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May 31, 2016 India 30-May 1-day 1-mo 3-mo Sensex 26,726 0.3 4.4 16.2 Nifty 8,179 0.3 4.2 17.1 Contents Global/Regional indices Dow Jones 17,873 0.3 0.6 8.2 Daily Alerts Nasdaq Composite 4,934 0.6 3.3 8.2 Results FTSE 6,271 0.1 0.5 2.8 Tata Motors: JLR margin improves due to currency benefits Nikkei 17,056 (0.1) 2.3 6.4 Hang Seng 20,617 (0.1) (2.1) 7.9

NTPC: Strong capacity pipeline to drive growth KOSPI 1,969 0.1 (1.3) 2.7

Value traded – India Mahindra & Mahindra: Trudging along Cash (NSE+BSE) 194 194 202

Tata Communications: In-line quarter. Risk-reward continues to be favorable; Derivatives (NSE) 1,620 2,241 3,857 ADD Deri. open interest 1,977 1,813 1,791

Prestige Estates Projects: 4QFY16: will residential consolidation continue in FY2017 as well? Forex/money market

Change, basis points Jubilant Foodworks: Still waiting for Godot 30-May 1-day 1-mo 3-mo

PC Jeweller: Quarter print impacted by jewelry industry strike Rs/US$ 67.2 (0) 82 (100) 10yr govt bond, % 7.8 3 (1) (32) Karur Vysya Bank: Relatively better Net investment (US$ mn) 27-May MTD CYTD

PVR: Good show FIIs 98 325 2,124

MFs 65 824 1,223

Top movers

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Best performers 30-May 1-day 1-mo 3-mo

HDIL IN Equity 98.3 (0.4) 14.1 60.0

MMFS IN Equity 327.8 0.9 9.3 59.0

UPLL IN Equity 591.8 (0.6) 10.0 55.1

CRG IN Equity 68.0 13.1 18.0 51.4

VEDL IN Equity 106.5 3.6 2.6 50.8

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JPA IN Equity 5.7 (0.9) (24.7) (19.9)

LPC IN Equity 1467.9 (0.8) (8.7) (16.3)

UBBL IN Equity 717.3 (0.7) (5.9) (10.7)

HCLT IN Equity 747.6 (1.3) (0.4) (8.1)

CIPLA IN Equity 473.6 0.0 (11.8) (7.9)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. BUY Tata Motors (TTMT) Automobiles MAY 31, 2016 RESULT Coverage view: Attractive

JLR margin improves due to currency benefits. Consolidated EBITDA grew by 35% Price (`): 421 yoy in 4QFY16 which was 10% better than our estimates. Both JLR and standalone Target price (`): 550 businesses reported better than expected operational performance. JLR reported BSE-30: 26,726 adjusted EBITDA margin of 16.2% versus our expectation of 14.8% driven by currency benefits which boosted average selling prices during the quarter. JLR’s volume momentum is likely to continue in FY2017 which would help maintain strong EBITDA margin and cash flow. Maintain BUY with a revised TP of ₹550 (from ₹500 earlier).

Company data and valuation summary Tata Motors Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 483-266 EPS (Rs) 32.5 47.6 56.7 Market Cap. (Rs bn) 1,359.3 EPS growth (%) (22.2) 46.5 19.2 Shareholding pattern (%) P/E (X) 13.0 8.9 7.4 Promoters 33.0 Sales (Rs bn) 2,755.6 2,996.3 3,308.5 FIIs 23.6 Net profits (Rs bn) 110.2 161.5 192.5 MFs 4.7 EBITDA (Rs bn) 367.6 445.2 507.6 Price performance (%) 1M 3M 12M EV/EBITDA (X) 4.2 3.6 3.1 Absolute 3.2 40.6 (12.5) ROE (%) 16.1 18.2 18.1 Rel. to BSE-30 (1.2) 21.0 (8.9) Div. Yield (%) 0.0 0.0 0.0

JLR business: Currency benefits positively impact EBITDA margin

JLR reported revenues of GBP6.6 bn (+13% yoy) which was 5% above our estimates largely due to favorable currency movements as geographical mix was largely flat on a sequential basis. GBP depreciated by 6% qoq against USD and 3% against CNY in 4QFY16 which boosted average realizations. Excluding one-off items of GBP166 mn related to vehicle recall in the US due to faulty airbag and bad debt provisions, the company reported EBITDA of GBP 1.07bn (+5% yoy) which was 15% above our estimates largely due to better realizations. Other expenses also included forex loss of GBP145 mn related to FX/commodity hedges and revaluation of current assets/liabilities. JLR’s share of income in China JV increased to GBP49 mn in 4QFY16, a sharp jump from GBP22 mn in 3QFY16. JLR also reported a positive free cash flow of GBP1.4 bn in 4QFY16, largely due to GBP1.1 bn reduction in working capital requirements. This helped the company turn net cash at the consolidated level excluding financing debt. Standalone business reports a profit after 13 quarters

The standalone business reported a profit of ₹4.65 bn in 4QFY16 helped by sharp improvement at the EBITDA level and a tax credit of ₹953 mn. Standalone revenues improved by 17% yoy driven by strong recovery in commercial vehicle volumes while the EBITDA grew by 4.6X on a yoy basis. Standalone operations turned profitable after posting losses for the past 13 quarters and will likely fund the capex through internal accruals in FY2017. Strong demand for new models of JLR and strong balance sheet to drive re-rating of the stock

We estimate JLR volumes to grow in mid-teens in FY2017 led by strong demand of Jaguar XE, Hitesh Goel F-pace and Discovery Sport. At current currency spot rates, JLR is maintaining an EBITDA margin of ~17.5% despite an increase in fixed and variable marketing incentives. We are cautious in our EBITDA margin forecasts as it can fluctuate on currency movements and geographical mix, Nishit Jalan but we reckon ~16% EBITDA margin is sustainable in FY2017. The full benefit of currency and decline in commodity cost is yet to flow through in the P&L. We raise our consolidated EPS estimates by 6-14% over FY2017/18 driven by 70-90 bps increase in JLR’s EBITDA margin assumptions. We thus raise target price to ₹550 (from ₹500 earlier) based on SOTP methodology.

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

JLR margin improvement surprises the street

JLR reported revenues of GBP6.6 bn (+13% yoy) which was 5% above our estimates largely due to favorable currency movements as geographical mix was largely flat on a sequential basis. GBP depreciated by 6% qoq against USD and 3% against CNY in 4QFY16. Excluding one-off items of GBP166 mn (see details below), the company reported EBITDA of GBP 1.07bn (+5% yoy) which was 15% above our estimates largely due to better realizations. Gross margin improved by 240bps qoq as against our estimate of 150bps improvement. Other expenses in 4QFY16 included one-off items amounting to GBP166 mn pertaining to vehicle recall in the U.S. potentially faulty passenger airbags supplied by Takata, doubtful debts and previously capitalized investments. Adjusted for these expenses, EBITDA margin for the quarter was 16.2%. The company also reported a forex loss of GBP145 mn above EBITDA pertaining to (1) GBP75 mn on realized forex hedges, (2) GBP20 mn on realized commodity hedges and (3) GBP50 mn loss on revaluation of current assets and liabilities. The profitability of the China JV improved further with JLR’s share of profit at GBP49 mn in 4QFY16 as compared to GBP22 mn in 3QFY16 and loss of GBP10 mn in 4QFY15. Adjusted PAT came in at GBP459 (down 2% yoy) mn which was 12% ahead of our estimates. Key highlights of JLR performance in 4QFY16

 JLR’s wholesale volumes were up 26% yoy in 4QFY16 including sales in China joint venture. JLR’s volumes excluding China were up 20% yoy in 4QFY16 led by the strong success of Jaguar XE and Discovery Sport. Land Rover Discovery and Evoque volumes also grew in double-digits in this quarter. Range Rover volumes declined by 16% yoy and Range Rover Sport volumes were flat yoy.

 On the geographical front, China volumes (including China JV) increased by 55% yoy in 4QFY16. In the UK P&L, China volumes were up 14% yoy. Volumes in the developed markets (UK, Europe and North America) were strong with 17-52% yoy growth.

 China JV volumes came in at 12,500 units; largely flat qoq but up significantly from 4,000 units in 4QFY15. The profitability of the China JV improved further with JLR’s share of profit at GBP49 mn in 4QFY16 as compared to GBP22 mn in 3QFY16 and loss of GBP10 mn in 4QFY15

 JLR has a strong product pipeline over the next few months with planned launches of Jaguar XE in the US, the all new Jaguar XF and F-Pace. This should help the company sustain strong volume growth in FY2017E.

 JLR reported a positive free cash flow of GBP1.4 bn in 4QFY16 largely due to GBP1.1 bn reduction in working capital requirements.

 Total R&D spend was GBP400 mn and capex spend GBP342 mn in 4QFY16. For FY2016, total capex + R&D was GBP3.14 bn. The company is indicating a total capex of GBP3.75 bn in FY2017E. Its capex spending has been much lower than its guidance historically.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Automobiles Tata Motors

Exhibit 1: JLR’s 4QFY16 results were above expectations on higher realizations; adjusted EBITDA margin at 16.2% JLR interim financial results, March fiscal year-ends (GBP mn)

(% chg.) 4QFY16 4QFY16E 4QFY15 3QFY16 4QFY16E 4QFY15 3QFY16 FY2016 FY2015 Yoy chg. (%) FY2017E Volumes (units) 149,895 148,927 125,161 137,631 0.6 19.8 8.9 509,286 466,479 543,356 Average realization 43,991 42,142 46,548 42,004 4.4 (5.5) 4.7 43,606 46,875 43,657 Net sales 6,594 6,276 5,826 5,781 5.1 13.2 14.1 22,208 21,866 1.6 23,721 Total expenditure (5,691) (5,350) (4,810) (4,947) 6.4 18.3 15.0 (19,061) (17,734) (19,993) Raw materials (3,828) (3,703) (3,417) (3,496) 3.4 12.0 9.5 (13,146) (13,185) (14,114) Staff cost (648) (600) (550) (582) 8.0 17.8 11.3 (2,321) (1,977) (2,631) Other expenditure (1,070) (847) (850) (786) 26.3 25.9 36.1 (3,238) (2,758) (3,247) Forex losses (realized hedge book and revaluation of WC) (145) (200) 7 (83) (356) 186 - EBITDA 903 926 1,016 834 (2.5) (11.1) 8.3 3,147 4,132 (23.8) 3,729 Associate Income (China JV) 49 30 (10) 22 64 (34) Interest (13) (14) (82) (10) (52) (60) (45) Depreciation (378) (380) (308) (357) (0.5) 22.7 5.9 (1,418) (1,051) (1,718) Pretax profits 561 562 616 489 (0.2) (8.9) 14.7 1,677 2,987 (43.9) 1,966 Tax expense (105) (152) (94) (59) (30.8) (245) (576) (511) Exceptional gains/(losses) 16 — (220) 10 (184) (373) - Reported profit after tax 472 410 302 440 15.0 56.3 7.3 1,248 2,038 (38.8) 1,455 Adjusted PAT 459 410 470 431 11.8 (2.3) 6.4 1,385 2,337 (40.7) 1,455 JLR wholesale volume mix (units) Jaguar 32,193 32,193 20,078 27,024 60.3 19.1 102,106 76,496 33.5 163,430 Land Rover 117,702 116,734 105,083 110,607 12.0 6.4 407,180 389,983 4.4 379,926 China JV 12,532 13,500 4,044 12,830 (2.3) 34,799 4,044 72,000 Total volumes (including China JV) 162,427 162,427 129,205 150,461 25.7 8.0 544,085 470,523 15.6 615,356 Product Mix (%) Jaguar 19.8 19.8 15.5 18.0 18.8 16.3 26.6 Land Rover 72.5 71.9 81.3 73.5 74.8 82.9 61.7 China JV 7.7 8.3 3.1 8.5 6.4 0.9 11.7 Geographical Mix - Wholesale Volumes (units) China (Only JLR P&L, excludes China JV volumes) 17,200 15,082 15,800 14.0 8.9 63,895 111,222 (42.6) 64,000 Europe 40,900 26,852 37,200 52.3 9.9 130,239 89,722 45.2 136,410 North America 30,900 24,543 30,500 25.9 1.3 108,923 79,044 37.8 119,790 United Kingdom 36,400 31,017 26,000 17.4 40.0 111,074 88,052 26.1 116,655 Rest of World 24,495 27,667 28,131 (11.5) (12.9) 95,155 98,439 (3.3) 106,501 Modelwise wholesale volumes (units) XE 10,200 - 11,400 39,290 - 60,000 XF 12,400 13,400 10,000 (7.5) 24.0 36,180 45,949 (21.3) 48,000 XJ 4,800 3,700 2,700 29.7 77.8 12,275 16,356 (25.0) 12,200 XK - 78 - 81 2,030 (96.0) - F-Pace 1,700 - - 1,700 - 30,000 Others (incl. F Type) 3,093 2,900 2,924 6.7 5.8 12,580 12,161 3.4 13,230 Jaguar 32,193 20,078 27,024 60.3 19.1 102,106 76,496 33.5 163,430 Defender 3,400 6,400 5,700 (46.9) (40.4) 20,386 20,079 1.5 - Discovery 16,700 15,000 15,300 11.3 9.2 53,728 50,626 6.1 51,000 Freelander/Discovery Sport 28,200 14,400 25,100 95.8 12.4 91,080 52,276 74.2 78,000 Range Rover 15,300 18,200 17,500 (15.9) (12.6) 60,140 61,412 (2.1) 60,100 Range Rover Evoque 27,702 25,083 23,907 10.4 15.9 91,610 119,781 (23.5) 90,300 Range Rover Sport 26,400 26,000 23,100 1.5 14.3 90,236 85,809 5.2 100,526 Land Rover 117,702 105,083 110,607 12.0 6.4 407,180 389,983 4.4 379,926 Currency Movement (average) GBPUSD 1.43 1.43 1.51 1.52 (5.4) (5.5) GBPEUR 1.30 1.30 1.35 1.38 (3.5) (6.2) GBPCNY 9.37 1.30 9.45 9.69 (0.9) (3.3) GBPINR 96.6 96.6 94.2 99.9 2.6 (3.3) Ratios (%) EBITDA margin (%) 13.7 14.8 17.4 14.4 14.2 18.9 15.7 Raw material exp to sales 58.1 59.0 58.7 60.5 59.2 60.3 59.5 Staff cost to sales 9.8 9.6 9.4 10.1 10.5 9.0 11.1 Other expenses to sales 18.4 16.7 14.5 15.0 16.2 11.8 13.7 Tax rate (%) 18.7 27.0 15.3 12.1 14.6 19.3 26.0

Notes: (a) Other expenses in 4QFY16 includes one-off items amounting to GBP166 mn pertaining to vehicle recall in the U.S. of potentially faulty passenger airbags supplied by Takata, doubtful debts and previously capitalised investment. Adjusted for the above mentioned one-off expenses, EBITDA margin for the quarter was 16.2%

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: GBP depreciated by 6% qoq against USD in 4QFY16 Average quarterly currency movement, March fiscal year-ends, 2013-16

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 GBP-USD Average 1.58 1.58 1.61 1.55 1.54 1.55 1.62 1.65 1.68 1.67 1.58 1.51 1.53 1.55 1.52 1.43 Period-end 1.56 1.62 1.62 1.52 1.52 1.62 1.66 1.66 1.71 1.62 1.56 1.49 1.57 1.51 1.47 1.44 EUR-USD Average 1.28 1.25 1.30 1.32 1.31 1.33 1.36 1.37 1.37 1.33 1.25 1.13 1.11 1.11 1.10 1.10 Period-end 1.26 1.29 1.32 1.28 1.30 1.35 1.37 1.38 1.37 1.27 1.22 1.10 1.12 1.12 1.09 1.14 GBP-CNY Average 10.0 10.0 10.0 9.7 9.5 9.5 9.9 10.1 10.5 10.3 9.7 9.5 9.5 9.8 9.7 9.4 Period-end 10.0 10.2 10.1 9.4 9.3 9.9 10.0 10.4 10.6 10.0 9.7 9.3 9.8 9.6 9.6 9.3 GBP-RUB Average 49.1 50.5 49.9 47.2 48.6 50.8 52.7 58.0 58.9 60.0 75.3 95.7 80.8 97.9 100.3 107.1 Period-end 50.9 50.5 49.6 47.2 49.9 52.4 54.5 59.3 58.1 63.6 83.2 84.9 87.7 98.8 106.3 96.1

Source: Bloomberg, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Motors Automobiles

Exhibit 3: JLR generated strong free cash flow in 4QFY16 due to reduction in working capital JLR's cash-flow summary statement, March fiscal year-ends, 2013-16 (GBP mn)

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Cash from operating activities 525 472 487 812 628 823 1,010 920 1,087 911 1,056 1,016 821 589 822 903 Working capital changes and tax paid (39) 52 (173) 293 (512) 172 (61) 442 (467) 278 (293) 39 (886) (123) 376 1,114 Cash flow from operations 486 524 314 1,105 116 995 949 1,362 620 1,189 763 1,055 (121) 466 1,198 2,017 Investment in tangible and intangible assets (377) (444) (496) (533) (508) (595) (733) (608) (629) (701) (825) (738) (712) (700) (765) (640) Other (including finance income) (3) 36 50 (67) 51 30 18 73 14 9 16 18 15 9 21 16 Free cash flow 106 116 (132) 505 (341) 430 234 827 5 497 (46) 335 (818) (225) 454 1,393 Investment in financial deposits (175) (200) 75 (475) (35) 140 (392) (177) (225) (48) 364 104 ——— Changes in debt (144) (89) 146 236 (95) 92 361 (437) 4 (13) 333 18 5 (27) 18 (107) Dividends paid — (150) —— (150) ——— (150) ——— (150) ——— Finance expenses and fees paid (60) (33) (49) (35) (46) (38) (51) (134) (26) (41) (30) (133) (25) (50) (24) (43) Net change in cash and cash equivalents (273) (356) 40 231 (667) 624 152 79 (392) 395 621 324 (988) (302) 448 1,243

Source: Company, Kotak Institutional Equities

Exhibit 4: JLR expensed ~25% of R&D in P&L in 4QFY16 Break-up of JLR R&D and capex spend, March fiscal year-ends, 2013-16 (GBP mn)

1QFY13 2QFY13 FY2014 3QFY13 4QFY13 1QFY14 2QFY14 FY2013 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 R&D expense Capitalized 215 218 1,030 229 198 242 259 860 271 258 273 274 303 308 315 306 323 298 Expensed 47 51 236 46 54 50 62 198 55 69 53 62 65 73 64 75 77 102 Total R&D expense 262 269 1,266 275 252 292 321 1,058 326 327 326 336 368 381 379 381 400 400 Investment in tangible and other intangible assets 162 226 1,414 267 335 266 336 990 462 350 356 427 522 430 397 394 442 342 Total product and other investment 424 488 2,680 542 587 558 657 2,048 788 677 682 763 890 811 776 775 842 742 R&D capitalized as % of total R&D 82.1 81.0 81.4 83.3 78.6 82.9 80.7 81.3 83.1 78.9 83.7 81.5 82.3 80.8 83.1 80.3 80.8 74.5

Source: Company, Kotak Institutional Equities

Exhibit 5: China share will increase in FY2017E as JV production ramps up Geography-wise volume mix, March fiscal year-ends, 2012-19E (units, %)

2012 2013 2014 2015 2016 2017E 2018E 2019E Geography N.A 58,327 64,885 71,000 79,000 108,900 119,790 134,165 150,265 UK 61,796 68,054 76,000 88,100 111,100 116,655 130,654 146,332 Europe (excl Russia and UK) 71,580 78,781 70,000 89,700 124,200 130,410 146,059 163,586 Russia 15,201 16,721 13,000 10,400 6,000 6,000 6,000 6,000 China 54,532 79,441 104,000 119,300 98,651 136,000 152,000 160,800 Asia Pac (excl China) 14,467 18,289 23,000 27,100 29,810 32,791 36,070 39,677 Rest of World 38,530 45,891 73,000 56,900 65,376 73,710 75,267 76,717 Total Volumes 314,433 372,062 430,000 470,500 544,037 615,356 680,214 743,377 Yoy growth (%) 29.1 18.3 15.6 9.4 15.6 13.1 10.5 9.3 Geographical mix (%) N.A 18.5 17.4 16.5 16.8 20.0 19.5 19.7 20.2 UK 19.7 18.3 17.7 18.7 20.4 19.0 19.2 19.7 Europe (excl Russia and UK) 22.8 21.2 16.3 19.1 22.8 21.2 21.5 22.0 Russia 4.8 4.5 3.0 2.2 1.1 1.0 0.9 0.8 China 17.3 21.4 24.2 25.4 18.1 22.1 22.3 21.6 Asia Pac (excl China) 4.6 4.9 5.3 5.8 5.5 5.3 5.3 5.3 Rest of World 12.3 12.3 17.0 12.1 12.0 12.0 11.1 10.3 Total Volumes 100 100 100 100 100 100 100 100

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Automobiles Tata Motors

Exhibit 6: New model launches to drive 13% yoy volume growth for JLR in FY2017E JLR model-wise volume mix assumptions, March fiscal year-ends, 2012-18E (units, %)

2012 2013 2014 2015 2016 2017E 2018E 2019E Model XF 33,651 37,984 47,000 45,900 36,200 60,000 60,000 63,600 XJ 15,843 15,816 19,000 16,300 12,200 12,200 12,200 12,200 XK 4,545 4,012 3,000 2,100 100 — — — F type — — 10,000 12,200 12,600 13,230 13,892 14,586 Small Jaguar — — — — 39,200 60,000 66,000 66,000 F Pace — — — — 1,806 30,000 50,000 60,000 Jaguar 54,039 57,812 79,000 76,500 102,106 175,430 202,092 216,386 Defender 19,290 15,089 17,000 20,000 20,200 — — 20,000 Discovery 46,466 43,579 44,000 50,600 53,700 51,000 58,650 61,583 Freelander 46,977 52,150 57,000 38,700 — — — — Discovery Sport — — — 13,600 97,800 108,000 110,000 118,040 Range Rover 31,209 29,835 46,000 61,400 60,100 60,100 63,105 66,260 RRSport 56,235 57,485 66,000 85,800 90,300 90,300 94,815 99,556 Evoque 60,217 116,112 121,000 123,900 119,831 130,526 141,553 141,553 New Range Rover SUV — — — — — — 10,000 20,000 Land Rover 260,394 314,250 351,000 394,000 441,931 439,926 478,123 526,991 Total Volumes 314,433 372,062 430,000 470,500 544,037 615,356 680,214 743,377 Model mix (%) XF 10.7 10.2 10.9 9.8 6.7 9.8 8.8 8.6 XJ 5.0 4.3 4.4 3.5 2.2 2.0 1.8 1.6 XK 1.4 1.1 0.7 0.4 0.0 - - - F type — — 2.3 2.6 2.3 2.1 2.0 2.0 Small Jaguar — — — - 7.2 9.8 9.7 8.9 F Pace — — — — 0.3 4.9 7.4 8.1 Defender 6.1 4.1 4.0 4.3 3.7 - - 2.7 Discovery 14.8 11.7 10.2 10.8 9.9 8.3 8.6 8.3 Freelander 14.9 14.0 13.3 8.2 — — — — Discovery Sport — — — 2.9 18.0 17.6 16.2 15.9 Range Rover 9.9 8.0 10.7 13.0 11.0 9.8 9.3 8.9 RRSport 17.9 15.5 15.3 18.2 16.6 14.7 13.9 13.4 Evoque 19.2 31.2 28.1 26.3 22.0 21.2 20.8 19.0 New Range Rover SUV — — — — — — 1.5 2.7 Total Volumes 100 100 100 100 100 100 100 100

Source: Company, Kotak Institutional Equities estimates

Standalone business: gross margin surprises positively

 Net sales of `125.7 bn (+17% yoy) was marginally ahead of our estimates. Realizations improved by 10% yoy led by increased MHCV mix in the quarter. MHCV volumes grew by 26% yoy in 4QFY16 while LCV volume growth recovered to 14% yoy.

 Standalone business reported an EBITDA of `9 bn (KIE ₹8.4 bn) and EBITDA margin of 7.1% (KIE 6.8%). The beat was led by sequential expansion in gross margin while this was partly offset by higher other expenses.

 We expect standalone EBITDA margin to improve to 8% levels over the next few quarters led by continued growth in MHCV volumes and pick-up in LCV segment.

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Motors Automobiles

Exhibit 7: Standalone 4QFY16 EBITDA above estimates on stronger-than-expected gross margin improvement Tata Motors standalone interim financial results, March fiscal year-ends (` mn)

(% chg.) 4QFY16 4QFY16E 4QFY15 3QFY16 4QFY16E 4QFY15 3QFY16 FY2016 FY2015 Yoy chg. (%) FY2017E Volumes (units) 146,766 146,766 139,270 122,397 5.4 19.9 511,732 502,181 1.9 596,631 Gross realization (Rs) 941,619 925,129 855,359 898,184 1.8 10.1 4.8 911,519 787,053 15.8 945,181 Gross sales 138,198 135,778 119,126 109,935 1.8 16.0 25.7 466,454 395,243 18.0 563,924 Excise duty (12,500) (12,763) (11,283) (9,929) (2.1) 10.8 25.9 (42,769) (32,296) 32.4 (56,443) Net sales 125,698 123,014 107,843 100,006 2.2 16.6 25.7 423,685 362,947 16.7 507,481 Raw materials (84,891) (87,340) (77,050) (71,596) (2.8) 10.2 18.6 (295,953) (271,867) 8.9 (350,825) Staff cost (7,445) (8,100) (8,362) (7,811) (8.1) (11.0) (4.7) (30,268) (30,915) (2.1) (34,559) Other expenditure (24,398) (19,183) (20,841) (15,986) 27.2 17.1 52.6 (74,309) (72,540) 2.4 (81,025) EBITDA 8,964 8,391 1,590 4,613 6.8 463.6 94.3 23,156 (12,375) 41,072 Other income 4,601 2,000 831 4,748 130.0 453.8 (3.1) 13,274 3,327 298.9 8,000 Interest (3,438) (3,600) (4,709) (3,456) (4.5) (27.0) (0.5) (14,811) (16,117) (8.1) (13,493) Depreciation (6,140) (6,100) (8,233) (6,054) 0.7 (25.4) 1.4 (24,538) (26,032) (5.7) (27,440) Profit before tax before exceptional 3,986 691 (10,521) (149) (2,919) (44,598) 8,139 Extraordinary income — — — — 8,055 15,487 — Extraordinary exp (289) — (1,043) (1,883) (3,633) (10,637) — Pretax profits 3,696 691 (11,564) (2,032) 1,503 (39,747) 8,139 Tax expense 953 (187) (78) 24 839 (7,642) (1,628) Profit after tax 4,650 505 (11,643) (2,008) 2,342 (47,390) 6,511 Adjusted PAT 4,650 505 (10,600) (2,008) (3,114) (52,240) 6,511 EPS (Rs) 1.4 0.1 (3.1) (0.6) (0.9) (15.4) 1.9 Segmental volume breakdown (units) MHCV 53,666 53,666 42,535 40,763 26.2 31.7 176,085 142,737 23.4 210,340 LCV 61,805 61,805 54,132 49,550 14.2 24.7 205,251 221,845 (7.5) 236,016 Passenger cars 26,386 26,386 36,951 27,802 (28.6) (5.1) 111,032 87,496 26.9 131,395 Utility vehicles 4,909 4,909 5,652 4,282 (13.1) 14.6 19,364 50,103 (61.4) 18,881 Product Mix (%) MHCV 36.6 36.6 30.5 33.3 34.4 28.4 35.3 LCV 42.1 42.1 38.9 40.5 40.1 44.2 39.6 Passenger cars 18.0 18.0 26.5 22.7 21.7 17.4 22.0 Utility vehicles 3.3 3.3 4.1 3.5 3.8 10.0 3.2 Ratios (%) Excise duty as a % of gross sales 9.0 9.4 9.5 9.0 9.2 8.2 10.0 Raw material cost as % of net sales 67.5 71.0 71.4 71.6 69.9 74.9 69.1 Staff cost as % of net sales 5.9 6.6 7.8 7.8 7.1 8.5 6.8 Other expenses as % of net sales 19.4 15.6 19.3 16.0 17.5 20.0 16.0 EBITDA margin (%) 7.1 6.8 1.5 4.6 5.5 (3.4) 8.1

Source: Company, Kotak Institutional Equities estimates

Consolidated EBITDA 10% above estimates

The company reported consolidated EBITDA of ₹113.9 bn (+35% yoy) which was 10% ahead of our estimates led by the upsurge in both standalone and JLR business (adjusted for one-off items of GBP166 mn). Consolidated revenues increased by 19% yoy in 4QFY16 led by strong volume growth in both JLR and domestic businesses.

Performance of Tata Motor Finance improved in 3FY16; revenues grew by 42% yoy and the company posted net profit of ₹2.1 bn as compared to steep losses yoy. Tata Technologies reported 7% yoy growth in net profit, TML Drivelines reported 35% yoy PAT growth while Daewoo reported 41% yoy decline in net profit due to 21% yoy decline in revenues.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Automobiles Tata Motors

Exhibit 8: Tata Motors consolidated earnings above estimates led by beat in both standalone and JLR performance Tata Motors consolidated interim financial results, March fiscal year-ends (` mn)

(% chg.) 4QFY16 4QFY16E 4QFY15 3QFY16 4QFY16E 4QFY15 3QFY16 FY2016 FY2015 Yoy chg. (%) FY2017E Net sales 806,844 775,447 675,760 722,564 4.0 19.4 11.7 2,752,785 2,627,963 4.7 2,996,332 Raw materials (464,923) (425,000) (405,185) (435,890) 9.4 14.7 6.7 (1,624,190) (1,599,200) Staff costs (77,702) (74,000) (67,831) (74,380) 5.0 14.6 4.5 (291,989) (255,490) Other expenses (150,347) (172,581) (118,362) (118,495) (12.9) 27.0 26.9 (469,044) (380,886) Total expenses (692,972) (671,581) (591,377) (628,765) 3.2 17.2 10.2 (2,385,223) (2,235,576) EBITDA 113,872 103,866 84,383 93,800 9.6 34.9 21.4 367,562 392,387 (6.3) 445,165 Other income 2,486 3,000 2,452 1,806 (17.1) 1.4 37.7 9,817 8,987 Interest expense (12,552) (11,000) (18,946) (10,915) 14.1 (33.7) 15.0 (46,234) (48,615) Depreciation (44,239) (44,000) (38,568) (43,391) 0.5 14.7 2.0 (170,142) (133,886) Exceptional 6,044 (1,612) 457 (21,196) (1,847) Profit before tax 65,611 51,866 27,710 41,757 26.5 136.8 57.1 139,809 217,026 (35.6) 221,629 Tax expense (13,546) (15,560) (10,236) (6,513) (12.9) 32.3 108.0 (28,726) (76,429) Minority int/associates (294) (200) (309) (169) (846) (734) Profit after tax 51,771 36,106 17,165 35,075 43.4 201.6 47.6 110,237 139,863 (21.2) 161,489 Adjusted profit after tax 47,238 36,106 18,777 34,618 30.8 151.6 36.5 126,019 141,710 (11.1) 161,489 EPS (Rs) 13.9 10.6 5.5 10.2 30.8 151.6 36.5 37.1 41.7 (11.1) 47.6

Source: Company, Kotak Institutional Equities estimates

Exhibit 9: Key financials of Tata Motors subsidiaries, March fiscal year-ends, 1QFY13-4QFY16

Change (%) 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 yoy qoq Tata Motors Finance (Rs mn) Net sales 6,493 6,779 7,840 7,786 8,191 7,619 7,243 7,217 7,129 7,538 7,245 5,518 8,904 6,660 7,212 7,854 42.3 8.9 Operating margin (%) 17.0 15.5 16.3 15.3 15.1 9.0 0.1 (2.4) (20.4) (5.9) (16.4) (92.5) 14.2 NA NA NA Profit after tax 727 688 840 838 798 410 (15) (183) (993) (330) (819) (3,968) 908 (640) 334 2,068 Tata Technologies (Rs mn) Net sales 4,583 4,686 5,360 5,321 5,176 5,734 5,939 6,591 5,939 6,356 6,632 7,015 6,251 6,551 6,911 7,149 1.9 3.4 Operating margin (%) 19.6 16.5 19.1 21.3 12.0 11.7 14.2 19.9 16.3 15.9 15.8 19.6 16.2 18.3 20.3 19.2 Profit after tax 749 683 750 825 531 440 692 1,067 754 794 786 1,011 808 900 1,024 1,085 7.4 6.0 Tata Daewoo (KRW bn) Net sales 217 205 175 227 240 202 213 229 222 232 233 301 193 223 226 238 (21.1) 5.1 Operating margin (%) 2.5 1.5 1.5 3.6 5.5 3.5 4.2 15.0 6.2 4.9 15.3 7.2 10.2 9.7 9.3 7.1 Profit after tax 1.4 0.5 0.3 (11.4) 8.4 4.4 5.3 5.9 4.0 4.5 32.0 13.5 11.8 13.5 12.3 8.0 (40.7) (35.0) TML Drivelines Ltd. (Rs mn) Net sales 977 1,250 890 899 1,145 927 779 1,159 1,177 1,297 1,282 1,501 1,349 1,400 1,226 1,476 (1.7) 20.4 Operating margin (%) 38.0 49.5 34.0 38.5 33.0 16.8 8.2 32.2 29.5 28.2 29.1 30.0 28.1 24.2 14.7 28.7 Profit after tax 236 328 120 105 118 46 (26) 52 38 104 172 154 164 148 28 208 35.2 642.9

Source: Company, Kotak Institutional Equities

China JV profitability improves further in 4QFY16

JLR’s JV with Chery in China sold around 12,500 vehicles in 4QFY16 (flat qoq but up from around 4,000 vehicles in 4QFY15) and posted net profit of GBP98 mn in the quarter (GBP44 mn in 3QFY16) as compared to net loss of GBP10 mn in 4QFY15. We expect JV volumes to reach 72,000 units by FY2017E post the ramp-up of Discovery Sport and launch of Jaguar XF in 2HFY17. With improvement in volumes, we expect the JV to post EBITDA margin of 17.9% in FY2017E. We ascribe `52/share value to the JLR’s share of 50% stake in the JV.

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Motors Automobiles

Exhibit 10: We expect further improvement in China JV’s EBITDA margins in FY2017-18E Summary projected financials of JLR China JV venture, March fiscal year-ends, 2016-19E (GBP mn)

2016E 2017E 2018E 2019E Sales volumes (units) Discovery Sport 8,000 30,000 36,000 39,600 Evoque 26,751 30,000 36,000 36,000 Jaguar XF - 12,000 12,000 13,200 Total sales volumes 34,751 72,000 84,000 88,800 Net sales 1,278 2,646 3,084 3,259 Raw material cost (811) (1,680) (1,958) (2,070) Staff cost (60) (83) (83) (83) Royalty (77) (146) (154) (163) Other expenses (128) (265) (308) (326) Total expenses (1,076) (2,173) (2,503) (2,641) EBITDA 202 473 581 618 Interest expense (3) (10) (10) (10) Depreciation expense (30) (40) (40) (40) Profit before tax 169 423 531 568 Tax (41) (148) (186) (199) Profit after tax 128 275 345 369 Ratios Raw material cost as % of net sales 63.5 63.5 63.5 63.5 Staff cost as % of net sales 4.7 3.1 2.7 2.5 Royalty cost as % of net sales 6.0 5.5 5.0 5.0 Other expenses cost as % of net sales 10.0 10.0 10.0 10.0 EBITDA margin (%) 15.8 17.9 18.8 19.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Automobiles Tata Motors

Exhibit 11: We expect standalone volumes to increase by 17% yoy in FY2017E Tata Motors standalone volume assumptions, March fiscal year-ends, 2011-18E (units)

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E M&HCVs 209,522 221,298 152,505 122,498 142,737 176,573 210,340 231,374 254,511 M&HCVs-domestic 192,127 207,014 143,381 110,225 127,011 157,226 188,671 207,538 228,292 M&HCVs-exports 17,395 14,284 9,124 12,273 15,726 19,347 21,669 23,836 26,219 LCVs 287,463 363,756 428,643 298,799 221,818 205,231 236,016 271,418 303,988 LCVs-domestic 77,558 95,791 113,520 85,140 59,598 41,719 47,976 55,173 61,794 Ace 177,096 227,179 280,242 183,059 131,533 129,015 148,368 170,623 191,098 LCVs-exports 32,809 40,786 34,881 30,600 30,687 34,497 39,672 45,622 51,097 UVs 43,063 56,464 48,617 32,400 25,617 18,881 18,881 20,754 22,814 UVs-domestic 42,297 55,744 47,454 31,268 24,609 18,138 18,138 19,952 21,947 UVs-exports 766 720 1,163 1,132 1,008 743 743 802 867 Passenger vehicles 263,274 265,254 180,355 112,894 111,982 111,072 131,395 144,464 158,834 Passenger vehicles-domestic 185,767 183,439 120,845 85,648 92,569 92,808 111,370 122,507 134,757 Passenger vehicles-exports 7,075 7,288 5,663 5,707 2,512 3,264 3,525 3,807 4,112 Small car 70,432 74,527 53,847 21,539 16,901 15,000 16,500 18,150 19,965 Total domestic sales 745,277 843,694 759,289 516,879 452,221 453,906 531,023 593,942 657,853 Total export sales 58,045 63,078 50,831 49,712 49,933 57,851 65,608 74,067 82,294 Total vehicle sales 803,322 906,772 810,120 566,591 502,154 511,757 596,631 668,010 740,147 Volume growth (yoy %) M&HCVs 24.8 5.6 (31.1) (19.7) 16.5 23.7 19.1 10.0 10.0 M&HCVs-domestic 23.8 7.7 (30.7) (23.1) 15.2 23.8 20.0 10.0 10.0 M&HCVs-exports 37.1 (17.9) (36.1) 34.5 28.1 23.0 12.0 10.0 10.0 LCVs 23.0 26.5 17.8 (30.3) (25.8) (7.5) 15.0 15.0 12.0 LCVs-domestic (10.1) 23.5 18.5 (25.0) (30.0) (30.0) 15.0 15.0 12.0 Ace 34.0 28.3 23.4 (34.7) (28.1) (1.9) 15.0 15.0 12.0 LCVs-exports 115.6 24.3 (14.5) (12.3) 0.3 12.4 15.0 15.0 12.0 UVs 26.2 31.1 (13.9) (33.4) (20.9) (26.3) - 9.9 9.9 UVs-domestic 26.1 31.8 (14.9) (34.1) (21.3) (26.3) - 10.0 10.0 UVs-exports 29.2 (6.0) 61.5 (2.7) (11.0) (26.3) - 8.0 8.0 Passenger vehicles 27.2 0.8 (32.0) (37.4) (0.8) (0.8) 18.3 9.9 9.9 Passenger vehicles-domestic 8.6 (1.3) (34.1) (29.1) 8.1 0.3 20.0 10.0 10.0 Passenger vehicles-exports 25.5 3.0 (22.3) 0.8 (56.0) 29.9 8.0 8.0 8.0 Small car 132.1 5.8 (27.7) (60.0) (21.5) (11.2) 10.0 10.0 10.0 Total domestic sales 22.5 13.2 (10.0) (31.9) (12.5) 0.4 17.0 11.8 10.8 Total export sales 70.0 8.7 (19.4) (2.2) 0.4 15.9 13.4 12.9 11.1 Total vehicle sales 25.0 12.9 (10.7) (30.1) (11.4) 1.9 16.6 12.0 10.8

Source: Company, Kotak Institutional Equities estimates

Exhibit 12: We value Tata Motors at `550/share based on SOTP methodology Tata Motors earnings revision table, March fiscal year-ends, 2017E

Value per Net profit Multiple Value share (Rs mn) (X) (Rs mn) (Rs) Comments Tata Motors standalone EV 8,535 15.0 128,026 38 based on 15X March 2018 EPS

JLR UK 1,614 9.0 1,452,355 434 based on 9X March 2018 EPS

JLR China JV valuation 52 Based on 6X EV/EBITDA March 2018

Total standalone + JLR 524 Value of subsidiaries 26 Target price 550

Source: Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Motors Automobiles

Exhibit 13: We increase our FY2017-18E consol EPS estimates by 7-14% due to increase in JLR EBITDA margin estimates Earnings revision table, March fiscal year-ends, FY2017-18E (Rs mn)

New estimates Old estimates % change 2017E 2018E 2017E 2018E 2017E 2018E Standalone (Rs mn) Volumes (units) 596,631 668,010 599,031 671,163 (0.4) (0.5) Net sales 507,481 578,769 501,071 571,932 1.3 1.2 EBITDA 41,072 48,096 36,892 45,843 11.3 4.9 EBITDA margin (%) 8.1 8.3 7.4 8.0 Adjusted net profit 6,511 8,535 2,325 5,433 180.0 57.1 EPS 1.9 2.5 0.7 1.6 174.0 57.1 JLR (GBP mn) Volumes (units) 543,356 596,214 536,187 595,197 1.3 0.2 Average realization 43,657 43,436 43,875 43,480 (0.5) (0.1) Net sales 23,721 25,897 23,525 25,879 0.8 0.1 EBITDA 3,729 4,189 3,480 4,017 7.1 4.3 EBITDA margin (%) 15.7 16.2 14.8 15.5 Product development 346 346 311 311 Depreciation 1,718 1,968 1,720 1,970 Reported net profit 1,455 1,614 1,269 1,485 14.6 8.7 EPS (GBP) 0.43 0.48 0.37 0.44 15.8 8.0 Consolidated (Rs mn) Net sales 2,996,332 3,308,508 3,001,267 3,337,047 (0.2) (0.9) EBITDA 445,165 507,567 413,543 483,333 7.6 5.0 EBITDA margin (%) 14.9 15.3 13.8 14.5 Adjusted net profit 161,489 192,520 141,854 180,322 13.8 6.8 EPS 47.6 56.7 41.8 53.1 13.8 6.8

Source: Company, Kotak Institutional Equities

Exhibit 14: We expect JLR’s EBITDA margin to improve in FY2017E Jaguar Land Rover (ex-China JV) income statement, March fiscal year-ends, 2011-19E (GBP mn)

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Volumes (000s) 244 314 372 430 467 509 543 596 655 Sales 9,871 13,512 15,784 19,386 21,866 22,208 23,721 25,897 27,539 Cost of sales 8,286 11,373 13,254 15,757 17,481 18,743 19,647 21,363 22,644 Materials 6,178 8,733 9,904 11,904 13,185 13,146 14,114 15,279 16,111 Labor 789 1,011 1,333 1,654 1,977 2,321 2,631 2,902 3,155 Manufacturing costs and SG&A 1,319 1,629 2,017 2,199 2,319 3,276 2,901 3,181 3,379 D&A 396 466 622 875 1,051 1,418 1,718 1,968 2,218 Product dev 119 149 198 236 253 318 346 346 420 EBIT 1,069 1,524 1,710 2,518 3,081 1,729 2,011 2,221 2,257 EBITDA 1,465 1,989 2,331 3,393 4,132 3,147 3,729 4,189 4,475 Other income 36 38 71 — — — — — — Interest 23 69 (3) 154 94 52 45 40 40 PBT 1,082 1,492 1,784 2,364 2,987 1,677 1,966 2,181 2,217 Tax 79 26 460 622 576 245 511 567 576 Forex gains (33) (14) (108) 137 (373) (184) — — — PAT 1,036 1,481 1,216 1,879 2,038 1,248 1,455 1,614 1,641 EBITDA margin (%) 14.8 14.7 14.8 17.5 18.9 14.2 15.7 16.2 16.2

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Automobiles Tata Motors

Exhibit 15: We expect standalone EBITDA margin to improve in FY2017E on the back of strong volume growth Tata Motors standalone profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2011-19E (` mn)

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Profit model (Rs mn) Net sales 468,577 543,066 447,657 342,881 362,947 423,698 507,481 578,769 652,611 EBITDA 44,344 41,776 17,180 (9,112) (12,375) 23,155 41,072 48,096 53,901 Other income 4,140 2,104 17,046 18,669 18,814 21,329 8,000 8,000 8,000 Interest (11,440) (8,550) (10,041) (13,375) (16,117) (14,811) (13,493) (15,085) (16,424) Depreciaton (13,608) (16,067) (18,176) (20,703) (26,032) (24,538) (27,440) (30,343) (33,245) Profit before tax 23,436 19,263 6,008 (24,521) (35,710) 5,136 8,139 10,669 12,231 Extra ordinary income/(expenses) 1,471 5,852 (8,642) 14,263 (4,038) (3,632) — — — Tax expense (84) — 6 13,603 (7,642) 838 (1,628) (2,134) (2,446) Net profit 18,118 12,422 921 3,346 (47,390) 2,342 6,511 8,535 9,785 Adjusted net profit 19,148 16,519 (3,031) (27,276) (52,240) 5,974 6,511 8,535 9,785 Adjusted Diluted EPS (Rs) 5.6 4.9 (0.9) (8.0) (15.4) 1.8 1.9 2.5 2.9 Balance sheet (Rs mn) Equity 6,377 6,348 6,381 6,438 6,438 6,792 6,792 6,792 6,792 Reserves and Surplus 193,756 189,913 187,118 187,341 142,338 216,889 223,400 231,935 241,720 Deferred tax liability 20,232 21,054 19,639 431 - - - - - Total borrowings 159,154 158,806 167,990 150,528 211,344 158,873 180,873 195,873 210,873 Current liabilities 162,386 169,073 142,871 154,619 139,462 141,709 154,848 162,957 171,385 Total liabilities 541,905 545,193 523,998 497,344 499,432 524,263 565,913 597,556 630,770 Net fixed assets 172,161 190,562 202,085 215,956 218,240 222,449 235,008 244,666 251,420 Investments 226,242 204,936 199,344 184,584 169,872 169,755 169,755 169,755 169,755 Cash 24,289 18,410 4,629 2,262 9,448 21,881 30,574 35,365 43,739 Other current assets 119,212 128,702 115,790 94,542 101,872 110,179 130,576 147,771 165,856 Miscellaneous expenditure — 2,584 2,150 — — — — — — Total assets 541,905 545,193 523,998 497,344 499,432 524,263 565,913 597,556 630,770 Free cash flow (Rs mn) Operating cash flow excl. working capital 41,519 39,671 17,557 (9,949) (10,456) 40,218 47,444 53,963 59,455 Working capital changes (26,463) (3,135) 5,028 34,583 (15,171) (6,059) (7,258) (9,086) (9,657) Capital expenditure (23,817) (28,355) (25,884) (30,941) (27,064) (28,746) (40,000) (40,000) (40,000) Free cash flow (21,737) (6,642) (21,394) (23,805) (71,140) (9,398) (13,307) (10,208) (6,627) Ratios EBITDA margin (%) 9.5 7.7 3.8 (2.7) (3.4) 5.5 8.1 8.3 8.3 Debt/equity (X) 0.8 0.8 0.9 0.8 1.4 0.7 0.8 0.8 0.8 Net debt/equity (X) 0.7 0.7 0.8 0.8 1.4 0.6 0.7 0.7 0.7 RoAE (%) 10.9 8.3 (1.6) (14.1) (30.5) 3.2 2.9 3.6 4.0 Book value/share (X) 59.0 57.8 57.0 57.1 43.8 65.9 67.8 70.3 73.2

Source: Company, Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Motors Automobiles

Exhibit 16: We expect consolidated earnings to grow at 22% CAGR over FY2016-19E Tata Motors consolidated profit and loss, balance sheet and cash flow statement, March fiscal year-ends, 2011-19E (` mn)

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Profit model (Rs mn) Net sales 1,221,279 1,656,545 1,888,176 2,328,337 2,627,963 2,755,611 2,996,332 3,308,508 3,553,597 EBITDA 168,175 223,112 245,473 348,377 392,387 367,562 445,165 507,567 544,023 Other income 4,295 6,618 8,115 8,286 8,987 9,817 8,000 8,000 8,000 Interest (23,853) (29,822) (35,533) (47,338) (48,615) (46,234) (49,460) (48,978) (48,823) Depreciaton (46,555) (56,254) (75,693) (110,782) (133,886) (170,142) (203,235) (231,137) (259,240) Profit before tax 102,062 143,654 142,362 198,544 218,873 161,004 221,629 261,979 272,372 Extra ordinary income/(expenses) 2,310 (8,315) (6,027) (9,854) (1,847) (21,196) — — — Tax (12,164) 400 (37,710) (47,648) (76,429) (28,726) (60,139) (69,459) (72,038) Minority Interest 528 (574) 301 (1,132) — (845) — — — Net profit 92,736 135,165 98,926 139,910 140,597 110,238 161,489 192,520 200,334 Adjusted net profit 90,426 121,001 98,926 149,764 141,710 110,238 161,489 192,520 200,334 Adjusted Diluted EPS (Rs) 26.6 35.6 29.1 44.1 41.7 32.5 47.6 56.7 59.0 Balance sheet (Rs mn) Equity 6,377 6,348 6,381 6,438 6,438 6,792 6,792 6,792 6,792 Reserves and Surplus 185,338 325,152 381,331 649,597 556,181 801,035 962,524 1,155,044 1,355,378 Deferred tax liability 20,961 21,651 20,195 15,723 13,432 31,661 31,661 31,661 31,661 Minority Interest 2,466 3,071 3,705 4,207 4,333 8,883 8,883 8,883 8,883 Total borrowings 328,106 471,490 535,914 606,423 736,104 704,685 667,907 705,043 744,392 Current liabilities 466,894 626,116 764,078 917,596 1,070,091 1,139,921 1,182,114 1,223,695 1,246,193 Total liabilities 1,010,142 1,453,826 1,711,603 2,199,983 2,386,580 2,692,976 2,859,880 3,131,116 3,393,299 Net fixed assets 432,211 562,125 694,836 973,754 1,124,226 1,288,507 1,450,712 1,597,815 1,746,575 Goodwill 35,848 40,937 41,024 49,788 46,970 48,365 48,365 48,365 48,365 Investments 25,443 89,177 90,577 106,867 153,367 12,532 12,532 12,532 12,532 Cash 114,096 182,381 211,127 297,118 321,158 520,929 432,453 472,362 514,506 Other current assets 402,545 574,691 662,701 748,986 717,389 795,379 888,554 972,779 1,044,057 Miscellaneous expenditure — 4,514 11,339 23,471 23,471 27,264 27,264 27,264 27,264 Total assets 1,010,142 1,453,826 1,711,603 2,199,983 2,386,580 2,692,976 2,859,880 3,131,116 3,393,299 Free cash flow (Rs mn) Operating cash flow excl. working capital 152,886 206,644 221,302 303,768 388,547 345,597 414,184 472,635 508,397 Working capital changes (40,484) (22,801) (680) 57,744 (36,718) (8,161) (50,981) (42,645) (48,779) Capital expenditure (81,128) (138,756) (187,570) (269,252) (315,396) (335,818) (365,440) (378,240) (408,000) Free cash flow 6,583 11,351 (13,508) 30,554 (26,637) (44,616) (51,697) 2,772 2,795 Ratios EBITDA margin (%) 13.8 13.5 13.0 15.0 14.9 13.3 14.9 15.3 15.3 Debt/equity (X) 1.7 1.4 1.4 0.9 1.3 0.9 0.7 0.6 0.5 Net debt/equity (X) 1.1 0.9 0.8 0.5 0.7 0.2 0.2 0.2 0.2 Book value (Rs per share) 46 84 99 172 145 216 263 320 379 ROAE (%) 66.1 46.3 27.5 28.7 23.3 16.1 18.2 18.1 15.9

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 BUY NTPC (NTPC) Utilities MAY 31, 2016 RESULT Coverage view: Attractive

Strong capacity pipeline to drive growth. NTPC’s quarterly earnings were an Price (`): 144 improvement with little tax-related distortion but for a fuel cost write-back of `2.5 bn, Target price (`): 160 even as operational metrics remained weak (PLF of 81%). Capacity addition, which is BSE-30: 26,726 the key earnings driver, continues with another 660 MW commercialized during the quarter. NTPC has over 19 GW of capacity currently under construction, with another 4 GW under joint ventures. Maintain BUY rating with a target price of `160/share.

Company data and valuation summary NTPC Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 149-107 EPS (Rs) 11.5 11.5 14.3 Market Cap. (Rs bn) 1,184.0 EPS growth (%) (2.6) (0.1) 24.8 Shareholding pattern (%) P/E (X) 12.5 12.5 10.0 Promoters 75.0 Sales (Rs bn) 700.5 846.3 1,031.0 FIIs 9.6 Net profits (Rs bn) 94.8 94.7 118.2 MFs 1.5 EBITDA (Rs bn) 170.6 210.7 272.7 Price performance (%) 1M 3M 12M EV/EBITDA (X) 12.3 10.5 8.5 Absolute 3.1 20.2 5.2 ROE (%) 11.1 10.3 12.0 Rel. to BSE-30 (1.2) 3.4 9.5 Div. Yield (%) 2.5 2.4 3.0

Clean result print for a change, though fuel cost includes some prior period write-backs

NTPC reported healthy earnings with 4% yoy growth in adjusted net income of `28.4 bn for 4QFY16, without any significant prior period items barring revenue reversal of `1.6 bn. The growth in adjusted earnings should also be seen in the context of 6% effective tax rate during the same period last year and 24% effective tax rate for 4QFY16. The earnings improvement was primarily driven by lower fuel cost that was prompted by reversal of prior period charges pertaining to take-or-pay penalties (~`2.5 bn) on the gas to be procured from RasGas. Operationally, energy sent out grew by a modest 1% yoy despite capacity addition of 2 GW during the current fiscal, explained by low capacity utilization in both coal and gas-based power plants. NTPC ended the full year FY2016 with net income of `95 bn (-3% yoy), weakness in earnings led by 40% yoy drop in other income at `17 bn.

Targeting 9 GW of capacity additions over the next two years

NTPC is targeting 9 GW, with reasonable capex (60%) and physical progress on project execution achieved till now. Of the 9 GW, 3.7 GW is the targeted project commercialization for FY2017 of which 3.3 GW is attributable to standalone operations. The projects targeted for commissioning in the current fiscal include Kudgi (800 MW), Mauda (1,320 MW), Solapur (660 MW) and Bongaingaon (250 MW), among others. We currently factor in a slightly more aggressive capacity addition of 6 GW in FY2018E based on the assessment of status of work done as per the CEA review.

Maintain BUY rating with a target price of `160/share Murtuza Arsiwalla We maintain our BUY rating on NTPC with a target price of `160/share. A large capacity pipeline that will likely be commissioned over the next three years and translate to 11.5% CAGR in earnings, coupled with the comfort of regulated return business, work in favor of Ajinkya Bhat NTPC. We would like to see a more aggressive build-up of renewable assets and/or inorganic growth that could help address the capital allocation we have been hopeful of. We have revised our earnings estimates for FY2017E downwards by 7% and for FY2018E by 3%, as we fine tune our capacity addition targets. We currently factor in the commissioning of 3.3 GW for FY2017E and 5.9 GW in FY2018E. The absence of earnings growth in FY2017 should be seen in the context of low effective tax rate in FY2016.

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

Highlights of 4QFY16

 Commercial capacity addition of 2 GW in FY2016. NTPC added commercial capacity of 1,960 MW consisting of 4 hydro units of 200 MW each at Koldam, 1 unit of 500 MW at Vindhyachal and 1 unit of 660 MW at Barh.

 Broad-based progress on new capacity installation. In FY2016, the group level installed capacity increased by 2,255 MW consisting of several units at the key thermal projects such as Bongaigaon, Vindhyachal, Mauda, Kanti, Barh and Nabinagar as well as Koldam hydro project. The progress in the installed capacity is broad based and provides confidence on the company’s unhindered execution record across the board.

 Generation flat yoy, PLFs down. In 4QFY16, the company reported commercial generation of 62 BU (+1% yoy, +2% qoq) while the energy sent out (including solar and hydro) stood at 58 BU (+1% yoy, +2% qoq). Coal-based PLF stood at 81% (down 138 bps yoy but up 300 bps qoq). Gas-based PLF was sharply lower at 18% (down 885 bps yoy, down 1,064 bps qoq).

In FY2016, commercial generation was 241 BU while energy sent out was 225 BU, both flat yoy. Coal-based PLF in FY2016 stood at 79% (down 162 bps yoy) while the gas- based PLF was 25% (down 779 bps yoy).

 Sharp increase in commercial capacity expected over the next two years. The company expects to complete COD of 3,760 MW of thermal capacity in FY2017. Some of the key units expected to be operationalized are Kudgi (U1), Mauda (U3 and U4), Kanti (U3), Bongaigaon (U2) and Solapur (U1). This could amount to ~`200 bn of capitalization in FY2017. In FY2018, the company expects to commercialize additional capacity of 4,500-5,000 MW. Taken together, the total addition of 9 GW or more could provide a quantum leap to NTPC’s current capacity (40 GW standalone and 46 GW consolidated).

 Large tendering expected in solar space. The company provided plans to complete ordering of 750 MW solar power project in Anantpur (Andhra Pradesh) and at least 250 MW in Karnataka in FY2017, thus taking the total solar ordering beyond 1,000 MW.

 Captive coal mining to reduce costs. The company has commenced captive coal mining from Pakri-Barwadih and expects to mine up to 1 mn tonnes in FY2017. The company thus plans to reduce its coal imports which will also allow it to produce power at lower cost (although fuel cost is a pass-through cost to the consumer).

 Cash significantly down yoy, additional funding raised from the market. The company’s cash balance as of FY2016 stood at `44 bn (standalone), sharply down from `129 bn as of FY2015. The company explained that the debt raised last year has been invested for new assets and hence the cash balance has gone down. We indeed see a sharp increase in CWIP to `73 bn as of FY2016 up from ~`60 bn in FY2015. The company also raised additional `10 bn of NCDs at 8.05% coupon and US$500 mn of forex debt at a coupon of 4.25%.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Utilities NTPC

Exhibit 1: Reversal of Rs2.5 bn prior period penalties in fuel cost led to earnings beat during the quarter Interim results for NTPC (Standalone), March fiscal year-ends (Rs bn)

(% Chg.) 4QFY16 4QFY16E 4QFY15 3QFY16 4QFY16E 4QFY15 3QFY16 FY2016 FY2015 (% Chg.) Net sales 179.9 182.7 192.3 173.2 (2) (6) 4 700.5 726.4 (4) Operating costs Cost of fuel (101.6) (115.5) (125.2) (105.8) (437.9) (488.5) Personnel costs (9.1) (8.8) (9.3) (8.8) (36.0) (37.0) Other expenses (15.8) (13.4) (12.1) (13.3) (56.0) (46.2) Total expenses (126.5) (137.7) (146.7) (127.9) (529.9) (571.6) EBITDA 53.4 45.0 45.6 45.3 19 17 18 170.6 154.8 10 EBITDA margin (%) 29.7 24.6 23.7 26.1 24.3 21.3 Other income 5.7 6.4 6.6 3.0 16.6 27.2 Interest & finance charges (8.6) (8.4) (7.1) (8.3) (32.3) (27.4) Depreciation (14.7) (14.1) (13.9) (13.9) (54.3) (49.1) PBT 35.7 28.9 31.2 26.1 24 14 37 100.6 105.5 (5) Provision for tax (net) (8.5) (5.6) (1.8) (5.3) (5.8) (8.1) Net profit 27.2 23.3 29.4 20.8 17 (8) 31 94.8 97.4 (3) Extraordinary — — — 4.1 7.6 5.5 EPS 3.3 2.8 3.6 2.5 11.5 11.8 EBITDA margin (%) 29.7 24.6 23.7 26.1 24.3 21.3 Tax rate (%) 23.9 19.5 5.7 20.4 5.7 7.7

Source: Company, Kotak Institutional Equities

Exhibit 2: Continued drop in PLF for coal capacities attributed to lack of demand Operational performance of NTPC, March fiscal year-ends

(% Chg.) 4QFY16 4QFY15 3QFY16 4QFY15 3QFY16 FY2016 FY2015 (% Chg.) Generation (BU) 62.3 61.3 60.8 1.7 2.5 242.0 241.3 0.3 Commercial generation (BU) 61.9 61.3 60.5 1.0 2.2 240.8 240.8 (0.0) Energy Sent Out (BU) 58.0 57.4 56.6 1.0 2.4 224.9 225.0 (0.0) Coal (mn tons) Domestic (mn tons) 40.6 41.1 39.7 (1.1) 2.2 152.4 151.0 0.9 Imported (mn tons) 1.1 4.9 1.9 (77.7) (43.8) 9.5 16.4 (42.3) (Chg. bps) (Chg. bps) Availability (%) Coal 95.2 97.2 92.8 (194) 249 91.9 88.7 3.25 Gas 98.2 96.5 96.8 174 137 97.3 92.2 5.12 Hydro 88.9 95.1 (618) PLF (%) Coal 81.3 82.7 78.2 (138) 307 78.6 80.2 (1.62) Gas 17.8 26.7 28.5 (885) (1,064) 25.1 32.9 (7.79) Hydro 13.1 20.7 (759) AuX (%) 6.4 6.4 6.5 (3) (12) 6.6 6.6 0.01

Source: Company, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH NTPC Utilities

Exhibit 3: NTPC had limited prior period adjustments in 4QFY16 Adjustments to reported earnings of NTPC, March fiscal year-ends (Rs bn)

Adjustments Comment 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Impact on (1) Prior period sales Included in current sales 2.3 0.9 1.2 2.4 (0.4) 2.7 (0.2) (1.6) Sales and PAT (2) Tax recoverable from customers in sales Income tax Included in current sales (7.8) (6.1) (0.1) — (7.9) (9.0) — — Sales and PAT Deferred tax Included in current sales 0.3 0.3 0.3 0.3 0.1 0.1 (0.1) 0.1 Sales (3) Tax expense for prior period Prior period tax in current year's tax (7.3) (5.6) (6.6) — (8.4) (12.0) (4.1) - PAT Total adjustments-Sales (5.2) (4.9) 1.4 2.6 (8.2) (6.1) (0.3) (1.5) Adjusted Sales 186.1 170.7 186.0 189.7 178.4 183.4 173.5 181.4 Total adjustments-net income 1.7 0.5 7.7 2.4 0.1 5.7 3.9 (1.6) Adjusted net income 20.3 20.2 23.3 27.2 21.4 22.7 21.0 28.4

Source: Company, Kotak Institutional Equities

Exhibit 4:NTPC commercialized 660 MW of capacity at Barh during the quarter Details of installed and commercial capacity, March fiscal year-ends (MW)

Change Projects 4QFY16 4QFY15 3QFY16 4QFY15 3QFY16 4QFY16 Commercial capacity Standalone 39,102 37,142 38,442 1,960 660 Barh (660 MW) Others 6,001 6,001 6,001 — — Consolidated 45,103 43,143 44,443 1,960 660 Installed capacity Mauda U#3 (660 MW), Nabinagar (250 MW), Consolidated 46,653 44,398 45,548 2,255 1,105 Muzaffarpur (195 MW)

Source: Company, Kotak Institutional Equities

Exhibit 5: Current CWIP is more than 50% of regulated equity, that will propel growth up to FY2018 Composition of book value of NTPC, March fiscal year-ends, 2015-2018E (Rs/share)

Regulated equity CWIP Subsidiaries / JVs Cash and equivalents Others

140

14 120 13 12 19 12 100 10 9 7 9 23 80 18 9 9 28 60 27 21

40 73 58 50 20 45

0 2015 2016 2017E 2018E

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Utilities NTPC

Exhibit 6: Change in estimates for NTPC, March fiscal year-ends, 2017-18E (Rs mn)

Revenues EBITDA Net profit Old New % Chg. Old New % Chg. Old New % Chg. 2017E 862,770 846,338 (1.9) 218,920 210,667 (3.8) 101,844 94,730 (7.0) 2018E 1,064,619 1,031,008 (3.2) 286,244 272,693 (4.7) 122,145 118,239 (3.2)

Source: Kotak Institutional Equities estimates

Exhibit 7: NTPC: Profit model, balance sheet, cash model 2012-19E, March fiscal year-ends (Rs mn)

2012 2013 2014 2015 2016E 2017E 2018E 2019E Profit model (Rs mn) Net sales 620,522 643,931 716,860 726,378 700,492 846,338 1,031,008 1,216,483 EBITDA 137,375 157,232 174,445 154,773 170,554 210,667 272,693 335,451 Other income 27,784 44,627 30,218 27,246 16,590 15,641 14,587 15,824 Interest (17,116) (19,244) (24,066) (27,436) (32,304) (40,976) (55,495) (73,780) Depreciation (27,917) (33,968) (41,422) (49,117) (54,253) (62,897) (81,385) (97,852) Pretax profits 120,126 148,648 139,175 105,467 100,587 122,435 150,399 179,644 Tax (31,024) (41,181) (33,669) (8,089) (5,756) (27,706) (32,160) (47,954) Net profits 89,102 107,467 105,506 97,378 94,831 94,730 118,239 131,690 Extraordinary items 3,136 18,727 4,241 5,531 7,598 — — — Earnings per share (Rs) 10.8 13.0 12.8 11.8 11.5 11.5 14.3 16.0 Balance sheet (Rs mn) Total equity 732,912 803,875 858,153 816,574 887,820 949,300 1,026,037 1,111,503 Deferred taxation liability 20,670 21,592 26,615 23,732 30,988 40,293 54,478 71,629 Total borrowings 502,794 581,461 671,702 859,953 953,828 1,114,035 1,218,504 1,239,423 Currrent liabilities 152,003 204,235 239,072 270,588 273,557 285,127 302,605 318,194 Total liabilities and equity 1,408,378 1,611,164 1,795,542 1,970,847 2,146,193 2,388,755 2,601,624 2,740,750 Cash 161,461 168,677 153,114 128,788 44,064 90,641 86,250 120,271 Current assets 263,991 334,431 374,855 398,312 438,563 439,909 473,049 506,332 Total fixed assets 870,862 1,000,455 1,169,995 1,353,426 1,580,635 1,775,274 1,959,393 2,031,215 Investments 112,064 107,601 97,579 90,321 82,932 82,932 82,932 82,932 Total assets 1,408,378 1,611,164 1,795,542 1,970,847 2,146,193 2,388,755 2,601,624 2,740,750 Free cash flow (Rs mn) Operating cash flow, excl. working capital 120,154 160,162 151,169 152,025 156,682 157,627 199,624 229,541 Working capital (50,601) (18,208) (5,586) 8,058 (37,282) 10,224 (15,662) (17,695) Capital expenditure (126,323) (165,761) (216,466) (230,904) (281,462) (257,536) (265,505) (169,673) Investments 11,385 4,463 10,022 7,257 7,390— — — — Free cash flow (45,385) (19,344) (60,860) (63,563) (154,672) (89,685) (81,543) 42,173

Source: Company, Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Mahindra & Mahindra (MM) Automobiles MAY 31, 2016 RESULT Coverage view: Attractive

Trudging along. M&M reported strong 4QFY16 results with 26% yoy EBITDA growth Price (`): 1,331 led by new SUV launches, recovery in tractor volumes and improvement in EBITDA Target price (`): 1,380 margin. EBITDA margin came in at 12.5% in 4QFY16, which was 150 bps higher on a BSE-30: 26,726 yoy basis. New compact SUV launches will drive double-digit volume growth for the company next year while a good monsoon remains the key for tractor cycle recovery. We maintain ADD rating with a TP of ₹1,380 (from `1,305).

Company data and valuation summary Mahindra & Mahindra Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 1,442-1,091 EPS (Rs) 58.0 64.8 74.7 Market Cap. (Rs bn) 826.6 EPS growth (%) 6.8 11.8 15.3 Shareholding pattern (%) P/E (X) 23.0 20.5 17.8 Promoters 25.5 Sales (Rs bn) 388.6 448.1 497.5 FIIs 42.9 Net profits (Rs bn) 33.0 36.9 42.5 MFs 3.1 EBITDA (Rs bn) 52.0 58.5 66.8 Price performance (%) 1M 3M 12M EV/EBITDA (X) 15.9 14.2 12.2 Absolute (0.0) 8.4 5.8 ROE (%) 15.6 15.6 16.1 Rel. to BSE-30 (4.2) (6.7) 10.1 Div. Yield (%) 0.9 1.2 1.4

Operational results below estimates after excluding one-time actuarial gain in staff costs

M&M+MVML reported EBITDA of ₹12.7 bn (+26% yoy) led by (1) 14% yoy growth in volumes driven by new compact SUV launches and recovery in tractor volumes and (2) 150 bps yoy improvement in EBITDA margin driven by benefit of lower commodity prices and the company’s cost-reduction efforts. EBITDA margin came in at 12.5% in 4QFY16 but this included a one- time benefit of `700 mn in staff costs due to actuarial valuation. Excluding this one-time benefit, EBITDA margin would have been 11.8%. Reported EBIT margin for automotive segment was 9.6% (KIE 9.0%) and 12.9% for farm equipment business (KIE 16%); this was impacted by sharp sequential decline in tractor volumes. We expect the company’s EBITDA margin to recover to 13% in FY2017 as tractor quarterly volume run-rate recovers to 60,000 from 4QFY16 run-rate of 43,321 units.

New SUVs to drive volume growth in FY2017E; monsoon key for tractor cycle recovery

We expect domestic passenger vehicle volumes for M&M to increase by 23% yoy in FY2017E led by two new compact SUV launches. Both TUV300 and KUV100 have received decent initial bookings, which should drive robust volumes at least for the next six months. However, we will watch out for sustenance of volumes beyond that, particularly given increased competitive intensity from planned new launches of other OEMs. We are building in monthly volumes of 7,500 units from these new launches in FY2017E as compared to management expectations of more than 10,000 units/month. Demand for tractors will likely recover from a low base in FY2017, although a good monsoon is critical for tractor demand to improve.

Fine-tune earnings estimates; maintain ADD with target price of ₹1,380 Hitesh Goel Our FY2017-18E EPS estimates remain largely unchanged while we increase our EBITDA estimates by 3% led by higher EBITDA margin assumptions as we expect the tractor cycle to Nishit Jalan recover. We maintain our ADD rating on the stock with an SOTP-based TP of ₹1,380 (from ₹1,305) as valuations are attractive at 13X March 2018E core EPS (ex-subsidiary value). We have increased our multiple on standalone business to 14X (from 13X earlier), which has led to an increase in our target price primarily driven by recovery in tractor volumes and margin.

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

Conference call takeaways

 The company reported EBITDA margin of 12.5%, which was in line with our estimates as better-than-expected gross margin and lower employee expenses offset the impact of higher other expenses. We note that gross margin declined by only 30 bps qoq (KIE 90 bps qoq decline) despite 100 bps negative impact due to expiry of tax benefits at Haridwar plant and negative product mix (lower share of tractors and higher share of new UV models). This implies that gross margin improved by 70 bps qoq excluding the impact of Haridwar plant despite a 5% qoq decline in volumes, higher share of new SUV models (KUV100, TUV300) and lower share of tractor volumes in the overall volumes.

 For KUV100 (launched in mid-Jan 2016), M&M has received 40,000 bookings. Petrol mix for the bookings is around 45-50%. Current capacity for KUV100 is 5,000 units/month and thus, the model is booked until June 2016. The company plans to increase capacity to 7,500 units/month by August 2016. While the volumes for new models will likely remain strong over the next three months, we will watch out for volume performance in 2HFY17 particularly given increased competitive intensity from planned new launches by other OEMs.

 Tractor volume growth has recovered from a low base in 4QFY16. Demand in states such as Andhra Pradesh, Tamil Nadu and Rajasthan are faring well while volumes in UP, Madhya Pradesh and Maharashtra continue to see steep declines. We expect 10% yoy growth in tractor industry volumes in FY2017E; a weaker-than-expected monsoon could be a risk to our estimates.

 Company is focused on expanding its rural distribution and has doubled its touch points in FY2016. Company covers 300,000 villages, which is one of the highest for any auto company.

 Company launched 14 new products in automotive segment and 6 new launches in tractor segment in FY2016, which has improved market share in both the industries.

 Applitrac business (farm implement business) declined by 11% yoy in FY2016. Revenue of this division was ₹2.37 bn in FY2016. Agriculture business revenue was ₹9 bn in FY2016, which grew by 55% yoy.

 Consolidated EBIT in FY2016 was ₹48.3 bn versus ₹46.2 bn in FY2015. Core businesses (automotive and farm equipment) EBIT increased to ₹41.3 bn in FY2016 versus ₹32.9 bn in FY2015. Other businesses EBIT declined from ₹13.3 bn in FY2015 to ₹7 bn in FY2016. The key reason for the decline in consolidated EBIT excluding core business was – (1) increase in EBIT loss in two-wheelers to ₹7.6 bn in FY2016 versus ₹5.55 bn in FY2015 and (2) decline in infrastructure business (real estate business) EBIT to ₹1.7 bn in FY2016 versus ₹4.5 bn in FY2015. Consolidated PAT in FY2016 was ₹32.1 bn, which was 2% yoy.

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Mahindra & Mahindra Automobiles

Exhibit 1: Operationally in-line results driven by reduction in staff costs and higher gross margin than expected Interim results of M&M+MVML, March fiscal year-ends (` mn)

(% chg.) 4QFY16 4QFY16E 4QFY15 3QFY16 4QFY16E 4QFY15 3QFY16 FY2016 FY2015 Yoy chg. (%) FY2017E Volumes (units) 183,830 183,830 161,779 193,554 13.6 (5.0) 707,689 698,881 1.3 817,286 Gross realization (Rs) 629,680 592,939 623,800 592,980 6.2 0.9 6.2 609,413 574,876 6.0 610,670 Gross sales 115,754 109,000 100,918 114,774 6.2 14.7 0.9 431,275 401,770 7.3 499,092 Excise duty (14,152) (9,730) (9,689) (10,118) 45.5 46.1 39.9 (42,709) (32,092) 33.1 (51,000) Net sales 101,602 99,270 91,229 104,656 2.3 11.4 (2.9) 388,566 369,677 5.1 448,092 Raw materials (69,846) (68,794) (62,281) (71,565) 1.5 12.1 (2.4) (265,115) (257,269) 3.0 (309,184) Staff costs (5,654) (6,700) (6,078) (7,006) (15.6) (7.0) (19.3) (25,647) (24,936) 2.9 (28,212) Other expenses (13,408) (11,337) (12,830) (11,947) 18.3 4.5 12.2 (45,817) (41,440) 10.6 (52,231) Total expenses (88,908) (86,831) (81,189) (90,518) 2.4 9.5 (1.8) (336,579) (323,645) 4.0 (389,626) EBITDA 12,694 12,439 10,040 14,138 2.1 26.4 (10.2) 51,988 46,033 12.9 58,466 Other income 935 1,021 950 929 (8.4) (1.6) 0.6 7,910 8,201 (3.6) 8,300 Interest expense (637) (550) (833) (554) 15.9 (23.5) 15.0 (2,329) (3,039) (23.4) (2,152) Depreciation expense (3,685) (3,400) (2,757) (3,328) 8.4 33.7 10.7 (12,484) (10,980) 13.7 (14,107) Extraordinary income/exp 60 — 364 — 60 3,357 — Profit before tax 9,367 9,510 7,765 11,185 (1.5) 20.6 (16.3) 45,144 43,572 3.6 50,507 Tax expense (2,686) (2,520) (1,903) (2,980) 6.6 41.1 (9.9) (12,166) (9,339) 30.3 (13,637) Profit after tax 6,681 6,990 5,862 8,205 (4.4) 14.0 (18.6) 32,978 34,233 (3.7) 36,870 Adj PAT 6,639 6,990 6,173 8,205 (5.0) 7.5 (19.1) 32,937 30,876 6.7 36,870 EPS 11.7 12.3 10.8 14.4 57.9 54.3 64.8 Raw material cost as % of net sales 68.7 69.3 68.3 68.4 68.2 69.6 69.0 Staff cost as % of net sales 5.6 6.7 6.7 6.7 6.6 6.7 6.3 Other expenses as % of net sales 13.2 11.4 14.1 11.4 11.8 11.2 11.7 EBITDA margin (%) 12.5 12.5 11.0 13.5 13.4 12.5 13.0 Tax rate (%) 28.7 26.5 24.5 26.6 26.9 21.4 27.0 Volumes (units) Automotive division 140,509 140,509 123,175 130,888 14.1 7.4 494,098 464,856 6.3 Tractors 43,321 43,321 38,604 62,666 12.2 (30.9) 213,591 234,025 (8.7) Total volumes 183,830 183,830 161,779 193,554 13.6 (5.0) 707,689 698,881 1.3 Volume mix (%) Automotive division 76.4 76.4 76.1 67.6 69.8 66.5 Tractors 23.6 23.6 23.9 32.4 30.2 33.5 Total volumes 100 100 100 100 100 100 Segmental break up Revenue break up Automotive 74,509 72,772 66,212 69,173 2.4 12.5 7.7 262,522 242,204 8.4 Farm Equipment 27,427 26,498 25,351 35,823 3.5 8.2 (23.4) 127,413 133,469 (4.5) EBIT Automotive 7,132 6,550 5,831 7,054 8.9 22.3 1.1 26,121 21,506 21.5 Farm Equipment 3,534 4,240 2,834 5,483 (16.7) 24.7 (35.6) 19,977 19,674 1.5 EBIT margin (%) Automotive 9.6 9.0 8.8 10.2 10.0 8.9 Farm Equipment 12.9 16.0 11.2 15.3 15.7 14.7 Average selling prices (Rs) Automotive 530,278 517,920 537,543 528,490 2.4 (1.4) 0.3 531,316 521,030 2.0 Farm Equipment 633,099 611,660 656,691 571,645 3.5 (3.6) 10.8 596,527 570,319 4.6

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Domestic tractor industry mix is shifting towards higher HP category over past two quarters HP-wise domestic tractor sales, 1QFY14-4QFY16 (units)

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 HP-wise sales volumes Upto 20 hp 5,550 5,396 6,297 5,009 7,831 6,330 5,289 4,631 7,283 4,888 5,900 4,864 21-30 hp 13,784 10,319 13,962 10,494 9,830 9,581 9,720 6,654 8,116 6,595 8,884 6,585 31-40 hp 63,726 52,315 62,543 44,720 62,227 54,502 52,835 32,888 52,992 42,651 51,632 33,306 41-50 hp 81,787 67,572 89,758 69,693 82,561 63,995 64,963 44,771 65,815 46,157 64,095 50,331 51 hp and above 7,639 5,683 9,143 8,763 8,016 7,243 9,340 8,256 8,304 6,189 9,394 8,951 Total 172,486 141,285 181,703 138,679 170,465 141,651 142,147 97,200 142,510 106,480 139,905 104,037 Break-up (%) Upto 20 hp 3.2 3.8 3.5 3.6 4.6 4.5 3.7 4.8 5.1 4.6 4.2 4.7 21-30 hp 8.0 7.3 7.7 7.6 5.8 6.8 6.8 6.8 5.7 6.2 6.4 6.3 31-40 hp 36.9 37.0 34.4 32.2 36.5 38.5 37.2 33.8 37.2 40.1 36.9 32.0 41-50 hp 47.4 47.8 49.4 50.3 48.4 45.2 45.7 46.1 46.2 43.3 45.8 48.4 51 hp and above 4.4 4.0 5.0 6.3 4.7 5.1 6.6 8.5 5.8 5.8 6.7 8.6 Total 100 100 100 100 100 100 100 100 100 100 100 100

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Automobiles Mahindra & Mahindra

Exhibit 3: M&M’s tractor market share declined sequentially in 4QFY16 Player-wise domestic tractor market share, 1QFY14-4QFY16 (units)

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Player-wise sales volumes M&M 72,262 57,876 76,807 52,964 72,517 58,129 56,860 34,828 59,642 42,479 61,115 40,498 TAFE 42,847 36,180 42,803 35,222 38,867 33,880 35,763 24,176 33,194 25,644 32,334 22,154 John Deere 9,834 7,791 11,401 8,452 9,469 6,603 7,495 5,798 7,481 6,309 8,295 8,090 Escorts 19,273 14,600 18,824 15,363 17,289 14,117 15,455 10,704 14,549 11,293 13,250 11,606 Sonalika 17,271 14,443 18,209 15,618 20,291 15,988 16,648 13,333 17,689 12,520 15,910 12,603 Others 10,999 10,395 13,659 11,060 12,032 12,934 9,926 8,361 9,955 8,235 9,001 9,086 Total 172,486 141,285 181,703 138,679 170,465 141,651 142,147 97,200 142,510 106,480 139,905 104,037 Market share (%) M&M 41.9 41.0 42.3 38.2 42.5 41.0 40.0 35.8 41.9 39.9 43.7 38.9 TAFE 24.8 25.6 23.6 25.4 22.8 23.9 25.2 24.9 23.3 24.1 23.1 21.3 John Deere 5.7 5.5 6.3 6.1 5.6 4.7 5.3 6.0 5.2 5.9 5.9 7.8 Escorts 11.2 10.3 10.4 11.1 10.1 10.0 10.9 11.0 10.2 10.6 9.5 11.2 Sonalika 10.0 10.2 10.0 11.3 11.9 11.3 11.7 13.7 12.4 11.8 11.4 12.1 Others 6.4 7.4 7.5 8.0 7.1 9.1 7.0 8.6 7.0 7.7 6.4 8.7 Total 100 100 100 100 100 100 100 100 100 100 100 100

Source: Company, Kotak Institutional Equities estimates

Exhibit 4: Bolero volumes have been declining for past few quarters due to poor rural demand and some cannibalization from TUV300 Model-wise volumes of M&M, 1QFY14-4QFY16 (units)

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Volumes (units) Bolero 25,697 22,115 25,138 27,603 22,391 16,105 21,762 21,301 Scorpio 11,943 11,778 12,769 15,063 12,645 11,157 12,224 12,061 Xylo 2,122 2,267 1,823 2,260 2,044 1,996 1,621 1,613 XUV500 8,858 8,652 7,653 9,255 9,216 9,415 9,214 8,475 Quanto/NuvoSport 705 531 369 334 282 96 13 1,424 Rexton 376 256 172 206 110 52 28 38 TUV300 4,313 10,811 9,065 KUV100 1,154 13,056 Jeeps, Hard Tops 7,122 6,597 4,088 4,942 5,818 4,157 4,377 4,881 Domestic utilitiy vehicles 56,823 52,196 52,012 59,663 52,506 47,291 61,204 71,914 Volume Mix (%) Bolero 45.2 42.4 48.3 46.3 42.6 34.1 35.6 29.6 Scorpio 21.0 22.6 24.6 25.2 24.1 23.6 20.0 16.8 Xylo 3.7 4.3 3.5 3.8 3.9 4.2 2.6 2.2 XUV500 15.6 16.6 14.7 15.5 17.6 19.9 15.1 11.8 Quanto/NuvoSport 1.2 1.0 0.7 0.6 0.5 0.2 0.0 2.0 Rexton 0.7 0.5 0.3 0.3 0.2 0.1 0.0 0.1 TUV300 17.7 12.6 KUV100 1.9 18.2 Jeeps, Hard Tops 12.5 12.6 7.9 8.3 11.1 8.8 7.2 6.8 Domestic utilitiy vehicles 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Company, Kotak Institutional Equities estimates

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Mahindra & Mahindra Automobiles

Exhibit 5: We expect new SUVs to drive incremental volume growth for M&M Volume assumptions, March fiscal year-ends, 2012-19E (units)

2012 2013 2014 2015 2016 2017E 2018E 2019E Volumes (units) Bolero 104,064 117,665 107,178 100,553 81,559 86,000 90,300 94,815 Scorpio 50,985 50,168 50,950 51,553 48,087 48,087 50,491 53,016 Xylo 27,691 25,067 13,970 8,472 7,274 6,000 6,000 6,000 XUV500 13,819 45,418 30,007 34,418 36,320 36,320 38,136 40,043 Quanto/Nuvo Sport — 16,434 7,415 1,939 1,815 5,000 5,000 5,000 Rexton — 1,783 1,843 1,010 228 228 228 228 Jeeps, Hard Tops 5,602 7,199 8,058 8,804 6,525 6,525 6,525 6,525 TUV300 24,189 30,000 30,000 30,000 KUV100 Petrol 6,395 30,000 33,000 36,300 KUV100 Diesel 7,816 30,000 30,000 30,000 Verito 17,895 15,348 9,734 3,184 3,393 2,500 2,500 2,500 Exports 32,457 29,660 30,196 36,033 39,636 43,600 47,960 Passenger vehicles 249,232 311,539 258,815 240,129 259,633 320,296 335,780 352,387 YoY Growth (%) - 25.0 (16.9) (7.2) 8.1 23.4 4.8 4.9 MTBL 13,818 11,902 8,161 8,915 12,481 14,977 16,475 18,122 Pick ups 73,134 102,885 123,715 129,800 139,868 153,855 169,240 186,164 Maxximo and Gio 79,539 71,348 53,872 29,157 27,141 31,212 35,894 41,278 3 wheelers 67,440 65,510 62,614 56,764 54,975 57,724 60,610 63,640 Tractors 223,885 267,634 234,025 213,591 239,222 267,929 294,721 Total volumes 718,615 787,069 774,811 698,790 707,689 817,286 885,928 956,313 YoY Growth (%) 9.5 (1.6) (9.8) 1.3 15.5 8.4 7.9

Source: Company, Kotak Institutional Equities estimates

Exhibit 6: Our FY2017-18E EBITDA estimates have gone up marginally by 3% EPS revision table, March fiscal year-ends (units)

New Old % change 2017E 2018E 2017E 2018E 2017E 2018E M&M+MVML Volumes (units) 817,286 885,928 824,860 898,236 (0.9) (1.4) Net sales 448,092 497,480 449,393 500,865 (0.3) (0.7) EBITDA 58,466 66,777 56,588 65,139 3.3 2.5 EBITDA margin (%) 13.0 13.4 12.6 13.0 Profit after tax 36,870 42,526 37,037 42,752 (0.5) (0.5) EPS FD 64.8 74.7 65.1 75.1 (0.5) (0.5) EPS FD (ex subs dividends) 59.5 68.9 59.9 69.1 (0.6) (0.2)

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 Automobiles Mahindra & Mahindra

Exhibit 7: We value M&M at `1,380/share SOTP, March fiscal year-ends (units)

Value per EPS Multiple share (Rs/share) (X) (Rs) Comment M&M standalone + MVML 68.9 14.0 965 Based on 14X Mar 2018 less dividend income from subs Subsidiaries 416 Tech Mahindra 216 Based on KIE target price of Rs600/share Mahindra Holidays 38 Based on current price of Rs400/share M&M Financial Services Ltd 125 Based on KIE target price of Rs305/share Mahindra Lifespace Developers Ltd 13 Based on current market price of Rs 434/share Mahindra CIE Automotive Limited 16 Based on KIE target price of Rs175/share Ssangyong Motors 55 Based on 5X CY2017E EBITDA Two wheelers (47) Based on cash losses for FY2016-2020E SOTP-based value 1,381 Target price 1,380

Notes: (a) The subsidiaries have been valued at a holding company discount of 20%.

Source: Company, Kotak Institutional Equities estimates

Exhibit 8: We expect M&M’s EPS to grow by 13% CAGR over FY2016-19E M&M+MVML profit model, balance sheet and cash flow, March fiscal year-ends, 2012-19E (` mn)

2012 2013 2014 2015 2016 2017E 2018E 2019E Volumes 718,615 787,069 774,811 698,790 707,689 817,286 885,928 956,313 Avg realization 480,531 547,418 549,702 582,114 609,413 610,670 625,447 641,169 Gross sales 345,317 430,856 425,915 406,776 431,275 499,092 554,101 613,158 Excise duty 31,506 47,290 37,745 32,092 42,709 51,000 56,621 62,656 Net sales 313,811 383,566 388,171 374,683 388,566 448,092 497,480 550,502 Raw materials 223,947 273,971 269,199 257,269 265,115 309,184 343,261 379,847 Staff costs 17,946 19,977 23,108 24,936 25,647 28,212 31,033 34,757 Other expenses 30,306 36,326 43,383 46,445 45,817 52,231 56,409 62,050 Total expenses 272,199 330,274 335,690 328,651 336,579 389,626 430,703 476,654 EBITDA 41,613 53,292 52,481 46,033 51,988 58,466 66,777 73,849 Other income 4,735 5,697 6,648 8,201 7,910 8,300 9,000 10,500 Interest expense 2,874 2,964 3,611 3,039 2,329 2,152 1,792 1,342 Depreciation 6,699 8,178 9,760 10,980 12,484 14,107 15,730 17,353 Extraordinary income 1,083 906 528 3,357 60 — — — Profit before tax 37,858 48,753 46,286 43,572 45,144 50,507 58,254 65,653 Tax expenses 7,887 12,410 7,235 9,339 12,166 13,637 15,729 17,726 Profit after tax 29,970 36,343 39,051 34,233 32,978 36,870 42,526 47,927 Adj profit after tax 28,888 35,437 38,523 30,876 32,978 36,870 42,526 47,927 EPS FD 50.8 62.3 67.7 54.3 58.0 64.8 74.7 84.2 EPS FD ex subs dividends 48.5 59.7 63.3 49.5 53.2 59.5 68.9 77.9 Ratios (%) EBITDA margin (%) 13.3 13.9 13.5 12.3 13.4 13.0 13.4 13.4 Raw material cost as % of sales 71.4 71.4 69.4 68.9 68.3 69.0 69.0 69.0 Staff cost as % of sales 5.7 5.2 6.0 6.7 6.6 6.3 6.2 6.3 Other expenses as % of sales 9.7 9.5 11.2 12.4 11.8 11.7 11.3 11.3 Excise duty (% of sales) 9.1 11.0 8.9 7.9 9.9 10.2 10.2 10.2 Tax rate (%) 20.8 25.5 15.6 21.4 26.9 27.0 27.0 27.0

Source: Company, Kotak Institutional Equities estimates

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Tata Communications (TCOM) Telecom MAY 31, 2016 RESULT Coverage view: Cautious

In-line quarter. Risk-reward continues to be favorable; ADD. Strong data business Price (`): 473 momentum sustained in 4QFY16 and aided an in-line earnings print despite another Target price (`): 515 quarter of weak performance in the other two business lines – voice and Neotel. After BSE-30: 26,726 two years of flat overall EBITDA, we expect double-digit EBITDA growth ahead as the two ‘drag’ businesses now form <16% of overall EBITDA (4QFY16 basis). We continue to like the risk-reward and retain ADD. Raise TP to `515 (from `475).

Company data and valuation summary Tata Communications Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 491-325 EPS (Rs) 1.6 5.6 14.9 Market Cap. (Rs bn) 134.8 EPS growth (%) (56.1) 242.7 164.8 Shareholding pattern (%) P/E (X) 288.2 84.1 31.8 Promoters 75.0 Sales (Rs bn) 206.1 214.2 226.0 FIIs 6.6 Net profits (Rs bn) 0.5 1.6 4.2 MFs 6.4 EBITDA (Rs bn) 30.8 34.7 38.6 Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.1 7.1 6.1 Absolute 14.4 42.9 8.3 ROE (%) (111.4) (48.5) ####### Rel. to BSE-30 9.7 23.0 12.8 Div. Yield (%) 1.2 1.4 1.4

4QFY16 earnings print in line with expectations; data business continues to deliver

TCOM reported revenues and EBITDA of `51.5 bn (+7% yoy, KIE: `51.2 bn) and `7.67 bn (+7% yoy, KIE: `7.71 bn), respectively, both in line with our expectations. We discuss segmental performance across the three key business lines below:

 Voice business – gross revenues declined 1.7% qoq and 5.2% yoy. Net revenues were down 11% yoy but jumped 9% qoq, depicting the volatility in the quality of volumes. EBITDA for the segment was down 41% yoy but up 10% qoq to `946 mn. The company ended FY2016 with segment EBITDA of `4.8 bn, down 24% yoy as volumes (ILD + NLD) declined 12.4% yoy. In line with the stated intent, the company remained disciplined about the quality of minutes carried, as reflected in largely flattish net realization yoy.

 Data business – strong momentum sustained with the company reporting 24% yoy growth in revenues and 41% yoy growth in EBITDA for 4QFY16. EBITDA margin for the segment came in at 22.8% for the quarter, up nearly 300 bps yoy. For FY2016, segment revenues grew 18% yoy and segment EBITDA grew 23% yoy. 2HFY16 was materially stronger than 1HFY16 marking strong exit to the year. Even as strong revenue growth reflects market share gains on the back of consistent improvement in competitive positioning, sustained margin expansion reflects improved business mix and scale benefits kicking in on some of the new services (like the India ATM business, which achieved EBITDA breakeven in FY2016).

 Neotel – had a weak quarter with a sharp 73% decline in EBITDA, partly impacted by one-off costs and partly impacted by adverse FX translation. Rohit Chordia Expect EBITDA growth to revive strongly in FY2017E; reiterate ADD

FY2015 and FY2016 have been challenging years from an EBITDA growth standpoint as the Abhas Gupta strong performance in the data business was negated by sustained weakness in voice segment and Neotel. On the positive side, what this has meant is that voice plus Neotel combined formed only 16% of the overall EBITDA in 4QFY16 and hence would not drag overall performance as much going forward. We continue to like the risk-reward despite the strong recent rally. Reiterate ADD with a revised SOTP-based TP of `515 (from `475).

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

Exhibit 1: Key changes to TCOM earnings model, March fiscal year-ends, 2017-18E (Rs mn)

Revised Earlier Change (%) 2017E 2018E 2017E 2018E 2017E 2018E Revenues (Rs mn) 214,229 226,009 216,962 229,005 (1.3) (1.3) EBITDA (Rs mn) 34,658 38,580 34,016 37,966 1.9 1.6 EBITDA margin (%) 16.2 17.1 15.7 16.6 Net income (Rs mn) 1,603 4,244 1,349 3,759 EPS (Rs/share) 5.7 14.9 4.8 13.2

Source: Kotak Institutional Equities estimates

Exhibit 2: Our sum-of-the-parts target price for TCOM is Rs515/share

Estimated value Value in SOTP (Rs bn) (Rs/share) (Rs bn) (Rs/share) Comments 1. Core business (including Neotel) Enterprise value (EV) 181 635 181 635 Based on 4.75X EV/EBITDA multiple on Mar-2018E EBITDA Net cash/(debt) (102) (359) (102) (359) Equity value 79 276 79 276 2. Investments TATA Teleservices (TTSL) — — — — Not ascribing any value to this stake, to be conservative Total — — — — 3. Others Surplus real estate 103 360 51 180 50% of estimated market value of surplus land Total 103 360 51 180 Grand total [1]+[2]+[3] 181 636 130 456 Data centre sale optionality (Rs/share) 17 60 Target price (Rs/share) 516

Source: Kotak Institutional Equities estimates

Exhibit 3: Condensed consolidated financials for TCOM, March fiscal year ends, 2013-19E (Rs mn)

2013 2014 2015 2016E 2017E 2018E 2019E Profit and loss statement Revenues 172,130 196,659 199,133 206,055 214,229 226,009 233,111 EBITDA 20,597 30,880 29,941 30,842 34,658 38,580 41,959 EBIT 327 9,966 8,330 8,097 10,660 13,352 15,478 PBT (6,454) 3,782 4,786 3,046 6,467 9,462 12,121 Recurring PAT (8,656) 349 1,082 482 1,617 4,258 6,667 PAT after extraordinaries (6,509) 1,011 30 (2,104) 1,617 4,258 6,667 Reported PAT (6,233) 1,014 13 (2,118) 1,603 4,244 6,653 Reported EPS (Rs/share) (21.9) 3.6 3.8 1.7 5.7 14.9 23.4 Balance sheet Total Equity 14,328 8,057 3,273 (4,113) (2,496) 1,762 8,429 Borrowings 123,624 136,944 139,076 143,683 140,683 137,683 134,683 Other liabilities 99,300 102,684 100,087 113,700 114,847 119,077 120,935 Total equity and liabilities 237,252 247,685 242,437 253,270 253,034 258,522 264,047 Net fixed assets 146,091 149,487 149,573 150,305 147,730 145,103 141,933 Net intangibles 8,729 6,185 3,848 2,656 2,656 2,656 2,656 Cash and equivalents 14,917 26,739 25,096 28,383 30,932 35,417 41,780 Other assets 67,514 65,274 63,919 71,927 71,716 75,346 77,677 Total assets 237,252 247,685 242,437 253,270 253,034 258,522 264,047

Source: Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Communications Telecom

Exhibit 4: TCOM - 4QFY16 review, Indian GAAP, March fiscal year-ends (Rs mn)

Change (%) Deviation 4QFY15 3QFY16 4QFY16 qoq (%) yoy (%) 4QFY16E % FY2015 FY2016 yoy (%) Revenues 48,112 50,995 51,454 0.9 6.9 51,173 0.6 199,090 205,548 3.2 Global voice 20,813 19,826 19,491 (1.7) (6.4) 88,400 80,560 (8.9) Global data 23,171 26,961 28,295 4.9 22.1 90,649 105,971 16.9 Neotel + others 4,171 4,208 3,668 (12.8) (12.0) 21,720 19,018 (12.4) Total expenditure (40,939) (43,397) (43,789) 0.9 7.0 (43,463) 0.7 (169,193) (175,213) EBITDA 7,173 7,598 7,665 0.9 6.9 7,709 (0.6) 29,897 30,335 1.5 Depreciation and amortization (5,617) (5,908) (5,552) (6.0) (1.2) (5,737) (3.2) (21,611) (22,745) EBIT 1,556 1,691 2,113 25.0 35.8 1,973 7.1 8,286 7,590 (8.4) Other income 692 108 940 246 2,026 2,638 Interest expense (1,817) (1,730) (1,739) (1,835) (7,508) (7,183) Pre-tax profits 431 69 1,314 383 2,804 3,046 8.6 Tax (incl. deferred tax) (1,158) 154 (782) (702) (3,031) (2,564) Net income pre exceptionals (726) 222 532 (319) (226) 482 Exceptional items (1,052) — (2,586) — 256 (2,586) PAT after exceptional items (1,779) 222 (2,054) (319) 29 (2,104) Minority int. share of loss (4) (4) (7) (4) (18) (18) Share in loss of associates 0 1 2 1 1 4 Reported net income (1,783) 219 (2,059) (323) 13 (2,118) Margins (%) EBITDA 14.9 14.9 14.9 15.1 15.0 14.8 EBIT 3.2 3.3 4.1 3.9 4.2 3.7 PBT 0.9 0.1 2.6 0.7 1.4 1.5 PAT (pre exceptionals and MI) (1.5) 0.4 1.0 (0.6) (0.1) 0.2

Source: Company, Kotak Institutional Equities

Exhibit 5: Key assumptions driving TCOM model

2013 2014 2015 2016E 2017E 2018E 2019E Re/US$ rate 54.4 60.4 61.1 65.4 68.0 70.0 70.0 Capex (US$ mn) 323 300 355 336 315 323 333 Voice segment Gross revenues (US$ mn) 1,576 1,580 1,451 1,231 1,063 959 867 Net revenues (US$ mn) 266 245 204 166 136 116 99 EBITDA margins (on gross, %) 8.5 8.9 7.2 6.0 5.6 5.2 4.9 ILD volumes (bn min) 53.8 50.6 44.7 40.0 35.2 32.4 29.8 NLD volumes (bn min) 8.3 5.9 4.5 3.1 2.5 2.0 1.7 Data segment Revenues (US$ mn) 1,241 1,309 1,487 1,619 1,797 1,977 2,171 Revenue growth (%) 5.3 5.5 13.6 8.9 11.0 10.0 9.8 EBITDA margin (%) 16.8 19.8 19.7 20.8 22.0 22.6 23.1 Neotel Revenues (US$ mn) 346 348 361 291 291 291 291 EBITDA margin (%) 10.3 31.9 25.6 18.5 19.0 19.0 19.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Telecom Tata Communications

Exhibit 6: Tata Communications: key operating and financial metrics

Quarter-ending Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Gross Revenue by Segment (%) Global Voice Solutions 48.3 45.5 44.8 42.3 42.7 39.7 40.3 38.9 37.2 Global Data Services 40.6 42.4 43.4 46.7 47.6 47.9 50.4 52.9 54.0 Neotel 11.2 12.1 11.9 10.9 9.7 12.4 9.2 8.3 8.9 Others 0.0 0.0 0.0 — — — — — — Global Voice Solutions (Rs mn) Gross revenues 24,879 23,407 22,816 20,983 20,555 20,548 20,695 19,826 19,491 Net revenues 3,641 3,381 3,017 3,127 2,919 2,620 3,290 2,386 2,597 EBITDA 1,896 1,728 1,297 1,725 1,611 1,300 1,715 862 946 EBIT 1,533 1,237 760 1,203 1,133 824 1,226 414 632 EBITDA margin (%) 7.6 7.4 5.7 8.2 7.8 6.3 8.3 4.3 4.9 EBIT margin (%) 6.2 5.3 3.3 5.7 5.5 4.0 5.9 2.1 3.2 Volumes (bn mins) Total 13.8 13.0 12.8 11.7 11.7 11.0 11.1 10.4 10.6 ILD 12.3 11.7 11.5 10.6 10.7 10.3 10.4 9.7 9.6 NLD 1.5 1.2 1.2 1.1 1.0 0.7 0.7 0.7 1.0 Net realization per min (Rs/min) 0.264 0.260 0.236 0.267 0.249 0.238 0.296 0.229 0.245 EBITDA per min (Rs/min) 0.137 0.133 0.101 0.147 0.138 0.118 0.155 0.083 0.089 Operating costs per min (Rs/min) 0.126 0.127 0.134 0.120 0.112 0.120 0.142 0.147 0.156 Global Data Solutions (Rs mn) Gross revenues 20,914 21,780 22,134 23,098 22,902 24,836 25,879 26,961 28,295 Net revenues 15,403 15,490 15,771 16,339 16,300 17,290 18,406 18,884 20,503 EBITDA 4,112 3,985 4,486 4,851 4,564 4,734 4,965 5,853 6,449 EBIT (50) (196) 253 482 (13) 153 277 1,111 1,749 EBITDA margin (%) 19.7 18.3 20.3 21.0 19.9 19.1 19.2 21.7 22.8 EBIT margin (%) (0.2) (0.9) 1.1 2.1 (0.1) 0.6 1.1 4.1 6.2 GR by segment (%) Service Provider / Carrier 48.0 44.0 44.0 42.0 44.0 42.0 43.0 42.0 43.0 Enterprise 52.0 56.0 56.0 58.0 56.0 58.0 57.0 58.0 57.0 GR by service line (%) Network services 67.0 64.0 65.0 64.0 65.0 63.0 62.0 62.0 61.0 Managed services 33.0 36.0 35.0 36.0 35.0 37.0 38.0 38.0 39.0 GR by geography (%) India 48.0 51.0 51.0 51.0 53.0 50.0 51.0 52.0 53.0 Rest of the world 52.0 49.0 49.0 49.0 47.0 50.0 49.0 48.0 47.0 TCPSL Gross Revenue (Rs mn) 1,198 1,265 1,224 1,322 1,345 1,375 1,386 1,427 1,476 Total ATMs managed 19,030 19,604 20,658 21,727 22,888 19,058 19,205 19,548 20,072 Managed ATMs 17,848 18,032 18,086 18,007 17,725 13,466 12,976 12,721 12,441 White label ATMs 1,182 1,572 2,572 3,720 5,163 5,592 6,229 6,827 7,631 Total POS managed 13,324 13,138 13,293 13,119 13,247 13,473 13,557 13,449 13,448 Debt profile Core business (US$ mn) Gross debt 1,784 1,709 1,638 1,663 1,665 1,708 1,744 1,782 1,820 Foreign Currency Loans 1,612 1,631 1,604 1,630 1,619 1,661 1,678 1,713 1,741 Rupee Loans 172 78 34 33 46 47 66 69 79 Average cost of loans (%) 4.28 4.24 3.96 3.82 3.80 3.93 3.27 3.30 3.14 Cash and cash equivalent 404 278 285 307 338 298 310 306 381 Net debt 1,380 1,431 1,353 1,356 1,327 1,411 1,434 1,476 1,438 INR/USD (closing) 62.6 66.2 66.3 Net debt (Rs mn) 83,004 97,696 95,268 Neotel (ZAR mn) Gross Debt 5,144 4,975 5,158 Net debt 4,371 4,264 4,468 INR/ZAR (closing) 5.12 4.23 4.48 Net debt (Rs mn) 22,380 18,037 20,017 Consolidated net debt (Rs mn) 10 5 ,38 3 115 ,733 115 ,28 4

Source: Company, Kotak Institutional Equities

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY Prestige Estates Projects (PEPL) Real Estate MAY 31, 2016 RESULT Coverage view: Attractive

4QFY16: will residential consolidation continue in FY2017 as well? Price (`): 180 Overall operations grew, but marginally, compared to the past, but the pre-sales Target price (`): 250 guidance for FY2017 surprises us. The focus on capex has increased with Prestige BSE-30: 26,726 planning to construct more annuity projects. Two new market entries were announced, in Pune and Ahmedabad, both office projects. The key question is should the management balance the capex in view of its residential pre-sales outlook? Maintain BUY.

Company data and valuation summary Prestige Estates Projects Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 291-130 EPS (Rs) 9.4 9.2 13.3 QUICK NUMBERS Market Cap. (Rs bn) 67.7 EPS growth (%) 5.7 (2.2) 45.2 Shareholding pattern (%) P/E (X) 19.3 19.7 13.6  Prestige collected Promoters 70.0 Sales (Rs bn) 46.3 52.9 61.0 `32.8 bn in FY2016 FIIs 24.3 Net profits (Rs bn) 3.5 3.4 5.0 MFs 4.8 EBITDA (Rs bn) 10.4 12.8 15.1  Net debt stands at Price performance (%) 1M 3M 12M EV/EBITDA (X) 12.1 9.5 8.3 Absolute 7.1 21.0 (26.0) ROE (%) 8.8 8.0 10.8 `51 bn Rel. to BSE-30 2.6 4.1 (22.9) Div. Yield (%) 0.8 0.8 0.8  Pre-sales guidance Results review: Collections improve, but expenses drive OCF before land, negative for the year for FY2017 at `35- Prestige collected `10.4 bn from its development business operations in 4QFY16 to close 40 bn (total) FY2016 at `32.8 bn of collections. The company’s net debt stands at `51 bn as on March 2016. Despite the growth in collections in FY2016, we believe Prestige may have slipped into negative OCF zone (before land) given its high construction and now interest expenditure. We await detailed cash flow disclosures. Reported margins stabilized in FY2016 at 31.6%. Operations review: Five new launches in 4QFY16; meets guidance on most counts but not in sales Prestige launched five projects across mid-income and premium segments in 4QFY16. Sales value was nearly `10 bn, but more area was sold reflecting higher mid-income sales. Prestige closed FY2016 at `26 bn of pre-sales, 40% lower than in FY2015 and much lower than the original guidance for FY2016. But on most other counts, mainly on cash flow items like collections and rental income, Prestige’s performance was in-line with its guidance (see Exhibit 6). Business development activity remained strong, but more projects were added on the annuity side. Guidance, capex and foray into new cities Prestige announced its entry into two new cities, Pune and Ahmedabad in 4QFY16, but with plans of constructing annuity projects. Rental and collections guidance for FY2016 is for 20% yoy growth at +`6 bn and +`40 bn respectively, but the residential pre-sales guidance of `35- 40 bn (total) surprises us. With nearly `20 bn worth of stock in near-completion projects and launch plans of 10-12 mn sq. ft of area, we believe Prestige has put a conservative pre-sales target considering its ability. We seek management clarity on this. Valuation and view Samar Sarda Our BUY call on Prestige stays on account of increasing contribution from its annuity portfolio, which now contributes 60% of our value of `250 /share. Until now, Prestige was balancing its annuity capex with strong growth in residential pre-sales. While annuity capex is likely to increase, residential pre-sales seems to be still in consolidation given Prestige’s scale and presence. In such a scenario, shouldn’t the management tone down its capex plans in the interim? We would update our numbers post management conference call on results.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Real Estate Prestige Estates Projects

Results review: Margins drop despite increase in rental income

Exhibit 1: Margins drop due to cost increases, we believe Prestige: Quarterly (standalone) and yearly (consolidated) results snapshot, March fiscal year-ends (Rs mn)

% change 4QFY16 4QFY16E 4QFY15 3QFY16 4QFY16E qoq yoy 2016 2015 % change Net sales 6,803 6,500 6,762 5,397 5 1 26 46,344 34,198 36

Operating costs (5,774) (5,150) (5,313) (4,284) 12 9 35 (35,920) (24,259) 48

EBITDA 1,029 1,350 1,449 1,113 (24) (29) (8) 10,424 9,939 5 Other income 211 300 664 323 (30) (68) (35) 838 986 (15) Interest costs (460) (600) (524) (553) (23) (12) (17) (3,587) (3,214) 12 Depreciation (130) (130) (122) (127) (0) 6 2 (1,584) (1,397) 13 PBT 650 920 1,466 756 (29) (56) (14) 6,090 6,314 (4) Taxes (51) (150) (329) (107) (66) (84) (52) (2,142) (2,647) (19) PAT 599 770 1,138 649 (22) (47) (8) 3,948 3,668 8 Consolidated PAT 3,512 3,324 EPS 1.6 2.1 3.0 2.9 9.4 8.9

Key ratios EBITDA margin (%) 15.1 20.8 21.4 20.6 22.5 29.1 PAT margin (%) 8.8 11.8 16.8 12.0 8.5 10.7 Effective tax rate (%) 7.9 16.3 22.4 14.2 35.2 41.9

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Margins drop on account on increase in budgets, we believe Prestige: Consolidated quarterly numbers, March fiscal year-ends, 1QFY16-4QFY16 (Rs mn)

1QFY16 2QFY16 3QFY16 4QFY16 Net sales 13,425 12,043 9,804 11,071 Operating costs (10,203) (9,332) (7,515) (8,869) EBITDA 3,222 2,710 2,289 2,202 Other income 176 268 198 196 Interest costs (872) (882) (896) (938) Depreciation (367) (378) (390) (449) PBT 2,159 1,719 1,201 1,011 Taxes (756) (622) (472) (292) PAT 1,403 1,097 729 719 Consolidated PAT 1,288 1,007 636 581 EPS 3.4 2.7 1.7 1.6 Key ratios EBITDA margin (%) 24.0 22.5 23.3 19.9 PAT margin (%) 10.5 9.1 7.4 6.5 Effective tax rate (%) 35.0 36.2 39.3 28.9

Notes: (a) Prestige started reporting consolidated quarterly results from 1QFY16.

Source: Company, Kotak Institutional Equities

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Prestige Estates Projects Real Estate

Exhibit 3: Increase in 4QFY16 debt only on account of LRD Prestige: Standalone and consolidated debt, March fiscal year-ends, 2011-4QFY16 (Rs mn)

Standalone 2011 2012 2013 2014 2015 1QFY16 2QFY16 3QFY16 4QFY16 Secured loans 9.9 11.6 14.6 17.9 23.0 24.2 28.2 30.3 30.8 Project and w orking capital 2.9 7.2 10.6 13.8 10.6 11.6 16.0 14.5 14.4 Capex loans - hotels 0.5 0.5 1.0 1.9 2.3 2.4 2.4 2.5 2.5 Capex loans - office — — — 0.8 1.4 1.9 2.0 2.0 2.0 Lease rent discounting (LRD) 2.7 2.1 1.5 1.2 1.9 1.8 1.8 3.1 3.5 Receivables discounting 3.8 1.8 1.6 0.3 6.7 6.5 6.1 8.2 8.5 Unsecured loans 0.2 0.2 0.1 — — — — — — Gross debt 10.1 11.7 14.8 17.9 23.0 24.2 28.2 30.3 30.8 Less: Cash and bank balances 3.1 1.4 4.8 4.2 4.6 3.8 6.6 3.6 3.7 Net debt 7.0 10.3 10.0 13.7 18.4 20.4 21.6 26.7 27.1

Consolidated Secured loan 14.7 18.1 23.7 30.7 38.1 39.8 43.8 55.2 56.8 Project and w orking capital 3.2 8.0 11.4 15.9 13.9 14.6 18.9 17.4 17.4 Capex loans - hotels 0.7 1.0 1.8 2.7 4.1 4.3 4.4 4.7 4.8 Capex loans - office — 0.7 2.3 3.0 1.4 1.9 2.0 2.0 2.0 Capex loans - retail mall — 0.7 0.3 1.0 0.3 0.5 0.6 0.8 0.9 Lease rent discounting (LRD) 7.0 5.9 6.3 7.9 11.7 12.0 11.8 22.2 23.3 Receivables discounting 3.8 1.8 1.6 0.3 6.7 6.5 6.1 8.2 8.5 Unsecured loan 0.5 0.3 0.2 — — — — — — Gross debt 15.2 18.4 23.9 30.7 38.1 39.8 43.8 55.2 56.8 Less: Cash and bank balances 3.7 2.5 6.0 5.4 5.9 5.6 7.6 5.5 5.7 Net debt 11.5 15.9 17.9 25.2 32.2 34.3 36.2 49.7 51.1

Source: Company, Kotak Institutional Equities

Operations update: Five new launches in 4QFY16

Exhibit 4: Prestige sold more mid-income projects Prestige: Sales, sales value, realizations and collections, March fiscal year-ends, 1QFY14-4QFY16

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Sales (mn sq. ft) 1.8 1.8 1.6 1.0 2.1 2.2 1.1 1.3 0.8 1.0 0.9 1.5 Sales value (Rs mn) Mid-income resi. 7,298 7,723 6,543 4,505 11,819 10,345 4,244 5,828 4,320 4,690 3,928 6,975 Premium resi. 2,809 2,546 2,714 1,096 1,061 1,196 1,961 4,218 701 1,063 1,111 1,105 Commercial 122 416 145 406 193 1,353 1,389 17 245 298 83 1,809 Total sales 10,229 10,685 9,402 6,007 13,073 12,894 7,594 10,063 5,266 6,051 5,122 9,889 Realizations (Rs/sq. ft) 5779 5871 6042 6068 6285 5969 6720 7543 6583 5932 5629 6421 Collections 6,074 6,198 5,923 6,557 7,607 8,101 7,561 9,047 8,445 7,755 7,976 8,624 Avg. qrtly. collections 6,188 8,079 8,200

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Real Estate Prestige Estates Projects

Exhibit 5: Improvement in project structures for FY2016, but budgets need to be well planned too, we believe. Receivables profile, March fiscal year-ends, 4QFY12-4QFY16 (Rs mn)

Receivables profile 4QFY12 4QFY13 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Area (mn sq. ft) Total area Developable 26.1 33.2 47.0 50.5 53.0 52.6 59.6 59.1 61.3 62.8 64.7 Car park 4.4 6.3 7.8 10.5 11.0 10.7 12.7 12.5 13.4 13.6 14.9 Saleable 21.7 26.9 39.2 40.0 42.0 42.0 46.8 46.7 47.9 49.2 49.7 Prestige's share Saleable area 18.5 21.5 30.5 30.5 32.2 32.5 35.7 35.6 36.4 36.6 38.0 Share (%) 85.2 80.2 77.8 76.2 76.7 77.3 76.2 76.3 76.0 74.4 76.4 Revenue (Rs bn) Estimated value 101 125 173 186 195 198 223 222 227 229 241 Sales achieved 51 72 102 113 122 128 140 143 148 149 155 Unsold area 50 52 71 73 72 71 84 80 79 80 86 Collections (Rs bn) Collected 21 30 49 53 60 65 74 81 88 93 97 Collections (%) 40 41 48 47 49 51 53 57 60 62 62 Costs (Rs bn) Budgeted 43 66 103 106 110 110 125 127 132 132 146 Incurred 7 22 40 41 44 49 52 57 65 65 78 Gross cash flow (Rs bn) (a) 44 51 61 67 70 73 76 72 72 70 76 Gross margins (%) 43.8 40.6 35.5 35.9 36.0 36.8 34.0 32.3 31.8 30.5 31.7 EBITDA margins (%) (a) 32 28 25 25 28 31 21 13 23 21 15 Prices (Rs/sq. ft) Sales achieved 4,771 5,020 5,300 5,616 5,760 6,137 6,124 5,728 5,797 5,836 5,819 Unsold area 6,435 7,335 6,288 7,010 6,619 6,069 6,501 7,462 7,225 7,275 7,525 Costs estimated 1,661 1,983 2,183 2,106 2,068 2,083 2,104 2,146 2,150 2,098 2,260

Notes: (a) Standalone reported margins from income statement.

Source: Company, Kotak Institutional Equities

Exhibit 6: Prestige performances on most accounts, but for pre-sales Prestige: Guidance versus performance, March fiscal year-ends, 2012-16

2012 2013 2014 2015 2016 Guidance Achieved Guidance Achieved Guidance Achieved Guidance Achieved Guidance Achieved Sales (Rs mn) (b) 15,000 21,127 25,000 31,221 43,000 44,348 50,000 50,135 57,500-60,000 31,498 Turnover (Rs mn) 7,500 7,992 15,000 16,064 20,000 21,525 27,000 35,134 40,000-42,000 46,344 Collections (Rs mn) 12,000 13,354 15,000 19,695 23,000 24,753 29,000 32,317 37,500-40,000 32,800 Launches (mn sq. ft) 10.0 12.9 8.0 10.4 14.0 15.7 15.0 14.6 12.0 8.4 Leasing (mn sq. ft) 3.0 3.1 2.5 2.1 2.0 2.7 2.0 2.7 1.5-2 1.3 Exit rental (Rs mn) (a) 1,600 1,870 2,250 2,289 3,200 2,950 3,800 3,840 4,500-5,000 5,141 Avg selling price (Rs/sq. ft) 4,302 5,212 5,920 6,500 Consolidated Net D/E 0.75-0.85 1.1

Notes: (a) Exit rental is not equal to yearly rental. (b) Total sales. Prestige share is lesser.

Source: Company, Kotak Institutional Equities

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH Prestige Estates Projects Real Estate

Exhibit 7: Pre-sales guidance for FY2017 surprises us Prestige: FY2017 guidance

2017 Guidance Sales (Rs mn) (b) 35,000-40,000 Turnover (Rs mn) 40,000-45,000 Collections (Rs mn) 40,000-45,000 Launches (mn sq. ft) 10 12 Leasing (mn sq. ft) 1.5 2 Exit rental (Rs mn) (a) 6,000-6,250 Avg selling price (Rs/sq. ft) Consolidated Net D/E 1 1.25

Notes: (a) Exit rental is not equal to yearly rental. (b) Total sales. Prestige share is lesser.

Source: Company, Kotak Institutional Equities

Exhibit 8: Debt to increase on account of capex Prestige: Profit model, balance sheet, cash flow model, March fiscal year-ends, 2013-18E (Rs mn)

2013 2014 2015 2016 2017E 2018E Profit model Net sales 19,476 25,492 34,198 46,344 52,850 60,973 EBITDA 5,849 7,203 9,939 10,424 12,800 15,103 Other income 636 975 986 838 359 403 Interest (1,489) (2,290) (3,214) (3,587) (5,369) (5,223) Depreciation (682) (893) (1,397) (1,584) (2,058) (2,402) Pre-tax profits 4,313 4,995 6,314 6,090 5,733 7,881 Tax (1,323) (1,798) (2,697) (2,142) (1,921) (2,640) Net income 2,999 3,245 3,668 3,948 3,812 5,241 Adjusted net income 2,917 3,143 3,324 3,512 3,436 4,991 Earnings per share (Rs) 8.2 8.9 8.9 9.4 9.2 13.3 Balance sheet Total Equity 27,423 29,792 38,206 41,439 44,199 48,513 Minority interests 2,620 2,990 3,975 3,234 3,234 3,234 Non-current liabilities 11,604 13,684 19,235 38,716 25,499 27,159 Current liabilities 34,921 46,958 62,142 61,114 74,057 73,498 Total liabilities and equity 76,567 93,424 123,558 144,503 146,988 152,403 Non-current assets Net fixed assets 29,419 33,725 37,856 49,244 70,222 73,953 Other non-current assets and advances 9,700 12,073 12,301 14,931 11,699 11,740 Current assets 35,697 44,739 70,614 77,790 62,570 64,193 Investments 1,750 2,887 2,787 2,538 2,497 2,517 Total assets 76,567 93,424 123,558 144,503 146,988 152,403 Free cash flow Operating cash flow , excl. w orking capital 3,590 3,988 4,670 5,129 5,494 7,393 Working capital changes (845) (4,887) (12,359) (16,276) 22,248 (4,212) Capital expenditure (9,423) (5,198) (5,528) (12,972) (23,036) (6,134) Investments (9) (1,137) 100 250 41 (20) Free cash flow (6,688) (7,234) (13,117) (23,869) 4,748 (2,973) Ratios (%) Debt/equity 93 106 106 157 131 127 Net debt/equity 75 94 92 145 127 123 RoE (%) 11.7 10.8 9.8 8.8 8.0 10.8 RoCE (%) 8.5 8.1 7.8 6.8 7.1 8.2 Book value per share (Rs) 78 85 102 111 118 129

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 REDUCE Jubilant Foodworks (JUBI) Consumer Products MAY 31, 2016 RESULT Coverage view: Cautious

Still waiting for Godot. That elusive ‘anytime-now’ SSG acceleration failed to show up Price (`): 1,023 again in 4QFY16 leading to (1) another quarter of miss versus expectations, and (2) Target price (`): 1,000 another fiscal of modest EBITDA growth and decline in PAT and return ratios. BSE-30: 26,726 Management outlook remains upbeat as ever and we are fully aware of how bad a good SSG print (like 4QFY15) can and will make our cautious call look. We would still continue to prefer to err on the side of caution. Rollover to end-March 2018E prevents a cut in TP, which stays at `1,000 despite some EPS forecast cuts. REDUCE.

Company data and valuation summary Jubilant Foodworks Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 1,960-887 EPS (Rs) 15.9 23.2 31.4 Market Cap. (Rs bn) 67.3 EPS growth (%) (6.0) 46.2 35.4 Shareholding pattern (%) P/E (X) 64.5 44.1 32.6 Promoters 48.7 Sales (Rs bn) 24.4 29.2 34.9 FIIs 9.5 Net profits (Rs bn) 1.0 1.5 2.1 MFs 7.1 EBITDA (Rs bn) 2.8 3.7 4.7 Price performance (%) 1M 3M 12M EV/EBITDA (X) 23.8 17.7 13.7 Absolute (11.6) 2.8 (42.9) ROE (%) 15.2 19.5 22.6 Rel. to BSE-30 (15.3) (11.5) (40.5) Div. Yield (%) 0.2 0.5 0.7

4QFY16 – PAT declines 7% as 2.9% SSG not enough to drive profitability up

JUBI’s standalone 4QFY16 earnings print was weaker than our expectations; as is the nature of the business model, a modest miss in SSG (2.9% versus 4.5% expected) drove a modest miss in revenues (2% below KIE), a higher miss in EBITDA (12% below KIE) and an even higher miss at the PAT level (23% below KIE). Revenues grew 14% yoy (lowest ever) to `6.18 bn, EBITDA grew 7% yoy to `748 mn while PAT declined 7% yoy to `295 mn. EBITDA margin declined 80 bps yoy to 12.1% (KIE: 13.5%). Even as the company emphasized that its same-store EBITDA margins were flat yoy and belabored on how the read-through was that a 2.9% SSG was enough to mitigate cost inflation, our view differs – same-store margins were flat largely because gross margins went up 115 bps yoy, aided by benign raw material costs. We found the company’s commentary on this aspect at odds with how the company has itself historically advised the analyst community to think of the SSG-OPM equation – on a GM-neutral basis.

Quick recap of FY2016 – third consecutive year of EPS decline

At a standalone level, FY2016 saw an EPS decline of 7% yoy to `17.4 (peak of `20.5 hit in FY2013) while consolidated EPS declined 6% yoy to `15.9 (peak of `19.9 in FY2013). Full-year, EBITDA margin declined 80 bps yoy, RoE slipped to 15.2% (peak of 47% hit in FY2011) while RoCE dipped to 19% (peak of 59% hit in FY2012). The company opened 150 Domino’s stores and 17 Dunkin Donuts stores to end the year with a total of 1,026 Domino’s and 71 Dunkin Rohit Chordia Donuts stores.

Remain Cautious; REDUCE rating and TP of `1,000 remain unchanged Anand Shah

In our view – (1) India QSR opportunity is great but not as great as wider consensus belief, (2) JUBI is a great execution engine but not as immune as widely believed to be from broader Abhas Gupta industry challenges, (3) SSG will recover but we have no idea when and also have no clue to what levels; also, we have no idea whether the higher levels post recovery are sustainable or not, and (4) store expansion potential for Domino’s exists but we suspect incremental expansion would continue to be returns-dilutive. From a more near-term standpoint, 4QFY16 miss drives a 4-7% cut in our FY2017-18E EPS forecast; TP stays at `1,000 (32X FY2018E EPS). REDUCE.

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

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

(% chg.) 4QFY16 4QFY16E 4QFY15 3QFY16 KIE yoy qoq FY2016 FY2015 (% chg.) EOP # of stores (excluding DD) 1,026 1,026 876 990 1,026 876 # of cities present in 235 230 196 225 230 196 Same store sales growth (%) 2.9 4.5 6.6 2.0 -160 bps -370 bps 90 bps 3.2 0.2 300 bps Net sales 6,178 6,312 5,420 6,338 (2) 14 (3) 24,095 20,741 16 Material cost (1,452) (1,452) (1,336) (1,460) 0 9 (1) (5,701) (5,212) 9 Gross Profit 4,726 4,860 4,084 4,878 (3) 16 (3) 18,394 15,529 18 Gross margin (%) 76.5 77.0 75.3 77.0 -51 bps 115 bps -48 bps 76.3 74.9 147 bps Employee cost (1,436) (1,430) (1,177) (1,509) 0 22 (5) (5,589) (4,388) 27 Rent (664) (663) (548) (643) 0 21 3 (2,500) (2,050) 22 Other expenditure (1,878) (1,914) (1,659) (1,969) (2) 13 (5) (7,461) (6,466) 15 Total expenditure (5,430) (5,460) (4,720) (5,580) (1) 15 (3) (21,251) (18,117) 17 EBITDA 748 852 700 757 (12) 7 (1) 2,844 2,624 8 EBITDA margin (%) 12.1 13.5 12.9 12.0 -140 bps -80 bps 15 bps 11.8 12.7 -85 bps Other operating income 2 2 1 2 41 111 18 7 4 97 Other income 16 25 21 12 (35) (21) 40 61 74 (18) Interest — — — — — — — Depreciation (328) (323) (268) (316) 2 22 4 (1,243) (982) 27 Pretax profits 439 556 453 455 (21) (3) (4) 1,670 1,721 (3) Tax (144) (172) (138) (138) (16) 5 5 (524) (488) 7 PAT 295 384 315 317 (23) (7) (7) 1,146 1,233 (7) Extraordinary items — — — — — — Net profit (reported) 295 384 315 317 (23) (7) (7) 1,146 1,233 (7) EPS 4.5 5.8 4.8 4.8 (23) (7) (7) 17.4 18.8 (7) Income tax rate (%) 32.9 31.0 30.4 30.3 187 bps 247 bps 262 bps 31.4 28.4 303 bps Costs as a % of sales Material cost 23.5 23.0 24.7 23.0 50 bps -116 bps 47 bps 23.7 25.1 -148 bps Employee cost 23.2 22.7 21.7 23.8 58 bps 152 bps -57 bps 23.2 21.2 204 bps Rent 10.7 10.5 10.1 10.1 23 bps 63 bps 60 bps 10.4 9.9 48 bps Other expenditure 30.4 30.3 30.6 31.1 6 bps -21 bps -67 bps 31.0 31.2 -22 bps

Source: Company, Kotak Institutional Equities estimates

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

Revised Earlier Change (%) 2017E 2018E 2017E 2018E 2017E 2018E Revenues (Rs mn) 29,231 34,887 29,875 36,341 (2.2) (4.0) EBITDA (Rs mn) 3,697 4,693 3,826 4,988 (3.4) (5.9) EBITDA (%) 12.6 13.5 12.8 13.7 PAT (Rs mn) 1,538 2,090 1,596 2,236 (3.6) (6.5) EPS (Rs/share) 23.2 31.4 24.1 33.6 (3.6) (6.5)

SSG (%) 7.5 9.0 9.5 11.0 Store count EOP 1,262 1,417 1,272 1,436

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 Consumer Products Jubilant Foodworks

Exhibit 3: Consolidated PAT is ~9% lower vs standalone PAT due to losses in Sri Lanka business Abridged standalone and consolidated profit & loss model of Jubilant Foodworks, March fiscal year-ends, 2011-16 (Rs mn)

Standalone Consolidated 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Net revenues 10,171 14,073 17,232 20,741 24,095 10,189 14,143 17,363 20,928 24,380 Cost of materials (2,611) (3,670) (4,487) (5,212) (5,701) (2,617) (3,700) (4,534) (5,279) (5,801) Gross profit 7,560 10,403 12,745 15,529 18,394 7,572 10,443 12,829 15,649 18,579 Employee costs (1,967) (2,692) (3,369) (4,388) (5,589) (1,975) (2,715) (3,411) (4,443) (5,670) SG&A (3,699) (5,270) (6,828) (8,517) (9,961) (3,718) (5,312) (6,922) (8,655) (10,138) EBITDA 1,895 2,441 2,548 2,624 2,844 1,879 2,417 2,496 2,551 2,771 D&A (376) (547) (767) (982) (1,243) (377) (556) (787) (1,011) (1,282) EBIT 1,519 1,895 1,781 1,643 1,601 1,502 1,861 1,709 1,540 1,489 Interest expense — (1) — — — — (1) — — — other income 59 78 93 74 61 58 77 85 65 50 Other operating income 2 3 3 4 7 2 1 9 10 13 PBT 1,581 1,974 1,877 1,721 1,670 1,562 1,939 1,803 1,615 1,551 Provision for taxes (490) (623) (619) (488) (524) (488) (628) (619) (504) (503) PAT 1,090 1,351 1,258 1,233 1,146 1,073 1,311 1,183 1,111 1,048 Extraordinary items (34) — — — — (41) — — — — PAT after EO items 1,056 1,351 1,258 1,233 1,146 1,033 1,311 1,183 1,111 1,048 Dilution due to Sri Lankan subsidiary (2.2) (3.0) (5.9) (9.9) (8.5)

Source: Company, Kotak Institutional Equities

Other key takeaways from the earnings call

 Management termed the overall consumer sentiment remains muted even as it is not deteriorating further from previous quarter.

 Company maintained its stance on the threat of food technology companies (aggregators). Even as the management acknowledged that such companies can create short-term challenges, it sees them as positive in the long term as they would help expand the overall QSR pie, especially delivery. Management indicated that its delivery business is growing at a faster clip versus dining business.

 Positive SSG was completely driven by price increases with volume SSG continuing to be in the negative zone. Management did highlight that it may look at only single price hike in FY2017 (2-3% hike) versus usual practice of two hikes each year of similar quantum.

 JUBI ran a 3-week promotional activity to celebrate its 1,000+ store achievement during 4QFY16; management indicated that this was more a celebration offer to reward customers and didn’t add meaningfully to SSG – however, this did impact GMs a tad in the quarter.

 Employee addition (in absolute terms) for FY2016 has been muted; management attributed the same to productivity gains and reduction in number of orders yoy.

 Other takeaways. (1) ETR to range 31-32% in FY2017, (2) total capex in FY2017 to be around `2.5 bn including store capex (`10 mn per store) and commissary spends (essentially Greater Noida large commissary – likely to commence operations from March, 2017) and (3) store addition guidance for FY2017 was revised to 130-140 stores of Domino’s and 20 stores for Dunkin Donuts and 50% of store additions will be in the top- 10 cities.

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH Jubilant Foodworks Consumer Products

Exhibit 4: SSG remains weak

30 22.3 19.8 20 16.1

7.7 10 6.3 6.6 6.6 4.6 3.2 1.9 2.0 2.9

- (2.6) (3.4) (2.4) (5.3)

(10)

1QFY13 2QFY13 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY16 4QFY13 1QFY14 4QFY15 1QFY16 2QFY16 3QFY16 3QFY13

Source: Company, Kotak Institutional Equities

Exhibit 5: JUBI’s SSG performance relative to peers; Hardcastle has outperformed JUBI in 2HFY16

Jubilant Foodworks Yum! Brands India Hardcastle Restaurants 25 20 15 10 5 - (5) (10) (15) (20)

(25)

1QFY13 2QFY13 3QFY13 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 4QFY13 1QFY14 2QFY14 3QFY14

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 37 Consumer Products Jubilant Foodworks

Exhibit 6: EBITDA margins contracted 80 bps yoy; down 100 bps qoq (on adjusted basis)

1918.2 17.4 18 17.2 16.7 16.8 17 16 14.9 14.7 15 14 13.1 12.9 12.8 ` 13 12.3 12.3 12.2 12.0 12.1 12 10.8 11

10

2QFY13 3QFY13 4QFY13 1QFY14 4QFY14 1QFY15 2QFY15 1QFY16 2QFY16 3QFY16 4QFY16 2QFY14 3QFY14 3QFY15 4QFY15 1QFY13

Source: Company, Kotak Institutional Equities

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

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Per store basis analysis (Rs mn) Net revenues 5.97 6.18 6.16 6.45 5.98 6.01 5.91 6.11 5.73 Cost of materials 1.47 1.57 1.56 1.63 1.47 1.46 1.41 1.41 1.35 Gross profit 4.50 4.61 4.60 4.83 4.50 4.55 4.50 4.70 4.38 Employee costs 1.26 1.28 1.31 1.34 1.30 1.32 1.40 1.45 1.33 Rent 0.59 0.61 0.61 0.62 0.60 0.63 0.60 0.62 0.62 Other expenses 1.88 1.95 1.93 2.02 1.83 1.86 1.86 1.90 1.74 EBITDA 0.77 0.76 0.75 0.85 0.77 0.74 0.64 0.73 0.69 D&A 0.29 0.29 0.29 0.30 0.30 0.31 0.31 0.30 0.30 EBIT 0.47 0.47 0.46 0.55 0.48 0.43 0.33 0.43 0.39 yoy % change Net revenues (6.4) (6.4) (10.6) (4.5) 0.0 (2.7) (4.0) (5.4) (4.1) Cost of materials (11.6) (8.3) (15.6) (9.8) (0.0) (6.9) (9.6) (13.5) (8.6) Gross profit (4.6) (5.7) (8.7) (2.6) 0.1 (1.3) (2.2) (2.6) (2.7) Employee costs 2.3 2.5 (2.6) 7.2 2.7 2.5 7.0 8.3 2.6 Rent 1.9 4.8 5.9 3.6 2.5 2.9 (1.6) (0.5) 1.9 Other expenses 2.5 0.4 (7.6) (4.3) (2.7) (4.6) (3.6) (6.0) (4.8) EBITDA (28.3) (31.2) (27.2) (15.2) 0.7 (2.9) (14.8) (13.7) (10.1) D&A 10.6 (3.1) 2.7 2.1 1.0 6.3 6.6 2.9 2.7 EBIT (41.1) (41.6) (38.4) (22.2) 0.6 (8.4) (28.3) (22.6) (18.0)

Source: Company, Kotak Institutional Equities

38 KOTAK INSTITUTIONAL EQUITIES RESEARCH Jubilant Foodworks Consumer Products

Exhibit 8: JUBI added 36 Domino’s stores in 4QFY16… Exhibit 9:… to take the end-Mar 2016 count to 1,026

50 1,200

47 47 1,000 40 41 40

39 990 1,026 1,026 37 38 800 950

36 36 911

35 35 876

30

838 838 797 797

30 600 761 726 726

26 26 679

24 24 632

20 602 576 576

` 400 552 `

515 515 489 489

10 200

- -

2QFY14 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16

4QFY14 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY13

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

Exhibit 10: Employee count Exhibit 11: Average number of employees per store

Employee count ('000s) - LHS 39 Change, yoy (%) - RHS 35 40 37 35 35

30 37.4 36.9 36.9

30 33 35.5

25 30.3

29.5 29.5

34.5 34.5

29.2 29.2

34.2 34.2

28.7 28.7

27.7 27.7

33.7 33.7 33.6 33.6

27.1 27.1 25 31

26.8 26.8

33.3 33.3

33.2 33.2 26.2 26.2

20 25.8

32.6 32.6 25.0 25.0

20 29 32.2

21.9 21.9 21.1 21.1 15 20.7

19.7 19.7 ` ` 29.6 29.6

18.5 18.5 15 27

29.1 29.1

17.0 17.0 28.7 28.7 10 28.6 10 25

5 5 23 25.3 25.3

- 0 21

2QFY14 3QFY15 2QFY13 3QFY13 4QFY13 1QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY13

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39 Consumer Products Jubilant Foodworks

Exhibit 12: Profit model, balance sheet, cash model of Jubilant Foodworks (consolidated), March fiscal year-ends, 2013-19E

2013 2014 2015 2016 2017E 2018E 2019E Profit model Net revenues 14,143 17,363 20,928 24,380 29,231 34,887 41,566 EBITDA 2,417 2,496 2,551 2,771 3,697 4,693 5,961 Other income 79 94 75 62 91 145 217 Interest expense (1) — — — — — — Depreciation (556) (787) (1,011) (1,282) (1,492) (1,695) (1,897) Pretax profits 1,939 1,803 1,615 1,551 2,296 3,143 4,281 Tax (628) (620) (504) (503) (758) (1,053) (1,455) Net income 1,311 1,182 1,111 1,048 1,538 2,090 2,825 Extraordinary items — — — — — — — Reported Net income 1,311 1,182 1,111 1,048 1,538 2,090 2,825 Earnings per share (Rs) 19.9 18.0 16.9 15.9 23.2 31.4 42.3 - Standalone 20.5 19.1 18.7 17.3 25.0 33.6 44.8 - Subsidiary (0.6) (1.1) (1.8) (1.4) (1.9) (2.2) (2.5) Balance sheet Total shareholder's equity 4,298 5,500 6,462 7,324 8,470 10,003 12,109 Total borrowings — — — — — — — Deferred tax liability 201 375 578 678 678 678 678 Total liabilities and equity 4,499 5,875 7,040 8,002 9,148 10,681 12,787 Net fixed assets 4,052 5,660 7,572 8,546 9,556 10,548 11,731 Investments 940 937 746 908 908 908 908 Cash 375 242 389 332 921 1,975 3,483 Net current assets (869) (965) (1,667) (1,783) (2,238) (2,749) (3,335) Total assets 4,499 5,875 7,040 8,002 9,148 10,681 12,787 Free cash flow Operating cash flow, excl. working capital 1,943 2,119 2,273 2,195 2,940 3,640 4,506 Working capital changes 144 132 488 300 455 512 585 Capital expenditure (1,914) (2,479) (2,872) (2,257) (2,503) (2,687) (3,080) Free cash flow 173 (229) (111) 238 891 1,465 2,011 Growth Revenue growth 38.8 22.8 20.5 16.5 19.9 19.3 19.1 EBITDA growth 28.6 3.3 2.2 8.6 33.4 26.9 27.0 EPS growth 21.7 (9.9) (6.1) (6.0) 46.2 35.4 34.7 Ratios Gross margin (%) 73.8 73.9 74.8 76.2 76.4 76.2 76.2 EBITDA margin (%) 17.1 14.4 12.2 11.4 12.6 13.5 14.3 Net profit margin (%) 9.3 6.8 5.3 4.3 5.3 6.0 6.8 ROE (%) 36.1 24.1 18.6 15.2 19.5 22.6 25.6 ROCE (%) 48.4 32.5 23.4 19.4 25.2 29.7 34.2 Key assumptions No of stores 586 752 930 1,097 1,262 1,417 1,582 Store addition yoy 121 166 178 167 165 155 165 SSG (%) 16 2 0 3 7 9 10 No of employees 19,734 24,969 27,122 27,719 29,656 33,298 37,175

Source: Company, Kotak Institutional Equities estimates

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY PC Jeweller (PCJL) Consumer Products MAY 31, 2016 RESULT Coverage view: Cautious

Quarter print impacted by jewelry industry strike. 4QFY16 earnings print was weak Price (`): 362 due to jewelry industry strike, which impacted domestic sales in March. PCJ has raised Target price (`): 430 `4.27 bn via CCD in May 2016 to support its business expansion plans; this is likely to BSE-30: 26,726 lead to 5.9% equity dilution, which coupled with cut in domestic revenues, exports margins and higher interest outflow (13% coupon on CCDs raised) drives a 17-18% EPS cut in our FY2017-18 estimates. Retain BUY with a revised TP of `430 (from `500).

Company data and valuation summary PC Jeweller Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 493-296 EPS (Rs) 21.5 25.4 30.3 Market Cap. (Rs bn) 64.8 EPS growth (%) 1.5 18.5 19.3 Shareholding pattern (%) P/E (X) 16.9 14.2 11.9 Promoters 70.6 Sales (Rs bn) 73.3 86.6 101.5 FIIs 19.4 Net profits (Rs bn) 3.8 4.6 5.8 MFs 0.0 EBITDA (Rs bn) 7.3 9.1 10.9 Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.8 7.9 6.2 Absolute 0.4 12.8 (3.7) ROE (%) 17.8 18.1 18.3 Rel. to BSE-30 (3.8) (2.9) 0.2 Div. Yield (%) 0.9 1.1 1.3

Reported comps not comparable yoy due to jewelry industry strike

We note reported yoy comps for 4QFY16 are not strictly comparable yoy/qoq as the core domestic business was impacted by jewelry industry strike, which impacted sales in the complete month of March (due to store closures) particularly in North India where PCJ is strong.

Disclaimers done, PCJ reported 6%, 22% and 34% yoy decline in revenue, EBITDA and PAT for 4QFY16. Domestic business revenues declined 9% yoy due to jewelry strike impact while exports business grew 1% yoy. Weak operating leverage, lower studded share (down to 20% versus 30% in the base quarter, as PCJ’s typical March activation got pushed back due to strike) and lower margins in exports led to180 bps decline in reported EBITDA margins to 8.4%. We note domestic EBITDA margin slipped 150 bps yoy to 10.7% (GMs down 30 bps yoy to 16%) and exports EBITDA margin contracted 380 bps yoy to 4.7% (due to pressure from core Gulf geography). For FY2016, PCJ reported revenue and recurring PAT growth of 14% and 2% respectively while EBITDA was flat yoy; recurring EPS stood at `17.1. PCJ added 10 stores ending the year with store count at 60 stores (39,017 sq. ft addition).

Raises `4.27 bn via preference share issue

In May 2016, PCJ has raised `4.27 bn via preferential allotment of compulsorily convertible debentures (CCD) to DVI Fund (Deccan Value); the same will be converted in equity shares at a price of `380/share within 18 months and carries a coupon rate of 13% per annum until converted. This is likely to lead to 5.9% equity dilution post which DVI Fund’s stake in the Anand Shah company will increase to 9.4% (currently at 3.5%). The company plans to utilize the funds raised for expansion of manufacturing facilities and business expansion (including store rollouts). Rohit Chordia

Cut EPS estimates by 17-18%; maintain BUY with revised TP of `430 (from `500) Abhas Gupta Cut in domestic revenues (due to higher store roll-out through smaller/franchise stores), lower EBITDA margin assumptions due to cut in exports margins and higher interest outflow (on account of 13% coupon rate on CCD raised) drive a cut in our EPS estimates for FY2017-18 by 17-18%. We note benefits of cash infusion are likely to get partly negated by higher-than- expected inventory levels (remain elevated in FY2016 at 193 days of sales). Retain BUY with revised TP of `430/share (from `500) as we roll over to March 2018 (based on 14X target P/E).

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

Exhibit 1: Interim results of PC Jeweller, March fiscal year-ends (Rs mn)

(% chg) 4QFY16 4QFY15 3QFY16 yoy qoq FY2016 FY2015 (% chg) Net sales 18,983 20,202 21,805 (6) (13) 72,591 63,485 14 Other operating income — — — — — — — — Net sales 18,983 20,202 21,805 (6) (13) 72,591 63,485 14 Material cost (16,549) (17,463) (18,940) (5) (13) (62,448) (53,823) 16 Gross profit 2,434 2,739 2,865 (11) (15) 10,143 9,662 5 Gross margin (%) 12.8 13.6 13.1 -74 bps -32 bps 14.0 15.2 -125 bps Staff cost (159) (156) (197) 2 (19) (702) (556) 26 Other expenditure (678) (529) (625) 28 9 (2,178) (1,866) 17 Total other expenditure (837) (684) (822) 22 2 (2,879) (2,422) 19 EBITDA 1,597 2,055 2,043 (22) (22) 7,264 7,240 0 OPM (%) 8.4 10.2 9.4 -176 bps -96 bps 10.0 11.4 -140 bps Other income 126 301 362 (58) (65) 496 592 (16) Interest (575) (606) (544) (5) 6 (2,147) (2,209) (3) Depreciation (60) (63) (61) (5) (3) (226) (230) (2) Pretax profits 1,088 1,687 1,801 (36) (40) 5,387 5,393 (0) Tax (297) (486) (494) (39) (40) (1,532) (1,611) (5) Net income 791 1,201 1,307 (34) (40) 3,854 3,782 2 Extraordinaries — — 155 155 — Reported profits 791 1,201 1,461 (34) (46) 4,009 3,782 6 Income tax rate (%) 27.3 28.8 25.3 -147 bps 208 bps 27.7 29.9 -222 bps EPS (Rs/share) 4.4 4.4 4.6 (0) (4) 17.1 14.4 19 Cost as a % of net sales Material cost 87.2 86.4 86.9 73 bps 31 bps 86.0 84.8 124 bps Staff cost 0.8 0.8 0.9 6 bps -7 bps 1.0 0.9 9 bps Other expenditure 3.6 2.6 2.9 95 bps 70 bps 3.0 2.9 6 bps

Source: Company, Kotak Institutional Equities

Exhibit 2: Domestic business performance of PC Jeweller, March fiscal year-ends (Rs mn)

(% chg) 4QFY16 4QFY15 3QFY16 yoy qoq FY2016 FY2015 (% chg) Net sales 13,377 14,647 15,860 (9) (16) 51,666 45,387 14 Material cost (11,243) (12,268) (13,313) (8) (16) (43,223) (37,408) 16 Gross profit 2,134 2,379 2,547 (10) (16) 8,443 7,979 6 Gross margin (%) 16.0 16.2 16.1 -29 bps -11 bps 16.3 17.6 -124 bps Staff cost (150) (148) (179) 2 (16) (638) (499) 28 Rental expenses (113) (115) (108) (1) 5 (436) (390) 12 Advertisement expenses (319) (200) (221) 60 44 (689) (595) 16 Other expenditure (123) (133) (149) (8) (17) (516) (447) 15 Total other expenditure (705) (595) (658) 18 7 (2,279) (1,931) 18 EBITDA 1,429 1,784 1,890 (20) (24) 6,163 6,048 2 OPM (%) 10.7 12.2 11.9 -150 bps -124 bps 11.9 13.3 -140 bps Cost as a % of Net sales Material cost 84.1 83.8 83.9 28 bps 10 bps 83.7 82.4 123 bps Staff cost 1.1 1.0 1.1 11 bps -1 bps 1.2 1.1 13 bps Rental expenses 0.8 0.8 0.7 6 bps 16 bps 0.8 0.9 -2 bps Advertisement expenses 2.4 1.4 1.4 101 bps 98 bps 1.3 1.3 2 bps Other expenditure 0.9 0.9 0.9 1 bps -2 bps 1.0 1.0 1 bps

Source: Company, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH PC Jeweller Consumer Products

Exhibit 3: Exports business performance of PC Jeweller, March fiscal year-ends (Rs mn)

(% chg) 4QFY16 4QFY15 3QFY16 yoy qoq FY2016 FY2015 (% chg) Net sales 5,607 5,555 5,945 1 (6) 20,925 18,098 16 Material cost (5,342) (5,082) (5,456) 5 (2) (19,444) (16,561) 17 Gross profit 265 474 489 (44) (46) 1,481 1,538 (4) Gross margin (%) 4.7 8.5 8.2 -381 bps -350 bps 7.1 8.5 -142 bps Total other expenditure (31) (42) (24) (27) 30 (105) (114) (8) EBITDA 234 432 465 (46) (50) 1,375 1,424 (3) OPM (%) 4.2 7.8 7.8 -361 bps -366 bps 6.6 7.9 -130 bps

Source: Company, Kotak Institutional Equities

Exhibit 4: Key business performance parameters of PC Jeweller, March fiscal year-ends

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Revenue details Domestic revenues (Rs mn) 11,780 6,865 10,340 11,035 7,823 9,938 12,979 14,647 9,496 12,934 15,860 13,377 Export revenues (Rs mn) 2,010 4,252 2,640 4,326 5,407 1,898 5,238 5,555 5,611 3,762 5,945 5,607 Growth, yoy (%) Domestic revenues 21 24 (34) 45 26 33 21 30 22 (9) Export revenues 59 69 169 (55) 98 28 4 98 13 1 % of total Domestic revenues 85 62 80 72 59 84 71 73 63 77 73 70 Export revenues 15 38 20 28 41 16 29 27 37 23 27 30 Gross margin (%) Domestic business 13.2 16.0 15.5 13.5 18.9 18.5 17.6 16.2 17.4 16.3 16.1 16.0 Exports business 15.3 19.4 15.2 13.4 6.0 14.1 9.0 8.5 8.4 6.8 8.2 4.7 Domestic revenue mix (% of total) Gold Jewellery 73.9 69.7 71.9 74.6 72.0 67.2 64.4 70.0 67.6 68.8 70.1 80.0 Diamond Jewellery 25.7 30.3 27.3 24.0 27.3 32.5 35.0 30.0 32.4 31.2 29.9 20.0 Other Jewellery 0.4 0.0 0.8 1.4 0.7 0.3 0.6 — — — — — Gold volumes Gold volumes (Kgs) 2,988 1,584 2,304 3,740 2,001 2,273 2,886 3,553 2,304 3,115 3,956 NA Volume growth (%) 9 70 (33) 43 25 (5) 15 37 37 NA Retail footprint No of showrooms 36 36 40 41 44 46 48 50 54 54 56 60 Total Retail area ('000 sq ft) 198 198 198 238 258 272 279 313 335 335 343 352

Source: Company, Kotak Institutional Equities

Exhibit 5: List of new stores added in FY2016

No Location Area (sq ft) Date opened 51 Bhagalpur, Bihar 6,000 May-15 52 Durgapur, West Bengal 5,000 May-15 53 Siliguri, West Bengal 3,600 Jun-15 54 Yamunanagar, Harayana 6,840 Jun-15 55 Bhilai, Chattisgarh 5,100 Oct-15 56 Gwalior, MP (Franchisee) 3,035 Oct-15 57 Jamshedpur, Jharkhand 2,900 Jan-16 58 Yamuna Vihar, New Delhi (Small store) 1,084 Jan-16 59 Gaya, Bihar 3,450 Feb-16 60 Udaipur, Rajasthan 2,008 Feb-16

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 43 Consumer Products PC Jeweller

Exhibit 6: We cut our EPS estimates by 17-18% Key changes to consolidated estimates, PC Jeweller, FY2016-18E

Revised Earlier Change (%) 2017E 2018E 2017E 2018E 2017E 2018E Net revenues (Rs mn) 86,552 101,477 89,866 105,500 (3.7) (3.8) EBITDA (Rs mn) 9,055 10,917 10,065 12,046 (10.0) (9.4) EBITDA margin (%) 10.5 10.8 11.2 11.4 Net income (Rs mn) 4,553 5,773 5,486 6,596 (17.0) (12.5) EPS (Rs/share) 25.4 30.3 30.6 36.8 (17.0) (17.6)

Source: Company, Kotak Institutional Equities estimates

Exhibit 7: Detailed consolidated revenue break-up and store expansion assumptions, March fiscal year-ends, 2012-18E (Rs mn)

2013 2014 2015 2016 2017E 2018E 2019E Revenue breakup Domestic business 29,876 40,021 45,387 51,666 64,700 79,407 96,784 - Gold Jewelry 20,485 29,291 30,913 37,136 45,937 55,994 68,004 - Diamond Jewelry 9,216 10,584 14,306 14,530 18,763 23,413 28,780 - Others Jewelry 176 145 168 — — — — Exports business 10,308 13,227 18,226 21,636 21,852 22,070 22,291 Total net revenues 40,184 53,248 63,613 73,302 86,552 101,477 119,075 Growth, yoy (%) Domestic business 46.5 34.0 13.4 13.8 25.2 22.7 21.9 - Gold Jewelry 38.5 43.0 5.5 20.1 23.7 21.9 21.4 - Diamond Jewelry 69.4 14.9 35.2 1.6 29.1 24.8 22.9 - Others Jewelry 7.5 (17.7) 15.9 0.0 0.0 0.0 0.0 Exports business 2.8 28.3 37.8 18.7 1.0 1.0 1.0 Total net revenues 32.1 32.5 19.5 15.2 18.1 17.2 17.3 % of total revenues Domestic business 74.3 75.2 71.3 70.5 74.8 78.3 81.3 - Gold Jewelry (% of domestic business) 68.6 73.2 68.1 71.9 71.0 70.5 70.3 - Diamond Jewelry (% of domestic business) 30.8 26.4 31.5 28.1 29.0 29.5 29.7 - Others Jewelry (% of domestic business) 0.6 0.4 0.4 0.0 0.0 0.0 0.0 Exports business 25.7 24.8 28.7 29.5 25.2 21.7 18.7 Retail presence No of stores 30 41 50 60 76 91 105 Sq. ft area 164,572 238,000 313,296 352,313 416,313 474,813 528,013 Avg. revenue per store (Rs mn) 996 976 908 861 851 873 922 Avg. revenue per sq ft. (Rs) 181,540 168,155 144,869 146,649 155,411 167,239 183,298

Source: Company, Kotak Institutional Equities estimates

44 KOTAK INSTITUTIONAL EQUITIES RESEARCH PC Jeweller Consumer Products

Exhibit 8: P&L break-up into domestic/exports business as per PCJ’s internal reporting style, March fiscal year-ends, 2015-18E (Rs mn)

Domestic Exports Total FY2015 FY2016 FY2017E FY2018E FY2019E FY2015 FY2016 FY2017E FY2018E FY2019E FY2015 FY2016 FY2017E FY2018E FY2019E Net revenues 45,387 51,666 64,700 79,407 96,784 18,226 21,636 21,852 22,070 22,291 63,613 73,302 86,552 101,477 119,075 Gross Profit 7,979 8,444 10,674 13,161 16,070 1,545 1,532 1,420 1,446 1,471 9,524 9,976 12,094 14,606 17,541 Employee costs (499) (638) (794) (972) (1,163) (58) (83) (92) (101) (111) (557) (721) (886) (1,073) (1,274) Rental costs (390) (436) (507) (610) (716) — — — — — (390) (436) (507) (610) (716) A&SP expenses (595) (689) (857) (1,056) (1,298) — — — — — (595) (689) (857) (1,056) (1,298) Other expenses (447) (516) (642) (789) (961) (58) (134) (147) (162) (178) (505) (650) (789) (951) (1,139) EBITDA 6,048 6,165 7,873 9,734 11,931 1,429 1,315 1,182 1,183 1,183 7,477 7,480 9,055 10,917 13,114 Depreciation (219) (215) (252) (295) (336) (12) (12) (12) (12) (12) (230) (227) (265) (308) (348) EBIT 5,829 5,950 7,620 9,438 11,595 1,417 1,303 1,170 1,171 1,170 7,247 7,253 8,790 10,609 12,766 Interest (1,664) (1,502) (1,995) (1,854) (2,031) (545) (647) (654) (660) (667) (2,209) (2,150) (2,649) (2,514) (2,698) Other income 293 161 288 315 253 65 100 75 80 85 358 261 363 395 338 PBT 4,458 4,609 5,913 7,899 9,817 937 756 591 591 589 5,395 5,365 6,505 8,490 10,406 Taxes (1,330) (1,296) (1,774) (2,528) (3,240) (281) (227) (177) (189) (194) (1,611) (1,523) (1,951) (2,717) (3,434) PAT 3,128 3,312 4,139 5,371 6,578 656 529 414 402 394 3,784 3,842 4,553 5,773 6,972 Growth, yoy (%) Net revenues 13.4 13.8 25.2 22.7 21.9 37.8 18.7 1.0 1.0 1.0 19.5 15.2 18.1 17.2 17.3 Gross profit 38.9 5.8 26.4 23.3 22.1 (26.9) (0.9) (7.3) 1.8 1.8 21.2 4.7 21.2 20.8 20.1 EBITDA 58.1 1.9 27.7 23.6 22.6 (29.8) (8.0) (10.1) 0.1 (0.1) 27.5 0.0 21.1 20.6 20.1 EBITDA 57.2 2.1 28.1 23.9 22.9 (30.3) (8.1) (10.2) 0.1 (0.1) 26.3 0.1 21.2 20.7 20.3 PBT 50.8 3.4 28.3 33.6 24.3 (46.1) (19.3) (21.8) (0.0) (0.4) 15.0 (0.6) 21.2 30.5 22.6 PAT 39.4 5.9 25.0 29.8 22.5 (50.2) (19.3) (21.8) (2.9) (1.9) 6.2 1.5 18.5 26.8 20.8 Margin (% of revenues) Gross margin 17.6 16.3 16.5 16.6 16.6 8.5 7.1 6.5 6.6 6.6 15.0 13.6 14.0 14.4 14.7 EBITDA margin 13.3 11.9 12.2 12.3 12.3 7.8 6.1 5.4 5.4 5.3 11.8 10.2 10.5 10.8 11.0 EBIT margin 12.8 11.5 11.8 11.9 12.0 7.8 6.0 5.4 5.3 5.2 11.4 9.9 10.2 10.5 10.7 PBT margin (%) 9.8 8.9 9.1 9.9 10.1 5.1 3.5 2.7 2.7 2.6 8.5 7.3 7.5 8.4 8.7 PAT margin (%) 6.9 6.4 6.4 6.8 6.8 3.6 2.4 1.9 1.8 1.8 5.9 5.2 5.3 5.7 5.9 Costs as % of revenues Employee costs 1.1 1.2 1.2 1.2 1.2 0.3 0.4 0.4 0.5 0.5 0.9 1.0 1.0 1.1 1.1 Rental costs 0.9 0.8 0.8 0.8 0.7 — — — — — 0.6 0.6 0.6 0.6 0.6 Advertising expenses 1.3 1.3 1.3 1.3 1.3 — — — — — 0.9 0.9 1.0 1.0 1.1 Other costs 1.0 1.0 1.0 1.0 1.0 0.3 0.6 0.7 0.7 0.8 0.8 0.9 0.9 0.9 1.0 ETR (% of PBT) 29.8 28.1 30.0 32.0 33.0 30.0 30.0 30.0 32.0 33.0 29.9 28.4 30.0 32.0 33.0

Note: (a) Gross profit/EBITDA calculation is based on inclusion of labour charges, hallmarking charges and forex impact in cost of materials (otherwise clubbed in other expenses).

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 45 Consumer Products PC Jeweller

Exhibit 9: PCJ consolidated profit & loss, balance sheet and cash flow statement, March fiscal year-ends, 2013-19E (Rs mn)

2013 2014 2015 2016 2017E 2018E 2019E Profit model Net sales 40,184 53,248 63,613 73,302 86,552 101,477 119,075 Other operating income — — — — — — — Net revenues 40,184 53,248 63,613 73,302 86,552 101,477 119,075 EBITDA 4,825 5,916 7,243 7,254 9,055 10,917 13,114 Other income 206 472 592 487 363 395 338 Interest (1,275) (1,471) (2,209) (2,150) (2,649) (2,514) (2,698) Depreciation (100) (123) (230) (227) (265) (308) (348) Pretax profits 3,656 4,794 5,395 5,365 6,505 8,490 10,406 Tax (739) (1,131) (1,611) (1,523) (1,951) (2,717) (3,434) PAT 2,917 3,663 3,784 3,842 4,553 5,773 6,972 Extraordinary items (7) (100) — 155 — — — Reported net profit 2,910 3,563 3,784 3,997 4,553 5,773 6,972 Earnings per share (Rs) 16.3 20.5 21.1 21.5 25.4 30.3 36.6 # of shares outstanding (mn) 179.1 179.1 179.1 179.1 179.1 190.3 190.3 Balance sheet Total equity 13,888 16,822 19,906 23,264 26,983 35,967 41,650 Total borrowings 2,321 10,034 6,814 9,402 12,072 7,202 7,102 Deferred tax liabilities (net) (50) (107) (125) (173) (173) (173) (173) Total liabilities and equity 16,159 26,749 26,595 32,492 38,881 42,995 48,578 Net fixed assets (Including CWIP) 638 839 896 912 994 1,019 996 Investments 4,429 1,849 131 74 74 74 74 Cash 2,649 3,301 2,840 3,368 5,240 4,101 3,863 Net current assets (excluding cash) 8,443 20,748 22,727 28,139 32,574 37,801 43,646 Total assets 16,159 26,738 26,595 32,492 38,881 42,995 48,578 Free cash flow Operating cash flow (excluding working capital) 3,612 4,083 6,268 6,162 7,116 8,215 9,697 Working capital 1,588 (11,942) (2,931) (5,411) (4,435) (5,227) (5,845) Capital expenditure (235) (280) (289) (242) (346) (333) (324) Free cash flow 4,966 (8,139) 3,049 508 2,335 2,654 3,528 Key assumptions, growth (%) Net operating revenue growth 32.1 32.5 19.5 15.2 18.1 17.2 17.3 EBITDA growth 45.5 22.6 22.4 0.2 24.8 20.6 20.1 EPS growth (5.5) 25.6 3.3 1.5 18.5 19.3 20.8 EBITDA margin (%) 12.0 11.1 11.4 9.9 10.5 10.8 11.0 Gross margin (%) 16.3 15.9 15.2 13.9 14.6 15.0 15.3 A&SP (% of sales) 0.8 0.9 0.9 0.9 1.0 1.0 1.1 Tax rate (% of PBT) 20.2 23.6 29.9 28.4 30.0 32.0 33.0 Ratios (%) RoE (%) 30.0 23.9 20.6 17.8 18.1 18.3 18.0 RoCE (%) 34.4 27.0 26.3 23.8 24.6 25.9 27.8

Source: Company, Kotak Institutional Equities estimates

46 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY Karur Vysya Bank (KVB) Banks/Financial Institutions MAY 31, 2016 RESULT Coverage view: Attractive

Relatively better. KVB reported 7% yoy earnings growth despite flat operating profits Price (`): 472 primarily due to write-back of provisions. Overall impairment ratios declined 290 bps Target price (`): 560 qoq to 4.7% aided by sale of bad loans to ARCs, which has pushed costs to FY2017- BSE-30: 26,726 18. Loan growth at 9% yoy is at a six-quarter high although growth in gold loans (16% of loans) is still weak. We maintain our BUY rating with TP at ₹560 (from ₹580 earlier), as pickup in growth should aid RoE expansion in the medium term.

Company data and valuation summary Karur Vysya Bank Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 516-394 EPS (Rs) 46.6 52.8 57.1 Market Cap. (Rs bn) 57.0 EPS growth (%) 24.4 13.3 8.1 QUICK NUMBERS Shareholding pattern (%) P/E (X) 10.1 8.9 8.3 Promoters 2.2 NII (Rs bn) 17.8 18.8 20.6  NII grew 19% yoy; FIIs 6.6 Net profits (Rs bn) 5.7 6.4 7.0 MFs 16.3 BVPS 363.7 412.6 453.0 earnings grew 7% Price performance (%) 1M 3M 12M P/B (X) 1.3 1.1 1.0 yoy Absolute (1.9) 18.5 1.9 ROE (%) 12.9 13.4 13.2 Rel. to BSE-30 (6.0) 2.0 6.1 Div. Yield (%) 3.0 2.8 3.0  Gross NPLs at 1.3% of loans; High operating costs pull down earnings growth restructured loans at 3.4% KVB reported 7% yoy earnings growth despite a flat operating profit on the back of write-back of provisions in its investment portfolio and negligible credit costs. The bank reported 11% yoy  Maintain BUY with revenue growth on the back of 19% yoy NII growth. Loan growth is showing signs of TP at ₹560 (from accelerating trends at 9% yoy and NIM expansion of 40 bps yoy (~10 bps qoq) has aided a ₹580 earlier) strong NII growth. The bank has reported another quarter of strong growth in savings deposits (21% yoy). Cost-income ratio increased sharply (450 bps yoy and ~1,200 bps qoq) to ~60% primarily on account of non-staff expenses (51% yoy) while staff costs declined 12% yoy. The management has attributed this to loss on sale of loans to ARC.

Asset sales to ARCs help prevent a slippage but push for a high provision in FY2017

The underlying trends on fresh impairment and outstanding impairment ratios showed diverging trends. The fresh slippages were high at 6% of loans but the bank reported a decline of 290 bps in outstanding impaired loans with gross NPLs declining 60 bps qoq to 1.3% while restructured loans declined 230 bps qoq to 3.4% of loans. The bank sold 1.5% of loans in the current quarter and has reported a loss of 1.3% of loans (₹5 bn), which is expected to be amortized across the next seven quarters. One could argue that the sale of loans to ARCs has allowed the bank to report better headline ratios and delay provisions as allowed by RBI across two years. The loss has been booked under non-staff expenses and not provisions primarily to take benefit of taxation although we are not too sure of this from a taxation standpoint. A M.B. Mahesh, CFA large share of the slippages for the current quarter has resulted due to NPL recognition in the books of the lead bank where KVB is only a minor consortium lender. There was no impact on account of AQR review of RBI. Nischint Chawathe

Maintain BUY; inexpensive but near-term earnings growth dented by high provisions Abhijeet Sakhare We maintain our BUY rating (TP at ₹560 from `580 earlier) on the stock although we note that the bank has done exceedingly well compared to other regional players. At our TP, we value the bank at 1.1X book and 8X FY2018E EPS for RoEs in the range of 13-15% in the medium term and 16% CAGR for FY2016-18E. We find valuations inexpensive at current levels. Near-term earnings would be impacted by the provisions required on account of the loss on sale of NPLs to ARCs at a significant discount.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Banks/Financial Institutions Karur Vysya Bank

Exhibit 1: Karur Vysya Bank – quarterly details March fiscal year-ends, 4QFY15-4QFY16 (` mn)

(% chg.) 4QFY16 2QFY17 4QFY15 3QFY16 2QFY17 4QFY15 3QFY16 FY2016E FY2015 (% chg.) FY2017E Interest Earned 13,702 14,156 13,278 13,524 (3.2) 3.2 1.3 54,434 53,966 0.9 57,280 Interest on loans 10,873 11,332 10,445 10,757 (4.1) 4.1 1.1 43,294 42,113 2.8 45,892 Interest on Investment 2,801 2,769 2,778 2,720 1.2 0.8 3.0 10,958 11,776 (6.9) 11,179 Interest on bal. with RBI & other inter bank funds 9 5 5 2 72.1 64.8 345.0 182 70 160.3 209 Interest expense 8,975 9,516 9,304 9,042 (5.7) (3.5) (0.7) 36,620 39,300 (6.8) 38,526 Net interest income 4,726 4,639 3,974 4,482 1.9 18.9 5.5 17,814 14,667 21.5 18,754 Other Income 1,661 2,078 1,798 1,728 (20.0) (7.6) (3.8) 7,068 5,808 21.7 8,308 Other Income exld treasury 1,551 1,728 1,462 1,638 (10.2) 6.1 (5.3) 6,120 5,098 20.0 6,858 Treasury 110 350 336 90 (68.6) (67.3) 22.2 949 710 33.6 1,450 Total Income 6,388 6,717 5,772 6,210 (4.9) 10.7 2.9 24,882 20,475 21.5 27,062 Operating Expenses 3,799 3,824 3,172 2,954 (0.6) 19.8 28.6 12,528 11,034 13.5 15,705 Employee expenses 1,393 1,490 1,578 1,266 (6.5) (11.7) 10.1 5,474 5,471 0.1 5,970 Other operating expenses 2,406 2,334 1,594 1,689 3.1 51.0 42.5 7,054 5,564 26.8 9,734 Operating Profit Before Prov. & Cont. 2,589 2,894 2,600 3,256 (10.5) (0.4) (20.5) 12,354 9,441 30.9 11,358 Provisions & Contingencies (126) 693 1,948 927 (118.2) (106.5) (113.6) 3,238 4,805 (32.6) 2,546 Loan loss provisions 210 600 1,590 730 (65.0) (86.8) (71.2) 3,187 5,513 (42.2) 2,496 Profit before tax 2,715 2,201 652 2,328 23.4 316.6 16.6 9,116 4,635 96.7 8,812 Provision for Taxes 1,335 594 (640) 800 124.7 (308.6) 66.9 3,440 72 2,379 Net Profit 1,380 1,606 1,292 1,528 (14.1) 6.8 (9.7) 5,676 4,564 24.4 6,433 Tax rate 49.2 27.0 (98.2) 34.4 37.7 1.5 27.0 PBT - treasury + investment dep. 2,405 1,851 260 2,238 30.0 825.0 7.4 8,157 2,977 174.0 7,362

Key balance sheet items (Rs bn) Deposits 501 447 473 12.1 5.8 CASA (%) 23.3 22.0 23.4

Advances 395 361 379 9.3 4.2 Retail 59 48 57 22.3 4.4 Agriculture 70 61 62 14.6 12.5 Commercial/SME 128 117 122 9.1 4.8 Corporate 138 134 138 2.5 (0.1) Gold loans 64 71 63 (9.9) 1.2

Yield ratios (%) Yield on advances 11.3 11.7 11.6 Cost of deposits 6.9 7.7 7.3 NIM 3.6 3.2 3.5

Asset quality measures Gross NPL (Rs mn) 5,112 6,778 7,212 (24.6) (29.1) Gross NPL (%) 1.3 1.9 1.9 Net NPL (Rs mn) 2,162 2,810 3,595 (23.1) (39.9) Net NPL (%) 0.6 0.8 1.0 Provision coverage ratio (%) 57.7 58.5 50.1 Provision coverage ratio including tech. write-offs (%) 82.5 75.2 75.2 Restructured (Rs mn) 13,550 19,428 21,530 (30.3) (37.1) Restructured loans (%) 3.4 5.4 5.7

Capital adequacy details CAR (%) 12.2 14.6 12.9 Tier I (%) 11.3 13.6 12.0 Tier II (%) 0.9 1.1 0.9

Source: Company, Kotak Institutional Equities estimates

48 KOTAK INSTITUTIONAL EQUITIES RESEARCH Karur Vysya Bank Banks/Financial Institutions

Exhibit 2: NII growth has picked up to ~20% yoy Exhibit 3: Cost-income ratio increased to 60% NII and loan growth, March fiscal year-ends, 4QFY12-4QFY16 (%) Operating expenses growth and cost-income ratio, March fiscal year- ends, 4QFY12-4QFY16 (%)

Loan NII 40 Opex (LHS) Cost-income (RHS) 60 70

32 48 62

24 36 54

16 24 50 46 43 42 40 37 8 32 28 12 24 25 38 18 20 - 11 7 7 11 8 7

- 30

4QFY12 2QFY13 3QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 4QFY15 1QFY16 3QFY16 4QFY16 4QFY13 3QFY15 2QFY16

1QFY13

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 4QFY14 1QFY15 2QFY15 3QFY15 1QFY16 3QFY16 4QFY16 3QFY14 4QFY15 2QFY16 4QFY12 Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

Loan growth better at 9% yoy; ex-gold-loan growth at 14% yoy

Loan growth, which has been sluggish for the bank in recent quarters at ~5% levels, picked up pace to 9% yoy. Sluggish growth is mainly attributed to run-off in gold loans and slow growth in the corporate segment. The pace of decline in the gold loan portfolio slowed to 10% yoy while the large corporate loan portfolio grew only by 3% yoy.

The bank reported a strong performance in retail (22% yoy) and agriculture (15% yoy) portfolios while the commercial/SME portfolio grew 9% yoy, similar to overall loan growth of the bank. The other large portfolio in infrastructure loans (~10% of loans) is seeing a similar challenge with a modest growth of 2% yoy. This muted performance is a conscious decision of the management given the headwinds in this business. The bank also has 9% of loan book exposure to textiles, with loans growing by 27% yoy.

While it does appear to be a bottom for the bank, the recovery in growth appears to be still elusive as it has been in the range of 5-8% yoy over the past few quarters. From a geographical standpoint, the bank has seen strong growth in Andhra Pradesh, Tamil Nadu and Karnataka and relatively weak performance across other states.

Over the past four years, contribution of term loans to the overall loan portfolio has increased to 88% from 68% in FY2010. On the other hand, the exposure of the top-20 borrowers has been consistently declining and is at 10.5% of loans currently as compared to 26% in FY2010. We expect loan growth to improve to 12-15% yoy in FY2016-17E driven by growth in retail and SME loans.

Sale of bad loans to ARCs pushes back provisioning costs

The bank has sold loans to ARCs after reporting them as NPLs. The total value sold is ₹8.5 bn and the bank has reported a loss of ₹5 bn, which implies that the bank has sold at a discount of 65%. The loss would be amortized over the next eight quarters beginning from 4QFY16. Unlike most of the other banks that are taking the impact of the loss through provisions, KVB is routing this loss through operating expenses, which has resulted in a sharp rise in cost structure for the quarter.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 49 Banks/Financial Institutions Karur Vysya Bank

Exhibit 4: Loan growth slowed on the back of decline in growth in gold loans Break-up of loan book, March fiscal year-ends, 2011-4QFY16 (%)

2011 2012 2013 2014 2015 1QFY16 2QFY16 3QFY16 4QFY16 Agriculture 14.3 15.7 18.3 17.7 17.0 17.5 16.8 16.5 17.8 Retail 7.5 8.2 11.9 12.5 13.4 14.4 14.8 15.0 15.0 SME 13.4 34.0 32.3 32.5 32.4 31.7 32.4 32.2 32.3 Corporate and others 64.8 42.1 37.6 37.3 37.2 36.4 36.0 36.4 34.9 of which Gold loans 16.2 21.5 26.3 23.4 19.6 18.0 17.1 16.6 16.1

Source: Company, Kotak Institutional Equities estimates

Cost-income ratio increases sharply led by sharp growth in non-staff costs

The cost-income ratio increased sharply to 59% from 48% qoq and 55% reported in 4QFY15. Operating expense growth was higher at 20% yoy but the benefit of a decline of 12% yoy in staff costs was more than offset by 51% yoy growth in other expenses. We see the bank slowing down on branch expansion (6% yoy) and employee additions (0.2% yoy). As highlighted in the previous segment, the rise in non-staff costs is primarily on account of loss on sale of loans to ARCs.

We believe that the bank would continue to focus on improving productivity from existing branches rather than increasing infrastructure presence, especially as the demand conditions appear to still remain fairly weak. We expect the cost-income ratio to decline to ~48-50% by FY2017-18E.

Other highlights in the quarter

 Deposit growth was 12% yoy broadly tracking loan growth. However, SA and CA growth was stronger at 21% and 14% respectively. CASA ratio stood at 23%.

 Non-interest income declined 8% yoy. The bank has reported a 67% yoy decline in treasury while it reported a flat performance in fee income.

 Tier-1 consumption has been a bit higher at 11.3% (70 bps qoq) with overall capital adequacy at ~12.2%. The high growth is primarily on account of replacing gold loans with other loans that consume more capital.

Exhibit 5: KVB – change in estimates March fiscal year-ends, 2016-19E (` mn)

New estimates Old estimates Change (%) 2017E 2018E 2019E 2017E 2018E 2017E 2018E Net interest income 18,754 20,592 22,462 19,076 20,717 (2) (1) Loan growth 12.9 15.5 15.0 13.8 14.3 NIM 3.2 3.1 3.0 3.2 3.1 Loan loss provisions 2,496 2,852 2,740 3,334 3,090 (25) (8) Other income 8,308 9,468 10,637 8,625 9,681 (4) (2) Fee income 5,152 5,770 6,463 5,026 5,780 3 (0) Operating expenses 15,705 17,628 17,166 13,026 14,262 21 24 Employee expenses 5,970 6,803 7,794 6,386 6,989 (7) (3) PBT 8,812 9,529 13,143 11,192 12,797 (21) (26) Tax 2,379 2,573 3,549 3,693 4,095 (36) (37) Net profit 6,433 6,956 9,594 7,498 8,702 (14) (20) PBT before treasury profits and 7,362 7,779 11,193 9,342 10,847 (21) (28) investment depreciation

Source: Company, Kotak Institutional Equities estimates

50 KOTAK INSTITUTIONAL EQUITIES RESEARCH Karur Vysya Bank Banks/Financial Institutions

Exhibit 6: KVB trading at 1.2X one-year forward adjusted book Exhibit 7: Premium to peers has reversed in recent quarters One-year forward PER and PBR, March fiscal year-ends, 2008-16 Trading premium to private banks, March fiscal year-ends, 2008-16

Rolling PER (X) (LHS) Rolling PBR (X) (RHS) 1.0 15 2.0

0.8 12 1.6

0.6 9 1.2

0.4 6 0.8

3 0.4 0.2

0 0.0 0.0

May-07 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-08 May-16

May-07 May-09 May-10 May-11 May-13 May-14 May-15 May-16 May-12 May-08

Source: Company, Bloomberg, Kotak Institutional Equities estimates Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 51 Banks/Financial Institutions Karur Vysya Bank

Exhibit 8: KVB – key ratios and growth rates March fiscal year-ends, 2014-19E (%)

2014 2015 2016E 2017E 2018E 2019E Growth rates (%) Net loan 15.3 6.2 8.2 12.9 15.5 15.0 Total asset 10.4 2.9 8.5 12.0 13.5 13.3 Deposits 13.2 2.1 12.1 12.9 14.5 14.0 Current 17.3 (1.5) 14.1 21.9 18.4 17.8 Savings 23.3 16.7 21.1 4.7 16.9 16.3 Fixed 11.4 0.2 10.2 13.6 13.6 13.1 Net interest income 10.8 14.2 21.5 5.3 9.8 9.1 Loan loss provisions 48.1 134.1 (42.2) (21.7) 14.3 (3.9) Total other income 24.7 2.9 21.7 17.5 14.0 12.4 Net fee income 20.5 18.4 10.0 12.0 12.0 12.0 Net capital gains 17.4 (31.5) 33.6 52.8 20.7 11.4 Net exchange gains 21.0 21.0 12.0 15.0 15.0 15.0 Operating expenses 32.6 9.2 13.5 25.4 12.2 (2.6) Employee expenses 53.6 3.6 0.1 9.1 13.9 14.6 Key ratios (%) Yield on average earning assets 10.8 10.7 10.2 9.8 9.5 9.2 Yield on average loans 12.2 12.0 11.5 11.0 10.6 10.2 Yield on average investments 8.9 9.1 8.5 8.2 8.1 8.0 Average cost of funds 8.5 8.3 7.3 7.0 6.8 6.6 Interest on deposits 8.4 8.0 7.4 7.0 6.8 6.6 Spread 2.3 2.4 2.9 2.8 2.7 2.6 Net interest income/earning assets 2.7 2.9 3.3 3.2 3.1 3.0 Spreads on lending business 3.7 3.8 4.2 4.0 3.9 3.6 New provisions/average net loans 0.7 1.6 0.8 0.6 0.6 0.5 Total provisions/gross loans 1.2 2.6 3.2 3.4 3.4 3.4 Interest income/total income 69.5 71.6 71.6 69.3 68.5 67.9 Other income / total income 30.5 28.4 28.4 30.7 31.5 32.1 Fee income to total income 18.2 19.4 18.5 19.0 19.2 19.5 Fee income to advances 1.1 1.1 1.2 1.2 1.2 1.2 Fees income to PBT 84.9 85.9 50.5 58.5 60.6 49.2 Net trading income to PBT (27.7) 35.8 10.5 16.5 18.4 14.8 Exchange income to PBT 9.2 9.5 6.0 7.2 7.6 6.4 Operating expenses/total income 54.7 53.9 50.3 58.0 58.6 51.9 Operating expenses/assets 2.1 2.1 2.3 2.6 2.6 2.2 Tax rate (8.6) 1.5 37.7 27.0 27.0 27.0 Dividend payout ratio 32.6 34.8 30.1 25.0 25.0 25.0 Share of deposits Current 12.4 13.1 13.9 14.2 14.5 14.8 Fixed 79.5 78.6 77.8 77.2 76.6 76.0 Savings 12.4 13.1 13.9 14.2 14.5 14.8 Loans-to-deposit ratio 77.7 80.8 78.0 78.0 78.8 79.5 Equity/assets (EoY) 6.4 8.0 7.9 7.8 7.5 7.5 Loan impairment ratios (%) Gross NPL 0.8 1.8 1.3 (0.4) (1.6) (2.4) Net NPL 0.4 0.8 0.6 — — — Slippages 0.5 1.8 2.0 1.7 1.5 1.5 Provision coverage 49.9 58.5 57.7 100.0 100.0 100.0 Dupont analysis (%) Net interest income 2.6 2.8 3.2 3.1 3.0 2.9 Loan loss provisions 0.5 1.1 0.6 0.4 0.4 0.4 Net other income 1.1 1.1 1.3 1.4 1.4 1.4 Operating expenses 2.0 2.2 2.3 2.6 2.6 2.2 (1- tax rate) 108.6 98.5 62.3 73.0 73.0 73.0 ROA 0.9 0.9 1.0 1.1 1.0 1.2 Average assets/average equity 15.3 13.8 12.6 12.7 13.1 13.3 ROE 13.4 12.0 12.9 13.4 13.2 16.4

Source: Company, Kotak Institutional Equities estimates

52 KOTAK INSTITUTIONAL EQUITIES RESEARCH Karur Vysya Bank Banks/Financial Institutions

Exhibit 9: KVB – financial statements March fiscal year-ends, 2014-19E (` mn)

2014 2015 2016E 2017E 2018E 2019E Income statement Total interest income 51,160 53,959 54,434 57,280 62,886 69,288 Loans 38,720 42,113 43,294 45,892 50,536 55,897 Investments 11,974 11,776 10,958 11,179 12,102 13,113 Cash and deposits 466 70 182 209 248 278 Total interest expense 38,323 39,300 36,620 38,526 42,294 46,826 Deposits from customers 34,684 35,404 34,840 37,167 40,963 45,474 Net interest income 12,837 14,659 17,814 18,754 20,592 22,462 Loan loss provisions 2,355 5,513 3,187 2,496 2,852 2,740 Net interest income (after prov.) 10,482 9,146 14,627 16,258 17,740 19,722 Other income 5,645 5,808 7,068 8,308 9,468 10,637 Net fee income 3,356 3,973 4,600 5,152 5,770 6,463 Net capital gains 1,037 710 949 1,450 1,750 1,950 Net exchange gains 365 439 550 633 727 836 Operating expenses 10,104 11,034 12,528 15,705 17,628 17,166 Employee expenses 5,279 5,471 5,474 5,970 6,803 7,794 Depreciation on investments 2,132 (948) (10) — — — Other provisions (64) 240 62 50 50 50 Pretax income 3,955 4,628 9,116 8,812 9,529 13,143 Tax provisions (341) 72 3,440 2,379 2,573 3,549 Net profit 4,296 4,556 5,676 6,433 6,956 9,594 % growth (22) 6 25 13 8 38 PBT - Treasury + Provisions 7,341 8,723 11,406 9,908 10,682 13,983 % growth (3) 19 31 (13) 8 31 Balance sheet Cash and bank balance 26,782 27,491 27,916 35,485 39,804 44,561 Cash 4,195 6,272 6,585 6,914 7,260 7,623 Balance with RBI 21,267 20,658 20,232 27,472 31,445 35,840 Net value of investments 132,470 127,730 132,217 143,603 157,416 173,251 Govt. and other securities 121,931 115,114 119,981 131,709 145,829 161,942 Shares 1,436 1,071 1,071 1,071 1,071 1,071 Debentures and bonds 3,293 3,798 3,418 3,076 2,769 2,492 Net loans and advances 339,921 361,089 390,844 441,150 509,666 586,322 Fixed assets 3,847 4,112 4,201 3,803 3,675 3,487 Net Owned assets 3,847 4,112 3,872 3,803 3,675 3,487 Other assets 13,295 11,103 21,460 21,889 22,326 22,773 Total assets 516,316 531,525 576,637 645,929 732,887 830,395 Deposits 437,577 446,903 500,789 565,246 646,990 737,408 Borrowings and bills payable 34,986 31,869 18,594 18,878 19,170 19,472 Other liabilities 10,490 10,293 11,525 11,525 11,525 11,525 Total liabilities 483,053 489,064 530,908 595,648 677,685 768,404 Paid-up capital 1,072 1,216 1,219 1,219 1,219 1,219 Reserves & surplus 32,192 41,244 44,511 49,062 53,984 60,772 Total shareholders' equity 33,263 42,460 45,730 50,281 55,203 61,991

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 53 BUY PVR (PVRL) Media MAY 31, 2016 RESULT Coverage view: Neutral

Good show. PVR reported healthy performance in a seasonally weak quarter. Key Price (`): 844 metrics such as average ticket price, F&B spends and ad revenues that exhibit PVR’s Target price (`): 1,075 execution were solid. Bollywood movies pipeline for FY2017 looks promising. We tweak BSE-30: 26,726 our FY2017-18E EBITDA estimates, roll over to FY2018E and revise TP to `1,075 (earlier `900) valuing PVR at 12X FY2018E EV/EBITDA (unchanged multiple). BUY.

Company data and valuation summary PVR Stock data Forecasts/Valuations 2016 2017E 2018E 52-week range (Rs) (high,low) 899-616 EPS (Rs) 26.9 26.3 35.0 Market Cap. (Rs bn) 39.4 EPS growth (%) 647.0 (2.2) 33.4 Shareholding pattern (%) P/E (X) 31.4 32.1 24.1 Promoters 26.0 Sales (Rs bn) 18.7 22.1 26.3 FIIs 24.8 Net profits (Rs bn) 1.3 1.2 1.6 MFs 14.5 EBITDA (Rs bn) 3.3 4.0 4.7 Price performance (%) 1M 3M 12M EV/EBITDA (X) 12.9 11.7 9.6 Absolute 0.2 20.5 26.8 ROE (%) 19.6 13.3 15.6 Rel. to BSE-30 (4.0) 3.7 32.0 Div. Yield (%) 0.3 0.3 0.4

4QFY16—well-balanced improvement in all key metrics

 Footfalls. Footfalls grew 25% yoy to 15.3 mn (KIE 15.2 mn); Same-store (SS) footfalls grew 18% yoy on a low base. Key movies were Airlift, Neerja and Kapoor & Sons vs Baby last year.

 Average ticket price (ATP) and F&B spends. ATP grew 8% yoy to `200; SS growth was 9%. Introduction of recliner seats (@2X price) in many screens, cessation of select promotions for key movies and regular price hike contributed to growth. SPH increased 18% yoy to `73; F&B gross margin was 73.5% (+400 bps yoy, +50 bps qoq).  Ad revenue growth. Ad revenues grew 19% yoy (KIE 15%). SS ad growth was solid at 15% yoy. Ad inventory utilization and yields depend on movie titles and the perception of movie performance. Box office line-up and performance were better in 4QFY16 versus 4QFY15.

 Profitability. EBITDA margin increased 770 bps yoy to 11.3% (KIE 7.7%). Margin expansion was driven by (1) conversion of operating lease to financial lease (+110 bps), (2) about 200 bps improvement in occupancy to ~29%, and (3) improvement in monetization. Net loss at `105 mn was better than our estimate of `150 mn.

 FY2016 roundup. Footfalls grew 18% (SSG 11%); ATP grew 6% to `188 (SSG 7%); SPH was up 13% (SSG 14%) and ad revenue/screen increased 11% yoy. Revenues grew 29%, EBITDA grew 61% on occupancy-led 390 bps expansion in EBITDA margin and net profit was `1.18 bn (versus `128 mn in FY2016). Balance sheet—excluding `3.5 bn raised for DT Cinemas acquisition, net debt increased marginally to `7.4 bn from `7.2 bn in FY2015. PVR has converted operating lease pertaining to projector rentals to finance lease. Consequently, capex and debt were higher by about `330 mn. Adjusted for this change and acquisition- related fund raising, net debt has reduced by about `100 mn in FY2016. Valuations are reasonable; maintain BUY Jaykumar Doshi We like PVR for its premium locational presence and branding and leadership in organic growth, monetization of footfalls (F&B/ad revenues) and profitability. The multiplex industry is set for multiyear growth supported by demographics, rising income levels, propensity for movies and huge supply of content. We expect 18% CAGR in EBITDA over FY2016-19E and sustainable FCF generation starting FY2017E (excluding acquisition). Return ratios will likely improve as screen portfolio matures. Eventual implementation of GST would drive expansion margins by at least 200 bps from current 17-18% levels.

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

Key highlights from conference call

 PVR management has guided 3-5% increase in average ticket price, 10-12% increase in F&B spends per head and about 22% increase in ad revenues in FY2017E. It will add 65 screens organically and 32 screens inorganically (DT Cinemas acquisition).

 The management expects to close DT acquisition soon as per the revised deal approved by CCI. PVR expects EBITDA of `300 mn from DT Cinemas for the period June-Mar 2017 and `450 mn in FY2018E.

 Capex in FY2016 was about `2 bn while conversion of operating lease to financing lease resulted in additional `330 mn increase in fixed assets.

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

chg (%) 4QFY16 4QFY16E 4QFY15 3QFY16 4QFY16E 4QFY15 3QFY16 FY2016 FY2015 chg (%) Total revenues 4,126 3,916 2,996 5,005 5 38 (18) 18,736 14,823 26 Ticket sales 2,144 2,117 1,579 2,512 1 36 (15) 10,143 8,198 24 F&B sales 1,037 986 692 1,136 5 50 (9) 4,667 3,496 33 Advertising 455 438 381 693 4 19 (34) 2,065 1,684 23 Other operating revenues 490 375 344 664 31 42 (26) 1,861 1,445 29 Total expenditure (3,661) (3,614) (2,888) (4,152) 1 27 (12) (15,389) (12,749) 21 Film hire costs (875) (884) (630) (1,042) (1) 39 (16) (4,190) (3,422) 22 F&B consumption (274) (266) (211) (308) 3 30 (11) (1,248) (1,074) 16 Employee expenses (500) (484) (358) (504) 3 40 (1) (1,853) (1,430) 30 Rent (758) (840) (678) (815) (10) 12 (7) (3,148) (2,723) 16 Repairs and maintenance (225) (185) (142) (185) 21 58 21 (718) (569) 26 Electricity & CAM (504) (525) (416) (512) (4) 21 (2) (2,110) (1,911) 10 Other expenses (525) (430) (454) (785) 22 16 (33) (2,123) (1,460) 45 EBITDA 465 302 108 853 54 332 (46) 3,347 2,074 61 EBITDA Margin (%) 11.3 7.7 3.6 17.0 17.9 14.0 Other income 65 60 20 67 8 232 (3) 235 46 405 Finance costs (223) (190) (203) (192) 17 10 16 (839) (794) 6 Depreciation (359) (320) (253) (304) 12 42 18 (1,252) (1,178) 6 Exceptional items (29) — (22) (5) (67) (22) Pretax profits (81) (148) (351) 420 (45) (77) (119) 1,425 127 1,026 Taxes (22) — (5) (119) (232) (8) 2,765 Net profit before minorities (104) (148) (356) 300 1,193 118 907 Minority interest (1) (2) (1) (2) (7) 12 Net profit (105) (150) (357) 299 (30) (71) (135) 1,185 130 809 EPS (Rs/share) (2.2) (3.2) (8.6) 6.4 25.4 3.1 721

Key operational metrics Screens (#) 516 516 464 491 516 464 Footfalls (mn) 15.3 15.2 12.2 16.5 1 25 (7) 69.6 59.1 18 Average ticket price (ATP) (Rs) 182 180 168 200 1 8 (9) 188 178 6 F&B spends per head (SPH) (Rs) 73 70 62 74 4 18 (1) 72 64 13 Ad revenues/screen (annualized) (Rs mn) 3.6 3.5 3.3 5.7 4 9 (37) 4.2 3.8 11 Film hire costs as % of ticket sales 40.8 41.8 39.9 41.5 41.3 41.7 Rent as % of sales 18.4 21.5 22.6 16.3 16.8 18.4 F&B COGS as % F&B sales 26.5 27.0 30.4 27.1 26.7 30.7

Comparable properties (same store) growth (%) Footfalls 18.3 (18.5) 0.7 11.0 Average ticket price (ATP) 8.9 6.0 8.6 7.0 F&B spends per head (SPH) 16.1 11.0 10.4 14.0 Ad revenues 15.0 NA 23.2 15.0

Notes: (a) Conversion of operating lease of rented projectors to financing lease reduced rental expense by Rs45 mn; depreciation and interest costs went up by the same amount

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 55 Media PVR

Exhibit 2: Revised earnings estimates for PVR, FY2017E-18E (Rs mn)

Revised Previous Change (%) 2017E 2018E 2017E 2018E 2017E 2018E Ticket sales (net) 11,685 13,693 12,491 14,549 (6.4) (5.9) F&B sales 6,114 7,604 6,062 7,458 0.9 2.0 Ad revenues 2,613 3,044 2,445 2,805 6.8 8.5 Other operating income 1,736 2,003 1,701 1,942 2.0 3.2 Total revenues 22,148 26,344 22,699 26,755 (2.4) (1.5) Film hire charges (4,879) (5,819) (5,309) (6,256) (8.1) (7.0) F&B consumption (1,574) (1,977) (1,591) (1,939) (1.1) 2.0 Employee costs (2,358) (2,767) (2,378) (2,758) (0.8) 0.3 Rent (3,896) (4,619) (3,983) (4,745) (2.2) (2.7) Other operating costs (5,489) (6,417) (5,420) (6,325) 1.3 1.5 Total operating costs (18,196) (21,599) (18,680) (22,023) (2.6) (1.9) EBITDA 3,952 4,745 4,019 4,732 (1.6) 0.3 PAT 1,226 1,636 1,115 1,549 9.9 5.6 EPS (Rs/share) 26.3 35.0 24.0 33.3 9.5 5.2

Key assumptions EBITDA margin (%) 17.8 18.0 17.7 17.7 Screen additions (#) 92 65 75 65 Footfalls (mn) 77 86 80 89 (4.4) (3.4) ATP gross (Rs) 196 206 201 212 (2.1) (2.6) SPH gross (Rs) 81 90 81 90 (0.2) (0.2) Ad revenue grow th (%) 22 17 20 15

Source: Company, Kotak Institutional Equities estimates

56 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 3: Net box office collections (NBOC) of promising movies, March fiscal year-ends (Rs mn)

FY2014 FY2015 FY2016 FY2017E NBOC NBOC NBOC NBOC Movie (Rs mn) Movie (Rs mn) Movie (Rs mn) Movie (Rs mn) Yeh Jaw aani hai Deew ani 1,830 Holiday 1,100 Tanu Weds Manu Returns 1,510 The Jungle Book (all formats) 1,802 Aashique 2 780 2 States 1,020 ABCD 2 1,042 Fan (Shah Rukh Khan) 835 Raanjhnaa 589 Ek Villan 989 Fast And Furious 7 979 Baaghi 743 Shootout At Wadala 540 Humshakals 557 Gabbar Is Back 788 Captain America : Civil War (3D) 541 Iron Man 3 480 The Amazing Spider-Man 2 510 Piku 778 Kungfu Panda 3 (3D) Hits Fast & Furious 6 420 Heropanti 507 Jaurassic World 767 Housefull 3 (Riteish D, Abhishek B) Mein Tera Hero 506 Dil Dhadakne Do 763 The Amazing Spider-Man 2 510 The Avengers: Age of Ultron 731 X-Men: Days of Future Past 420 1Q Total 4,639 Total 6,119 Total 7,357 Fukrey 340 Bhoothnath Returns 355 Hamari Adhuri Kahani 323 Ki & Ka 487 Ghanchakkar 310 Revolver Rani Detective Byomkesh Bakshy! 251 Yamla Pagla Deew ana 2 270 Bombay Velvet 221 Go Goa Gone 260 Flops Ek Thi Dayaan 250 Nautanki Saala 215 Chashme Baddoor 420 Total 2,065 Total 355 Total 795 Chennai Express 2,185 Kick 2,140 Bajrangi Bhaijaan 3,168 Sultan (Salman Khan) Bhaag Milkha Bhaag 1,089 Singham Returns 1,397 Bahubali (a) 2,604 Baadshaho (Ajay Devgan) Grand Masti 938 Humpty Sharma ki Dulhania 752 Welcome Back 902 Mohenjo Daro (Hrithik Roshan) Satyagraha 620 Entertainment 628 Brothers 788 Rustom (Akshay Kumar) Hits Once upon a time in Mumbai Again 556 Mary Kom 559 Drishyam 751 Phantom 500 Mission Impossible : Rogue Nation 480 2Q Total 5,389 Total 5,476 Total 8,212 Suddh Desi Romance 452 Mardaani 350 Terminator Genisys (3D / Imax 3D) 234 Madras Café 418 Finding Fanny 276 Hero 293 Phata Poster Nikla Hero 365 Daaw at-e-Ishq 248 Katti Batti 181 Flops Lootera 230 Khoobsurat 248 The Fantastic Four (Imax) 63

Total 1,465 Total 1,122 Total 770 Dhoom 3 2,613 PK 3,243 Singh Is Bling 740 Dangal (Aamir Khan) Krrish 3 1,987 Happy New Year 1,884 Jazbaa 233 Raees (SRK, Farhan Akhtar) Goliyon Ki Raas-leela Ram-Leela 1,056 Bang Bang 1,449 Shaandaar 359 Shivaay (Ajay Devgan) R Rajkumar 661 Action Jackson 576 Spectre (Imax) 369 Untitled (Ayan Mukerji, Ranbir K) Hits Besharam 540 Haider 501 Prem Ratan Dhan Payo 1,875 3Q Boss 524 Tamasha 672 Dilw ale (SRK, Kaajol) 1,439 Total 7,381 Total 7,652 Bajirao Mastaani 1,698 Bullet Raja 363 The Shaukeens Star Wars : The Force Aw akens (3D) 159 Flops Singh Saab The Great 267 Total 7,543 Total 629 Total - Gunday 729 Baby 788 Airlift (Akshay Kumar) 1,248 Jai Ho 1,081 MSG: The Messenger 672 Neerja 696 Hits Queen 564 Kapoor & Sons 709

Total 2,373 Total 1,460 Total 2,653 4Q Shaadi ke Side effects 374 Roy 406 Rocky Handsome 215 Yaariyan 369 Tevar 372 Fitoor 173 Haasi to Faasi 352 Badlapur Don't Miss The Beginning 356 Wazir 378 Flops Highw ay 288 NH 10 293 Jai GangaaJal 306 Ragani Mms 2 459 Batman v Superman: Daw n of Justice 317 Total 1,841 Total 1,425 Total 1,389

Source: Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 57 Media PVR

Exhibit 4: Footfalls grew 25% yoy in 4QFY16 and 18% yoy for comparable properties Trends in PVR's footfalls, March fiscal year-ends (mn)

20.0 19.0 18.8

16.6 16.0 16.5 15.7 15.3 16.0 15.1 15.2 14.3 13.9 12.2 11.5 12.0 9.1 9.1 7.5 8.0

4.0

0.0

1QFY16 2QFY16 3QFY16 4QFY16 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY13

Source: Company, Kotak Institutional Equities

Exhibit 5: ATP grew 8% yoy in 4QFY16 and 9% yoy for comparable properties Trends in PVR's average ticket price (ATP), March fiscal year-ends

ATP (LHS, Rs) Growth (RHS, yoy %)

210 12 200 200 9 187 190 184 181 183 182 180 174 175 176 6 167 169 169 168 170 164 160.1 160 3 160 0 150

140 (3)

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16

Source: Company, Kotak Institutional Equities

58 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 6: Steady growth in SPH continues Trends in PVR's F&B spends per head (SPH), March fiscal year-ends

SPH (LHS, Rs) Growth (RHS, yoy %)74 74 75 73 30 68 70 67 25 64 65 63 62 20 60 56 54 54 54 15 55 10 50 48.4 48 48 46 45 5

40 0

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 4QFY14 1QFY15 2QFY15 3QFY14

Source: Company, Kotak Institutional Equities

Exhibit 7: Ad revenues grew 19% yoy and 15% yoy for comparable properties

Ad revenues (LHS, Rs mn) Growth (RHS, yoy %) 122 600 125

500 89 100 80

400 66 75 48 300 50 28 27 29 23 19 14 15 14 16 13 200 9 25

100 -

1QFY13 3QFY13 4QFY13 1QFY14 2QFY14 4QFY14 2QFY15 3QFY15 4QFY15 1QFY16 3QFY16 3QFY14 1QFY15 2QFY16 4QFY16 2QFY13

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 59 Media PVR

Exhibit 8: Pipeline of Bollywood and Hollywood films in FY2017 is encouraging Pipeline of key Hindi and English movies, March fiscal year-end, 2017E

Rel. Date Movie Cast Bollywood- key titles 1-Apr-16 Ki And Ka Kareena Kapoor, Arjun Kapoor 15-Apr-16 Fan Shahrukh Khan 29-Apr-16 Baaghi Shraddha Kapoor, Tiger Shroff 13-May-16 Azhar Nimrat Kaur, Prachi Desai Emraan Hashmi 20-May-16 Sarabjit Aishw arya Rai, Randeep Hooda, Darshan Kumar 27-May-16 Veerappan Sandeep Bharadw aj, Sachiin J Joshi 3-Jun-16 Housefull 3 Akshay Kumar, Abhishek Bachchan, Ritiesh Deshmukh 10-Jun-16 Te3N Amitabh Bachchan, Naw azuddin Siddique 17-Jun-16 Udta Punjab Kareena Kapoor, Alia Bhatt, Shahid Kapoor 5-Jul-16 Sultan Salman Khan 22-Jul-16 Great Grand Masti Ritesh Deshmukh, Aftab Shivadasani, Vivek Oberoi 29-Jul-16 Dishoom Varun Dhaw an, John Abraham, Jacqueline Fernandes 12-Aug-16 Mohenjo Daro Sonakshi Sinha, Hrithik Roshan, Pooja Hegde 12-Aug-16 Rustom Akshay Kumar, Ileana D'Cruz, Arjan Bajw a 19-Aug-16 Banjo Nargis Fakhri, Ritiesh Deshmukh 26-Aug-16 A Flying Jatt Jacqueline Fernandes, Tiger Shroff 2-Sep-16 M.S. Dhoni - The Untold Story Sushant Singh Rajput, Alia Bhatt 23-Sep-16 Akira Sonakshi Sinha, Anurag Kashyap 28-Oct-16 Shivaay Ajay Devgn 28-Oct-16 Ae Dil Hain Mushkil Aishw arya Rai, Ranbir Kapoor, Faw ad Khan, Katrina Kaif 11-Nov-16 Rock On!! 2 Farhan Akhtar, Shraddha Kapoor, Prachi Desai, Purab Kohli 25-Nov-16 Kahaani 2 Vidya Balan, Arjun Rampal 9-Dec-16 Befikre Ranveer Singh, Vaani Kapoor 16-Dec-16 Dangal Aamir Khan 13-Jan-17 Ok Jaanu Shraddha Kapoor, Aditya Roy Kapur 26-Jan-17 Kaabil Hrithik Roshan 26-Jan-17 Raees Shahrukh Khan Hollywood- key titles 1-Apr-16 Kungfu Panda 3 (3D) Jack Black, Dustin Hoffman, David Cross 8-Apr-16 The Jungle Book (3D / Imax / 4Dx) Scarlett Johansson, Lupita Nyong'O, Idris Elba 6-May-16 Captain America : Civil War (3D / Imax) Scarlett Johansson, Robert Dow ney Jr., Chris Evans 20-May-16 X-Men : Apocalypse (3D / Imax) Jennifer Law rence, Oscar Isaac, Michael Fassbender 3-Jun-16 Teenage Mutant Ninja Turtles : Out Of The Shadow s Megan Fox, Stephen Amell, Alan Ritchson 10-Jun-16 Warcraft (3D) Travis Fimmel, Dominic Cooper 10-Jun-16 The Conjuring 2 : The Enfield Poltergeist Vera Farminga, Patrick Wilson 17-Jun-16 Finding Dory (3D / Imax) Ellen Degeneres, Diane Keaton, Idris Elba 17-Jun-16 Central Intelligence Dw ayne Johnson, Kevin Hart 17-Jun-16 Now You See Me 2 Mark Ruffalo, Morgan Freeman, Daniel Radcliffe 24-Jun-16 Independence Day : Resurgence (3D / Imax) Maika Monroe, Liam Hemsw orth, Jeff Goldblum 1-Jul-16 The Legend Of Tarzan (3D / Imax) Margot Robbie, Alexander Skarsgard, Samuel L Jackson 15-Jul-16 Ice Age : Collision Course (3D) Jennifer Lopez, Simon Pegg, Melissa Rauch 15-Jul-16 Ghostbusters (3D / Imax) Melissa Mccarthy, Kristen Wiig, Chris Hemsw orth 22-Jul-16 Star Trek : Beyond Zoe Saldana, Idris Elba, Simon Pegg, Chris Pine 29-Jul-16 Jason Bourne Alicia Vikander, Matt Damon, Julia Stiles 26-Aug-16 Ben-Hur Naznin Boniadi, Jack Huston 9-Sep-16 Sully (Imax) Tom Hanks 23-Sep-16 The Magnificent Seven (Imax) Haley Bennett, Chris Pratt, Matt Bomer, Denzel Washington 14-Oct-16 Inferno (Imax) Felicity Jones, Tom Hanks, Irrfan Khan, Ben Foster 16-Dec-16 Rogue One : A Star Wars Story (3D / Imax 3D) Felicity Jones, Mads Mikkelsen 20-Jan-17 Xxx: The Return Of Xander Cage Deepika Padukone, Vin Diesel 27-Jan-17 Resident Evil: The Final Chapter Milla Jovovich, Iain Glen, Ruby Rose 10-Feb-17 The Lego Batman Movie (3D) Will Arnett, Ralph Fiennes, Michael Cera 3-Mar-17 Wolverine 2 (3D / Imax) Hugh Jackman, Patrick Stew art

Source: Company, Kotak Institutional Equities

60 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 9: Condensed consolidated financials for PVR, March fiscal year-ends, 2012-19E (Rs mn)

2012 2013 2014 2015 2016 2017E 2018E 2019E Profit model Revenues 5,177 8,064 13,475 14,813 18,736 22,148 26,344 30,910 EBITDA 761 1,169 2,117 2,050 3,347 3,952 4,745 5,562 Other income 123 91 113 46 235 100 125 125 Depreciation (365) (560) (944) (1,168) (1,252) (1,524) (1,735) (1,931) Interest expense (185) (368) (795) (783) (839) (677) (664) (619) Pretax profits 310 319 523 124 1,425 1,852 2,471 3,138 Tax (57) 124 (19) (8) (232) (611) (815) (1,035) PAT before minority interest 253 443 504 116 1,193 1,241 1,656 2,102 Minority interest 1 2 57 11 (5) (15) (20) (20) PAT 254 445 561 128 1,187 1,226 1,636 2,082 Diluted EPS (Rs) 9.5 14.9 13.7 3.1 25.4 26.3 35.0 44.6 Balance sheet Total equity 2,791 6,427 3,993 4,092 8,695 9,777 11,220 13,058 Deferred taxation liability 106 (10) 4 11 93 93 93 93 Total borrowings 2,035 6,566 6,134 7,470 6,623 7,623 7,123 6,623 Minority interest 139 854 771 383 401 416 436 456 Current liabilities 986 1,939 2,600 2,309 3,276 3,874 4,457 5,071 Total liabilities and equity 6,126 15,852 13,533 14,288 19,108 21,803 23,349 25,321 Cash and cash equivalents 211 732 495 261 2,674 659 763 1,300 Other current assets 2,038 3,229 3,763 4,605 5,763 6,205 7,082 8,003 Tangible fixed assets 2,621 5,710 6,990 7,523 8,762 10,036 10,602 11,114 Goodwill and Intangibles 374 4,712 1,466 1,273 1,282 4,275 4,274 4,277 CWIP 876 1,453 806 611 611 611 611 611 Total assets 6,126 15,852 13,533 14,288 19,108 21,803 23,349 25,321 Cash flow Operating cash flow, excl. w-capital 679 1,429 2,003 2,440 3,049 3,341 3,930 4,527 Working capital changes (193) (239) 128 (1,134) (191) 156 (295) (306) Capital expenditure (1,160) (7,704) (1,273) (2,064) (2,499) (5,791) (2,300) (2,446) Other income (90) 37 80 19 233 100 125 125 Interest expense (net) (207) (430) (812) (827) (839) (677) (664) (619) Free cash flow (971) (6,907) 127 (1,566) (247) (2,871) 796 1,281 Key ratios and assumptions Footfalls (mn) 24.7 37.2 59.9 59.1 69.6 76.9 86.1 94.8 Average ticket price (ATP) (Rs) 156 163 168 177 187 196 206 217 Screens (#) 166 360 421 464 516 608 673 738 EBITDA margin (%) 14.7 14.5 15.7 13.8 17.9 17.8 18.0 18.0 Net debt/equity (X) 0.7 0.9 1.4 1.8 0.5 0.7 0.6 0.4 RoAE (%) 8.2 9.7 10.8 3.2 18.6 13.3 15.6 17.2 RoACE (%) 7.0 10.0 10.3 7.9 14.7 11.1 11.8 13.5

Notes: (a) DT Cinemas acquisition built in estimates from 1QFY17E end.

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 61 India Daily Summary - May 31, 2016 3.1 3.1 2.4 2.4 3.3 3.3 4.4 4.4 3.9 3.9 0.3 0.3 9.7 9.7 0.1 0.1 0.2 0.2 0.7 0.7 1.5 1.5 1.9 1.9 4.8 4.8 3.9 3.9 0.2 0.2 1.6 1.6 0.2 0.2 0.7 0.7 4.5 4.5 4.9 4.9 7.8 7.8 0.4 0.4 9.3 9.3 6.0 6.0 0.8 0.8 5.9 5.9 0.9 0.9 5.6 5.6 0.9 0.9 8.5 8.5 0.8 0.8 22.4 77.1 24.3 12.1 14.4 72.2 19.3 10.7 24.0 20.7 10.1 24.8 24.8 78.4 16.2 10.4 10.6 51.6 10.5 61.9 53.6 58.0 252.2 555.0 (US$mn)

ADVT-3mo

10.7 9.2 10.8 9.1 10.5 4.6 5.6 13.4 10.7 19.3 13.3 23.8 15.7 27.4 29.8 18.0 21.9 32.3 13.6 37.6 12.9 16.1 20.8 21.8 32.7 26.9 18.1 32.3 22.3 14.7 16.4

10.4

18.2 16.0

17.3 12.7 21.6 19.6 14.0 13.6

21.0 15.5 13.2 13.0 20.4 12.3 14.6

17.1

12.7 10.6 10.3 14.9 16.5 26.2

18.7 RoE(%) 7.3 10.4 11.3 10.6 6.2 4.3 3.7 7.3 9.0 3.2 10.1 7.0 16.1 19.6 11.9 24.9 25.3 16.8 28.3 30.8 16.8 18.9 39.8 13.8 41.0 15.6 21.1 21.0 33.3 28.0 18.2 33.7 23.4 14.2 15.8 17.4 15.4 9.7 17.6 22.2 18.8 11.6 20.6 15.1 13.4 11.9 19.4 11.8 12.7 16.7 11.2 14.4 13.2 15.6 26.8 18.3 4.6 (0.7) (0.5)

17.8 7.6 27.4 18.4 18.7 31.8 22.7 18.5 42.7 14.7 43.0 15.6 18.0 19.5 33.8 27.9 25.1 21.3 16.8 15.3 (14.4) (22.6) (8.9) 17.9 15.5 16.3 6.0 22.3 18.3 11.4 (1.3) 5.4 20.2 16.8 6.6 12.9 12.6 19.6 10.6 11.4 - 15.1 1.1 18.0 (10.9) 21.0 12.1 12.2 7.3 6.8 19.9 1.2 1.7 0.9 1.4 2.0 2.5 1.0 1.3 0.2 1.9 3.1 1.4 1.2 0.6 1.5 1.2 1.3 0.2 1.2 0.7 2.6 7.9 - 0.7 1.5 2.0 3.3 1.7 1.2 3.0 0.6 1.7 1.3 0.6 5.3 3.0 1.0 1.5 2.2 1.4 0.6 3.6 6.6 4.7 5.2 4.6 0.8 1.1 1.5 3.3 1.2 ——— ——— ——— ——— 0.5 Dividendyield (%) 1.1 1.3 0.8 1.3 1.7 2.2 0.9 1.0 0.2 1.6 2.9 1.2 1.0 0.5 1.3 1.0 1.1 0.2 1.0 0.7 1.0 (0.5) - 0.6 1.3 1.9 2.5 1.5 1.0 2.3 0.5 1.1 1.2 0.5 2.1 2.8 0.6 1.4 1.8 1.1 0.9 3.2 4.2 3.8 (0.2) 5.9 0.7 0.9 1.4 2.5 1.0 1.0 1.3 0.7 1.3 0.9 2.1 0.8 1.5 0.5 1.5 2.3

0.9 0.9 0.5 1.0 0.7

0.9 0.1 1.0 0.7 - - - 0.5 1.1

4.1 1.3 1.4 0.8 2.0 (4.2) 2.0 0.4 3.0 3.0 1.7 1.2 0.9 0.9 1.5 2.6 0.8 8.2 - 10.6 0.5 0.6 1.3 1.7 1.0 2.6 1.4 4.8 1.0 3.8 4.4 1.8 3.7 2.6 5.7 2.4 2.7 3.3 2.9 5.8 4.2 1.2 5.5 6.9 1.8 1.8 0.7 0.2 0.3 3.0 1.6 1.2 0.8 0.9 4.5 3.0 1.3 0.7 1.7 2.9 0.4 1.0 1.5 1.9 0.8 2.5 5.8 1.3 0.2 0.5 0.4 0.5 1.8 2.0 3.5 0.9 0.3 2.3

7.4

Price/BV (X) Price/BV 3.1 3.1 3.4 2.3 2.2 4.1 2.1 1.1 1.1 4.1 2.3 3.7 1.3 1.7 2.3 1.1 3.1 1.7 0.2 0.3 1.5 5.7 1.6 0.4 1.9 2.6 1.0 3.0 0.2 0.4 2.6 0.3 5.7 1.1 4.6 5.2 2.1 4.3 2.8 6.6 2.8 3.0 3.9 3.5 7.1 5.1 1.5 6.8 2.0 2.0 0.8 0.8 0.2 0.3 3.5 1.9 1.4 1.0 1.0 5.1 3.5 1.5 0.8 0.7 2.0 3.3 0.4 1.1 1.6 2.2 0.9 2.8 6.0 5.9 1.5 0.2 0.6 0.6 0.4 0.6 0.5 2.1 2.3 6.0 4.6 1.0 0.3 2.7 10.1 8.5 3.1 1.6

3.7 6.9 1.3 5.5 6.1 2.4 4.9 14.7

7.8

4.6 4.2 8.9 6.4 1.8 8.6 10.5 7.0 12.7 4.7 8.9 12.4 5.8 10.1 15.2 11.7 12.1 10.1 12.2 10.6 7.5 6.9 10.4 3.1 11.3 21.5 EV/EBITDA (X) EV/EBITDA ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— —————— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— —————— ——— ——— 8.0 14.4 5.0 10.1 14.0 7.3 12.9 17.5 12.7 12.8 12.3 14.2 12.1 9.1 8.6 11.9 3.6 13.5 25.6 3.8 9.4

16.7 4.4 14.5 15.6 6.9 13.2 20.6 13.3 13.9 19.3 15.9 13.7 11.9 11.2 16.4 4.2 19.2 36.2

6.8 7.4 5.3 3.8 8.3 7.0 8.3 3.0 4.3 4.6 3.0 13.6 10.8 21.8 15.2 16.1 10.5 18.2 26.4 20.0 16.2 20.2 17.8 17.1 14.6 19.5 17.1 18.9 34.2 13.1 11.6 7.7 3.5 17.7 10.8 12.2 7.8 20.8 16.7 10.0 8.4 12.1 10.1 19.9 12.1 9.9 18.1 13.1 13.1 15.2 7.1 13.4 2.5 128.4

PER (X) PER 7.1 7.1 5.8 7.9 7.9 7.4 6.7 6.7 9.9 3.6 3.6 5.3 2.8 2.8 3.6 5.9 (1.2) (39.0) (3.7) 10.3 3.9 (3.8) (5.9) (8.8) 27.2 24.3 44.2 26.1 20.7 19.1 14.4 12.8 24.3 20.2 11.6 13.1 11.1 17.2 4.8 (89.5) 22.7 15.8 27.4 19.3 22.6 27.9 30.4 20.7 11.5 23.0 23.8 29.4 25.3 13.0 37.5 14.9 15.7 26.2 13.8 26.1 14.6 12.9 10.2 27.5 11.5 20.3 17.0 39.9 26.9 53.9 15.9 18.9 40.0 28.6 16.0 49.6 15.5 15.3 24.7 17.6 18.3 13.1 30.0 21.4 17.3 20.5 19.9 18.3 23.7 20.2 8.9 22.7 39.9 15.2 13.3 21.5 15.2 10.1 23.2 13.1 18.7 23.4 8.9 15.1 11.1 8.3 22.8 85.6 9.4 16.7 14.3 15.8

7.3 8.1

21.9 19.8

10.1

39.2

58.0

7.3 8.3 72.8 32.9 97.0 95.7 16.5 41.9 13.5 8.3 15.6 13.4 24.9 34.0 13.7 7.1

29.6 15.3 16.0 25.8 21.6 18.4 19.2 20.1 16.7 16.4 15.3 149.2 1,646.0 1,646.0 192.4 21.3 17.5 24.1 9.5 29.6 11.7 20.6 30.8

54.9 10.8 17.3 159.0

24.6 11.6 18.5 26.1 (33.3) 14.3

25.0 2,426.6 2,426.6 (21.6) 27.2 21.4 27.4 101.3 30.6 18.4 - 113.4 - (42.0) EPSgrowth(%) 2.7 2.7 30.2 2.5 2.5 23.7 2.5 2.5 (31.8) 7.0 7.0 (22.3) 6.8 6.8 11.8 0.9 0.9 (8.8) (1.7) (1.7) 6.0 (7.6) (7.6) 7.2 (5.4) (5.4) 21.7 (4.8) (4.8) 43.4 21.3 21.3 (12.2) 14.1 14.1 2.2 23.1 23.1 14.0 23.2 23.2 35.4 14.3 14.3 30.1 27.3 27.3 65.7 11.2 11.2 (2.3) 12.3 12.3 13.0 17.2 17.2 12.4 13.4 13.4 22.2 24.4 24.4 13.3 26.1 26.1 12.9 10.1 10.1 17.8 19.3 19.3 20.1 11.8 11.8 17.9 20.2 20.2 22.3 15.8 29.6 49.9 20.0 20.8 59.3 25.8 13.0 (41.1) 69.2 24.1 25.0 (22.2) 46.5 69.6 35.1 21.8 (13.2) 11.2 16.5 41.7

(14.8) (42.0) (18.2) (19.2) (70.7) (27.0) (32.9) (52.9) (29.8) 47.1 11.9 21.4 87.8 (32.4) 20.5 259.7

49.6 107.0

(252.4) (191.1) (222.6) (390.2) 131.0

136.3 176.1

284.6

(154.7)

39.0 23.2 7.0 161.8 65.1 41.0 709.9 8.0 191.6 9.6 74.7 237.6 7.8 14.6 9.3 56.7 15.3 170.1 39.3 159.1 18.1 34.3 55.0 53.5 9.9 7.7 36.7 6.7 59.4 70.4 24.3 6.2 4.0 21.1 55.1 15.0 57.1 6.4 47.2 13.2 18.1 3.0 28.3 27.6 39.5 20.1 34.7 124.0 92.0 42.9 27.9 38.4 76.7 EPS(Rs) 7.3 7.7 7.4 1.2 7.7 3.5 9.7 2.8 4.9 (5.9) 47.3 32.5 34.5 16.7 46.3 12.8 48.6 (23.4)

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E India Daily Summary - May 31, 2016 33.7 13.9 29.4 64.8 34.3 21.4 6.0 142.6 52.1 30.6 624.7 7.5 7.4 64.8 204.9 6.2 12.0 7.9 47.6 12.7 145.7 33.7 138.0 7.2 (2.2) 18.8 44.1 8.4 6.2 33.5 5.2 53.2 58.4 18.6 4.5 2.6 19.0 47.0 5.8 52.8 5.2 42.3 11.1 14.4 4.5 24.8 17.5 31.6 (0.9) 44.3 97.5 75.7 — 27 19 66 171 237 323 317 122 223 127 421 475 485 987 687 509 850 569 595 505 565 O/S shares 30.4 19.9

126.2 59.3 27.4 470.0

156.6 178.5 4.4 58.0 151.3 4.8

6.3

107.9

117.1

(74.5) (51.8) 36.2

6.8 27.6

16.1 38.4 8.6 46.6

36.3 9.0 11.9

20.3 4.9

(20.2) 57.0 80.1 52.8 23.8

19.7 60.4

311 120 324 235 431 321 415 983 97 953 598 998 Mkt cap. Mkt 23,872 355 209 21,754 93,347 1,388 399 (Rsmn) (US$mn) (mn) 62,763 934 28,974 82,877 1,233 79,537 1,183 80,044 1,191 20,883 26,918 400 284 56,974 847 291 82,829 1,232 1,594 27,899 57,029 848 80,654 1,200 817 64,066 90,026 1,339 1,720 67,090 66,085 754,423 11,221 289 104,743 1,558 543 148,237 2,205 156 163,122 2,426 136,414 2,029 1,754 222,757 3,313 1,320 272,293 4,050 432,164 6,428 136,383 2,029 110,248 1,640 186,441 2,773 107,478 1,599 145,165 2,159 173,560 2,581 618,532 9,200 200 136,801 2,035 292,667 4,353 159 653,446 9,719 236,359 3,516 102,003 1,517 266 301,805 4,489 2,846 509,047 7,571 826,581 12,294 375,990 5,592 1,323 318,896 4,743 2,310 151,590 2,255 1,964 158,586 2,359 6,931,522 103,098 1,421,897 21,149 5,816 1,359,345 20,219 3,395 1,543,628 22,960 7,763 13,671,037 203,340 3.7 1,225,034 18,221 2,383

1.2

8.2 5.5 5.6 6.0

(7.2) 1,229,994 18,295 302

1,949,444 28,996 1,580 2,983,864 44,381 2,528 (1.7)

(4.2)

11.8 12.6

(28.0)

70 85 (1.6) 33.6 60 15.6 65 35.3 80 39.0 85 9.3 80 3.6 735 230 120 130 175 115 175 235 140 120 245 320 245 340 275 230 130 (13.5) 46.3 13.2 19.9 16.7 (19.0) (9.8) 0.8 (12.0) 10.1 (18.4) 3.2 1.2 (1.5) 12.0 5.7 25.5 30.9 15.6 14.3 (7.0) (11.0) 17.5 19.5 6.7 27.6 15.7 12.4 970 (5.5) 550 880 560 550 650 30.6 (7.3) 18.7 17.4 (0.1)

price Upside

Target

77 52 52 48 78 92 105 84 100

86 95 58

100

114 421 212 472 234 157 157 746 870 194 194

284 284 250

514 514 530 138 193 193 190 107 107 245

328 305 382 382

161 161 205 116 106 106 684 160 160 159 159 288 288 949 949 195 195 468 468 169 169 180 651 199 199 850

820

1,331 1,331 1,380 1,234 1,234 1,335 4,072 4,072 4,300 1,027 1,027 2,607 2,607 2,750 5,812 5,812 6,500 1,839 1,839 2,070 1,180 1,180 1,250 1,630 1,630 1,650 1,200 1,200 1,150 3,098 1,098 2,875 1,080 18,742 13,500 Price (Rs) Price

BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY SELL ADD ADD SELL ADD SELL ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD Rating 30-May-16 (Rs) (%) REDUCE REDUCE REDUCE REDUCE REDUCE REDUCE REDUCE Attractive Automobiles AmaraRaja Batteries Company ApolloTyres AshokLeyland Bajaj Auto Bajaj BalkrishnaIndustries BharatForge EicherMotors ExideIndustries HeroMotocorp MahindraAutomotive CIE SELL Mahindra& Mahindra MarutiSuzuki MindaCorp. MothersonSystems Sumi SELL SuprajitEngineering TataMotors TVSMotor WABCO India WABCO Automobiles Banks/FinancialInstitutions BankAxis Bajaj Finserv Bajaj Bankof Baroda Bankof India CanaraBank Cholamandalam City Union City Bank DCBBank DewanHousing Finance FederalBank HDFC HDFCBank ICICI Bank ICICI IDFC IDFC Bank IDFC IIFL Holdings IIFL IndusIndBank J&KBank KarurVysya Bank L&TFinance Holdings LIC Housing LIC Finance MagmaFincorp Mahindra& Mahindra Financial ADD MaxFinancial Services MuthootFinance OrientalBank of Commerce ADD PFC PunjabNational Bank RuralElectrification Corp. ShriramUnion City Finance ADD ShriramTransport SKSMicrofinance StateBank of India UnionBank YESBank Banks/FinancialInstitutions Attractive Source: Company, Bloomberg, Kotak Institutional Equities estimates Equities Institutional Kotak Bloomberg, Company, Source: Kotak Institutional Equities: Valuation summary of KIE Universe stocksValuation of KIEKotak Universe summary Equities: Institutional

KOTAK INSTITUTIONAL EQUITIES RESEARCH 62

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

63 Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo

Company Rating 30-May-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E (US$ mn) Cement ACC SELL 1,537 1,380 (10.2) 288,593 4,292 188 39.6 51.1 71.7 (13.3) 29.1 40.3 38.8 30.1 21.4 23.9 15.3 11.5 3.4 3.2 2.9 1.1 1.1 1.1 8.9 11.0 14.2 6.2 Ambuja Cements SELL 229 205 (10.5) 355,617 5,289 1,550 5.6 8.1 10.4 (34.6) 44.8 28.5 41.1 28.4 22.1 21.2 15.0 11.8 3.3 3.1 2.9 1.9 1.9 2.2 8.0 11.3 13.7 8.7 Dalmia Bharat BUY 902 1,015 12.6 80,056 1,191 89 21.5 71.0 100.5 1,802.5 230.6 41.5 42.0 12.7 9.0 9.4 6.8 5.3 2.1 1.8 1.5 0.2 0.2 0.2 5.5 15.2 18.2 0.4 Grasim Industries ADD 4,352 4,700 8.0 406,219 6,042 93 255.7 350.3 421.5 34.0 37.0 20.3 17.0 12.4 10.3 7.7 5.5 4.2 1.6 1.4 1.2 0.5 0.5 0.5 9.7 12.0 12.8 4.7 India Cements REDUCE 92 85 (7.9) 28,353 422 307 4.5 6.8 9.2 4,256.5 50.9 35.5 NM 13.7 10.1 6.7 6.6 5.7 0.8 0.8 0.7 1.2 2.3 2.3 4.0 5.8 7.2 5.2 J K Cement BUY 595 770 29.4 41,607 619 70 9.1 35.6 68.9 (49.9) 293.0 93.3 65.6 16.7 8.6 13.2 8.5 5.9 2.6 2.3 1.8 0.7 0.7 0.7 3.9 14.4 23.3 0.4 JK Lakshmi Cement BUY 343 410 19.4 40,408 601 118 2.0 20.1 35.3 (86.6) 917.4 75.9 173.9 17.1 9.7 22.3 9.5 6.0 3.0 2.6 2.1 0.6 0.6 0.6 1.7 16.3 23.8 0.4 Orient Cement BUY 160 170 6.1 32,820 488 205 3.0 8.3 16.2 (68.0) 172.9 95.6 52.7 19.3 9.9 25.8 10.2 6.7 3.2 2.9 2.3 0.6 1.1 1.1 6.2 15.7 25.8 0.2 Shree Cement SELL 13,401 10,600 (20.9) 466,866 6,944 35 115.4 341.8 484.8 (13.0) 196.3 41.8 116.2 39.2 27.6 33.9 16.4 11.9 7.6 6.4 5.3 0.2 0.2 0.2 7.0 17.7 20.9 2.6 UltraTech Cement SELL 3,212 2,825 (12.1) 881,537 13,112 274 79.2 129.9 164.5 7.9 64.0 26.6 40.5 24.7 19.5 20.6 14.1 11.2 4.3 3.7 3.1 0.3 0.3 0.3 11.0 15.9 17.3 16.1 Cement Cautious 2,622,075 39,000 2.0 66.4 32.1 37.2 22.3 16.9 15.5 10.6 8.2 3.1 2.8 2.5 0.6 0.6 0.7 8.5 12.6 14.5 45.0 Consumer products Asian Paints REDUCE 985 865 (12.2) 944,714 14,051 959 18.5 21.6 25.4 25.0 16.3 17.8 53.1 45.7 38.8 33.0 28.5 24.3 16.9 14.2 12.1 0.8 0.9 1.1 34.4 33.8 33.7 15.0 Bajaj Corp. BUY 390 465 19.3 57,503 855 148 16.5 18.2 20.2 10.8 10.3 11.1 23.6 21.4 19.3 20.0 17.2 14.6 12.0 11.3 10.6 2.9 3.2 3.8 50.2 54.2 56.7 0.5 Britannia Industries BUY 2,746 3,100 12.9 329,460 4,900 120 68.0 79.6 97.6 50.4 17.0 22.7 40.4 34.5 28.1 26.6 22.7 18.4 18.6 13.9 10.6 0.7 0.9 1.1 54.1 46.2 42.8 9.6 Coffee Day Enterprises ADD 256 290 13.4 52,685 784 206 (0.4) 3.6 7.2 92.8 1,090.5 98.8 (699.8) 70.6 35.5 15.7 13.4 11.6 2.4 2.4 2.2 — — — (0.6) 3.4 6.4 0.6 Colgate-Palmolive (India) ADD 854 910 6.6 232,221 3,454 272 21.2 23.6 27.1 3.2 11.1 15.0 40.3 36.3 31.5 24.7 21.7 18.9 22.8 18.1 14.4 1.2 1.3 1.5 64.5 55.6 50.8 4.5 Dabur India ADD 298 300 0.6 524,752 7,805 1,759 7.1 8.2 9.4 19.1 15.4 14.3 41.9 36.3 31.7 34.5 29.5 25.3 12.6 10.5 8.8 0.8 0.9 1.1 33.3 31.6 30.1 5.8 GlaxoSmithKline Consumer ADD 5,948 6,400 7.6 250,146 3,721 42 154.6 173.8 198.6 11.4 12.4 14.3 38.5 34.2 29.9 26.9 23.7 20.1 10.2 9.0 8.0 1.2 1.3 1.6 28.5 28.0 28.3 1.9 Godrej Consumer Products REDUCE 1,529 1,340 (12.3) 520,540 7,742 341 33.5 39.7 45.9 27.3 18.7 15.6 45.7 38.5 33.3 33.1 28.1 23.6 10.2 8.4 7.0 0.4 0.4 0.4 24.2 24.0 22.9 6.4 Hindustan Unilever REDUCE 854 865 1.2 1,848,760 27,498 2,164 18.7 21.4 24.0 7.6 14.1 12.3 45.6 40.0 35.6 31.4 27.4 24.0 50.1 50.6 50.3 1.9 2.1 2.3 109.3 125.9 141.8 19.3 ITC BUY 357 385 8.0 2,868,829 42,670 8,069 12.2 13.7 15.7 2.2 12.0 14.9 29.2 26.1 22.7 19.2 17.1 14.7 8.7 7.9 7.2 2.4 2.2 2.7 28.5 29.0 31.9 50.4 Jubilant Foodworks REDUCE 1,023 1,000 (2.2) 67,308 1,001 66 15.9 23.2 31.4 (6.0) 46.2 35.4 64.5 44.1 32.6 23.8 17.7 13.7 9.2 8.0 6.8 0.2 0.5 0.7 15.2 19.5 22.6 11.6 Jyothy Laboratories NR 285 — — 51,538 767 181 7.3 9.9 11.1 26.2 35.9 12.0 39.2 28.8 25.8 23.4 20.5 17.5 6.1 6.4 5.9 1.8 1.8 2.1 21.6 27.1 24.0 0.4 Manpasand Beverages ADD 534 530 (0.7) 26,721 397 50 10.1 15.3 20.4 26.7 51.8 33.2 52.8 34.8 26.1 23.4 16.3 12.6 4.4 4.0 3.5 0.2 0.3 0.4 12.8 12.1 14.3 0.2 Marico REDUCE 254 240 (5.4) 327,316 4,868 1,290 5.5 6.7 7.8 23.4 21.6 16.0 46.1 37.9 32.7 30.4 25.3 21.7 15.6 13.1 11.1 1.3 1.2 1.4 36.2 37.6 36.7 5.6 Nestle India REDUCE 6,295 5,400 (14.2) 606,937 9,027 96 92.7 127.9 153.0 (24.1) 38.0 19.6 67.9 49.2 41.1 37.1 27.3 23.6 21.5 18.4 16.0 0.8 1.0 1.4 31.6 40.3 41.6 4.5 Page Industries SELL 13,980 10,500 (24.9) 155,931 2,319 11 208.6 253.7 307.4 18.7 21.6 21.2 67.0 55.1 45.5 41.6 34.8 28.8 30.9 23.4 17.9 0.6 0.7 0.8 52.2 48.4 44.6 2.7 PC Jeweller BUY 362 430— — 64,834 964 179 21.5 25.4 30.3 1.5 18.5 19.3 16.9 14.2 11.9 9.8 7.9 6.2 2.8 2.4 1.8 0.9 1.1 1.3 17.8 18.1 18.3 3.1 Pidilite Industries REDUCE 695 640 (8.0) 356,463 5,302 513 14.7 17.5 20.0 46.0 18.9 14.4 47.2 39.7 34.7 29.9 25.1 21.8 12.8 10.5 8.8 0.6 0.7 0.9 29.9 29.1 27.6 9.7 S H Kelkar and Company REDUCE 222 230 3.6 32,106 478 145 5.8 7.7 8.9 19.4 32.1 15.3 38.2 28.9 25.1 20.7 17.1 14.7 4.2 3.8 3.5 0.6 0.8 1.0 12.7 13.9 14.5 0.3 Speciality Restaurants REDUCE 88 105 19.3 4,132 61 47 1.2 2.3 3.5 (39.0) 83.8 55.3 71.7 39.0 25.1 12.8 9.0 6.7 1.3 1.3 1.2 1.1 1.1 1.1 1.9 3.3 5.0 0.0 Tata Global Beverages ADD 118 130 10.2 74,442 1,107 631 5.0 5.7 6.6 (8.5) 14.0 16.4 23.7 20.8 17.9 12.0 10.5 9.2 1.3 1.3 1.2 1.9 1.9 2.1 5.6 6.2 6.9 2.5 Titan Company REDUCE 364 320 (12.0) 322,755 4,801 888 8.0 10.1 11.4 (14.2) 26.5 13.3 45.6 36.1 31.8 33.9 24.4 21.2 9.2 8.0 6.9 0.6 0.9 1.0 21.5 23.8 23.3 9.0 United Breweries SELL 717 710 (1.0) 189,645 2,821 264 11.2 13.9 17.8 13.5 24.6 28.0 64.2 51.5 40.2 27.2 23.5 19.6 9.0 7.9 6.8 0.2 0.3 0.4 14.9 16.3 18.1 5.1 United Spirits ADD 2,489 2,800 12.5 361,779 5,381 145 12.3 34.4 53.8 210.0 180.9 56.4 NM 72.3 46.2 41.4 31.7 23.8 20.2 11.9 7.9 - - - 14.5 20.7 20.6 17.5 Consumer products Cautious 10,271,517 152,776 9.6 17.4 16.4 40.7 34.7 29.8 26.1 22.3 19.1 11.9 10.4 9.1 1.4 1.5 1.7 29.3 30.1 30.6 186.1 India Daily Summary Daily Summary India Energy BPCL ADD 999 1,100 10.1 722,687 10,749 723 102.8 100.1 104.6 46.2 (2.6) 4.5 9.7 10.0 9.6 6.6 6.1 5.3 2.7 2.3 2.0 3.0 3.0 3.1 30.0 24.6 22.1 20.5 Cairn India RS 144 — — 270,168 4,018 1,875 11.4 7.0 11.8 (67.2) (39.2) 70.0 12.6 20.7 12.2 6.8 7.9 5.8 0.6 0.5 0.5 2.1 1.7 3.1 4.0 2.7 4.4 8.7 Castrol India ADD 376 420 11.6 186,103 2,768 495 12.0 14.0 14.9 25.4 16.0 6.7 31.3 27.0 25.3 20.0 17.8 16.6 32.3 30.4 29.2 2.4 2.9 3.2 111.0 116.1 117.8 11.0 GAIL (India) ADD 380 420 10.6 481,831 7,167 1,268 17.9 25.1 33.0 (31.5) 40.2 31.4 21.2 15.1 11.5 13.2 9.9 7.8 1.6 1.5 1.4 1.4 2.0 2.6 7.6 10.1 12.3 8.2 GSPL ADD 136 150 10.6 76,389 1,136 563 7.9 9.5 10.8 22.2 20.5 13.6 17.2 14.3 12.6 8.5 7.1 6.2 1.9 1.8 1.6 1.1 1.8 2.4 11.7 12.9 13.4 0.9 HPCL ADD 913 1,040 13.9 309,302 4,600 339 113.9 119.6 120.5 41.3 5.0 0.7 8.0 7.6 7.6 6.6 5.8 5.6 1.7 1.5 1.3 3.8 4.0 4.0 22.5 20.6 18.4 13.9 Indraprastha Gas ADD 567 600 5.9 79,310 1,180 140 33.2 37.1 40.4 6.0 11.8 8.9 17.1 15.3 14.0 9.7 8.7 7.7 3.3 2.9 2.6 1.1 1.3 1.6 20.6 20.1 19.3 4.4 IOCL BUY 403 530 31.5 978,465 14,553 2,428 39.1 57.1 60.9 127.4 45.8 6.7 10.3 7.1 6.6 6.3 4.1 3.6 1.3 1.2 1.1 3.5 4.3 4.6 13.4 17.7 16.9 7.7 ONGC SELL 213 185 (13.3) 1,826,169 27,162 8,556 20.3 15.8 18.2 (8.5) (21.8) 14.9 10.5 13.5 11.7 4.0 5.0 4.5 1.0 0.9 0.9 4.0 3.3 3.3 9.4 7.1 7.9 18.8 KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Oil India SELL 350 320 (8.5) 210,187 3,126 601 38.8 31.1 31.2 (7.2) (19.9) 0.4 9.0 11.3 11.2 5.1 6.3 6.4 0.9 0.9 0.9 4.6 3.6 3.6 10.6 8.2 7.9 2.3 Petronet LNG ADD 278 300 7.7 208,838 3,106 750 11.2 15.6 23.0 13.2 39.7 47.7 25.0 17.9 12.1 13.9 11.1 7.5 3.3 2.9 2.5 0.9 1.4 2.3 15.2 17.2 22.3 6.4 Reliance Industries ADD 969 1,130 16.7 2,851,268 42,409 3,240 84.6 88.4 99.4 20.5 4.4 12.5 11.4 11.0 9.7 9.2 8.6 7.0 1.3 1.2 1.1 1.1 1.2 1.4 12.0 11.4 11.6 60.5 Energy Attractive 8,212,319 122,148 8.8 2.6 12.5 11.0 10.7 9.5 6.8 6.5 5.6 1.2 1.1 1.1 2.5 2.5 2.8 11.2 10.7 11.1 169.4

Source: Company, Bloomberg, Kotak Institutional Equities estimates -

May 31, 2016

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 30-May-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E (US$ mn) Industrials ABB SELL 1,213 900 (25.8) 256,992 3,822 212 14.2 18.4 27.6 31.2 29.7 50.3 85.7 66.1 44.0 36.1 31.8 24.2 8.5 7.9 7.0 0.3 0.4 0.6 10.3 12.4 16.8 1.7 BHEL SELL 121 100 (17.1) 295,425 4,394 2,448 (3.7) 1.7 6.6 (164.4) 145.1 294.9 (32.3) 71.8 18.2 (10.0) 54.5 6.6 0.9 0.9 0.9 0.8 0.8 1.1 (2.7) 1.2 4.8 16.3 Carborundum Universal ADD 224 215 (3.9) 42,131 627 188 7.6 10.1 13.6 47.0 32.4 34.6 29.4 22.2 16.5 13.3 10.1 8.2 3.5 3.1 2.7 0.7 0.8 1.1 11.7 15.0 17.7 0.2 Crompton Greaves NR 68 — — 42,619 634 627 (3.2) (0.4) 3.1 (208.6) 87.3 854.1 (21.3) (167.2) 22.2 15.0 10.4 11.6 1.1 0.9 0.9 1.9 0.5 0.6 (5.2) (0.6) 4.0 12.7 Cummins India REDUCE 788 825 4.6 218,558 3,251 277 26.3 29.0 33.1 (2.7) 10.2 14.0 29.9 27.2 23.8 28.2 25.6 22.1 6.9 6.2 5.6 1.8 1.8 2.1 24.1 24.1 24.8 4.5 Havells India REDUCE 372 320 (14.1) 232,628 3,460 624 8.4 9.8 11.4 35.9 17.4 15.7 44.4 37.8 32.7 25.8 25.1 21.2 9.1 8.1 7.1 1.6 1.0 1.2 23.9 22.6 23.2 9.3 Kalpataru Power Transmission BUY 233 280 20.4 35,680 531 153 7.7 12.5 14.6 (2.3) 63.3 16.8 30.4 18.6 15.9 8.1 7.1 6.5 1.5 1.4 1.3 0.6 0.6 0.6 5.2 8.0 8.7 0.5 KEC International ADD 138 145 5.4 35,363 526 257 7.4 10.4 13.7 19.0 39.9 31.5 18.5 13.2 10.0 8.7 7.3 6.2 2.3 2.0 1.7 0.7 1.0 1.3 13.5 16.5 18.7 0.8

L&T ADD 1,487 1,400 (5.9) 1,385,732 20,611 930 48.7 50.6 62.8 38.9 3.8 24.1 30.5 29.4 23.7 19.0 18.3 15.3 3.7 3.4 3.1 1.2 0.9 0.9 12.4 12.1 13.7 43.4 Siemens SELL 1,222 830 (32.1) 435,304 6,475 356 19.6 25.7 32.3 74.2 31.0 25.7 62.4 47.6 37.9 36.4 30.0 23.8 6.5 6.2 5.8 3.3 1.1 1.3 11.8 13.3 15.8 5.0 Thermax REDUCE 741 720 (2.8) 88,253 1,313 119 23.1 23.3 27.2 6.2 0.7 16.6 32.0 31.8 27.3 20.3 19.8 17.3 3.7 3.5 3.2 0.8 0.8 0.8 12.2 11.3 12.1 0.9 Voltas ADD 340 330 (2.8) 112,352 1,671 331 10.4 11.6 15.2 2.0 11.5 30.6 32.5 29.2 22.4 25.9 23.9 17.5 4.7 4.2 3.7 0.8 0.9 1.1 15.3 15.2 17.6 9.6

Industrials Cautious 3,181,035 47,314 (11.5) 35.5 38.9 47.3 34.9 25.1 24.0 19.6 15.3 3.2 3.0 2.8 1.4 0.9 1.1 6.8 8.6 11.1 104.9 -

Infrastructure May 31, 2016 Adani Port and SEZ ADD 190 255 34.0 393,999 5,860 2,085 13.8 14.6 13.0 23.8 6.5 (11.3) 13.8 13.0 14.6 12.8 10.9 9.8 3.0 2.5 2.2 0.7 0.7 1.1 23.9 20.9 15.9 18.6 Ashoka Buildcon BUY 136 220 61.5 25,499 379 188 3.1 7.4 7.1 (39.4) 138.0 (4.3) 43.8 18.4 19.2 8.4 8.3 7.2 1.4 1.3 1.2 1.1 1.2 1.7 3.6 7.2 6.6 1.7 Container Corporation ADD 1,437 1,430 (0.5) 280,090 4,166 195 40.4 48.3 56.6 (24.8) 19.6 17.3 35.6 29.7 25.4 23.8 19.2 15.9 3.5 3.2 3.0 0.9 1.1 1.3 10.0 11.2 12.3 5.3

Gujarat Pipavav Port ADD 162 180 11.0 78,366 1,166 483 3.6 5.3 7.1 (59.2) 46.2 32.4 44.5 30.4 23.0 20.1 16.0 12.5 4.1 3.8 3.5 1— 1— 1.9 9.5 12.9 15.7 1.1 IRB Infrastructure BUY 219 285 30.3 76,897 1,144 351 18.1 14.7 14.4 17.2 (18.6) (2.2) 12.1 14.8 15.2 7.9 7.4 7.3 1.6 1.3 1.2 1.7 1.7 1.7 13.9 9.7 8.3 4.6 Sadbhav Engineering ADD 278 300 7.8 47,721 710 172 8.0 8.7 12.6 13.4 8.4 44.2 34.6 31.9 22.1 18.4 16.8 13.3 3.2 3.0 2.7 — — — 9.8 9.7 12.7 0.6 Infrastructure Attractive 902,571 13,425 3.0 8.5 (1.0) 19.4 17.8 18.0 12.8 11.1 9.9 2.9 2.5 2.3 0.9 1.0 1.3 14.8 14.0 12.5 32.0 Internet Info Edge BUY 807 960 19.0 97,531 1,451 121 11.7 17.2 22.4 (27.4) 47.2 30.2 68.9 46.8 35.9 54.5 33.5 24.1 5.5 5.1 4.6 0.4 0.5 0.7 8.3 11.3 13.5 1.0 Just Dial REDUCE 643 700 8.8 44,703 665 69 20.6 19.7 28.0 4.6 (4.6) 42.2 31.2 32.7 23.0 21.7 21.0 13.7 6.7 5.6 4.6 - 0.3 0.4 21.3 18.7 22.1 39.6

Internet Attractive 142,234 2,116 (14.4) 21.2 35.0 49.9 41.2 30.5 37.4 28.4 19.7 5.8 5.3 4.6 0.3 0.5 0.6 11.7 12.8 15.2 40.6 Media DB Corp. ADD 366 345 (5.8) 67,324 1,001 184 16.1 20.4 24.5 (6.3) 26.4 20.1 22.7 18.0 15.0 12.5 9.9 8.3 5.0 4.5 4.1 3.0 3.0 3.8 22.5 26.5 28.8 0.1 DishTV BUY 88 115 30.2 94,113 1,400 1,066 6.5 3.1 3.7 21,951.6 (52.8) 19.9 NM 28.8 24.0 9.8 8.3 7.1 5.6 5.6 5.6 — — — 41.5 19.6 23.5 7.3 Jagran Prakashan ADD 175 180 3.0 57,144 850 327 10.0 12.0 14.0 24.8 20.3 16.5 17.5 14.6 12.5 9.9 8.1 6.9 4.2 3.7 3.3 2.9 3.4 4.0 26.1 27.1 28.3 0.4 PVR BUY 844 1,075 27.4 39,397 586 47 26.9 26.3 35.0 647.0 (2.2) 33.4 31.4 32.1 24.1 12.9 11.7 9.6 4.5 4.0 3.5 0.3 0.3 0.4 19.6 13.3 15.6 1.1 Sun TV Network ADD 379 415 9.6 149,279 2,220 394 23.4 26.8 29.5 18.0 14.6 9.9 16.2 14.1 12.9 10.1 8.6 7.5 4.2 3.9 3.5 4.1 4.0 4.5 26.8 28.6 28.7 6.3 Zee Entertainment Enterprises BUY 444 475 7.0 426,343 6,341 960 9.4 12.0 15.5 8.4 28.1 28.5 47.2 36.9 28.7 26.9 21.7 17.2 6.8 6.0 5.5 0.5 0.6 0.8 15.3 17.3 20.0 13.2 Media Neutral 833,600 12,399 48.3 5.0 19.8 25.5 24.3 20.3 15.1 12.6 10.6 5.6 5.0 4.6 1.4 1.5 1.8 21.8 20.6 22.7 28.4 Metals & Mining Coal India ADD 293 300 2.5 1,847,852 27,485 6,316 22.7 24.5 27.8 4.3 8.0 13.4 12.9 11.9 10.5 8.1 7.8 7.0 5.5 5.0 4.6 9.4 5.9 6.6 37.1 43.8 45.8 23.0 Hindalco Industries REDUCE 103 85 (17.4) 212,590 3,162 2,065 2.4 6.1 9.0 (76.1) 156.2 46.6 43.2 16.9 11.5 8.8 7.4 6.7 0.6 0.5 0.5 1.0 1.0 1.0 1.3 3.2 4.6 19.9 Hindustan Zinc BUY 172 190 10.3 727,811 10,825 4,225 19.4 18.0 18.7 0.2 (7.2) 3.9 8.9 9.6 9.2 5.7 5.9 4.9 1.9 1.7 1.5 16.1 2.6 2.6 20.3 19.0 17.3 5.4 Jindal Steel and Power RS 62 — — 56,816 845 915 (18.2) (14.5) 1.4 (363.0) 20.1 109.4 (3.4) (4.3) 45.3 15.4 9.8 7.5 0.3 0.3 0.3 — — — (8.4) (7.4) 0.7 13.7 JSW Steel REDUCE 1,372 1,045 (23.8) 331,631 4,933 242 (10.5) 131.8 154.3 (113.9) 1,352.0 17.1 (130.3) 10.4 8.9 11.8 6.0 5.6 1.5 1.3 1.2 0.6 0.6 0.6 (1.1) 13.8 14.2 14.5 National Aluminium Co. SELL 42 36 (14.0) 107,857 1,604 2,577 2.7 2.2 2.9 (43.2) (20.1) 33.6 15.5 19.4 14.5 6.3 6.1 4.3 0.8 0.8 0.8 4.8 2.4 2.4 5.4 4.3 5.6 0.9 NMDC SELL 90 75 (16.4) 355,833 5,293 3,965 8.0 7.2 7.6 (51.8) (9.5) 5.5 11.3 12.5 11.8 7.0 7.8 7.2 1.2 1.2 1.2 12.3 6.7 6.7 10.1 9.5 10.0 3.7 Tata Steel REDUCE 322 270 (16.2) 313,071 4,657 971 (23.4) 20.3 35.6 (72,377.0) 186.6 75.3 (13.8) 16 9.1 14.3 7.4 6.3 1.1 1.1 1.0 2.5 2.5 2.5 (7.6) 6.8 11.2 42.6 Vedanta BUY 107 130 22.1 315,740 4,696 2,965 9.8 11.5 17.4 (42.5) 17.2 51.4 10.9 9.3 6.1 7.2 6.3 5.1 0.7 0.5 0.5 3.3 2.6 2.6 5.9 8.1 10.1 30.6 Metals & Mining Cautious 4,269,202 63,499 (34.9) 40.2 25.1 16.7 11.9 9.5 9.0 7.1 6.1 1.6 1.4 1.3 8.5 4.1 4.4 9.6 12.1 14.1 154.3 Pharmaceutical Biocon SELL 702 460 (34.4) 140,300 2,087 200 21.8 24.1 26.2 11.4 10.5 8.8 32.1 29.1 26.7 17.7 14.7 11.8 3.2 3.0 2.7 1.1 1.2 1.3 11.2 10.6 10.6 8.1 Cipla BUY 474 590 24.6 380,443 5,659 805 18.7 21.6 28.9 27.5 15.6 34.0 25.3 21.9 16.4 16.7 14.4 10.8 3.1 2.8 2.5 0.8 0.9 1.3 13.0 13.6 16.2 20.1 Dr Lal Pathlabs REDUCE 946 890 (5.9) 78,267 1,164 84 15.9 18.3 21.0 19.9 15.5 14.6 59.6 51.6 45.0 35.9 30.8 26.7 15.6 12.5 10.2 0.3 0.3 0.3 31.3 26.9 24.9 1.4 Dr Reddy's Laboratories NR 3,170 — — 540,652 8,042 171 139.3 119.5 144.2 2.7 (14.2) 20.7 22.8 26.5 22.0 13.4 14.1 11.5 4.2 4.1 3.6 0.6 0.6 0.7 19.9 15.8 17.5 18.4 Lupin REDUCE 1,468 1,600 9.0 661,555 9,840 450 50.5 60.0 73.3 (5.5) 19.0 22.1 29.1 24.4 20.0 18.8 14.3 11.9 6.0 5.0 4.1 0.5 0.6 0.7 22.8 22.2 22.4 57.3

Sun Pharmaceuticals SELL 812 760 (6.4) 1,954,476 29,070 2,406 Daily Summary India 22.1 31.7 35.3 11.1 43.5 11.1 36.7 25.6 23.0 21.5 16.6 13.2 6.2 5.1 4.3 0.7 1.0 1.1 18.3 21.9 20.2 41.8 Torrent Pharmaceuticals REDUCE 1,370 1,260 (8.1) 231,893 3,449 169 101.8 57.5 66.0 129.3 (43.5) 14.8 13.5 23.8 20.8 8.7 15.7 13.6 6.8 5.6 4.6 3— 1— 1— 58.6 25.9 24.5 3.8 Pharmaceuticals Cautious 3,987,586 59,310 15.4 14.2 17.0 29.0 25.3 21.7 17.6 15.6 12.5 5.3 4.5 3.9 0.8 0.9 1.0 18.2 17.9 17.8 150.9

Source: Company, Bloomberg, Kotak Institutional Equities estimates

64 -

May 31, 2016

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

65 Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo

Company Rating 30-May-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E (US$ mn) Real Estate DLF BUY 127 180 42.3 225,640 3,356 1,801 3.1 2.5 2.8 1.4 (18.1) 10.2 41.4 50.6 45.9 11.3 14.4 13.5 0.8 0.8 0.8 1.6 1.6 1.6 1.9 1.6 1.7 20.6 Godrej Properties REDUCE 331 280 (15.4) 71,539 1,064 216 10.7 11.6 12.8 11.6 8.7 9.9 31.0 28.5 25.9 27.9 20.1 16.6 3.3 3.0 2.8 - 0.5 0.8 11.5 11.0 11.1 1.0 Oberoi Realty BUY 266 345 29.9 90,119 1,340 339 12.6 9.2 43.0 42.1 (26.4) 366.0 21.2 28.8 6.2 13.8 16.1 3.4 1.7 1.6 1.3 0.8 0.8 0.8 8.6 5.8 23.5 1.0 Prestige Estates Projects BUY 180 250 38.5 67,669 1,006 375 9.4 9.2 13.3 5.7 (2.2) 45.2 19.3 19.7 13.6 12.1 9.5 8.3 1.6 1.5 1.4 0.8 0.8 0.8 8.8 8.0 10.8 1.1 Sobha BUY 307 480 56.2 30,140 448 98 16.1 22.6 24.1 (33.8) 40.5 6.9 19.1 13.6 12.7 11.4 9.7 8.4 1.2 1.1 1.1 2.3 2.3 2.3 6.4 8.6 8.7 0.6 Sunteck Realty BUY 220 360 63.6 13,853 206 60 25.6 82.9 53.3 124.9 224.1 (35.6) 8.6 2.7 4.1 7.8 2.0 (0.1) 0.8 0.6 0.6 0.9 0.9 0.9 10.0 26.8 14.2 0.2 Real Estate Attractive 498,959 7,421 12.9 11.1 58.3 26.7 24.0 15.2 12.4 12.1 9.2 1.1 1.1 1.0 1.1 1.2 1.2 4.2 4.5 6.8 24.4 Technology HCL Technologies REDUCE 748 800 7.0 1,054,464 15,684 1,413 39.2 56.7 59.3 (23.5) 44.5 4.6 19.1 13.2 12.6 14.1 9.2 8.5 3.8 3.3 2.9 2.3 3.3 3.9 21.3 26.7 24.6 30.4 Hexaware Technologies BUY 219 245 12.1 65,975 981 304 12.9 14.0 16.5 19.4 8.5 17.4 16.9 15.6 13.3 11.5 10.4 8.6 4.6 4.3 3.8 4.0 4.0 4.0 28.9 28.7 30.6 5.0 Infosys ADD 1,268 1,425 12.4 2,911,607 43,307 2,286 59.0 66.0 75.9 9.4 11.8 15.0 21.5 19.2 16.7 15.1 12.7 10.8 5.0 4.4 3.9 1.8 2.1 2.4 24.9 24.5 24.8 63.0 Mindtree REDUCE 672 713 6.1 112,731 1,677 168 35.9 40.3 47.5 12.5 12.5 17.9 18.7 16.7 14.1 13.1 10.9 9.1 4.7 4.0 3.3 1.6 1.6 1.9 27.4 25.8 25.6 7.1 Mphasis REDUCE 506 460 (9.1) 106,409 1,583 210 34.5 37.9 40.0 6.8 10.1 5.3 14.7 13.3 12.7 8.9 7.8 7.2 1.7 1.6 1.5 3.6 3.7 3.9 12.3 12.3 12.4 1.8 TCS ADD 2,636 2,650 0.5 5,194,836 77,267 1,970 122.9 135.4 152.2 22.5 10.1 12.4 21.5 19.5 17.3 15.9 14.0 12.1 7.1 6.0 5.1 1.6 2.1 2.3 37.1 33.3 31.6 40.6 Tech Mahindra BUY 544 600 10.4 527,405 7,844 872 35.8 38.6 45.1 19.0 8.0 16.8 15.2 14.1 12.0 11.2 9.5 7.8 3.3 2.9 2.4 1.1 2.3 1.1 23.4 21.8 21.7 16.2 Wipro REDUCE 550 560 1.8 1,359,263 20,217 2,467 36.0 38.5 43.1 2.8 6.7 12.2 15.3 14.3 12.8 10.4 9.3 8.0 2.9 2.6 2.2 1.1 0.9 0.9 20.3 19.0 18.4 13.9 Technology Attractive 11,332,691 168,560 9.5 13.0 12.0 19.9 17.6 15.7 14.3 12.0 10.4 4.9 4.3 3.7 1.7 2.1 2.3 24.8 24.4 23.6 178.0 Telecom Bharti Airtel BUY 356 415 16.6 1,422,675 21,161 3,997 11.9 14.9 18.0 (20.9) 24.9 21.0 29.8 23.9 19.7 6.7 6.1 5.2 2.2 2.1 2.0 0.4 1.0 1.5 7.5 8.9 10.3 18.7 Bharti Infratel ADD 386 410 6.2 732,208 10,891 1,897 12.6 15.4 17.0 19.4 22.3 11.0 30.7 25.1 22.7 13.0 11.5 10.4 4.0 3.9 3.8 0.8 2.8 3.2 13.5 15.7 17.1 11.3 IDEA BUY 113 170 49.8 408,479 6,076 3,601 8.6 4.2 5.4 (2.8) (51.2) 28.8 13.3 27.2 21.1 6.2 5.8 5.3 1.6 1.5 1.5 0.5 1.4 1.8 12.6 5.7 7.1 9.3 Reliance Communications SELL 49 60 22.8 121,587 1,808 2,488 2.3 2.6 4.1 (20.1) 14.4 57.4 21.3 18.7 11.9 7.6 7.3 6.7 0.4 0.4 0.3 — — — 1.7 1.9 3.0 11.0 Tata Communications ADD 473 515 8.9 134,777 2,005 285 1.6 5.6 14.9 (56.1) 242.7 164.8 288.2 84.1 31.8 8.1 7.1 6.1 (32.8) (54.0) 76.5 1.2 1.4 1.4 (111.4) (48.5) ###### 2.8 Telecom Cautious 2,819,725 41,940 (9.7) 3.2 23.7 26.0 25.2 20.3 7.3 6.6 5.9 2.0 1.9 1.8 0.5 1.5 1.9 7.6 7.6 9.0 53.2 Utilities Adani Power SELL 30 26 (13.9) 100,685 1,498 3,334 1.5 3.1 4.4 132.8 109.7 44.4 20.6 9.8 6.8 7.2 6.2 5.6 1.4 1.2 1.0 — — — 7.5 13.0 16.2 4.4 CESC BUY 557 610 9.6 73,788 1,098 133 27.8 56.8 71.7 86.4 104.6 26.2 20.0 9.8 7.8 8.2 6.8 6.5 0.8 0.8 0.7 1.6 1.6 1.7 4.3 8.2 9.8 3.2 JSW Energy ADD 72 80 11.4 117,756 1,751 1,640 7.6 7.4 8.7 (10.0) (2.4) 17.5 9.5 9.7 8.2 6.6 5.7 5.1 1.4 1.3 1.1 2.8 2.8 2.8 15.5 13.6 14.4 2.6 NHPC REDUCE 23 23 1.1 251,858 3,746 11,071 2.7 2.8 3.4 17.2 4.1 22.1 8.6 8.2 6.7 6.7 7.0 5.6 0.8 0.8 0.7 6.6 6.9 8.5 9.5 9.6 11.3 3.4 NTPC BUY 144 160 11.4 1,184,049 17,611 8,245 11.5 11.5 14.3 (2.6) (0.1) 24.8 12.5 12.5 10.0 12.3 10.5 8.5 1.3 1.2 1.2 2.5 2.4 3.0 11.1 10.3 12.0 9.1 Power Grid BUY 152 180 18.6 793,894 11,808 5,232 11.4 14.2 15.7 18.6 24.4 10.8 13.3 10.7 9.7 10.1 8.5 7.2 1.9 1.6 1.5 1.5 1.9 2.1 14.7 16.3 15.9 9.9 Reliance Power SELL 52 36 (31.4) 147,129 2,188 2,805 4.9 4.5 4.5 32.4 (6.8) 0.4 10.8 11.6 11.5 9.3 9.0 8.7 0.7 0.7 0.6 -2— — — 6.6 5.9 5.6 3.6 Tata Power ADD 75 76 1.1 203,253 3,023 2,800 5.5 5.6 6.2 965.8 2.2 10.6 13.7 13.4 12.1 8.4 6.6 6.2 1.4 1.3 1.2 1.7 1.6 1.6 10.5 10.1 10.3 5.9 Utilities Attractive 2,872,411 42,724 24.8 10.3 18.9 12.3 11.1 9.4 9.5 8.2 7.1 1.3 1.2 1.1 2.2 2.4 2.8 10.5 10.7 11.7 42.0 Others Astral Poly Technik REDUCE 430 400 (7.0) 51,493 766 120 7.9 11.8 16.2 23.9 48.8 37.3 54.1 36.4 26.5 25.4 19.2 14.4 7.2 6.1 5.0 0.1 0.1 0.3 14.3 18.2 20.8 0.3 Cera Sanitaryware ADD 2,027 2,050 1.1 26,363 392 13 64.2 72.6 93.3 23.3 13.2 28.5 31.6 27.9 21.7 18.3 16.5 13.1 6.3 5.3 4.3 0.4 0.4 0.5 21.6 20.5 21.9 0.4 Dhanuka Agritech BUY 628 780 24.2 31,422 467 50 21.3 26.2 32.5 0.6 22.6 24.3 29.4 24.0 19.3 21.9 17.3 13.9 6.5 5.5 4.6 1.0 1.0 1.3 23.9 24.9 25.9 0.1 Daily Summary India Godrej Industries ADD 349 380 8.8 117,327 1,745 336 14.4 16.8 19.9 20.3 16.8 17.9 24.2 20.7 17.6 27.8 15.8 14.0 3.4 2.9 2.6 0.5 0.5 0.5 14.4 15.2 15.6 1.5 HSIL ADD 284 320 12.6 20,539 305 72 12.3 14.4 18.9 4.2 16.7 31.9 23.1 19.8 15.0 8.0 8.4 6.9 1.5 1.4 1.3 1.4 1.4 1.4 6.6 7.3 9.1 0.4 InterGlobe Aviation BUY 1,061 1,200 13.1 382,248 5,685 351 56.7 71.3 88.0 50.5 25.7 23.3 18.7 14.9 12.1 12.4 9.7 7.9 22.0 13.6 9.2 4.5 3.4 4.1 188.2 116.0 93.7 13.6 Kaveri Seed BUY 448 520 16.0 30,964 461 69 25.1 37.5 45.3 (42.7) 49.2 20.8 17.9 12.0 9.9 13.7 9.3 7.4 3.3 2.8 2.4 0.0 2.5 3.0 20.5 25.5 26.1 6.1 PI Industries ADD 672 750 11.5 92,204 1,371 136 21.9 26.7 31.1 30.9 22.1 16.8 30.8 25.2 21.6 21.4 17.1 14.5 7.9 6.3 5.1 0.5 0.6 0.7 29.0 27.9 26.1 1.6 Rallis India ADD 209 225 7.7 40,625 604 194 7.3 9.7 12.4 (10.1) 33.4 28.5 28.8 21.6 16.8 17.9 14.1 11.0 4.6 4.1 3.5 1.4 1.5 1.6 16.6 20.0 22.4 1.0 Tata Chemicals ADD 425 500 17.7 108,233 1,610 255 30.6 39.0 44.2 6.1 27.1 13.4 13.9 10.9 9.6 8.3 7.0 6.1 1.8 1.6 1.4 2.4 2.4 2.4 13.5 15.6 15.8 2.7 UPL ADD 592 600 1.4 253,627 3,772 429 30.3 33.8 40.2 12.8 11.7 18.7 19.5 17.5 14.7 10.5 8.5 7.4 3.7 2.6 2.1 0.8 0.8 0.9 20.4 20.7 19.0 14.2 Whirlpool ADD 769 820 6.6 97,596 1,452 127 19.6 23.6 28.0 17.8 20.7 18.8 39.3 32.6 27.4 23.4 19.6 16.5 8.4 7.0 5.9 — 0.6 0.7 23.9 23.4 23.3 0.5

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Others 1,205,740 17,934 20.4 28.8 20.3 21.5 16.7 13.9 13.3 10.4 8.8 5.1 4.1 3.4 1.9 1.8 2.1 24.0 24.5 24.5 41.6 KIE universe 73,801,127 1,097,700 (5.9) 21.7 22.4 20.8 17.1 14.0 11.3 9.7 8.3 2.5 2.3 2.0 1.8 1.7 2.0 11.9 13.2 14.6 KIE universe (ex-energy) 65,588,807 975,552 (9.2) 26.8 24.6 23.5 18.5 14.9 12.6 10.6 9.0 2.8 2.6 2.3 1.8 1.6 1.9 12.1 13.9 15.6

Notes: (a) We have used adjusted book values for banking companies. (b) 2016 means calendar year 2015, similarly for 2017 and 2018 for these particular companies.

(c) Exchange rate (Rs/US$)= 67.23 -

May 31, 2016 Source: Company, Bloomberg, Kotak Institutional Equities estimates

India Daily Summary - May 31, 2016 sufficient of of the following strategic transaction

y, no longer are in effect for this stock n a merger or Asof March 2016 31,

Percentageof companies covered by Kotak Equities,Institutional within the specified category. Percentageof companies within each category whichfor Kotak Institutional Equities and or its affiliates has provided investment banking services within the previousmonths. 12 The * above categories are defined as follows:expect this = Buy We stock to deliver more than 15% returns theover next months; 12 Add = expectWe this stock to deliver5-15% returns over the next months; 12 Reduce =expectWe this stock to deliver -5-+5% returns over the next months; 12 =Sell expectWe this stock to deliver lessthan -5% returns over the next months. 12 targetOur prices are also on a 12-month horizon Thesebasis. ratings are used illustratively to comply with applicableregulations. As of 31/03/2016 Kotak InstitutionalEquities Investment Research had investmentratings on 180 equity securities. months.

SELL 0.6% 15.6%

target target price, any, if have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) +5% returns over the next 12 months.

- 1.1% 5 19.4% - REDUCE 15% returns over the next 12 5% returns over the next months.12 The information is not available for display is not or applicable. - -

month horizon basis. -

Kotak SecuritiesKotak has suspended coverage of this company. tak Securities Research has suspended the investment and rating price target, if any,for this stock,because there is not a ADD

30.6% 5.0% Ko

The information is not meaningful and is therefore excluded.

Kotak SecuritiesKotak does not cover this company.

The investment and rating

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

Attractive, Neutral, Cautious. BUY 3.3% 34.4% We expect this stock to deliver 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

0% 30% 20% 10% 70% 60% 50% 40% Source:Kotak Institutional Equities Kotak Institutional Equities Research Equities KotakInstitutional coverage universe Distributionof ratings/investment banking relationships NM = NM Meaningful.Not CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. fundamental basis for determining an investment rating or target. The previous investment and rating price target,if an and shouldnot be relied upon. = NA AvailableNot or Applicable.Not designations: ratings/identifiers Other 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 other circumstances. REDUCE. SELL. Our target prices are also on a 12 definitions Other Coverage view. Ratings other and definitions/identifiers ratings of Definitions BUY. ADD.

Corporate Office Overseas Affiliates

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

Copyright 2016 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. 1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and 2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. 3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at [email protected]. This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. 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We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India’s largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of BSE Limited (BSE), National Stock Exchange of India Limited (NSE), MSEI and United Stock Exchange of India Limited (USEIL). 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 our website i.e. www.kotak.com Research Analyst has not served as an officer, director or employee of Subject Company. We or our associates have received compensation from the subject company in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company in the past 12 months. We or our associates have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. We or our associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. We or our associates have received any compensation or other benefits from the subject company or third party in connection with the research report. Research Analyst or his/her relative’s may have financial interest in the subject company. Kotak Securities Limited or its associates have financial interest in the subject company. Research Analyst or his/her relatives does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report: Kotak Securities Limited does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Associates of Kotak Securities Limited may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Subject Company has 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 www.nseindia.com 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. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSEI INE 260808130/INB 260808135/INF 260808135, Research Analyst INH000000586, AMFI ARN 0164 and PMS INP000000258. NSDL: IN-DP- NSDL-23-97. CDSL: IN-DP-CDSL-158-2001. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022-4285 6825 or Email: [email protected]