India Daily, November 26, 2013

INDIA DAILY

November 26, 2013 India 25-Nov 1-day1-mo 3-mo Sensex 20,605 1.9 (0.4) 11.3

Nifty 6,115 2.0 (0.5) 11.8

Contents Global/Regional indices Daily Alerts Dow Jones 16,073 0.0 3.2 7.1 Nasdaq Composite 3,995 0.1 1.3 9.2

Company FTSE 6,695 0.3 (0.4) 3.1 Zee Entertainment Enterprises: Appreciate the change in Zee strategy, but Nikkei 15,502 (0.7) 10.0 13.7 note the financial impact as well Hang Seng 23,705 0.1 4.4 7.7 ` 'Lead fragmentation or get fragmented' the driving force behind Zee's KOSPI 2,013 (0.2) (1.1) 6.6 strategy Value traded – India Cash (NSE+BSE) 116 135 139 ` Financial implication will be faster growth and steady margins, but at lower Derivatives (NSE) 2,091 1,612 1,991 levels Deri. open interest 1,564 1,601 1,709 Sector Energy: Iran, Libya, US - a positive confluence for India? Forex/money market ` Final agreement will depend on Iran's ability and willingness to demonstrate Change, basis points its nuclear ambitions 25-Nov 1-day 1-mo 3-mo ` Potential rollback of sanctions on Iran to ease global oil supplies in the Rs/US$ 62.3 (22) 76 (193) 10yr govt bond, % 9.1 (3) 14 39 medium term Net investment (US$mn) ` Developments in Libya more relevant to global oil supplies in the near term 22-Nov MTD CYTD FIIs 3 919 17,249 ` Sharp increase in OPEC spare capacity to provide cushion against MFs (42) (268) (3,907) geopolitical risks Top movers NBFCs: CV Finance: Sharp rise in delinquencies is a concern Change, % Best performers 25-Nov 1-day 1-mo 3-mo ` Auto finance NBFCs: Sharp rise in NPLs in CV loans JSTL IN Equity 887.6 1.5 4.4 64.4 ` Lead indicators drive our bearish view ADE IN Equity 256.0 5.3 32.0 63.6 TCOM IN Equity 271.3 (0.3) 21.4 62.6 GMRI IN Equity 21.9 0.2 (3.1) 60.1 SUEL IN Equity 9.7 0.0 (8.9) 52.8 Worst performers ESOIL IN Equity 53.2 3.9 (5.0) (12.0) GNP IN Equity 509.7 (0.4) (7.2) (6.4) HUVR IN Equity 581.0 1.6 (2.2) (4.5) IOCL IN Equity 205.9 2.6 3.3 (4.1) PWGR IN Equity 94.2 0.3 (6.0) (3.9)

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REDUCE Zee Entertainment Enterprises (Z)

Media NOVEMBER 26, 2013 UPDATE Coverage view: Neutral

Appreciate the change in Zee strategy, but note the financial impact as well. ’Lead Price (`): 260 fragmentation or get fragmented‘ in a digitized environment is the driving force behind Target price (`): 240 Zee’s increasingly aggressive market strategy. The strategy implies more new channels BSE-30: 20,605 and higher content investments; we have seen both recently. The financial implication will be faster growth and steady margins, but at lower-than-historical levels. However, we have witnessed expansion in Zee’s non-sports margins recently, not completely explained by market share gains; we believe the divergence is due to Zee’s film rights amortization policy. Valuations at more than 20% premium to historical averages on aggressive earnings estimates hardly leave any room for upside; REDUCE.

Company data and valuation summary Zee Entertainment Enterprises Stock data Forecasts/Valuations 2013 2014E 2015E 52-week range (Rs) (high,low) 285-190 EPS (Rs) 7.6 9.2 10.8 Market Cap. (Rs bn) 249.8 EPS growth (%) 25.6 20.9 17.5 Shareholding pattern (%) P/E (X) 34.3 28.4 24.2 Promoters 43.1 Sales (Rs bn) 37.0 45.1 51.2 FIIs 42.5 Net profits (Rs bn) 7.2 8.7 10.2 MFs 6.0 EBITDA (Rs bn) 9.5 11.9 14.3 Price performance (%) 1M 3M 12M EV/EBITDA (X) 24.5 19.5 16.3 Absolute (2.9) 14.0 27.3 ROE (%) 15.3 17.3 19.1 Rel. to BSE-30 (2.5) 2.4 14.3 Div. Yield (%) 0.7 0.8 0.9

’Lead fragmentation or get fragmented‘ the driving force behind Zee’s strategy

Zee was a relatively sedate participant in the Indian broadcasting segment during 2006-11, with the launch of South regional channels in 2005-06 (by Zee News, later acquired by Zee Entertainment in 2010) only notable expansions. The realization that digitization, with availability of more channel capacity, notably in metro and Tier-I/II markets, will fuel further audience segmentation, has become the driving force behind Zee’s increasingly aggressive market strategy. The new market strategy will drive greater experimentation with new channels/initiatives (Exhibit 1) as well as large content investments in existing channels (hours of original content in flagship Zee TV lagged even new entrants such as Colors for some time).

We appreciate the positives from Zee’s new strategy—(1) steadier network market share (Exhibit 2) driving (2) above-industry revenue growth. Zee will compete more effectively with existing strong competition (notably Star) as well as potential new entrants, inevitable given the long-term growth opportunity; for example, the launch of LifeOK Hindi GE channel recently has had limited impact on the Zee network versus Colors launch in 2008. Financial implication will be faster growth and steady margins, but at lower levels

Historically, Zee network has been heavily dependent on flagship Zee TV and Zee Cinema channels and ad/revenue growth has been a function of performance of these channels (sports was another large revenue contributor but loss-making). A conservative content strategy resulted in volatile operating and financial performance; Zee was dependent on a few channels and programs, with hits and misses resulting in wide variation in margins, akin to the films business. The acquisition of regional GE channels has already diversified the Zee network considerably. An aggressive market strategy on new channels and content will drive steady market share, faster revenue growth and relatively steady margins. Correspondingly, we expect margins to stabilize at relatively lower-than- historic levels led by continuous new channel and large content investments; potentially higher market share poses upside risk to long-term margins.

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Zee Entertainment Enterprises Media

Recent margin expansion has been particularly surprising

We were surprised by the ~34% non-sports margins for Zee in 1HFY14 given (1) seasonally weak quarters, (2) strong IPL performance (certainly in comparison with 1QFY13) and (3) less than one year of operations of new channels launched in FY2013 (Zee Cinema Bangla, Zee Alwan and ZeeQ kids channel). Besides recurring `300-400 mn investments in the new initiatives, Zee has also highlighted 3-5-year breakeven period in the same; given the early stage of investment cycle in 1HFY14, new initiatives were likely a drag on margins. Unlike 4QFY13 (~32% non-sports margins), Zee did not report extraordinary market share in 1HFY14 though it may have received some trail benefits. We believe the divergence is explained by Zee’s film amortization policy (Zee also noted incremental revenue contribution from multiple film premieres in 1HFY14).

The trends in FY2013 free cash flows are also illustrative; Zee’s FCF increased marginally to ~`3.2 bn from ~`3.1 bn in FY2012. The strong growth in operating cash flow was negated by increased working capital—(1) ~`1.4 bn increase in film rights inventory and (2) ~`1.7 bn increase in other advances (largely sports rights); ~`1.2 bn increase in receivables (debtor days declined by 8 days) was completely negated by ~`1.4 bn increase in payables (creditor days increased by 4 days), supporting FCF. Yet weak FCF/PAT (~44%) points towards the operating investments not being entirely captured in earnings. This aspect has even greater relevance for FY2014 as film channels become the cornerstone of Zee’s expansion strategy, led by the launch of &pictures. Zee acquired rights of ’Chennai Express‘, ’Besharam‘ (since cancelled), ’Zanjeer‘ and ’Ghanchakkar‘ in 1HFY14.

Robust performance and visibility already captured in valuations

The macro-environment for media companies in general remains challenging, led by the weakness in economy and ad environment. The relative attraction for Zee with digitization- led robust growth in subscription revenues is thus understandable. However, we retain our REDUCE rating on the stock since the robust performance and earnings visibility are already well-captured in ~26X average FY2014E-15E KIE EPS estimates and considerably expensive ~44X FY2014E-15E KIE FCF estimates (assuming improved FCF/PAT of ~60%). Consensus valuations at >20% premium to historical averages on aggressive earnings estimates leave little room for upside. Potential business risks include—(1) emerging regulatory concerns regarding MediaPro (TRAI has launched a consultation exercise that may result in curbs on content aggregators) and (2) structural concerns on sports (leadership/dominance of Star Sports; Rupee depreciation impact on US$ rights).

Exhibit 1: List of Zee's new initiatives, FY2012-14

Initiative Launch Comments Ten Golf 4QFY12 Niche golf channel Ditto TV 4QFY12 Internet/OTT TV Zee Cinema Bangla 2QFY13 Bangla film channel Zee Alwan 2QFY13 Arabic GE channel ZeeQ 3QFY13 Niche kids channel &pictures 2QFY14 Hindi film channel Zee Anmol 2QFY14 Hindi GE repeat channel

Source: Company data, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Media Zee Entertainment Enterprises

Exhibit 2: Market share of key Zee Entertainment channels, CY2006-13E

2006 2007 2008 2009 2010 2011 2012 2013E Weight Zee TV 21 27 22 20 18 16 17 17 8.0 Zee Cinema 32 30 29 30 25 25 23 20 2.0 Zee Bengali 21 38 39 27 23 31 32 31 1.5 Zee B Cinema ------2 4 1.0 Zee Marathi 43 45 48 39 36 27 26 34 1.0 Zee Talkies - 4 11 12 10 10 9 12 0.5 Zee Telugu 4 7 13 16 15 15 16 15 2.0 Zee Kannada 3 5 12 12 11 15 16 13 1.0 Average 16 20 22 19 17 17 18 18 Weighted 18.7 23.4 22.4 20.4 18.4 17.5 18.4 18.5 Cumulative 317 397 381 346 312 298 313 314

Source: TAM Media Research, Kotak Institutional Equities

Exhibit 3: ZEEL's non-sports revenues and operating margins, 2QFY11-14

` (mn)(Rs bn) Zee non-sports revenues (LHS, Rs bn) Zee non-sports margins (RHS, %) (%) 10.0 50 40 38 8.0 35 34 34 40 33 32 33 31 32 33 30 29 6.0 30

4.0 20

2.0 10 5.9 6.6 6.5 6.1 6.4 6.8 7.1 7.4 7.7 8.3 8.6 8.6 9.3 - - 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 (a) (a) (a) (a) (a) (a) (a) (a) (a)

Note: (a) Not comparable to prior quarters due to MediaPro. Subs revenues grossed up by 7-8% in 2Q-4QFY12 to adjust for change in accounting treatment.

Source: Company data, Kotak Institutional Equities

Exhibit 4: Market share of key Zee Entertainment channels, 2QFY13-14

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 Weight Zee TV 18 19 16 19 17 16 8.0 Zee Cinema 24 22 21 21 20 19 2.0 Zee Bengali 28 30 32 31 31 30 1.5 Zee B Cinema - 1 7 6 5 4 1.0 Zee Marathi 26 24 29 31 31 34 1.0 Zee Talkies 9 8 10 10 12 12 0.5 Zee Telugu 16 16 16 15 17 15 2.0 Zee Kannada 14 14 15 15 12 13 1.0 Average 17.1 16.8 18.3 18.6 18.1 17.9 Weighted 18.5 18.6 18.2 19.2 18.4 17.8 Cumulative 314 316 309 327 313 302

Source: TAM Media Research, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Zee Entertainment Enterprises Media

Exhibit 5: List of Hindi films premiered on Zee network, 1QFY12-3QFY14E

1QFY12 2QFY12 3QFY12 4QFY12 Shaitaan No Problem Bbuddah Hoga… Don2 Pyar ka Punchnama Shagird Double Dhamaal Players Chalo Dilli Bin Bulaye Baraati Desi Boyz 1QFY13 2QFY13 3QFY13 4QFY13 Agneepath Agent Vinod English Vinglish NA My Friend Pinto Joker 1QFY14 2QFY14 3QFY14E 4QFY14 Race 2 Barfi Chennai Express Kai Po Che ABCD Phata Poster… Heroine Himmatwala Ghanchakkar

Source: Company data, Kotak Institutional Equities estimates

Exhibit 6: Zee amortization policy across program types

Program Amortization policy Reality shows, chat shows, events, current affairs, game Non-Fiction shows and sports rights are fully expensed on telecast Film rights are amortized on a straight-line basis over the Films licensed period or 60 months from the commencement of rights, whichever is shorter. Programs (other than above) are amortized over 3 years, Fiction starting from the year of first telecast as per management estimate of future potential (80:10:10 as per company).

Source: Company annual report, Kotak Institutional Equities

Exhibit 7: Cash and estimated accrual accounting of ‘Chennai Express’ by Zee (Rs mn)

Quarter 1 Year 1 Year 2 Year 3 Year 4 Year 5 Total Cash basis Ad revenue 200 300 100 100 50 50 600 Cost of film (500) (500) - - - - (500) Contribution (300) (200) 100 100 50 50 100 Margin (%) (150) (67) 100 100 100 100 17 Accrual basis Ad revenue 200 300 100 100 50 50 600 Cost of film (25) (100) (100) (100) (100) (100) (500) Contribution 175 200 - - (50) (50) 100 Margin (%) 88 67 - - (100) (100) 17

Source: Industry data, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Media Zee Entertainment Enterprises

Exhibit 8: Trends in Zee and Sun TV content inventory, FY2010-1HFY14 (Rs bn)

Zee Entertainment Sun TV Network 12 10.2 8.7 9 7.3 6.3 5.4 5.6 6 4.7 4.5 4.5

- 2010 2011 2012 2013 1HFY14

Source: Company data, Kotak Institutional Equities estimates

Exhibit 9: Annual report analysis of Zee, FY2010-13 (Rs mn)

2010 2011 2012 2013 Comments Cash flow statement Profits before tax 6,738 8,922 8,406 10,519 D&A expenses 285 289 323 399 Interest (net) (793) (658) (1,062) (1,089) Other adjustments (1,251) (1,234) 1,069 55 Including doubtful debts provisions as well as forex adjustments Tax paid (1,355) (2,478) (3,025) (3,669) Working capital changes 3,443 886 (1,612) (2,342) ICDs received in FY2010-11; Increased film rights in FY2012-13 Operating cash flow 7,067 5,727 4,099 3,873 Capital expenditure (629) (389) (835) (757) Large capex on HD channels in FY2012 Sale/(acquisition) of assets (1,356) (563) (176) 42 Acquisition of remaining 50% stake in Ten Sports in FY2010-12 Free cash flow 5,083 4,774 3,088 3,158 FCF (Rs/share) 5.7 4.9 3.2 3.3 Adjusted PAT 5,244 5,695 5,746 7,196 EPS (Rs/share) 5.8 5.8 5.9 7.5 FCF/PAT (%) 97 84 54 44

Source: Company data, Kotak Institutional Equities

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Zee Entertainment Enterprises Media

Exhibit 10: Balance sheet of ZEEL, FY2012-1HFY14 (Rs mn)

Consolidated FY2012 1HFY13 FY2013 1HFY14 yoy (%) Financial liabilities Share capital 959 954 954 960 1 Reserves and surplus 33,396 36,489 38,160 44,905 23 Minority interest (32) 42 33 73 74 Borrowings 12 11 17 191 1,636 Other provisions 1,932 305 2,602 511 68 Less: Net investments 8,000 8,414 7,916 10,901 30 Less: Cash and balances 3,283 2,286 5,316 1,701 (26) Financial liabilities 24,984 27,101 28,534 34,038 26 Operating assets Net fixed assets 2,506 2,811 2,848 3,905 39 Goodwill on consolidation 6,894 6,959 7,127 7,910 14 Deferred tax 337 296 287 402 36 Inventories 7,339 7,583 8,745 10,156 34 Sundry debtors 8,690 10,690 9,890 11,825 11 Loans and advances 4,046 4,332 6,015 5,997 38 --Loans/Inter-corporate deposits 1,700 1,700 1,750 2,750 62 Other current assets 357 384 663 772 101 Less: Trade payables 3,613 3,460 5,172 5,818 68 Less: Other liabilities 3,272 4,194 3,619 3,861 (8) Operating assets 24,984 27,101 28,534 34,038 26 Adjsuted operating assets 23,284 25,401 26,784 31,288 23 EBITDA 7,399 4,509 9,543 6,020 34

Source: Company data, Kotak Institutional Equities

Exhibit 11: 12-month forward P/E trading band for ZEE stock (X)

5 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13

Source: Factset estimates, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Media Zee Entertainment Enterprises

Exhibit 12: Comparative valuations of media companies

25-Nov-13 Mcap EPS growth (%) P/E (X) Price (Rs) (Rs bn) 2013 2014E 2015E 2013 2014E 2015E Dish TV India 51 54 NA NA NA NA NA 72 DB Corp 264 48 8 22 17 22 18 16 Jagran Prakashan 81 26 (10) 10 18 16 15 13 Sun TV Network 383 151 2 6 18 21 20 17 Zee Entertainment 260 248 27 21 17 34 28 24

Fair ROE (%) P/B (X) value (Rs) Rating 2013 2014E 2015E 2013 2014E 2015E Dish TV India 60 ADD NA NA NA NA NA NA DB Corp 300 ADD 21 23 24 4.7 4.2 3.8 Jagran Prakashan 120 ADD 17 17 18 2.7 2.6 2.4 Sun TV Network 430 REDUCE 25 25 26 5.4 5.1 4.7 Zee Entertainment 240 REDUCE 22 24 23 7.8 6.8 6.0

EV Yield EV/EBITDA (X) EV/FCFF (X) (Rs bn) (%) 2013 2014E 2015E 2013 2014E 2015E Dish TV India 61 NA 11 10 9 NA 19 21 DB Corp 49 2.1 13 11 10 28 21 16 Jagran Prakashan 29 2.5 10 8 7 15 15 14 Sun TV Network 146 2.5 15 14 12 33 24 23 Zee Entertainment 235 0.8 25 20 16 74 49 38

Source: Company data, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ATTRACTIVE Energy

India NOVEMBER 26, 2013 UPDATE BSE-30: 20,605

Iran, Libya, US—a positive confluence for India? The interim deal between Iran and six nations may be a first step towards normalization of Iran’s oil exports. However, much will depend on the nature of the final agreement and confidence of western powers about Iran pursuing a nuclear program solely for peaceful and energy purposes. Developments in Libya may be more material in the medium term. We note a steep increase in non-OPEC (largely the US) crude supply in CY2014E, which may moderate crude prices over the next few months.

Final agreement will depend on Iran’s ability and willingness to demonstrate its nuclear ambitions QUICK NUMBERS Iran and six nations (China, France, Germany, Russia, the UK and the US) signed an interim agreement for six months, which puts curbs on Iran’s nuclear program while providing temporary • 2.65 mn b/d of and partial relief on economic sanctions, other than those related to oil, finance and banking. The production from agreement requires Iran to significantly curtail its nuclear program by (1) halting enrichment of Iran currently versus uranium above 5% purity, a level considered suitable for nuclear power plants, (2) neutralizing the CY2011 production existing stockpile of uranium with near-20% concentration, which is closer to the threshold of 3.6 mn b/d required to make an atomic bomb, (3) halting progress on its enrichment capacity and (4) ceasing construction of the Arak reactor, which could yield plutonium—another ingredient for an atomic • 0.4 mn b/d of bomb. Visible efforts from Iran may lead to a rollback of the current sanctions on oil exports production from eventually, while a failure on any commitment may lead to tougher sanctions. Libya currently Potential rollback of sanctions on Iran to ease global oil supplies in the medium term versus CY2012 production of Exhibit 1 shows that Iran’s crude oil production has declined sharply over the past two years, 1.4 mn b/d reflecting a reduction in oil exports due to US-led sanctions, which led to (1) an embargo on Iranian oil imports by major OECD nations in Europe and (2) a gradual cutback by countries such • 6.8 mn b/d of OPEC as China, India and Japan. A potential rollback of the embargo on Iranian oil imports and spare capacity in associated channels of shipping, insurance and finance will gradually ease global crude oil supplies. CY2014E We note that global refineries may take time to readjust their crude slates to accommodate medium sour oil supplies from Iran, which was substituted primarily by heavier oil supplies from Saudi Arabia.

Developments in Libya more relevant to global oil supplies in the near term

We remain watchful of the developments in Libya, where oil production declined to below 0.2 mn b/d at the peak of the recent disruptions from 1.4 mn b/d in May 2013. Exhibit 2 shows monthly crude oil production from Libya over the past few years. We note that oil exports from Mellitah port resumed in the previous week—associated field El Feel has a capacity of 130,000 b/d. However, disruptions continue to impact exports from several other facilities.

Sharp increase in OPEC spare capacity to provide cushion against geopolitical risks

We expect large OPEC spare capacity over CY2014-15E to provide a sufficient buffer against potential geo-political risks. Exhibit 3 shows OPEC spare capacity will rise to 6.8 mn b/d in CY2014E from 4.8 mn b/d in CY2013E, even without assuming an increase in crude oil supply from Iran. We expect a sharp increase in global crude oil supplies in CY2014, reflecting (1) increase in non-OPEC supply (+1.8 mn b/d), (2) expansion of OPEC production capacity (+1.1 mn b/d) and (3) incremental OPEC NGLs production (+0.2 mn b/d), to outpace the IEA’s forecast of 1.1 mn b/d of growth in global oil demand. Higher non-OPEC supply reflects rising crude oil production from the US (0.9 mn b/d), Canada, Brazil and Colombia, while incremental OPEC capacities reflect potential increase in production from Libya and new additions from Iraq, Saudi Arabia and UAE.

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India Energy

Exhibit 1: Crude oil production from Iran has declined sharply after US-led sanctions Monthly production from Iran, 2010-13YTD (mn b/d)

(mn b/d) Iran oil production 4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

- Jul-10 Jul-11 Jul-12 Jul-13 Jan-10 Jan-11 Jan-12 Jan-13 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13

Source: OPEC, Kotak Institutional Equities

Exhibit 2: Crude oil production from Libya has declined due to geo-political disturbances Monthly production from Libya, 2010-13YTD (mn b/d)

(mn b/d) Libya oil production 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 - Jul-10 Jul-11 Jul-12 Jul-13 Jan-10 Jan-11 Jan-12 Jan-13 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13

Source: OPEC, Kotak Institutional Equities

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Energy India

Exhibit 3: We see comfortable supply-demand balance from CY2014 onwards Estimated global crude demand, supply and prices, calendar year-ends, 2008-18E

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E Demand (mn b/d) Total demand 86.5 85.5 88.3 88.9 90.0 91.0 92.1 93.6 94.8 96.1 97.2 Yoy growth (0.5) (1.0) 2.8 0.6 1.1 1.0 1.1 1.4 1.3 1.2 1.1 Supply (mn b/d) Non-OPEC 50.6 51.4 52.7 52.8 53.4 54.7 56.5 57.0 57.8 58.6 59.3 Yoy growth (0.1) 0.8 1.3 0.1 0.6 1.3 1.8 0.6 0.8 0.8 0.7 OPEC Crude 31.6 29.2 29.3 29.9 31.3 30.0 29.1 29.7 30.0 30.5 30.9 NGLs 4.5 4.9 5.6 5.9 6.3 6.4 6.6 6.9 7.0 7.0 7.0 Total OPEC 36.2 34.1 34.9 35.8 37.6 36.4 35.7 36.6 37.0 37.4 37.9 Total supply 86.8 85.5 87.6 88.6 91.0 91.0 92.1 93.6 94.8 96.1 97.2 Total stock change 0.0 0.0 (0.8) (0.5) 1.0 OPEC crude capacity 34.2 34.9 35.7 34.2 35.0 34.8 35.9 36.0 36.3 36.5 36.7 Implied OPEC spare capacity 2.5 5.7 5.6 3.8 4.6 4.8 6.8 6.3 6.3 6.0 5.8

Demand growth (yoy, %) (0.6) (1.2) 3.3 0.6 1.3 1.2 1.2 1.6 1.3 1.3 1.1 Supply growth (yoy, %) Non-OPEC (0.3) 1.6 2.5 0.2 1.1 2.4 3.3 1.0 1.4 1.3 1.2 OPEC 3.3 (5.8) 2.4 2.6 5.1 (3.3) (1.9) 2.5 1.2 1.2 1.1 Total 1.2 (1.5) 2.5 1.1 2.7 0.1 1.2 1.6 1.3 1.3 1.1

Dated Brent (US$/bbl) 102 62 80 111 112 109 104 101 98 96 96 World GDP growth (%) 2.8 (0.6) 5.3 3.9 3.1 3.1 3.8 4.1 4.2 4.3 4.2

Source: IEA, Kotak Institutional Equities estimates

Lower crude oil prices augur well for India

` Easing of BOP pressures. A potential decline in global crude oil prices will be a positive for India’s BOP given India’s high imports of crude oil. A US$1/bbl change in crude oil price impacts India’s trade balance and current account by ~US$1.1 bn. Exhibit 4 gives India’s FY2014E BOP under various scenarios (crude oil price ranging between US$102.5/bbl and US$112.5/bbl).

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 India Energy

Exhibit 4: CAD and BOP look better in FY2014 compared with the past two years India's balance of payments, March fiscal year-ends, 2011-14E (US$ bn)

2014E 2011 2012 2013 [email protected] [email protected] [email protected] Current account (45.9) (78.2) (88.2) (55.7) (61.4) (67.2) GDP 1,708 1,871 1,842 1,817 1,817 1,817 CAD/GDP (%) (2.7) (4.2) (4.8) (3.1) (3.4) (3.7) Trade balance (130.6) (189.8) (195.7) (170.3) (176.0) (181.8) Trade balance/GDP (%) (7.7) (10.3) (10.6) (9.4) (9.7) (10.0) - Exports 250 310 307 315 317 319 - Imports 381 500 502 486 493 501 - oil imports 105 155 170 159 167 175 - non-oil imports 276 345 332 326 326 326 Invisibles (net) 85 112 107 115 115 115 - Services 49 64 65 71 71 71 - software 53 61 64 69 69 69 - non-software (4.4) 3.1 1.4 2.0 2.0 2.0 - Transfers 53 63 64 68 68 68 - Income (net) (17.3) (16.0) (21) (24.0) (24.0) (24.0) Capital account 62.1 67.8 89.4 57.0 57.0 57.0 Percentage of GDP 3.7 3.7 4.9 3.1 3.1 3.1 Foreign investment 39.7 39.2 46.7 17.0 17.0 17.0 - FDI 9.4 22.1 19.8 20.0 20.0 20.0 - FII 30.3 17.2 26.9 (3.0) (3.0) (3.0) - Equities 18.9 7.1 23.3 — — — - Debt 10.5 9.8 4.3 — — — - ADRs/GDRs 2.0 0.6 0.2 Banking capital 5.0 16.2 16.6 27.0 27.0 27.0 - NRI deposits 3.2 11.9 14.8 25.0 25.0 25.0 Short-term credit 11.0 6.7 21.7 11.0 11.0 11.0 ECBs 12.5 10.3 8.5 6.0 6.0 6.0 External assistance 4.9 2.3 1.0 1.0 1.0 1.0 Other capital account items (11.0) (6.9) (5.0) (5.0) (5.0) (5.0) E&O (3.0) (2.4) 2.7 0.0 0.0 0.0 Overall balance 13.1 (12.8) 3.9 1.3 (4.4) (10.2) Memo items RBI's FX intervention 1.7 (20.1) (0.1) 1.3 (4.4) (10.2) Average USD/INR 45.63 47.96 54.41 61.01 61.01 61.01 Average crude (US$/bbl) 85.1 111.7 108.2 102.5 107.5 112.5

Source: RBI, Kotak Institutional Equities estimates

` Lower fiscal burden on fuel subsidies. Lower crude oil prices will result in lower gross under-recoveries on regulated fuels, which will reduce the fiscal burden on petroleum subsidies. We compute gross under-recoveries of `1.4 tn in FY2015E, which is based on (1) the average Dated Brent crude price of US$102.5/bbl, (2) exchange rate of `63/US$ and (3) no further increase in diesel retail price. If we were to assume global crude price of US$90/bbl, gross under-recoveries would decline sharply to `0.9 tn. Even assuming crude oil price at US$102.5/bbl (base-case scenario) and monthly diesel price increases of `0.5/liter through FY2015, we compute gross under-recoveries at `1 tn. Exhibit 5 shows our computation of gross under-recoveries at various levels of crude price under the two scenarios—(1) no increase in diesel retail price and (2) regular monthly increase in diesel retail price.

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Energy India

Exhibit 5: Under-recovery will be easier to manage with a monthly increase in diesel retail prices Subsidy loss breakdown at various levels of crude oil price, March fiscal year-end, 2015E (` bn)

Dated Brent crude price (US$/bbl) 90 95 103 110 115 Assuming continuation of monthly hikes in diesel retail prices LPG 353 386 436 486 520 Kerosene 253 270 294 318 335 Diesel — — 229 458 611 Total subsidy loss 606 656 959 1,263 1,466 Total under-recoveries 637 687 990 1,294 1,497 Share of upstream companies 536 586 652 652 652 Share of downstream companies 70 70 70 70 70 Direct budgetary support 31 31 31 31 31 Required compensation from government — — 237 541 744 Assuming no further increase in diesel retail prices LPG 353 386 436 486 520 Kerosene 253 270 294 318 335 Diesel 269 422 652 881 1,034 Total subsidy loss 875 1,078 1,382 1,686 1,888 Total under-recoveries 906 1,109 1,413 1,717 1,919 Share of upstream companies 652 652 652 652 652 Share of downstream companies 70 70 70 70 70 Direct budgetary support 31 31 31 31 31 Required compensation from government 154 356 660 964 1,167

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13

NBFCs

India NOVEMBER 26, 2013 UPDATE BSE-30: 20,605

CV Finance: Sharp rise in delinquencies is a concern. Most lenders have reported rise in CV loan NPLs during 2QFY14. We find lead indicators of higher delinquencies in this segment; NPLs will likely increase sharply over the next 1-2 quarters unless collections pick up. CV sales remain weak; recent rise in trade discount on HCVs is a concern. We shall remain cautious on the CV finance segment till we see signs of improvement in collection efficiency. Our neutral/positive rating on CV finance companies is driven by inexpensive valuations.

Auto finance NBFCs: Sharp rise in NPLs in CV loans QUICK NUMBERS Select large auto finance NBFCs (as shown in Exhibits 1 and 2) have reported 75% yoy increase in gross NPLs in 2QFY14. Gross NPL ratio, for these companies, increased to 1- 4.1% in 2QFY14 from • 75% yoy rise in 0.5-2.9% in 2QFY13. GNPLs for select auto finance ` Most of these companies are focused on CV/construction equipment (CE) finance and have companies in 2Q reported 40-55% yoy increase in gross NPLs (viz. Shriram Transport Finance, Cholamandalam, IndusInd Bank (CV SBU only). • STFC’s credit cost increased 9% qoq ` While NBFCs like Mahindra Finance are multi-product companies, managements have due to higher EIS highlighted that CV/CE loans were the key drivers of higher NPLs over the last few quarters. utilization

Even on a qoq basis, Magma, Chola and Shriram Equipment Finance have reported about 25-40% • MHCV sales have growth in NPLs. IndusInd Bank (CV loans SBU) is the only entity to report a qoq decline in GNPLs in declined 26% YTD 2QFY14.

Lead indicators drive our bearish view

Most banks and NBFCs have retained a cautious guidance on asset quality performance in the CV loan segment. We look at some of the lead indicators to gauge the intensity of the problem.

High utilization of EIS/cash collateral in 2QFY14. During the quarter, NBFCs have reported significant qoq rise in EIS (excess interest spread) utilization on securitized loans. This likely indicates higher incidences of 1-2-month delinquencies (in the loan pools), which will increase NPLs in the next 1-2 quarters unless collections improve. This was more visible for Shriram

Transport Finance and Magma Fincorp that have large (about 30%) outstanding securitized loans (Exhibit 3).

` Magma Fincorp: EIS utilization pulls down NIM. During 2QFY14, Magma reported EIS/cash collateral-utilization of `194 mn as compared to `75 mn reported in 1QFY14, i.e. a qoq rise of `119 mn. As per its accounting policy, Magma adjusts the EIS utilization from its gross securitization income. Hence, the company reported NIM (calculated) of 4.7% in 2QFY14, down from 5.0% in 1QFY14. On reversing the impact of EIS utilization, NIM (calculated) would increase marginally qoq to 5.2% in 2QFY14 and 5.1% in 1QFY14. We would also like to highlight that the impact of reversal of income due to rise in NPLs was much lower at `50 mn.

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

NBFCs India

` Shriram Transport: Credit cost increases 9% due to higher EIS utilization. Shriram Transport Finance (STFC) adjusts EIS utilization with credit costs (provisions/write-offs). During the period, STFC’s EIS utilization doubled to `595 mn in 2QFY14 from `308 mn in 1QFY14. Credit cost (provisions/write-offs excluding standard asset provisions) increased 9% qoq to `2.6 bn. Excluding provisions for EIS utilization, credit cost was down 4% qoq to `2 bn.

Exhibit 1: High rise in NPLs for auto finance NBFCs Gross NPLs and credit cost ratio, quarterly data, 2QFY13-2QFY14

Gross NPL (%) Credit cost/ average loans (%) 2Q13 3Q13 4Q13 1Q14 2Q14 2Q13 3Q13 4Q13 1Q14 2Q14 Cholamandalam 1.1 1.2 1.0 1.1 1.4 0.6 0.8 1.2 1.2 1.4 IndusInd Bank - CV loans only 0.8 0.9 1.0 1.2 1.1 L&T Finance 1.6 2.1 2.5 3.4 3.4 1.2 1.6 1.6 1.7 1.6 Magma Fincrop — 1.3 1.6 2.2 2.9 0.5 0.5 1.0 0.9 1.1 Mahindra Finance 3.9 4.1 3.0 4.2 4.1 1.7 1.5 0.6 2.0 1.9 Shriram Equipment Finance 0.5 0.6 1.4 0.8 1.0 0.4 0.5 1.5 1.0 1.9 Shriram Transport Finance 2.9 2.9 3.2 3.1 3.3 2.0 1.9 1.8 2.0 2.0

Source: Company, Kotak Institutional Equities

Exhibit 2: GNPLs increase sharply in 2QFY14 Gross NPLs, quarterly data, 2QFY13-2QFY14 (Rs mn)

2Q13 3Q13 4Q13 1Q14 2Q14 YoY (%) QoQ(%) Cholamandalam 1,800 2,020 1,900 2,220 2,927 63 32 IndusInd Bank - CV loans only 720 890 1,010 1,190 1,110 54 (7) L&T Finance 3,099 3,471 4,487 6,234 6,333 104 2 Magma Fincrop — 1,890 2,650 3,531 4,826 NA 37 Mahindra Finance 8,609 9,893 7,630 11,555 12,223 42 6 Shriram Equipment Finance 126 161 420 252 318 152 26 Shriram Transport Finance 8,553 9,086 10,254 11,317 12,542 47 11

Source: Company

Exhibit 3: Sharp rise in EIS (excess interest spread) utilization in 2QFY14 Quarterly data, 1QFY14 and 2QFY14 (Rs mn)

STFC Magma Fincorp 1QFY14 2QFY14 1QFY14 2QFY14 Gross securitization income 3,972 3,415 462 438 EIS utilisation 75 194 Net securitization income 3,972 3,415 387 244

Net interest income 9,022 9,051 2,032 1,959 NIM (KS-calc-%) 7.1 6.8 5.0 4.7

NII + Dip in EIS 2,107 2,153 NIM (KS-calc-%) 5.1 5.2

Reported provisions/ write-offs 2,392 2,604 361 453 EIS utilisation 308 595 Credit cost excluding EIS utilisation 2,084 2,009 361 453

Notes: (1) STFC adds EIS utilisation to provisions/write-offs. (2) Magma adjusts EIS utilisation with gross securitization income.

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 India NBFCs

Higher losses in static pool and 90 days bucket in 1QFY14. Rating agencies track delinquency behavior more closely.

` According to ICRA, 3-month delinquencies (90 days bucket) for a sample of seven leading vehicle financing NBFCs has almost doubled to 8% in June 2013 from 4% in April 2012.

` According to India (Fitch) Ratings, early delinquency index for CV loans across lenders has increased to 6.5% in June 2013 from 5.7% in March 2013, thereby indicating that 90 days NPLs are on a sharp rise (Exhibit 3).

Exhibit 4: Early delinquency index increased to 6.5% in June 2013 compared to 5.7% in March 2013 Early delinquency index for CV loans across the industry, June 2011-June 2013

Source: India Ratings

Loan pools (for CVs across lenders) originated in 2013 have reported a sharp rise in delinquencies (on 90 dpd basis), similar to the loans originated in 2012. Loans originated in the previous years had not reported such a steep rise in the initial period (Exhibit 4).

Exhibit 5: Sharp rise in delinquencies within first few months of transaction Weighted average 90+ dpd delinquency for CV loans across the industry

Source: India Ratings

In case of STFC, 90 days-past-due delinquencies in the static pools for used CV loans originated in 2012 have reported a sharp rise to ~8%; this seems to be the steepest rise across years (Exhibit 5).

In case of static pools of new CV loans of STFC, the rise was lower at ~5% though here again the rise in 2012 was the steepest as compared to previous periods (Exhibit 6). Loans originated in FY2005 had reported sharp increase in the first two years—notably, STFC reported credit cost ratio of 1.9-2% between FY2005 and FY2007 as compared to credit cost of 1.5% between FY2008 and FY2011. STFC’s credit cost has increased to 2% in the past two years.

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH NBFCs India

Exhibit 6: Static pools of used CV loans for Shriram Transport Finance have reported a sharp rise to 8% Shriram Transport weighted average 90-dpd delinquencies in used CV loans originated in 2012

Source: India Ratings

Exhibit 7: Static pools of new CV loans for Shriram Transport Finance have increased to 5% Shriram Transport weighted average 90-dpd delinquencies in new CV loans originated in 2012

Source: India Ratings

CV sales will likely stay weak, discounts remain high

Our auto analyst expects CV sales to decline 18% yoy in FY2014E with 16% decline YTD and 22% decline over the next five months. The decline will be largely driven by MHCVs (down 25% yoy with 26% decline YTD); LCV sales will also likely decline 15% yoy (10% decline YTD).

According to market sources, during 4QFY13, OEMs offered about 6-7% discount on HCVs. This trade discount reduced to 3-4% in 1QFY14, likely due to lower inventory levels because of lower production (and increase in plant shutdowns). However, the trade discount has once again widened to 6-7%, likely indicating poor off-take. We believe higher discounts on new vehicles will keep prices of used vehicles subdued, which in turn will put pressure on the asset quality performance of used CV loans. Most NBFCs have indicated that used CV prices have been under pressure during 2QFY14.

Exhibit 8: CV sales will likely remain weak Domestic sales for CVs, March fiscal year-ends, 2013-14 (#)

2013 2014 YoY (%) Apr-Nov 2013 Apr-Nov 2014 YoY (%) Dec -Mar 2013 Dec-Mar 2014 YoY (%) MHCVs 268,259 201,194 (25) 161,529 119,758 (26) 106,730 81,436 (24) LCVs 524,887 446,154 (15) 290,859 260,423 (10) 234,028 185,731 (21) Total 793,146 647,348 (18) 452,388 380,181 (16) 340,758 267,167 (22)

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks India DailyIndia Summary-November 2013 26,

Mahindra & Mahindra 943 BUY 530,145 8,510 562 63.0 63.2 71.5 22.7 0.2 13.1 15.0 14.9 13.2 10.3 10.5 9.2 3.5 3.0 2.7 1.5 1.8 2.1 24.4 20.6 20.1 1,130 19.8 19.6 Maruti Suzuki 1,679 REDUCE 507,162 8,141 302 79.2 91.6 103.0 39.9 15.7 12.5 21.2 18.3 16.3 12.8 10.4 8.7 2.7 2.4 2.1 0.5 0.6 0.7 13.9 13.7 13.7 1,440 (14.2) 18.0 Motherson Sumi Systems 261 BUY 153,674 2,467 588 7.6 13.2 20.3 71.2 74.1 54.0 34.6 19.9 12.9 11.0 8.0 5.1 6.7 5.0 3.5 0.8 1.5 2.3 26.8 36.8 32.4 305 16.7 1.6 Tata Motors 386 ADD 1,242,572 19,947 3,218 30.7 44.0 51.1 (31.1) 43.1 16.2 12.6 8.8 7.6 6.4 4.8 4.1 3.2 2.3 1.7 0.5 — — 27.5 30.4 26.2 405 4.9 48.5 Automobiles Neutral 3,700,550 59,405 (10.3) 25.4 14.5 15.5 12.4 10.8 8.8 7.2 5.9 3.5 2.8 2.3 1.3 1.0 1.3 22.7 22.9 21.5 Banks/Financial Institutions Axis Bank 1,115 ADD 521,980 8,379 468 110.7 117.3 131.8 7.8 5.9 12.4 10.1 9.5 8.5 — — — 1.6 1.4 1.3 1.6 1.9 2.4 18.5 15.6 15.5 1,200 7.6 83.3 Bajaj Finserv 714 BUY 113,659 1,825 159 103.4 86.1 88.2 9.1 (16.8) 2.5 6.9 8.3 8.1 — — — 1.5 1.3 1.1 1.9 1.9 1.9 25.7 16.3 14.6 825 15.5 0.5 Bank of Baroda 633 REDUCE 267,475 4,294 423 106.0 90.9 112.5 (12.7) (14.3) 23.7 6.0 7.0 5.6 — — — 0.9 0.9 0.8 3.4 2.9 3.6 15.6 11.8 13.3 620 (2.1) 20.7 Bank of India 217 ADD 129,501 2,079 597 46.1 48.4 59.4 (1.1) 5.1 22.6 4.7 4.5 3.7 — — — 0.7 0.6 0.6 4.6 4.8 5.9 12.9 12.1 13.5 220 1.4 13.7 Canara Bank 246 REDUCE 113,093 1,815 459 64.8 40.7 62.5 (12.5) (37.2) 53.5 3.8 6.0 3.9 — — — 0.6 0.6 0.5 5.1 4.9 4.9 12.1 7.3 10.4 255 3.5 10.4 City Union Bank 47 BUY 25,438 408 539 6.0 6.8 7.0 (13.0) 13.9 2.6 7.9 6.9 6.8 — — — 1.6 1.3 1.1 1.9 2.1 2.2 22.3 19.7 16.9 60 27.1 0.4 Development Credit Bank 48 BUY 11,968 192 250 4.1 6.0 6.3 78.3 46.7 5.2 11.7 8.0 7.6 — — — 1.3 1.2 1.0 — — — 11.6 14.6 13.4 60 25.4 0.9 Federal Bank 79 BUY 67,611 1,085 855 9.8 8.1 11.7 7.9 (17.1) 43.9 8.1 9.7 6.8 — — — 1.1 1.0 0.9 2.3 1.9 2.7 13.9 10.5 13.7 85 7.5 4.5 HDFC 819 ADD 1,265,997 20,323 1,546 31.4 36.1 41.1 12.3 15.2 13.7 26.1 22.7 19.9 — — — 5.1 4.5 4.0 1.5 1.8 2.0 22.0 21.1 21.4 850 3.8 50.1 HDFC Bank 660 REDUCE 1,569,822 25,200 2,379 28.3 35.8 44.5 28.4 26.7 24.3 23.3 18.4 14.8 — — — 4.4 3.7 3.1 0.8 1.1 1.3 20.3 21.6 22.6 645 (2.2) 42.5 ICICI Bank 1,075 ADD 1,239,697 19,901 1,154 72.2 77.3 81.2 28.7 7.1 5.2 14.9 13.9 13.2 — — — 1.9 1.8 1.6 1.9 2.2 2.3 13.1 12.8 12.4 1,150 7.0 73.7 IDFC 103 BUY 156,302 2,509 1,512 12.1 13.5 15.0 18.1 10.9 11.6 8.5 7.7 6.9 — — — 1.1 1.0 0.9 2.5 2.5 2.8 14.2 14.1 14.1 140 35.5 24.4 India Infoline 63 ADD 19,286 310 304 9.2 9.0 10.0 102.9 (2.8) 11.5 6.9 7.1 6.3 — — — 1.0 0.9 0.8 4.8 2.4 2.7 15.1 14.1 13.9 65 2.5 0.2 IndusInd Bank 420 BUY 219,605 3,525 523 20.3 24.6 28.4 18.3 21.1 15.4 20.7 17.1 14.8 — — — 3.0 2.6 2.3 0.7 0.9 1.0 18.3 17.0 16.3 470 11.9 22.8 ING Vysya Bank 592 ADD 109,498 1,758 185 39.6 36.8 43.9 30.2 (7.1) 19.3 15.0 16.1 13.5 — — — 2.4 1.6 1.4 0.8 0.9 1.0 14.6 11.9 11.2 620 4.7 1.4 J&K Bank 1,191 REDUCE 57,744 927 48 217.6 233.0 207.1 31.4 7.1 (11.1) 5.5 5.1 5.8 — — — 1.2 1.0 0.9 4.2 4.5 4.0 23.6 21.4 16.6 1,250 5.0 1.4 Karur Vysya Bank 328 ADD 35,155 564 107 51.3 27.8 63.3 9.7 (45.8) 127.3 6.4 11.8 5.2 — — — 1.2 1.1 1.0 4.3 2.1 4.8 19.0 9.4 19.2 380 15.9 1.1 LIC Housing Finance 210 ADD 106,267 1,706 505 20.3 24.7 27.8 11.9 21.9 12.7 10.4 8.5 7.6 — — — 1.7 1.5 1.3 1.9 2.3 2.6 16.8 17.9 17.6 250 18.8 12.1 L&T Finance Holdings 76 SELL 130,236 2,091 1,715 4.3 3.8 5.0 60.3 (10.1) 29.9 17.9 19.9 15.3 — — — 2.4 2.1 1.8 — — — 14.3 11.3 12.7 60 (21.0) 4.4 Magma Fincorp 68 BUY 12,873 207 190 6.5 8.1 11.0 100.6 23.8 36.3 10.4 8.4 6.2 — — — 0.9 0.8 0.8 1.6 1.9 2.6 10.1 10.4 13.0 110 62.4 0.1 Mahindra & Mahindra Financial 295 REDUCE 167,459 2,688 568 15.5 18.6 21.3 28.6 20.0 14.5 19.0 15.8 13.8 — — — 3.8 3.3 2.8 1.2 1.5 1.7 23.8 21.9 21.4 240 (18.6) 6.3 Muthoot Finance 107 NR 42,545 683 397 28.2 29.9 34.9 17.3 6.1 16.7 3.8 3.6 3.1 — — — 1.1 0.8 0.7 3.7 4.2 4.9 31.2 26.2 23.7 — — — Oriental Bank of Commerce 189 ADD 55,230 887 292 45.5 35.5 52.2 16.3 (22.1) 47.4 4.2 5.3 3.6 — — — 0.6 0.5 0.5 4.9 3.8 5.6 10.7 7.9 10.8 170 (10.2) 6.4 PFC 154 BUY 203,507 3,267 1,319 33.5 35.9 39.3 45.6 7.2 9.3 4.6 4.3 3.9 — — — 0.9 0.8 0.8 4.5 4.9 5.3 19.8 18.3 17.5 185 19.9 6.8 Punjab National Bank 534 REDUCE 188,666 3,029 353 134.3 97.0 133.8 (6.7) (27.8) 37.9 4.0 5.5 4.0 — — — 0.7 0.7 0.6 5.1 3.7 5.0 16.5 10.5 13.3 550 3.0 18.6 Reliance Capital 365 ADD 89,811 1,442 246 26.9 18.6 27.4 27.5 (30.8) 47.4 13.6 19.6 13.3 — — — 0.8 0.8 0.7 2.2 1.5 2.3 5.9 3.9 5.6 480 31.6 21.2 Rural Electrification Corp. 220 ADD 216,979 3,483 987 38.7 44.7 47.6 35.3 15.5 6.5 5.7 4.9 4.6 — — — 1.3 1.2 1.0 3.8 3.7 4.3 23.7 23.0 20.6 250 13.8 5.6 Shriram City Union Finance 1,071 NR 63,323 1,017 59 81.2 84.0 104.4 23.4 3.5 24.3 13.2 12.7 10.3 — — — 2.8 2.2 1.9 0.7 1.0 1.3 22.6 19.5 19.9 — — 0.2 Shriram Transport 574 ADD 128,027 2,055 223 61.0 61.8 74.2 8.2 1.4 20.1 9.4 9.3 7.7 — — — 1.8 1.6 1.4 1.2 1.5 1.8 20.6 17.8 18.3 670 16.8 3.9 State Bank of India 1,807 ADD 1,255,205 20,150 695 206.2 162.1 193.2 18.2 (21.4) 19.2 8.8 11.1 9.4 — — — 1.6 1.6 1.4 2.6 2.4 2.5 15.4 10.9 11.8 1,950 7.9 72.4 Union Bank 122 ADD 72,600 1,165 597 36.0 27.5 36.4 11.5 (23.7) 32.7 3.4 4.4 3.3 — — — 0.5 0.5 0.5 6.6 5.0 6.6 15.0 10.0 12.2 140 15.1 10.9 Yes Bank 351 REDUCE 125,823 2,020 359 36.3 33.3 39.5 31.0 (8.3) 18.8 9.7 10.6 8.9 — — — 2.2 1.9 1.6 1.7 1.6 1.9 24.8 20.2 19.3 320 (8.8) 77.8

Banks/Financial Institutions Cautious 8,782,384 140,984 17.8India Daily Summary -November (2.1) 18.2 10.7 10.9 9.2 ——— 1.8 1.6 1.5 2.0 2.1 2.4 16.7 15.1 16.0 Cement ACC 1,079 REDUCE 202,657 3,253 188 73.7 49.5 59.2 29.1 (32.8) 19.4 14.6 21.8 18.2 8.9 11.7 9.0 2.6 2.4 2.3 3.2 2.2 2.2 19.5 12.2 13.5 1,100 2.0 6.3 Ambuja Cements 180 SELL 273,343 4,388 1,522 10.3 7.7 9.5 32.8 (25.5) 23.9 17.4 23.3 18.8 9.8 13.5 11.8 2.9 2.8 2.7 1.5 1.5 2.4 17.8 12.3 14.4 155 (13.7) 6.4 Grasim Industries 2,558 ADD 234,759 3,769 92 272.4 268.9 279.0 (5.6) (1.3) 3.8 9.4 9.5 9.2 7.2 6.3 5.0 1.2 1.1 1.0 0.9 1.3 1.3 13.6 11.9 11.2 3,000 17.3 4.0 India Cements 59 ADD 18,246 293 307 6.8 3.5 5.9 (24.4) (48.9) 70.1 8.8 17.2 10.1 4.5 5.6 4.3 0.4 0.4 0.4 3.6 4.5 4.5 5.2 2.6 4.3 70 17.8 1.5 Shree Cement 4,364 SELL 152,042 2,441 35 307.0 256.7 299.5 92.3 (16.4) 16.7 14.2 17.0 14.6 9.4 10.0 8.9 4.1 3.4 2.9 0.5 0.5 0.5 33.3 21.9 21.6 3,950 (9.5) 0.9 UltraTech Cement 1,889 REDUCE 517,844 8,313 274 101.3 87.6 105.5 13.4 (13.5) 20.4 18.7 21.6 17.9 11.5 12.0 9.6 3.0 2.7 2.3 0.6 0.6 0.6 18.9 14.7 15.5 1,650 (12.6) 5.6 Cement Cautious 1,398,890 22,456 16.2 (16.2) 15.9 14.7 17.5 15.1 8.9 9.7 7.9 2.3 2.1 1.9 1.2 1.2 1.3 15.3 11.7 12.3

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

O/S Target ADVT- 25-Nov-13 Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) price Upside 3mo Company Price (Rs) Rating (Rs mn) (US$ mn) (mn) 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2015E 2 013 2014E 2015E (Rs) (%) (US$ mn) Consumer products Asian Paints 516 SELL 495,235 7,950 959 11.6 13.1 15.3 12.7 12.9 16.9 44.5 39.4 33.7 28.2 23.8 20.3 14.0 11.7 9.9 0.9 1.1 1.3 36.3 34.0 33.6 440 (14.8) 10.7 Bajaj Corp. 236 BUY 34,751 558 148 11.3 13.0 15.6 38.4 15.8 19.6 20.9 18.1 15.1 19.2 16.9 13.5 7.2 6.4 5.6 2.8 3.2 3.8 26.4 32.3 33.0 295 25.2 0.5 Colgate-Palmolive (India) 1,247 SELL 169,590 2,722 136 36.5 35.5 41.5 11.3 (2.7) 16.7 34.1 35.1 30.1 25.2 25.2 20.8 36.3 29.7 27.8 2.2 2.2 2.6 107.4 89.2 92.0 1,200 (3.8) 3.1 Dabur India 167 ADD 291,761 4,684 1,743 4.4 5.4 6.4 19.0 22.6 18.8 38.0 31.0 26.1 29.9 24.9 21.0 13.7 11.0 8.9 0.9 1.2 1.4 40.0 39.4 37.6 190 13.5 4.3 GlaxoSmithKline Consumer 4,401 SELL 185,078 2,971 42 103.9 123.0 146.3 23.0 18.4 19.0 42.4 35.8 30.1 36.6 32.8 27.4 14.2 12.0 10.3 1.0 1.3 1.6 34.9 35.0 35.6 4,100 (6.8) 0.9 Godrej Consumer Products 866 REDUCE 294,802 4,732 340 20.3 23.6 29.6 20.4 16.5 25.2 42.7 36.7 29.3 32.2 25.7 20.2 8.3 7.1 5.9 0.6 0.7 0.8 22.6 22.4 23.7 800 (7.7) 2.8 Hindustan Unilever 581 REDUCE 1,256,413 20,169 2,163 15.4 16.4 18.3 28.1 6.7 11.2 37.7 35.4 31.8 31.0 27.7 24.1 50.9 36.8 29.8 3.2 1.9 2.2 103.1 113.0 98.3 560 (3.6) 15.2 ITC 316 ADD 2,504,297 40,202 7,920 9.3 10.6 12.1 19.0 13.5 14.4 33.9 29.8 26.1 23.9 20.7 17.7 10.7 9.5 8.6 1.7 2.0 2.4 36.1 35.9 37.1 365 15.4 41.3 Jubilant Foodworks 1,285 SELL 84,833 1,362 66 19.9 22.5 30.6 21.7 13.0 35.9 64.5 57.0 41.9 34.9 28.8 21.5 19.7 15.3 11.9 — 0.3 0.5 36.1 30.3 32.3 925 (28.0) 5.9 Jyothy Laboratories 179 ADD 32,439 521 181 3.9 6.9 11.5 40.5 77.3 67.6 46.1 26.0 15.5 29.9 18.9 14.2 5.0 3.4 2.9 1.3 1.4 1.4 9.9 15.5 20.1 215 20.0 0.3 Marico 207 REDUCE 133,545 2,144 645 5.6 7.6 8.8 8.0 35.8 15.1 36.8 27.1 23.6 22.8 18.6 16.1 6.6 7.9 6.3 0.2 0.8 1.0 18.3 30.2 27.8 215 3.8 1.4 Nestle India 5,436 SELL 524,129 8,414 96 110.8 117.3 140.2 11.1 5.9 19.5 49.1 46.3 38.8 29.0 25.7 22.1 26.7 21.2 17.2 0.9 1.0 1.3 71.6 58.1 54.2 4,500 (17.2) 3.2 Page Industries 4,924 ADD 54,916 882 11 100.9 143.1 182.3 25.1 41.8 27.4 48.8 34.4 27.0 31.6 22.8 17.9 25.0 18.2 13.5 1.0 1.2 1.5 59.3 62.7 58.5 5,200 5.6 0.4 Speciality Restaurants 112 BUY 5,270 85 47 5.0 4.4 5.2 1.8 (11.6) 17.4 22.5 25.5 21.7 14.1 13.3 10.6 1.9 1.7 1.6 0.9 1.3 1.8 11.6 6.9 7.5 145 29.2 0.1 Tata Global Beverages 142 ADD 88,060 1,414 618 6.3 6.8 7.7 14.8 6.9 13.5 22.5 21.0 18.5 13.3 11.2 9.7 1.6 1.5 1.4 1.5 1.7 2.1 8.4 8.6 9.2 155 8.8 6.3 Titan Industries 228 REDUCE 202,682 3,254 888 8.2 8.8 10.0 20.9 7.2 14.4 27.9 26.1 22.8 18.9 18.4 14.9 10.3 8.2 6.7 0.9 1.1 1.4 42.3 35.0 32.2 260 13.9 8.3 United Breweries 745 SELL 197,074 3,164 264 6.5 6.7 11.9 36.2 2.6 77.5 114.1 111.2 62.6 43.6 38.9 26.2 13.0 13.5 11.5 0.1 0.1 0.2 11.8 11.6 19.3 650 (12.8) 6.5 United Spirits 2,623 BUY 381,122 6,118 145 9.1 31.9 65.4 (33.4) 251.7 104.9 289.2 82.2 40.1 35.1 32.4 20.9 8.0 4.8 4.3 0.1 0.2 0.2 2.8 7.3 11.3 2,700 3.0 36.5 Consumer products Cautious 6,935,998 111,344 19.2 16.7 19.1 39.7 34.0 28.5 27.0 23.5 19.6 12.2 10.2 9.0 1.5 1.5 1.8 30.7 30.1 31.4 Constructions NCC 26 ADD 6,569 105 257 2.4 2.1 2.5 74.2 (14.3) 17.3 10.5 12.2 10.4 6.0 6.7 6.3 0.3 0.3 0.3 1.2 3.9 3.9 2.6 2.2 2.5 40 56.3 0.7 Sadbhav Engineering 76 BUY 13,013 209 171 4.9 5.4 9.2 (47.3) 9.4 71.0 15.5 14.1 8.3 12.5 6.8 5.1 1.5 1.1 1.0 0.7 0.8 0.8 8.6 7.9 12.0 160 110.8 0.2 Construction Cautious 29,039 466 (62.7) 72.2 95.4 27.0 15.7 8.0 6.5 6.0 5.3 0.5 0.4 0.4 0.6 1.4 1.7 1.8 2.8 5.3 Energy Aban Offshore 360 RS 15,676 252 44 38.6 77.2 98.5 (43.5) 99.8 27.7 9.3 4.7 3.7 7.6 7.2 6.3 0.5 0.6 0.5 1.0 1.4 1.4 6.4 14.9 15.6 — — 4.4 Bharat Petroleum 347 BUY 251,198 4,032 723 36.6 36.0 34.9 99.2 (1.5) (3.2) 9.5 9.6 10.0 6.8 6.4 6.8 1.4 1.3 1.2 3.2 3.1 3.0 14.5 12.9 11.5 440 26.7 9.9 Cairn india 331 ADD 632,480 10,153 1,910 63.1 62.7 55.3 51.7 (0.7) (11.8) 5.2 5.3 6.0 4.3 3.9 4.1 1.3 1.1 1.0 3.5 3.6 3.6 24.8 22.7 17.2 370 11.7 14.8 Castrol India 288 SELL 142,458 2,287 495 9.0 9.9 10.4 (4.4) 9.0 5.7 31.8 29.2 27.7 22.0 19.8 18.4 24.4 23.0 36.5 2.4 2.8 3.0 79.0 81.1 102.1 230 (20.2) 0.7 GAIL (India) 333 ADD 422,150 6,777 1,268 36.0 34.8 36.5 18.4 (3.5) 5.0 9.2 9.6 9.1 6.3 6.5 5.5 1.6 1.4 1.3 2.9 2.9 3.2 17.5 14.9 13.8 410 23.2 5.6 GSPL 60 ADD 33,734 542 563 9.6 8.7 7.6 2.6 (8.8) (13.1) 6.3 6.9 7.9 3.9 4.1 4.3 1.0 0.9 0.8 1.7 1.7 2.5 17.6 13.7 10.6 75 25.1 0.5 Hindustan Petroleum 214 ADD 72,531 1,164 339 24.8 12.5 21.0 (7.6) (49.6) 68.2 8.6 17.1 10.2 8.2 10.3 7.7 0.4 0.4 0.4 4.0 1.9 3.1 4.7 2.3 3.7 240 12.2 5.2 Indian Oil Corporation 206 ADD 499,794 8,023 2,428 16.8 11.8 26.6 (48.8) (30.0) 125.8 12.2 17.5 7.7 9.5 7.6 4.7 0.8 0.8 0.7 3.0 3.6 6.5 6.2 4.0 8.8 250 21.4 2.2 India Daily Summary India - November 26,2013 Oil India 458 BUY 275,232 4,418 601 59.7 57.0 62.8 4.1 (4.6) 10.2 7.7 8.0 7.3 3.2 2.8 2.4 1.3 1.2 1.2 6.6 6.3 7.0 15.9 14.2 14.6 600 31.0 2.7 Oil & Natural Gas Corporation 288 BUY 2,466,984 39,603 8,556 29.4 32.1 36.6 (10.5) 9.2 14.0 9.8 9.0 7.9 4.0 3.5 2.8 1.3 1.2 1.1 3.3 3.5 4.0 13.3 13.2 13.6 340 17.9 16.8 Petronet LNG 125 BUY 93,525 1,501 750 15.3 10.4 12.0 8.7 (32.0) 15.3 8.1 12.0 10.4 6.0 7.5 6.3 1.9 1.7 1.5 2.0 2.0 2.2 25.6 14.4 14.5 165 32.3 2.4 Reliance Industries 852 BUY 2,500,591 40,142 2,936 65.0 69.4 77.9 6.2 6.7 12.3 13.1 12.3 10.9 8.6 8.4 6.9 1.3 1.2 1.1 1.1 1.1 1.2 11.3 11.1 11.3 980 15.1 48.0 En ergy Attractive 7,406,354 118,894 0.1 2.1 12.5 9.7 9.5 8.5 6.0 5.5 4.6 1.3 1.2 1.0 2.6 2.7 3.1 13.0 12.1 12.4 Industrials ABB 613 SELL 129,815 2,084 212 6.7 9.8 19.7 (23.6) 47.6 100.2 92.1 62.4 31.2 53.9 34.1 19.1 5.0 4.8 4.2 0.5 0.5 0.6 5.5 7.8 14.4 450 (26.5) 1.5 Bharat Electronics 1,066 REDUCE 85,312 1,370 80 113.6 103.6 114.6 6.8 (8.8) 10.6 9.4 10.3 9.3 6.0 5.4 5.1 1.3 1.2 1.1 2.8 2.8 2.8 14.5 12.0 12.2 1,075 0.8 0.6 Bharat Heavy Electricals 144 SELL 353,189 5,670 2,448 27.0 15.0 11.7 (6.0) (44.5) (21.8) 5.3 9.6 12.3 3.3 6.1 7.4 1.2 1.1 1.0 3.7 2.2 1.7 23.7 11.5 8.4 105 (27.2) 19.3 Crompton Greaves 119 ADD 74,873 1,202 630 1.3 5.1 8.8 (77.2) 293.4 70.5 91.0 23.1 13.6 21.3 11.3 8.4 2.1 2.0 1.8 1.0 1.2 1.4 2.3 8.8 13.8 135 13.5 3.6 Cummins India 427 REDUCE 118,420 1,901 277 28.3 21.4 23.0 28.3 (24.5) 7.8 15.1 20.0 18.5 14.7 18.3 17.1 5.0 4.5 4.1 3.0 2.3 2.4 34.5 22.6 21.4 400 (6.4) 2.3 Kalpataru Power Transmission 79 BUY 12,054 194 153 8.8 11.9 16.0 (34.1) 36.1 33.8 9.0 6.6 4.9 6.2 5.5 4.9 0.6 0.6 0.5 1.9 1.9 1.9 6.8 8.4 10.4 120 52.8 0.1 KEC International 41 BUY 10,476 168 257 2.5 5.1 8.6 (63.1) 101.9 68.9 16.1 8.0 4.7 6.7 5.5 4.3 0.9 0.8 0.7 1.2 1.9 3.2 5.5 10.4 15.8 68 66.9 0.2 Larsen & Toubro 1,003 ADD 925,546 14,858 923 52.4 48.2 58.0 4.4 (8.1) 20.5 19.1 20.8 17.3 15.4 15.1 13.7 2.7 2.4 2.1 1.2 1.3 1.4 15.2 12.2 13.0 970 (3.3) 39.1 Siemens 602 SELL 211,851 3,401 352 4.9 17.6 22.3 (64.4) 260.6 27.0 123.4 34.2 26.9 40.5 16.2 13.2 5.4 5.1 4.6 0.4 0.9 0.9 4.4 15.4 18.0 400 (33.5) 3.6 Thermax 642 REDUCE 76,459 1,227 119 25.5 25.2 31.3 (22.5) (1.3) 24.1 25.1 25.5 20.5 16.9 16.0 13.5 4.1 3.7 3.3 1.1 1.1 1.4 17.4 15.2 17.0 540 (15.8) 0.4

KOTAK INSTITUTIONAL EQUITIES RESEARCH Voltas 93 BUY 30,838 495 331 5.9 6.0 8.3 (39.7) 1.2 39.2 15.8 15.6 11.2 10.9 10.0 6.3 1.9 1.7 1.6 2.0 1.9 2.7 12.5 11.6 14.8 110 18.0 2.3 Industrials Cautious 2,028,833 32,569 (6.6) (19.4) 9.8 14.3 17.7 16.1 11.2 12.6 11.8 2.2 2.0 1.8 1.7 1.5 1.5 15.8 11.5 11.5

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks India DailyIndia Summary-November 2013 26,

DB Corp 266 ADD 48,694 782 183 11.9 14.5 16.7 7.9 22.3 15.1 22.3 18.3 15.9 12.6 10.3 9.0 4.7 4.2 3.9 2.1 2.6 3.4 22.3 24.5 25.5 300 13.0 0.2 DishTV 51 ADD 54,411 873 1,065 (1.2) (0.4) 0.7 (22.3) 64.2 259.9 (41.2) (115.0) 71.9 11.1 10.0 8.7 (35.0) (26.9) (43) — — — 106.0 26.4 (46) 60 17.4 4.4 Eros International 168 ADD 15,403 247 92 17.2 19.5 23.2 4.6 13.0 19.1 9.7 8.6 7.2 6.4 5.7 4.7 1.5 1.3 1.1 — — — 17.2 16.4 16.5 180 7.2 0.7 Jagran Prakashan 81 ADD 25,569 410 316 5.1 5.5 6.7 (10.4) 8.1 22.5 16.0 14.8 12.1 9.4 8.0 6.7 2.7 2.6 2.4 2.6 3.8 4.5 19.0 18.0 20.5 120 48.4 0.2 Sun TV Network 383 REDUCE 151,011 2,424 394 18.0 19.1 22.5 2.4 6.0 18.0 21.3 20.1 17.0 13.5 12.2 10.4 5.1 4.8 4.5 2.5 3.1 3.9 26.5 25.8 28.4 430 12.2 5.2 Zee Entertainment Enterprises 260 REDUCE 247,143 3,967 950 7.6 9.2 10.8 25.6 20.9 17.5 34.3 28.4 24.2 24.2 19.3 16.1 5.0 4.7 4.5 0.7 0.8 0.9 15.3 17.3 19.1 240 (7.7) 10.7 Media Neutral 569,220 9,138 8.3 19.6 24.0 27.4 22.9 18.5 14.0 11.9 10.1 4.4 4.1 3.8 1.4 1.8 2.3 16.2 17.9 20.6 Metals & Mining Coal India 270 BUY 1,704,471 27,362 6,316 27.5 27.1 30.5 18.1 (1.3) 12.5 9.8 9.9 8.8 5.5 4.8 3.7 3.4 2.9 2.6 5.2 5.1 5.8 37.2 31.5 31.1 360 33.4 12.5 Hindalco Industries 118 REDUCE 243,930 3,916 2,065 15.8 12.7 13.3 (10.9) (19.4) 4.3 7.5 9.3 8.9 9.2 9.0 7.4 0.7 0.6 0.6 1.1 1.2 1.2 9.0 7.1 6.8 110 (6.9) 18.0 Hindustan Zinc 126 ADD 530,238 8,512 4,225 16.4 15.8 16.7 24.2 (3.5) 5.6 7.7 7.9 7.5 4.9 3.9 3.2 1.6 1.4 1.2 2.5 2.5 2.5 23.5 19.2 17.6 160 27.5 2.9 Jindal Steel and Power 252 REDUCE 235,102 3,774 935 31.1 20.5 22.2 (26.6) (34.3) 8.5 8.1 12.3 11.3 7.3 9.2 6.9 1.1 1.0 0.9 0.8 0.7 0.7 14.9 8.7 8.7 240 (4.6) 10.4 JSW Steel 888 SELL 214,536 3,444 242 32.9 94.0 106.1 (46.2) 185.9 12.9 27.0 9.4 8.4 6.6 6.0 5.5 1.0 1.0 0.9 1.0 1.0 1.0 4.2 10.5 11.1 710 (20.0) 15.4 National Aluminium Co. 38 REDUCE 97,291 1,562 2,577 2.3 2.5 2.9 (31.2) 7.6 18.5 16.4 15.2 12.9 5.4 6.1 5.2 0.8 0.8 0.8 3.3 3.3 3.3 5.0 5.3 6.1 35 (7.3) 0.3 NMDC 131 ADD 519,177 8,334 3,965 16.4 15.1 15.6 (11.2) (7.8) 2.9 8.0 8.7 8.4 4.1 4.5 4.6 1.9 1.7 1.6 5.3 6.1 6.1 24.4 20.9 19.9 155 18.4 7.3 Sesa Sterlite 175 ADD 517,483 8,307 2,965 25.8 22.5 21.9 (16.8) (12.8) (2.8) 6.8 7.8 8.0 4.4 4.2 4.2 0.8 0.7 0.7 — — — 3.3 0.1 (0.1) 210 20.3 33.4 Tata Steel 398 ADD 386,573 6,206 971 3.4 40.6 40.9 (86.9) 1,087.7 0.6 116.3 9.8 9.7 8.0 6.6 6.3 1.1 1.0 1.0 2.0 2.0 2.0 0.9 11.0 10.2 395 (0.7) 41.7 Metals & Mining Neutral 4,448,802 71,417 9.9 2.6 6.7 9.5 9.3 8.7 5.9 5.6 5.0 1.5 1.3 1.2 3.3 3.4 3.6 15.4 14.4 14.1 Pharmaceutical Apollo Hospitals 848 REDUCE 117,992 1,894 139 21.9 26.7 31.2 38.5 22.0 16.7 38.8 31.8 27.2 20.4 17.5 14.7 4.3 3.9 3.5 0.7 0.8 0.9 11.6 12.9 13.7 850 0.2 2.3 Biocon 372 ADD 73,541 1,181 198 15.5 19.7 24.2 (9.2) 27.0 22.9 24.0 18.9 15.4 13.3 10.6 9.1 2.7 2.5 2.3 2.0 2.0 2.0 20.5 13.9 15.6 350 (6.0) 3.2 Cipla 387 ADD 310,811 4,989 803 17.8 19.2 21.2 27.1 8.2 10.3 21.8 20.1 18.2 14.4 14.7 12.0 3.4 3.0 2.6 0.5 0.5 0.5 15.6 14.9 15.2 450 16.2 9.1 Cadila Healthcare 743 ADD 152,220 2,444 205 29.5 33.1 44.4 (7.5) 12.2 34.3 25.2 22.5 16.7 18.4 16.3 12.4 5.2 4.4 3.7 1.0 1.0 1.4 23.7 21.2 24.1 800 7.6 1.5 Divi's Laboratories 1,162 ADD 154,166 2,475 133 45.4 57.4 61.3 12.9 26.4 6.9 25.6 20.3 19.0 18.7 15.3 13.1 6.2 5.2 4.4 1.3 1.6 1.7 26.0 27.8 25.2 1,090 (6.2) 3.9 Dr Reddy's Laboratories 2,440 BUY 415,880 6,676 170 96.0 122.1 139.8 14.2 27.3 14.5 25.4 20.0 17.5 17.0 13.6 11.9 5.7 4.6 3.8 0.6 0.8 0.9 24.0 25.6 24.0 2,700 10.6 11.5 GlaxoSmithKline Pharmaceuticals 2,406 SELL 203,882 3,273 85 81.4 84.5 97.5 9.7 3.8 15.5 29.5 28.5 24.7 22.6 21.7 18.1 10.2 9.3 8.4 2.1 2.3 2.5 28.5 34.2 36.0 1,820 (24.3) 0.8 Glenmark Pharmaceuticals 510 ADD 138,068 2,216 271 22.7 27.0 33.0 3.7 19.0 22.3 22.5 18.9 15.4 16.3 12.2 10.4 5.0 4.4 3.5 0.4 0.4 0.4 23.8 24.8 25.5 570 11.8 5.0 Lupin 851 ADD 380,218 6,104 447 29.5 36.0 42.9 52.3 21.9 19.1 28.8 23.6 19.8 18.0 15.0 12.2 7.2 5.8 4.7 0.5 0.7 0.9 28.6 27.5 26.4 950 11.7 13.1 Ranbaxy Laboratories 425 REDUCE 179,717 2,885 423 21.8 (16.7) 17.2 217.7 (176.5) 202.8 19.5 (25.5) 24.8 10.5 26.9 16.4 4.4 6.5 4.4 — — — 26.5 (20.7) 21.4 300 (29.4) 31.7 Sun Pharmaceuticals 581 SELL 1,203,025 19,312 2,071 17.6 24.7 25.6 37.5 40.2 3.9 33.0 23.5 22.7 23.2 16.4 15.0 7.2 6.3 4.9 0.4 0.5 0.5 24.3 28.6 24.4 510 (12.2) 18.3 Pharmaceuticals Attractive 3,329,519 53,449 46.4 3.1 29.0 27.6 26.7 20.7 18.3 15.8 13.4 5.7 5.1 4.2 0.7 0.7 0.8 20.8 19.0 20.2 Real Estate DLF 149 ADD 265,181 4,257 1,780 4.3 4.2 9.7 (40.5) (2.7) 132.6 34.7 35.7 15.3 18.8 13.6 10.7 1.0 0.9 0.9 1.3 0.7 0.7 2.7 2.6 5.7 235 57.7 25.3 HDIL 47 NR 19,882 319 419 1.7 11.0 14.3 (91.0) 528.0 30.4 27.1 4.3 3.3 8.6 7.6 6.5 0.2 0.2 0.2 — — — 0.7 4.3 5.4 — — 7.5 Oberoi Realty 192 BUY 62,922 1,010 328 14.5 20.0 25.8 9.2 37.9 29.1 13.2 9.6 7.4 8.9 6.4 4.2 1.5 1.3 1.1 1.0 1.0 1.0 12.1 14.7 16.4 290 51.3 0.5 Prestige Estates Projects 141 BUY 49,263 791 350 8.2 13.1 17.1 224.5 60.9 30.1 17.2 10.7 8.2 11.7 7.5 6.2 1.8 1.6 1.3 — — — 11.7 15.6 17.4 200 42.1 0.8 Sobha Developers 331 BUY 32,464 521 98 22.1 23.2 36.5 5.4 4.7 57.5 15.0 14.3 9.1 8.3 8.3 6.1 1.5 1.4 1.2 2.1 1.5 1.5 10.5 10.2 14.6 500 51.0 0.9 Sunteck Realty 333 BUY 19,984 321 60 0.7 76.5 25.4 29.1 11,307 (66.8) 496.7 4.4 13.1 454.6 3.3 5.9 4.1 2.1 1.9 — 0.6 0.6 0.7 64.3 15.2 560 68.0 0.1

Real Estate Cautious 463,781 7,445 (34.4)India Daily Summary -November 79.7 44.0 24.6 13.7 9.5 14.5 9.3 7.4 0.9 0.9 0.8 1.1 0.7 0.7 3.8 6.3 8.4

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

Coromandel International 216 SELL 61,169 982 283 15.3 15.4 18.4 (32.5) 0.7 20.0 14.2 14.1 11.7 12.7 8.9 7.9 2.8 2.5 2.1 2.1 2.2 2.2 17.8 17.6 18.6 170 (21.3) 0.5 Daily Summary India - November 26,2013 Havells India 756 REDUCE 94,330 1,514 125 33.2 37.8 42.5 5.5 13.8 12.7 22.8 20.0 17.8 14.8 12.4 11.1 6.3 5.1 4.2 1.0 1.0 1.1 33.1 28.2 25.9 700 (7.4) 3.5 Jaiprakash Associates 48 ADD 106,850 1,715 2,219 2.0 3.3 9.0 (32.9) 66.0 176.7 24.6 14.8 5.3 11.3 9.6 6.4 0.9 0.8 0.7 — — — 3.6 5.6 14.4 52 8.0 27.4 MCX India 475 REDUCE 24,093 387 51 58.6 30.2 32.9 (1.5) (48) 9.0 8.1 15.7 14.4 3.1 7.4 6.4 2.1 2.0 1.9 5.1 3.4 3.4 27.7 13.0 13.4 500 5.4 6.9 Rallis India 164 BUY 31,864 512 194 6.1 8.2 10.8 20.0 34 31.9 26.8 20.0 15.2 15.5 11.7 9.3 5.1 4.4 3.6 1.4 1.3 1.3 18.9 23.2 26.1 180 9.9 0.5 Tata Chemicals 281 BUY 71,643 1,150 255 15.7 22.6 32.2 (52.2) 44.0 42.3 17.9 12.4 8.7 6.1 5.5 4.9 1.0 0.9 0.9 3.6 3.6 3.6 5.0 7.2 9.7 300 6.7 1.7 UPL 159 REDUCE 70,485 1,131 443 17.5 19.8 20.8 39.4 13.2 5.0 9.1 8.0 7.7 5.2 4.9 4.4 1.5 1.3 1.1 1.6 1.6 1.6 18.0 17.8 16.2 145 (8.9) 5.1 Others 881,821 14,156 (22.8) 19.0 52.7 27.2 22.8 14.9 12.6 11.2 8.5 2.6 2.4 2.1 1.0 0.9 1.0 9.6 10.5 14.2 KIE universe 54,145,212 869,195 7.3 6.8 17.4 15.4 14.4 12.3 10.1 8.9 7.5 2.3 2.1 1.9 1.8 1.8 2.1 15.0 14.5 15.2 KIE universe ex-energy 46,738,858 750,301 9.5 8.1 18.6 17.0 15.7 13.2 11.5 10.0 8.5 2.7 2.4 2.1 1.7 1.7 1.9 15.7 15.2 16.1 KIE universe ex-energy & ex-commodities 40,891,166 656,427 9.1 10.3 21.1 18.6 16.9 14.0 13.5 11.3 9.5 2.9 2.6 2.3 1.5 1.5 1.8 15.7 15.6 16.7

Notes: (a) For banks we have used adjusted book values. (b) 2012 means calendar year 2011, similarly for 2013 and 2014 for these particular companies. (c) EV/Sales & EV/EBITDA for KS universe excludes Banking Sector.

KOTAK INSTITUTIONAL EQUITIES RESEARCH (d) Rupee-US Dollar exchange rate (Rs/US$)= 62.29 Source: Company, Bloomberg, Kotak Institutional Equities estimates

Disclosures

Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships Percentage of companies covered by Kotak Institutional 70% Equities, within the specified category.

60% Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided 50% investment banking services within the previous 12 months.

40% * The above categories are defined as follows: Buy = We 34.5% 32.7% expect this stock to deliver more than 15% returns over the 30% next 12 months; Add = We expect this stock to deliver 5-15% returns over the next 12 months; Reduce = We 18.8% expect this stock to deliver -5-+5% returns over the next 20% 13.9% 12 months; Sell = We expect this stock to deliver less than - 5% returns over the next 12 months. Our target prices are 10% 6.1% 5.5% also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 0.6% 1.8% 30/09/2013 Kotak Institutional Equities Investment Research 0% had investment ratings on 165 equity securities. BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of September 30, 2013

Ratings and other definitions/identifiers

Definitions of ratings

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

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

23 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Corporate Office Overseas Offices

Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc 27 BKC, Plot No. C-27, “G Block” 8th Floor, Portsoken House 50 Main Street, Ste. 890 Bandra Kurla Complex, Bandra (E) 155-157 Minories Westchester Financial Centre Mumbai 400 051, India London EC3N 1LS White Plains, New York 10606 Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1-914-997-6120

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This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak Mahindra Inc.