted to IBC in 1QFY21 cases (3,911) till 1QFY21, ~45% cases were admitted after 1QFY20 (Exhibit 1). This was an down qoq to 76 important outcome as financial creditors still continue to use IBC as a framework of resolution. from 435 This reflects the increasing pivotal role played by this body in resolution of stressed assets despite the introduction of a new circular from RBI in June 2019 which removed a clause that  Average resolution made it mandatory for cases to be admitted to IBC. Out of the total admitted cases, 50% cases duration is 423 were initiated by operational creditors and ~43% by financial creditors (Exhibit 3). Of the 55 days; 52% ongoing cases which were closed in 1QFY21, 16 cases were resolved while 24 cases faced liquidation. cases have crossed The average duration of resolution is 423 days for all resolved cases till 1QFY21 (excluding the 270 days time excluding the Adjudicating Authority). About 52% of ongoing cases have crossed 270 days. Out of the total admitted cases till 1QFY21, 40% were from the manufacturing space and  Financial creditors 30% from real estate and construction (Exhibit 5). have taken ~55% haircut on cases Overall haircuts high at ~55% as we now move beyond the steel sector; 1QFY21 haircut at resolved till date ~70%

Based on available data for all 250 cases resolved under the insolvency resolution process till 1QFY21, financial creditors have faced a haircut of ~55% on admitted claims. The amount yielded on resolution as a percentage of liquidation value is high (~184%). The haircut for cases resolved in 1QFY21 was high at ~70%, but better than the massive 88% haircut for resolutions in 3QFY20. Barring one, all resolutions in 1QFY20 had a haircut of >50%. The overall haircut scenario is not very encouraging. M B Mahesh, CFA

Closure by liquidation remains dominant Nischint Chawathe Liquidation (accounting for 53% of all closed cases) remains the most common path of closure for cases under the insolvency resolution process (Exhibit 1). As of 1QFY21, the number of cases Abhijeet Sakhare that have passed 270 days since admission has increased qoq from 738 to 1,094, with another 539 crossing 180 days (Exhibit 2). Hence, the number of cases facing liquidation is likely to Ashlesh Sonje increase in the next few quarters.

Bandwidth of insolvency professionals is adequate; usage of information utility is rising Dipanjan Ghosh

The available number of insolvency professionals is significantly higher (3,122; up ~13 qoq) than the number of ongoing cases in the insolvency process (2,108) till 1QFY21 (Exhibit 10). The number of creditors who have signed agreements with NeSL (National E-Governance Services Limited) continues to increase (Exhibit 12). The only breather would be that the fresh cases to be admitted will slow down given the recent amendments given the impact of Covid.

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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: Drop in cases admitted under the corporate insolvency resolution process in 1QFY21 driven by the lockdown and ordinance Cases under corporate insolvency resolution process, March fiscal year-ends, 2017 – 2019, 1QFY20 – 1QFY21 (#)

No. of corporates Closure by No. of corporates undergoing resolution Withdrawal Approval of Commencement undergoing at the beginning of Appeal/ under section Resolution of resolution at the Period the period Admitted review 12A Plan Liquidation end of the period 2017 0 37 1 0 0 0 36 2018 36 705 89 0 20 91 541 2019 541 1,151 130 94 81 305 1,082 1QFY20 1,082 301 37 30 26 96 1,194 2QFY20 1,194 584 35 30 33 156 1,524 3QFY20 1,524 622 49 24 39 150 1,884 4QFY20 1,884 435 36 28 35 133 2,087 1QFY21 2,087 76 3 12 16 24 2,108 Total NA 3,911 380 218 250 955 2,108

Source: IBBI, Kotak Institutional Equities

Exhibit 2: ~77% of ongoing cases have crossed 180 days since admission Progress of corporate insolvency resolution process, March fiscal year-ends, 1QFY19-1QFY21 (# of cases)

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Admitted 977 1,198 1,484 1,858 2,162 2,542 3,312 3,774 3,911 Closed on appeal/review 91 118 142 152 174 186 246 312 380 Closed by Withdrawal under section 12A NA NA 63 91 101 116 135 157 218 Closed on resolution 34 52 79 94 120 156 190 221 250 Closed on liquidation 136 212 302 378 475 587 780 914 955 Ongoing CIRP 716 816 898 1,143 1,292 1,497 1,961 2,170 2,108 >270 days 186 238 275 362 445 535 635 738 1,094 >180 days and <=270 days 116 158 166 186 221 324 247 494 539 >90 days and <=180 days 183 211 202 247 349 276 537 561 402 <=90 days 231 209 255 348 277 362 542 377 73

Source: IBBI, Kotak Institutional Equities

Exhibit 3: Operational creditors initiated more resolutions than financial creditors Distribution of stakeholders initiating the resolution process, March fiscal year-ends, 2017 – 2019, 1QFY20- 1QFY21 (#)

No. of resolutions processes initiated by Operational Financial Corporate Quarter creditor creditor debtor Total 2017 7 8 22 37 2018 310 286 109 705 2019 567 513 71 1,151 1QFY20 154 130 17 301 2QFY20 296 279 9 584 3QFY20 334 270 18 622 4QFY20 246 180 9 435 1QFY21 47 24 5 76 Total 1,961 1,690 260 3,911

Source: IBBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 India Banks

Exhibit 4: Most cases ending up in liquidation were either non-functional and/or a part of BIFR Distribution of corporate debtors ending up with liquidation, March fiscal year-ends, 1QFY20-1QFY21 (#)

No. of CIRPs initiated by State of the corporate debtor at the commencement of CIRP FC OC CD Total 1QFY20 Either in BIFR or Non-functional or both 125 148 75 348 Resolution Value ≤ Liquidation Value 148 168 76 392 Resolution Value > Liquidation Value 39 20 20 79 2QFY20 Either in BIFR or Non-functional or both 153 190 84 427 Resolution Value ≤ Liquidation Value 188 221 85 494 Resolution Value > Liquidation Value 43 26 23 92 3QFY20 Either in BIFR or Non-functional or both 215 249 97 561 Resolution Value ≤ Liquidation Value 263 295 102 660 Resolution Value > Liquidation Value 57 31 26 114 4QFY20 Either in BIFR or Non-functional or both 251 285 101 637 Resolution Value ≤ Liquidation Value 308 340 107 755 Resolution Value > Liquidation Value 63 35 26 124 1QFY21 Either in BIFR or Non-functional or both 277 310 103 690 Resolution Value ≤ Liquidation Value 347 374 111 832 Resolution Value > Liquidation Value 62 34 24 120

Source: IBBI, Kotak Institutional Equities

Exhibit 5: ~40% of ongoing cases in 1QFY21 were from manufacturing and ~30% from real estate & construction Sector-wise split of cases under the corporate insolvency resolution process, March fiscal year-ends, 4QFY20-1QFY20 (#)

4QFY20 1QFY21 Closed Ongoing Total Closed Ongoing Total (#) (% of total) (#) (% of total) (#) (% of total) (#) (% of total) (#) (% of total) (#) (% of total) Manufacturing 676 42.1 851 39.2 1,527 40.5 765 42.4 830 39.4 1,595 40.8 Food, Beverages & Tobacco Products 76 4.7 120 5.5 196 5.2 87 4.8 117 5.6 204 5.2 Chemicals & Chemical Products 69 4.3 85 3.9 154 4.1 78 4.3 80 3.8 158 4.0 Electrical Machinery & Apparatus 61 3.8 51 2.4 112 3.0 65 3.6 50 2.4 115 2.9 Fabricated Metal Products 39 2.4 46 2.1 85 2.3 44 2.4 45 2.1 89 2.3 Machinery & Equipment 74 4.6 94 4.3 168 4.5 87 4.8 90 4.3 177 4.5 Textiles, Leather & Apparel Products 125 7.8 136 6.3 261 6.9 143 7.9 131 6.2 274 7.0 Wood, Rubber, Plastic & Paper Products 66 4.1 114 5.3 180 4.8 76 4.2 115 5.5 191 4.9 Basic Metals 119 7.4 147 6.8 266 7.0 129 7.2 148 7.0 277 7.1 Others 47 2.9 58 2.7 105 2.8 56 3.1 54 2.6 110 2.8 Real Estate, Renting & Business Activities 307 19.1 450 20.7 757 20.1 352 19.5 425 20.2 777 19.9 Construction 147 9.2 261 12.0 408 10.8 168 9.3 253 12.0 421 10.8 Wholesale & Retail Trade 168 10.5 210 9.7 378 10.0 181 10.0 209 9.9 390 10.0 Hotels & Restaurants 42 2.6 46 2.1 88 2.3 43 2.4 46 2.2 89 2.3 Electricity & Others 30 1.9 87 4.0 117 3.1 38 2.1 82 3.9 120 3.1 Transport, Storage & Communications 57 3.6 55 2.5 112 3.0 65 3.6 52 2.5 117 3.0 Others 177 11.0 210 9.7 387 10.3 191 10.6 211 10.0 402 10.3 Total 1,604 100 2,170 100 3,774 100 1,803 100 2,108 100 3,911 100

Source: IBBI

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Exhibit 6: Financial creditors have taken a haircut of ~55% on cases resolved till 1QFY21 Cases that yielded resolution, March fiscal year-ends, 3QFY18-1QFY21 (Rs bn)

Total Realisation by FCs as Realisation by FCs as % admitted Liquidation Realisation % of their claims of liquidation claims of FCs value by FCs admitted value 3QFY18 55 14 19 34 130 4QFY18 44 14 31 70 215 1QFY19 762 181 429 56 237 2QFY19 423 95 111 26 116 3QFY19 84 30 73 86 247 4QFY19 891 172 506 57 294 1QFY20 315 42 44 14 105 2QFY20 786 148 271 34 183 3QFY20 237 24 29 12 118 4QFY20 391 196 251 64 128 1QFY21 294 46 89 30 194 Total 4,226 1,029 1,889 45 184

Source: IBBI, Kotak Institutional Equities

Exhibit 7: Most voluntary liquidation is on account of business not being operational Reason for voluntary liquidation, March fiscal year-ends, 1QFY19-1QFY21 (#)

Reason for voluntary liquidation 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Not carrying business operations 109 146 151 201 254 259 325 369 451 Commercially unviable 29 34 51 58 59 59 69 73 81 Running into losses 7 8 8 10 10 10 14 14 15 No revenue 9 10 12 18 19 19 20 20 24 Promotors unable to manage affairs 2 2 4 5 5 8 10 14 15 Purpose for which company was formed accomplished 1 1 5 5 5 8 8 8 14 Contract termination 3 3 5 5 5 5 5 5 5 Miscellaneous 41 42 49 58 58 58 62 66 73 Total 201 246 285 360 415 426 513 569 678

Source: IBBI, Kotak Institutional Equities

Exhibit 8: Voluntary liquidation cases are time consuming Status of voluntary liquidation cases, March fiscal year-ends, 1QFY19-4QFY20 (#)

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Initiated 214 269 300 383 452 498 579 669 692 Closed by withdrawal 8 Final reports submitted 31 33 54 97 114 144 171 202 250 Closed by dissolutions 5 6 18 41 56 64 101 120 137 Ongoing >360 days 12 36 68 96 100 158 174 230 228 >270 and <=360 days 27 42 59 31 55 26 81 43 43 >180 and <=270 days 44 63 36 51 31 79 41 55 55 >90 and <=180 days 60 41 56 35 83 46 53 62 62 <=90 days 40 54 27 73 69 45 59 77 77

Source: IBBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 37 India Banks

Exhibit 9: Most withdrawals are due to settlement with applicant/creditor Status of cases withdrawn under section 12A, March fiscal year-ends, 4QFY19-1QFY21 (#)

4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Amount of claims admitted <10 mn 34 39 43 52 64 99 10 to 100 mn 21 28 32 35 36 53 10 to 500 mn 11 15 15 19 21 34 500 to 1000 mn 5 6 6 8 8 10 1000 to 10000 mn 3 3 5 6 6 8 10000 mn and above 2 2 2 2 2 3 Reason for withdrawal Full settlement with the applicant 21 28 34 37 38 68 Full settlement with other creditors 5 6 7 7 8 12 Agreement to settle in future 4 8 8 9 10 15 Other settlement with creditors 29 34 35 44 45 63 Corporate debtors not traceable 2 2 2 2 2 2 Corporate debtor struck off the registrar 1 1 1 1 1 1 Applicant not pursuing CIRP due to high cost 2 2 2 2 2 4 Others 14 14 16 23 31 42

Source: IBBI, Kotak Institutional Equities

38 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Exhibit 10: Pool of insolvency professionals continues to grow Registered insolvency professional, March fiscal year-ends, 1QFY19-1QFY21 (#)

The Indian Institute of Insolvency ICSI Institute of Insolvency Insolvency Professional Agency of City / Region professional of ICAI Professionals Institute of Cost Accountants of India Total 1QFY19 New Delhi 240 154 40 434 Rest of Northern Region 168 105 28 301 Mumbai 201 72 18 291 Rest of Western Region 149 72 17 238 Chennai 75 42 7 124 Rest of Southern Region 167 104 28 299 Kolkata 110 24 10 144 Rest of Eastern Region 37 10 5 52 All India 1,147 583 153 1,883 1QFY20 New Delhi 329 206 55 590 Rest of Northern Region 249 146 39 434 Mumbai 299 93 23 415 Rest of Western Region 210 95 28 333 Chennai 104 67 10 181 Rest of Southern Region 263 139 37 439 Kolkata 155 34 16 205 Rest of Eastern Region 46 15 5 66 Cancellation 1 3 0 4 All India 1,654 792 213 2,659 4QFY20 New Delhi 366 230 65 661 Rest of Northern Region 301 167 45 513 Mumbai 343 118 32 493 Rest of Western Region 216 93 30 339 Chennai 116 78 11 205 Rest of Southern Region 294 163 46 503 Kolkata 171 34 17 222 Rest of Eastern Region 50 18 5 73 All India 1,857 901 251 3,009 1QFY21 New Delhi 376 236 66 678 Rest of Northern Region 324 171 47 542 Mumbai 356 124 32 512 Rest of Western Region 228 97 32 357 Chennai 119 78 12 209 Rest of Southern Region 305 169 48 522 Kolkata 174 35 17 226 Rest of Eastern Region 51 20 5 76 All India 1,933 930 259 3,122

Source: IBBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39 India Banks

Exhibit 11: Number of recognized Insolvency professional entities increased to 73 Insolvency professional entities, March fiscal year-ends, 4QFY17-1QFY21 (#)

Recognized during De-recognized during At the end the quarter the quarter of quarter 4QFY17 3 — 3 1QFY18 14 — 17 2QFY18 22 1 38 3QFY18 18 — 56 4QFY18 19 — 75 1QFY19 1 3 73 2QFY19 4 4 73 3QFY19 3 20 56 4QFY19 5 13 48 1QFY20 6 — 54 2QFY20 7 — 61 3QFY20 6 — 67 4QFY20 4 2 69 1QFY21 4 — 73 Total 116 43 73

Source: IBBI, Kotak Institutional Equities

Exhibit 12: Pool of available information to insolvency professionals continues to increase Details of information with NeSL, March fiscal year-ends, 1QFY20-1QFY21 (#)

1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 FC OC FC OC FC OC FC OC FC OC Creditors having agreement with NeSL 209 NA 226 NA 246 NA 267 NA 269 NA Creditors who have submitted information 160 231 218 297 321 408 381 543 456 574 Debtors whose information have been submitted by creditors 2,531,930 570 2,737,049 1,764 2,926,030 2,121 6,551,739 6,191 7,464,854 8,336 Loan records on-boarded 3,911,146 52,766 4,421,280 86,766 4,803,931 125,526 9,417,317 167,719 10,721,829 204,568 User registration by debtors 23,482 83 31,696 208 48,551 NA 73,332 NA 106,840 NA Loan records authenticated by debtors 22,323 40 36,660 61 68,646 120 109,505 221 149,268 265 Amount of underlying debt (Rs bn) 49,106 205 56,253 280 69,195 320 78,737 319 98,555 332

Source: IBBI, Kotak Institutional Equities

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH June 2020: Results calendar 41

Mon Tue Wed Thu Fri Sat Sun 31-Aug 1-Sep 2-Sep 3-Sep 4-Sep 5-Sep 6-Sep J K Cement National Aluminium Co. Coal India Page Industries Future Retail NHPC ONGC Jubilant Foodw orks Jubilant Life Science 7-Sep 8-Sep 9-Sep 10-Sep 11-Sep 12-Sep 13-Sep Info Edge CESC BHEL IRCTC 14-Sep 15-Sep 16-Sep 17-Sep 18-Sep 19-Sep 20-Sep Apollo Hospitals

Source: NSE, Kotak Institutional Equities India Daily Summary Daily Summary India KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -

September 3, September 3, 2020

KOTAK INSTITUTIONAL EQUITIES RESEARCH 41

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India

Fair O/S ADVT

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK 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 2-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Automobiles & Components Amara Raja Batteries REDUCE 745 700 (6) 127 1.7 171 39 34 44 36.7 (10.9) 27.3 19 21.6 17.0 11.5 11.6 9.3 3.5 3.1 2.7 18.9 15.2 17.1 1.5 1.2 1.5 11.1 Apollo Tyres BUY 123 140 14 70 1.0 638 8.3 2.9 9.9 (41.9) (64.7) 238.7 14.7 41.7 12.3 7.0 7.0 5.2 0.7 0.7 0.7 4.8 1.8 5.6 2.4 1.1 2.2 15.4 Ashok Leyland BUY 68 75 10 201 2.7 2,936 1.2 (0.4) 2.4 (82.3) (134.0) 674.7 55.7 NM 28.4 18.8 30.7 12.0 2.8 2.8 2.6 4.6 NM 9.5 5.1 0.0 1.1 41 Bajaj Auto BUY 2,881 3,400 18 834 11 289 176 154 188 15.0 (12.6) 21.9 16.3 18.7 15.3 13.0 13.5 10.5 4.2 3.8 3.5 24 21 24 4.2 3.2 3.9 37 Balkrishna Industries SELL 1,320 1,150 (13) 255 3.5 193 50 48 58 25.2 (3.4) 21.7 26.6 27.5 22.6 18.0 15.6 12.8 5.1 4.6 4.1 19.9 17.6 19.3 1.5 1.7 1.8 14.1 Bharat Forge SELL 499 340 (32) 232 3.2 466 8 1 14 (66.2) (87.3) 1,341.4 66.5 523.7 36.3 23.8 41.7 19.0 4.4 4.4 4.0 6.7 0.8 11.6 1.2 0.0 0.6 23 CEAT BUY 890 940 6 36 0.5 40 63 44 68 1.9 (30.5) 56.9 14.2 20.4 13.0 7.6 8.1 6.6 1.2 1.2 1.1 8.9 5.9 8.8 1.3 1.3 1.3 3.3 Eicher Motors REDUCE 2,170 1,920 (12) 593 8.1 272 67 59 82 (17.7) (11.8) 39.2 32.3 36.6 26.3 24.1 27.7 19.7 7.1 6.2 5.1 24 18.0 21 0.6 0.6 0.6 80 Endurance Technologies REDUCE 1,090 875 (20) 153 2.1 141 40 30 47 11.1 (26.1) 56.9 27 36.7 23.4 13.5 15.3 10.9 5.1 4.6 3.9 18.8 12.4 16.8 0.5 0.4 0.7 1.8 Escorts BUY 1,222 1,300 6 109 2.3 101 55 55 74 0.4 1.4 34.2 22.4 22.1 16.4 15.6 12.8 9.2 3.1 2.5 2.2 14.0 11.2 13.4 0.2 0.7 0.9 38 Exide Industries REDUCE 167 155 (7) 142 1.9 850 10.0 7.8 9.1 10.3 (21.7) 16.5 16.7 21.3 18.3 10.3 11.5 10.0 2.2 2.1 2.0 13.8 10.2 11.2 2.5 2.1 2.1 9.8 -

Hero Motocorp REDUCE 2,946 2,700 (8) 588 8.0 200 159 141 169 (6.1) (11.6) 20.2 18.5 20.9 17.4 12.7 12.8 10.3 4.2 3.9 3.6 24 19.2 21 3.3 3.1 3.4 65 September 3, September 3, 2020 Mahindra CIE Automotive SELL 134 95 (29) 51 0.7 378 9.4 1.6 7.5 (34.9) (83.0) 366.5 14.2 83.3 17.8 6.5 13.1 7.3 1.1 1.1 1.0 8.0 1.3 5.9 — — — 0.5 Mahindra & Mahindra BUY 643 725 13 799 10.9 1,138 24 30 42 (50.0) 26.3 40.8 27.0 21.4 15.2 12.4 13.3 9.9 2.1 1.9 1.7 7.8 9.5 12.1 0.4 0.5 1.0 54 Maruti Suzuki SELL 6,921 4,500 (35) 2,091 28.6 302 187 140 225 (24.7) (25.0) 60.2 37 49 31 23.6 29.5 17.7 4.3 4.1 3.7 11.9 8.5 12.6 0.9 0.7 0.8 121

Motherson Sumi Systems ADD 116 115 (0) 365 5.0 3,158 3.7 1.5 6.4 (27.5) (60.6) 340.3 31.2 79.0 18.0 8.3 10.9 5.3 3.2 3.2 2.7 10.5 4.1 16.3 1.3 1.0 1.3 29 MRF SELL 58,741 58,500 (0) 249 3.4 4 3,355 2,159 2,896 25.8 (35.7) 34.2 18 27.2 20.3 10.1 10.0 7.9 2.0 1.9 1.7 12.3 7.2 9.0 0.2 0.1 0.1 13.1 Schaeffler India SELL 3,989 3,150 (21) 125 1.7 31 118 83 128 (18.3) (29.7) 55.1 34 48 31 18.4 23.8 16.4 4.2 3.9 3.5 13.0 8.4 11.9 — — — 0.5 SKF REDUCE 1,627 1,550 (5) 80 1.1 49 58 43 58 (10.7) (26.2) 33.6 28 38 28 21.2 27.5 19.7 4.2 5.5 4.7 15.2 14.5 16.7 0.7 6.7 0.6 1.4 Tata Motors SELL 150 90 (40) 541 6.7 3,829 (20.7) (20.5) 4.2 (284.1) 1.0 120.3 NM NM 36.1 6.5 6.9 4.5 0.9 1.0 1.0 NM NM 2.7 — — — 127 Timken SELL 1,147 825 (28) 86 1.2 75 33 22 35 65.6 (34.2) 60.6 35 53 33 22.6 30.6 20.1 5.5 6.3 5.4 16.9 11.0 17.6 0.1 0.1 0.1 0.7 TVS Motor SELL 437 260 (41) 208 2.8 475 13.0 7.4 14.7 (7.9) (43.1) 98.4 34 59 30 16.6 21.4 14.4 5.7 5.5 4.9 17.7 9.5 17.3 0.8 0.7 0.8 17.6 Varroc Engineering BUY 299 380 27 40 0.6 135 0 (14) 22 (99.4) (7,416.5) 259.8 1,607.7 NM 13.8 7.9 10.2 5.4 1.3 1.4 1.3 0.1 NM 9.5 — — — 1.8 Automobiles & Components Cautious 7,974 109.1 (39.2) (29.7) 151.0 39.0 55.5 22.1 12.2 13.3 8.8 2.9 2.8 2.5 7.4 5.0 11.5 1.4 1.1 1.3 705 Banks

AU Small Finance Bank SELL 705 590 (16) 216 3.0 304 22.2 19.3 23.0 69.8 (13.1) 19.4 32 37 31 — — — 5.1 4.7 4.1 17.9 12.6 13.2 — — — 8.2 Axis Bank BUY 484 600 24 1,482 20.3 2,822 5.8 35 41 (68.3) 509.3 17.8 84 13.8 11.7 — — — 1.7 1.5 1.4 2.1 11.1 11.9 0.0 1.1 1.3 221 Bandhan Bank REDUCE 318 330 4 511 7.0 1,610 18.1 20.7 20.7 10.9 14.3 (0.3) 17.5 15.3 15.4 — — — 3.4 2.9 2.4 22.1 19.8 16.5 — — — 110 Bank of Baroda ADD 47 65 38 218 3.0 4,627 1.2 7.3 17 (27.7) 516.4 137.1 40 6.5 2.7 — — — 0.4 0.4 0.4 1.0 5.0 11.1 0.0 3.1 7.3 30 Canara Bank REDUCE 108 90 (16) 157 2.1 1,454 (21.7) (5.0) 7.5 (571.1) 76.9 249.7 NM NM 14.3 — — — 0.5 0.5 0.5 NM NM 2.1 — — — 25 City Union Bank ADD 143 140 (2) 105 1.4 737 6.5 5.6 10.2 (30.5) (13.8) 82.6 22 25.6 14.0 — — — 2.2 2.1 1.9 9.4 7.5 12.7 0.4 0.7 1.3 5.9 DCB Bank BUY 91 150 64 28 0.4 310 10.9 9.3 10.3 3.6 (14.7) 10.4 8.4 9.8 8.9 — — — 0.9 0.9 0.8 11.2 8.7 8.9 — 1.0 1.1 4.4 Equitas Holdings BUY 54 100 85 18 0.3 342 6.0 5.4 9.0 16.6 (10.4) 66.5 9.0 10.0 6.0 — — — 0.7 0.7 0.6 7.9 6.4 9.8 — — — 12.6 Federal Bank BUY 56 80 43 111 1.5 1,993 7.7 6.1 6.9 23.6 (21.2) 12.7 7.2 9.2 8.1 — — — 0.8 0.8 0.7 11.1 8.1 8.6 — 2.4 2.7 30 HDFC Bank ADD 1,134 1,200 6 6,241 85.4 5,483 48 49 54 23.7 2.9 10.3 24 23 21 — — — 3.7 3.3 3.0 16.4 14.9 14.6 — 0.8 0.9 253 ICICI Bank BUY 392 470 20 2,706 37.0 6,474 12.3 23 27 134.9 88.0 16.6 32 17.0 14.6 — — — 2.4 2.1 1.9 7.7 12.2 12.9 — 1.2 1.4 223 IndusInd Bank ADD 641 600 (6) 444 6.1 756 64 26 64 16.3 (59.2) 147.6 10 24.6 10.0 — — — 1.3 1.3 1.2 14.9 5.3 11.8 — 0.6 1.5 202 Karur Vysya Bank BUY 40 65 63 32 0.4 799 2.9 4 6 11.5 41.4 55.6 14 9.6 6.2 — — — 0.6 0.6 0.5 3.6 4.9 7.4 — 2.7 4.2 1.9 Punjab National Bank REDUCE 35 33 (5) 327 4.5 9,411 0 1 5 102.3 5.7 885.4 70 66.0 6.7 — — — 0.6 0.7 0.6 0.7 0.7 6.0 — — — 22 RBL Bank BUY 197 270 37 100 1.4 509 9.9 10 20 (51.1) 3.4 97.2 20 19.2 9.7 — — — 1.0 1.0 0.9 5.6 4.8 9.0 — 0.7 1.4 97 State Bank of India BUY 216 340 57 1,930 26.4 8,925 16 24 29 1,580.3 49.2 17.9 13 8.9 7.6 — — — 1.2 1.0 0.9 6.4 8.9 9.6 — 0.1 0.1 202 Ujjivan Financial Services BUY 249 490 97 30 0.4 121 26.9 34 44 117.0 24.9 31.6 9 7.4 5.6 — — — 1.4 1.2 1.0 15.7 17.0 19.3 1.2 1.7 2.4 19.0 Ujjivan Small Finance Bank ADD 35 39 10 61 0.8 1,728 2 2 2 34.2 (4.7) (2.9) 19 20.0 20.6 — — — 2.1 2.1 1.9 13.6 9.8 8.9 1.0 1.0 1.0 0.0 Union Bank REDUCE 30 25 (16) 190 2.6 6,407 (8) (1) 0 49.4 86.0 135.5 NM NM 70.2 — — — 0.5 0.5 0.5 NM NM 0.5 — (0.6) 0.2 2.8 Banks Attractive 15,271 208.8 43.3 93.2 41.0 37 19.0 13.5 1.6 1.4 1.3 4.4 7.5 9.7 0.1 0.7 0.9 1,505

Source: Company, Bloomberg, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH 42

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

43 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 2-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Building Products Astral Poly Technik SELL 1,166 765 (34) 176 2.4 151 16.4 18 25 25.6 11.3 37.9 71 64 46 39.7 34.9 26.3 11.7 10.1 8.5 17.8 17.0 20.0 0.1 0.2 0.3 2.8 Building Products Cautious 176 2.4 26.6 11.3 37.9 71 64 46 39.7 34.9 26.3 11.7 10.1 8.5 16.5 15.8 18.4 0.1 0.2 0.3 2.8 Capital goods ABB SELL 975 840 (14) 207 2.8 212 18 9 21 46.3 (50.0) 140.4 56 111 46 35.9 72.7 30.2 5.9 5.8 5.4 9.9 5.3 12.1 0.5 0.6 0.7 3.0 Ashoka Buildcon BUY 70 130 85 20 0.3 281 13.8 9.3 11.4 16.2 (32.8) 23.3 5.1 7.6 6.2 3.5 5.1 4.1 0.8 0.7 0.6 16.1 9.6 10.9 0.0 2.1 2.6 2.4 Bharat Electronics BUY 109 110 1 266 3.6 2,437 7.5 6.2 6.8 (3.3) (16.5) 8.6 14.6 17.5 16.1 9.1 10.7 9.4 2.6 2.4 2.2 18.9 14.5 14.5 2.6 2.1 2.3 26 BHEL REDUCE 39 28 (27) 136 1.9 3,482 (4.2) (1.5) 2.5 (221.0) 64.0 263.0 NM NM 15.8 (52.5) (315.1) 6.3 0.5 0.5 0.5 NM NM 3.0 (5.3) (1.7) 2.5 38 Carborundum Universal ADD 259 285 10 49 0.7 189 14.4 12.1 15.2 9.9 (15.9) 26.0 18.0 21 17.0 11.7 11.9 9.4 2.6 2.4 2.2 15.2 11.8 13.7 1.5 1.3 1.6 1.4 Cochin Shipyard BUY 330 530 61 43 0.6 132 48 38 46 32.5 (21.6) 21.8 6.8 8.7 7.1 3.2 4.3 4.2 1.2 1.1 1.0 18.1 12.9 14.3 4.5 3.6 3.9 3.2 Cummins India BUY 471 500 6 131 1.8 277 26 18 26 (3.2) (28.8) 41.2 18.5 26 18.4 21.0 30.0 18.6 3.1 3.0 2.9 17.0 11.9 16.1 3.0 2.1 3.0 8.5 Dilip Buildcon BUY 376 545 45 51 0.7 137 30 27 46 (45.3) (12.3) 73.2 12.3 14.1 8.1 5.3 5.7 4.2 1.4 1.3 1.1 12.2 9.6 14.7 0.1 0.1 0.2 2.6 IRB Infrastructure BUY 120 150 25 42 0.6 351 21 15 12 (15.2) (26.7) (22.8) 5.8 8.0 10.3 3.5 6.5 5.9 0.6 0.6 0.6 11.1 7.7 5.7 4.2 3.2 2.0 6.3 Kalpataru Power Transmission BUY 255 470 85 39 0.5 153 25 25 39 (16.4) (1.3) 57.4 10.0 10.2 6.5 4.5 4.4 3.8 1.2 1.1 0.9 12.0 10.9 15.4 1.4 1.3 1.8 1.9 KEC International BUY 317 360 13 82 1.1 257 22.0 25 30 16.3 11.6 24.3 14.4 12.9 10.4 8.1 7.6 6.2 2.9 2.4 2.0 22 21 21 1.1 0.8 1.0 1.8 L&T BUY 956 1,210 27 1,341 18.3 1,403 63 35 67 3.3 (44.9) 91.1 15.1 27 14.3 15.9 19.3 13.6 2.3 2.0 1.8 15.8 7.8 13.1 1.9 1.6 2.2 73 Sadbhav Engineering BUY 50 113 126 9 0.1 172 4.2 5.3 11.4 (61.4) 26.0 115.4 11.9 9.5 4.4 6.5 6.1 3.8 0.4 0.4 0.4 3.5 4.2 8.6 — — — 0.5 Siemens SELL 1,196 1,000 (16) 426 5.8 356 19 32 36 (37.7) 70.6 11.7 63 37 33 42.5 24.8 22.0 4.5 4.2 3.8 7.3 11.7 12.1 0.4 0.8 0.8 50 Thermax BUY 775 810 5 92 1.3 113 19 14 29 (48.8) (24.9) 102.5 41 55 27 22.1 35.5 19.3 22.1 35.5 19.3 7.0 5.2 10.3 0.9 1.2 1.9 0.9 Capital goods Attractive 2,934 40.1 (18.5) (25.8) 69.9 20.0 27 15.9 2.0 1.8 1.7 10.2 6.9 10.9 1.3 1.3 1.9 220 Commercial & Professional Services SIS BUY 366 395 8 54 0.7 149 15 14 19 5.0 (10.2) 36.2 24 27 19.8 11.2 12.2 10.2 3.9 3.5 3.0 17.1 13.6 16.1 1.0 0.2 0.3 0.6 TeamLease Services ADD 2,356 2,000 (15) 40 0.6 17 20 49 67 (64.3) 140.9 36.5 115 48 35 42.1 33.9 26.4 7.0 6.1 5.2 6.3 13.7 16.1 — — — 1.3 Commercial & Professional Services Attractive 94 1.3 (16.7) 10.1 36.3 36 33 24 16.0 16.4 13.5 4.8 4.2 3.6 13.3 12.8 15.0 0.6 0.1 0.1 2 Commodity Chemicals Asian Paints REDUCE 1,944 1,800 (7) 1,865 25.5 959 27.2 21.9 36.1 20.7 (19.4) 64.9 72 89 54 44.6 52.3 35.1 18.4 16.6 14.3 27 19.7 29 0.6 0.5 0.9 62 Berger Paints SELL 555 430 (22) 539 7.4 971 6.8 6.2 9.4 32.2 (8.5) 51.7 82 89 59 50.9 53.3 37.5 20.2 17.5 14.8 26 21 27 0.4 0.3 0.6 12.2 Kansai Nerolac ADD 499 485 (3) 269 3.7 539 9.9 8.1 12.6 14.6 (18.6) 55.3 50 62 40 33.8 38.7 26.1 7.1 6.7 6.1 14.8 11.2 16.0 0.6 0.6 0.9 1.9 Tata Chemicals ADD 312 330 6 79 1.1 255 31.7 23.1 35.2 (26.2) (27.0) 52.2 9.8 13.5 8.9 4.7 5.1 3.9 0.6 0.6 0.6 6.4 4.5 6.6 3.5 2.6 4.0 10.6 Commodity Chemicals Neutral 2,752 37.6 9.2 (19.1) 59.6 60 74 46 34.6 39.0 27.3 9.3 8.7 7.9 15.6 11.8 17.0 0.7 0.5 0.9 87 Construction Materials ACC BUY 1,358 1,550 14 255 3.5 188 72.3 61.4 79.5 35.8 (15.1) 29.5 18.8 22 17.1 8.7 9.8 7.5 2.2 2.1 2.0 12.3 9.8 12.0 1.0 2.3 2.9 21 India Daily Summary Daily Summary India Ambuja Cements BUY 217 235 8 431 5.9 1,986 10.6 9.5 12.4 49.1 (10.2) 31.0 21 23 17.5 7.4 8.0 5.8 1.8 1.7 1.5 9.0 7.6 9.2 0.7 0.7 0.7 13.0 Dalmia Bharat BUY 766 1,075 40 143 2.0 192 14.0 17.9 36.9 (12.1) 28.0 106.9 55 43 21 7.6 7.4 5.6 1.4 1.4 1.3 2.5 3.2 6.3 — — — 1.8 Grasim Industries ADD 679 700 3 447 6.1 657 52.6 42.5 71.6 (21.1) (19.3) 68.5 12.9 16.0 9.5 7.8 8.3 5.5 0.8 0.8 0.7 6.0 4.8 7.6 0.6 0.1 0.3 26 J K Cement ADD 1,487 1,550 4 115 1.6 77 64.2 52.2 96.1 83.6 (18.7) 84.0 23 28 15.5 11.4 12.1 8.1 3.8 3.4 2.9 17.3 12.6 20 0.5 0.7 0.7 1.9 JK Lakshmi Cement BUY 266 340 28 31 0.4 118 23.5 16.0 27.4 478.7 (32.0) 71.4 11.3 16.7 9.7 5.2 6.0 4.7 1.9 1.7 1.5 17.4 10.6 16.2 0.9 0.9 1.5 1.3 Orient Cement ADD 65 75 15 13 0.2 205 4.2 3.7 6.3 82.1 (12.9) 72.1 15.4 17.7 10.3 6.6 6.3 5.2 1.2 1.2 1.1 8.0 6.6 10.8 1.2 3.1 3.1 0.8 Shree Cement SELL 20,564 16,000 (22) 742 10.1 36 435.2 382.0 651.5 34.6 (12.2) 70.5 47 54 32 20.2 21.7 15.1 5.7 5.3 4.7 13.9 10.3 15.8 0.5 0.5 0.5 19.4 UltraTech Cement BUY 3,942 4,600 17 1,138 15.6 289 132.9 133.7 219.9 45.2 0.6 64.4 30 29 17.9 14.0 13.4 9.1 2.9 2.7 2.3 10.5 9.4 13.9 0.3 0.4 0.5 31 Construction Materials Attractive 3,315 45.3 21.1 (10.2) 59.5 25 27 17.2 10.6 11.0 7.7 2.1 1.9 1.8 8.4 7.1 10.3 0.5 0.6 0.7 116

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

September 3, September 3, 2020

KOTAK INSTITUTIONAL EQUITIES RESEARCH 43

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 2-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 263 210 (20) 165 2.3 627 7.9 6.9 8.8 33.1 (12.8) 27.1 33 38 30 28 28 23 11.2 8.6 7.0 39 26 26 0.8 0.0 1.0 2.9 Havells India SELL 630 490 (22) 394 5.4 626 11.8 8.7 13.8 (6.6) (26.1) 58.5 54 73 46 37 47 31 9.1 8.5 7.7 17.3 12.2 17.7 1.6 0.5 0.8 19.1 Page Industries REDUCE 19,770 16,000 (19) 221 3.0 11 308 277 397 (12.9) (10.0) 43.5 64 71 50 41 44 33 26.9 23.3 19.0 43 35 42 0.8 0.8 1.1 11.5 Polycab ADD 882 875 (1) 131 1.8 149 52 40 53 53.2 (21.5) 30.7 17.1 22 16.7 11 15 11 3.4 3.0 2.6 23 14.7 16.8 0.8 0.6 0.8 4.5 TCNS Clothing Co. REDUCE 400 360 (10) 25 0.3 66 11 0 14 (47.7) (99.8) 69,289.2 37 19,992 29 14 26 10.7 3.9 3.7 3.2 10.9 0.0 11.9 — — — 0.3 Vardhman Textiles ADD 821 720 (12) 47 0.6 57 85 25 90 (34.1) (70.8) 260.6 9.6 33 9.2 6.9 12.3 5.9 0.8 0.8 0.7 8.3 2.3 8.0 2.1 1.5 2.4 0.4 Voltas SELL 643 530 (18) 213 2.9 331 16.2 12.9 19.7 3.4 (20.8) 52.8 40 50 33 32 45 27 5.0 4.6 4.2 12.8 9.6 13.5 0.6 0.5 0.8 21 Whirlpool SELL 2,193 1,700 (22) 278 3.8 127 38 30 49 17.0 (21.3) 67.1 58 74 44 39 50 31 10.9 10.0 8.9 20 14.1 21 0.2 0.4 0.9 2.0 Consumer Durables & Apparel Cautious 1,474 20.2 2.3 (27.6) 38 52 33 25 34 22 6.1 5.7 16.3 10.9 15.5 0.9 0.5 62 Consumer Staples Bajaj Consumer Care ADD 174 200 15 26 0.4 148 12.5 12.8 13.1 (16.6) 2.1 2.7 13.9 13.6 13.2 10.3 10.2 9.8 3.9 3.4 3.1 33 27 24 1.2 3.5 4.6 3.4

Britannia Industries ADD 3,799 4,150 9 915 12.5 240 59 81 86 22.1 36.7 6.3 65 47 44 50 35 33 20.7 17.1 13.6 32 39 34 0.9 0.7 0.9 45 -

Colgate-Palmolive (India) ADD 1,391 1,550 11 378 5.2 272 28 31 36 5.9 8.1 18.0 49 45 39 31.1 29.0 24.9 23.7 23.6 22.4 51 52 60 2.0 2.1 2.5 16.2 September 3, 2020 Dabur India REDUCE 490 415 (15) 865 11.8 1,767 8.6 9.5 11.0 6.1 10.2 15.3 57 51 45 47 42 35 13.1 12.0 11.0 25 24 26 0.6 1.2 1.4 24 Godrej Consumer Products ADD 659 750 14 674 9.2 1,022 13.8 15.4 18.5 (4.8) 11.8 20.3 48 43 36 32 29 24 8.5 7.5 6.7 18.6 18.6 19.9 0.9 1.1 1.4 14.1 Hindustan Unilever ADD 2,142 2,500 17 5,028 68.8 2,343 31 35 45 10.9 12.3 28.1 69 61 48 52 43 34 57.6 11.6 11.0 86 32 24 1.1 1.5 1.9 85 ITC BUY 191 260 36 2,355 32.2 12,308 11.6 10.5 12.3 14.4 (9.4) 17.9 16.6 18.3 15.5 11.4 13.0 10.9 3.7 3.6 3.5 21 18.9 22 5.3 4.7 5.5 83 Jyothy Laboratories ADD 144 160 11 53 0.7 367 4.7 5.5 6.0 (15.5) 17.5 9.1 30 26 24 22.0 17.9 16.5 4.3 4.1 3.8 13.6 16.1 16.6 2.1 2.4 2.8 1.8 Marico ADD 379 390 3 489 6.7 1,290 8.1 8.7 9.7 12.4 7.7 11.2 47 43 39 33 30 27 16.2 15.1 14.0 35 36 37 1.7 1.8 2.1 14.6 Nestle India REDUCE 15,993 16,000 0 1,542 21.1 96 204 227 270 22.6 10.9 19.1 78 71 59 54 47 41 79.8 62.7 50.2 70 100 94 2.1 1.1 1.3 34 Tata Consumer Products ADD 550 470 (15) 504 6.9 922 8.0 9.8 11.9 13.9 22.3 22.4 69 56 46 38 29 27 3.7 3.5 3.3 6.9 6.4 7.4 0.5 0.6 0.8 28 United Breweries ADD 1,085 1,120 3 287 3.9 264 16.2 4.9 20.3 (24.0) (70.0) 318.8 67 224 53 33 63 27 8.1 8.0 7.0 12.8 3.6 14.1 0.2 0.1 0.6 10.1 United Spirits ADD 569 620 9 413 5.6 727 11.5 8.6 14.0 21.7 (25.0) 62.8 50 66 41 28 35 25 10.3 9.1 7.4 23 14.6 20 — — — 27 Varun Beverages BUY 766 825 8 221 3.0 289 16.2 6.5 25.5 51.9 (60.0) 291.5 47 118 30 18 23 13 6.6 6.2 5.2 17.6 5.4 18.9 0.1 0.2 0.3 3.3 Consumer Staples Attractive 13,749 188.0 13.0 2.4 23.3 43 42 34 30 30 24 11.1 8.3 7.7 26 19.6 23 1.8 1.8 2.2 389 Diversified Financials

Bajaj Finance REDUCE 3,669 2,800 (24) 2,211 30.2 600 104 74 131 49 (28) 77 35 50 28 — — — 6.8 6.1 5.1 20 13.0 19.8 0.3 0.2 0.4 466 Bajaj Finserv BUY 6,365 7,600 19 1,013 13.9 159 212 252 402 5 19 60 30 25 15.8 — — — 3.2 2.9 2.5 12.2 12.1 16.8 0.2 0.2 0.2 96 Cholamandalam BUY 243 300 24 199 2.7 820 12.8 13.9 20.2 (15) 8.5 45.0 18.9 17.4 12.0 — — — 2.6 2.4 2.0 14.7 13.1 16.7 0.7 0.6 0.9 39 IIFL Wealth ADD 1,003 1,200 20 88 1.2 88 23.8 33.4 48.7 (47) 40.8 45.8 42 30 21 — — — 2.9 2.9 2.8 7.0 9.7 13.7 1.0 2.2 3.2 0.4 L&T Finance Holdings ADD 67 90 34 135 1.8 2,005 8 5 9 (24.1) (44) 84.9 7.9 14.2 7.7 — — — 0.9 0.9 0.8 14.7 6.3 10.9 2.8 2.1 2.4 18.7 LIC Housing Finance ADD 303 375 24 153 2.1 505 47.6 44.0 71.5 4 (7.6) 62.6 6.4 6.9 4.2 — — — 1.0 1.0 0.8 13.9 11.6 16.8 2.6 2.4 4.0 26 Muthoot Finance REDUCE 1,147 1,100 (4) 460 6.3 401 75 77 87 52.3 2 13.5 15.3 14.9 13.2 — — — 4.0 3.3 2.8 28 24 23 1.3 1.3 1.5 61 Shriram City Union Finance BUY 969 1,300 34 64 0.9 66 152 101 177 1.2 (33) 75.1 6.4 9.6 5.5 — — — 0.9 0.9 0.8 14.7 8.9 14.1 0.6 1.3 2.7 1.1 Shriram Transport BUY 692 1,050 52 175 2.4 253 110.3 73.2 107.4 (2) (33.6) 46.6 6.3 9.5 6.4 — — — 0.9 0.9 0.8 14.8 9.5 12.2 0.7 1.6 2.3 56 Diversified Financials Attractive 7,990 109.3 32.3 (22.7) 39.9 19.5 25 18.0 3.0 2.9 2.6 15.1 11.4 14.2 0.8 0.8 1.1 954

Source: Company, Bloomberg, Kotak Institutional Equities estimates

44 KOTAK INSTITUTIONAL EQUITIES RESEARCH 44

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

45 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 2-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Electric Utilities CESC BUY 616 810 32 82 1.1 133 99 102 114 9 3.3 11.8 6.2 6.0 5.4 5.3 4.9 4.4 0.7 0.6 0.6 10.7 10.4 10.7 2.1 2.1 2.1 3.4 JSW Energy BUY 59 65 11 97 1.3 1,640 6.3 4.8 5.3 49 (25) 11.6 9.3 12.3 11.0 5.9 5.8 5.1 0.8 0.8 0.7 8.9 6.5 6.8 2.1 — — 2.2 NHPC ADD 21 26 21 215 2.9 10,045 2.8 3.0 3.2 10.7 6 8.7 7.7 7.2 6.7 7.5 8.2 7.4 0.7 0.7 0.6 9.2 9.3 9.8 6.8 8.1 8.7 1.9 NTPC BUY 99 130 31 979 13.4 9,895 11.1 13.0 15.4 (0.9) 17.3 18.3 8.9 7.6 6.4 10.1 8.0 6.3 0.9 0.8 0.7 10.0 11.0 12.0 3.2 3.7 4.7 31 Power Grid BUY 181 220 21 948 13.0 5,232 20.7 22 25 9 6.3 16.1 8.8 8.3 7.1 6.9 6.6 5.9 1.5 1.4 1.2 17.5 17.2 18.3 5.5 5.9 6.8 27 Tata Power BUY 61 70 15 195 2.7 2,705 4.4 4.4 6.3 110 0 41.9 13.7 13.7 9.7 8.2 8.4 7.7 0.9 0.9 0.8 6.9 6.4 8.5 3.0 — — 27 Electric Utilities Attractive 2,515 34.4 8.2 8.8 17.0 8.9 8.2 7.0 1.0 0.9 0.9 11.2 11.4 12.3 4.3 4.4 5.2 93 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 5,955 3,400 (43) 268 3.7 45 129.3 134.2 149.9 64.7 3.8 11.7 46 44 40 35 32 28 10.4 8.8 7.4 24 21 20 0.4 0.5 0.5 3.0 Dhanuka Agritech SELL 786 650 (17) 37 0.5 48 29.7 37.0 40.8 25.7 24.4 10.4 26.4 21.3 19.2 21.1 15.9 14.0 5.3 4.5 3.8 21 23 21 3.1 1.2 1.6 2.0 Godrej Agrovet SELL 490 420 (14) 94 1.3 192 11.5 14.9 17.5 0.8 29.1 17 42 33 28 24 17 14 4.2 3.9 3.5 10.4 12.3 13.0 1.1 1.0 1.2 2.1 PI Industries SELL 1,912 1,600 (16) 290 4.0 152 33.0 45.6 57.8 11.3 38 27 58 42 33 41 28 22 10.1 9.0 7.4 18.6 24 25 0.2 0.4 0.5 6.8 Rallis India SELL 313 265 (15) 61 0.8 195 9.0 11.3 14.8 7.4 25.0 30.9 34.6 27.7 21.2 23.7 18.6 14.5 4.3 3.9 3.4 13.1 14.7 17.0 0.8 0.9 1.0 5.1 UPL SELL 501 390 (22) 383 5.2 765 23.2 31.9 36.5 22.7 37.6 14.2 22 15.7 13.7 9.3 8.0 7.3 2.4 2.1 1.9 11.5 14.2 14.6 1.2 1.6 1.9 37 Fertilizers & Agricultural Chemicals Cautious 1,133 15.5 24.6 31.8 16.7 34 26 22.0 15.2 12.6 11.2 4.4 3.9 3.4 13.0 15.1 15.5 0.8 0.9 1.1 56 Gas Utilities GAIL (India) BUY 97 140 44 439 6.0 4,510 13.2 7.6 11.0 (5.5) (42.1) 44.8 7.4 12.8 8.8 5.7 9.1 6.3 1.0 1.0 0.9 13.5 7.7 10.6 6.6 4.1 5.1 23 GSPL SELL 201 200 (0) 113 1.5 564 17.2 13.2 11.8 21.9 (23.1) (10.6) 11.7 15.2 17.0 5.2 6.1 6.4 1.7 1.5 1.4 15.5 10.6 8.7 1.0 1.0 1.2 3.3 Indraprastha Gas SELL 401 380 (5) 281 3.8 700 16.7 14.4 20.7 38.6 (13.9) 44.1 24.0 27.9 19.4 17.0 19.4 13.6 5.5 4.9 4.2 25 18.6 23 0.7 0.7 1.2 26 Mahanagar Gas ADD 914 1,115 22 90 1.2 99 74.6 53.8 81.3 32.8 (27.9) 51.1 12.2 17.0 11.2 8.4 11.0 7.1 3.1 2.7 2.4 28 17.0 23 2.7 2.2 3.8 16.3 Petronet LNG BUY 240 300 25 361 4.9 1,500 17.6 18.3 21.7 17.3 3.6 18.6 13.6 13.2 11.1 7.5 7.2 6.2 3.3 3.1 2.9 25 24 27 5.2 5.8 7.3 15.5 Gas Utilities Attractive 1,283 17.6 6.8 (26.2) 31.8 11.2 15.2 11.5 7.3 9.3 7.2 1.8 1.7 1.6 16.5 11.5 14.1 4.1 3.4 4.4 84 Health Care Services Apollo Hospitals BUY 1,699 1,700 0 236 3.2 139 18.4 1 44 9 (97) 6,877 92.1 2,717.0 38.9 16.8 25.8 14.8 7.1 7.1 6.4 7.7 0.3 17.2 0.7 0.0 1.0 22 Dr Lal Pathlabs SELL 1,867 1,300 (30) 156 2.1 83 27.1 26.7 37.2 13.4 (1.4) 39.2 69.0 69.9 50.2 43.2 43.7 30.7 15.1 13.1 11.1 23 20 24 0.4 0.4 0.6 3.8 HCG BUY 120 150 25 11 0.1 143 (12.0) (8.7) (2.4) (258) 28 73 NM NM NM 10.1 8.9 4.9 2.8 1.8 1.8 NM NM NM — — — 0.5 Metropolis Healthcare SELL 1,770 1,300 (27) 90 1.2 51 30.0 30.0 39.7 25.3 (0.1) 32 59.0 59.1 44.6 37.8 35.7 27.8 17.1 14.4 11.9 32 26 29 0.4 0.5 0.7 4.2 Narayana Hrudayalaya BUY 323 345 7 66 0.9 204 5.8 -7.4 7.6 101.0 (228) 202 55.6 NM 42.6 16.9 60.6 14.3 5.8 6.7 5.8 10.7 NM 14.6 — — — 1.1 Health Care Services Attractive 623 8.5 3 (68) 456 66.1 206.1 37.1 17.0 21.8 13.6 6.4 5.9 5.3 9.7 2.9 14.3 0.4 0.2 0.6 32 Hotels & Restaurants Jubilant Foodworks ADD 2,251 2,500 11 297 4.1 133 24 13 34 (2) (45.1) 163 95.5 173.9 66.1 33.1 39.8 25.3 26.3 24.7 18.8 26 14.7 32 0.3 0.2 0.5 26 India Daily Summary Daily Summary India Lemon Tree Hotels BUY 28 35 25 22 0.3 790 -0.1 -1.2 0.6 (118) (932) 147 NM NM 48.2 15.4 35.2 11.9 2.7 3.1 3.0 NM NM 6.2 — — 0.9 1.6 Hotels & Restaurants Attractive 319 4.4 (18) (76) 579 105.4 433.0 63.8 29.3 39.2 22.4 16.3 16.5 13.6 15.5 3.8 21 0.2 0.2 0.5 28 Insurance HDFC Life Insurance REDUCE 581 560 (4) 1,173 16.0 2,010 6.4 6.8 7.4 1.4 5.8 8.2 90 85 79 — — — 16.7 15.3 14.1 20 18.8 18.7 0.0 0.3 0.3 41 ICICI Lombard SELL 1,262 950 (25) 574 7.8 454 26.3 32.1 34.3 14 22 7 48 39 37 — — — 9.4 7.7 6.7 21 21 20 0.3 0.3 0.6 17.3 ICICI Prudential Life BUY 438 500 14 629 8.6 1,436 7.4 8.5 9.6 (6) 14.4 13.2 59 52 46 — — — 8.3 7.4 6.5 14.8 15.2 15.2 0.2 0.3 0.4 15.8 Max Financial Services NR 595 — — 160 2.2 343 10.1 9.5 26.7 452 (6) 180 59 62 22 — — — — — — 12.7 13.5 38 — 0.2 1.1 13.1 SBI Life Insurance BUY 850 1,050 23 850 11.6 1,001 14.2 15.5 16.6 7.2 8.9 7.4 60 55 51 — — — 10.7 9.2 8.0 18.4 18.0 16.7 — 0.3 0.3 17.9 Insurance Attractive 3,386 46.3 8.4 13.0 22.0 64.5 57.1 47 10.9 9.6 7.8 17.0 16.7 16.6 0.0 0.2 0.3 105

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -

September 3, September 3, 2020

KOTAK INSTITUTIONAL EQUITIES RESEARCH 45

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 2-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Internet Software & Services Info Edge SELL 3,474 2,185 (37) 447 6.1 122.3 26.9 19.8 36.7 4.2 (26.5) 85.4 129.1 175.7 94.8 107.6 161.8 80.2 17.5 16.3 14.4 13.8 9.6 16.1 0.2 0.1 0.3 18.9 Just Dial ADD 380 400 5 25 0.3 61.8 42.0 24.7 29.9 31.4 (41.1) 21.0 9.0 15.4 12.7 3.4 8.0 5.5 1.9 1.9 1.7 24 12.2 14.1 — — — 12.6 Internet Software & Services Cautious 471 6.4 15.2 (34.4) 60.5 78.4 119.5 74.5 65.5 108.1 62.4 12.7 12.3 10.8 16.2 10.3 14.5 0.2 0.1 0.2 31 IT Services HCL Technologies ADD 702 770 10 1,905 26.1 2,716 40.8 42.2 46.4 11.4 3.4 9.9 17.2 16.6 15.1 10.8 9.9 8.8 3.9 3.2 2.8 24 21 19.7 0.7 1.5 1.9 54 Hexaware Technologies REDUCE 414 375 (9) 124 1.7 302 21.2 23.3 24.6 9.9 9.7 5.8 19.5 17.8 16.8 14.3 11.8 10.4 4.5 3.9 3.4 25 23 22 2.1 1.9 2.4 6.6 Infosys BUY 924 1,110 20 3,936 53.8 4,259 38.9 40.5 45.2 10.0 4.0 11.7 23.7 22.8 20.4 16.8 15.1 13.5 6.0 5.5 5.0 25 25 26 1.9 2.8 3.2 144 L&T Infotech ADD 2,475 2,800 13 432 5.9 176 86.6 91.0 110.6 0 5.1 21.5 28.6 27.2 22.4 20.5 17.6 15.3 8.0 6.9 5.8 30 27 28 1.1 1.3 1.4 5.6 Mindtree REDUCE 1,194 980 (18) 197 2.7 165 38.3 54.9 62.5 (16) 43 14 31.2 21.7 19.1 17.3 12.9 11.4 6.2 5.3 4.4 19.5 26 25 2.5 1.4 1.6 16.7 Mphasis REDUCE 1,145 1,100 (4) 214 2.9 187 63.5 64.3 70.6 13 1.1 9.9 18.0 17.8 16.2 12.2 11.4 10.1 3.7 3.3 3.0 21 19.6 19.6 3.1 3.1 3.1 6.2 TCS REDUCE 2,265 2,320 2 8,500 116.2 3,752 86.2 83.6 94.1 4 (3.0) 12.5 26.3 27.1 24.1 19.1 19.0 17.1 9.9 9.2 8.5 36 35 37 3.0 3.0 3.3 117 Tech Mahindra BUY 735 845 15 640 8.8 880 45.9 40.8 51.3 (3.9) (11.0) 25.7 16.0 18.0 14.3 10.1 10.0 7.8 3.0 2.7 2.4 19.2 15.7 17.9 2.1 2.1 2.3 50 -

Wipro ADD 274 285 4 1,564 21.4 5,703 16.6 17.0 18.2 11.1 2.4 7.1 16.5 16.1 15.0 10.4 9.6 8.7 2.9 2.4 2.3 17.3 16.2 15.7 0.5 0.7 3.1 47 September 3, 2020 IT Services Attractive 17,511 239.5 4.3 0.1 12.0 22.5 22.5 20.1 15.6 14.8 13.2 5.9 5.3 4.8 26 23 24 2.2 2.5 3.0 447 Media DB Corp. REDUCE 78 81 4 14 0.2 175 15.7 5.3 14.1 0.4 (66.5) 166.7 4.9 14.8 5.5 2.9 4.7 2.3 0.8 0.8 0.8 15.7 5.4 14.3 16.0 2.6 15.4 0.5 Jagran Prakashan REDUCE 40 37 (7) 11 0.2 281 7.0 3.9 7.3 (20.9) (44) NA 5.7 10.2 NA 1.8 2.3 NA 0.6 0.6 NA 10.3 5.7 10.3 11.3 5.0 12.5 0.5 PVR BUY 1,402 1,625 16 77 1.1 51 29.0 -32.7 59.3 (33) (213) 281 48.4 NM 23.6 15.2 44.5 10.2 3.2 4.1 3.6 8.5 NM 16.2 0.2 (0.2) 0.4 44 Sun TV Network REDUCE 479 435 (9) 189 2.6 394 35.5 34.9 39.7 (2) (1.6) 13.6 13.5 13.7 12.1 9.6 9.2 8.1 3.3 3.2 3.1 25 24 26 5.2 5.2 5.7 17.2 Zee Entertainment Enterprises ADD 218 250 15 210 2.9 960 11.1 11.5 17.3 (32.5) 2.9 50.8 19.6 19.0 12.6 12.1 11.5 7.7 2.2 2.1 1.9 11.7 11.4 15.7 1.6 1.6 1.8 87 Media Cautious 501 6.8 (17.7) (18.6) 58.4 16.2 19.9 12.6 9.7 11.1 7.4 2.4 2.4 2.2 14.8 11.8 17.3 3.4 2.8 3.7 150 Metals & Mining Hindalco Industries BUY 196 285 45 441 6.0 2,220 17.8 16.6 26.8 (28.2) (6.7) 62 11.0 11.8 7.3 5.8 6.6 5.0 0.7 0.7 0.6 6.8 6.1 9.2 0.5 0.5 0.5 40 Hindustan Zinc BUY 229 290 26 969 13.2 4,225 16.1 15.3 20.1 (14.5) (5.0) 31.5 14.2 15.0 11.4 8.5 8.4 6.4 2.4 2.9 2.9 18.4 17.5 25 7.2 6.7 8.8 6.0 Jindal Steel and Power BUY 221 270 22 226 3.1 1,020 (7.7) 8.6 19.0 (343) 213 120 NM 25.7 11.7 7.4 6.3 5.3 0.7 0.7 0.6 NM 2.7 5.7 — — — 40 JSW Steel ADD 293 260 (11) 708 9.7 2,402 10.1 7.0 22.1 (68.3) (31) 216.0 29.0 42.0 13.3 11.1 11.0 6.9 1.9 1.9 1.7 6.8 4.5 13.2 0.7 0.7 0.7 35

National Aluminium Co. SELL 37 24 (36) 70 1.0 1,866 0.7 (0.4) 1.4 (91) (154) 461.1 50.4 NM 25.8 9.5 17.5 7.9 0.7 0.7 0.7 1.4 NM 2.7 4.0 0.0 1.9 8.4 NMDC REDUCE 98 110 12 301 4.1 3,062 14.6 13.5 11.1 (0.7) (7.4) (18) 6.7 7.3 8.9 4.7 4.9 5.9 1.1 1.0 1.0 16.7 14.5 11.1 5.6 6.9 5.6 11.1 Tata Steel BUY 439 475 8 499 6.8 1,146 35.2 (14.1) 59.1 (61) (140) 520 12.4 NM 7.4 8.8 10.2 5.8 0.7 0.7 0.7 5.9 NM 9.6 2.3 1.9 2.8 81 Vedanta BUY 131 165 26 487 6.7 3,717 6.5 11.6 17.8 (57) 77 54.1 20.1 11.3 7.4 5.0 5.1 4.0 0.9 0.9 0.9 4.2 7.9 11.9 3.0 9.3 8.6 37 Metals & Mining Attractive 3,700 50.6 (45.5) (17.1) 99.7 15.8 19.0 9.5 7.3 7.5 5.5 1.1 1.1 1.1 7.1 5.9 11.1 3.3 4.0 4.5 258

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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 2-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Oil, Gas & Consumable Fuels BPCL BUY 414 480 16 898 12.3 1,967 11 35 37 (71.0) 229.9 6.0 39.3 11.9 11.3 21.9 9.2 8.8 2.5 2.2 2.0 5.9 19.5 18.8 4.0 4.2 4.4 66.9 Coal India BUY 136 215 58 840 11.5 6,163 27 20 20 (4) (24.7) (3.2) 5.0 6.7 6.9 3.9 5.9 5.6 2.6 2.6 2.6 57.0 38.9 37.6 11.0 14.7 14.7 22.6 HPCL BUY 201 260 30 306 4.2 1,524 7 34 29 (82.0) 371.9 (13.2) 28.1 6.0 6.9 17.8 7.1 7.4 1.1 1.0 0.9 3.8 17.0 13.7 4.9 8.4 7.3 25.8 IOCL BUY 85 110 29 803 11.0 9,181 (3.9) 9.6 12.9 (121.9) 343.8 34.3 NM 8.9 6.6 22.9 5.9 5.2 0.8 0.8 0.7 NM 9.2 11.6 5.0 5.1 6.8 31.6 Oil India SELL 97 70 (28) 105 1.4 1,084 21 3 6 (32) (85.4) 103.6 4.7 32.1 15.8 3.4 8.8 7.6 0.4 0.4 0.4 8.6 1.3 2.7 11.0 1.0 2.5 2.2 ONGC SELL 80 60 (25) 1,010 13.8 12,580 13 4 7 (43) (73.9) 101.4 6.0 22.9 11.4 2.8 5.0 3.8 0.4 0.4 0.4 7.3 1.9 3.8 6.2 2.4 3.6 24.3 Reliance Industries ADD 2,129 2,150 1 12,616 172.5 5,926 67 67 93 1.2 (0.1) 40.0 31.9 31.9 22.8 18.2 15.0 10.2 2.8 2.5 2.3 9.4 8.3 10.8 0.3 0.3 0.3 582.6 Oil, Gas & Consumable Fuels Attractive 16,578 226.7 (37.3) 3.6 34.7 22.1 21.4 15.9 11.5 10.4 7.8 1.9 1.7 1.5 8.4 8.1 9.7 1.8 1.7 1.9 756 Pharmaceuticals Aurobindo Pharma REDUCE 815 790 (3) 478 6.5 586 48 55 59 19.3 13 7.8 16.9 14.9 13.9 10.3 9.0 8.0 2.8 2.4 2.1 16.8 16.3 15.3 0.4 0.9 1.1 53.6 Biocon SELL 411 225 (45) 493 6.7 1,202 6.2 8.2 10.1 2 32 22.7 66 50 41 30.7 22.6 18.3 6.7 6.1 5.4 10.6 12.1 13.3 0.1 0.7 0.9 34.8 Cipla BUY 738 840 14 595 8.1 806 19.2 28 33 1.1 47 16 38 26.1 22.4 18.8 14.4 12.4 3.7 3.3 3.0 9.9 12.7 13.3 1.1 0.7 0.8 78.0 Dr Reddy's Laboratories SELL 4,353 3,400 (22) 724 9.9 166 130 155 201 30 19 29.7 33 28.0 21.6 17.6 15.3 12.0 4.7 4.1 3.5 13.9 14.6 16.3 0.5 0.6 0.8 65.6 Laurus Labs REDUCE 1,160 870 (25) 124 1.7 107 23.9 54.6 55 117.9 129 1 49 21.3 21.0 23.9 13.6 12.7 7.0 5.3 4.2 15.3 24.8 20.1 (0.3) — — 24.5 Lupin ADD 962 1,000 4 436 6.0 450 22 28 44 3.6 30 54 44 34 22.1 17.2 14.8 10.4 3.4 3.2 2.8 7.4 9.3 12.8 0.6 0.4 0.7 51.2 Sun Pharmaceuticals REDUCE 515 510 (1) 1,234 16.9 2,406 16.7 19.7 23 3.8 18 17 31 26 22.3 16.4 14.2 12.0 2.7 2.7 2.4 9.3 10.2 11.3 1.3 0.2 0.9 77.2 Torrent Pharmaceuticals REDUCE 2,762 2,450 (11) 467 6.4 169 57 72 89 22.6 25 24 48 38 31 22.8 19.4 16.5 9.7 8.3 7.1 20.1 21.7 22.8 1.5 0.9 1.1 27.6 Pharmaceuticals Attractive 4,552 62.2 12.5 25 20 34 27 22.5 17.4 14.5 12.1 3.8 3.5 3.1 11.2 12.8 13.7 0.9 0.5 0.9 412 Real Estate Brigade Enterprises BUY 172 235 37 35 0.5 204 6.4 7 15 (46) 6 114 26.8 25.3 11.8 11.3 10.5 5.4 1.5 1.5 1.4 5.9 6.0 12.0 1.5 1.5 1.5 1.0 DLF BUY 161 200 24 399 5.5 2,475 (2.4) 5.0 8.7 (140) 310 74 NM 32.3 18.6 38.2 44.4 25.8 1.2 1.1 1.1 NM 3.6 6.0 — 1.2 1.2 29.2 Embassy Office Parks REIT ADD 365 400 10 282 3.9 772 9.9 13.1 15.0 110 32 14 37 28 24 17.9 16.4 15.1 1.3 1.3 1.4 3.4 4.6 5.6 6.7 7.2 8.1 7.6 Godrej Properties SELL 922 690 (25) 232 3.2 252 10.7 11.9 15.4 (2.7) 11 29.4 86 78 60 71.6 87.0 150.7 4.8 4.6 4.2 7.4 6.0 7.3 — — — 9.0 Oberoi Realty ADD 386 450 17 140 1.9 364 19 22 28 (15.7) 14.1 29 20.4 17.8 13.8 14.9 14.1 11.8 1.6 1.5 1.4 8.3 8.8 10.3 0.5 0.5 0.5 2.2 Prestige Estates Projects ADD 256 275 7 103 1.4 401 10.9 6.6 10 25.1 (39) 54 24 39 25.1 7.6 8.2 7.0 1.8 1.9 1.7 8.7 4.9 7.2 0.6 0.6 0.6 3.0 Sobha BUY 265 400 51 25 0.3 95 30 32 40 (4) 8.8 24.7 8.9 8.2 6.6 5.0 4.6 4.2 1.0 0.9 0.8 12.1 12.1 13.6 2.6 2.6 2.6 1.3 Sunteck Realty BUY 278 300 8 41 0.6 140 7.1 8.8 18 (55.9) 23 105 39 31.5 15.4 28.7 24.1 13.3 1.3 1.3 1.2 3.5 4.2 8.1 0.4 0.4 0.4 2.9 Real Estate Attractive 1,257 17.2 (46.2) 101.9 45.1 61 30 20.8 17.6 17.3 13.8 1.5 1.5 1.4 2.5 4.9 6.9 1.7 2.2 2.4 56 Retailing Aditya Birla Fashion and Retail BUY 145 150 3 120 1.6 773 (2.1) (4.1) 2.7 (151.4) (92.4) 165.6 NM NM 54 12.0 18.4 9.4 10.3 7.4 5.9 NM NM 12.4 — — — 4.5 Avenue Supermarts SELL 2,218 1,480 (33) 1,437 19.7 648 21.0 20 39 45.1 (4.4) 92.8 106 111 57 66 73 39 12.6 11.6 9.7 15.8 11.1 18.4 — — — 21.8 India Daily Summary Daily Summary India Titan Company BUY 1,121 1,270 13 995 13.6 888 16.8 9 20 (0.2) (46.8) 127.6 67 125 55 40 66 35 14.9 13.8 11.7 23.4 11.5 23.1 0.4 0.3 0.5 58.3 Retailing Attractive 2,553 34.9 (2.8) (32.8) 155.1 97 144 56 44 61 32 13.5 12.1 10.1 14.0 8.4 17.9 0.1 0.1 0.2 85 Speciality Chemicals Castrol India BUY 120 165 37 119 1.6 989 8.4 5.1 8.9 16.8 (39.5) 75.0 14.4 23.8 13.6 9.5 15.5 9.1 8.7 8.7 8.4 65.3 36.5 63.0 4.6 4.2 7.1 2.2 Pidilite Industries REDUCE 1,414 1,400 (1) 718 9.8 508 23.1 18 28 30.1 (20.4) 54.9 61 77 50 45 53 35 16.1 14.4 12.3 27.2 19.7 26.7 0.5 0.5 0.7 20.6 S H Kelkar and Company BUY 81 105 29 12 0.2 141 4.6 5.3 6.5 (24.3) 14.4 23.4 17.6 15.4 12.5 9.0 8.1 6.5 1.4 1.3 1.2 7.8 8.8 10.1 2.5 1.2 2.1 2.3 SRF ADD 4,218 4,000 (5) 242 3.3 57 138 150 193 23.5 8.7 28.4 30.6 28.1 21.9 18.7 16.3 13.2 4.9 4.2 3.6 17.5 16.2 17.8 0.3 0.4 0.4 17.2 Speciality Chemicals Attractive 1,091 14.9 22.1 (17.1) 48.5 38 46 31.0 25.4 28.4 20.0 9.4 8.4 7.3 24.7 18.3 23.6 0.9 0.9 1.4 42

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -

September 3, September 3, 2020

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 2-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Telecommunication Services Bharti Airtel BUY 550 710 29 3,003 41.1 5,456 (6.7) 4.8 13.8 NM NM NM NM 114.5 39.7 10.6 8.3 6.8 3.9 5.0 4.7 NM 3.8 12.1 0.4 1.1 1.1 165.4 Bharti Infratel ADD 196 215 10 363 5.0 1,850 16.5 16.3 17.5 25.7 (1.1) 7.4 11.9 12.0 11.2 4.9 4.7 4.5 2.7 2.7 2.6 21.7 22.2 23.7 5.5 8.2 8.7 28.4 Vodafone Idea RS 10 — — 285 3.9 28,735 (12.4) (7.3) (6.3) NM NM NM NM NM NM 8.3 10.2 8.2 4.8 -1.3 (0.7) NM 251 57 — — — 93 Tata Communications BUY 864 975 13 246 3.4 285 16.0 29.9 37.3 54.0 87.3 24.5 54.0 28.8 23.2 10.4 8.0 6.9 NM NM 61.9 NM NM NM 0.5 0.5 0.7 2.1 Telecommunication Services Attractive 3,896 53.3 NM 59.4 56.4 NM NM NM 9.4 8.3 6.9 4.1 7.6 10.4 NM NM NM 0.8 1.6 1.7 289 Transportation Adani Ports and SEZ BUY 360 400 11 731 10.0 2,032 26.9 18.7 21.9 34.7 (30.5) 16.9 13.4 19.2 16.5 12.6 13.6 11.5 2.9 2.5 2.3 21.8 14.0 14.5 3.6 0.9 0.9 19.3 Container Corp. SELL 397 370 (7) 242 3.3 609 17.3 7.6 13.3 5.7 (55.9) 74.9 23 52 30 13.2 24.1 15.7 2.4 2.4 2.3 10.3 4.6 7.8 0.8 1.0 1.8 16.9 Gateway Distriparks BUY 94 135 43 12 0.2 125 4.2 4.2 3.6 (37.5) 0.4 (15.1) 22.3 22.2 26.2 7.8 6.5 6.7 0.8 0.8 0.8 3.5 3.8 3.0 3.6 3.2 3.2 0.2 GMR Infrastructure BUY 24 28 13 146 2.0 6,036 (3.0) (3.8) (0.9) (20.7) (26.7) 76.4 NM NM NM 15.7 152.2 19.0 (6.0) (3.1) (5.4) 109.8 63.4 16.1 — — — 6.5 Gujarat Pipavav Port BUY 79 111 40 38 0.5 483 6.0 4.5 5.8 42.2 (24.9) 27.3 13.1 17.4 13.7 7.1 7.5 6.6 1.8 1.8 1.8 14.2 10.6 13.5 7.1 5.4 6.8 0.8 InterGlobe Aviation SELL 1,247 900 (28) 480 6.6 383 (6.5) (200.9) 62.1 (258.9) (2,999.1) 130.9 NM NM 20.1 6.9 (10.3) 3.5 8.1 (69.2) 3.5 NM NM 477.2 — — — 47 -

Mahindra Logistics ADD 357 305 (15) 26 0.3 71 8.9 5.3 10.9 (29.0) (40.8) 106.4 40 68 33 16.5 20.5 13.8 4.7 4.5 4.0 12.2 6.7 12.9 — — — 0.6 September 3, September 3, 2020 Transportation Attractive 1,675 22.9 19.3 (210.7) 237.1 34 NM 22.7 11.6 32.3 9.8 3.9 4.5 3.7 11.3 NM 16.2 1.9 0.7 0.8 92 KIE universe 118,775 1624.4 (14.3) 7.8 45.7 30 28.1 19.3 13.2 13.0 10.0 2.8 2.6 2.4 9.2 9.2 12.2 1.4 1.5 1.8

Notes:

(a) We have used adjusted book values for banking companies. (b) 2020 means calendar year 2019, similarly for 2021 and 2022 for these particular companies. (c) Exchange rate (Rs/US$)= 73.13 Source: Company, Bloomberg, Kotak Institutional Equities estimates

48 KOTAK INSTITUTIONAL EQUITIES RESEARCH 48

India Daily Summary - September 3, 2020

India 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 KOTAK INSTITUTIONAL EQUITIES RESEARCH , 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.

49

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