Morning Insight

FEBRUARY 11, 2019

% Chg News Highlights 8-Feb 1 Day 1 Mth 3 Mths Indian Indices  The International Monetary Fund has warned governments to gear up SENSEX Index 36,546 (1.1) 1.6 3.7 for a possible economic storm as growth undershoots expectations. NIFTY Index 10,944 (1.1) 1.3 3.3 Last month, the IMF lowered its global economic growth forecast for NSEBANK Index 27,294 (0.3) (0.8) 6.6 this year from 3.7 per cent to 3.5 per cent. (ET) NIFTY 500 Index 9,037 (1.2) (0.7) 1.2  CNXMcap Index 16,597 (1.5) (5.9) (4.6) Two-wheeler exports have risen by 19.49 per cent in the April-January BSESMCAP Index 13,657 (0.9) (6.6) (6.4) period this fiscal, according to the latest data from auto industry body World Indices SIAM. (Business Today) Dow Jones 25,106 (0.3) 4.6 (3.4)  is planning to invest around Rs 200 Bn in networks over Nasdaq 7,298 0.1 4.7 (1.5) the next 15 months. The company is also planning to raise Rs 250 Bn FTSE 7,071 (0.3) 2.2 (0.5) NIKKEI 20,751 (0.6) (0.1) (8.6) through rights issue, in which the promoter shareholders -- Vodafone Hangseng 20,751 (0.6) (0.1) (8.6) Group and -- have reiterated to the board that they Shanghai 27,946 (0.2) 5.0 9.4 intend to contribute up to Rs 110 Bn and Rs 72.5 Bn, respectively as part of such rights issue. (ET) Value traded (Rs cr) 8-Feb % Chg Day Cash BSE 2,589 7.9  expects the first phase of Carbon Black's 60,000 Cash NSE 30,054 (2.9) MTPA facility will be commissioned by the end of March quarter. Derivatives 597,493 (66.8) (Moneycontrol) Net inflows (Rs cr) 7-Feb MTD YTD  Engineers Ltd has won a project management consultancy FII 399 2,518 2,013 contract from Mangolia for a new 1.5 mn tonnes refinery that the Mutual Fund 378 383 7,543 country is setting up. Engineers India Ltd and the Mongolian

Nifty Gainers & Losers Price Chg Vol government through Mongol Refinery State Owned LLC signed a 8-Feb (Rs) (%) (mn) Memorandum of Understanding (MoU) Sunday on the sidelines of the Gainers Petrotech conference. (ET) Bharti Infra 326 6.6 11.2  completed acquisition of KEC International's Kotak Mahindra 1,299 1.2 2.5 project for Rs 2.28 bn. With the completion of this acquisition, the 313 0.7 3.1 Losers cumulative network of ATL will reach around 13,450 ckt km. 151 (17.6) 102.3 (Bloomberg) Indiabulls H 614 (5.9) 14.2  to invest over Rs 5 Bn in setting up a manufacturing facility in Vedanta Ltd 154 (5.7) 21.7 South India. To company plans to expand the capacity of Pantnagar Advances / Declines (BSE) plant and start the construction of new manufacturing facility spread 8-Feb A B T Total % total over 65 acres in Tirupati. (Bloomberg) Advances 100 385 41 526 100 Declines 328 634 60 1,022 194  Dr. Reddy's Laboratories received a Form 483 with 11 observations from Unchanged 1 16 4 21 4 the U.S. FDA after the inspection of Formulations Manufacturing Plant in Hyderabad. The company said they will address the above issue Commodity % Chg comprehensively within the stipulated time. (Bloomberg) 8-Feb 1 Day 1 Mth 3 Mths Crude (US$/BBL) 61.7 (0.7) 2.0 (12.1)  Bharti Airtel's Kenya arm signed an agreement with Telkom Kenya to Gold (US$/OZ) 1,314.5 0.3 1.9 8.4 combine operations and will be called 'Airtel-Telkom'. Both companies Silver (US$/OZ) 15.8 0.7 1.1 11.4 will merge their mobile, enterprise and carrier services. (Bloomberg) Debt / forex market 8-Feb 1 Day 1 Mth 3 Mths  Prakash Industries said that it has modernised its Rolling Mill in 10 yr G-Sec yield % 7.3 7.3 7.5 7.8 Chattisgarh to improve the production of wire rods. The company also Re/US$ 71.3 71.5 70.2 73.0 stated that it is on schedule to complete its Sponge Iron Kiln by March

Nifty 2019, thereby adding sponge iron production capacity of 2 lakh tonnes 11,900 per annum along with waste heat power co-generation. (Bloomberg) 11,400 What’s Inside 10,900  Result Update: Amber Enterprises, Phoenix Mills, Greenply Industries, VIP Industries & MRPL 10,400

9,900 Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE = Indian Feb-18 May-18 Aug-18 Nov-18 Feb-19 Express, BL = , BQ = BloombergQuint, ToI: Times of India, BSE = , MC = Moneycontrol Source: Bloomberg

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group.

FEBRUARY 11, 2019

Result Update AMBER ENTERPRISES LTD (AEL)

Stock Details PRICE RS.692 TARGET RS.946 BUY Market cap (Rs mn) : 21950 52-wk Hi/Lo (Rs) : 1235 / 671 AEL reported weak set of numbers as above-normal inventory of room ACs Face Value (Rs) : 10 in the industry led to brands curtailing their procurement plans from the 3M Avg. daily vol (Nos) : 18,146 company. Shares o/s (mn) : 31 Source: Bloomberg Key Highlights Financial Summary  In a seasonally weak quarter, EBITDA margin declined due to lower gross Y/E Mar (Rs mn) FY18 FY19E FY20E margins. Revenue 21,281 25,009 29,632 Growth (%) 29.4 17.5 18.5  The company was able to raise prices by end of December with most of the EBITDA 1,835 1,876 2,461 clients. Hence Q4 should see improved margins. EBITDA margin (%) 8.6 7.5 8.3  PAT 623 888 1,292 The management retains the guidance of increasing RAC unit production EPS 19.8 28.3 41.1 from 1.9mn units in FY18 to 2.1 mn units in FY19. The management EPS Growth (%) 123 42 45 indicated that it has a strong visibility to achieve the same, based on its BV (Rs/share) 284.3 312.6 353.7 current order book. Dividend/share (Rs) 0.0 0.0 0.0 ROE (%) 9.9 9.5 12.3 Valuation and Outlook ROCE (%) 16.0 13.0 16.8 In terms of valuation, the stock is trading at 24.5x and 16.8x FY19 and FY20 P/E (x) 34.9 24.5 16.8 EV/EBITDA (x) 15.6 15.7 11.9 earnings. We see the company as a very good play on India’s fast-growing RAC P/BV (x) 2.4 2.2 2.0 industry. AEL enjoys the highest two year earnings cagr among peer group. Source: Company, Kotak Securities - PCG ROCE has been moderate due to capex in past years in building capacities, which are yet to be optimally utilized. With sustained demand trends and Shareholding Pattern (%) modest capex, we see asset turnover to rise in coming years leading to (%) Dec-18 Jun-18 Mar-18 enhanced ROE/ROCE. We value the stock at 23x Consol EPS of FY20E. Ascribe Promoters 44.0 44.0 50.5 price target of Rs 946 (Rs 1070 earlier). FII 10.7 10.7 1.6 DII 8.1 7.7 8.0 Q3FY19 Results Others 37.2 37.6 40.0 Source: Bloomberg, BSE (Rs mn) Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%) Net Sales 3887.6 3383.9 14.9 2262.7 71.8 Price Performance (%) Raw Material Consumed 3,704.00 2918.7 26.9 1858.6 99.3 (%) 1M 3M 6M Stock Adjustment -364 -65.5 455.7 2.1 -17433.3 Amber Enterprises (22.7) (19.1) (26.0) Employee Expenses 98.4 98.25 0.2 105.2 -6.5 Nifty 1.3 3.3 (4.4) Other Expenses 228.37 192 18.9 207.9 9.8 Source: Bloomberg TOTAL EXPENDITURE 3667 3143.45 16.6 2174 68.7 Price chart (Rs) PBIDT 221 240.45 -8.2 88.9 148.4 1,400 Other Income 2.79 39.93 -93.0 27.7 -89.9 Depreciation 122 109.7 11.2 123.1 -0.9 1,200 EBIT 102 171 -112 -7 59 1,000 Interest 35 166.1 -79.2 32.8 5.5 800 PBT 67 5 1363.3 -39 -270.5 600 Tax 14 3.4 321.5 -15.76 -190.9 Feb-18 Jun-18 Oct-18 Feb-19 Deferred Tax 14 0 -6 -325.6 Source: Bloomberg Reported Profit After Tax 39 1.18 3179.7 -17 -323.2 EBITDA (%) 5.7 7.1 3.9 Material cost to sales (%) 85.9 84.3 82.2 Employee cost to sales (%) 2.5 2.9 4.6 Other expenditure to sales (%) 5.9 5.7 9.2

Tax rate (%) 42.3 74.2 55.9

Source: Company Sanjeev Zarbade [email protected] +91 22 6218 6424 Reported Vs Estimated performance

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2

FEBRUARY 11, 2019

Rs mn Reported Estimated Revenue 3888 3984 EBITDA (%) 5.7 8.1 Adj PAT 39.0 140.0 Source: Company and Kotak Securities – Private Client Research

Result Highlights

Good revenue growth despite industry curtailing procurement to liquidate excess inventory AEL reported revenues of Rs 3.9 bn in Q3FY19, up 15% on a yoy basis. Reasons for weak revenue were attributed to 1) Weak demand conditions in Q3FY19 and 2) The room AC market contracted by ~ 10-12% in Q1FY19, which led to above- normal inventory in the system in Q3FY19. As a result, brands/retailers curtailed their procurement plans and instead focused on liquidating the excess inventory. Revenue from ACs (Rs 3.1 bn) and Components (Rs 740 mn) grew 19% and 1% y-o-y respectively. The company sold 0.42 mn room AC units in Q3FY19 as against 0.37 mn in the corresponding quarter of the previous fiscal. Revenue from Components grew by 1.6% y-o-y from Rs. 731 mn in Q3FY18 to Rs. 743 mn in Q3FY19. Components contributed 19% of company’s overall revenues in Q3FY19. Revenue from AC components reported a decline as some of the clients shifted to captive manufacturing. The management opined that with strong order book and increased sales of Components, the company expects growth momentum in revenues to sustain going forward.

Revenue (Rs mn) Q3FY19 Q3FY18 % change Acs 3140 2653 18.4 AC components 229 298 -23.0 Non AC components 513 433 18.5 Source: Company

In a seasonally weak quarter, EBITDA margin declined due to lower gross margins Gross margins for the quarter declined to 14.1% as compared to 15.7% in the corresponding quarter of the previous fiscal. EBITDA margins contracted by 140 bps mainly due to higher commodity cost pressure as reflected by lower gross margins.

9MFY19 PAT up 10% on a y-o-y basis PAT for Q3FY19 stood at Rs. 38 mn as compared to Rs. 1 mn in Q3FY18. PAT for 9MFY19 stood at Rs. 31 mn as compared to Rs. 28 mn in 9MFY18, a growth of 10% on Y-o-Y basis.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 3 FEBRUARY 11, 2019

Management guidance The management retained the guidance of increasing RAC unit production from 1.9mn units in FY18 to 2.1 mn units in FY19. The management indicated that it has a strong visibility to achieve the same, based on its current order book. With new customer additions, increase in wallet share of existing customer and product expansion in AC & Non AC Components the management expects margins to improve progressively going into CY2019.

Customs duty hike on room ACs With a view to promote domestic manufacturing, the government had hiked custom duty from 10% to 20% on Air Conditioners. Increase in custom duty will increase procurement of ACs from within India. This is positive for AEL.

Conference call highlights The management indicated that impact on company’s revenue comes with a lag of a quarter. The company was able to raise prices by end of December with most of the clients. Hence Q4 should see improved margins. The company has done Rs 750-800 mn capex in FY19, higher than expected by about Rs 200-250 mn as the company spent more on R&D and capacity enhancements. Notwithstanding the intermittent blips in room AC demand due to weather patterns, AEL remains bullish given low penetration and shortening replacement cycle of the product. The company has increased its AC Components and NON AC components product offerings in 9MFY19. During the Quarter, company has added new customers and also launched new energy efficient models.

Earnings Revision FY19E FY20E (Rs mn) Earlier Revised Earlier Revised Revenue 25,858.0 25,009.5 31,577.0 29,632.4 EBITDA % 7.8 7.5 8.6 8.3 EPS 31.7 28.3 46.5 41.1 -10.8% -11.5% Source: Company and Kotak Securities – Private Client Research

Reiterate BUY In terms of valuation, the stock is trading at 24.5x and 16.8x FY19 and FY20 earnings. We see the company as a very good play on India’s fast-growing RAC industry. AEL enjoys the highest two year earnings cagr among peer group. ROCE has been moderate due to capex in past years in building capacities, which are yet to be optimally utilized. With sustained demand trends and modest capex, we see asset turnover to rise in coming years leading to enhanced ROE/ROCE. We value the stock at 23x Consol EPS of FY20E. Ascribe price target of Rs 946 (Rs 1070 earlier).

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 4 FEBRUARY 11, 2019

Company background Amber Enterprises Ltd was incorporated as Amber Enterprises India Private Limited and set up its first factory in Rajpura, Punjab, which commenced operations in 1994. Since then, the company has today grown to 10 manufacturing facilities across seven locations in India. The company’s manufacturing facilities have a high degree of backward integration and are strategically located in proximity to our customers' requirements. The company’s key customers include leading RAC brands such as Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool. Its customers commanded around 75% share in the Indian RAC market in Fiscal 2017.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 5 FEBRUARY 11, 2019

Financials: Consolidated

Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 16,444 21,281 25,009 29,632 Cash and cash equivalents 352 1,339 224 225 % change yoy 51.0 29.4 17.5 18.5 Accounts receivable 3,101 3,786 5,300 6,254 EBITDA 1,286 1,835 1,876 2,461 Stocks 2,685 3,956 4,669 5,509 % change yoy (44.2) 42.7 2.2 31.2 Loans and Advances 140 283 283 283 Depreciation 397 490 592 648 Others 233 276 276 276 EBIT 889 1,345 1,284 1,814 Current Assets 6,511 9,640 10,752 12,548 % change yoy (61.4) 51.4 (4.5) 41.2 LT investments 108 144 144 144 Net Interest 583 538 116 78 Net fixed assets 4,629 5,629 5,637 5,890 Other Income 79 87 100 110 Intangible assets 1,059 1,674 1,674 1,674 Earnings Before Tax 384 894 1,269 1,846 Deferred tax assets 2 - - - % change yoy (83.3) 132.8 41.9 45.5 CWIP 93 95 95 95 Tax 105 271 381 554 Other non current assets 105 104 104 104 as % of EBT 27.3 30.3 30.0 30.0 Total Assets 12,507 17,285 18,406 20,454 Net Income adj 279 623 888 1,292 Payables 4,979 6,874 7,562 8,318 % change yoy 15.8 123.3 42.5 45.5 Provisions 31 9 9 9 Exceptional items 0.0 0.0 0.0 0.0 Current liabilities 5,010 6,884 7,571 8,327 Reported Net Income 279 623 888 1,292 LT debt 3,741 1,055 600 600 Shares outstanding (m) 31.4 31.4 31.4 31.4 Other liabilities 129 419 419 419 EPS (Rs) 8.9 19.8 28.3 41.1 Equity & reserves 3,627 8,928 9,816 11,108 DPS (Rs) 1.6 0.0 0.0 0.0 Total Liabilities 12,507 17,285 18,406 20,454 CEPS 19.2 33.5 41.8 51.0 BVPS (Rs) 115 284 313 354 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E PBDIT 1,286 1,835 1,876 2,461 EBITDA margin (%) 7.8 8.6 7.5 8.3 Tax and adjustments 358 (1,640) (381) (554) EBIT margin (%) 5.4 6.3 5.1 6.1 Cash flow from operations 1,643 195 1,495 1,908 Net profit margin (%) 1.7 2.9 3.6 4.4 Net Change in Working Capital (443) (104) (1,539) (1,038) Adjusted EPS growth (%) 15.8 123.3 42.5 45.5 Net Cash from Operations 1,200 92 (44) 870 Capital Expenditure (820) (734) (600) (900) Receivables (days) 68.4 63.7 72.0 70.8 Cash from investing (127) 80 100 110 Inventory (days) 57.6 62.2 70.3 69.1 Net Cash from Investing (946) (654) (500) (790) Sales / Net Fixed Assets (x) 3.6 3.8 4.4 5.0 Interest paid (583) (538) (116) (78) ROE (%) 8.9 9.9 9.5 12.3 Issue of Shares 500 4,776 - - ROCE (%) 17.4 16.0 13.0 16.8 Dividends Paid (60) - - - Debt Raised 57 (2,689) (455) - EV/ Sales 2.0 1.3 1.2 1.0 Net cash from financing (87) 1,549 (571) (78) EV/EBITDA 25.2 15.6 15.7 11.9 Net change in cash 167 986 (1,115) 2 Price to earnings (P/E) 77.9 34.9 24.5 16.8 Free cash flow 380 (643) (644) (30) Price to book value (P/B) 6.0 2.4 2.2 2.0 cash at end 352 1,339 224 225 Price to cash earnings 36.0 20.7 16.5 13.6 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 6 FEBRUARY 11, 2019

Result Update THE PHOENIX MILLS LTD

Stock Details PRICE RS.587 TARGET RS.707 BUY Market cap (Rs mn) : 89833 52-wk Hi/Lo (Rs) : 732 / 489 Phoenix mills ltd’s results for the quarter were in line with our estimates led Face Value (Rs) : 2 by improvement in consumption and rental revenues. Rental growth was 3M Avg. daily vol (Nos) : 83,712 driven by the strong operational performance of Market City malls – PMC Shares o/s (mn) : 153 Pune & PMC . Strong performance of St Regis and commercial Source: Bloomberg office portfolio also aided the financial performance. We believe that rental Financial Summary renegotiations are likely to maintain performance for retail segment. Y/E Mar (Rs mn) FY18 FY19E FY20E Sales 16,198 17,755 18,684 Key highlights Growth (%) -11.0% 9.6% 5.2%  During Q3FY19, consolidated revenues were up by 5.7% YoY with strong EBITDA 7,774 8,645 9,254 EBITDA margin (%) 48.0 48.7 49.5 margins of 50.5% led by healthy improvement in consumption levels and Net profit 2,422 2,746 3,149 rental income. Retail segment revenues are likely to remain strong going EPS Rs) 15.8 17.9 20.6 forward too with rental renegotiations and consumption improvement. Growth (%) 27.0% 13.4% 14.7%  Debt on operational portfolio is coming down with steady annuity income BVPS (Rs) 186.2 201.0 218.4 while debt on under-construction portfolio is moving up with improved pace DPS (Rs) 2.6 2.6 2.6 of execution. ROE (%) 9.6 9.3 9.8 ROCE (%) 8.9 8.8 9.5  Company has commenced work at all three underdevelopment assets – at P/E (x) 37.1 32.7 28.5 Hebbal Bengaluru and Pune & Palladium at Ahmedabad in Q3FY19. Work at EV/EBITDA (x) 15.8 14.1 13.2 Lucknow is going on in full swing while work at Indore should commence in P/BV (x) 3.2 2.9 2.7 Q4FY19. It is well placed to achieve its target of 11-12 msft of operational Source: Company, Kotak Securities - PCG retail portfolio by FY23 Shareholding Pattern (%) Valuation and outlook (%) Dec-18 Jun-18 Mar-18 Promoters 62.8 62.8 62.8 At current price of Rs 587, stock is trading at 32.7x and 28.5x P/E and 14.1x and FII 27.9 27.9 29.2 13.2x EV/EBITDA on FY19/20 consolidated estimates respectively. We continue DII 4.3 4.2 3.7 to remain positive on the company and maintain our price target of Rs 707 on Others 5.0 5.1 4.4 FY20 estimates. Maintain BUY. Source: Bloomberg, BSE Consolidated financials Price Performance (%) (Rs mn) Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%) (%) 1M 3M 6M Net Sales 4404 4166 5.7% 4047 8.8% The Phoenix Mills 1.7 (2.8) (8.9) Total Expenditure 2180 2099 3.9% 2066 5.5% Nifty 1.3 3.3 (4.4) EBITDA 2225 2067 7.6% 1982 12.3% Source: Bloomberg EBITDA % 50.5 50.0 49.0 Price chart (Rs) Depreciation 523 485 506 EBIT 1702 1583 7.5% 1475 15.4% 750 Interest 917 883 917 675 EBT(exc other income) 785 700 12.2% 558 40.7% 600 Other Income 170 106 183 PBT 955 806 18.5% 741 28.9% 525 Exceptional item 0 0 0 450 PBT after exc item 955 806 741 Feb-18 Jun-18 Oct-18 Feb-19 Tax 175 218 179 Source: Bloomberg Tax % 18.3 27.0 24.1 PAT 780 588 32.6% 562 38.8% Minority interest 108 45 46 Share of profit of associates 36 109 104 Net profit 709 652 8.6% 621 14.2% Other comprehensive income 8 736 200 Total income 716 1388 820 Equity Capital 306 306 306 Teena Virmani Face Value (In Rs) 2 2 2 [email protected] EPS 5 4.3 8.6% 4 14.2% +91 22 6218 6432 Source: Company

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 7

FEBRUARY 11, 2019

Revenue growth in line with estimates : During Q3FY19, High Street Phoenix has registered 14% YoY improvement in rental income while average trading density was down by 3% YoY at Rs 3271 per sq ft per month. Current average rentals improved 9% YoY and stand at nearly Rs 403 per sq ft per month (vs Rs 369 per sq ft per month during Q2FY18) as the new lease deals have significantly higher minimum guarantee than the current mall average.

Market cities: market city: For the quarter, Chennai market city revenues grew by 19% YoY and were led by 11% YoY improvement in rental income. Rentals per sq ft were up by 5% YoY at Rs 139 per sq ft per month. Consumption was up 5% for Q3FY19 as category changes in the retail mix had a positive impact on the rental income of the company. Palladium Chennai performance has also aided the Chennai market city performance. Palladium Chennai is currently in the first year of operations and EBITDA margin will start improving once the mall stabilizes and occupancy increases above 90%. However, these revenues are not included in the consolidated financials. Bengaluru market city revenues have witnessed an increase of 5% YoY with 10% YoY improvement in rental income. Trading density and consumption have started witnessing improvement. Rentals per sq ft for Bengaluru market city were up by 7% YoY at Rs 124 per sq ft per month. Kurla market city: Kurla market city has continued with strong performance during Q3FY19 too. Consumption (up 14% YoY) and trading density (up 9% YoY) have witnessed a healthy improvement for Kurla market city and rentals have also witnessed an improvement of 4% YoY. Pune market city: Pune market city has seen 8% improvement in revenues led by 17% improvement in rental income. Trading density is up by 12% YoY and rentals per sq ft for Pune market city were up by 12% YoY. High consumption has led to strong rental and operational performance. Renewals expected going forward: Out of the total lease renewals, nearly 60% of High Street Phoenix and Palladium in Mumbai and PMC Pune and 51% of PMC Mumbai are likely to come for renewals between FY19-21. High Street Phoenix and Palladium has 19%/25%/16% renewals expected in FY19/20/21 respectively. Pune market city is likely to see 17%/19%/24% lease renewals during Fy19/20/21 respectively while Kurla market city is likely to see 11%/8%/32% lease renewals during Fy19/20/21 respectively. market city lease renewals for nearly 3%/6%/27% of the area are likely to come during FY19/FY20/21 respectively while for Chennai market city, lease renewals of 5%/2%/18% are likely to come during FY19/20/21 respectively. These renewals are likely to aid rental growth for the company. Commercial and residential portfolio: For One-Bangalore West, it commenced hand over for flats for Towers 1-5. Execution at Tower 6 is progressing well and company may plan to launch Tower 7 in near future. For Kessaku, two towers are nearing completion. For Chennai (Crest), construction has been completed for Tower A,B,C and Occupancy certificate has been received. During the quarter, company has only recognized revenues from One Bangalore West. Commercial portfolio comprises of Phoenix House, Art Guild, Phoenix Paragon Plaza, Centrium with 85% of available area leased out to Tier 1 clients and now Fountainhead – Pune for which leasable area is 0.16 msf - 74% area has been leased and 0.03 msf became operational in Q3FY19. Current leasable area stands at 1.33 mn sq ft.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 8 FEBRUARY 11, 2019

Hotels portfolio – Q3FY19 room occupancy at St Regis, Mumbai stood at 82% at an ARR of Rs. 12422 while room occupancy at Courtyard by Marriott, Agra stood at 79% at an ARR of Rs 4646. St Regis has emerged as a preferred hospitality destination in South Mumbai with large areas available for banquet halls. Company expects its strong performance to continue and margins also to improve from current levels. Portfolio under development - The total under development retail leasable portfolio has moved up to 4.6mn sq ft. Along with the development potential of 4.6mn sq ft, these assets have an additional leasable potential of 3.3-3.4 mn sq ft to be developed over long term. Company envisages Rs 45 bn of capex to be spent to develop these assets over next 3-4 years – out of which, it has already spent Rs 20 bn on land acquisition cost and remaining Rs 25 bn is to be spent over 3-4 years with a mix of debt of Rs 22 bn and equity of Rs 3 bn. Once these assets become operational, it expects a total rental income of Rs 5.6 bn on stabilization of these assets.

Status of under-development projects

Source: Company

Net profit performance in line with our estimates Operating margins improved on YoY basis. Average interest rate of debt has now started to move up sequentially. Consolidated debt has come down marginally on sequential basis at Rs 44.75 bn with Rs 41.25 bn coming from operational portfolio and Rs 3.5 bn from under-development portfolio. Debt on operational portfolio is coming down with steady annuity income while debt on under-construction portfolio is moving up with improved pace of execution. We maintain our estimates and expect net profits to grow at a CAGR of 14.5% between FY18-20.

Valuation and outlook At current price of Rs 587, stock is trading at 32.7x and 28.5x P/E and 14.1x and 13.2x EV/EBITDA on FY19/20 consolidated estimates respectively. We continue to remain positive on the company and maintain our price target of Rs 707 on FY20 estimates. Maintain BUY.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 9 FEBRUARY 11, 2019

Sum of the parts valuation Phnx Stake Area (mn sq ft) Value (Rs mn) Per share High Street Phoenix 100% 0.9 56039 367 Phase IV @ HSP 100% 0.25 7000 46 Market cities Pune 100.00% 1.19 7517 49 Kurla 100.00% 1.11 3597 24 Bangalore(East) 100.0% 0.98 10339 68 Chennai 50.00% 1 6680 44 Bangalore(W)-Residential 100% 1.8 3562 23 CPPIB 51% 1x 16620 55 Phoenix United 100% 1203 8 Hospitality 73% 3716 24 Total 707 Source: Kotak Securities – Private Client Research

Company background Phoenix mills is a key developer and manager of prime retail-led assets in city centers, with a gross portfolio of 17.5 million sq. ft spread over 100+ acres of prime land in key gateway cities of India. It has 8 Malls spread over 6 mn ft in 6 major cities along with commercial centres in Mumbai with rent generating leasable area of 1.16 mn sq ft. Residential projects under development have 3.72 mn sq ft of saleable area. It also has 2 Hotel (588 Keys) managed by renowned global operators in its portfolio.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 10 FEBRUARY 11, 2019

Financials: Consolidated

Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 18,246 16,198 17,755 18,684 Cash and cash equivalents 812 449 836 208 % change YoY 3.0 (11.2) 9.6 5.2 Accounts receivable 1,470 1,292 1,514 1,593 EBITDA 8,469 7,774 8,645 9,254 Inventories 9,455 6,615 8,807 9,269 % change YoY 8.0 (8.2) 11.2 7.0 Loans and Adv & Others 3,671 3,730 3,794 3,817 Other Income 472 556 556 556 Current assets 15,408 12,086 14,950 14,887 Depreciation 1,953 1,983 2,258 2,370 Other non current assets 1,127 1,997 1,997 1,997 EBIT 6,988 6,347 6,943 7,440 LT investments 5,260 9,191 6,491 3,791 % change YoY 9.0 (9.2) 9.4 7.2 Net fixed assets 48,656 61,700 61,942 64,072 Net interest 4,230 3,476 3,650 3,601 Total assets 70,452 84,973 85,380 84,746 Extra ord exp - - - - Profit before tax 2,758 2,871 3,294 3,839 Payables 3,449 3,381 3,743 3,939 % change YoY 74.0 4.1 14.7 16.6 Others 1,926 1,396 1,396 1,396 Tax 858 758 856 998 Current liabilities 5,375 4,777 5,139 5,335 as % of PBT 31.1 26.4 26.0 26.0 Provisions 843 1,101 1,580 1,580 Profit after tax 1,900 2,113 2,437 2,841 Minority interest & associates (10) (308) (308) (308) LT debt 36,669 42,359 39,659 36,159 Adjusted Net income 1,910 2,422 2,746 3,149 Min. int and def tax liabilities 5,693 8,219 8,219 8,219 % change YoY 128 27 13 15 Equity 306 306 306 306 Shares outstanding (m) 153.1 153.1 153.1 153.1 Reserves 21,566 28,211 30,477 33,147 EPS (reported) (Rs) 12.5 15.8 17.9 20.6 Total liabilities 70,452 84,973 85,380 84,746 CEPS (Rs) 25.2 28.8 32.7 36.0 DPS (Rs) 2.40 2.60 2.60 2.60 BVPS (Rs) 143 186 201 218 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E EBIT 6,997 6,656 7,252 7,749 EBITDA margin (%) 46.4 48.0 48.7 49.5 Depreciation 1,953 1,983 2,258 2,370 EBIT margin (%) 38.3 39.2 39.1 39.8 Change in working capital 5,309 2,891 (2,116) (368) Net profit margin (%) 10.5 15.0 15.5 16.9 Chg in other net current assets (721) 6,052 478 - Operating cash flow 13,539 17,581 7,873 9,751 Receivables (days) 42.6 31.1 31.1 31.1 Interest (4,230) (3,476) (3,650) (3,601) Inventory (days) 227.0 181.1 181.1 181.1 Tax (858) (758) (856) (998) Sales/assets(x) 0.4 0.3 0.3 0.3 Cash flow from operations 8,451 13,347 3,366 5,152 Interest coverage (x) 1.7 1.8 1.9 2.1 Capex (3,181) (15,027) (2,500) (4,500) (Incr)/dec in investments (2,920) (3,931) 2,700 2,700 Debt/equity ratio(x) 1.8 1.6 1.4 1.2 Cash flow from investments (6,101) (18,958) 200 (1,800) ROE (%) 9.1 9.6 9.3 9.8 Proceeds from issue of equity 0 - - - ROCE (%) 10.6 8.9 8.8 9.5 Increase/(decrease) in debt (2,894) 5,689 (2,700) (3,500) Proceeds from share premium 131 - - - EV/ Sales (x) 6.6 7.6 6.9 6.5 Dividends (405.2) (442.3) (479.4) (479.4) EV/EBITDA (x) 14.2 15.8 14.1 13.2 Cash flow from financing (3,168) 5,247 (3,179) (3,979) Price to earnings (x) 47.0 37.1 32.7 28.5 Opening cash 1,631 812 449 836 Price to book value (x) 4.1 3.2 2.9 2.7 Closing cash 812 449 836 208 Price to Cash Earnings (x) 23.3 20.4 18.0 16.3 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 11 FEBRUARY 11, 2019

Result Update GREENPLY INDUSTRIES LTD

Stock Details PRICE RS.131 TARGET RS.161 BUY Market cap (Rs mn) : 16052 52-wk Hi/Lo (Rs) : 379 / 110 Greenply industries revenues were ahead of our estimates but pressure on Face Value (Rs) : 1 MDF business impacted the net profit performance adversely. Plywood 3M Avg. daily vol (Nos) : 152,304 segment margins had witnessed an improvement on yearly basis while MDF Shares o/s (mn) : 123 margins declined due to pressure on realization. Though MDF prices have Source: Bloomberg not yet bottomed out, but volumes have started recovering from Q3FY19 Financial Summary onwards. We believe that growth going ahead is likely to be led by volume Y/E Mar (Rs mn) FY18 FY19E FY20E gains in each segment. Sales 16,804 18,005 21,455 Growth (%) 1.5% 7.2% 19.2% Key highlights EBITDA 2,397 2,136 2,635 EBITDA margin (%) 14.3 11.9 12.3 Revenue growth was led by healthy volume gains in plywood and MDF. Plywood Net profit 1,345 1,022 1,096 realizations were up by 2.7% YoY while MDF realizations were down by 19.8% EPS (Rs) 11.0 8.3 8.9 YoY due to increased competition. Margin decline coupled with higher Growth (%) -1.5 -24.0 7.2 depreciation led to 4.3% YoY decline in net profits. BVPS (Rs) 74.6 82.2 90.4 DPS (Rs) 0.6 0.6 0.6 Valuation and outlook ROE (%) 15.8 10.6 10.3 At Rs 131, stock is currently trading at 15.7x/14.7x P/E and 10.5x/8.3x ROCE (%) 13.3 8.6 10.3 EV/EBITDA on FY19/20 estimates. We revise our estimates to factor in Q3FY19 P/E (x) 11.9 15.7 14.7 EV/EBITDA (x) 9.5 10.5 8.3 performance and arrive at a revised price target of Rs 161 based on 18x FY20 P/BV (x) 1.8 1.6 1.4 estimated earnings (Rs 148 earlier). We upgrade the stock to BUY since we Source: Company, Kotak Securities - PCG believe that current stock price is already factoring in the pain in MDF business.

Shareholding Pattern (%) Financial highlights (%) Dec-18 Jun-18 Mar-18 Rs mn Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%) Promoters 51.0 51.0 51.0 FII 11.9 11.9 11.9 Net Sales 4628.5 3992.9 15.9% 4483.1 3.2% DII 20.0 19.5 19.5 Total Expenditure 4045.1 3366.4 20.2% 4066.7 -0.5% Others 17.1 17.6 17.6 EBITDA 583.5 626.5 -6.9% 416.4 40.1% Source: Bloomberg, BSE EBITDA margins % 12.61% 15.69% 9.29% Depreciation 199.2 104.38 172.6 Price Performance (%) EBIT 384.3 522.1 -26.4% 243.8 57.6% (%) 1M 3M 6M Interest -16.5 25.6 235.04 Greenply Industries (6.9) (10.4) (35.2) EBT (Exc other income) 400.8 496.5 -19.3% 8.7 4490.5% Nifty 1.3 3.3 (4.4) Other operating income 15.5 10.05 27.33 Source: Bloomberg Other Income Price chart (Rs) EBT 416.3 506.6 -17.8% 36.1 1054.3% 420 Tax 59.0 146.0 -106.6 Tax (%) 14% 29% -296% 340 Profit After Tax 357.3 360.6 -0.9% 142.7 150.4% 260 Other comprehensive income -6.2 6.16 2.985 180 Net profit 351.1 366.7 -4.3% 145.6 Equity Capital 122.6 122.6 122.6 100 Feb-18 Jun-18 Oct-18 Feb-19 Face Value (In Rs) 1.00 1.00 1.00

EPS (Rs) 2.9 2.9 -0.9% 1.2 150.4% Source: Bloomberg Source: Company

Revenue growth ahead of our estimates Revenue growth was led by healthy volume gains in plywood and MDF. Plywood realizations were up by 2.7% YoY while MDF realizations were down by 19.8%

YoY due to increased competition. Teena Virmani [email protected] +91 22 6218 6432

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 12

FEBRUARY 11, 2019

Plywood division sales stood at 14.6 msm comprising of 10.4 msm from own manufactured plants while 4.2 msm from outsourcing. Capacity utilization in the plywood segment stood at 118% as against 103% during Q2FY18. Average net realization of plywood was up by 2.7% YoY to Rs 225 per sqm. Plywood volume growth stood healthy at 17.3% YoY for the quarter. Company is targeting mid-segment plywood by tying up with more unorganized players and expects the growth in plywood volumes to continue. The pain in the MDF segment is visible in this quarter too with continued pressure on realizations but volumes have started improving sharply from Q3FY19 onwards. MDF volumes were up by 34% on yearly basis. During Q3FY19, company further reduced prices of MDF due to increased competition. Company expects continued pressure on MDF realization for next 2 years due to increased competition and higher incentives for channel partners. MDF Utilizations stood at 44% during Q3FY19 on expanded capacity. Volumes in MDF segment stood at 58648 cubic meter vs 43790 cubic meter in Q3FY18. Average realizations of MDF were down by 19.8% YoY at Rs 20960 per CBM. Management has guided for 16-18% EBITDA margin in MDF segment in FY20E on the back of 60% capacity utilization in new AP plant.

Segmental details Plywood volumes Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%) Production mn sq m 10.4 8.38 10.59 Outsourcing mn sq m 4.2 4.06 4.95 Total Sales mn sq m 14.6 12.44 17.4% 15.54 -6.0% Realization per mn sq m 225 219 2.7% 223 0.9% Plywood Revenues (Rs mn) 3327.2 2761 20.5% 3529.7 -5.7% MDF Total Sales (CBM) 58648 43790 33.9% 37563 56.1% Realization per CBM 20960 26139 -19.8% 23194 -9.6% MDF Revenues (Rs mn) 1233.7 1146 7.7% 876.3 40.8% Plywood margins 10% 9.60% 12% MDF margins 20% 33.90% 5% Source: Company Company management expects 12-14% growth in plywood volumes and 40% growth in MDF volumes during FY19. For the new MDF plant, company expects capacity utilization of 35%/60% for FY19/20 respectively. Thus going forward, the gains in revenues are likely to be led by volume gains in plywood (via outsourcing) and new capacity expansion in UP and improvement in capacity utilization in MDF. We maintain our estimates and expect revenues to grow at a CAGR of 13% between FY18-20.

Margins were under pressure in both divisions but currency appreciation benefited the company during the quarter Plywood margins stood at 10% during the quarter while MDF margins stood at 20% as compared to 33.9% in Q3FY18. Plywood margin are expected to improve by 100 basis points with increased usage of Gabon Face Veneers which are cheaper than Gurjan timber. On expenditure side, other expenses include foreign exchange fluctuation gain of Rs 90.2 mn for the quarter as against a loss of Rs 78.9 mn during Q2FY19. Also, the finance costs includes foreign exchange fluctuation gain of Rs 124.9 mn for the quarter as against loss of Rs 141.8 mn for Q2FY19. We maintain our margin estimates for FY19/20 while we incorporate higher depreciation and

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 13 FEBRUARY 11, 2019

lower interest charges. Our net profit estimates get revised upwards by 27.8%/8.8% for FY19/20 respectively.

Demerger details Business comprising of manufacturing, marketing and trading of Medium Density Fibre Boards (MDF), Pre-Laminated MDF, Wood Floors, Plywood, Decorative Veneers, Doors and allied products are likely to be demerged into a separate company called as GreenPanel Industries. Presently, this business consists of the MDF manufacturing unit situated at Routhu Suramala, Chittoor (Andhra Pradesh), MDF manufacturing unit and Plywood and allied products manufacturing unit located in a common plot at Pantnagar (Uttarakhand) and overseas subsidiary viz. Greenply Trading Pte. Limited (registered in Singapore). Annual turnover of the demerged entity was Rs 7809 mn for FY18, 46.62% of total revenues of FY18. Greenply shareholders will get one share of Greenpanel industries for every one share held in Greenply and the demerged entity will be listed separately on exchanges. Rajesh Mittal (current MD of Greenply Industries) will remain the head of the Plywood unit while Shobhan Mittal (current CEO of Greenply Industries) will take over GreenPanel Industries. The management said that GIL has received Sebi and other stock exchange clearances to demerge the company into Greenply Industries and Greenpanel Industries. Both will have different branding and distribution channel but Greenpanel would also have a plywood unit, thereby posing a competition to the existing brand itself.

Valuation and recommendation At Rs 131, stock is currently trading at 15.7x/14.7x P/E and 10.5x/8.3x EV/EBITDA on FY19/20 estimates. We revise our estimates to factor in Q3FY19 performance and arrive at a revised price target of Rs 161 based on 18x FY20 estimated earnings (Rs 148 earlier). We upgrade the stock to BUY since we believe that current stock price is already factoring in the pain in MDF business.

About the company Greenply Industries Limited (GIL) enjoys leadership position in plywood and medium density fibre boards (MDF) accounting for almost 26 percent of the organized plywood and 30 percent of the MDF market in India. GIL has four state–of-the-art manufacturing facilities for Plywood and one facility for MDF spread across the country producing world class interior products for the domestic and global markets. The company has a presence in over 300 cities across 21 states serviced through a well-entrenched distribution network of 2,500 dealers and authorised stockists, a retail network exceeding 10,000 and about 40 branches pan-India.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 14 FEBRUARY 11, 2019

Financials: Standalone

Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 16,549 16,804 18,005 21,455 Cash and cash equivalents 716 300 610 1,033 % change YoY - 1.5 7.2 19.2 Accounts receivable 3,011 2,844 2,762 3,292 EBITDA 2,450 2,397 2,136 2,635 Inventories 1,583 2,150 2,220 2,645 % change YoY - (2.2) (10.9) 23.4 Loans and Adv & Others 716 1,384 1,854 2,081 Other Income 126 38 75 60 Current assets 6,026 6,677 7,446 9,050 Depreciation 485 448 693 787 Other non current assets 1,405 91 91 91 EBIT 2,091 1,987 1,517 1,909 LT investments 724 764 764 764 % change YoY 5.0 (5.0) (23.6) 25.8 Net fixed assets 7,174 12,534 13,340 13,254 Net interest 181 95 271 387 Total assets 15,329 20,065 21,641 23,158 Profit before tax 1,909 1,892 1,246 1,522 % change YoY 11.0 (0.9) (34.1) 22.1 Payables 2,081 2,110 2,664 3,174 Tax 559 535 224 426 Others 338 537 537 537 as % of PBT 29.3 28.3 18.0 28.0 Current liabilities 2,419 2,647 3,201 3,711 Profit after tax 1,351 1,357 1,022 1,096 Provisions 261 265 354 354 Exceptional item 16 (12) - - Net income 1,366 1,345 1,022 1,096 LT debt 4,638 7,738 7,738 7,738 % change YoY 6.0 (1.5) (24.0) 7.2 Min. int and def tax liabilities 140 265 265 265 Shares outstanding (m) 122.6 122.6 122.6 122.6 Equity 123 123 123 123 EPS (reported) (Rs) 11.1 11.0 8.3 8.9 Reserves 7,748 9,028 9,961 10,968 CEPS (Rs) 15.1 14.6 14.0 15.4 Total liabilities 15,329 20,065 21,641 23,158 DPS (Rs) 0.60 0.60 0.60 0.60 BVPS (Rs) 64 75 82 90 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E EBIT 2,075 1,999 1,517 1,909 EBITDA margin (%) 14.8 14.3 11.9 12.3 Depreciation 485 448 693 787 EBIT margin (%) 12.6 11.8 8.4 8.9 Change in working capital (236) (1,038) 95 (671) Net profit margin (%) 8.3 8.0 5.7 5.1 Chg in other net current assets (896) 1,641 89 - Operating cash flow 1,428 3,050 2,394 2,024 Receivables (days) 61.1 63.6 56.0 56.0 Interest (181) (95) (271) (387) Inventory (days) 40.1 40.5 45.0 45.0 Tax (559) (535) (224) (426) Sales/assets(x) 2.3 1.3 1.3 1.6 Cash flow from operations 689 2,420 1,899 1,212 Interest coverage (x) 11.5 21.0 5.6 4.9 Capex (2,263) (5,808) (1,500) (700) (Inc)/dec in investments (347) (40) - - Debt/equity ratio(x) 0.5 0.7 0.8 0.7 Cash flow from investments (2,610) (5,848) (1,500) (700) ROE (%) 19.5 15.8 10.6 10.3 Proceeds from issue of equity 2 - - - ROCE (%) 19.5 13.3 8.6 10.3 Inc/(dec) in debt 1,935 3,100 - - Proceeds from share premium 472 - - - EV/ Sales (x) 1.2 1.4 1.2 1.0 Dividends (87) (89) (89) (89) EV/EBITDA (x) 7.9 9.5 10.5 8.3 Cash flow from financing 2,321 3,012 (89) (89) Price to earnings (x) 11.8 11.9 15.7 14.7 Opening cash 316 716 300 610 Price to book value (x) 2.0 1.8 1.6 1.4 Closing cash 716 300 610 1,033 Price to Cash Earnings (x) 8.7 9.0 9.4 8.5 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 15 FEBRUARY 11, 2019

Result Update VIP INDUSTRIES LTD (VIP)

Stock Details PRICE RS.489 TARGET RS.515 ADD Market cap (Rs mn) : 69366 52-wk Hi/Lo (Rs) : 647 / 287 VIP Industries has reported a strong topline growth, but operational Face Value (Rs) : 2 performance was impacted by higher discounts and raw material cost. 3M Avg. daily vol (Nos) : 416,614 Shares o/s (mn) : 141 Key Highlights Source: Bloomberg  VIP has reported strong sales of Rs 4.3 bn (+27.2% YoY) in festive quarter. Financial Summary Management indicated that the domestic segment remains strong for the Y/E Mar (Rs mn) FY18 FY19E FY20E company. Reduction in GST rate from the peak of 28% to 18%, increase air Sales 14,095 17,513 19,482 travel and demand for branded luggage propelled the demand. Growth (%) 10.5 24.3 11.2 EBITDA 1,917 2,456 2,755  However, higher RM prices during the quarter and discounts impacted the EBITDA margin (%) 13.6 14.0 14.1 margins for the company, resulting in an EBIDTA of Rs 319 mn with EBIDTA Net profit 1,277 1,673 1,863 margin of 7.4 % (-480 bps YoY). EPS (Rs) 9.0 11.8 13.2 Growth (%) 50.4 31.0 11.4  Consequently PAT was reported at Rs 203 mn below our expectation. We Book value (Rs/share) 34.0 41.6 49.9 interpret the results as weak for the company. Dividend per share (Rs) 3.0 3.5 4.0 ROE (%) 26.5 28.4 26.4  It has declared an interim dividend of Rs 1.2 per share for FY19 ROCE (%) 37.3 39.2 36.8 EV/EBITDA (x) 33.9 26.8 24.0 Valuation & Outlook P/E (x) 54.2 41.4 37.1 We consider Q3FY19 to be an exceptional quarter for VIP and won’t read it as P/BV (x) 14.4 11.8 9.8 change in trend or structural changes in the business. We estimate the company Source: Company, Kotak Securities - PCG to be a major beneficiary of increasing penetration of luggage bags and back Shareholding Pattern (%) packs in the country, improving living standards leading to increased air and rail (%) Dec-18 Jun-18 Mar-18 travel and also the desire for travelers to have branded luggage. Under current Promoters 53.5 53.5 53.5 circumstances, for VIP, we continue to estimate a revenue CAGR of 18% and FII 10.5 12.1 11.0 earnings CAGR of 21% over FY18 to FY20E with strong operating margins and DII 8.1 7.3 8.5 return ratios. The stock has run-up by more than 6% since our last update. Others 27.9 27.1 27.1 Recommend ADD (from BUY) with an unchanged price target of Rs 515 valuing Source: Bloomberg, BSE the stock at 39X FY20E earnings. Price Performance (%) Quarterly performance (standalone) (%) 1M 3M 6M VIP Industries (3.6) 8.2 (14.4) (Rs mn) Q3FY18 Q2FY19 Q3FY19 YoY (%) QoQ (%) Nifty 1.3 3.3 (4.4) Net sales 3,380 4,018 4,301 27.2 7.0 Source: Bloomberg Raw material cost 1657 2020 2436 47.0 20.6 Employee cost 402 490 489 21.6 -0.2 Price chart (Rs) Other expenses 909 997 1057 16.3 6.0 620 Total Expd 2968 3507 3982 34.2 13.5 520 EBIDTA 412 511 319 -22.6 -37.6 420 EBIDTA (%) 12.2 12.7 7.4 -39.2 -41.7 Depreciation 34 39 32 -5.9 -17.9 320 Other income 19 20 26 220 Interest cost 0 0 0 Feb-18 Jun-18 Oct-18 Feb-19 PBT 397 492 313 -21.2 -36.4 Source: Bloomberg Taxes 125 163 110 -12.0 -32.5

PAT 268 329 203 -24.3 -38.3

Source: Company Currents quarter’s performance was propelled by volume growth across segments by the company including VIP, Aristocrat, Alfa, Skybags, Caprese and

Carlton attributed to: Amit Agarwal [email protected] 1. Increasing penetration of luggage bags +91 22 6218 6439 2. Customer preference for branded products

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 16

FEBRUARY 11, 2019

3. Substantial brand availability with wide distribution network 4. Diversified product portfolio 5. Implementation of GST 6. Healthy domestic air traffic

Performance across Brands Management of VIP indicated that each of its 5 brand have done well in Q3FY19 and share the same margins at net level. Skybags continues to do very well for the company and is now the largest luggage and backpack brand in the country. VIP claims to have more than 50% market-share in the backpack market with Skybags. Aristocrat: Aristocrat is the value brand of the company which saw an extremely good year and was the fastest growing brand. As per the management, there is a huge scope in the value segment of the market and the company is well poised to capture the same in value segment. VIP is also focusing on Aristocrat to face competition. VIP brand still enjoys a healthy market share and is on top of the mind brand when it comes to family travel. Management is focusing on reinventing the brand through campaigns. Premium Brands: Caprese and Carlton are high-margin brands and continue to grow well, though they are still a small proportion of revenues.

Performance across channels The Hypermarket channel continues to witness the strongest growth amongst all channels suggesting that Indian consumers are showing preference towards affordable luggage and convenience of modern shopping formats which are clean and air conditioned. Management indicated that VIP enjoys market leadership in modern trade. E-commerce is another channel which is slowly picking-up for the company with Indian consumers not only in metros but also in tier 2 and 3 towns hooking on to e-com. General Trade channel has registered very good sales growth during the quarter due to focused efforts on each segment including distribution and direct dealers. The Company-owned stores and exclusive franchise stores also continue to do well. Canteen Stores Department (CSD) channel remain stable for the company.

Raw material situation is currently not healthy Management indicated that the company has been experiencing increasing raw material trend (since Q4FY18) in both the 2 major categories of inputs - polypropylene (for hard luggage) and polycarbonate. Other raw material like polyester, canvas, denim, PU leather, copper, aluminum, zipper head and hardware accessories have also shown an inflationary trend. VIP sources more than 70% of its soft luggage from China and its sourcing cost increases if Yuan appreciates against the rupee. YTD the Chinese Yuan has been stable vs. the INR and has not contributed to cost inflation for VIP. Adverse RM prices and higher discounts in a festive quarter (Q3FY19) impacted the margins of the company.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 17 FEBRUARY 11, 2019

Sourcing from China gradually shifting to Bangladesh Due to increasing labour costs and other reasons such as strengthening of the Yuan vs. INR, the company is gradually reducing its dependency on China and increasing its sourcing from Bangladesh through its wholly owned subsidiaries (total 3 subsidiaries) in Bangladesh set-up with an investment of Rs 150 mn. VIP has flexibility in increasing the capacities with minimum capex and within a short time-frame. Going forward by FY20, we expect the sourcing of soft luggage to fall from China to 90% and with share of Bangladesh increasing to 10% (currently negligible) which would aid margins going forward.

Recommend ADD In recent years in India, luggage and handbags have managed to shed their traditional utilitarian tag and have now evolved as lifestyle products. Increasing business and leisure travels coupled with rising disposable income and organized retailing have led to increased demand for luggage. Within this category, the demand for brand names has grown, as consumers aspire for goods that are branded, durable and count as status symbol. We expect VIP to be one of the largest beneficiaries of this change in the country. However, the macro-economic variables can play spoilsport for the company. Under current circumstances, for VIP, we estimate a revenue CAGR of 18% and earnings CAGR of 21% over FY18 to FY20E with strong operating margins and return ratios. The stock has run-up by more than 6% since our last update. Recommend ADD (from BUY) with an unchanged price target of Rs 515 valuing the stock at 39X FY20E earnings.

Company Background VIP Industries, established in the year 1971, is a leading luggage maker in India offering a wide range of products in hard luggage and soft luggage segments including school bags, trolleys, backpacks, suitcases, executive cases, duffels and overnight travel solutions. Some of its brands include VIP, Caprese, Alfa, Aristocrat, Buddy and Carlton. The company is Asia’s No.1 luggage manufacturer and transforming its business strategy from time to time. The company has manufacturing facilities located at Haridwar in Uttarakhand, Jalgaon, Nagpur and Nashik in . The company has set up a subsidiary in Bangladesh to manufacture and market luggage and bags. The company is maintaining its market share of 50% in the organized luggage industry by offering wide range of product mix like Carlton and VIP catering to high-end segment, Aristocrat caters to mid-segment, Skybags cater to mid and sub-mid segment and Alfa for lower-end price segment.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 18 FEBRUARY 11, 2019

Financials: Consolidated

Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 12,752 14,095 17,513 19,482 Cash and cash equivalents 73 430 766 1,456 % change YoY 4.8 10.5 24.3 11.2 Debtors 1,209 1,520 1,900 2,020 Raw material cost 6,759 7,140 8,695 9,672 Inventory 2,874 3,168 3,984 4,400 Employee cost 1,415 1,582 1,821 2,026 Loans and advances 558 666 833 900 Other expenses 3,259 3,456 4,542 5,028 Other current assets 46 56 66 76 Total Operating expd 11,433 12,178 15,058 16,727 Total current assets 4,687 5,409 6,783 7,396 EBITDA 1,319 1,917 2,456 2,755 LT investments 679 600 500 500 Depreciation 128 124 147 157 Net fixed assets 615 719 822 914 EBIT 1,191 1,793 2,308 2,598 Total assets 6,054 7,158 8,871 10,266 Other income 59 104 100 100 Interest expense 6 0 0 0 Creditors 1,457 1,692 2,139 2,315 Profit before tax 1,244 1,897 2,408 2,698 Provisions 113 257 304 289 Tax 395.0 620.0 735.2 834.7 Other current liabilities 425 397 544 601 ETR (%) 31.8 32.7 30.5 30.9 Total current liabilities 1,995 2,345 2,987 3,204 Profit after tax 849 1,277 1,673 1,863 LT debt 13 3 0 0 Minorities& Associates 0 0 0 0 Net income 849 1,277 1,673 1,863 Minority Interest 0 0 0 0 % change YoY 25.2 50.4 31.0 11.4 Equity 283 283 283 283 Shares outstanding (m) 142 142 142 142 Reserves 3,763 4,527 5,600 6,779 EPS (Rs) 6.0 9.0 11.8 13.2 Networth 4,046 4,810 5,883 7,062 DPS 2.2 3.0 3.5 4.0 Total liabilities 6,054 7,158 8,871 10,266 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E PAT 849 1,277 1,673 1,863 EBITDA margin (%) 10.3 13.6 14.0 14.1 Depreciation 128 124 147 157 EBIT margin (%) 9.3 12.7 13.2 13.3 Changes in working capital 12 (372) (732) (396) Net profit margin (%) 6.7 9.1 9.6 9.6 Cash flow from operations 989 1,029 1,089 1,624 ROE (%) 21.0 26.5 28.4 26.4 ROCE (%) 29.3 37.3 39.2 36.8 Capex (65) (228) (250) (250) Dividend payout (%) 43.8 40.2 35.8 36.8 Investments (679) 79 100 - Cash flow from investments (744) (149) (150) (250) BVPS (Rs) 28.6 34.0 41.6 49.9 Working capital turnover (days) 77.2 65.0 62.0 62.0 Equity issuance - - - - Debt raised (145) (10) (3) - Debt Equity (x) 0.0 0.0 - - Dividend Paid (371) (514) (599) (685) PER (x) 81.5 54.2 41.4 37.1 Miscellanous items - - - - P/C (x) 70.8 49.4 38.0 34.2 Cash flow from financing (516) (524) (602) (685) Dividend yield (%) 0.4 0.6 0.7 0.8 Net cash flow (271) 356 336 690 P/B (x) 17.1 14.4 11.8 9.8 Opening cash 345 73 430 766 EV/Sales (x) 5.4 4.9 3.9 3.5 Closing cash 73 430 766 1,456 EV/ EBITDA (x) 49.7 33.9 26.8 24.0 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 19 FEBRUARY 11, 2019

Result Update MRPL

Stock Details PRICE RS.65 TARGET RS.81 BUY Market cap (Rs mn) : 183890 52-wk Hi/Lo (Rs) : 124 / 61 Earnings volatility continues – Negative GRMs Face Value (Rs) : 10 3M Avg. daily vol (Nos) : 1,371,893 Negative GRMs presumably due to inventory losses, lower other income and Shares o/s (mn) : 1753 exceptional loss resulted in net loss of Rs.2.7 bn in Q3FY19. MRPL reported Source: Bloomberg significantly higher crude throughput of 4.38 mmt, 12% qoq resulting in

Financial Summary higher capacity utilization (117%). We believe the margins should improve Y/E Mar (Rs mn) FY18 FY19E FY20E in the medium to long term with the increase in product prices. Revenue 490,550 624,007 630,544 In the medium to long term, the key factors to watch out are GRMs, rupee Growth (%) 12.1 27.2 1.0 EBITDA 45,020 13,671 41,065 movement, oil prices and petroleum product demand. Further, investors are EBITDA margin (%) 9.2 2.2 6.5 waiting for an announcement of swap ratio for merger of MRPL with HPCL. PAT 19,926 -1,288 17,604 EPS 11.4 -0.7 10.0 Key Highlights EPS Growth (%) -42.6 -106.5 NM  Average realization stood lower at US$ 83/bbl, -6% qoq and -2% yoy due to BV (Rs/share) 58 64 71 Dividend/share (Rs) 3 - 3 lower product prices. ROE (%) 17.7 -1.1 14.6  MRPL reported significantly lower GRMs of (-) US$0.64/bbl in Q3FY19 as ROCE (%) 12.9 3.2 11.6 against US$4.41/bbl in Q2FY19 and US$9.27/bbl in Q3FY18. P/E (x) 5.7 -88.5 6.5 EV/EBITDA (x) 4.7 15.5 4.8  MRPL booked Forex gain of Rs.3.85 bn as against a forex loss of Rs.4 bn in P/BV (x) 1.1 1.0 0.9 Q2FY19 due to currency fluctuations. Source: Company, Kotak Securities - PCG Valuation & outlook Shareholding Pattern (%) (%) Dec-18 Jun-18 Mar-18 We have revised our earnings lower to reflect weak GRMs and inventory Promoters 88.6 88.6 88.6 losses. Hence, we now expect MRPL to report an EPS of Rs.10/share in FII 1.7 1.6 2.8 FY20E (earlier Rs.10.9). At current price, the stock is trading at 6.5x P/E and DII 3.2 3.2 1.9 0.9x P/B multiples on FY20E earnings. We maintain BUY on MRPL with a revised Others 6.5 6.6 6.7 price target of Rs.81 (earlier Rs.92), valuing it at 5.5x FY20E EV/EBIDTA. We Source: Bloomberg, BSE expect stock to remain in focus on the news flow of merger with HPCL, we opine. Price Performance (%) Going ahead, we expect MRPL’s profitability to improve on account of i). (%) 1M 3M 6M Improved product mix, ii). Better refining margins iii). Economies of scale, MRPL (9.2) (21.1) (18.7) Nifty 1.3 3.3 (4.4) iv). Forward integration - Polypropylene plant and v). Various tax benefits. Source: Bloomberg Quarterly performance table (Standalone) Price chart (Rs) Particulars (Rs mn) Q3FY19 Q2FY19 Q3FY18 YoY (%) QoQ (%)

130 Sales 202,496 177,329 174,198 16 14 Incr/(Decr) in stock (10,405) (318) 6,695 110 Total Expenditure 193,139 175,568 163,407 18 10 90 EBIDTA (1,047) 1,443 17,485 (106) (173) 70 Depreciation 1,791 1,824 1,720 4.1 (1.8) EBIT (2,838) (380) 15,766 (118.0) 645.9 50 Other income 368 381 202 82 (4) Feb-18 Jun-18 Oct-18 Feb-19 Interest-net 999 1,173 1,159 (13.8) (14.8) Source: Bloomberg PBT (3,469) (1,172) 14,809 (123.4) 196.0 Extra ordinary Exp/(Inc) 103 (251) - Tax (895) (110) 5,110 (117.5) 715.5

PAT (2,677) (812) 9,699 (128) 230

EPS (Rs) (1.5) (0.5) 5.5 (127.6) 229.9

Source: Company. Sumit Pokharna [email protected] +91 22 6218 6438

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 20

FEBRUARY 11, 2019

Quarterly result analysis – Q3FY19  Revenue growth: Despite negative GRMs, MRPL’s gross revenue increased 14% qoq to Rs.202.5 bn (+16% yoy) led by higher crude throughput and weak currency. Average realization stood lower at US$ 83/bbl, -6% qoq and -2% yoy due to lower product prices.  Crude throughput: MRPL reported significantly higher crude throughput of 4.38 mmt, 12% qoq resulting in higher capacity utilization (116.8%). However, in 9MFY19, the crude throughput increased marginally by 1% to 12.14 mmt.

MRPL’s crude throughput (mn mt) and capacity utilization (%)

Crude throughput-MMT (RHS) Capacity Utilisation % (LHS) 125.0 4.6 120.0 4.4 115.0 4.2 110.0 4.0 105.0 3.8 100.0 3.6 95.0 3.4 90.0 3.2 85.0 3.0 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Source: Company  Dismal refining margins: MRPL reported significantly lower GRMs of (-) US$0.64/bbl in Q3FY19 as against US$4.41/bbl in Q2FY19 and US$9.27/bbl in Q3FY18. However, Benchmark Singapore refining margin stood higher at US$5.4/bbl in Q3FY19.

MRPL’s GRMs v/s Benchmark Singapore GRMs (US$/bbl)

11.0 GRM reported Singapore GRMs

9.0 9.27 8.25 8.05 8.28 7.60 7.87 7.0 6.70 6.30 6.00 5.60 5.40 5.40 5.0 4.74 4.415.90

3.0

1.0 $/bbls

(1.0) (0.64)

(3.0) Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Source: Company. Note: MRPL’s reported GRMs includes inventory gain/loss.  Raw material cost including purchases of finished goods: Higher crude oil prices resulted in higher raw material cost for MRPL. RM cost increased 18% qoq to Rs.171 bn (38% yoy) led by higher crude throughput and weak currency. In Q3FY19, MRPL’s average crude oil price increased by 3% qoq to US$ 74/bbl. Raw material cost to sales ratio (%) has increased 750 bps to 89.1%.  Employee cost: Staff cost has increased 5% qoq to Rs.1.05 bn (+11% yoy).

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 21 FEBRUARY 11, 2019

 Other expenses: MRPL’s other expenditure decreased 76% qoq to Rs.0.876 bn. Operating cost per unit has decreased substantially to US$0.83/bbl (- 64% qoq) due to higher crude throughput and lower other expenses.  Forex gain: MRPL booked Forex gain of Rs.3.85 bn as against a forex loss of Rs.4 bn in Q2FY19 due to currency fluctuations  Operating profit: Negative GRMs and higher raw material cost resulted in operating loss of Rs.1.05 bn in Q3FY19 as against operating gain of Rs.1.4 bn in Q2FY19.  Interest cost: MRPL's interest cost has decreased to Rs.999 mn, down 15% qoq and 14% yoy.  Depreciation: In Q3FY19, depreciation cost decreased 2% qoq to Rs. 1.8 bn (+4% yoy).  Other income: MRPL's other income stands at Rs.368 mn in Q3FY19, decreased 4% qoq mainly on account of lower dividend/interest income.  Loss/ Profit before tax (L/PBT): MRPL reported a loss of Rs.3.5 bn due to lower operating profit and lower other income.  Extra ordinary Expenses: MRPL has reported a forex loss of Rs.103 mn in Q3FY19.  The exceptional item for 9MFY19 includes – a) Expense of Rs.305.3 mn is on account of estimated cost of purchase of Renewable Energy Certificate (REC) from Indian Energy Exchange (IEX), as per the direction received from Electricity Regulatory Commission, for meeting Renewable Energy Purchase Obligation (RPO) from the financial year 2015-16 to 2017-18 based on company's captive consumption. b) Expense of Rs.228.7 mn is towards contribution to "MRPL Defined Contribution Pension Scheme" for management staff (pertaining to the period January 2007 to March 2018) and non-management staff (pertaining to the period April 2007 to March 2018). c) Income of Rs. 420.5 mn relating to reclaim of input tax credit under Goods and Service Tax Act (GST Act) for the financial year 2017-18 represents the credit taken based on annual mix of products covered under GST and products not covered under GST.  Tax refund: The company has recognized tax refund of Rs.776 mn under the Income Tax Act, 1961 and deferred tax asset of Rs. 119 mn in Q3FY19.  Net Loss: The Company has reported net loss of Rs.2.7 bn in Q3FY19.

Quarterly earnings volatility continues

24,000 PAT (Rs. Mn) 19,424 20,000

16,000

12,000 9,699

8,000 5,660 4,780 5,421 3,620 4,000 2,340

0 (2,677) (4,000) (812) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Source: company

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 22 FEBRUARY 11, 2019

Key Developments  Marketing initiatives: The Company has increased its market presence by way of direct marketing of its products Petcoke, Sulphur and Polypropylene. The company is increasing the product grades of Polypropylene to enhance Polypropylene (PP) market share and thereby fetch higher margins.  The Company has bagged the prestigious “FieldComm group 2018 Plant of the Year” Global award conferred by FieldComm group. The Company is the first Indian company to receive this International award.  New expansion plans in place – Growth is a process: MRPL has set-up the next milestone and is planning to enhance its refining capacity to 25 mmtpa (19% higher than targeted) as against an earlier target of 21 mmtpa and current capacity of 15.5 mmtpa. Additionally, the company is planning to scale up its petrochemical capacity to boost its margins. The Company will invest Rs.110 bn in this expansion. We like the sharpened focus of the company on the growth strategy. The expansion is seen as a major margin driver as it will help the company to process cheaper, heavier crudes into high-value products like diesel, liquefied petroleum gas and propylene.  MRPL is venturing into RLNG business: MRPL has signed a memorandum of understanding (MOU) with new Mangalore Port Trust to study the feasibility of setting up an LNG re-gasification terminal at Mangalore. We believe this is at a preliminary stage and will have a long gestation period. However, if materializes then it will help MRPL to lower its refinery operating cost by replacing costlier liquid fuel with cheaper LNG.  Re-commencing retail outlets: The Company has commissioned COCO (company owned and company operated) retail outlet in Mangalore in Feb’18 and also commissioned its first ever dealer owned dealer operated retail outlet at Mandya in March’18. In Karnataka, this is the sixth RO for MRPL. MRPL has drawn up plans for opening over 100 retail outlets which will improve its overall margins due to addition of marketing margins. The company is in the process of obtaining statutory approvals. MRPL has also taken over retail outlet of ONGC set up near the refinery unit and has now become a part of MRPL retail outlet map.  Auto fuel up-gradation: MRPL is in the process of upgrading its facilities to produce BS-VI grade MS& HSD by April 2020 in-line with the Supreme Court directive and Auto fuel upgradation policy of Govt of India.

Maintain BUY We have revised our earnings lower to reflect weak GRMs and inventory losses. Hence, we now expect MRPL to report an EPS of Rs.10/share in FY20E (earlier Rs.10.9). At current price, the stock is trading at 6.5x P/E and 0.9x P/B multiples on FY20E earnings. We maintain BUY on MRPL with a revised price target of Rs.81 (earlier Rs.92), valuing it at 5.5x FY20E EV/EBIDTA. We expect stock to remain in focus on the news flow of merger with HPCL, we opine. Going ahead, we expect MRPL’s profitability to improve on account of i). Improved product mix, ii). Better refining margins iii). Economies of scale, iv). Forward integration - Polypropylene plant and v). Various tax benefits.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 23 FEBRUARY 11, 2019

Valuation Particulars Unit FY20E Unit EBIDTA Rs.. mn 41,065 Multiple EV/EBIDTA x 5.5 EV 225,857 Less: Net debt 83508 M.cap 142,349 Fair Value / Share (Rs.) 81 CMP 65 Upside/ (Downside) (%) 25 Source: Kotak Securities - Private Client Research

Key Risk and Concerns  Wide fluctuations in crude, forex and product prices can impact the margins.  If global supply exceeds demand then margins can be under pressure.  Any delay in executing the project can significantly impact the valuations.

Company Background Mangalore Refinery and Petrochemicals Ltd. (Mini-Ratna status) is a pure play crude oil refiner with strong promoter backing of ONGC (India's biggest government owned exploration Company). MRPL has transformed itself into a large and complex refinery with phase-III capacity expansion and has emerged into a much stronger player in the industry.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 24 FEBRUARY 11, 2019

Financials: Consolidated

Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 437,548 490,550 624,007 630,544 Cash and cash equivalents 21,438 8,330 5,398 5,168 % change YoY 10.1 12.1 27.2 1.0 Accounts receivable 26,190 25,768 29,063 31,095 EBITDA 49,770 45,020 13,671 41,065 Inventories 44,140 52,404 66,675 65,646 % change YoY 188.6 -9.5 -69.6 NM Loans and Adv & Others 20,145 23,710 23,401 23,402 Other Income 20,269 2,480 3,300 3,400 Current assets 111,913 110,211 124,536 125,312 Depreciation 9,841 9,661 10,056 10,718 Misc exp. 0 0 0 0 EBIT 60,198 37,839 6,914 33,747 LT investments 419 384 364 364 % change YoY 341.2 -37.1 -81.7 388.1 Net fixed assets 208,383 208,910 211,459 213,910 Net interest 9,659 9,127 8,202 7,472 Total assets 320,715 319,506 336,359 339,585 Profit before tax 50,538 28,713 -1,288 26,275 % change YoY 1,549.2 -43.2 -104.5 NM Tax 17,606 10,977 0 8,671 Payables 60,445 47,926 56,938 59,251 as % of PBT 34.8 38.2 0.0 33.0 Others 4,739 51,270 59,329 59,465 Profit after tax 32,932 17,736 -1,288 17,604 Current liabilities 65,184 99,196 116,267 118,715 Minority interest -1,794 -2,191 0 0 Provisions 31,866 4,536 579 3,773 Share of profit of associates 0 0 0 0 Net income 34,726 19,926 -1,288 17,604 LT debt 132,596 107,403 102,911 88,676 % change YoY NM -42.6 -106.5 NM Min. int and def tax liabilities -3,953 6,038 4,498 4,498 Shares outstanding (m) 1,753 1,753 1,753 1,753 Equity 17,527 17,527 17,527 17,527 EPS (reported) (Rs) 19.8 11.4 -0.7 10.0 Reserves 77,496 84,808 94,577 106,397 CEPS (Rs) 24.4 15.6 5.0 16.2 Total liabilities 320,715 319,506 336,359 339,585 DPS (Rs) 6.0 3.0 0.0 2.7 BVPS (Rs) 54 58 64 71 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E EBIT 60,198 37,839 6,914 33,747 EBITDA margin (%) 11.4 9.2 2.2 6.5 Depreciation 9,841 9,661 10,056 10,718 EBIT margin (%) 13.8 7.7 1.1 5.4 Change in working capital (174,772) 7,530 (4,142) 4,637 Net profit margin (%) 7.9 4.1 (0.2) 2.8 Chgs in other net current assets - - - - Operating cash flow (104,734) 55,030 12,828 49,102 Receivables (days) 22 19 17 18 Interest (9,659) (9,127) (8,202) (7,472) Inventory (days) 37 39 39 38 Tax (17,606) (10,977) - (8,671) Sales/gross assets(x) 2.0 2.2 3.0 2.9 Cash flow from operations (131,999) 34,926 4,626 32,959 Interest coverage (x) 4.1 3.9 0.4 4.1 Capex 6,360 (10,188) (12,605) (13,169) (Inc)/dec in investments (414) 34 21 - Debt/equity ratio(x) 1.4 1.2 0.9 0.8 Cash flow from investments 5,947 (10,154) (12,584) (13,169) Others 4,429 43 15,836 (5,784) ROE (%) 20.0 17.7 (1.1) 14.6 Increase/(decrease) in debt 4,496 (25,193) (4,492) (14,235) ROCE (%) 20.5 12.9 3.2 11.6 Proceeds from share premium - - - - Dividends (28) (12,731) (6,318) - EV/ Sales 0.5 0.4 0.3 0.3 Cash flow from financing 8,897 (37,881) 5,026 (20,019) EV/EBITDA 4.5 4.7 15.5 4.8 Opening cash 138,594 21,438 8,330 5,398 Price to earnings (P/E) 3.3 5.7 NM 6.5 Closing cash 21,438 8,330 5,398 5,168 Price to book value (P/B) 1.2 1.1 1.0 0.9 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 25 FEBRUARY 11, 2019

RATING SCALE Definitions of ratings BUY – We expect the stock to deliver more than 15% returns over the next 12 months ADD – We expect the stock to deliver 5% - 15% returns over the next 12 months REDUCE – We expect the stock to deliver -5% - +5% returns over the next 12 months SELL – We expect the stock to deliver < -5% returns over the next 12 months NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. SUBSCRIBE – We advise investor to subscribe to the IPO. RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA – Not Available or Not Applicable. The information is not available for display or is not applicable NM – Not Meaningful. The information is not meaningful and is therefore excluded. NOTE – Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.

FUNDAMENTAL RESEARCH TEAM

Rusmik Oza Arun Agarwal Amit Agarwal Nipun Gupta Deval Shah Head of Research Auto & Auto Ancillary Transportation, Paints, FMCG Information Tech, Midcap Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6441 +91 22 6218 6443 +91 22 6218 6439 +91 22 6218 6433 +91 22 6218 6423

Sanjeev Zarbade Ruchir Khare Jatin Damania Cyndrella Carvalho Ledo Padinjarathala, CFA Cap. Goods & Cons. Durables Cap. Goods & Cons. Durables Metals & Mining, Midcap Pharmaceuticals Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6424 +91 22 6218 6431 +91 22 6218 6440 +91 22 6218 6426 +91 22 6218 7021

Teena Virmani Sumit Pokharna Pankaj Kumar Krishna Nain K. Kathirvelu Construction, Cement, Buildg Mat Oil and Gas, Information Tech Midcap M&A, Corporate actions Support Executive [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6432 +91 22 6218 6438 +91 22 6218 6434 +91 22 6218 7907 +91 22 6218 6427

TECHNICAL RESEARCH TEAM

Shrikant Chouhan Amol Athawale Faisal Shaikh, CFTe Siddhesh Jain [email protected] [email protected] Research Associate Research Associate +91 22 6218 5408 +91 20 6620 3350 [email protected] [email protected] +91 22 62185499 +91 22 62185498

DERIVATIVES RESEARCH TEAM

Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT, CFTe [email protected] [email protected] [email protected] [email protected] +91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 26 FEBRUARY 11, 2019

Disclosure/Disclaimer Kotak Securities Limited established in 1994, is a subsidiary of Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are 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/warning/deficiency 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 clients as well as our prospects. This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non- investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent. Details of Associates are available on www.kotak.com 1. “Note that the research analysts contributing to the research 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 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. (Member FINRA/SIPC) and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc. (Member FINRA/SIPC)at 369 Lexington Avenue 28th Floor NY NY 10017 USA (Tel:+1 212-600-8850). 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. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This research report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services. Accordingly, any brokerage and investment services including the products and services described are not available to or intended for Canadian persons or US persons.” Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: MRPL, Phoenix Mills - Yes Nature of financial interest is holding of equity shares or derivatives of the subject company. Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No. Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 27 FEBRUARY 11, 2019

By referring to any particular sector, Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing. Such representations are not indicative of future results. Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. "A graph of daily closing prices of securities is available at https://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)." Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: INZ000200137 (Member of NSE, BSE, MSE, MCX & NCDEX), AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. In case you require any clarification or have any concern, kindly write to us at below email ids:  Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Toll free numbers 18002099191 / 1860 266 9191  Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208.  Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal) at [email protected] or call on 91- (022) 4285 8484.  Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on 91- (022) 4285 8301.

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 28