DAILY

September 5, 2019 India 4-Sep 1-day 1-mo 3-mo Sensex 36,725 0.4 0.1 (8.4) Nifty 10,845 0.4 (0.2) (9.8) Contents Global/Regional indices Dow Jones 26,355 0.9 2.5 3.2 Special Reports Nasdaq Composite 7,977 1.3 3.2 5.3 Theme Report FTSE 7,311 0.6 1.2 1.3 Banks: Another new interest rate regime begins Nikkei 21,059 2.0 1.6 1.4 Hang Seng 26,614 0.3 1.8 (1.0)  A new interest rate regime that aims at better transmission of interest rates KOSPI 2,010 1.1 3.2 (2.9)  Short-term NIM impact to be negative; dependent on deposit rate Value traded – India movement and growth Cash (NSE+BSE) 327 358 341  Long-term impact needs to be monitored more closely Derivatives (NSE) 15,057 11,439 9,495 Deri. open interest 3,279 3,055 3,139  NBFCs: impact mainly on housing loan players

Daily Alerts Forex/money market Company alerts Change, basis points 4-Sep 1-day 1-mo 3-mo : NDR meeting notes - positive on growth and profitability Rs/US$ 71.9 (9) 73 250

 Key takeaways: extremely confident on growth and margins 10yr govt bond, % 6.8 1 5 (47)

Net investment (US$ mn) Sector alerts 3-Sep MTD CYTD

Automobiles & Components: Revival in monsoon improves prospects for FIIs (438) (438) 6,768

tractor demand MFs 134 134 5,898  Monsoons have a strong correlation with tractor sales Top movers Change, %

Best performers 4-Sep 1-day 1-mo 3-mo

INFO IN Equity 821 0.9 5.7 11.7

NEST IN Equity 12,481 (1.7) 8.2 9.7

DABUR IN Equity 442 (0.2) 2.9 9.0

CLGT IN Equity 1,245 (0.3) 4.3 8.3

APNT IN Equity 1,535 (2.6) 0.6 8.0

Worst performers

RCAPT IN Equity 34 0.6 (29.1) (71.7)

HDIL IN Equity 6 4.2 (43.2) (71.2)

IDEA IN Equity 5 (2.0) (16.7) (63.9)

RELI IN Equity 36 (1.2) (26.0) (63.0)

RCOM IN Equity 1 (6.3) (42.3) (61.5)

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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. ATTRACTIVE Banks India SEPTEMBER 04, 2019 THEME BSE-30: 36,725

Another new interest rate regime begins. RBI has introduced a new circular which requires all banks to introduce external benchmarked loans for housing and SME loans. This would have a greater impact on large private and all public banks and less so on HDFC Bank and IndusInd Bank. The negative impact is somewhat mitigated as the regime is being introduced on a prospective basis. We expect more NIM volatility for large HFCs that may be prompted to increase higher-yield loans, increase short-tenure borrowings or interest rate swaps.

A new interest rate regime that aims at better transmission of interest rates

RBI issued its final circular on linking retail and SME loans to external-benchmark-based lending on a prospective basis with effect from October 1, 2019. Banks can choose from among (1) RBI repo rate, or (2) Government of India 3-month or 6-month Treasury bill yield, or (3) any other benchmark market interest rate published by Financial Benchmarks India Private Ltd (FBIL) as the external benchmark. Existing borrowers can also switch without any pre-payment charges. Amongst private banks and all public banks, the impact would be bigger for ICICI Bank and given the nature of their loan books.

Short-term NIM impact to be negative; dependent on deposit rate movement and growth

In the short term, it would a reasonable assumption to have a negative outlook on NIM as product specific MCLR rates are currently higher than repo-linked instruments. Supporting arguments: (1) Transmission is likely to be even slower as it is applicable prospectively. MCLR, where the transmission was probably the fastest, took ~2 years to fully reflect to its maximum potential in the books of banks. (2) In the near term, the deposit rate/cost of deposits has a larger scope for reduction as compared to repo, negating some of the near-term impact. (3) Tweaks in the product offering through spread/credit risk adjustment by banks. We have seen that the base rate and MCLR eventually had a less-than-initially feared impact on NIMs.

Long-term impact needs to be monitored more closely

We see a few key risks in the long term if the external benchmark achieves its desired objective. Regulators are likely to introduce it to all segments from the smaller current subset. A natural reaction to such changes from a bank would be to manage/reduce volatility in NIM. However, given that deposit rates are yet to move towards external benchmarks and interest rate swap M B Mahesh, CFA market is quite shallow, we need to watch for the following (1) to see if the actual product ends up having a higher through-the-cycle interest rates than before as discussions on interest rate pass-through tend to gather steam during an economic slowdown, (2) increased Nischint Chawathe preference towards building more short tenor deposits, (3) ability of borrowers of recent vintages to adjust to a sharp rise in interest rates as we have seen in 2005-08, 2011-12,

(4) increase the share of fixed rate loan offering, though borrowers may not be comfortable. Dipanjan Ghosh

NBFCs: impact mainly on housing loan players

We see the impact mainly on housing finance companies (HFCs) such as HDFC Ltd, LICHF and Shrey Singh PNBHF as the other segments such as auto, consumer durables and even MFI are primarily fixed rate products. We expect higher NIM volatility for HFCs, after banks migrate their retail floating Venkat Madasu rate loans to external benchmarks as HFCs compete with banks closely. HFCs may be prompted, over time, to raise more short-term borrowing (or increase interest rate swaps), increase developer loans or expand in segments with lesser competition from banks.

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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

New retail and MSE loans to be linked to external benchmarks

RBI has released a circular on external-benchmark-based lending. According to the circular, all new floating rate personal or retail loans (housing, auto loans etc.) and floating rate loans to Micro and Small Enterprises extended by banks shall be linked to external benchmarks with effect from October 1, 2019. This would applicable to all scheduled commercial banks (ex RRBs), SFBs and local area banks. Here are the key points:

 External benchmark. Banks can choose from among (1) RBI repo rate, (2) Government of India 3-months or 6-months Treasury Bill yield, or (3) any other benchmark market interest rate published by Financial Benchmarks India Private Ltd (FBIL) as the external benchmark. However, the benchmark has to be uniform for all loans under a particular loan product offered by the bank. The interest rate on the loan shall be reset at least once in three months.

 Spread. Banks are free to decide the spread over the benchmark and it can only be changed when borrower’s credit assessment undergoes a substantial change, as agreed upon in the loan contract. Other components of the spread like operating cost can be altered once in three years. There shall be no lending below the benchmark rate for a particular maturity for all loans linked to that benchmark.

 Existing floating rate loans linked to internal benchmarks (MCLR/Base rate/BPLR) shall continue till repayment/renewal although existing borrowers can switch to an external benchmark provided they are eligible to prepay without any pre-payment charges, without any charges/fees except ‘reasonable administrative and legal costs’. The final rate charged to this category of borrowers, post switchover, shall be same as the rate charged for a new loan of the same category, type, tenor and amount and time of origination of the loan. Other existing borrowers can also switch to external benchmarks on mutually acceptable terms.

NBFCs: Higher volatility in HFC NIMs

We expect higher NIM volatility for HFCs, after banks migrate retail floating rate loans to external benchmarks. Large HFCs like HDFC, LICHF and PNBHF compete with banks closely in their retail home loan segment and will need to catch up with their banking peers on any movement in home loan rates. HFCs, may be prompted, over time, to raise more short-term borrowings (or increase interest rate swaps), increase developer loans or expand in segments with lesser competition from banks.

 Various tools to manage interest rate risk. HFCs have managed interest rate volatility in various ways: raising the floating rate (1 year MCLR-linked) bank loans, swapping fixed rate NCDs to MIBOR-linked rates, increasing/decreasing share of CPs and selling down loans to banks (fully passing on prepayment and interest rate risk).

 Developer loans have absorbed NIM pressure in retail loans; these may rise over time. Better negotiating power in the wholesale lending segment also helps HFCs to absorb any sharp rise in funding costs or NIM pressure in the retail business. For example: HFCs raised lending rates in the wholesale lending segment by 150-200 bps in 2HFY19, significantly reducing the impact of the increase in cost of funds in 3QFY19. HFCs may be prompted to increase the share of developer loans to absorb volatility in the retail segment, after the current challenges in the market settle down. The negotiating power of HDFC and other select large lenders in the developer lending space has increased considerably with most of its non-bank peers facing severe funding challenges. This will provide some lever for the companies to offset any sharp fall in home loan rates.

 ALM risk and/or IRS. HFCs may be prompted, over time, to increase the share of short- term borrowings/CPs to manage interest rate risk in the new scenario; this will increase ALM risk even as the recent LCR framework proposed for NBFCs will improve balance sheet liquidity. In order to manage liquidity and interest rate risk, HDFC has, in the past, swapped fixed rate NCDs to MIBOR-linked payouts. We expect more such interest rate swaps; this will however increase swap costs and basis risks for HFCs.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Banks

Exhibit 1: Most public sector banks have already launched repo-linked asset products Repo linked asset products launched so far

Bank Repo linked asset products Allahabad Bank Repo linked housing loan and Mudra loan Repo linked home loan Repo linked home loan Repo linked home loan Central Bank Repo linked home loan and vehicle loan Corporation Bank Repo linked home loan IDBI Bank Repo linked home loan and auto loan Repo linked home loan and vehicle loan OBC Repo linked home loan PNB Repo linked home loan and car loan SBI Repo linked home loan Union Bank Repo linked home and vehicle loan United Bank Repo linked home and auto loan

Source: Kotak Institutional Equities

Exhibit 2: Spreads between hypothetical lending yields and base rates have declined SBI’s base rate, MCLR and calculated spreads, March fiscal year-ends, 1HFY11-FY2019 (%)

Repo (LHS) SBI base rate (LHS) SBI MCLR (LHS) Repo+2.25 (LHS) Spread 1 (RHS) Spread 2 (RHS) 11.0 2.0

9.8 1.2

8.6 0.4

7.4 -0.4

6.2 -1.2

5.0 -2.0 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Notes: (1) Spread 1 is calculated as Repo + 2.85 – base rate. (2) Spread 2 is calculated as Repo + 2.85 – MCLR rate.

Source: RBI, Public documents, Company, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Exhibit 3: In recent months, lending rates continued to inch up despite declining policy rates Repo, Base rate and MCLR for SBI, March fiscal year-ends, 2011-2019 (%)

Repo (LHS) SBI base rate (LHS) SBI MCLR (RHS)

11.0 11.0

9.8 9.8

8.6 8.6

7.4 7.4

6.2 6.2

5.0 5.0 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18

Source: RBI, Public documents, Company, Kotak Institutional Equities

Exhibit 4: Translation of repo movement to SBI lending rate has come with a lag Change in SBI lending rate versus repo rate, March fiscal year-ends, 2011-2019 (%)

Repo (month end) SBI lending rate Spread (RHS) 11.0 3.0

9.8 2.4

8.6 1.8

7.4 1.2

6.2 0.6

5.0 0.0 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Notes: (1) Base rate has been considered for SBI till March 2016 post which 1 year MCLR has been taken

Source: RBI, Public documents, Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 India Banks

Exhibit 5: Private banks have a higher share of retail and SME loans Loan mix for select public and private sector banks, March fiscal year-ends,1QFY18-1QFY20

2011 2012 2013 2014 2015 2016 2017 2018 2019 1QFY20 PSU banks Bank of Baroda Domestic 74 70 68 69 68 69 72 77 79 84 Retail loans 14 12 12 12 12 13 15 19 22 18 Home loans 5 5 5 5 5 7 8 10 12 13 SME 12 12 14 14 14 14 14 13 12 14 Farm credit 11 10 9 7 9 9 12 11 12 13 Corporates 37 36 34 36 33 33 32 33 33 39 Foreign 26 30 32 31 32 31 28 23 21 16 Total 100 100 100 100 100 100 100 100 100 100 Retail + SME 26 24 25 26 27 27 29 33 34 32 SBI Domestic 86 84 84 82 82 82 85 85 87 86 Retail loans 22 21 20 19 21 22 25 27 28 30 Housing 12 12 11 12 12 13 14 15 17 18 Auto 2 2 2 2 2 3 3 3 3 3 Others 8 7 6 6 6 6 7 8 8 8 Agriculture 13 10 10 10 9 8 10 9 9 9 Large corporate+mid corporate+SME 51 54 54 53 52 52 51 49 50 48 Mid corporate 21 20 19 19 17 16 16 16 15 14 SME 16 19 18 15 14 14 14 13 13 13 Large corporate 14 14 17 20 22 22 20 20 22 21 Foreign 14 16 16 18 18 18 15 15 13 14 Total 100 100 100 100 100 100 100 100 100 100 Retail + SME 38 40 37 34 35 36 38 40 41 42 New private banks Axis bank Retail loans 22 25 30 38 40 41 45 47 50 52 Housing loans 15 18 21 22 22 22 23 23 23 24 Auto 2 3 4 4 3 4 5 5 5 6 Personal loans and credit card 3 1 2 2 4 4 4 5 6 6 Consumer durables/ retail agriculture - - - 6 6 7 7 7 7 7 Others 2 1 2 4 5 4 6 8 8 9 Non retail-loans 78 75 70 62 60 59 55 53 50 48 SME 17 16 16 17 15 13 13 13 13 12 Corporate 61 60 54 44 45 46 42 40 37 36 Total 100 100 100 100 100 100 100 100 100 100 Retail + SME 39 40 46 56 55 54 58 60 63 64 HDFC bank Retail loans 50 55 57 49 47 48 51 55 53 53 Housing 7 7 7 6 7 7 7 6 6 7 Car loans 14 14 13 11 11 11 11 12 10 10 Loan against securities 1 1 1 0 0 0 0 0 0 0 Personal loan 6 7 7 7 7 8 9 11 11 12 2W 1 1 1 1 1 1 1 1 1 1 Credit card 3 4 4 4 4 4 5 5 6 6 CV 5 7 7 5 3 3 3 4 4 4 Business banking 9 10 10 8 5 5 7 8 7 7 Others 3 5 7 7 8 8 8 8 8 7 Non-retail loans 50 45 43 51 53 52 49 45 47 47 Total 100 100 100 100 100 100 100 100 100 100 Retail + SME 50 55 57 49 47 48 51 55 53 53 ICICI bank Retail loans 43 38 37 39 43 47 52 57 60 61 Housing 28 19 20 21 23 25 28 29 30 31 Auto 4 3 4 5 5 5 5 6 5 5 Personal loans 1 0 1 1 2 2 3 3 5 6 Credit card 1 1 1 1 1 1 2 2 2 2 CV 8 7 5 4 3 3 3 3 4 4 Others 1 7 6 7 9 10 11 13 13 13 Non-retail loans 57 62 63 61 58 53 48 43 40 39 Domestic corporates 24 29 33 30 29 27 27 26 24 24 SME 5 6 5 4 4 4 5 5 5 5 International lending 28 27 25 27 24 22 16 13 11 10 Total 100 100 100 100 100 100 100 100 100 100 Retail + SME 48 44 42 43 47 51 57 62 65 66

Source: Companies, Kotak Institutional Equities

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Infosys (INFO) IT Services SEPTEMBER 04, 2019 UPDATE Coverage view: Cautious

NDR meeting notes—positive on growth and profitability. Infosys management Price (`): 821 was extremely confident on growth and margin outlook. Confidence on growth Fair Value (`): 850 emanates from large deal ramp-up and improved positioning in clients/verticals thanks BSE-30: 36,725 to accelerated investments in FY2019. Efficiency drive will lead to margin in 21-23% band without baking in the recent INR depreciation. Attrition at the senior management level is under control. We bake in revised currency rates of KIE economist resulting in 2-4% increase in FY2020-22 EPS. Fair value increases to Rs850 from Rs775 earlier.

Company data and valuation summary Infosys Stock data Forecasts/Valuations 2019 2020E 2021E 52-week range (Rs) (high,low) 822-597 EPS (Rs) 35.4 38.2 42.3 Market Cap. (Rs bn) 3,585.3 EPS growth (%) 9.5 7.9 10.8 Shareholding pattern (%) P/E (X) 23.2 21.5 19.4 Promoters 13.0 Sales (Rs bn) 826.8 915.9 1,021.5 FIIs 50.8 Net profits (Rs bn) 157.3 163.0 180.2 MFs 13.2 EBITDA (Rs bn) 208.9 227.7 255.9 Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.2 15.1 13.3 Absolute 5.9 11.7 12.0 ROE (%) 24.2 25.6 27.8 Rel. to BSE-30 7.0 21.9 16.4 Div. Yield (%) 3.7 2.7 3.2

Key takeaways: extremely confident on growth and margins

We hosted Infosys management for investor meetings recently. Infosys was represented by— (1) Nilanjan Roy, CFO, (2) Jayesh Sanghrajka, Deputy CFO and (3) Sandeep Mahindroo, Financial Controller and Head of Investor Relations. Key highlights from the meetings –

 Extremely confident on growth outlook. Infosys’ confidence on growth emanates from continued momentum of large deals, improved positioning in various clients and verticals thanks to accelerated investments made in FY2019 and broad demand strength across many key verticals. There are a few pockets of known weakness, viz. capital market segment in the US and manufacturing and auto in Europe. Overall, confidence is high on achieving 8.5-10% c/c revenue growth guidance for FY2020E.

 Comfortable with 21-23% EBIT margin without baking in recent INR depreciation. Infosys is fairly comfortable with the 21-23% EBIT margin band. Infosys indicated that investments in localization in US and sales & marketing are complete. Infosys augmented sales force capacity by almost 25% in FY2019 and added resources of different profiles for large deals, hunting and farming teams and geographies. It has now reached desired level of team count. Emphasis is high on cost optimization. The company has hired senior-level resource to drive this in a structured way. Some of the areas that fall under the ambit of new hire include close track of project profitability, COLA pricing adjustment, pricing of digital competencies, onsite:offshore mix, among others. Infosys believes that utilization ex-trainees has scope for increase from the current 83%. Onsite pyramid management in the US will aid margins. In short, confidence is high on keeping margin in the 21-23% band without any Kawaljeet Saluja benefit of recent depreciation of the INR against USD.

 Growth vs margin debate. A possible fear is that Infosys may be sacrificing growth in Sathishkumar S pursuit of margin expansion over the next three quarters. Management indicated that margin expansion is driven by efficiency drive and leveraging investments made in FY2019. Prioritization on margin may appear a bit high in FY2020E but that could be seemingly on account of the fact that it has growth outlook covered through strong deal wins through the course of the year. The focus of the company is straightforward, i.e. profitable growth.

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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. IT Services Infosys

 Attrition under control at the senior level. Attrition has reduced at the senior management level. The company has lost only 6-7 senior management personnel, defined as SVPs or above, in the past 18-24 months out of a total number of 80-90. Attrition is high in the 0-4 year experience band. The company loses talent to captives that typically pay 30% more. Infosys has put in place various measures to bring attrition across the broader organization under control such as increase in employee lifecycle value through training and reskilling in addition to the usual monetary factors. A perceived lack of onsite opportunities is being addressed through higher H-1B applications.

 M&A is an area of focus. Infosys has moved away from its past reluctance on M&A and JVs. Infosys acquired three companies that provided access to platforms and digital competition and a couple of joint ventures. Recent acquisitions have been successful in plugging gaps in the portfolio. Expect continuation of the same in the future.

 Capital allocation. Infosys increased payout ratio to 85% of FCF cumulatively over a block of five years starting FY2020E through a combination of dividend, special dividend and buybacks. This is an increase from 70% of FCF that was returned annually. Endeavor to become capital light is evident from evaluation of lease decisions for campuses from build-focus of the past.

INR depreciation drives 2-4% EPS increase; fair value Rs850 from Rs775. ADD retained

We bake in KIE economist’s revised USD/INR rate to 71, 72.5 and 74 for FY2020E, FY2021E and FY2022E from 69, 71 and 72 earlier. We also bake in cross-currency headwind from recent strengthening of the USD against other currencies. The combined impact is 2-4% increase in FY2020-22E EPS. Our fair value increases to Rs850 largely on the back of EPS revision and rollover of FV by three months. We value the stock at ~18% September 2021E EPS. We retain our constructive view on the stock.

Exhibit 1: Key changes to estimates, March fiscal year-ends, 2020-22E (Rs mn)

New Old Change (%) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2021E Revenues 915,927 1,021,461 1,129,761 897,965 1,006,265 1,105,795 2.0 1.5 2.2 EBITDA 227,741 255,877 282,563 221,272 251,345 273,266 2.9 1.8 3.4 Depreciation (27,366) (28,504) (28,936) (27,366) (28,503) (28,367) — 0.0 2.0 EBIT 200,376 227,372 253,626 193,906 222,842 244,900 3.3 2.0 3.6 Net Profit 163,049 180,215 200,319 158,320 176,677 193,485 3.0 2.0 3.5 EPS (Rs/ share) 38.2 42.3 47.0 37.1 41.5 45.4 3.0 2.0 3.6

Revenues (US$ mn) 12,889 14,089 15,267 12,947 14,173 15,358 (0.4) (0.6) (0.6) Revenue growth (%) 9.2 9.3 8.4 9.7 9.5 8.4 Billing Rates (US$/ manmonth) Onsite 12,344 12,479 12,494 12,405 12,561 12,576 (0.5) (0.6) (0.6) Offshore 4,002 4,046 4,051 4,022 4,072 4,077 (0.5) (0.6) (0.6) Margins (%) EBITDA 24.9 25.1 25.0 24.6 25.0 24.7 EBIT 21.9 22.3 22.4 21.6 22.1 22.1 Rs/ US$ rate 71.1 72.5 74.0 69.4 71.0 72.0 2.5 2.1 2.8

Source: Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Infosys IT Services

Exhibit 2: Condensed consolidated financials for Infosys, March fiscal year-ends, 2015-22E (Rs mn)

2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model Revenues 533,190 624,410 684,850 705,220 826,760 915,927 1,021,461 1,129,761 EBITDA 149,010 170,780 186,050 190,100 208,890 227,741 255,877 282,563 Depreciation (10,690) (14,590) (17,030) (18,620) (20,100) (27,366) (28,504) (28,936) Other income 34,270 31,250 30,790 31,930 26,130 24,222 23,660 25,232 Pretax profits 172,591 187,441 199,811 203,411 214,921 224,599 251,034 278,859 Tax (49,290) (52,520) (55,980) (56,740) (57,648) (59,909) (69,218) (76,939) Profit after tax 123,301 134,921 143,831 146,671 157,273 164,690 181,816 201,920 Diluted earnings per share (Rs) 27.0 29.5 31.4 32.3 35.4 38.2 42.3 47.0 Balance sheet Total equity 507,360 578,260 689,820 649,230 649,480 625,072 671,797 718,089 Assets held for sale — — — 3,240 — — — — Minority interest — — — 10 580 620 620 620 Current liabilities 155,530 173,150 141,660 141,010 190,600 240,169 249,721 259,523 Total liabilities and equity 662,890 751,410 831,480 793,490 840,660 865,861 922,138 978,232 Cash 303,670 326,970 226,250 198,180 195,680 157,544 182,701 205,727 Other current assets 209,940 258,790 276,940 299,660 349,500 373,050 404,749 437,272 Deferred taxation 5,360 5,330 3,330 7,410 7,000 7,000 7,000 7,000 Goodwill 35,950 44,760 36,520 22,110 35,400 40,510 40,510 40,510 Tangible fixed assets 85,270 96,640 124,920 144,500 140,470 175,146 174,568 175,113 Investments 22,700 18,920 163,520 121,630 112,610 112,610 112,610 112,610 Total assets 662,890 751,410 831,480 793,490 840,660 865,861 922,138 978,232 Free cash flow Operating cash flow, excl. working capital 91,610 120,090 126,080 124,854 139,960 167,503 186,659 205,624 Working capital changes (8,420) (21,460) (16,240) (1,114) (5,121) (11,271) (22,147) (22,721) Capital expenditure (22,550) (27,230) (27,600) (19,980) (24,450) (24,422) (27,926) (29,482) Acquistions (13,760) (7,470) — (600) (7,560) (5,110) — — Other income 25,510 23,810 29,570 31,930 19,170 24,222 23,660 25,232 Free cash flow 72,390 87,740 111,810 135,090 121,999 150,922 160,247 178,652 Key ratios and assumptions Revenue growth (US$ terms) (%) 5.6 9.1 7.4 7.2 7.9 9.2 9.3 8.4 Re/US$ rate 61.2 65.7 67.1 64.5 70.1 71.1 72.5 74.0 EBITDA margin (%) 27.9 27.4 27.2 27.0 25.3 24.9 25.1 25.0 EBIT margin (%) 25.9 25.0 24.7 24.3 22.8 21.9 22.3 22.4 RoAE 25.9 24.9 22.7 21.9 24.2 25.6 27.8 28.8 RoIC 58.7 54.4 45.7 39.3 41.2 42.1 44.9 47.2

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 NEUTRAL Automobiles & Components India SEPTEMBER 04, 2019 UPDATE BSE-30: 36,725

Revival in monsoon improves prospects for tractor demand. We analyzed the impact on tractor sales due to factors such as monsoons, food prices, construction demand and increase in credit availability to the tractor segment. We found that tractor sales have a high correlation with monsoons and credit availability (90% of tractor sales are financed), while the impact of food prices on tractor sales has been limited in the past six years. Monsoons were delayed in 2019 but have picked up, which is likely to boost rabi crop prospects but credit availability is still relatively tight in the tractor segment as compared to 2017-19. The tractor industry could grow by single digit yoy in 2HFY20.

Monsoons have a strong correlation with tractor sales

We analyzed state-wise tractor growth over the past six years and the impact of monsoons in these states on tractor sales. Overall correlation of monsoon with tractor sales is quite high (~60%); however, states that have high irrigation intensity (percentage of irrigated area across all crops in the state) have shown lower correlation to monsoon with tractor sales. During 2013-16, tractor volumes were directly correlated with progress of monsoons but this correlation broke in the FY2017-19 period. Despite weak monsoons during FY2017-19, tractor volumes grew at a strong pace due to expansion in credit by NBFCs and banks. Construction demand was also quite buoyant in the past three years, which also boosted demand for tractors as farmers got additional income by renting out tractors for construction activities when tractors were not being used for farming. The real wages in rural areas have been weak in the past few years as crop prices have been stagnant but the farm labor shortage issue still persists, which is driving mechanization of farms.

Some states such as UP and Bihar where the monsoons have been very weak for the past six years have shown a strong growth in tractor sales due to increase in penetration levels and credit availability. Punjab and Haryana have a very high share of irrigation intensity and are less dependent on rainfall. These two states have very high penetration of tractors and hence growth rates are low. States such as Maharashtra (least irrigation intensity among major states in India), Odisha, Karnataka, Rajasthan, MP and Tamil Nadu have shown a very high correlation of tractor sales to monsoons.

Hence, to conclude, we believe tractor industry growth prospects are driven by three main factors – (1) farm labor shortage (structural factor in India), (2) progress of monsoons and (3) increase in credit penetration in the tractor segment. Construction demand and crop prices are also factors that can drive tractor demand but these factors have been less important than the above three factors in the past six years. Monsoons had been delayed in CY2019 but caught up in late July and August period, which led to delay in sowing of crops but could boost rabi crop production in 2HFY20. Credit has been tightened a bit by banks and NBFCs due to a slowdown in the economy, hence we expect the tractor industry to grow in mid-single digit in 2HFY20. The tractor industry is unlikely to get impacted by any regulation in the medium term except for Hitesh Goel TREM 4 norms being implemented for >50 HP tractors, which are likely to get implemented by October 2020 but >50 HP tractors form a very small portion of the industry (7%).

Rishi Vora

[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. Automobiles & Components India

Exhibit 1: Domestic tractor industry prospects are correlated with monsoons Relation between domestic tractor volume growth and rainfall, March fiscal year-ends, 2013-19 (%)

2013 2014 2015 2016 2017 2018 2019 Domestic tractor volumes yoy growth (%) Uttar Pradesh 2.3 13.2 (3.6) (22.8) 20.2 33.9 15.0 Madhya Pradesh 39.9 24.1 (27.4) (24.3) 30.2 16.1 15.7 Andhra Pradesh + Telengana (26.6) 43.5 (16.2) 16.8 52.3 16.9 3.8 Rajasthan 19.0 18.4 (13.8) (5.2) (1.6) 7.5 0.3 Maharashtra (22.4) 47.8 (24.1) (15.7) 24.8 39.8 (18.4) Bihar 19.5 16.0 (10.8) (1.9) 7.6 13.3 31.2 Gujarat (23.8) 8.3 (0.7) (15.1) 19.5 3.5 7.5 Karnataka (24.7) 28.9 10.3 (3.2) 4.6 7.1 10.5 Haryana 7.0 26.6 (13.2) (25.9) 13.8 41.7 9.5 West Bengal 4.6 7.9 (7.3) 1.3 36.7 22.3 20.9 Tamil Nadu (29.5) (46.7) (18.3) 81.2 20.6 52.9 (2.9) Chhattisgarh 19.0 53.6 (17.6) (15.7) 6.4 8.4 12.3 Orissa (0.5) 31.7 (10.3) 16.4 19.0 36.6 1.1 Punjab 8.7 6.8 (13.6) (31.6) (6.0) 23.4 (1.6) Total (1.5) 20.4 (13.0) (11.5) 18.3 22.1 7.1 Rainfall deviation (%) Uttar Pradesh (23.0) 3.0 (36.0) (38.0) (17.0) (32.0) (22.0) Madhya Pradesh — 38.0 (15.0) (5.0) 15.0 (24.0) (8.0) Andhra Pradesh + Telengana 6.0 16.0 (21.0) (7.5) (2.0) (14.0) (1.0) Rajasthan 5.0 26.0 2.0 17.0 24.0 6.0 (5.0) Maharashtra (14.0) 22.0 (13.0) (24.0) 11.0 (2.0) (12.0) Bihar (21.0) (30.0) (17.0) (27.0) (3.0) (9.0) (25.0) Gujarat (34.0) 45.0 (13.0) (16.0) (15.0) 15.0 4.0 Karnataka (17.0) 8.0 8.0 (11.0) (26.0) (3.0) (10.0) Haryana (45.0) (18.0) (46.0) (23.0) (29.0) (25.0) (5.0) West Bengal (13.0) 8.0 (17.0) (4.0) (5.0) 2.0 (18.0) Tamil Nadu (22.0) (19.0) — 32.0 (41.0) 6.0 (8.0) Chhattisgarh 6.0 10.0 5.0 (12.0) 1.0 (13.0) (4.0) Orissa (2.0) 12.0 5.0 (17.0) (14.0) (8.0) 12.0 Punjab (47.0) (8.0) (40.0) (19.0) (30.0) (22.0) (1.0) Total (11.0) 5.0 (12.0) (9.0) (9.0) (5.0) (9.0)

Source: Company, Kotak Institutional Equities

Exhibit 2: Maharashtra has the least irrigated area across India, making it highly dependent on monsoon rains Total irrigated areas under all crops, correlation between tractor sales with monsoon, March fiscal year-ends, 2013-19 (%)

Total irrigated area Correlation of tractor Rainfall deviation in FY2020 till State under all crops (%) sales with monsoon (%) end of August 2019 (%) 2HFY20 sales trend forecast Punjab 98.7 0.01 (4.0) Neutral Haryana 89.1 0.27 (35.0) Neutral Uttar Pradesh 80.2 0.39 (20.0) Slightly negative Bihar 68.7 (0.20) (19.0) Slightly negative West Bengal 58.8 0.21 (24.0) Negative Tamil Nadu 56.5 0.63 (1.0) Neutral Andhra Pradesh + Telengana 48.5 0.33 (2.0) Neutral Gujarat 47.1 0.53 18.0 Positive Madhya Pradesh 43.3 0.42 19.0 Positive Rajasthan 42.0 0.23 35.0 Positive Karnataka 34.2 0.63 19.0 Positive Chhattisgarh 31.2 0.52 (2.0) Neutral Orissa 28.7 (0.27) (4.0) Neutral Maharashtra 18.2 0.86 21.0 Positive All India 48.6 0.6 0.1 Neutral to positive

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 India Automobiles & Components

Exhibit 3: Escorts construction equipment volume has seen a robust growth over the past three years Escorts construction equipment volume, March fiscal year-ends, 2015-19 (units, %)

2015 2016 2017 2018 2019 Escorts construction equipment volumes Volumes 3,007 2,555 3,315 4,486 5,544 Yoy growth (%) Growth (15.0) 29.7 35.3 23.6

Source: Company, Kotak Institutional Equities

Exhibit 4: Market prices of major farm produce have remained stagnant over the past few years Average mandi price of key cereals and pulses in India, March fiscal year-ends, 2013-19 (`/100 kg)

Arhar Masoor (Lentil) Moong Rice Wheat 8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0 2013 2014 2015 2016 2017 2018 2019

Source: CMIE, Kotak Institutional Equities

Exhibit 5: Vegetables prices declined yoy in 2019 Average mandi price of key vegetables in India, March fiscal year-ends, 2013-19 (`/100 kg)

Brinjal Cabbage Cauliflower Onions Potatoes Tomatoes 2,500

2,000

1,500

1,000

500

0 2013 2014 2015 2016 2017 2018 2019

Source: CMIE, Kotak Institutional Equities

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Automobiles & Components India

Exhibit 6: Production of important crops have increased over the past few years Production of important crops, March fiscal year-ends, 2013-19 (mn tons)

2013 2014 2015 2016 2017 2018 2019 Food grains 257 265 252 252 275 285 281 Rice 105 107 105 104 110 113 116 Wheat 94 96 87 92 99 100 99 Coarse cereals 40 43 43 39 44 47 43 Jowar 5 6 5 4 5 5 4 Bajra 9 9 9 8 10 9 7 Maize 22 24 24 23 26 29 28 Pulses 18 19 17 16 23 25 24 Oilseeds 31 33 28 25 31 31 32 Soyabeans 15 12 10 9 13 11 14 Groundnuts 5 10 7 7 7 9 7 Rapeseend & mustard 8 8 6 7 8 8 8 Cotton (mn bales) 34 36 35 30 33 35 30 Sugar cane 341 352 362 348 306 377 381 Fruits 84 92 90 90 93 97 97 Vegetables 160 160 167 169 178 184 187 Milk 132 138 146 155 165 176 188

Source: Ministry of Agriculture, Kotak Institutional Equities

Exhibit 7: Real wage growth has been subdued over the past few years Real rural wage growth, March fiscal year-ends, 2014-20 (%)

Real rural wages growth 6 5 4 3 2 1 0 (1) (2) (3) Jul-15 Jul-16 Jul-17 Jul-18 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Sep-15 Sep-16 Sep-17 Sep-18 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 May-15 May-16 May-17 May-18 May-19

Source: CEIC, Kotak Institutional Equities

Exhibit 8: Tractor disbursements have grown at a robust pace over the past three years M&M Financial Services gross disbursements for tractors, March fiscal year-ends, 2013-19 (` mn, %)

2013 2014 2015 2016 2017 2018 2019 M&M Financial Services gross disbursements (Rs mn) Tractor loans 45,241 50,800 43,795 40,059 60,152 67,991 83,179 Yoy change (%) 12.3 12.3 (13.8) (8.5) 50.2 13.0 22.3

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 India Automobiles & Components

Exhibit 9: M&M is well-positioned to gain in 2HFY20 as it has higher market share in western and southern region (above-normal rainfall) M&M state-wise market share, March fiscal-year ends, 2011-19 (%)

2011 2012 2013 2014 2015 2016 2017 2018 2019 Andhra Pradesh + Telangana 52.4 48.7 47.0 47.2 46.8 48.4 47.9 48.8 46.5 Bihar 46.6 42.3 41.7 43.8 45.2 45.5 47.6 45.6 46.1 Chattisgarh 48.7 45.8 45.7 46.6 46.0 45.6 48.7 45.6 45.0 Gujarat 42.2 44.3 43.8 43.0 44.6 43.4 43.4 39.4 41.2 Haryana 25.6 27.8 30.5 33.4 33.9 35.3 34.5 30.2 28.6 Karnataka 45.6 43.9 45.9 49.1 45.6 47.5 49.2 46.8 42.7 Madhya Pradesh 36.3 37.0 37.3 36.7 34.5 32.6 35.9 34.5 32.9 Maharashtra 50.9 50.1 47.4 47.3 45.6 45.3 47.1 44.6 43.5 Orissa 49.5 52.1 51.1 52.0 51.3 49.9 51.9 47.8 40.2 Punjab 36.2 39.9 37.3 40.4 37.5 39.5 41.7 40.5 42.9 Rajasthan 26.1 27.8 29.5 29.6 28.5 28.6 30.1 30.6 30.3 Tamil Nadu 52.0 55.2 54.0 51.3 53.5 51.0 50.1 47.6 44.8 Uttar Pradesh 38.6 37.9 37.7 37.2 37.5 39.1 39.9 39.7 37.2 West Bengal 53.2 56.0 55.6 54.1 50.7 51.4 51.8 51.9 50.9 Others 45.1 44.4 48.3 48.7 47.4 49.4 49.9 48.2 48.2 Total 42.2 41.8 40.6 41.0 40.3 41.3 42.8 41.6 40.2

Source: Company, Kotak Institutional Equities

Exhibit 10: Escorts is well-positioned to grow in MP & Rajasthan region (above-normal rainfall) Escorts state-wise market share, March fiscal year-ends, 2011-19 (%)

2011 2012 2013 2014 2015 2016 2017 2018 2019 Andhra Pradesh + Telangana 3.8 3.4 4.6 3.7 4.6 5.0 4.9 4.4 3.8 Bihar 15.9 15.7 16.0 14.8 13.8 15.3 15.2 15.7 16.0 Chattisgarh 7.5 6.2 6.3 6.4 7.1 7.1 7.9 8.3 8.6 Gujarat 8.9 6.6 5.6 5.0 5.2 6.2 7.1 8.1 9.2 Haryana 25.1 21.0 19.1 17.5 16.6 18.4 18.5 19.4 20.8 Karnataka 5.1 5.8 5.0 3.1 3.5 3.1 2.9 2.6 3.6 Madhya Pradesh 17.2 15.4 13.7 13.2 12.6 13.4 14.4 14.5 16.2 Maharashtra 8.3 5.6 6.0 4.8 3.3 3.4 3.5 4.7 5.5 Orissa 3.8 2.6 2.0 1.2 1.5 1.8 2.8 4.6 6.3 Punjab 16.8 12.3 13.5 12.0 13.5 12.6 13.0 9.9 7.1 Rajasthan 17.0 16.2 15.3 14.6 13.9 13.4 14.8 14.7 15.4 Tamil Nadu 7.5 5.7 3.5 4.1 4.0 3.0 3.8 2.9 5.7 Uttar Pradesh 20.9 18.4 17.4 17.4 16.4 17.4 18.6 17.2 17.6 West Bengal 13.6 10.3 9.0 8.3 10.6 10.1 11.5 9.3 8.9 Others 11.8 10.3 9.5 7.9 8.6 7.1 8.4 10.9 13.5 Total 13.2 11.4 11.6 10.7 10.4 10.3 10.8 10.7 11.8

Source: Company, Kotak Institutional Equities

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks 15 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 4-Sep-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Automobiles & Components Amara Raja Batteries ADD 622 630 1 106 1.5 171 28 33 37 2.6 16.7 10.8 22 18.8 17.0 11.2 9.4 8.4 3.2 2.8 2.6 15.4 16.0 15.8 1.1 1.3 1.5 6.1 BUY 176 190 8 101 1.4 572 14.3 13.3 15.7 7.0 (7.3) 17.9 12.3 13.2 11.2 7.5 7.2 6.2 1.0 0.9 0.9 8.3 7.4 8.2 1.7 1.7 1.7 9.3 BUY 63 120 92 184 2.5 2,936 7.0 6.5 5.4 16.5 (6.4) (17.2) 9.0 9.6 11.6 5.5 5.9 6.8 2.2 1.9 1.7 26 21 15.7 4.9 3.1 2.6 29 REDUCE 2,736 2,500 (9) 792 11 289 153 151 162 8.4 (1.3) 7.3 17.8 18.1 16.8 11.9 12.4 11.1 3.6 3.3 3.0 23 19.1 18.6 2.2 2.2 2.4 19.8 BUY 721 820 14 139 1.9 193 40 37 44 6.0 (6.2) 18.6 18.2 19.4 16.3 9.7 10.3 8.5 3.0 2.7 2.4 17.5 14.6 15.6 1.0 1.2 1.3 6.2 SELL 382 365 (5) 178 2.5 466 22 19 20 37.0 (12.4) 3.8 17.2 19.7 18.9 10.3 10.8 10.2 3.3 3.0 2.7 21 15.9 15.0 0.7 1.4 1.6 8.3 CEAT ADD 895 900 1 36 0.5 40 62 70 72 (5.0) 14.4 2.7 14.5 12.7 12.4 7.8 7.8 7.1 1.3 1.2 1.1 9.3 9.9 9.4 1.3 1.3 1.3 4.8 SELL 15,642 14,000 (10) 427 5.9 27 816 755 757 1.9 (7.5) 0.4 19.2 20.7 20.7 12.8 13.3 13.0 6.0 4.9 4.2 36 26 22 0.2 0.2 — 34 Endurance Technologies REDUCE 910 800 (12) 128 1.8 141 36 43 48 24.4 17.6 12.1 25 21.4 19.1 11.3 9.5 8.3 5.0 4.2 3.5 19.3 19.6 18.5 0.6 0.8 0.9 1.0 Escorts BUY 459 910 98 41 0.8 89 54 49 61 40.3 (10.4) 24.4 8.4 9.4 7.6 5.6 6.1 4.4 1.3 1.2 1.1 16.0 12.8 14.1 0.5 1.6 2.0 18.3 SELL 173 180 4 147 2.0 850 9.0 10.1 11.0 10.1 11.8 9.1 19.2 17.1 15.7 10.4 9.0 8.2 2.5 2.3 2.1 13.5 13.8 13.9 1.4 2.0 2.3 3.8 Hero Motocorp SELL 2,566 2,170 (15) 513 7.1 200 169 154 154 (8.5) (9.2) 0.2 15.1 16.7 16.6 9.2 9.0 9.0 4.0 3.5 3.2 27 22 20 3.7 3.0 3.0 37 Mahindra CIE Automotive ADD 155 215 39 59 0.8 378 14.5 13.5 15.0 47.7 (6.8) 11.1 10.7 11.4 10.3 6.4 6.3 5.4 1.4 1.2 1.1 13.7 11.2 11.2 ——— 0.4 Mahindra & Mahindra BUY 506 800 58 629 8.7 1,138 48 43 46 25.4 (10.0) 7.0 10.6 11.8 11.0 8.0 7.7 6.9 1.6 1.4 1.3 16.5 13.0 12.4 1.9 1.7 1.8 30 REDUCE 5,831 5,200 (11) 1,761 24.4 302 248 210 234 (2.9) (15.2) 11.0 23 28 25 12.7 13.3 11.5 3.8 3.5 3.2 17.1 13.1 13.3 1.4 0.9 1.0 90 SELL 95 95 - 300 4.2 3,158 5.1 5.0 6.4 (6.3) (2.8) 29.9 18.6 19.1 14.7 7.2 6.9 5.2 2.7 2.5 2.2 15.5 13.6 16.0 1.6 1.5 1.7 14.7 MRF REDUCE 57,691 49,000 (15) 245 3.4 4 2,667 2,832 3,053 (0.1) 6.2 7.8 22 20.4 18.9 10.0 8.7 7.8 2.3 2.0 1.8 11.0 10.5 10.2 0.1 0.1 0.1 4.5 Schaeffler India REDUCE 3,970 4,200 6 124 1.7 31 144 135 159 14.9 (6.0) 17.5 28 29 25 15.7 15.4 12.8 4.6 4.0 3.5 17.9 14.6 14.9 ——— 0.5 SKF ADD 1,877 1,900 1 96 1.3 49 65 71 84 13.5 8.5 17.8 29 26 22 18.7 17.2 14.4 5.7 4.7 4.0 19.8 17.8 18.0 0.6 0.7 0.8 0.5 BUY 110 205 87 372 4.7 3,396 (5.4) 8.0 16.1 (127.1) 247.5 102.0 NM 13.7 6.8 3.4 3.3 2.9 0.6 0.6 0.5 NM 4.4 8.3 ——— 60 Timken SELL 689 620 (10) 52 0.7 75 20 24 28 46.0 22.0 15.8 35 29 25 17.3 14.9 12.7 3.9 3.4 3.0 14.6 12.7 13.0 0.1 0.1 0.1 0.2 TVS Motor SELL 366 300 (18) 174 2.4 475 14.1 14.7 15.6 1.1 4.1 6.2 26 25 23 13.1 11.8 11.0 5.2 4.6 4.1 22 19.5 18.4 1.0 1.2 1.3 10.8 Varroc Engineering BUY 422 700 66 57 0.8 135 33 34 47 (0.2) 1.7 37.8 12.6 12.4 9.0 7.3 6.5 5.0 1.8 1.6 1.4 14.5 13.0 15.5 ——— 0.4 Automobiles & Components Neutral 6,659 92.2 (16.0) 6.7 15.2 19.8 18.6 16.1 8.0 7.6 6.6 2.5 2.3 2.1 12.6 12.2 12.7 1.5 1.3 1.3 390 Banks AU Small Finance Bank SELL 670 525 (22) 196 2.7 302 13.1 19.1 24.7 27.8 46.5 29.3 51 35 27 ——— 6.6 4.7 4.0 14.0 15.2 15.5 0.1 —— 2.0 Axis Bank REDUCE 647 700 8 1,695 23.5 2,617 18.2 37 55 1,593.0 106.1 45.7 36 17.3 11.9 ——— 2.8 2.4 2.0 7.2 13.6 17.1 0.2 0.6 1.3 101 SELL 452 500 11 539 7.5 1,610 16.4 19.4 25.0 45.0 18.6 29.0 28 23 18.1 ——— 4.9 4.5 3.6 19.0 22 22 0.0 0.0 0.0 5.0 Bank of Baroda ADD 93 135 45 359 5.0 3,853 1.6 18.0 24 117.8 1,004.0 33.2 57 5.2 3.9 ——— 0.7 0.8 0.6 0.9 12.5 13.4 — 3.9 5.2 41 India Daily Summary Daily Summary India ADD 192 215 12 141 2.0 735 9.3 11.0 12.4 4.4 18.0 12.6 21 17.5 15.6 ——— 3.2 2.8 2.5 15.2 15.6 15.5 0.3 1.0 1.1 2.0 DCB Bank ADD 201 250 25 62 0.9 310 10.5 12.9 16.4 32.0 22.8 26.9 19.1 15.6 12.3 ——— 2.2 2.0 1.8 12.0 13.1 14.7 0.5 0.6 0.8 5.0 Equitas Holdings BUY 109 180 65 37 0.5 342 6.3 8.8 12.7 584.8 38.3 44.7 17.3 12.5 8.6 ——— 1.6 1.4 1.2 9.1 11.3 14.4 ——— 5.0 BUY 82 130 59 163 2.3 1,985 6.3 8.6 10.4 40.6 37.0 20.9 13.1 9.5 7.9 ——— 1.3 1.2 1.1 9.8 12.3 13.5 1.7 2.3 2.8 15.8 HDFC Bank ADD 2,248 2,400 7 6,146 85.3 2,723 77 90 107 14.9 16.5 18.1 29 25 21 ——— 4.2 3.7 3.3 16.5 15.5 16.2 0.7 0.8 0.9 115 ICICI Bank BUY 398 515 30 2,566 35.6 6,447 4.7 24 30 (50.5) 404.2 27.4 84 16.6 13.0 ——— 2.9 2.3 2.0 3.4 13.5 15.4 0.3 1.2 1.5 102 IndusInd Bank ADD 1,318 1,750 33 913 12.7 723 54 77 104 (10.5) 42.5 35.3 25 17.2 12.7 ——— 3.3 2.6 2.2 13.5 17.2 18.1 0.6 0.8 1.1 105 J&K Bank NR 40 NR — 22 0.3 557 8.3 9.0 13.3 129.3 8.3 46.8 4.8 4.4 3.0 ——— 0.5 0.4 0.4 7.3 7.4 10.1 0.0 4.5 6.6 1.0 Karur Vysya Bank BUY 57 80 40 46 0.6 799 2.6 3.9 7.9 (44.5) 48.7 102.3 22 14.6 7.2 ——— 0.9 0.9 0.8 3.3 4.8 9.2 1.0 1.7 3.6 0.5 NR 60 NR - 276 3.8 7,067 (22) 6.3 8.0 51.3 129.2 25.9 NM 9.5 7.5 ——— 1.3 0.9 0.8 NM 8.7 10.4 ——— 30 RBL Bank REDUCE 325 550 69 140 1.9 427 20 24 30 34.3 15.9 26.5 16.0 13.8 10.9 ——— 1.9 1.8 1.6 12.2 12.6 14.2 0.8 1.0 1.2 40 BUY 275 390 42 2,455 34.1 8,925 1.0 31 48 113.2 3,115.8 55.1 285 8.9 5.7 ——— 1.7 1.4 1.1 0.4 11.8 15.9 0.0 0.1 0.1 114 Union Bank NR 54 NR - 95 1.3 3,756 (16.7) 2.0 8.5 62.8 112.2 315.8 NM 26.2 6.3 ——— 0.9 0.7 0.6 NM 2.5 11.0 0.0 0.6 2.4 10.4 KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK SELL 59 70 18 152 2.1 2,315 7.4 (1.6) 7.5 (59.5) (121.8) 560.6 8.0 NM 8.0 ——— 0.6 0.7 0.6 6.5 NM 6.4 4.5 (0.7) 3.3 187 Banks Attractive 16,184 224.6 373.1 262.9 45.5 55 15.2 10.4 2.0 1.7 1.4 3.6 11.0 13.3 0.4 0.7 1.1 914 -

September 5, September 5, 2019 Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 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 4-Sep-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Building Products Astral Poly Technik SELL 1,300 720 (45) 157 2.2 120 16.3 21 25 11.8 28.0 19.0 80 62 52 41.0 31.6 27.1 12.2 10.3 8.7 17.1 18.0 18.0 0.1 0.1 0.1 0.8 Building Products Cautious 157 2.2 11.8 28.0 19.0 80 62 53 41.0 31.6 27.1 12.3 10.3 8.7 15.3 16.5 16.6 0.1 0.1 0.1 0.8 Capital goods ABB SELL 1,320 1,145 (13) 280 3.9 212 24 27 32 21.7 10.2 21.6 55 50 41 57.9 39.7 30.5 7.0 6.3 5.6 13.4 13.3 14.5 0.3 0.4 0.5 2.2 Ashoka Buildcon BUY 94 210 123 26 0.4 281 11.8 12.1 12.7 40.6 2.0 4.9 7.9 7.8 7.4 6.4 6.0 5.5 1.2 1.1 1.0 16.1 14.5 13.5 1.7 2.0 2.1 0.5 BUY 107 116 9 260 3.6 2,437 7.7 6.3 6.0 31.8 (19.0) (5.1) 13.8 17.0 17.9 8.7 9.5 8.9 2.8 2.6 2.4 22 16.0 14.1 3.2 2.6 2.5 17.3 BHEL REDUCE 50 58 15 174 2.4 3,482 3.5 1.7 2.9 50.7 (52.5) 73.7 14.4 30 17.4 5.8 10.0 6.5 0.6 0.6 0.5 3.8 1.8 3.1 4.0 1.6 2.6 11.1 Carborundum Universal SELL 281 300 7 53 0.7 189 13.1 14.6 16.7 14.8 11.2 14.9 21 19.3 16.8 12.1 10.5 8.9 3.1 2.8 2.5 15.1 15.2 15.8 1.0 1.6 1.8 0.3 Cochin Shipyard BUY 338 580 72 44 0.6 132 37 39 42 22.5 6.0 7.4 9.2 8.7 8.1 3.6 2.6 4.3 1.3 1.2 1.1 14.6 14.6 14.2 3.8 3.1 3.4 0.3 Cummins India SELL 564 590 5 156 2.2 277 26 26 28 8.3 (2.7) 10.8 21 22 19.8 17.3 18.7 16.3 3.8 3.6 3.4 18.0 16.7 17.5 3.0 2.4 2.7 4.3 Dilip Buildcon BUY 352 665 89 48 0.7 137 56 46 53 19.7 (17.6) 15.2 6.3 7.7 6.7 5.1 4.2 4.0 1.5 1.3 1.1 27 17.9 17.3 0.3 0.2 0.3 2.4

IRB Infrastructure BUY 68 205 201 24 0.3 351 24 21 22 7.2 (14.9) 6.7 2.8 3.3 3.1 5.6 5.3 5.2 0.4 0.3 0.3 14.2 11.0 10.8 5.2 5.7 5.3 4.0 -

Kalpataru Power Transmission BUY 451 575 28 69 1.0 153 30 38 43 66.3 24.4 13.4 14.8 11.9 10.5 6.9 5.8 4.7 2.2 1.9 1.6 16.1 17.2 16.7 0.7 0.8 0.8 0.8 September 5, 2019 KEC International BUY 244 330 35 63 0.9 257 18.9 22 26 5.7 17.2 19.2 12.9 11.0 9.2 6.8 6.1 5.0 2.6 2.1 1.8 22 21 21 1.0 1.0 1.2 1.2 L&T BUY 1,308 1,545 18 1,835 25.5 1,403 61 72 76 18.8 17.1 6.1 21 18.2 17.1 18.2 16.2 14.5 3.3 2.6 2.4 16.3 15.9 14.4 1.2 1.5 1.8 62

Sadbhav Engineering BUY 137 190 39 24 0.3 172 10.9 12.1 14.2 (15.7) 11.4 17.5 12.6 11.3 9.7 8.8 6.8 6.1 1.2 1.1 1.0 9.5 9.7 10.5 ——— 0.8 SELL 1,168 1,040 (11) 416 5.8 356 29 33 38 16.1 11.7 17.9 40 36 30 24.2 21.1 17.8 4.6 4.3 3.9 12.0 12.4 13.4 0.7 0.8 0.9 8.2 Thermax ADD 1,000 1,140 14 119 1.7 113 37 34 43 78.8 (8.6) 26.3 27 30 24 25.8 21.5 17.3 25.8 21.5 17.3 14.5 12.0 13.8 0.7 0.8 1.0 1.4 Capital goods Neutral 3,592 49.8 21.9 3.4 10.3 19.7 19.1 17.3 2.6 2.2 2.0 13.0 11.6 11.8 1.5 1.4 1.7 914 Commercial & Professional Services SIS REDUCE 757 870 15 56 0.8 75 29 37 41 28.4 27.5 11.9 26 21 18.4 16.0 11.2 9.5 4.5 3.8 3.2 18.8 19.9 18.8 0.3 0.4 0.5 0.3 TeamLease Services SELL 2,711 2,300 (15) 46 0.6 17 58 68 89 33.5 18.6 29.8 47 40 31 47.9 34.9 26.4 8.6 7.1 5.7 20 19.5 21 ——— 0.6 Commercial & Professional Services Cautious 102 1.4 32.2 24.7 17.3 33 26 22 22.5 16.0 13.2 5.7 4.7 4.0 17.5 18.2 17.8 0.2 0.2 0.3 0.9 Commodity Chemicals REDUCE 1,535 1,350 (12) 1,473 20.4 959 22.5 28.3 33.2 2.7 25.8 17.2 68 54 46 41.5 30.6 26.3 15.5 13.8 12.4 24 27 28 0.7 0.9 1.1 30

Tata Chemicals BUY 574 675 18 146 2.0 255 42.9 45.5 50.1 (8.9) 6.0 10.2 13.4 12.6 11.4 6.3 5.4 4.8 1.2 1.1 1.0 9.3 9.1 9.4 2.2 2.2 2.4 5.6 Commodity Chemicals Neutral 1,619 22.5 (1.5) 19.1 15.1 50 42 36 28.4 22.2 19.4 7.4 6.8 6.3 14.9 16.3 17.3 0.8 1.0 1.2 36 Construction Materials ACC REDUCE 1,441 1,450 1 271 3.8 188 53.2 78.2 75.9 9.3 46.9 (2.9) 27 18.4 19.0 14.0 9.7 9.9 2.6 2.3 2.2 10.1 13.3 11.8 1.0 1.4 1.3 18.4 REDUCE 191 196 3 379 5.3 1,986 7.3 11.2 11.7 (2.4) 53.6 5.1 26 17.1 16.3 9.3 6.1 5.8 1.7 1.6 1.4 6.7 9.5 9.2 0.8 0.8 0.8 9.2 Dalmia Bharat ADD 1,078 1,225 37 173 2.4 192 14.4 33.7 43.4 4.1 134.7 28.7 62 27 21 10.6 8.3 7.3 1.6 1.5 1.4 2.6 5.9 7.2 ——— 0.8 ADD 694 980 41 456 6.3 657 62.6 85.0 105.3 36.4 35.8 24.0 11.1 8.2 6.6 9.2 5.2 4.0 0.8 0.7 0.7 7.3 9.6 10.8 1.0 1.0 1.0 19.2 J K Cement ADD 999 1,140 14 77 1.1 77 34.1 76.3 93.0 (21.1) 123.5 22.0 29 13.1 10.7 12.9 8.9 7.2 2.9 2.4 2.0 11.3 20 21 1.0 1.0 1.0 0.9 JK Lakshmi Cement ADD 319 355 11 38 0.5 118 4.0 24.4 31.9 (28.6) 502.1 31.0 79 13.1 10.0 11.2 6.3 5.1 2.5 2.2 1.8 3.3 17.8 19.7 0.2 0.6 0.6 0.4 Orient Cement ADD 81 112 39 17 0.2 205 2.3 8.1 10.9 207.4 248.1 35.1 35 10.0 7.4 9.3 5.7 4.9 1.6 1.4 1.2 4.6 14.9 17.8 1.9 2.5 2.5 0.3 SELL 17,711 14,400 (19) 617 8.6 35 323.3 443.6 592.1 (18.6) 37.2 33.5 55 40 30 24.2 17.1 13.8 6.4 5.7 4.9 12.2 15.1 17.5 0.3 0.3 0.3 7.9 UltraTech Cement SELL 3,877 3,350 (14) 1,065 14.8 275 88.5 154.9 181.5 (5.5) 75.0 17.1 44 25 21 18.7 12.1 10.8 3.8 3.3 2.9 8.9 14.0 14.4 0.3 0.3 0.3 31 Construction Materials Cautious 3,092 42.9 8.0 55.9 18.6 29 18.5 15.6 13.2 8.2 6.9 2.2 2.0 1.8 7.5 10.7 11.4 0.5 0.6 0.6 88

Source: Company, Bloomberg, Kotak Institutional Equities estimates

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH 16

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

17 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 4-Sep-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 228 210 (8) 143 2.0 627 5.9 7.1 8.4 15.1 19.1 18.3 38 32 27 24 20 17 13.0 10.1 8.0 40 35 33 0.9 1.1 1.1 2.6 India SELL 636 520 (18) 398 5.5 625 12.6 13.2 17.1 13.5 4.8 29.4 51 48 37 33 30 24 9.4 8.5 7.5 19.8 18.5 21 0.7 0.7 0.9 14.9 REDUCE 17,645 18,600 5 197 2.7 11 353 391 469 13.5 10.8 19.9 50 45 38 32 27 23 25.4 21.4 17.0 49 52 50 1.9 1.0 1.3 7.6 Polycab BUY 604 700 16 90 1.2 149 34 37 44 39.8 9.0 19.1 17.9 16.5 13.8 10 9 8 3.0 2.4 2.1 18.3 16.6 16.3 0.5 0.6 0.7 0.7 TCNS Clothing Co. ADD 654 770 18 40 0.6 66 21 18 22 34.4 (13.3) 23.7 32 37 30 22 13 10.9 6.8 6.0 5.3 25 17.5 19.0 — 1.3 1.8 0.1 Vardhman Textiles ADD 869 1,230 42 50 0.7 56 129 119 136 25.6 (8.4) 15.0 6.7 7.3 6.4 6.0 5.7 4.7 0.9 0.8 0.7 13.9 11.5 12.1 2.3 3.5 3.5 0.4 SELL 620 500 (19) 205 2.8 331 15.7 16.9 20.7 (9.1) 7.8 22.3 39 37 30 34 27 23 5.0 4.5 4.1 13.0 13.0 14.3 0.5 0.6 0.7 12.3 Whirlpool SELL 1,634 1,260 (23) 207 2.9 127 32 38 44 16.1 17.9 16.8 51 43 37 30 26 22 9.7 8.3 7.2 21 21 21 0.3 0.5 0.8 1.1 Consumer Durables & Apparel Cautious 1,330 18.5 15.5 6.8 35 33 27 22 20 16 6.2 5.4 17.8 16.6 17.7 0.8 0.9 40 Consumer Staples Bajaj Consumer Care BUY 251 390 55 37 0.5 148 15.0 16.2 18.2 5.0 8.2 11.9 16.7 15.4 13.8 12.6 11.7 10.4 7.9 8.1 8.4 46 52 60 5.6 5.6 6.4 0.3 REDUCE 2,635 2,500 (5) 633 8.8 240 48 51 59 15.3 5.3 16.4 55 52 45 36 34 29 14.9 14.7 12.3 30 28 30 0.6 0.8 0.9 19.7 Colgate-Palmolive (India) ADD 1,248 1,310 5 339 4.7 272 27 29 34 12.5 9.4 16.1 47 43 37 27.2 24.1 20.8 23.5 23.7 24.1 49 55 65 1.8 2.1 2.4 7.6 India REDUCE 442 390 (12) 781 10.8 1,766 8.1 9.3 10.7 4.6 14.8 14.4 54 47 41 45 38 33 13.9 12.2 10.9 25 27 28 0.6 1.0 1.2 12.7 GlaxoSmithKline Consumer RS 7,949 —— 334 4.6 42 234 255 287 40 9.3 12.4 34 31 28 26 22 19 8.2 7.3 6.5 26 25 25 1.3 1.4 1.6 1.5 REDUCE 583 600 3 596 8.3 1,022 14.5 15.7 18.4 1.9 8.6 17.4 40 37 32 29 26 22 8.2 7.1 6.4 22 21 21 1.6 1.1 1.3 9.4 REDUCE 1,847 1,625 (12) 3,998 55.5 2,160 28 33 38 18.4 18.2 14.9 66 55 48 46 37 32 52.1 44.5 37.3 83 87 84 1.2 1.3 1.5 33 ITC ADD 243 315 29 2,988 41.5 12,300 10.2 11.0 12.2 14.0 8.6 10.9 24 22 19.9 15.7 14.2 12.7 5.2 4.8 4.5 19.5 21 22 2.4 2.7 3.1 44 Jyothy Laboratories ADD 140 190 35 52 0.7 367 5.6 5.9 6.7 25.6 5.2 13.6 25 24 21 18.6 16.0 14.0 3.9 3.7 3.5 16.6 15.8 17.0 2.1 2.5 2.9 0.5 ADD 384 400 4 496 6.9 1,290 7.2 8.4 9.7 15.0 16.4 15.3 53 46 40 38 31 27 16.5 15.3 14.1 34 35 37 1.2 1.4 1.6 8.6 Nestle India REDUCE 12,481 10,700 (14) 1,203 16.7 96 167 190 215 31.2 13.9 13.2 75 66 58 44 39 34 32.8 63.9 53.2 45 66 100 0.9 2.5 1.2 11.9 Tata Global Beverages ADD 267 275 3 169 2.3 631 7.0 8.2 9.4 (4.8) 17.6 13.9 38 32 28 21 18 16 2.3 2.2 2.1 6.1 6.9 7.6 0.9 1.1 1.3 9.6 United Breweries REDUCE 1,330 1,300 (2) 352 4.9 264 21.3 21.8 29.0 42.7 2.4 33.0 62 61 46 31 29 24 11.0 9.6 8.1 19.2 16.8 19.1 0.2 0.2 0.3 6.6 REDUCE 613 590 (4) 445 6.2 727 9.4 13.2 16.4 24.0 40.3 24.1 65 46 37 37 27 23 14.2 10.1 7.0 24 25 22 0.0 0.3 0.4 15.4 Consumer Staples Cautious 12,597 174.8 15.9 12.1 14.1 43 38 34 29 25 22 11.2 10.4 9.4 26 27 28 1.3 1.6 1.7 182 Diversified Financials SELL 3,250 2,650 (18) 1,885 26.2 577 69 90 115 60 30 27 47 36 28 ——— 9.5 7.7 6.2 22 24 24 0.2 0.3 0.4 98 REDUCE 7,023 7,500 7 1,118 15.5 159 202 272 344 21 34 27 35 26 20 ——— 4.7 4.0 3.4 14.5 16.8 18.0 0.2 0.2 0.2 38 Cholamandalam ADD 270 295 9 211 2.9 782 15.2 17.4 20.4 29 14.6 17.2 17.8 15.5 13.2 ——— 3.5 2.9 2.4 21 20 19.8 2.4 0.7 0.8 5.0

HDFC ADD 2,100 2,325 11 3,624 50.3 1,721 57 70 69 (4.3) 23 (1.7) 37 30 31 ——— 4.7 4.3 4.0 13.7 14.8 13.5 1.0 1.2 1.2 101 Daily Summary India IIFL Finance ADD 121 135 11 39 0.5 320 19.3 15.8 16.8 (23) (18.1) 6.3 6.3 7.7 7.2 ——— 1.1 1.0 0.9 21 15.5 15.0 5.3 4.6 4.2 0.2 L&T Finance Holdings REDUCE 91 120 31 183 2.5 1,999 11.2 12.8 14.0 74 14.2 10.0 8.2 7.2 6.5 ——— 1.4 1.2 1.0 18.0 17.5 16.6 1.1 1.4 1.6 14.8 LIC Housing Finance ADD 410 525 28 207 2.9 505 46 53 64 6.0 14.6 22 8.9 7.8 6.4 ——— 1.5 1.3 1.1 16.6 15.3 16.4 1.9 2.1 2.6 22 Magma Fincorp BUY 60 125 110 16 0.2 269 11.3 9.8 12.6 12.9 (13.5) 29 5.3 6.1 4.7 ——— 0.6 0.5 0.5 12.9 9.2 10.8 1.3 0.8 2.1 0.7 Mahindra & Mahindra Financial ADD 329 350 6 203 2.8 615 25 26 31 45 0.9 20.7 13.0 12.9 10.7 ——— 2.1 1.9 1.7 15.2 13.7 15.0 2.0 2.0 2.4 12.0 ADD 589 650 10 236 3.3 401 49 54 62 10.8 9.3 14.8 12.0 10.9 9.5 ——— 2.4 2.1 1.8 22.4 20 20 2.0 2.2 2.5 7.6 Shriram City Union Finance BUY 1,315 1,825 39 87 1.2 66 150 156 178 39 3.9 14.5 8.8 8.4 7.4 ——— 1.5 1.3 1.1 16.6 15.0 15.1 1.7 1.5 1.7 0.6 Shriram Transport BUY 985 1,415 44 223 3.1 227 113 127 137 4.2 12.0 7.9 8.7 7.8 7.2 ——— 1.5 1.3 1.1 17.4 16.8 15.9 1.2 1.8 2.1 35 Diversified Financials Neutral 8,139 112.9 11.8 18.4 12.6 26 22 19.3 2.8 2.5 2.2 10.8 11.4 11.5 0.9 1.0 1.0 337

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

September 5, September 5, 2019

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 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 4-Sep-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Electric Utilities CESC BUY 754 840 11 100 1.4 133 90 87 104 35 (3.2) 18.4 8.3 8.6 7.3 6.4 5.4 4.9 0.8 0.8 0.7 9.9 9.2 10.1 1.7 1.9 2.0 4.6 JSW Energy REDUCE 66 65 (2) 109 1.5 1,640 4.2 6.2 5.8 36 49 (7.4) 15.9 10.7 11.5 6.1 4.8 4.2 0.9 0.8 0.8 6.0 8.3 7.1 ——— 0.7 NHPC ADD 24 27 15 236 3.3 10,045 2.5 3.1 3.2 3.7 22 4.9 9.3 7.6 7.3 7.8 6.5 6.4 0.8 0.7 0.7 8.5 9.9 10.0 6.1 7.2 7.6 0.8 NTPC BUY 119 160 34 1,182 16.4 9,895 11.2 11.7 13.1 7.4 4.2 12.4 10.6 10.2 9.1 11.0 9.4 7.7 1.1 1.0 1.0 10.6 10.4 10.9 5.1 2.9 3.3 25 Power Grid BUY 197 235 19 1,030 14.3 5,232 19.0 21 23 20 8.5 11.2 10.4 9.6 8.6 7.2 7.3 6.8 1.7 1.6 1.4 17.5 17.3 17.4 4.2 3.7 4.1 22 BUY 54 77 42 146 2.0 2,705 2.1 4.9 5.3 (61) 132 8.6 25.6 11.1 10.2 9.5 8.0 7.8 0.9 0.8 0.8 3.6 7.6 7.7 2.8 —— 6.9 Electric Utilities Attractive 2,803 38.9 9.0 10.9 10.5 10.7 9.7 8.8 1.2 1.1 1.0 11.0 11.3 11.6 4.4 3.3 3.6 60 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 3,150 2,700 (14) 108 1.5 34 69.3 82.9 100.0 (20.8) 19.6 20.7 45 38 31 28 23 19 5.7 5.2 4.6 13.0 14.3 15.5 0.6 0.5 0.6 0.4 Dhanuka Agritech ADD 309 420 36 15 0.2 48 23.7 22.8 26.2 (8.0) (3.7) 15.1 13.1 13.6 11.8 10.0 8.5 7.0 2.3 2.0 1.8 17.7 15.9 16.2 0.4 1.5 1.7 0.2 ADD 450 485 8 86 1.2 192 11.5 13.4 17.0 (0.5) 17.3 26 39 33 27 20 17 13 4.2 3.8 3.4 11.8 12.0 13.5 1.0 0.7 0.9 0.4 -

PI Industries ADD 1,182 1,150 (3) 163 2.3 138 29.7 37.7 45.9 11.6 27 22 40 31 26 28 22 18 7.2 6.0 5.0 19.5 21 21 0.3 0.4 0.5 2.6 September 5, September 5, 2019 Rallis India ADD 157 170 8 31 0.4 195 8.4 9.6 10.7 (2.2) 14.3 11.1 18.6 16.3 14.7 11.8 11.2 9.8 2.4 2.2 2.0 13.2 13.9 14.1 1.6 1.8 1.9 0.3 UPL SELL 561 520 (7) 429 5.9 761 24.8 29.0 40.0 (12.9) 16.8 38.0 23 19.4 14.0 16.7 10.0 7.8 2.9 2.7 2.4 15.9 14.5 17.9 1.0 1.3 2.0 45 Fertilizers & Agricultural Chemicals Attractive 832 11.5 (9.4) 17.6 31.3 27 23 17.7 18.4 12.0 9.5 3.6 3.3 2.9 13.3 14.2 16.4 0.8 1.0 1.4 49

Gas Utilities GAIL (India) BUY 127 190 49 574 8.0 4,510 14.0 14.1 14.9 36.8 0.8 6.1 9.1 9.0 8.5 6.0 5.9 5.4 1.3 1.2 1.1 14.9 13.8 13.5 3.2 3.7 4.1 21 GSPL SELL 216 190 (12) 122 1.7 564 14.1 14.7 13.6 18.9 4.5 (7.9) 15.4 14.7 16.0 6.6 6.1 6.2 2.1 1.9 1.7 14.7 13.7 11.3 0.9 1.0 0.9 1.5 SELL 327 280 (14) 229 3.2 700 12.0 14.2 15.9 16.7 17.7 12.3 27.2 23.1 20.6 17.7 14.8 12.8 5.5 4.8 4.2 22 22 22 0.7 0.9 1.2 8.9 ADD 837 950 14 83 1.1 99 56.2 65.3 67.0 16.1 16.3 2.6 14.9 12.8 12.5 8.9 7.2 6.8 3.4 3.0 2.7 25 25 23 2.4 3.1 3.6 7.8 Petronet LNG BUY 266 300 13 398 5.5 1,500 15.0 16.8 19.0 8.3 11.6 13.2 17.7 15.8 14.0 11.2 8.2 7.2 4.0 3.6 3.2 22 24 24 3.8 2.8 3.6 9.8 Gas Utilities Attractive 1,406 19.5 24.5 6.5 7.0 13.2 12.4 11.6 8.1 7.2 6.6 2.1 1.9 1.8 16.0 15.5 15.2 2.7 2.8 3.2 49 Health Care Services ADD 1,497 1,425 (5) 208 2.9 139 17.0 25 34 101 48 34 88.2 59.6 44.5 22.6 15.3 14.8 6.2 5.9 5.5 7.2 10.2 12.7 0.4 0.6 0.8 16.4 Aster DM Healthcare BUY 117 240 105 59 0.8 505 6.6 6.9 10.1 140 4.2 46 17.7 16.9 11.6 9.5 6.4 5.3 2.4 2.1 1.8 12.7 13.4 17.0 ——— 1.5

Dr Lal Pathlabs SELL 1,256 955 (24) 105 1.5 83 23.9 28.0 32.7 16.6 17.2 17.1 52.6 44.9 38.4 33.4 25.9 21.7 11.1 9.4 8.0 23 23 23 0.5 0.6 0.7 1.5 HCG BUY 98 225 130 9 0.1 85 (3.5) (5.6) (3.1) (322) (60) 44 NM NM NM 11.8 7.6 6.1 1.5 1.6 1.7 NM NM NM ——— 0.1 Metropolis Healthcare REDUCE 1,214 990 (18) 61 0.8 50 23.9 28.1 34.2 17.5 17.3 22 50.7 43.2 35.5 29.9 23.0 19.1 14.7 11.7 9.3 29 30 29 0.4 0.5 0.6 0.4 Narayana Hrudayalaya BUY 234 275 17 48 0.7 204 2.9 4.6 7.0 15.1 59 53 80.9 50.7 33.2 19.1 14.2 11.4 4.4 4.1 3.6 5.6 8.4 11.5 ——— 0.4 Health Care Services Attractive 490 6.8 55 22 37 53.2 43.7 31.8 19.4 13.5 11.8 5.6 5.1 4.5 10.5 11.6 14.2 0.3 0.4 0.5 20 Hotels & Restaurants Jubilant Foodworks BUY 1,198 1,360 14 158 2.2 132 24 26 35 66 6.6 37 49.7 46.6 34.0 25.2 15.2 12.2 12.5 12.9 9.9 29 27 33 0.4 0.5 0.8 19.4 Lemon Tree Hotels BUY 51 75 46 41 0.6 789 0.3 1.0 2.2 51 281 116 189.2 49.6 23.0 30.5 18.0 12.2 4.6 4.2 3.8 2.5 8.9 17.5 —— 1.5 1.2 Hotels & Restaurants Attractive 199 2.8 65 24 53 58.6 47.1 30.8 26.4 15.8 12.2 9.3 9.1 7.5 15.9 19.3 24 0.3 0.4 0.9 21 Insurance HDFC Life Insurance ADD 535 525 (2) 1,080 15.0 2,009 6.4 7.4 8.5 15.1 16.0 14.6 84.2 72.6 63 ——— 19.0 17.2 15.5 25 25 26 0.3 0.3 0.4 47 ICICI Lombard SELL 1,145 775 (32) 521 7.2 454 23.1 28.1 34.4 22 22 23 49.6 40.8 33 ——— 9.8 8.3 7.0 21 22 23 0.4 0.5 0.7 12.2 ICICI Prudential Life BUY 427 520 22 614 8.5 1,436 8.1 8.9 9.3 (28) 10.4 4.5 52.8 47.8 46 ——— 8.9 7.8 6.8 17.3 17.4 15.9 0.6 0.4 0.4 12.4 Max Financial Services BUY 419 550 31 113 1.6 417 1.8 5.5 7.2 (66) 202 31 228.5 75.7 58 ——— 2.5 11.1 13.5 0.0 0.5 0.6 4.4 SBI Life Insurance BUY 826 900 9 826 11.5 1,000 13.3 15.5 17.8 15.3 16.7 14.8 62.3 53.4 47 ——— 11.1 9.4 8.1 19.0 19.1 18.7 0.2 0.3 0.3 12.8 Insurance Attractive 3,154 43.8 (0.4) 19.6 14.9 64.8 54.2 47 11.5 10.1 8.8 17.8 18.6 18.6 0.3 0.3 0.3 89

Source: Company, Bloomberg, Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH 18

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

19 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 4-Sep-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Internet Software & Services SELL 2,150 1,910 (11) 263 3.6 122.0 25.8 30.4 36.4 14.7 17.5 20.0 83.2 70.8 59.0 72.6 53.5 43.9 11.3 10.2 9.1 14.2 15.1 16.2 0.2 0.4 0.4 6.1 Just Dial SELL 714 615 (14) 46 0.6 64.8 31.9 31.4 33.3 50.3 (1.5) 6.0 22.4 22.7 21.4 14.4 12.5 11.4 4.6 3.9 3.4 21 18.7 17.0 0.0 0.4 0.5 36 Internet Software & Services Attractive 309 4.3 25.2 10.0 15.1 59.3 53.9 46.8 49.2 38.9 33.6 9.3 8.2 7.3 15.7 15.3 15.5 0.1 0.4 0.4 43 IT Services HCL Technologies ADD 1,126 1,175 4 1,527 21.2 1,349 73.2 73.0 81.8 17.5 (0.4) 12.1 15.4 15.4 13.8 10.4 9.3 8.3 3.7 3.2 2.8 26 22 22 0.7 2.7 2.9 25 Hexaware Technologies REDUCE 379 350 (8) 113 1.6 302 19.3 21.1 24.4 16.6 9.1 15.7 19.6 18.0 15.6 14.3 13.2 11.1 4.8 4.3 3.8 27 25 26 2.2 2.6 2.6 5.4 Infosys ADD 821 850 4 3,585 49.8 4,260 35.4 38.2 42.3 9.5 7.9 10.8 23.2 21.5 19.4 16.2 15.1 13.3 5.5 5.6 5.2 24 26 28 3.7 2.7 3.2 81 L&T Infotech ADD 1,647 1,750 6 286 4.0 176 86.4 84.0 98.7 36 (2.9) 17.5 19.1 19.6 16.7 14.1 14.1 11.5 5.9 5.0 4.3 35 28 28 1.5 1.8 2.0 3.6 REDUCE 680 725 7 112 1.6 165 45.8 36.5 48.6 33 (20) 33 14.9 18.6 14.0 9.5 9.3 7.1 3.4 3.0 2.7 25 17.2 20 1.9 1.6 2.1 14.5 REDUCE 968 910 (6) 180 2.5 186 56.1 60.6 64.8 28 8.1 6.9 17.3 16.0 14.9 12.5 10.1 9.1 3.5 3.2 2.9 20 21 20 2.8 3.1 3.5 2.7 TCS REDUCE 2,245 1,940 (14) 8,426 116.9 3,752 83.1 89.6 98.4 23 7.8 9.9 27.0 25.1 22.8 20.1 18.1 16.2 9.3 8.4 7.7 35 35 35 1.3 2.4 2.8 78 ADD 703 730 4 624 8.7 880 47.7 44.1 50.3 11.9 (7.5) 14.0 14.7 15.9 14.0 8.7 9.2 7.9 3.1 2.8 2.5 22 18.2 18.6 2.0 2.3 2.6 30 REDUCE 256 260 2 1,545 21.4 5,803 15.0 16.3 18.0 17.7 8.9 10.6 17.1 15.7 14.2 10.8 10.4 9.1 2.7 2.7 2.3 17.2 17.0 17.4 0.6 0.6 0.8 20 IT Services Cautious 16,399 227.6 16.4 3.2 10.8 22.0 21.3 19.2 15.6 14.4 12.8 5.6 5.4 4.8 26 25 25 1.8 2.3 2.7 261 Media DB Corp. REDUCE 133 180 36 23 0.3 175 15.7 18.0 20.1 (11.0) 14.7 12.1 8.5 7.4 6.6 4.4 3.7 3.3 1.3 1.4 1.3 14.6 17.8 20 7.5 9.4 11.3 0.2 DishTV REDUCE 21 30 44 38 0.5 1,925 0.9 0.6 1.1 (28) (26) 75 24.1 32.5 18.6 - 2.5 2.2 5.6 4.0 NM 19.8 25 ——— 12.3 Jagran Prakashan REDUCE 66 110 67 20 0.3 296 8.5 10.7 12.6 (11.6) 26 17.7 7.7 6.2 5.2 2.8 2.3 1.8 1.1 1.1 1.0 13.0 17.1 19.7 7.6 13.6 13.6 0.2 PVR RS 1,490 —— 70 1.0 48 37.2 51.0 65.1 38 37 28 40.1 29.2 22.9 15.0 11.6 9.8 5.8 5.0 4.2 15.5 18.3 19.8 0.2 0.3 0.4 11.3 Sun TV Network REDUCE 429 455 6 169 2.3 394 36.3 35.0 38.0 26 (3.7) 8.6 11.8 12.3 11.3 7.6 7.7 7.0 3.2 2.9 2.6 29 25 24 3.5 4.1 4.7 13.0 Zee Entertainment Enterprises REDUCE 355 365 3 341 4.7 960 16.5 18.3 20.0 9.9 10.7 9.5 21.5 19.4 17.8 12.4 11.6 10.3 3.8 3.5 3.1 19.2 18.8 18.5 1.0 1.3 1.5 47 Media Attractive 661 9.2 9.3 6.3 13.0 17.0 16.0 14.2 8.3 7.3 6.5 3.5 3.1 2.8 20 19.3 19.6 1.9 2.5 2.8 84 Metals & Mining BUY 182 240 32 408 5.7 2,224 24.7 20.4 25.4 13.0 (17.3) 25 7.3 8.9 7.1 5.1 5.3 4.5 0.7 0.7 0.6 9.8 7.6 8.8 0.7 0.7 0.7 19.2 REDUCE 215 210 (2) 908 12.6 4,225 18.8 18.3 18.4 (12.4) (3.0) 0.8 11.4 11.8 11.7 6.9 7.0 6.9 2.7 2.9 3.2 23 24 26 9.3 9.3 9.3 2.9 REDUCE 96 105 10 97 1.3 1,016 (1.7) 0.1 4.5 80 107 3,383 NM 747.5 21.5 6.1 6.0 5.4 0.3 0.3 0.3 NM 0.0 1.4 ——— 29 JSW Steel REDUCE 215 225 5 519 7.2 2,402 31.8 14.9 23.0 18.3 (53) 54.2 6.7 14.4 9.3 5.0 7.2 6.1 1.5 1.4 1.2 24 10.0 14.1 2.0 2.0 2.0 23 National Aluminium Co. REDUCE 41 38 (6) 76 1.0 1,866 9.3 2.6 2.8 81 (72) 8.4 4.4 15.6 14.4 1.3 4.8 4.8 0.7 0.7 0.7 16.5 4.6 5.1 14.2 6.4 7.0 4.6 NMDC REDUCE 80 103 29 244 3.4 3,062 14.7 15.7 12.4 25.6 6.5 (21) 5.4 5.1 6.4 3.0 2.8 3.6 0.9 0.9 0.8 17.9 17.7 12.9 6.9 7.9 6.2 8.0

Tata Steel BUY 339 560 65 385 5.3 1,146 90.3 45.2 65.8 30 (50) 46 3.8 7.5 5.2 4.5 5.4 4.5 0.6 0.6 0.5 16.5 7.6 10.7 2.9 2.9 2.9 65 Daily Summary India Vedanta BUY 137 200 46 508 7.1 3,717 15.3 22.1 24.0 (29) 44 8.9 8.9 6.2 5.7 5.1 4.7 4.7 0.8 0.8 0.8 9.1 13.2 14.4 13.8 14.6 14.6 24 Metals & Mining Attractive 3,144 43.6 7.2 (20.1) 18.0 7.3 9.1 7.7 4.9 5.5 5.1 1.0 0.9 0.9 13.4 10.3 11.5 6.6 6.6 6.5 45

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

September 5, September 5, 2019

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 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 4-Sep-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Oil, Gas & Consumable Fuels BPCL SELL 364 325 (11) 789 10.9 1,967 36 31 34 (9.9) (14.5) 9.5 10.0 11.7 10.7 7.7 8.4 7.6 1.9 1.8 1.6 20.1 15.9 16.0 4.0 3.4 3.7 23.2 BUY 182 280 54 1,123 15.6 6,163 28 31 31 151 8.3 1.7 6.4 5.9 5.8 4.0 4.8 4.5 4.2 4.1 3.9 68.9 70.3 68.8 7.2 13.7 13.7 25.2 HPCL SELL 257 220 (14) 392 5.4 1,524 40 28 29 (4.8) (29.6) 2.8 6.5 9.2 9.0 5.8 8.3 8.3 1.4 1.3 1.2 23.2 14.6 13.9 6.2 4.4 4.5 18.9 IOCL SELL 120 130 8 1,133 15.7 9,181 18.0 15.3 15.8 (12.4) (14.9) 3.1 6.7 7.9 7.6 4.4 4.9 4.8 1.0 1.0 0.9 15.5 12.5 12.1 7.5 5.2 5.2 27.8 BUY 147 200 36 160 2.2 1,084 30 27 27 24 (11.1) 1.1 4.8 5.4 5.4 3.0 3.1 2.9 0.6 0.5 0.5 11.9 10.3 10.0 6.8 8.3 8.4 3.3 ONGC BUY 119 180 51 1,497 20.8 12,580 24 21 21 38 (14.3) 2.7 5.0 5.8 5.6 3.0 3.1 2.8 0.6 0.6 0.6 13.0 10.6 10.3 5.9 6.3 6.5 23.8 BUY 1,201 1,425 19 7,119 98.8 5,927 66 74 84 11.7 11.8 14.5 18.2 16.3 14.2 11.3 10.3 8.8 1.8 1.7 1.5 11.5 10.8 11.2 0.5 0.6 0.6 156.3 Oil, Gas & Consumable Fuels Attractive 12,212 169.5 19.1 (3.6) 7.3 10.2 10.5 9.8 6.5 6.7 6.1 1.4 1.3 1.2 14.1 12.6 12.5 2.9 3.3 3.4 278.5 Pharmaceuticals ADD 599 680 13 351 4.9 584 40 52 57 (3.1) 28 10.4 14.8 11.6 10.5 10.0 8.6 7.3 2.5 2.1 1.8 18.5 18.2 17.1 0.5 1.0 1.2 26.2 SELL 231 185 (20) 278 3.9 1,202 6.1 7.7 9.0 96 26 17.7 38 30 26 20.0 15.3 13.3 4.1 3.8 3.4 11.8 13.1 13.2 0.3 1.2 1.4 14.0 -

Cipla BUY 471 570 21 380 5.3 806 19.0 23 32 8.2 23 37 25 20.3 14.8 12.8 11.0 8.5 2.5 2.3 2.0 10.2 11.7 13.7 0.7 1.0 1.4 13.5 September 5, September 5, 2019 Dr Reddy's Laboratories REDUCE 2,603 2,450 (6) 432 6.0 166 113 146 141 92 29 (3.3) 23 17.8 18.4 14.2 12.8 8.9 3.1 2.7 2.4 12.4 11.2 13.0 0.9 0.8 0.9 23.8 Laurus Labs BUY 326 400 23 35 0.5 106 11.0 18.2 27 (30.9) 66 46 30 17.9 12.3 12.8 9.6 7.4 2.2 2.0 1.7 7.6 11.6 13.8 ——— 0.2 Lupin ADD 742 840 13 336 4.7 450 21 28 39 (44.9) 31 43 35 27 18.8 12.9 11.0 8.3 2.4 2.3 2.0 6.9 8.7 10.9 0.8 0.7 0.8 14.9

Sun Pharmaceuticals ADD 426 460 8 1,023 14.2 2,406 16.1 19.6 24 6.3 21 22 26 22 17.9 14.7 11.8 9.5 2.5 2.2 2.0 9.8 10.8 11.3 0.6 0.9 1.1 43.3 BUY 1,691 1,840 9 286 4.0 169 26 54 70 (35.7) 110 30 66 31 24 15.8 13.7 11.6 6.1 5.5 4.8 9.2 17.5 19.8 1.1 1.4 1.5 7.4 Pharmaceuticals Neutral 3,121 43.3 2.1 26 25 27 21 17.1 13.7 11.5 9.1 2.8 2.5 2.2 10.5 11.8 13.1 0.7 1.0 1.2 143.3 Real Estate Brigade Enterprises BUY 198 290 47 40 0.6 136 17.6 22 28 59 27 26 11.2 8.8 7.0 10.2 8.9 6.9 1.2 1.1 1.0 10.8 13.2 14.7 1.3 1.3 1.3 0.4 DLF ADD 164 200 22 383 5.3 2,475 5.9 7.7 12.6 (76) 29 64 28 21.3 13.1 22.5 21.7 17.6 1.1 1.1 1.0 3.8 5.4 8.1 — 1.2 1.2 26.8 Embassy Office Parks REIT ADD 391 380 (3) 301 4.2 772 0.2 12.6 14.8 (97) 7,799 18 2,449 31 26 23.0 20.1 17.8 39.1 1.3 1.4 2.8 4.3 5.2 — 5.9 6.7 1.9 Godrej Properties SELL 893 700 (22) 225 3.1 252 11.0 15.8 16.0 1.7 43 0.9 81 56 56 140.5 47.6 61.9 8.3 4.5 4.2 10.8 10.7 7.8 ——— 6.7 ADD 534 570 7 194 2.7 364 22 24 44 24.4 7.8 81 23.7 22.0 12.2 18.0 15.4 9.7 2.4 2.2 1.9 11.6 10.5 16.6 0.4 0.4 0.4 3.9 Prestige Estates Projects ADD 300 320 7 112 1.6 375 8.7 13.8 21 (12.1) 59 53 34 22 14.2 13.2 11.4 9.0 2.7 2.4 2.1 7.3 11.7 15.7 0.5 0.5 0.5 1.1

Sobha ADD 535 565 6 51 0.7 95 31 35 32 36 12.1 (7.3) 17.1 15.3 16.5 10.9 9.9 10.2 2.3 2.0 1.9 11.9 14.1 11.8 1.3 1.3 1.3 2.8 Sunteck Realty REDUCE 447 428 (4) 65 0.9 140 16.2 26.7 33 6.0 65 25 28 16.8 13.4 18.1 11.4 8.1 2.2 2.0 1.7 8.3 12.4 13.7 0.2 0.2 0.2 1.2 Real Estate Neutral 1,373 19.0 (41.3) 48.1 44.2 36 24 16.7 20.5 17.1 13.9 1.8 1.6 1.5 4.9 6.6 9.0 0.2 1.8 2.0 44.9 Retailing Aditya Birla Fashion and Retail BUY 187 230 23 145 2.0 773 4.2 1.8 2.8 172.7 (57.5) 58.0 45 106 67 29.1 12.7 11.0 10.1 9.2 8.1 25.5 9.1 12.9 ——— 1.5 Avenue Supermarts SELL 1,524 1,010 (34) 951 13.2 624 14.5 20 26 11.9 36.9 28.8 105 77 60 59 42 33 17.0 13.9 11.3 17.6 19.9 20.9 ——— 12.9 REDUCE 1,037 1,000 (4) 921 12.8 888 16.8 20 25 31.8 18.0 28.1 62 52 41 43 33 26 15.1 12.8 10.6 26.8 26.6 28.5 0.5 0.6 0.7 43.5 Retailing Cautious 2,017 28.0 32.1 15.3 29.7 74 64 50 47 32 26 15.4 12.9 10.7 20.8 20.1 21.6 0.2 0.3 0.3 57.8 Speciality Chemicals SELL 120 115 (4) 119 1.6 989 7.2 7.3 7.6 4.2 1.8 4.4 16.8 16.5 15.8 11.1 10.0 9.5 10.2 9.9 9.6 64.8 60.9 61.6 4.2 4.8 5.0 2.2 REDUCE 1,361 1,120 (18) 691 9.6 508 17.7 23 27 (3.7) 30.6 15.9 77 59 51 50 38 33 16.7 14.3 12.3 23.3 26.2 26.1 0.5 0.6 0.7 10.7 S H Kelkar and Company BUY 128 160 25 18 0.3 141 6.1 7.0 8.3 (17.3) 14.2 18.7 20.8 18.2 15.4 16.4 11.8 10.0 2.1 2.1 1.9 10.3 11.4 13.0 1.4 1.6 2.2 0.2 SRF BUY 2,736 3,400 24 157 2.2 57 112 144 181 39.0 29.2 25.3 24.5 19.0 15.1 13.8 11.2 9.2 3.8 3.2 2.7 16.7 18.4 19.5 0.4 0.5 0.6 16.0 Speciality Chemicals Neutral 986 13.7 7.1 20.8 15.8 42 35 30.1 25.9 21.0 18.2 9.6 8.4 7.3 22.7 24.0 24.1 0.9 1.1 1.2 29.1

Source: Company, Bloomberg, Kotak Institutional Equities estimates

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH 20

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

21 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 4-Sep-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E 2019 2020E 2021E (US$ mn) Telecommunication Services ADD 346 370 7 1,774 24.6 5,131 (6.3) (8.3) (2.6) NM NM NM NM NM NM 11.2 7.8 6.5 1.9 2.0 2.2 NM NM NM 0.7 1.7 1.7 36.9 Bharti Infratel REDUCE 248 270 9 459 6.4 1,850 13.1 14.2 16.2 (4.6) 8.0 14.1 18.9 17.5 15.3 7.7 7.6 6.8 3.2 3.3 3.2 15.4 18.5 21.2 6.2 4.4 5.2 8.8 ADD 5 8 59 144 2.0 28,736 (19.1) (1.4) (4.9) NM NM NM NM NM NM 31.4 17.0 12.1 0.1 0.2 0.2 NM NM NM ——— 13.0 Tata Communications ADD 426 550 29 121 1.7 285 (10.3) 1.3 6.9 NM 112.9 413.0 NM 319.0 62.2 8.4 7.4 6.8 NM NM 347.2 NM NM NM 1.5 1.8 1.8 1.9 Telecommunication Services Cautious 2,498 34.7 NM (11.8) 27.3 NM NM NM 12.5 8.9 7.5 1.7 1.4 1.5 NM NM NM 1.5 2.0 2.2 60.5 Transportation Adani Ports and SEZ BUY 364 400 10 755 10.5 2,071 19.6 21.5 23.9 6.0 9.6 11.4 18.6 17.0 15.2 14.7 12.4 11.0 3.1 2.7 2.4 17.8 17.1 16.8 0.5 1.4 1.3 16.5 Container Corp. SELL 503 472 (6) 306 4.3 609 16.3 16.5 20.3 12.1 1.2 23.0 31 30 25 21.6 17.1 14.0 3.0 2.8 2.7 10.1 9.5 11.1 1.7 1.4 1.7 6.0 Gateway Distriparks BUY 101 175 74 11 0.2 109 6.8 5.8 7.9 (11.1) (14.9) 37.3 14.9 17.5 12.7 22.3 6.8 5.6 0.8 0.8 0.7 6.3 4.6 5.8 4.5 3.0 3.0 0.2 Gujarat Pipavav Port BUY 80 115 44 39 0.5 483 4.3 5.2 6.2 3.6 21.2 20.2 18.8 15.5 12.9 8.6 7.4 6.3 1.9 1.9 1.9 10.2 12.3 14.7 4.8 5.7 6.8 0.3 InterGlobe Aviation REDUCE 1,641 1,535 (6) 631 8.8 383 4.1 70.0 97.8 (93.0) 1,615.5 39.8 402 23 16.8 NM 6.2 4.6 9.0 6.4 4.8 2.2 32.1 32.8 — 0.2 0.6 47 Mahindra Logistics REDUCE 332 470 42 24 0.3 71 12.5 13.6 16.2 26.5 8.8 18.6 26 24 20 15.4 12.5 9.9 4.8 4.1 3.6 19.5 18.2 18.8 ——— 1.1 Transportation Attractive 1,766 24.5 (23.7) 53.1 22.2 32 21 16.9 22.0 9.9 8.1 3.9 3.4 2.9 12.2 16.3 17.4 0.6 1.1 1.2 71 KIE universe 106,838 1482.3 11.6 21.4 20.4 23 19.1 15.9 10.8 10.0 8.8 2.6 2.4 2.1 11.3 12.3 13.4 1.5 1.8 1.9

Notes: (a) We have used adjusted book values for banking companies. (b) 2019 means calendar year 2018, similarly for 2020 and 2021 for these particular companies. (c) Exchange rate (Rs/US$)= 72.06

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

September 5, September 5, 2019

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Disclosures n a merger or strategic transaction As of June 30, 2019 , if, any, noare longer in effect for this stock ension is in compliance with applicable regulation(s) fair value , any, if for this stock,because is there notsufficient a

fair valuefair

.

al outlook al outlook on the Sector.The coverage viewwill consist of one of the following

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 5-15% returns 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 30/06/2019 Kotak Institutional Equities Investment Research had investment ratings on 204 equity securities. r r display is not or applicable. . The previous investment and rating

fair valuefair

volatility in stock prices related to movements in the market.Hence, a particular Ratingmay not SELL 0.0% 20.6%

term , if, any,have been suspended temporarily.Such susp - fair valuefair +5% returns over the next 12 months.

- 0.5% 23.5% month horizon basis. 5 er circumstances.er - REDUCE - 15% returns over the next 12 months. 5% returns over the next months.12 The information is not available fo - -

Kotak SecuritiesKotak has suspended coverage of this company. ADD 3.4% 29.9%

stock to deliver are also on12 a Kotak SecuritiesKotak Research has suspended theinvestment and rating

The information is not meaningful and is therefore excluded

ed ed upon. Kotak SecuritiesKotak does not cover this company.

The investment and rating

The coverage view represents each analyst’s fundament overall

Attractive, Neutral, Cautious. BUY 3.4% 26.0% We expect this

We expect this 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% 20% 10% 60% 50% 40% 30% 70% Source: Kotak Institutional Equities Kotak Institutional Equities Research coverage universe coverage Research Equities Institutional Kotak Distribution of ratings/investment banking relationships fundamental basis for determining an investment rating or and shouldnot be reli = NA AvailableNot or Applicable.Not = NM Meaningful.Not NR = Rated.Not and/or Kotak Securities policies in circumstances when Securities Kotak or its affiliates is acting in an advisory capacity i involving this company and in certain oth CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. Other definitions Other Coverage view. designations: ratings/identifiers Other REDUCE. SELL. Our Our Ratings System notdoes take into account short strictly be in accordance with the Rating System all at times. Ratings other and definitions/identifiers ratings of Definitions BUY. ADD. Disclosures Corporate Office Overseas Affiliates Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc 27 BKC, Plot No. C-27, “G Block” 8th Floor, Portsoken House 369 Lexington Avenue Bandra Kurla Complex, Bandra (E) 155-157 Minories 28th Floor, New York Mumbai 400 051, India London EC3N 1LS NY 10017, USA Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1 212 600 8856

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Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment. Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange(MCX). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). Kotak Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us Details of Associates are available on website i.e. www.kotak.com Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES. Visit our website for more details We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: YES Nature of Financial interest: Holding equity shares or derivatives of the subject company. Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. A graph of daily closing prices of securities is available at https://www.moneycontrol.com/india/stockpricequote/ and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the"three years" icon in the price chart). Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com / www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No. INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262. AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. Investments in securities market are subject to market risks, read all the related documents carefully before investing. In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at ‘[email protected]’ and for demat account related queries contact us at [email protected] or call us on: Toll free numbers 18002099191 / 1860 266 9191 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208. Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Mr. Manoj Agarwal) at [email protected] or call on 91- (022) 4285 8484. Level 4 : If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach Managing Director / CEO (Mr. Jaideep Hansraj) at [email protected] or call on 91-(022) 4285 8301. First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject. There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability for the contents of the First Cut Notes. For further disclosure please view https://kie.kotak.com/kinsite/index.php