INDIA DAILY December 13, 2019

India 12-Dec 1-day 1-mo 3-mo Sensex 40,582 0.4 1.2 8.6 Nifty 11,972 0.5 1.1 8.1 Contents Global/Regional indices Dow Jones 28,132 0.8 1.3 3.4 Daily Alerts Nasdaq Composite 8,717 0.7 2.8 6.6 Company alerts FTSE 7,273 0.8 (1.1) (1.3) : A good reset Nikkei 23,946 2.2 2.7 8.9 Hang Seng 26,994 1.3 1.6 (1.3)  Tariffs reset to higher base, with Jio’s offerings remaining relatively KOSPI 2,166 1.3 2.0 5.7 attractive Value traded – India  Expect Jio to continue gaining subscriber market share, albeit at a slower Cash (NSE+BSE) 348 414 424 24,88 increase in ARPU Derivatives (NSE) 26,092 9,174 8  Underlying refining margins remain healthy for RIL given nil FO and rise in Deri. open interest 3,951 3,359 3,648 sweet-sour spreads

 Raise consolidated EPS estimates by 2-4% and FV to Rs1,825 Forex/money market : Visibility better but a few blind turns still left Change, basis points 12-Dec 1-day 1-mo 3-mo

 Pricing uptick another false positive or start of a nice multi-year run? Rs/US$ 70.5 (5) (164) (53)  Bharti continues to offer favorable risk-reward 10yr govt bond, % 7.2 5 15 28 Net investment (US$ mn)  Earnings model changes 11-Dec MTD CYTD Economy alerts FIIs 54 (7) 13,366 MFs 83 638 7,767 Economy: Inflation remains a worry for MPC Top movers – 3mo Basis  CPI inflation at a multi-year high Change, % Best performers 12-Dec 1-day 1-mo 3-mo  Core inflation begins to rise TTMT IN Equity 173 7.1 1.6 33.8

 Broad-based decline in IIP NMDC IN Equity 114 1.9 12.8 32.0  Rate cut unlikely in 1HCY20; further easing contingent on the evolution of EIM IN Equity 21,954 1.9 2.8 31.5 growth-inflation mix ICICIBC IN Equity 535 0.3 10.2 29.5 RIL IN Equity 1,568 0.4 6.5 28.0

Worst performers

IHFL IN Equity 291 8.5 33.4 (34.1)

YES IN Equity 45 6.0 (33.5) (33.8)

ARBP IN Equity 449 (0.1) 3.4 (28.7)

TPWR IN Equity 53 1.0 (3.7) (17.0)

HMCL IN Equity 2,334 1.6 (9.9) (15.9)

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. BUY Reliance Industries (RIL) Oil, Gas & Consumable Fuels DECEMBER 12, 2019 UPDATE Coverage view: Attractive

A good reset. Recent developments in the telecom sector have set the stage for higher Price (`): 1,562 ARPU for all players with largely unchanged relative attractiveness for Jio and weaker Fair Value (`): 1,825 balance sheet of competition, but for any partial waiver on AGR liabilities. We reiterate BSE-30: 40,413 our BUY rating on RIL with a revised FV of Rs1,825 (Rs1,725 earlier) given (1) improved economics for Jio, (2) healthy underlying refining margins and (3) potential deleveraging of balance sheet led by rising OCF, moderating capex and inorganic transactions.

Company data and valuation summary Reliance Industries Stock data Forecasts/Valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 1,614-1,066 EPS (Rs) 76.3 92.1 107.1 Market Cap. (Rs bn) 9,294.7 EPS growth (%) 15.7 20.7 16.3 Shareholding pattern (%) P/E (X) 20.5 17.0 14.6 Promoters 48.9 Sales (Rs bn) 6,372.8 6,955.4 7,482.8 FIIs 25.5 Net profits (Rs bn) 452.5 546.0 634.9 MFs 5.2 EBITDA (Rs bn) 943.6 1,170.7 1,352.1 Price performance (%) 1M 3M 12M EV/EBITDA (X) 12.5 9.9 8.3 Absolute 9.8 29.6 41.2 ROE (%) 11.1 12.1 12.5 Rel. to BSE-30 9.2 18.5 24.5 Div. Yield (%) 0.4 0.5 0.5 Tariffs reset to higher base, with Jio’s offerings remaining relatively attractive

The recent hike in wireless tariffs by the telecom operators has reset the base to a higher level for all, while Jio retains the relative attractiveness of its offerings. We highlight that Jio’s prepaid tariff plans are 7-21% cheaper than comparable offerings by other private players across 28- days, 84-days and 365-days validity with same data allowance. Expect Jio to continue gaining subscriber market share, albeit at a slower increase in ARPU

We expect Jio to continue gaining market share from other private players given the relative attractiveness of its tariff plans and data offerings; accordingly, we model its wireless subscriber base to increase to 465 mn by March 2022 from 355 mn as on September 2019. We assume Jio’s wireless ARPU to increase to Rs155-169/month in FY2021-22 (from Rs121/month in 1HFY20), a tad lower than our telecom team’s assumption of Rs168-183/month for Bharti Airtel. We have also factored in a continuation of IUC charges for now and baked in a slower rollout for FTTH services versus our earlier expectations, given limited on-the-ground progress on the commercial offering; we understand Jio has not started charging existing JioFiber customers yet. We ascribe an enterprise value of US$65 bn (Rs777/share) to Jio based on 9X FY2022E EBITDA instead of the earlier method of discounting back FY2024E EBITDA at an 8.5X multiple. Underlying refining margins remain healthy for RIL given nil FO and rise in sweet-sour spreads

We expect RIL to benefit from its refining complexity in the current environment of (1) large negative spreads on high sulfur fuel oil and (2) favorable increase in differentials between sweet-sour varieties of crudes in the run-up to implementation of IMO 2020 rules for marine fuels. RIL does not produce any fuel oil and has opportunistically enhanced its ability to process heavy and sour varieties of crude by timely expansion of its coker units. We are not too Tarun Lakhotia perturbed by the inordinate delays in commercialization of the petcoke gasification project, as RIL’s refining fuel costs are already quite low amid sharply lower spot LNG prices. Hemang Khanna Raise consolidated EPS estimates by 2-4% and FV to Rs1,825

We raise our consolidated EPS estimates for RIL to Rs76 (+2%) in FY2020, Rs92 (+3%) in FY2021 and Rs107 (+4%) in FY2022 factoring in (1) higher profits/OCF from Jio, (2) modestly lower capex and net debt and (3) other minor changes. Our SoTP-based fair value increases to Rs1,825 from Rs1,725, led by higher contribution from Jio and roll-forward to March 2021.

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Reliance Industries Oil, Gas & Consumable Fuels

Exhibit 1: Jio's prepaid wireless plans remain attractive compared to Bharti and VIL post recent tariff hikes Comparable tariff plans by three private players

Tariff Validity Data allowance Fair usage policy Effective ARPU Discount versus alternative Operator (Rs) (days) (GB) (GB/day) (Rs/month) (%) Short-duration plans Bharti Airtel 148 28 2 — 136 Jio 129 28 2 — 119 (13) 149 28 2 — 137 Bharti Airtel 219 28 28 1.0 202 Jio 149 24 24 1.0 160 (21) Vodafone Idea 219 28 28 1.0 202 Bharti Airtel 248 28 42 1.5 228 Jio 199 28 42 1.5 183 (20) Vodafone Idea 249 28 42 1.5 229 Medium-duration plans Jio 329 84 6 — 101 (13) Vodafone Idea 379 84 6 — 116 Bharti Airtel 598 84 126 1.5 184 Jio 555 84 126 1.5 170 (7) Vodafone Idea 599 84 126 1.5 184 Long-duration plans Bharti Airtel 1,498 365 24 — 106 Jio 1,299 365 24 — 92 (13) Vodafone Idea 1,499 365 24 — 106 Bharti Airtel 2,398 365 548 1.5 169 Jio 2,199 365 548 1.5 155 (8) Vodafone Idea 2,399 365 548 1.5 169

Source: Companies, Kotak Institutional Equities

Exhibit 2: We expect Jio to continue gaining market share over the next few years Telecom industry wireless subscriber model, March fiscal year-ends, 2020-24E (mn)

2QFY20 3QFY20E 4QFY20E FY2021E FY2022E FY2023E FY2024E Bharti 279 282 285 295 305 315 325 Vodafone Idea 311 308 305 295 290 285 280 Jio 355 375 395 435 465 489 501 BSNL + MTNL 66 64 62 59 56 53 50 Total wireless subscribers 1,011 1,029 1,047 1,084 1,116 1,142 1,156

Source: Companies, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Oil, Gas & Consumable Fuels Reliance Industries

Exhibit 3: Financial model of Jio, March fiscal year-ends, 2018-24E (Rs bn)

2018 2019 2020E 2021E 2022E 2023E 2024E Assumptions Wireless subscriber base at end-period (mn) 187 307 395 435 465 489 501 Wireless subscriber market share (%) 17 28 35 37 39 40 40 Wireless ARPU (Rs/month) 108 131 128 155 169 184 199 Broadband subscriber base at end-period (mn) 1 1 6 11 16 19 Broadband ARPU (Rs/month) — — 597 612 622 634 Overall EBITDA margins (%) 33 39 44 50 52 53 54 Profit model Revenues 202 388 542 795 975 1,152 1,314 EBITDA 67 151 237 395 511 616 712 Net income 7 30 61 147 220 307 396 Contribution to RIL's EPS (Rs) 1 5 10 25 37 52 67 Balance sheet Net-worth 1,029 404 665 811 1,031 1,339 1,735 Effective net debt 1,400 1,434 1,563 1,592 1,374 1,049 619 Invested capital 2,278 1,739 2,028 2,328 2,471 2,606 2,730 Cash flow Operating cash flow (20) 50 112 241 344 444 538 Working capital (29) (75) 13 21 15 14 13 Capital expenditure (358) (438) (394) (306) (239) (257) (244) Free cash flow (407) (464) (269) (45) 120 201 307 Returns (%) RoAE 0.8 4.1 11.3 19.9 23.9 25.9 25.8 RoACE 0.9 2.7 5.8 9.6 12.5 15.5 18.5 CRoCI 2.5 6.9 9.7 13.7 16.5 18.8 20.6 Adjusted CRoCI 2.5 7.0 9.8 13.9 16.7 19.0 20.8

Source: Company, Kotak Institutional Equities estimates

Exhibit 4: Major assumptions for RIL's refining segment, March fiscal year-ends, 2014-22E (US$/bbl)

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Exchange rate (Rs/US$) 60.5 61.1 65.5 67.1 64.5 69.9 71.0 72.5 74.0 Crude throughput (mn tons) DTA refinery 30.3 30.9 32.4 32.8 32.8 31.4 32.7 32.7 32.7 SEZ refinery 37.7 37.2 37.1 37.4 37.0 37.0 37.0 37.0 37.0 Net refining margin 8.3 8.8 12.0 12.3 12.1 9.3 9.9 10.6 10.4 Total crude throughput 68.0 68.0 69.6 70.2 69.8 68.3 69.7 69.7 69.7 Blended refining margins (US$/bbl) 8.1 8.6 10.8 11.0 11.7 9.2 10.0 10.8 10.7

Source: Company, Kotak Institutional Equities estimates

Exhibit 5: Major assumptions for RIL's petchem segment, March fiscal year-ends, 2014-22E (US$/ton)

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Exchange rate (Rs/US$) 60.5 61.1 65.5 67.1 64.5 69.9 71.0 72.5 74.0 Production volumes (mn tons) Polymers 4.5 4.3 4.6 4.5 4.9 5.8 5.8 5.8 5.8 PE 1.0 1.0 1.0 1.1 1.4 2.1 2.2 2.2 2.2 PP 2.8 2.7 2.8 2.7 2.8 2.9 2.9 2.9 2.9 PVC 0.7 0.6 0.8 0.7 0.7 0.7 0.7 0.7 0.7 Polyesters 1.6 1.8 2.2 2.3 2.4 3.5 3.5 3.5 3.5 PFY 0.7 0.9 0.8 0.7 0.8 1.7 1.7 1.7 1.7 PSF 0.6 0.6 0.6 0.7 0.6 0.7 0.7 0.7 0.7 PET 0.3 0.4 0.8 0.8 1.0 1.2 1.2 1.2 1.2 Fiber intermediates 4.7 4.9 6.4 6.9 9.0 10.9 11.0 11.1 11.1 PX 2.0 2.2 2.3 2.3 3.7 4.3 4.5 4.5 4.5 PTA 2.0 2.1 3.4 3.9 4.1 4.9 4.9 4.9 4.9 MEG 0.7 0.6 0.7 0.7 1.2 1.7 1.7 1.7 1.7 Total volumes 10.8 11.0 13.2 13.6 16.4 20.1 20.3 20.4 20.4 Petchem EBITDA per ton (US$/ton) 168 174 164 187 244 263 237 235 231

Notes: (a) Volumes include Recron Malaysia from FY2019 onwards.

Source: Company, Kotak Institutional Equities estimates

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Reliance Industries Oil, Gas & Consumable Fuels

Exhibit 6: Financial model of Reliance Retail, March fiscal year-ends, 2015-22E (Rs bn)

2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model Revenues (net) 174 209 333 622 1,166 1,563 2,052 2,445 Core retail 255 361 735 977 1,185 1,378 Jio and fuel 83 331 571 773 1,086 1,319 EBITDA 8 9 12 25 62 91 122 148 Core retail 11 22 51 78 101 121 Jio and fuel 1 4 11 13 21 28 EBIT 4 5 8 21 55 81 110 133 Net income 3 4 7 20 51 72 97 118 Balance sheet Net-worth 53 55 69 92 128 182 254 342 Net debt 13 11 (3) 32 120 177 208 221 Invested capital 66 67 66 124 248 358 462 563

Source: Company, Kotak Institutional Equities estimates

Exhibit 7: Segment break-up of consolidated EBITDA, March fiscal year-ends, 2014-22E (Rs bn)

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E EBITDA Petrochemicals 107 111 137 165 243 353 327 329 329 Refining and marketing 178 191 268 286 306 253 285 318 319 Oil and gas 67 76 69 13 17 16 1 12 55 Organized retail 4 8 9 12 25 62 91 122 148 Digital services — — — (0) 68 153 237 395 511 Others (7) (12) (65) (13) (17) 1 2 (5) (10) Total 348 374 417 462 642 839 944 1,171 1,352

Source: Company, Kotak Institutional Equities estimates

Exhibit 8: Our SoTP valuation of RIL at Rs1,825 per share Sum-of-the-parts valuation of Reliance Industries based on FY2022 estimates (Rs)

EBITDA EV/EBITDA EV Valuation (Rs bn) (X) (Rs bn) (US$ bn) (Rs/share) Petrochemicals 329 7.5 2,469 35 417 Refining and marketing 319 7.5 2,389 34 403 Upstream 55 7.5 413 6 70 Digital services 511 9.0 4,603 65 777 Retail 148 22.0 3,259 46 550 Real estate projects 300 4 51 Minority interest/others (264) (4) (45) Total enterprise value 13,170 185 2,222 Consolidated net debt 2,353 33 397 Implied equity value 10,817 152 1,825

Notes: (a) We use 5.926 bn shares (excluding treasury shares) for per share computations.

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Oil, Gas & Consumable Fuels Reliance Industries

Exhibit 9: RIL's earnings and fair valuation are leveraged to several business drivers Sensitivity of consolidated EBITDA, EPS and SoTP to key assumptions, March fiscal year-end, 2021

EBITDA EPS SoTP valuation Change (Rs bn) (%) (Rs bn) (%) (Rs/share) (%) Refining margins +US$1/bbl 37 3% 4.6 5% 47 3% Refining operating cost +US$0.5/bbl (19) -2% (2.3) -3% (23) -1% Petchem margins +US$25/ton 37 3% 4.6 5% 47 3% Retail EBITDA margins +50 bps 10 1% 1.3 1% 38 2% Jio wireless ARPU +Rs10/month 38 3% 4.7 5% 57 3% Jio wireless subscriber +25 mn 26 2% 3.3 4% 40 2% Base case 1,171 92.1 1,825

Source: Kotak Institutional Equities estimates

Exhibit 10: Standalone profit model, balance sheet, cash model, March fiscal year-ends, 2014-22E (Rs mn)

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model (Rs mn) Net sales 3,901,170 3,290,760 2,331,580 2,420,250 2,900,420 3,710,190 4,032,674 4,125,069 4,257,634 EBITDA 308,770 316,020 393,470 432,560 517,410 582,570 588,937 639,294 681,868 Other income 89,360 87,210 78,210 87,090 82,200 89,250 122,106 98,716 102,079 Finance cost (32,060) (23,670) (25,620) (27,230) (46,560) (97,510) (113,327) (100,489) (89,491) Depreciation, depletion and amortization (87,890) (84,880) (85,900) (84,650) (95,800) (105,580) (98,437) (132,319) (180,925) Pretax profits 278,180 294,680 360,160 407,770 457,250 468,730 499,279 505,201 513,531 Extraordinary items — — — — — 4,940 — — — Current tax (58,120) (61,240) (78,010) (83,330) (89,530) (94,400) (87,224) (93,462) (100,139) Deferred tax (220) (6,250) (8,310) (10,190) (31,600) (27,640) (38,794) (36,021) (31,479) Net profits 219,840 227,190 273,840 314,250 336,120 351,630 373,261 375,718 381,913 Adjusted net profits 219,840 227,190 273,840 314,250 336,120 346,690 373,261 375,718 381,913 Adjusted EPS (Rs) 37.2 38.4 46.4 53.1 56.8 58.5 63.0 63.4 64.4

Balance sheet (Rs mn) Total equity 1,970,910 2,161,760 2,539,980 2,883,130 3,146,470 4,053,220 4,377,995 4,701,763 5,028,264 Deferred taxation liability 122,150 126,770 237,470 247,660 279,260 473,170 511,964 547,985 579,464 Total borrowings 899,680 976,170 1,071,040 1,074,460 1,168,810 1,617,200 1,599,150 1,445,642 1,259,375 Other liabilities 683,090 713,150 968,250 1,262,210 1,580,710 1,613,860 1,606,421 1,584,895 1,580,610 Total liabilities and equity 3,675,830 3,977,850 4,816,740 5,467,460 6,175,250 7,757,450 8,095,530 8,280,285 8,447,713 Cash 366,240 115,710 68,920 17,540 27,310 37,680 130,760 152,927 226,855 Other assets 937,750 833,250 590,840 652,230 891,250 1,256,960 1,279,169 1,289,554 1,304,925 Total fixed assets 1,511,220 1,903,160 2,584,480 2,873,190 3,004,470 3,147,450 3,370,241 3,522,444 3,600,573 Investments 860,620 1,125,730 1,572,500 1,924,500 2,252,220 3,315,360 3,315,360 3,315,360 3,315,360 Total assets 3,675,830 3,977,850 4,816,740 5,467,460 6,175,250 7,757,450 8,095,530 8,280,285 8,447,713

Free cash flow (Rs mn) Operating cash flow, excl. working capital 235,920 236,020 241,240 265,620 342,010 362,960 370,514 428,062 480,724 Working capital 145,150 83,150 149,470 195,330 205,320 (150,520) (4,648) (6,911) 5,344 Capital expenditure (324,560) (427,200) (202,160) (302,660) (247,000) (249,710) (310,178) (281,979) (263,807) Investments (351,430) (235,360) (258,410) (285,590) (375,800) (357,780) — — — Other income 69,290 67,720 45,410 24,240 30,960 30,600 122,106 98,716 102,079 Free cash flow (225,630) (275,670) (24,450) (103,060) (44,510) (364,450) 177,793 237,888 324,341

Ratios (%) Debt/equity 43.0 42.7 38.6 34.3 34.1 35.7 32.7 27.5 22.5 Net debt/equity 3.7 12.0 20.0 23.0 21.1 23.6 19.1 13.9 8.0 RoAE 10.8 10.3 10.7 10.5 10.2 8.7 7.9 7.4 7.0 RoACE 8.6 7.8 8.2 8.3 8.4 7.8 7.2 6.8 6.6 Adjusted RoACE 12.2 12.8 16.8 19.7 21.4 20.4 16.4 13.4 11.8 CRoCI 9.9 8.3 8.0 8.0 8.2 7.2 7.2 7.3 7.6 Adjusted CRoCI 15.1 13.3 16.0 18.0 16.7 16.0 13.0 12.1 12.2

Source: Company, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Reliance Industries Oil, Gas & Consumable Fuels

Exhibit 11: Consolidated profit model, balance sheet, cash model, March fiscal year-ends, 2014-22E (Rs bn)

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model (Rs bn) Net sales 4,345 3,754 2,740 3,054 3,917 5,671 6,373 6,955 7,483 EBITDA 348 374 417 462 642 839 944 1,171 1,352 Other income 89 85 75 94 89 81 120 97 100 Finance cost (38) (33) (37) (38) (81) (165) (232) (250) (250) Depreciation, depletion and amortization (112) (115) (116) (116) (167) (209) (219) (278) (342) Pretax profits 287 310 339 401 483 546 611 739 860 Minority interest/share of associates — — 2 (0) 1 (1) — (1) (2) Extraordinary items — — 46 — 11 5 — — — Effective tax (62) (75) (89) (102) (133) (154) (159) (192) (224) Net profits 225 236 299 299 361 396 452 546 635 Adjusted net profits 225 236 253 299 350 391 452 546 635 Adjusted EPS (Rs) 38 40 43 51 59 66 76 92 107

Balance sheet (Rs bn) Total equity 1,987 2,185 2,316 2,637 2,935 3,871 4,275 4,769 5,349 Deferred tax liability 119 130 205 212 245 451 496 541 584 Minority interest 10 30 34 29 35 83 83 84 86 Total borrowings 1,388 1,609 1,807 1,966 2,188 2,875 3,242 3,198 2,982 Other liabilities 785 1,091 1,629 2,224 2,709 2,696 2,614 2,714 2,708 Total liabilities and equity 4,288 5,045 5,990 7,068 8,113 9,976 10,710 11,306 11,708 Cash 380 125 110 30 43 75 166 207 298 Loans and advances 280 307 29 37 50 74 74 74 74 Other assets 687 663 917 1,032 1,341 1,814 1,944 2,057 2,176 Total fixed assets 2,329 3,185 4,094 5,185 5,851 5,658 6,171 6,614 6,806 Investments 613 765 840 784 829 2,355 2,355 2,355 2,355 Total assets 4,288 5,045 5,990 7,068 8,113 9,976 10,710 11,306 11,708

Free cash flow (Rs bn) Operating cash flow, excl. working capital 266 264 211 212 353 475 545 741 909 Working capital 110 18 78 155 185 (251) (63) 11 (17) Capital expenditure (601) (634) (469) (781) (740) (936) (829) (713) (629) Other income 67 66 37 15 23 16 120 97 100 Free cash flow (157) (285) (143) (400) (178) (697) (227) 136 363

Ratios (%) Debt/equity 69.8 73.6 78.0 74.6 74.5 74.3 75.8 67.1 55.8 Net debt/equity 25.9 51.6 71.8 84.8 80.0 60.3 57.6 49.3 36.3 RoAE 11.8 11.3 11.2 12.1 12.6 11.5 11.1 12.1 12.5 RoACE 7.8 6.9 6.8 6.9 7.7 7.8 7.9 8.6 9.1 Adjusted RoACE 11.2 11.1 12.3 13.3 12.3 11.8 11.9 11.9 12.1 CRoCI 9.7 7.7 6.6 6.2 7.4 7.5 8.1 9.1 10.0 Adjusted CRoCI 15.9 13.5 11.8 12.2 10.2 12.4 11.3 12.0 13.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 BUY Bharti Airtel (BHARTI) Telecommunication Services DECEMBER 12, 2019 UPDATE Coverage view: Cautious

Visibility better but a few blind turns still left. Recent developments in the Indian Price (`): 439 wireless industry offer promise of strong multi-year EBITDA growth phase driving return Fair Value (`): 510 to healthy return ratios. That said, we would still be wary of throwing caution to the BSE-30: 40,582 wind, for two reasons – (1) there have been several false positives in the past and we need more evidence to believe the latest one sustains, and (2) there are still a few blind turns left to navigate. Bharti continues to offer downside protection in the most plausible scenarios and remains our preferred play. We incorporate higher ARPU assumptions into our model and raise FV to Rs510/share (from Rs450). BUY stays.

Company data and valuation summary Bharti Airtel Stock data Forecasts/Valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 486-268 EPS (Rs) (5.5) 3.7 9.7 Market Cap. (Rs bn) 2,251.1 EPS growth (%) 12.5 166.4 164.9 Shareholding pattern (%) P/E (X) (79.6) 119.9 45.3 Promoters 62.7 Sales (Rs bn) 867.1 1,004.6 1,108.2 FIIs 22.3 Net profits (Rs bn) (28.3) 18.8 49.7 MFs 8.8 EBITDA (Rs bn) 372.3 476.0 551.0 Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.4 7.1 6.1 Absolute 18.1 26.2 56.4 ROE (%) (4.1) 2.9 7.7 Rel. to BSE-30 17.4 15.4 37.9 Div. Yield (%) 0.9 1.4 1.4

Pricing uptick another false positive or start of a nice multi-year run?

We share the Street’s underlying caution as far as viewing the recent developments in the sector (pricing uptick, fresh moratorium on deferred spectrum payouts) as the start of a solid multi-year phase is concerned. There have been one-too-many false positives in the sector in the past few years to feel comfortable with underwriting such a scenario. Question marks on sane competitive behavior sustaining and absorption of price hikes are valid ones even as we are fairly sanguine on the latter.

Recent developments do offer improved visibility especially if one were to make a simple assumption that there is an underlying attempt to take the industry to a certain state, the state being one where the industry does not see further consolidation. This state, as we had argued in our recent note (link), is where VIL generates enough EBITDA in FY2023E to meet all its cash outflow obligations, including ‘staying competitive’ capex. This state, we had argued, would need VIL to have an ARPU of around Rs200. We now bake in a move towards this state in our earnings models for Bharti, VIL and R-Jio even as we model a slower pace of movement.

Bharti continues to offer favorable risk-reward

Uncertainties still abound – outcome of the AGR case, sustainability of tariff hikes, absorption of price hikes in a slow-growth, rising-inflation economy, etc. Even as VIL offers much higher upside in a certain combination of outcomes on these, we continue to prefer playing it safe. Bharti offers good margin of safety in most plausible outcomes. Negative outcomes on any of the uncertain areas make the case for sector consolidation stronger and Bharti benefits from Rohit Chordia (likely material) market share gains. In case the outcomes are positive, Bharti benefits from a larger industry revenue base. A nice little hedge we continue to like. Aniket Sethi Earnings model changes

Exhibit 2 captures the key changes to our earnings model for FY2020-22E. Our India wireless EBITDA forecasts see a 24-28% jump largely on the back of higher ARPU assumptions. Our FV stands revised to Rs510/share (from Rs450). Reiterate BUY.

[email protected] Contact: +91 22 6218 6427

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

Revision in fair value computation

Our FV derivation methodology stands revised a bit, on three key counts – (1) from discounting back FY2024E-based valuation, we have now moved to a FY2022E-based valuation; we have rolled forward our valuation to March 2021E, (2) we have ascribed a 9X EV/EBITDA multiple to the Ind-AS-116 India wireless EBITDA while also including lease liabilities as part of net debt; this is effectively a 1X increase in EV/EBITDA multiple versus our earlier approach of capitalizing ex-Ind-AS-116 EBITDA; the increase reflects improved visibility, and (3) we have removed the option value of a ‘industry consolidation’ scenario; our base case is now a 3-player market; we have accordingly increased the value of BHIN stake in Bharti’s SOTP.

Key assumptions driving our India wireless model

 ARPU – we build in an ARPU of Rs139 for 3QFY20E, Rs157 for 4QFY20E, Rs138 for FY2020E, Rs168 for FY2021E and Rs183 for FY2022E versus Rs128 in 2QFY20. Our ARPU assumptions bake in another round of tariff increase in 2HFY21E.

 Subscriber base – we have toned down our net add assumptions a tad and now bake in 285 mn, 295 mn and 305 mn end-of-period subs base for FY2020E, FY2021E and FY2022E, respectively versus end-2QFY20 subs base of 279 mn.

 Our revised Ind-AS-116 EBITDA forecasts of Rs276 bn and Rs334 bn for FY2021E and FY2022E reflect an incremental EBITDA margin of 55-60% on incremental revenues versus earlier forecasts.

 We assume a 2-year extension of the 6 paise mobile termination rate (IUC). As things stand, IUC is slated to go down to zero from Jan 1, 2020. We expect TRAI to extend the current IUC regime till end-FY2022E. We model a zero-IUC construct from FY2023E. We do bake in a sliding net IC EBITDA for Bharti.

Exhibit 1: Key changes to Bharti earnings model, FY2020-22E, March fiscal year-ends

Revised Earlier Change (%) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E Consolidated Revenues (Rs mn) 867,122 1,004,596 1,108,199 840,601 905,569 1,012,953 3.2 10.9 9.4 EBITDA (Rs mn) 372,319 476,028 551,045 352,939 418,086 489,460 5.5 13.9 12.6 EBIT (Rs mn) 91,297 176,003 224,092 71,917 119,608 165,163 26.9 47.2 35.7 Recurring EPS (Rs/share) (5.5) 3.7 9.7 (8.1) (4.0) 1.1 Recurring EPS ex-forex (Rs/share) (4.8) 3.7 9.7 (7.4) (4.0) 1.1

EBITDA margin (%) 42.9 47.4 49.7 42.0 46.2 48.3 95 bps 121 bps 140 bps

India/SA wireless Revenues (Rs mn) 473,445 587,622 664,304 444,189 478,200 559,061 6.6 22.9 18.8 EBITDA margin (%) 39.7 47.0 50.2 37.8 45.1 48.2 190 bps 189 bps 200 bps EBITDA (Rs mn) 188,088 276,425 333,593 168,024 215,895 269,528 11.9 28.0 23.8 Capex (Rs mn) 136,288 155,928 263,625 136,288 161,688 269,060 — (3.6) (2.0) Of which Network capex 136,288 155,928 263,625 136,288 161,688 269,060 — (3.6) (2.0) Spectrum capex EOP subs base (mn) 285 295 305 285 303 321 — (2.6) (5.0) ARPU (Rs/sub/month) 138 168 183 129 134 148 6.7 24.8 23.8

Africa wireless Revenues (US$ mn) 3,326 3,582 3,836 3,326 3,582 3,836 ——— EBITDA (US$ mn) 1,462 1,587 1,713 1,462 1,587 1,713 ——— EBITDA margin (%) 44.0 44.3 44.7 44.0 44.3 44.7 0 bps 0 bps 0 bps Capex (US$ mn) 699 716 729 699 716 729 ———

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Telecommunication Services Bharti Airtel

Exhibit 2: Bharti valuation - base FV, sum of the parts

Mar-2021 fair value derivation Mar-2022 basis India business valuation India wireless EV (Rs mn) 3,002,337 EBITDA (Rs mn) - adjusted for Ind-AS 333,593 EV/EBITDA (X) 9.00 India DTH EV (Rs mn) 192,022 EBITDA (Rs mn) 27,432 EV/EBITDA (X) 7.0 India others (ex-towers, including corporate overheads) EV (Rs mn) 151,898 EBITDA (Rs mn) 18,987 EV/EBITDA (X) 8.0 Bharti Infratel valuation Equity value based on KIE target price (Rs mn) 533,582 Bharti's shareholding (%) 53.5 Infratel net debt (35,865) EV (Rs mn) 285,466 India EV (Rs mn) 3,631,723 Net debt (Rs mn) (including lease liability) 1,195,791 Equity value - India business (Rs mn) 2,435,931 Equity value - India business (Rs/share) 475

Africa business valuation Equity value based on CMP 336,934 Bharti's shareholding 53 Effective equity value 177,648 Equity value - Africa (Rs mn) 177,648 Equity value - Africa (Rs/share) 35 Total core equity value = a + b (Rs/share) 509

Source: Kotak Institutional Equities estimates

Exhibit 3: Telecom industry wireless subscriber model, March fiscal year-ends (mn)

2QFY20 FY2020E FY2021E FY2022E FY2023E FY2024E Bharti 279 285 295 305 315 325 Vodafone Idea 311 305 295 290 285 280 Reliance Jio 355 395 435 465 489 501 BSNL + MTNL 66 62 59 56 53 50 Total industry subs 1,011 1,047 1,084 1,116 1,142 1,156

Source: Company, Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bharti Airtel Telecommunication Services

Exhibit 4: Key assumptions driving Bharti India wireless model, March fiscal year-ends, 2017-2022E

2017 2018 2019 2020E 2021E 2022E Subscriber base ('000s) 273,648 304,192 282,640 284,640 294,640 304,640 Net adds per month ('000s) 1,868 2,545 (1,796) 167 833 833 Voice traffic (bn mins) 1,340 1,946 2,811 2,910 2,968 3,012 Change (%) 14.4 45.3 44.4 3.5 2.0 1.5 Data volumes (bn MB) 733 3,902 11,733 20,288 26,813 34,037 Change (%) 47.3 432.2 200.7 72.9 32.2 26.9 ARPU (Rs/sub/month) 177 133 118 138 168 183 Change (%) (8.2) (24.6) (11.6) 16.7 21.7 9.3 MOU (min/sub/month) 425 561 798 855 854 838 Change (%) 4.0 32.0 42.2 7.1 (0.1) (1.9) Capex (Rs mn) Consolidated (ex-spectrum) 198,874 267,023 286,872 216,570 246,994 240,773 As % of revenues 20.8 32.3 35.5 25.0 24.6 21.7 Consolidated overall 421,310 302,023 336,872 216,570 246,994 354,671 As % of revenues 44.1 36.5 41.7 25.0 24.6 32.0

Source: Company, Kotak Institutional Equities estimates

Exhibit 5: Bharti - condensed financials, Ind AS, March fiscal year-ends, 2017-22E (Rs mn)

2017 2018 2019 2020E 2021E 2022E Profit and loss statement Revenues 954,683 826,388 807,802 867,122 1,004,596 1,108,199 EBITDA 353,298 300,791 258,189 372,319 476,028 551,045 EBIT 155,568 108,360 44,714 91,297 176,003 224,092 PBT 78,481 29,992 (50,162) (26,583) 47,517 97,013 Recurring PAT 38,137 18,921 (25,193) (28,290) 18,774 49,735 Recurring EPS (Rs/share) 9.5 4.7 (6.3) (5.5) 3.7 9.7 Balance sheet Total Equity 743,313 783,483 849,480 818,832 812,621 838,582 Borrowings 1,072,877 1,141,676 1,254,283 1,404,283 1,474,283 1,528,181 Other liabilities 516,462 580,657 648,212 825,801 956,209 1,065,849 Total equity and liabilities 2,332,652 2,505,816 2,751,975 3,048,916 3,243,113 3,432,612 Net fixed assets 644,030 758,168 903,661 907,726 923,212 911,129 Net intangibles 1,246,706 1,211,348 1,200,996 1,132,479 1,063,963 1,103,763 Cash and equivalents 67,906 135,684 127,287 138,678 322,434 433,058 Other assets 374,010 400,616 520,031 870,032 933,504 984,662 Total assets 2,332,652 2,505,816 2,751,975 3,048,916 3,243,113 3,432,612 Cash flow statement Operating cash flow 309,554 276,194 234,596 (29,427) 486,334 535,573 Capex (374,241) (257,353) (348,616) (216,570) (246,994) (354,671) Free cash flow (64,687) 18,841 (114,020) (245,998) 239,339 180,902 Acquisitions 66,724 4,869 104,400 — — — Borrowings 9,353 40,073 112,607 150,000 70,000 53,898 Others (10,630) 3,995 (111,384) 107,389 (125,584) (124,175) Total change in cash & equivalents 760 67,778 (8,397) 11,391 183,756 110,624

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 INDIA Economy Inflation DECEMBER 12, 2019 UPDATE BSE-30: 40,582

Inflation remains a worry for MPC. November CPI inflation surprised on the upside due to higher food and core inflation. MPC’s recent decision to keep the repo rate unchanged reflects concerns of rising inflation despite slowing growth. With food inflation expected to moderate only from 1QCY20, we expect the MPC to stay on hold through 1HCY20. Additional easing is contingent on the evolution of the growth-inflation mix and on the fiscal situation of the government.

CPI inflation at a multi-year high

November CPI inflation rose to 5.54% (Kotak: 5.26%, consensus: 5.30%, October: 4.62%) QUICK NUMBERS owing to growing momentum despite favorable base effects (Exhibit 1). The uptick was led by higher than expected food inflation of 10% (7.9% in October) owing to gains across vegetables  November CPI (36%), pulses (13.9%), meat and fish (9.4%), and eggs (6.2%) (see Exhibit 2). Sequentially, CPI inflation at 5.54%; inflation went up by 1% mom, led by a 1.7% increase in food inflation caused primarily by core inflation at vegetables (5.9%), although the momentum has come down. Fuel and light inflation fell by 3.7% (-)1.9%yoy ((-)2% in October). Meanwhile, rural and urban inflation have started converging as the gap between rural and urban food inflation has narrowed significantly (see Exhibits 3-4).  October IIP growth at (-)3.8% Core inflation begins to rise  MPC unlikely to cut Despite sluggish economic activity, core inflation rose to 3.7% (3.3% in September), owing to the repo rate strong increase of 6.3% across the personal care segment. Inflation across the transport and through 1HCY20 communication segment rose to 0.9% ((-)0.5% in October). However, inflation across housing, household goods and services, and education moderated to 4.5%, 2.2% and 5.2%,  Further easing to respectively. While gold and telephone charges were imparting upward pressure on core depend on the inflation, petrol and diesel continue to pull it down (Exhibit 5). Rural core inflation moderated evolution of marginally to 3.3%, while urban core inflation rose to 3.7%. growth-inflation Broad-based decline in IIP mix

Despite adverse base effects, contraction in October IIP growth by (-)3.8% was lower than our expectation owing to improving momentum (Kotak: (-)6.3%, consensus: (-)5%, September: (-)4.3% (Exhibit 6). Among the sectors, growth in mining, manufacturing and electricity fell by (-)8%, (-)2.1% and (-)12.2%, respectively (Exhibit 7). Investment and consumption related weakness was reflected in the contraction observed across capital goods ((-)21.9%), infrastructure/construction goods (-)9.2%, consumer durables ((-)18%) and consumer non-durables (-)1.1% (Exhibit 8). Intermediates, however, posted strong gains of 22.2%.

Rate cut unlikely in 1HCY20; further easing contingent on the evolution of growth-inflation mix Upasna Bhardwaj Headline CPI inflation overshot the MPC’s target of 4% for the second consecutive time on the back of higher food and core inflation. Despite weak growth, core inflation is expected to increase further from December owing to the recent telecom tariff hike, threating the headline Suvodeep Rakshit inflation to trend closer to 6% in the coming months. However, food inflation is expected to moderate from 1QCY20 owing to the arrival of Kharif produce and the government’s measure Avijit Puri to contain prices. We therefore expect CPI inflation to moderate towards 4.9% by March 2020 (Exhibit 9). On the policy front, our projections suggest that inflation would remain 90-185 bps higher than the MPC’s comfort zone up to March 2020. The recent outcome of the MPC meeting clearly suggests the committee’s limited flexibility to tackle the slowdown in growth when inflation goes beyond its target of 4%. We therefore believe that the MPC will find it difficult to cut the repo rate through 1HCY20.

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. Economy India

Exhibit 1: Growing momentum leads to a sharp increase in November CPI inflation Trend in momentum, base effect, and monthly change in CPI inflation (%)

2.0 Momentum Base effect Monthly change in CPI inflation

1.5

1.0

0.5

0.0

(0.5)

(1.0)

(1.5)

(2.0)

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19 Jan-20

Sep-17 Sep-18 Sep-19

Nov-17 Nov-18 Nov-19

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

May-17 May-18 May-19 Notes: (a) Momentum is mom growth while base effect is 12-m prior mom change with signs reversed.

Source: CEIC, Kotak Economics Research

Exhibit 2: Food inflation imparting upward momentum to headline inflation since March Contribution to CPI inflation by major segments (%)

Food and beverages Misc. Others CPI 7

6

5

4

3

2

1

0

(1)

Jul-17 Jul-18 Jul-19

Jan-17 Jan-18 Jan-19

Sep-17 Sep-18 Sep-19

Nov-16 Nov-17 Nov-18 Nov-19

Mar-17 Mar-18 Mar-19

May-17 May-18 May-19 (2)

Source: CEIC, Kotak Economics Research

KOTAK ECONOMIC RESEARCH 13 India Economy

Exhibit 3: Growing convergence between rural and urban CPI inflation Rural and urban CPI inflation, (%)

14 CPI rural inflation CPI urban inflation

12

10

8

6

4

2

0

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

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

Source: CEIC, Kotak Economics Research

Exhibit 4: Gap between rural and urban food inflation has been falling Trend in components of rural and urban inflation (%)

Rural food inflation Urban food inflation Rural core inflation Urban core inflation 20 10

15 8

10 6

5 4

0

2

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

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

Nov-12 Nov-13 Nov-14 Nov-16 Nov-17 Nov-18 Nov-19

(5) Nov-15

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

Source: CEIC, Kotak Economics Research

14 KOTAK ECONOMIC RESEARCH Economy India

Exhibit 5: Gold and telephone charges are pushing up core inflation while fuel prices are pulling it down Top 10 positive and negative contributors to November 2019 core CPI inflation (ex house rent) over November 2018 (bps)

80 0

(20) Bus

Cloth

Petrol

Diesel

Barber

Doctor Tuition

60 (40) Medicine

(60) WashingSoap

40 DomesticServant (80)

(100) 20 (120)

(140) 0

(160)

Gold

Tyres Silver

(180)

Baniyan,

Socks etc

Charges Charges

CableTv

Stationery

MotorCar

Telephone Telephone Toothpaste Connection (200)

Source: CEIC, Kotak Economics Research

Exhibit 6: Adverse base effects pulled down October IIP growth Trend in momentum, base effect and monthly change in IIP growth (%)

Momentum Base effect Monthly change in yoy IIP growth 15

10

5

0

Jul-17 Jul-18 Jul-19

Jan-18 Jan-19 Jan-20

Sep-17 Sep-18 Sep-19

Nov-17 Nov-18 Nov-19

Mar-18 Mar-19 Mar-20

May-18 May-19 (5) May-17

(10)

(15)

Notes: (a) Momentum is mom growth while base effect is 12-m prior mom change with signs reversed.

Source: CEIC, Kotak Economics Research

KOTAK ECONOMIC RESEARCH 15 India Economy

Exhibit 7: Broad based decline in October IIP growth Sectoral classification of IIP growth, March fiscal year-ends, 2018-20 (%)

Mining (%) Manufacturing (%) Electricity (%) General (%) 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 April 3.0 3.8 5.1 2.9 4.9 2.5 5.4 2.1 6.0 3.2 4.5 3.2 May 0.3 5.8 2.3 2.6 3.6 4.4 8.3 4.2 7.4 2.9 3.8 4.5 June 0.1 6.5 1.5 (0.7) 6.9 0.3 2.1 8.5 8.6 (0.3) 7.0 1.3 July 4.5 3.4 4.9 (0.1) 7.0 4.8 6.6 6.6 5.2 1.0 6.5 4.9 August 9.3 (0.6) 0.0 3.8 5.2 (1.6) 8.3 7.6 (0.9) 4.8 4.8 (1.4) September 7.6 0.1 (8.6) 3.8 4.8 (4.0) 3.4 8.2 (2.6) 4.1 4.6 (4.3) October (0.2) 7.3 (8.0) 2.0 8.2 (2.1) 3.2 10.8 (12.2) 1.8 8.4 (3.8) November 1.4 2.7 10.4 (0.7) 3.9 5.1 8.5 0.2 December 1.2 (1.0) 8.7 2.9 4.4 4.5 7.3 2.5 January 0.3 3.8 8.7 1.3 7.6 0.9 7.5 1.6 February (0.4) 2.2 8.4 (0.3) 4.5 1.3 6.9 0.2 March 3.1 0.8 5.7 3.1 5.9 2.2 5.3 2.7 Average 2.5 2.9 4.7 3.9 5.3 5.2 4.4 3.9

Source: CEIC, Kotak Economics Research

Exhibit 8: Investment and consumption related weakness seen in capital and consumer goods Use-based classification of IIP growth, March fiscal year-ends, 2018-20 (%)

Infrastructure and Consumer non- Primary goods Capital goods Intermediate goods construction goods Consumer durables durables 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 April 3.0 2.7 5.1 (4.8) 9.8 (1.4) 3.6 0.4 3.0 4.7 8.5 (0.7) (0.7) 3.9 2.2 8.8 7.5 5.4 May 3.7 5.7 2.2 (1.6) 6.4 (2.1) 0.7 0.1 12.5 (0.1) 7.6 3.0 0.6 6.7 0.2 9.7 (1.6) 8.1 June (0.3) 9.2 0.6 (6.1) 9.7 (6.9) (1.2) 1.5 12.1 1.0 9.4 (1.3) (3.5) 13.6 (10.2) 4.8 0.2 7.4 July 2.2 6.8 3.6 (1.1) 2.3 (7.0) (2.8) 1.3 15.7 4.3 9.2 2.9 (2.4) 14.1 (2.4) 4.1 5.3 8.5 August 7.1 2.5 1.0 7.3 10.3 (21.4) (0.5) 2.9 6.9 2.7 8.0 (4.8) 4.3 5.5 (9.1) 7.2 6.5 3.1 September 6.6 2.6 (5.2) 8.7 6.9 (20.3) 2.1 1.5 7.0 0.5 9.5 (6.8) (4.1) 5.4 (9.9) 10.5 6.4 (0.4) October 2.4 6.1 (6.0) 3.5 16.9 (21.9) 0.2 2.4 22.2 5.8 9.0 (9.2) (9.0) 17.4 (18.0) 8.2 8.6 (1.1) November 3.3 3.2 5.7 (4.1) 6.5 (4.2) 13.7 4.8 3.1 (3.0) 23.7 (0.3) December 3.8 (1.1) 13.2 4.2 7.5 (0.8) 6.5 9.0 2.1 4.1 16.8 6.5 January 5.9 1.4 12.4 (3.6) 5.4 (3.2) 7.5 6.4 7.6 2.5 10.7 3.8 February 3.7 1.3 16.6 (9.3) 3.4 (5.1) 13.0 1.9 7.5 0.9 7.4 5.0 March 3.0 2.6 (3.1) (9.1) 2.5 (2.5) 9.1 5.1 6.2 (3.2) 14.1 1.4 Average 3.7 3.6 4.2 3.4 2.3 (0.5) 5.7 7.4 1.0 5.6 10.5 4.1

Source: CEIC, Kotak Economics Research

16 KOTAK ECONOMIC RESEARCH Economy India

Exhibit 9: CPI inflation likely to trend towards 4.9% by March 2020 Headline and core CPI inflation (%)

CPI inflation Core CPI inflation 10

8

6 Mar-20: 4.9

4 Mar-20: 4.6

2

0

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

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

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

Mar-14 Mar-15 Mar-16 Mar-17 Mar-19 Mar-20 Mar-21 Mar-18

Source: CEIC, Kotak Economics Research estimates

KOTAK ECONOMIC RESEARCH 17 Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summ India

Fair O/S ADVT

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo Company Rating 12-Dec-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Automobiles & Components Amara Raja Batteries ADD 736 720 (2) 126 1.8 171 40 43 47 42.9 5.7 10.4 18 17.2 15.6 10.7 9.4 8.3 3.3 2.9 2.6 19.3 17.9 17.5 1.4 1.5 1.6 6.7 ADD 166 175 6 95 1.3 572 10.4 11.0 14.7 (27.7) 6.2 33.4 16.0 15.1 11.3 7.7 7.0 5.6 0.9 0.9 0.8 5.8 5.9 7.5 1.8 1.8 1.8 7.3 BUY 79 95 21 230 3.3 2,936 3.9 3.3 7.0 (43.7) (15.4) 110.9 20.1 23.7 11.2 12.3 12.1 6.7 2.6 2.4 2.1 13.3 10.5 20.0 1.5 1.3 2.7 35 SELL 3,261 2,925 (10) 944 13 289 171 173 208 11.3 1.5 20.4 19.1 18.8 15.6 14.8 14.3 11.2 3.9 3.5 3.1 21 19.5 21 2.1 2.1 2.6 21 REDUCE 923 850 (8) 178 2.5 193 42 44 50 5.3 4.8 14.9 22.1 21.1 18.4 13.5 11.7 9.7 3.4 3.0 2.7 16.3 15.2 15.6 1.0 1.0 1.2 7.8 SELL 449 375 (16) 209 3.0 466 17 18 24 (25.0) 9.1 32.6 27.0 24.7 18.6 14.9 14.1 11.5 3.6 3.3 2.9 13.8 13.9 16.6 1.2 1.3 1.3 11.0 CEAT REDUCE 971 870 (10) 39 0.6 40 63 65 80 2.7 2.6 23.5 15.4 15.0 12.1 8.8 8.2 7.0 1.3 1.2 1.1 8.9 8.5 9.8 1.2 1.2 1.2 2.5 SELL 21,954 17,000 (23) 599 8.5 27 755 717 973 (7.5) (5.0) 35.8 29.1 30.6 22.6 22.2 22.0 17.0 6.8 5.8 4.9 26 21 24 0.1 —— 48 ary ary Endurance Technologies SELL 1,055 915 (13) 148 2.1 141 47 52 62 30.3 10.4 18.8 22 20.3 17.1 11.3 10.0 8.2 4.8 4.0 3.3 21 19.6 19.5 0.7 0.8 1.0 0.3 Escorts BUY 598 1,030 72 53 1.0 89 52 63 75 (4.5) 21.1 18.6 11.5 9.5 8.0 8.0 6.3 4.8 1.6 1.4 1.2 13.6 14.5 15.1 1.3 1.6 1.9 27

Exide Industries SELL 184 180 (2) 157 2.2 850 9.7 10.4 11.3 7.2 7.5 8.3 19.0 17.7 16.3 10.6 9.7 8.6 2.4 2.3 2.1 13.2 13.2 13.3 1.9 2.2 2.2 7.2 -

Hero Motocorp SELL 2,334 2,500 7 466 6.6 200 158 144 196 (6.7) (8.6) 35.3 14.8 16.2 11.9 8.7 9.4 6.7 3.2 3.0 2.7 23 19.1 24 3.4 3.1 4.2 34 13, December 2019 Mahindra CIE Automotive ADD 166 170 2 63 0.9 378 11.9 13.5 15.9 (18.2) 14.0 17.8 14.0 12.3 10.4 7.4 6.4 5.3 1.3 1.2 1.1 10.0 10.3 10.9 ——— 1.0 Mahindra & Mahindra BUY 512 820 60 636 9.0 1,138 40 42 47 (16.0) 5.9 10.8 12.8 12.1 10.9 8.9 8.1 7.1 1.5 1.3 1.2 12.2 11.6 11.7 1.6 1.7 1.8 32 SELL 7,000 5,800 (17) 2,115 29.9 302 202 252 319 (18.4) 24.6 26.3 35 28 22 19.8 14.9 11.2 4.2 3.8 3.4 12.7 14.4 16.3 0.7 0.9 1.1 128

Motherson Sumi Systems SELL 135 110 (19) 428 6.0 3,158 5.4 7.0 8.0 6.2 29.2 14.6 25.0 19.3 16.9 9.1 6.9 5.9 3.5 3.1 2.8 14.9 17.2 17.5 1.1 1.3 1.5 19.9 MRF SELL 62,692 54,000 (14) 266 3.8 4 2,750 3,051 3,749 3.1 10.9 22.9 23 20.5 16.7 10.4 9.2 7.3 2.2 2.0 1.8 10.2 10.3 11.4 0.1 0.1 0.1 5.6 Schaeffler India REDUCE 4,356 3,800 (13) 136 1.9 31 120 150 186 (16.8) 25.0 24.0 36 29 23 19.8 16.6 13.3 4.5 3.9 3.4 13.0 14.3 15.5 ——— 0.7 SKF REDUCE 2,140 1,950 (9) 106 1.5 49 66 79 95 0.5 20.4 19.4 33 27 23 23.4 19.3 15.6 5.4 4.7 4.0 16.7 17.4 17.8 0.6 0.7 0.8 0.6 BUY 173 200 15 589 7.6 3,396 (8.4) 7.1 18.0 (54.9) 184.7 154.0 NM 24.5 9.6 4.0 3.5 3.0 1.0 0.9 0.8 NM 3.8 8.8 ——— 97 Timken SELL 875 670 (23) 66 0.9 75 25 29 35 27.8 13.3 21.2 35 31 25 19.9 17.4 14.4 4.3 3.8 3.3 13.3 13.2 14.1 0.1 0.1 0.1 0.5 TVS Motor SELL 444 315 (29) 211 3.0 475 13.8 12.8 20.8 (2.4) (6.9) 62.0 32 35 21 15.3 15.6 11.2 5.5 5.0 4.4 18.3 15.2 22 1.0 0.9 1.4 14.4 Varroc Engineering BUY 420 520 24 57 0.8 135 20 32 42 (41.5) 63.6 31.5 21.5 13.2 10.0 7.4 5.7 4.5 1.7 1.5 1.4 8.0 11.7 13.6 ——— 0.4 Automobiles & Components Neutral 7,916 111.4 (12.7) 27.1 33.7 27.0 21.2 15.9 9.7 8.4 6.8 2.7 2.5 2.2 10.1 11.6 14.0 1.1 1.1 1.4 508 Banks

AU Small Finance Bank SELL 800 550 (31) 235 3.3 302 22.3 25.7 32.6 71.1 15.2 26.8 36 31 25 ——— 5.5 4.7 3.9 17.5 15.8 17.0 0.0 —— 6.8 REDUCE 722 715 (1) 2,036 28.8 2,806 24.4 53 62 34.2 119.2 15.9 30 13.5 11.7 ——— 2.5 2.2 1.9 8.9 16.0 16.2 0.3 1.1 1.3 119 REDUCE 516 550 7 830 11.7 1,610 21.6 27.4 34.1 31.8 27.3 24.1 23.9 18.8 15.1 ——— 5.2 4.3 3.5 25.3 25 25 0.8 1.0 1.2 26 ADD 98 105 7 389 5.5 4,582 8.1 23.3 25 397.3 186.0 5.5 12 4.2 4.0 ——— 0.9 0.7 0.6 6.5 14.9 14.0 1.7 4.8 5.0 43 ADD 233 225 (4) 172 2.4 735 10.6 12.1 14.1 14.0 14.0 16.7 22 19.3 16.6 ——— 3.4 3.0 2.6 15.1 15.3 15.8 0.8 0.9 1.1 2.8 DCB Bank BUY 174 240 38 54 0.8 310 12.8 16.5 21.2 21.9 29.0 28.0 13.6 10.5 8.2 ——— 1.7 1.5 1.3 13.0 14.8 16.5 0.7 0.9 1.2 2.0 Equitas Holdings BUY 101 170 68 35 0.5 342 9.2 13.2 16.0 46.1 42.6 21.6 10.9 7.7 6.3 ——— 1.3 1.1 1.0 11.9 14.8 15.5 ——— 8.6 BUY 85 120 41 170 2.4 1,985 8.4 10.2 13.1 33.3 22.5 28.2 10.2 8.3 6.5 ——— 1.3 1.2 1.0 11.9 13.3 15.3 2.2 2.7 3.4 18.2 HDFC Bank ADD 1,264 1,300 3 6,919 97.8 5,447 47 56 68 22.5 18.8 20.9 27 22 19 ——— 4.1 3.6 3.2 16.2 16.9 17.9 0.7 0.9 1.0 126 ICICI Bank BUY 535 575 7 3,460 48.9 6,447 18.6 31 39 291.6 69.1 23.0 29 17.0 13.9 ——— 3.2 2.8 2.4 10.6 16.2 17.5 0.7 1.2 1.4 197 IndusInd Bank ADD 1,444 1,500 4 1,001 14.1 723 75 102 119 39.5 35.7 17.2 19 14.2 12.1 ——— 2.9 2.5 2.1 16.8 17.8 18.0 0.7 1.0 1.2 108 Karur Vysya Bank BUY 62 80 29 50 0.7 799 3.8 7 14 44.3 96.0 82.1 16 8.3 4.5 ——— 1.0 0.9 0.8 4.7 8.7 14.6 1.5 3.1 5.7 0.8 NR 61 NR — 410 5.8 7,067 6 8 10 129.2 25.9 19.6 10 7.6 6.4 ——— 1.0 0.9 0.7 8.7 10.4 9.9 0.0 0.0 0.0 22 RBL Bank ADD 335 375 12 163 2.3 509 9.4 30 39 (53.9) 221.4 29.7 36 11.1 8.6 ——— 1.7 1.6 1.3 5.2 13.4 15.3 0.4 1.2 1.5 86 State BUY 322 400 24 2,872 40.6 8,925 27 45 54 2,650.6 70.1 18.5 12 7.1 6.0 ——— 1.6 1.3 1.0 10.2 15.3 15.5 0.1 0.1 0.1 185 Ujjivan Financial Services NR 329 NR — 40 0.6 121 25.1 30 40 52.3 20.1 32.0 13 10.9 8.3 ——— 1.8 1.6 1.4 14.6 15.4 17.6 0.7 0.9 1.3 12.9 Union Bank RS 56 —— 98 1.4 3,756 (2) 11 16 87.8 662.6 35.6 NM 4.9 3.6 ——— 0.8 0.7 0.6 NM 13.6 13.5 0.0 3.1 4.2 10.2 SELL 45 55 21 116 1.6 2,546 (10.8) (2) 14 (245.3) 85.9 1,027.7 NM NM 3.2 ——— 0.6 0.7 0.6 NM NM 12.9 (6.2) (0.9) 8.2 264 Banks Attractive 19,213 271.5 209.9 73.7 23.1 21 12.3 10.0 2.0 1.6 1.4 9.2 13.3 14.4 0.5 1.0 1.2 1,263

Source: Company, Bloomberg, Kotak Institutional Equities estimates

18 KOTAK ECONOMIC RESEARCH 18

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

19 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

Company Rating 12-Dec-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Building Products Astral Poly Technik SELL 1,167 680 (42) 176 2.5 150 19.5 23 26 19.0 16.8 15.3 60 51 45 33.5 29.4 25.4 11.3 9.3 7.8 21 19.9 19.1 0.1 0.1 0.1 5.0 Building Products Cautious 176 2.5 48.8 16.8 15.3 60 52 45 33.5 29.4 25.4 11.3 9.4 7.8 18.8 18.2 17.5 0.1 0.1 0.1 5.0 Capital goods ABB SELL 1,484 1,230 (17) 315 4.4 212 27 34 41 11.1 26.1 22.8 55 44 36 47.6 38.5 30.3 7.1 6.3 5.5 13.4 15.2 16.4 0.4 0.4 0.5 2.6 Ashoka Buildcon BUY 95 180 90 27 0.4 281 12.4 13.3 15.0 4.3 7.5 NA 7.6 7.1 NA 6.2 5.7 NA 1.1 0.9 NA 14.8 14.1 NA 2.1 2.2 2.5 1.0 BUY 99 132 34 241 3.4 2,437 7.3 8.0 5.6 (6.2) 10.4 (30.6) 13.6 12.3 17.8 8.8 7.6 8.2 2.4 2.2 2.2 18.4 18.6 12.6 3.2 3.6 2.0 15.4 BHEL SELL 45 46 3 157 2.2 3,482 1.8 2.2 4.0 (49.8) 26.6 79.4 26 20 11.4 9.4 7.5 5.3 0.5 0.5 0.5 1.9 2.4 4.3 1.9 2.2 3.5 17.0 Carborundum Universal ADD 322 325 1 61 0.9 189 14.1 16.9 19.4 7.9 19.4 15.0 23 19.1 16.6 13.5 11.0 9.4 3.2 2.9 2.6 14.8 16.0 16.6 1.3 1.6 1.8 0.4 Cochin Shipyard BUY 388 600 55 51 0.7 132 44 48 38 21.1 7.9 (19.8) 8.8 8.1 10.1 3.5 4.9 4.7 1.4 1.2 1.1 16.5 15.9 11.6 2.8 3.1 3.4 1.0 India REDUCE 539 540 0 149 2.1 277 25 27 30 (6.2) 10.0 10.7 22 19.8 17.9 20.0 17.9 15.9 3.4 3.2 3.1 16.1 16.8 17.6 2.4 2.7 3.0 5.1 Dilip Buildcon BUY 377 645 71 52 0.7 137 39 45 54 (30.0) 15.2 19.7 9.7 8.4 7.0 5.0 4.6 3.7 1.4 1.2 1.0 15.4 15.2 15.5 0.2 0.2 0.3 2.1 IRB Infrastructure BUY 66 137 107 23 0.3 351 25 19 14 3.4 (24.0) (26.8) 2.6 3.5 4.8 6.7 6.8 6.7 0.3 0.3 0.3 13.1 9.1 6.2 4.2 3.6 3.0 1.6 Kalpataru Power Transmission BUY 431 625 45 67 0.9 153 35 40 50 16.2 12.3 26.6 12.2 10.8 8.6 5.8 4.8 3.8 1.8 1.6 1.4 16.2 15.8 17.3 0.9 1.0 1.2 1.5 KEC International BUY 285 322 13 73 1.0 257 24.0 27 31 26.6 13.2 14.4 11.9 10.5 9.2 6.9 6.0 5.3 2.5 2.0 1.7 23 21 20 0.9 1.0 1.2 1.3 L&T BUY 1,280 1,560 22 1,796 25.4 1,403 71 75 94 14.9 6.9 24.8 18.1 17.0 13.6 16.8 14.6 12.5 2.6 2.3 2.1 15.8 14.5 16.3 1.6 1.8 2.3 68 Sadbhav Engineering BUY 118 167 42 20 0.3 172 11.4 14.1 15.7 4.7 24.3 11.1 10.4 8.3 7.5 6.7 5.8 5.1 0.9 0.8 0.8 9.2 10.5 10.6 — — — 0.3 SELL 1,488 1,200 (19) 530 7.5 356 36 42 NA 18.5 16.4 NA 41 35 NA 29.2 25.2 NA 5.4 4.9 NA 13.6 14.4 NA 0.7 0.8 0.9 18.0 Thermax BUY 1,006 1,150 14 120 1.7 113 29 42 50 (20.2) 42.4 18.7 34 24 20 21.9 18.9 16.0 21.9 18.9 16.0 10.6 13.8 14.7 0.7 0.9 1.1 1.3 Capital goods Neutral 3,681 52.0 4.6 9.3 16.2 19.3 17.6 15.2 2.3 2.1 1.9 11.9 12.0 12.7 1.4 1.7 1.9 1,263 Commercial & Professional Services SIS REDUCE 925 870 (6) 68 1.0 75 37 41 48 27.5 11.9 16.0 25 22 19.4 13.7 11.6 9.9 4.6 3.9 3.3 19.9 18.8 18.5 0.4 0.4 0.5 0.2 TeamLease Services SELL 2,385 2,300 (4) 41 0.6 17 68 89 112 18.6 29.8 26.9 35 27 21 30.5 23.0 17.4 6.2 5.1 4.1 19.5 21 21 — — — 0.7 Commercial & Professional Services Cautious 109 1.5 24.7 17.3 19.6 28 24 19.8 17.1 14.1 11.7 5.1 4.2 3.5 18.2 17.8 17.8 0.2 0.3 0.3 1.0 Commodity Chemicals REDUCE 1,751 1,800 3 1,680 23.7 959 29.6 35.3 42.0 31.7 19.1 19.1 59 50 42 37.6 32.4 27.7 15.7 13.9 12.4 28 30 32 0.8 1.0 1.3 34 SELL 498 410 (18) 484 6.8 971 7.6 8.5 10.0 48.5 11.9 17.3 66 59 50 42.2 37.0 31.8 16.8 14.5 12.5 28 27 27 0.6 0.6 0.7 18.1 Kansai Nerolac REDUCE 523 545 4 282 4.0 539 11.5 12.8 15.2 32.0 12.1 18.0 46 41 34 30.1 26.8 22.7 7.4 6.7 6.1 17.1 17.4 18.5 0.8 0.9 1.0 1.7 BUY 660 720 9 168 2.4 255 43.9 47.5 50.7 2.4 8.0 6.9 15.0 13.9 13.0 6.4 5.7 5.1 1.3 1.2 1.1 8.8 9.0 9.0 1.8 2.0 2.1 5.0 Commodity Chemicals Neutral 2,613 36.9 26.1 14.9 16.3 49 43 37 29.1 25.5 22.2 8.6 7.8 7.1 17.5 18.3 19.3 0.8 1.0 1.2 59

Construction Materials Daily Summary India ACC REDUCE 1,433 1,500 5 269 3.8 188 79.9 81.4 86.0 50.1 1.9 5.7 17.9 17.6 16.6 9.1 8.8 8.2 2.3 2.1 2.0 13.6 12.6 12.2 1.4 1.4 1.5 17.8 REDUCE 193 200 4 384 5.4 1,986 10.9 11.9 13.1 50.5 8.9 9.5 17.6 16.2 14.8 6.3 5.8 5.1 1.6 1.5 1.3 9.3 9.4 9.5 0.8 0.8 0.8 8.7 Dalmia Bharat ADD 1,078 1,050 29 157 2.2 192 17.1 22.7 34.5 7.5 33.1 51.7 48 36 24 8.5 7.6 6.1 1.4 1.4 1.3 3.0 3.9 5.7 — — — 3.3 ADD 774 950 23 509 7.2 657 81.4 85.4 97.3 30.1 4.9 14.0 9.5 9.1 8.0 5.2 4.0 3.1 0.8 0.8 0.7 9.2 8.9 9.3 0.9 0.9 0.9 27 J K Cement ADD 1,140 1,275 12 88 1.2 77 78.4 98.7 124.8 129.9 25.8 26.4 14.5 11.6 9.1 9.8 7.9 6.8 2.7 2.3 1.9 21 22 22 0.9 0.9 0.9 1.0 JK Lakshmi Cement ADD 266 350 31 31 0.4 118 22.7 24.7 28.8 460.9 8.7 17.0 11.7 10.8 9.2 5.1 4.7 4.3 1.8 1.6 1.4 16.7 15.7 15.9 0.8 0.8 0.8 0.4 Orient Cement ADD 70 95 36 14 0.2 205 4.9 7.1 7.7 113.0 42.8 9.3 14.1 9.9 9.1 6.6 5.4 4.6 1.3 1.2 1.1 9.4 12.5 12.6 2.9 2.9 2.9 0.2 SELL 20,086 15,200 (24) 725 10.2 35 420.8 571.8 717.0 30.1 35.9 25.4 48 35 28 20.3 16.6 13.6 6.5 5.6 4.7 14.4 17.0 18.3 0.3 0.3 0.3 7.6 UltraTech Cement SELL 3,991 3,550 (11) 1,152 16.3 289 144.3 168.2 196.6 57.7 16.6 16.9 28 24 20 12.6 11.2 9.9 3.1 2.7 2.4 11.7 12.2 12.7 0.3 0.3 0.3 33 Construction Materials Cautious 3,329 47.1 46.9 12.7 16.2 21 18.5 15.9 8.6 7.3 6.2 2.1 1.9 1.7 9.9 10.1 10.6 0.6 0.6 0.6 99

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

December 13, December 2019 RESEARCH

KOTAK ECONOMIC RESEARCH 19

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summ India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 12-Dec-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 243 210 (14) 152 2.2 627 7.1 8.4 9.5 19.1 18.3 13.6 34 29 26 21 18 16 10.8 8.6 6.9 35 33 30 1.0 1.0 0.0 6.2 India SELL 652 520 (20) 408 5.8 625 13.2 17.1 20.4 4.8 29.4 19.8 49 38 32 31 24 20 8.7 7.7 6.7 18.5 21 22 0.7 0.9 1.1 12.8 REDUCE 21,890 22,900 5 244 3.5 11 434 527 629 22.9 21.5 19.3 50 42 35 35 29 25 25.7 19.9 15.9 56 54 51 0.9 1.1 1.4 10.3 Polycab BUY 991 700 (29) 147 2.1 149 37 44 49 9.0 19.1 11.3 27 23 20 15 13 11 4.0 3.4 3.0 16.6 16.3 15.7 0.4 0.4 0.5 3.3 TCNS Clothing Co. ADD 637 770 21 39 0.6 65 9 12 16 (54.3) 31.7 26.0 67 51 41 16 13 10.9 5.8 5.2 4.5 9.2 10.7 11.9 1.4 1.9 1.9 0.2 Vardhman Textiles ADD 902 1,000 11 52 0.7 56 92 120 130 (28.9) 30.0 8.5 9.8 7.5 7.0 7.0 5.4 4.8 0.9 0.8 0.7 9.0 11.0 11.0 3.3 3.3 3.3 0.2 SELL 693 500 (28) 229 3.2 331 16.9 20.7 24.2 7.8 22.3 16.7 41 33 29 30 26 23 5.1 4.5 4.0 13.0 14.3 14.9 0.5 0.6 0.7 11.8 Whirlpool SELL 2,290 1,260 (45) 291 4.1 127 38 44 52 17.9 16.8 18.6 61 52 44 37 32 28 11.6 10.1 9.0 21 21 22 0.3 0.6 0.9 3.4

Consumer Durables & Apparel Cautious 1,563 22.1 2.6 23.3 40 32 28 24 20 17 6.4 5.6 16.0 17.4 17.8 0.7 0.9 48 ary Consumer Staples Bajaj Consumer Care BUY 230 350 52 34 0.5 148 16.0 16.4 18.4 6.5 2.2 12.6 14.3 14.0 12.5 11.2 10.9 9.5 6.4 5.7 5.1 48 43 43 4.4 4.4 4.8 3.6

Britannia Industries REDUCE 3,074 3,050 (1) 739 10.4 240 58 68 82 21.1 16.9 20.6 53 45 37 39 34 28 16.4 13.3 10.8 32 32 32 0.7 0.8 1.0 21 -

Colgate-Palmolive (India) ADD 1,476 1,700 15 401 5.7 272 32 38 44 19.2 19.5 15.0 46 39 34 29.7 25.3 22.1 26.7 25.2 23.6 59 67 72 1.8 2.0 2.3 18.4 13, December 2019 India REDUCE 458 425 (7) 809 11.4 1,766 9.7 11.0 12.1 18.7 14.1 9.9 47 42 38 40 35 30 12.5 11.2 10.1 28 28 28 1.0 1.2 1.4 13.6 GlaxoSmithKline Consumer RS 8,642 — — 363 5.1 42 294 333 376 26 13.1 13.0 29 26 23 24 21 18 7.7 6.6 5.7 28 27 27 1.3 1.5 1.7 2.8

Godrej Consumer Products REDUCE 666 715 7 681 9.6 1,022 15.8 18.2 21.2 8.9 15.7 16.5 42 37 31 29 25 22 8.1 7.3 6.5 21 21 22 1.0 1.1 1.3 10.9 REDUCE 2,007 1,850 (8) 4,346 61.4 2,160 34 41 47 20.6 20.1 14.8 59 49 43 41 35 31 47.5 38.0 30.5 87 86 79 1.2 1.3 1.5 47 ITC BUY 239 320 34 2,932 41.4 12,300 12.2 13.6 15.0 20.0 11.8 10.2 19.6 17.5 15.9 13.9 12.3 11.0 4.6 4.3 3.9 22 23 25 2.7 3.1 3.5 56 Jyothy Laboratories ADD 150 200 33 55 0.8 367 6.2 7.0 8.1 10.6 13.6 15.4 24 21 18.5 16.9 14.9 12.9 3.9 3.6 3.4 16.6 17.6 18.9 2.3 2.7 3.0 0.8 ADD 331 385 16 428 6.0 1,290 8.2 9.3 10.7 13.6 13.8 14.8 40 36 31 27 24 21 13.3 12.4 11.4 34 36 38 1.7 1.9 2.1 10.7 Nestle India SELL 14,155 13,200 (7) 1,365 19.3 96 206 239 281 23.5 15.9 17.8 69 59 50 46 40 35 71.5 60.1 50.9 71 110 109 2.3 1.2 1.4 19.2 Tata Global Beverages ADD 324 335 4 204 2.9 631 9.0 10.5 11.6 29.0 16.5 9.9 36 31 28 21 18 17 2.7 2.5 2.4 7.6 8.4 8.8 0.9 1.1 1.3 14.0 United Breweries ADD 1,211 1,400 16 320 4.5 264 18.7 29.2 36.9 (12.1) 56.2 26.3 65 41 33 33 24 20 8.9 7.4 6.2 14.6 19.6 21 0.2 0.3 0.5 10.0 REDUCE 592 650 10 430 6.1 727 13.4 16.9 21.1 41.6 26.5 25.1 44 35 28 28 23 19 9.7 6.7 5.2 26 23 21 0.3 0.4 0.5 11.5 Consumer Staples Cautious 13,308 188.1 19.9 16.3 13.8 38 33 29 27 23 20 10.7 9.5 8.4 28 29 29 1.6 1.7 1.9 244 Diversified Financials

Bajaj Finance REDUCE 4,057 3,800 (6) 2,441 34.5 599 103 137 165 49 33 21 39 30 25 — — — 7.2 5.9 4.9 23 22 22 0.3 0.3 0.4 96 BUY 9,169 10,200 11 1,459 20.6 159 309 404 489 53 31 21 30 23 18.7 — — — 4.3 3.7 3.1 17.1 17.5 17.9 0.1 0.1 0.1 40 Cholamandalam ADD 313 340 9 245 3.5 782 17.8 22.2 26.6 17 25.2 19.8 17.6 14.1 11.7 — — — 3.4 2.8 2.3 20 21 21 0.6 0.8 0.9 7.7 HDFC BUY 2,318 2,600 12 4,007 56.6 1,721 71 70 80 24.1 (1) 14.3 33 33 29 — — — 4.7 4.4 4.0 15.1 13.8 14.6 1.1 1.1 1.3 132 IIFL Wealth REDUCE 1,180 1,125 (5) 103 1.4 85 35.3 46.7 67.2 (22) 32.1 44.1 33 25 17.5 — — — 3.3 3.1 2.9 10.1 12.8 17.3 1.5 2.0 2.9 0.0 L&T Finance Holdings ADD 115 105 (9) 230 3.3 1,999 8 12 16 (30.7) 52 36.3 14.9 9.8 7.2 — — — 1.6 1.4 1.2 11.0 15.0 17.7 1.1 1.3 1.4 19.6 LIC Housing Finance ADD 434 450 4 219 3.1 505 53.1 65.0 74.0 15 22.5 13.7 8.2 6.7 5.9 — — — 1.3 1.1 NA 15.4 16.6 16.5 2.0 2.5 2.8 17.7 Mahindra & Mahindra Financial ADD 338 400 18 209 3.0 615 22.7 33.7 42.2 (10) 48.0 25.5 14.9 10.1 8.0 — — — 1.9 1.7 1.5 12.3 16.4 18.2 1.7 2.6 3.2 9.6 ADD 713 740 4 286 4.0 401 64 72 81 29.4 12 13.0 11.2 10.0 8.8 — — — 2.5 2.1 1.8 24 23 22 2.1 2.4 2.7 11.1 PNB Housing Finance NR 427 — — 72 1.0 169 66.9 77.6 88.6 (6) 16.0 14.2 6.4 5.5 4.8 — — — 0.9 0.8 0.7 14.1 14.6 14.8 1.7 2.0 2.3 6.3 Shriram City Union Finance BUY 1,400 1,900 36 92 1.3 66 171 197 237 14.4 15 20.4 8.2 7.1 5.9 — — — 1.4 1.2 1.0 16.5 16.4 17.1 1.6 1.8 2.1 0.3 Shriram Transport BUY 1,100 1,475 34 250 3.5 227 126.6 146.5 164.1 12 15.7 12.0 8.7 7.5 6.7 — — — 1.4 1.2 1.1 16.9 17.0 16.5 1.6 2.0 2.2 15.5 Diversified Financials Neutral 9,612 135.8 22.6 18.7 18.5 25 21 18.0 2.9 2.5 2.2 11.2 11.9 12.5 0.8 0.9 1.1 356

Source: Company, Bloomberg, Kotak Institutional Equities estimates

20 KOTAK ECONOMIC RESEARCH 20

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

21 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

Company Rating 12-Dec-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Electric Utilities CESC BUY 727 840 16 96 1.4 133 87 104 114 (3) 18.4 9.9 8.3 7.0 6.4 5.3 4.8 4.3 0.7 0.7 0.6 9.2 10.1 10.3 2.0 2.1 2.1 4.9 JSW Energy ADD 70 80 14 115 1.6 1,640 5.9 5.9 5.7 41 0 (3.8) 11.9 11.9 12.3 5.3 4.7 3.9 0.9 0.8 0.8 7.8 7.3 6.5 — — — 0.9 NHPC ADD 24 27 13 239 3.4 10,045 3.1 3.3 3.5 24.1 5 7.1 7.6 7.2 6.8 6.0 6.2 5.7 0.7 0.7 0.7 10.1 10.2 10.5 7.4 7.7 8.3 0.9 NTPC BUY 114 160 40 1,132 16.0 9,895 12.4 13.6 15.6 10.9 9.5 14.2 9.2 8.4 7.4 9.5 7.8 6.7 1.0 0.9 0.8 11.1 11.3 11.9 3.3 3.6 4.1 18.2 Power Grid BUY 184 235 27 965 13.6 5,232 21.4 23 25 13 7.3 11.1 8.6 8.0 7.2 6.9 6.6 6.2 1.5 1.3 1.2 18.0 17.4 17.4 4.1 4.4 4.8 21 BUY 53 75 41 144 2.0 2,705 3.7 5.3 6.9 74 45 28.8 14.5 10.0 7.8 7.8 7.7 7.1 0.8 0.8 0.7 5.8 7.8 9.2 — — — 9.4 Electric Utilities Attractive 2,692 38.0 14.1 9.4 12.3 9.0 8.3 7.4 1.0 1.0 0.9 11.6 11.8 12.2 3.6 3.8 4.3 55 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 3,481 2,700 (22) 156 2.2 34 82.9 100.0 114.4 19.6 20.7 14.4 42 35 30 33 28 24 5.7 5.1 4.5 14.3 15.5 15.7 0.5 0.6 0.7 0.4 Dhanuka Agritech ADD 335 350 4 16 0.2 48 24.2 25.9 28.3 2.4 6.9 9.2 13.8 12.9 11.9 10.4 9.1 8.0 2.2 1.9 1.7 16.8 15.9 15.4 1.4 1.5 1.7 0.1 SELL 502 450 (10) 96 1.4 192 12.4 17.0 20.3 8.6 37.0 19 40 29 25 21 16 14 4.3 3.8 3.4 11.1 13.7 14.6 0.7 0.8 1.0 0.4 PI Industries SELL 1,461 1,280 (12) 202 2.9 138 37.2 46.1 56.1 25.3 24 22 39 32 26 27 21 18 7.5 6.3 5.3 21 22 22 0.4 0.6 0.8 3.0 Rallis India ADD 174 180 3 34 0.5 195 8.8 10.6 11.9 5.0 19.5 12.4 19.7 16.5 14.7 12.9 10.7 9.6 2.4 2.2 2.0 12.8 14.1 14.4 1.6 1.7 1.9 0.6 UPL SELL 570 520 (9) 435 6.2 765 28.4 39.8 45.1 14.5 40.1 13.3 20 14.3 12.6 10.0 8.0 7.1 2.7 2.4 2.1 14.8 17.9 17.9 1.2 2.0 2.2 24 Fertilizers & Agricultural Chemicals Attractive 940 13.3 17.7 30.7 14.8 26 20 17.5 13.2 10.7 9.4 3.7 3.3 2.9 14.3 16.4 16.6 0.9 1.3 1.5 28 Gas Utilities GAIL (India) BUY 119 175 47 536 7.6 4,510 13.5 14.8 15.9 (3.2) 9.9 7.4 8.8 8.0 7.5 6.3 5.6 5.0 1.1 1.0 1.0 13.3 13.5 13.4 3.8 4.2 4.6 21 GSPL SELL 216 200 (7) 122 1.7 564 17.7 16.2 14.9 25.8 (8.6) (7.8) 12.2 13.3 14.4 5.5 5.6 5.8 1.8 1.6 1.5 16.1 12.9 10.8 1.2 1.1 1.4 1.8 SELL 410 320 (22) 287 4.1 700 16.6 18.5 20.9 38.0 11.5 13.0 24.7 22.1 19.6 18.2 15.9 13.8 5.8 5.0 4.3 26 24 24 0.9 1.1 1.3 11.3 ADD 1,040 1,080 4 103 1.5 99 74.5 78.9 81.8 32.7 5.8 3.7 14.0 13.2 12.7 9.0 8.3 7.8 3.7 3.3 3.0 29 27 25 2.6 3.4 3.9 9.2 Petronet LNG BUY 272 320 18 407 5.8 1,500 18.5 21.0 23.3 22.8 14.0 10.7 14.7 12.9 11.7 8.6 7.5 6.7 3.5 3.2 2.9 28 26 26 3.1 3.9 4.7 13.8 Gas Utilities Attractive 1,455 20.6 12.6 7.1 7.5 12.1 11.3 10.6 8.0 7.2 6.5 2.0 1.8 1.7 16.3 15.9 15.7 2.7 3.2 3.7 57 Health Care Services ADD 1,386 1,560 13 193 2.7 139 27.0 34 48 59 27 41 51.3 40.5 28.7 14.0 13.8 11.9 5.4 5.0 4.6 10.9 12.9 16.7 0.7 0.9 1.2 15.1 Aster DM Healthcare BUY 151 240 59 76 1.1 505 6.6 9.1 10.8 (1) 38.7 18 23.0 16.6 14.0 7.8 6.7 5.9 2.8 2.4 2.1 12.8 15.6 16.0 — — — 0.3 Dr Lal Pathlabs SELL 1,511 1,060 (30) 126 1.8 83 31.8 37.5 43.2 33.5 17.6 15.2 47.5 40.3 35.0 31.3 26.3 22.5 11.1 9.3 7.8 26 25 24 0.5 0.6 0.7 2.6 HCG BUY 94 205 119 8 0.1 85 (7.1) (4.3) (3.4) (104) 39 21 NM NM NM 7.9 6.7 5.7 1.6 1.7 1.8 NM NM NM — — — 0.1 Metropolis Healthcare SELL 1,290 1,100 (15) 65 0.9 50 30.9 37.5 43.3 29.1 21.4 15 41.7 34.4 29.8 25.0 20.9 18.2 12.2 9.6 7.7 33 31 29 0.5 0.6 0.7 0.8 Narayana Hrudayalaya BUY 306 340 11 63 0.9 204 6.1 8.5 10.9 111.6 39 28 50.0 36.0 28.2 16.7 13.9 11.7 5.2 4.5 3.9 10.9 13.4 14.9 — — — 1.2

Health Care Services Attractive 531 7.5 30 32 26 44.4 33.7 26.7 14.3 12.8 11.1 5.5 4.9 4.3 12.3 14.5 16.1 0.4 0.5 0.7 20 Daily Summary India Hotels & Restaurants Jubilant Foodworks BUY 1,598 1,600 0 211 3.0 132 29 40 53 19 39.9 33 55.9 40.0 30.1 20.8 16.8 13.5 16.7 12.6 9.6 30 36 36 0.4 0.7 1.1 22 Lemon Tree Hotels BUY 60 70 17 47 0.7 789 1.0 1.8 2.2 44 83 23 62.1 33.9 27.6 20.9 14.5 11.1 5.0 4.5 4.1 8.3 14.0 15.7 — 0.9 1.3 1.9 Hotels & Restaurants Attractive 258 3.7 23 48 31 56.8 38.5 29.3 20.9 16.2 12.9 11.6 9.5 7.7 20 25 26 0.4 0.7 1.1 24 Insurance HDFC Life Insurance ADD 583 605 4 1,176 16.6 2,009 7.4 8.5 9.4 16.0 14.6 11.6 79.0 68.9 62 — — — 18.7 16.9 15.2 25 26 26 0.3 0.4 0.4 47 ICICI Lombard SELL 1,337 800 (40) 608 8.6 454 28.1 33.6 81.2 21 20 142 47.7 39.8 16.5 — — — 9.7 8.2 3.5 22 22 46 0.5 0.6 1.3 32 ICICI Prudential Life ADD 493 580 18 708 10.0 1,436 8.2 9.0 10.3 4 9.0 15.3 59.9 55.0 48 — — — 9.1 8.0 7.1 16.1 15.5 15.7 0.3 0.3 0.4 22 Max Financial Services ADD 505 500 (1) 136 1.9 417 6.9 9.9 14.4 275 44 45 73.6 51.0 35 — — — — — — 13.7 17.9 23 0.5 0.7 1.0 9.0 SBI Life Insurance REDUCE 960 1,000 4 960 13.6 1,000 13.3 17.8 20.7 (0.1) 34.2 16.3 72.4 54.0 46 — — — 11.2 9.5 8.1 16.5 19.1 18.9 0.2 0.3 0.3 48 Insurance Attractive 3,589 50.7 14.6 20.9 45.3 64.7 53.5 37 11.5 10.1 7.2 17.8 18.8 19.5 0.2 0.3 0.3 157

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

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December 13, December 2019 RESEARCH

KOTAK ECONOMIC RESEARCH 21

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summ India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 12-Dec-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Internet Software & Services SELL 2,526 2,130 (16) 309 4.4 122.0 34.3 42.2 50.7 32.7 23.2 20.1 73.7 59.8 49.8 63.9 51.2 42.2 11.8 10.4 9.0 16.9 18.4 19.4 0.3 0.4 0.5 16.1 Just Dial REDUCE 568 640 13 37 0.5 64.8 38.4 38.5 40.8 20.3 0.2 5.9 14.8 14.8 13.9 8.2 7.1 6.0 3.0 2.6 2.2 22 18.8 17.0 0.7 0.7 0.7 23 Internet Software & Services Attractive 346 4.9 27.8 14.6 15.5 51.8 45.2 39.2 43.3 36.9 31.7 9.0 7.8 6.8 17.4 17.3 17.4 0.4 0.4 0.5 39 IT Services HCL Technologies ADD 536 615 15 1,455 20.6 2,693 37.7 41.6 46.4 3.0 10.3 11.5 14.2 12.9 11.6 8.7 7.7 6.7 3.0 2.6 2.3 22 22 21 2.9 3.1 3.1 30 Hexaware Technologies REDUCE 340 375 10 101 1.4 302 21.5 24.5 27.7 11.4 14.0 12.8 15.8 13.9 12.3 11.6 9.8 8.3 3.7 3.3 2.9 25 25 25 2.4 2.9 2.9 4.0 ADD 702 840 20 2,990 42.3 4,260 38.0 42.0 46.7 7.5 10.4 11.1 18.5 16.7 15.1 12.5 11.0 9.8 4.8 4.5 4.2 25 28 29 3.1 3.7 4.3 136 L&T Infotech ADD 1,631 1,750 7 284 4.0 176 83.9 98.8 117.1 (3) 17.7 18.6 19.4 16.5 13.9 13.2 11.0 9.1 5.0 4.2 3.6 28 28 28 1.8 2.0 2.3 3.5

Mindtree REDUCE 753 725 (4) 124 1.8 165 36.3 48.5 56.4 (21) 34 16 20.7 15.5 13.4 10.8 8.3 7.0 3.8 3.3 2.8 18.1 22 23 4.0 1.9 2.2 6.5 ary REDUCE 865 925 7 161 2.3 186 59.7 64.2 69.0 6 7.5 7.4 14.5 13.5 12.5 8.9 8.0 7.2 2.8 2.6 2.4 20 20 20 3.5 3.9 4.2 2.5 TCS REDUCE 2,021 1,900 (6) 7,583 107.2 3,752 87.4 94.0 103.3 5 7.5 9.9 23.1 21.5 19.6 16.7 15.0 13.5 7.8 7.3 6.7 35 35 36 3.0 3.0 3.3 104 -

Tech Mahindra ADD 756 860 14 671 9.5 880 46.1 53.8 62.3 (3.4) 16.8 15.7 16.4 14.1 12.1 10.1 8.1 6.8 2.9 2.6 2.3 18.9 19.7 20 2.2 2.4 2.7 27 REDUCE 239 265 11 1,368 19.3 5,780 17.3 18.7 20.7 15.7 8.3 10.4 13.8 12.8 11.6 8.6 7.5 6.7 2.5 2.1 1.9 17.8 17.8 17.0 0.6 0.8 3.5 12.8 13, December 2019 IT Services Cautious 14,738 208.3 3.4 9.4 10.7 19.1 17.5 15.8 12.9 11.4 10.2 4.9 4.4 4.0 25 25 25 2.8 2.9 3.5 325 Media

DB Corp. REDUCE 134 155 16 23 0.3 175 18.9 19.8 20.0 20.3 5.1 1.0 7.1 6.7 6.7 3.6 3.4 3.3 1.2 1.2 1.2 17.7 18.1 18.2 9.4 11.2 12.7 0.2 Jagran Prakashan REDUCE 56 77 38 17 0.2 296 10.3 11.4 12.2 10.9 11 NA 5.4 4.9 NA 2.1 1.9 NA 0.9 0.9 NA 16.5 18.2 19.4 16.1 16.1 16.1 0.5 Sun TV Network REDUCE 464 510 10 183 2.6 394 37.7 41.1 43.5 4 9.0 5.9 12.3 11.3 10.7 8.6 7.6 6.9 2.9 2.5 2.2 25 24 22 2.7 3.2 3.7 13.8 Zee Entertainment Enterprises ADD 284 385 35 273 3.9 960 18.4 20.1 23.0 11.6 9.2 14.3 15.4 14.1 12.4 9.8 8.9 7.7 2.8 2.5 2.2 18.9 18.5 18.7 1.6 1.9 1.9 113 Media Attractive 585 8.3 10.5 10.0 1.9 14.1 12.9 12.6 8.7 7.9 6.5 2.7 2.5 2.4 19.4 19.1 18.9 2.5 2.9 3.0 139 Metals & Mining BUY 201 240 19 452 6.4 2,224 21.5 25.4 28.2 (13.1) 18.4 11 9.4 7.9 7.1 5.5 4.9 4.2 0.7 0.7 0.6 8.0 8.7 8.9 0.6 0.6 0.6 21 REDUCE 206 205 (0) 868 12.3 4,225 17.4 18.2 21.2 (7.6) 4.5 16.4 11.8 11.3 9.7 7.1 6.8 5.8 2.8 3.0 3.2 23 26 32 9.7 9.7 9.7 2.9 BUY 142 170 20 145 2.1 1,016 1.4 9.2 16.4 181 561 77 101.7 15.4 8.7 6.4 5.7 4.9 0.4 0.4 0.4 0.4 2.8 4.8 — — — 47 JSW Steel REDUCE 256 200 (22) 618 8.7 2,402 8.4 20.7 25.3 (73.5) 145 22.5 30.3 12.4 10.1 9.4 6.8 5.8 1.7 1.5 1.3 5.6 12.7 14.0 1.6 1.6 1.6 30 National Aluminium Co. SELL 43 35 (19) 81 1.1 1,866 1.0 2.3 2.2 (89) 134 (3.0) 44.5 19.0 19.6 10.0 7.2 8.9 0.8 0.8 0.8 1.7 4.1 4.0 2.2 5.3 5.1 6.4

NMDC REDUCE 114 100 (12) 348 4.9 3,062 16.5 14.0 13.2 12.1 (15.1) (6) 6.9 8.1 8.6 4.7 5.4 5.7 1.2 1.1 1.1 18.5 14.4 12.7 5.8 4.9 4.6 9.6 BUY 419 515 23 475 6.7 1,146 29.4 74.5 95.5 (67) 154 28 14.3 5.6 4.4 6.6 5.0 4.2 0.7 0.6 0.6 5.0 12.3 13.8 2.4 2.4 2.4 89 Vedanta BUY 144 180 25 535 7.6 3,717 13.3 18.9 21.5 (14) 42 13.7 10.8 7.6 6.7 5.4 4.8 4.4 0.9 0.9 0.9 8.0 11.5 13.2 12.5 12.5 12.5 29 Metals & Mining Attractive 3,523 49.8 (35.4) 44.1 17.4 12.7 8.8 7.5 6.5 5.5 4.8 1.1 1.0 0.9 8.4 11.4 12.5 5.6 5.6 5.6 53 Source: Company, Bloomberg, Kotak Institutional Equities estimates

22 KOTAK ECONOMIC RESEARCH 22

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

23 Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

Company Rating 12-Dec-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Oil, Gas & Consumable Fuels BPCL SELL 492 420 (15) 1,067 15.1 1,967 32 39 40 (10.5) 18.9 3.8 15.2 12.7 12.3 10.8 9.3 8.9 2.5 2.3 2.1 16.8 18.6 18.0 3.8 4.1 4.2 86.5 BUY 190 285 50 1,172 16.6 6,163 27 31 31 (3) 14.3 (2.2) 6.9 6.1 6.2 6.2 5.3 5.0 4.6 4.4 4.2 65.3 74.4 69.7 13.1 13.1 13.1 21.7 HPCL SELL 266 285 7 406 5.7 1,524 31 33 32 (23.0) 7.0 (1.0) 8.7 8.1 8.2 8.6 8.3 8.2 1.3 1.2 1.1 15.8 15.6 14.3 4.6 4.9 4.9 28.2 IOCL SELL 128 130 1 1,206 17.0 9,181 13.6 15.8 15.9 (24.5) 16.1 0.8 9.4 8.1 8.1 6.0 5.6 5.5 1.0 1.0 0.9 11.2 12.4 11.9 5.5 6.1 6.1 25.0 BUY 156 210 35 169 2.4 1,084 30 27 29 (1) (9.4) 4.4 5.2 5.7 5.4 3.1 3.1 2.9 0.6 0.5 0.5 11.4 9.8 9.7 7.8 7.0 7.3 2.5 ONGC BUY 126 170 35 1,584 22.4 12,580 22 21 22 (8) (4.7) 7.4 5.8 6.1 5.7 3.2 3.1 2.8 0.6 0.6 0.5 11.1 10.0 10.0 6.0 6.2 6.4 20.8 Reliance Industries BUY 1,568 1,825 16 9,295 131.4 5,927 76 92 107 15.7 20.7 16.3 20.5 17.0 14.6 12.5 9.9 8.3 2.2 1.9 1.7 11.1 12.1 12.5 0.4 0.5 0.5 177.1 Oil, Gas & Consumable Fuels Attractive 14,897 210.5 (2.8) 11.8 8.4 12.8 11.5 10.6 8.0 7.0 6.3 1.6 1.5 1.4 12.6 13.0 12.9 2.8 2.9 3.0 361.8 Pharmaceuticals ADD 449 500 11 263 3.7 584 49 55 56 19.8 12 3.4 9.3 8.2 8.0 7.1 5.8 5.3 1.6 1.4 1.2 17.3 16.7 15.0 1.4 1.7 2.0 30.9 SELL 293 190 (35) 351 5.0 1,202 7.3 8.8 10.2 21 20 15.6 40 33 29 19.4 15.9 13.8 4.8 4.3 3.9 12.5 13.0 13.5 0.9 1.1 1.2 16.1 BUY 461 570 24 372 5.3 806 22.5 28 34 18.6 26 19 21 16.3 13.7 11.0 9.1 7.4 2.2 2.0 1.8 11.3 12.3 13.1 1.0 1.3 1.5 23.5 Dr Reddy's Laboratories REDUCE 2,906 2,600 (11) 483 6.8 166 103 145 195 3 41 34.5 28 20.1 14.9 11.7 10.2 7.6 2.9 2.6 2.3 10.4 13.0 15.3 0.7 0.8 1.1 24.3 Laurus Labs BUY 338 430 27 36 0.5 106 19.8 27.8 33 80.3 41 17 17 12.2 10.4 9.2 7.2 6.1 2.0 1.7 1.5 12.6 14.3 14.3 — — — 0.6 Lupin ADD 749 840 12 339 4.8 450 27 37 52 28.2 38 39 28 20 14.5 10.9 8.4 6.4 2.1 1.9 1.7 8.1 9.4 11.7 0.7 0.7 1.0 17.3 Sun Pharmaceuticals ADD 434 480 11 1,042 14.7 2,406 19.0 23.8 26 17.5 25 10 23 18 16.7 12.3 9.8 8.1 2.3 2.1 1.9 10.5 11.3 11.7 0.9 1.1 1.2 38.7 BUY 1,855 1,950 5 314 4.4 169 55 69 85 112.1 26 24 34 27 22 15.2 13.0 11.2 6.0 5.2 4.5 17.6 19.5 20.7 1.3 1.4 1.5 6.6 Pharmaceuticals Neutral 3,199 45.2 21.3 26 17 23 18 15.4 11.6 9.5 7.9 2.5 2.3 2.0 11.2 12.6 13.2 0.9 1.1 1.3 158.1 Real Estate Brigade Enterprises BUY 201 235 17 41 0.6 204 17.7 14 16 51 (18) 10 11.4 13.9 12.6 8.3 6.3 5.1 1.7 1.5 1.4 15.6 11.4 11.5 1.2 1.2 1.2 0.4 DLF ADD 225 215 (4) 557 7.9 2,475 7.7 12.3 15.3 30 58 25 29 18.3 14.7 28.9 23.4 18.1 1.5 1.4 1.3 5.4 7.9 9.2 0.9 0.9 0.9 37.2 Embassy Office Parks REIT ADD 423 410 (3) 326 4.6 772 12.7 15.6 18.0 7,843 23 15 33 27 23 21.2 18.5 16.5 1.5 1.5 1.6 4.3 5.5 6.6 5.5 6.3 7.2 3.9 Godrej Properties SELL 930 700 (25) 234 3.3 252 15.8 16.3 13.0 43.1 3 (20.1) 59 57 72 45.7 58.8 256.6 4.7 4.4 4.1 10.7 7.9 5.9 — — — 4.3 ADD 509 560 10 185 2.6 364 22 48 49 (4.1) 120.7 2 23.6 10.7 10.5 16.3 8.6 7.6 2.1 1.8 1.5 9.4 18.1 15.8 0.4 0.4 0.4 3.1 Prestige Estates Projects ADD 309 330 7 116 1.6 375 8.4 13.2 15 (3.8) 57 15 37 23 20.5 11.2 9.2 8.2 2.6 2.4 2.1 7.2 10.5 11.0 0.5 0.5 0.5 1.5 Sobha ADD 390 515 32 37 0.5 95 39 29 32 25 (25.6) 11.7 10.0 13.5 12.1 6.7 8.3 8.2 1.5 1.4 1.3 15.5 10.5 10.8 1.8 1.8 1.8 1.2 Sunteck Realty REDUCE 392 400 2 57 0.8 140 23.6 32.3 44 45.5 37 35 17 12.1 9.0 12.2 8.6 6.3 1.7 1.5 1.3 11.1 13.5 15.7 0.3 0.3 0.3 1.5 Real Estate Neutral 1,554 22.0 42.1 44.8 15.1 29 20 17.1 18.4 14.8 13.1 1.8 1.7 1.6 6.3 8.7 9.4 1.6 1.8 2.0 53.2 Retailing

Aditya Birla Fashion and Retail BUY 225 230 2 174 2.5 773 1.8 2.8 4.6 (57.5) 58.0 65.7 127 81 49 14.8 12.8 11.2 11.1 9.8 8.1 9.1 12.9 18.2 — — — 1.4 Daily Summary India Avenue Supermarts SELL 1,779 1,010 (43) 1,115 15.8 624 19.8 25 33 36.8 28.9 28.7 90 70 54 49 38 30 16.3 13.2 10.6 19.9 20.9 21.7 — — — 12.9 REDUCE 1,188 1,175 (1) 1,055 14.9 888 19.1 25 32 13.3 31.8 27.0 62 47 37 41 32 26 14.8 12.3 10.1 25.6 28.5 29.9 0.5 0.6 0.8 45.6 Retailing Cautious 2,344 33.1 12.7 31.8 29.7 76 58 45 38 30 25 15.1 12.5 10.2 19.7 21.5 22.8 0.2 0.3 0.3 59.9 Speciality Chemicals SELL 130 130 0 128 1.8 989 8.0 8.5 8.8 12.1 5.7 4.3 16.2 15.3 14.7 10.8 10.5 9.9 10.1 9.2 8.4 65.1 62.8 59.7 4.4 4.6 4.8 4.5 REDUCE 1,331 1,280 (4) 676 9.6 508 24.2 28 33 36.5 15.8 17.8 55 48 40 40 35 30 13.9 11.8 10.1 27.2 26.8 27.0 0.6 0.7 0.9 12.3 S H Kelkar and Company BUY 104 145 39 15 0.2 141 5.7 7.5 8.8 (6.4) 31.7 16.2 18.2 13.8 11.9 11.2 9.0 8.0 1.7 1.6 1.5 9.4 12.1 13.1 1.9 2.6 3.4 0.1 SRF BUY 3,309 3,600 9 190 2.7 57 139 175 199 24.7 25.4 13.6 23.7 18.9 16.7 14.1 11.7 10.2 3.9 3.3 2.8 17.8 19.0 18.3 0.4 0.5 0.6 15.2 Speciality Chemicals Neutral 1,009 14.3 24.2 16.1 13.2 35 30 26.4 22.6 19.7 17.4 8.5 7.3 6.3 24.5 24.5 23.9 1.1 1.2 1.3 32.0 Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES EQUITIES INSTITUTIONAL KOTAK -

December 13, December 2019 RESEARCH

KOTAK ECONOMIC RESEARCH 23

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summ India Fair O/S ADVT Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 12-Dec-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Telecommunication Services Bharti Airtel BUY 439 510 16 2,251 31.8 5,131 (5.5) 3.7 9.7 NM NM NM NM 119.9 45.3 9.4 7.1 6.1 3.4 3.5 3.5 NM 2.9 7.7 0.9 1.4 1.4 96.1 Bharti Infratel REDUCE 252 200 (21) 466 6.6 1,850 15.8 16.4 18.8 20.5 3.6 14.8 15.9 15.4 13.4 8.0 7.4 6.5 3.3 3.2 3.1 20.4 21.2 23.4 4.9 5.0 5.8 42.5 Vodafone Idea RS 7 - (100) 195 2.7 28,736 (23.3) (6.1) (8.0) NM NM NM NM NM NM 28.1 16.5 13.3 0.9 5.2 (1.0) NM NM 297 — — — 34 Tata Communications ADD 391 400 2 112 1.6 285 3.6 9.0 17.4 108.4 150.2 93.1 108.4 43.4 22.5 6.8 6.3 5.6 NM 74.7 17.7 NM 990 127.2 1.9 1.9 1.9 1.7 Telecommunication Services Cautious 3,024 42.7 NM 49.3 29.0 NM NM NM 11.0 8.4 7.2 3.0 3.7 4.9 NM NM NM 1.4 1.8 1.9 174.0 Transportation Adani Ports and SEZ BUY 373 450 21 757 10.7 2,032 23.4 23.9 28.4 17.0 2.1 19.0 15.9 15.6 13.1 12.5 11.2 9.6 3.0 2.6 2.2 18.9 17.7 18.4 4.1 1.3 1.6 23.8 Container Corp. SELL 562 510 (9) 342 4.8 609 17.4 21.3 27.8 6.7 22.4 30.6 32 26 20 18.7 15.6 12.1 3.3 3.1 2.9 10.2 12.0 14.7 0.3 1.6 2.1 16.7 Gateway Distriparks BUY 96 175 83 10 0.1 109 5.8 7.9 11.8 (14.9) 37.3 48.8 16.6 12.1 8.1 6.6 5.5 4.4 0.7 0.7 0.6 4.6 5.8 8.2 3.1 3.1 3.1 0.3 ary ary Gujarat Pipavav Port BUY 83 124 50 40 0.6 483 5.1 5.9 7.5 20.1 15.0 27.2 16.2 14.1 11.1 7.5 6.5 5.7 2.0 2.0 1.9 12.2 13.9 17.6 5.4 6.2 7.9 0.6 InterGlobe Aviation REDUCE 1,339 1,535 15 515 7.3 383 56.0 84.2 102.2 1,285.7 50.2 21.5 24 16 13.1 4.7 3.0 2.0 5.5 4.2 3.3 26.5 30.2 28.3 — 0.6 0.8 37

Mahindra Logistics ADD 375 398 6 27 0.4 71 12.1 14.9 18.3 (3.8) 23.7 22.4 31 25 21 15.4 12.3 10.0 4.8 4.1 3.6 16.3 17.6 18.7 — — — 0.4 -

Transportation Attractive 1,692 23.9 49.8 17.9 21.9 20 17 14.1 9.8 7.9 6.4 3.4 3.0 2.6 16.9 17.4 18.3 2.1 1.3 1.6 79 13, December 2019 KIE universe 117,897 1665.6 11.1 31.6 18.0 23 17.6 14.9 11.0 9.5 8.3 2.6 2.4 2.1 11.4 13.5 14.4 1.6 1.8 2.0

Notes: (a) We have used adjusted book values for banking companies. (b) 2020 means calendar year 2019, similarly for 2021 and 2022 for these particular companies. (c) Exchange rate (Rs/US$)= 70.76 Source: Company, Bloomberg, Kotak Institutional Equities estimates

24 KOTAK ECONOMIC RESEARCH 24

Disclosures

of of the following , if, any, noare longer in effect for this stock As of September 30, 2019 fair value KOTAK INSTITUTIONAL EQUITIES RESEARCH , any, if for this stock,because is there notsufficient a

fair valuefair

.

Percentage of companies covered by Kotak Institutional Equities, the specifiedwithin category. Percentage of companies each within category for which Kotak Institutional Equities and or its affiliates has provided investment banking services the previouswithin months.12 * The above categories are defined as follows: Buy = We expect this stock to deliver more returns than 15% over the next months;12 Add = We expect this stock to deliver returns 5-15% over the next months;12 Reduce = We expect this stock to deliver returns over -5-+5% the next months;12 Sell = We expect this stock to deliver less returns overthan -5% the next months.12 Our target prices are also on a horizon 12-month basis. These ratings are used illustratively to comply with applicable regulations. As of 30/09/2019 Kotak Institutional Equities Investment Research had investment ratings on 204 equity securities.

r r display is not or applicable. or its affiliates is acting in an advisory capacity in a merger or strategic transaction . The previous investment and rating months.

fair valuefair

SELL 1.0% 19.6%

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

- 0.5% 21.1% month horizon basis. 5 REDUCE - - 15% returns over the next 12 months. 5% returns over the next 12 The information is not available fo - -

Kotak SecuritiesKotak has suspended coverage of this company. ADD 28.4% 2.5%

th the Rating System all at times. Securities does not cover this company. are also on12 a Kotak SecuritiesKotak Research has suspended theinvestment and rating

The information is not meaningful and is therefore excluded

Kotak Kotak

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 3.4% 30.9% 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%

Fair Value estimates 0% 10% 50% 40% 30% 20% 70% 60% Source: Kotak Institutional Equities Kotak Institutional Equities Research coverage universe coverage Research Equities Institutional Kotak Distribution of ratings/investment banking relationships and shouldnot be relied upon. = NA AvailableNot or Applicable.Not = NM Meaningful.Not and/or and/or Kotak Securities policies in circumstances when Securities Kotak involving this company and in certain other circumstances. CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. fundamental basis for determining an investment rating or Other definitions Other Coverage view. designations: ratings/identifiers Other NR = Rated.Not REDUCE. SELL. Our Our Ratings System notdoes take into account short strictly be in accordance wi Ratings other and definitions/identifiers ratings of Definitions BUY. ADD.

25 Disclosures

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

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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. 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