INDIA DAILY

August 4, 2020 India 3-Aug 1-day 1-mo 3-mo Sensex 36,940 (1.8) 2.5 16.5 Nifty 10,892 (1.6) 2.7 17.2 Contents Global/Regional indices Dow Jones 26,664 0.9 3.2 12.3 Daily Alerts Nasdaq Composite 10,903 1.5 6.8 25.2 FTSE 6,033 2.3 (2.0) 4.9 Results Nikkei 22,523 1.5 1.0 14.8 Godrej Agrovet: Robust results; priced in Hang Seng 24,458 (0.6) (3.6) 3.6

KOSPI 2,280 1.3 5.9 20.3 Tata Chemicals: A blip Value traded – India Results, Change in Reco Cash (NSE+BSE) 739 639 623 26,71 Derivatives (NSE) 10,948 8,016 Exide Industries: Quarter aided by replacement segment 4 Deri. open interest 3,371 3,021 3,484 Just Dial: 1QFY21 beats expectations but uncertainty persists

Company alerts Forex/money market

L&T: Standing tall amid challenging environment Change, basis points

3-Aug 1-day 1-mo 3-mo Economy alerts Rs/US$ 75.1 (6) 54 (50)

Economy: Monetization: Double-edged sword 10yr govt bond, % 6.1 1 (10) (41)

Net investment (US$ mn)

31-Jul MTD CYTD

FIIs (122) - (1,288)

MFs (40) - 4,302

Top movers

Change, %

Best performers 3-Aug 1-day 1-mo 3-mo

EDEL IN Equity 78 2.0 28.1 105.0

MM IN Equity 597 (1.5) 12.6 67.2

TPWR IN Equity 49 0.1 (2.3) 62.0

PIEL IN Equity 1,461 (0.9) 3.5 61.5

BHEL IN Equity 36 0.7 (6.3) 54.0

Worst performers

YES IN Equity 12 0.4 (54.1) (55.6)

COAL IN Equity 128 (0.7) (5.1) (9.8)

DMART IN Equity 2,093 1.4 (8.6) (8.2)

NTPC IN Equity 86 (1.6) (9.4) (6.4)

PIDI IN Equity 1,345 (0.9) (3.2) (5.6)

[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. SELL Godrej Agrovet (GOAGRO) Fertilizers & Agricultural Chemicals AUGUST 04, 2020 RESULT Sector view: Cautious

Robust results; priced in. GAVL’s results were well ahead of our estimates in 1QFY21 CMP (`): 470 driven by significant growth in animal feeds segment, Astec and GTFL, which was Fair Value (`): 420 partially offset by weakness in crop protection and oil palm businesses. We raise our BSE-30: 36,940 FY2021E EPS by 14% factoring ongoing strength in animal feeds and Astec; FY2022E EPS has increased by a modest 2%. We reiterate SELL rating with a revised SoTP-based fair value of Rs420 (Rs375 earlier) noting the unfavorable risk-reward balance.

Godrej Agrovet Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 598-265 EPS (Rs) 11.5 14.9 17.5 Mcap (bn) (Rs/US$) 91/1.2 EPS growth (%) 0.8 29.1 17.2 ADTV-3M (mn) (Rs/US$) 124/2 P/E (X) 40.7 31.5 26.9 Shareholding pattern (%) P/B (X) 4.1 3.7 3.3 Promoters 70.1 EV/EBITDA (X) 23.4 16.0 13.7 FIIs 3.5 RoE (%) 10.4 12.3 13.0 MFs/BFIs 1.8/0.4 Div. yield (%) 1.2 1.1 1.3 Price performance (%) 1M 3M 12M Sales (Rs bn) 68 68 76 Absolute 8 16 8 EBITDA (Rs bn) 4 6 7 Rel. to BSE-30 6 6 9 Net profits (Rs bn) 2 3 3

1QFY20 results boosted by favorable input prices; mixed performance across segments Godrej Agrovet’s 1QFY21 results were marked by a robust performance of animal feeds segment and Godrej Tyson Foods, both benefiting from a sharp decline in input prices. Domestic crop protection business continued to disappoint contrary to relatively healthy performance by peers, while Astec delivered a strong set of numbers underpinned by sharp growth in exports. Oil palm segment was impacted by lower FFB arrivals as well as lower yields. Dairy business reported a positive EBIT after three quarters despite a sharp decline in volumes. Overall revenues declined 9% yoy to Rs15.5 bn in 1QFY21, reflecting a sharp decline in revenues for animal feeds and dairy segments impacted by the nationwide lockdown; oil palm grew modestly from a low base and crop protection benefited from higher exports by Astec, as domestic business remained muted. EBITDA increased 17% yoy to Rs1.66 bn, with gross margins expanding 334 bps yoy to 27.2% and EBITDA margins increasing 234 bps yoy to 10.7%. Net income increased 16% yoy to Rs885 mn (EPS of Rs4.6), partly impacted by higher finance cost and tax rate.

Market share gains for animal feeds and GTFL; optimistic outlook for vegetable oil In 1QFY21 conference call, GAVL management indicated—(1) lower revenues and margins for domestic crop protection segment reflected lost sales for high-margin product Hitweed Max in April 2020 impacted by the lockdown, (2) Astec’s revenues are expected to grow at 20-25% over the next few years with EBITDA margins above 20%, (3) strong growth for Godrej Tyson Foods was underpinned by an increase in market share for the Yummiez brand in non- vegetarian frozen foods to ~30% from ~23% and vegetarian to ~10% from ~6.5% earlier, (4) GAVL is steadily gaining market share in animal feeds segment from unorganized players, (5) the company has made a provision of 0.6-0.7% of palm oil prices awaiting finalization of Tarun Lakhotia pricing formula for fresh fruit bunches by the Andhra Pradesh government and (6) performance of vegetable oils segment is expected to improve underpinned by recovery in CPO prices, yield Hemang Khanna improvement and plausible extension of season to November 2020 amid favorable monsoons. Raise FY2021E EPS by 14% and FY2022E EPS by 2%; retain SELL with revised FV of Rs420 We raise our consolidated EPS estimates to Rs14.9 (+14%) in FY2021 and Rs17.5 (+2%) in FY2022 factoring in (1) higher revenue growth and margins for Astec, GTFL and ACI, (2) higher margins but lower revenue growth for animal feeds and (3) other minor changes. We reiterate SELL rating on the stock with a revised SoTP-based fair value of Rs420 (Rs375 earlier). [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. Godrej Agrovet Fertilizers & Agricultural Chemicals

Key highlights of 1QFY21 performance

 Margins expansion offsets lower revenues for animal feed. Animal feed revenues declined 16% yoy reflecting 17% reduction in volumes to 268 ktons impacted by the nationwide lockdown. EBIT increased by 14% yoy to Rs481 mn, with margins increasing by ~160 bps yoy to 6.4% as the company benefitted from a sharp decline in key raw material costs in the quarter.

 Muted performance of domestic crop protection business. Crop protection (ex- Astec) revenues remained steady yoy, while EBIT declined 19% yoy to Rs604 mn with margins moderating sharply to 29% from 35.6% in 1QFY20 as the extended lockdown led to lower-than-expected volumes of higher-margin specialty products.

 Robust export-led growth for Astec. Astec’s revenues grew by a robust 45% yoy to Rs1.1 bn led by higher volumes and realizations for the enterprise sales segment and strong growth in exports. EBITDA jumped 302% yoy to Rs295 mn led by a sharp 16.9% increase in margins to 26.4% amid favorable input prices and significant operating leverage.

 Weak performance of oil palm segment. Oil palm revenues increased 8% yoy on a low base led by higher realizations. EBIT declined sharply by 49% yoy to Rs65 mn impacted by (1) 10% yoy lower FFB arrivals and (2) lower yields at 16% versus 17% in 1QFY20, which led to margins moderating to 4.1% on a low base of 8.7% in 1QFY20.

 Weak performance of dairy segment. Dairy business revenues declined 26% yoy, while EBIT halved to Rs33 mn amid ~67 bps moderation in margins to 1.4%.

 Strong performance of Godrej Tyson Foods. GTFL’s revenues increased 22% yoy and EBITDA jumped 237% yoy to Rs215 mn, driven by (1) higher volumes for live birds, (2) sharp uptick in volumes for ready-to-eat products for the Yummiez brand, leading to higher market share in both non-vegetarian and vegetarian frozen food categories and (3) moderation in input prices.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Fertilizers & Agricultural Chemicals Godrej Agrovet

Exhibit 1: Quarterly results, March fiscal year-ends (Rs mn)

(% chg.) 1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 Net sales 15,542 15,255 17,026 14,930 2 (9) 4 67,898 68,293 Raw materials (11,319) (11,875) (12,968) (12,116) (5) (13) (7) (53,449) (53,761) Employee costs (923) (815) (893) (780) 13 3 18 (3,859) (3,541) Other costs (1,641) (1,059) (1,746) (1,552) 55 (6) 6 (4,637) (6,889) EBITDA 1,659 1,505 1,419 482 10 17 244 5,953 4,104 Depreciation (366) (414) (351) (384) (12) 4 (5) (1,656) (1,481) EBIT 1,293 1,091 1,068 97 18 21 1,229 4,297 2,623 Other income 83 92 102 159 (11) (19) (48) 370 468 Interest (128) (131) (102) (82) (2) 26 56 (563) (416) Pretax profits 1,248 1,053 1,068 175 18 17 614 4,104 2,675 Extraordinary income — — — 518 — 845 Current tax (325) (301) (366) (135) (1,231) (863) Deferred tax (13) 49 10 130 195 220 Income from associates 96 74 63 4 136 129 Non-controlling interest (121) (79) (16) 54 (341) 56 Net profit after minority 885 795 760 746 11 16 19 2,862 3,062 Adjusted net profits 885 795 760 228 11 16 288 2,862 2,217 Adjusted EPS (Rs) 4.6 4.1 4.0 1.2 11 16 288 14.9 11.5 Key ratios (%) Gross margins 27.2 22.2 23.8 18.8 502 bps 334 bps 833 bps 21.3 21.3 EBITDA margins 10.7 9.9 8.3 3.2 81 bps 234 bps 745 bps 8.8 6.0 Effective tax rate 27.1 24.0 33.3 2.7 25.3 18.3 Segment sales Animal feeds 7,480 6,653 8,850 8,811 12 (15) (15) 36,805 37,177 Vegetable oil 1,574 1,654 1,454 665 (5) 8 137 7,274 6,735 Crop protection 3,208 3,583 2,866 2,501 (10) 12 28 12,411 10,964 Dairy 2,365 2,580 3,204 2,808 (8) (26) (16) 9,067 11,930 Others 1,823 1,784 1,507 1,206 2 21 51 6,334 5,504 Excise duty/elimination (908) (998) (855) (1,060) (3,993) (4,016) Net sales 15,541 15,255 17,026 14,930 2 (9) 4 67,898 68,294 Segment EBIT Animal feeds 481 354 424 332 36 14 45 1,906 1,537 Vegetable oil 65 218 127 43 (70) (49) 50 858 893 Crop protection 844 942 768 483 (10) 10 75 2,592 2,309 Dairy 33 (30) 66 (58) 63 (0) Others 195 (64) 25 (403) 384 (728) Unallocated (243) (236) (245) (147) (1,066) (947) EBIT 1,375 1,184 1,164 250 16 18 450 4,738 3,064 Segment margins (%) Animal feeds 6.4 5.3 4.8 3.8 111 bps 164 bps 266 bps 5.2 4.1 Vegetable oil 4.1 13.2 8.7 6.5 (907)bps (460)bps (236)bps 11.8 13.3 Crop protection 26.3 26.3 26.8 19.3 2 bps (47)bps 700 bps 20.9 21.1 Dairy 1.4 (1.2) 2.1 (2.1) 255 bps (67)bps 347 bps 0.7 (0.0) EBIT margin 8.8 7.8 6.8 1.7 109 bps 201 bps 717 bps 7.0 4.5

Source: Company, Kotak Institutional Equities estimates

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Godrej Agrovet Fertilizers & Agricultural Chemicals

Exhibit 2: Crop protection and vegetable oil margins declined; animal feed increased in 1QFY21 Segment-wise performance, 1QFY19 onwards (Rs mn)

1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Segment sales Animal feeds 7,373 7,115 7,660 8,318 8,850 9,387 10,130 8,811 7,480 Vegetable oil 1,683 2,665 1,812 634 1,454 2,366 2,250 665 1,574 Crop protection 2,567 3,192 2,305 1,811 2,866 3,416 2,180 2,501 3,208 Dairy 3,129 2,996 2,780 2,707 3,204 3,063 2,855 2,808 2,365 Others 153 (4) 22 5 1,507 1,140 1,652 1,206 1,823 Excise duty/elimination (60) (81) (37) (34) (855) (860) (1,240) (1,060) (908) Net sales 14,844 15,884 14,541 13,439 17,026 18,511 17,827 14,930 15,541 Segment EBIT Animal feeds 361 225 237 461 424 431 350 332 481 Vegetable oil 358 458 319 (1) 127 288 436 43 65 Crop protection 762 808 411 331 768 678 381 483 844 Dairy 2 (4) 113 38 66 (2) (7) (58) 33 Others 11 (10) (12) (22) 25 (174) (176) (403) 195 Unallocated (290) (274) (277) (229) (245) (297) (258) (147) (243) EBIT 1,204 1,204 791 578 1,164 924 726 250 1,375 Segment EBIT margin (%) Animal feeds 4.9 3.2 3.1 5.5 4.8 4.6 3.5 3.8 6.4 Vegetable oil 21.3 17.2 17.6 (0.2) 8.7 12.2 19.4 6.5 4.1 Crop protection 29.7 25.3 17.8 18.3 26.8 19.8 17.5 19.3 26.3 Dairy 0.1 (0.1) 4.0 1.4 2.1 (0.1) (0.2) (2.1) 1.4 Overall 8.1 7.6 5.4 4.3 6.8 5.0 4.1 1.7 8.8

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Fertilizers & Agricultural Chemicals Godrej Agrovet

Exhibit 3: Segment break-up of revenues and EBITDA, March fiscal year-ends, 2016-22E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E Segment sales Animal feeds 25,442 26,208 25,760 30,465 37,177 36,805 40,486 44,535 Vegetable oil 4,042 5,066 5,854 6,793 6,735 7,274 8,001 8,801 Crop protection 4,959 7,647 8,818 9,875 10,964 12,411 14,470 16,960 Dairy 2,729 10,093 11,577 11,611 11,930 9,067 10,880 11,968 Others 377 243 248 175 5,504 6,334 7,112 7,823 Excise duty (48) (153) (197) (212) (4,016) (3,993) (4,496) (5,003) Net sales 37,502 49,105 52,059 58,708 68,294 67,898 76,453 85,084 Sales growth (%) Animal feeds 0.0 3.0 (1.7) 18.3 22.0 (1.0) 10.0 10.0 Vegetable oil 2.6 25.3 15.5 16.0 (0.9) 8.0 10.0 10.0 Crop protection 47.9 54.2 15.3 12.0 11.0 13.2 16.6 17.2 Dairy NA 269.9 14.7 0.3 2.7 (24.0) 20.0 10.0 Others NA (35.6) 2.0 (29.4) NA 15.1 12.3 10.0 Sales yoy (%) 13.2 30.9 6.0 12.8 16.3 (0.6) 12.6 11.3 EBITDA Animal feeds 2,077 1,926 1,856 1,595 1,919 2,415 2,555 2,811 Vegetable oil 734 1,157 1,270 1,319 1,169 1,124 1,357 1,537 Crop protection 1,012 1,825 2,216 2,506 2,586 2,905 3,352 3,948 Dairy 39 532 325 395 256 372 598 718 Others (64) (45) 24 324 (487) 643 711 782 Unallocated (831) (1,016) (1,262) (1,557) (1,339) (1,506) (1,642) (1,790) EBITDA 2,967 4,380 4,430 4,581 4,104 5,953 6,932 8,006 EBITDA margins (%) Animal feeds 8.2 7.4 7.2 5.2 5.2 6.6 6.3 6.3 Vegetable oil 18.2 22.8 21.7 19.4 17.4 15.5 17.0 17.5 Crop protection 20.4 23.9 25.1 25.4 23.6 23.4 23.2 23.3 Dairy 1.4 5.3 2.8 3.4 2.1 4.1 5.5 6.0 Others (16.9) (18.4) 9.8 185.5 (8.8) 10.2 10.0 10.0 Unallocated (2.2) (2.1) (2.4) (2.7) (2.0) (2.2) (2.1) (2.1) EBITDA margin (%) 7.9 8.9 8.5 7.8 6.0 8.8 9.1 9.4

Source: Company, Kotak Institutional Equities estimates

Exhibits 4: We value GAVL at Rs420/share on SoTP of diversified business segments SoTP valuation of GAVL, March 2022E (Rs mn)

March 2022E EV/EBITDA (X) Stake (%) EV Net debt Equity value Animal feed 2,555 10 100 25,552 Oil palm 1,357 12 100 16,283 3,587 59,904 Crop protection (ex-Astec) 1,805 12 100 21,658 Crop protection (Astec) 1,548 15 59 13,695 495 13,200 Creamline Dairy 598 15 52 4,659 101 4,558 ACI Godrej JV 1,367 10 50 6,836 (207) 7,044 Godrej Tyson Foods 711 15 51 5,441 309 5,132 Unallocated (931) 10 100 (9,306) 0 (9,306) Fair value 80,531 Fair value (Rs/share) 419 Implied P/E multiple (X) 24

Source: Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Godrej Agrovet Fertilizers & Agricultural Chemicals

Exhibits 5: Consolidated financial summary of GAVL, March fiscal year-ends, 2016-23E (Rs mn)

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model (Rs mn) Net sales 33,118 37,502 49,111 51,853 58,707 68,293 67,898 76,453 85,084 EBITDA 3,060 2,967 4,380 4,430 4,581 4,104 5,953 6,932 8,006 Depreciation (370) (524) (747) (859) (982) (1,481) (1,656) (1,852) (2,047) EBIT 2,691 2,443 3,633 3,571 3,600 2,623 4,297 5,080 5,959 Other income 137 627 590 318 232 468 370 381 414 Interest (655) (977) (863) (453) (339) (416) (563) (503) (480) Pretax profits 2,173 2,093 3,360 3,436 3,493 2,675 4,104 4,958 5,893 Extraordinary items 364 946 200 121 1,159 845 — — — Current tax (551) (485) (761) (1,108) (1,073) (863) (1,231) (1,421) (1,633) Deferred tax (55) (270) (256) (100) (207) 220 195 170 145 Share of income from associates 170 327 186 161 121 129 136 156 180 Reported net profits 2,101 2,611 2,729 2,510 3,493 3,006 3,203 3,863 4,585 Non-controlling interest — 29 (241) (218) (203) 56 (341) (508) (676) Reported net profit to shareholders 2,101 2,640 2,488 2,292 3,290 3,062 2,862 3,354 3,909 Adjusted net profit to shareholders 1,737 1,694 2,288 2,171 2,199 2,218 2,862 3,354 3,909 Adjusted EPS (Rs) 9.4 9.2 12.4 11.5 11.5 11.5 14.9 17.5 20.4 Balance sheet (Rs mn) Total equity 6,404 10,155 12,641 16,807 20,499 22,206 24,422 27,128 30,364 Deferred tax liability 565 1,458 1,670 1,730 2,086 1,751 1,751 1,751 1,751 Borrowings 6,848 13,757 6,640 4,098 3,979 6,185 5,985 5,685 5,385 Currrent liabilities 3,711 5,862 11,197 12,890 15,771 16,859 16,761 18,873 21,004 Total liabilities and equity 17,529 31,232 32,149 35,525 42,336 47,000 48,919 53,436 58,504 Cash 175 420 623 318 299 508 756 818 1,610 Current assets 9,323 17,092 18,398 20,548 23,519 26,256 26,626 29,681 32,702 Total fixed assets 6,605 11,607 12,723 14,374 18,141 19,785 21,079 22,427 23,631 Investments 366 593 — — — — — — — Loans 1,060 1,520 405 285 378 451 457 509 561 Total assets 17,529 31,232 32,149 35,525 42,336 47,000 48,919 53,436 58,504 Cash flow statement Operating cash flow, excl. working capital 1,709 1,758 3,019 3,555 3,489 4,146 4,490 5,333 6,218 Working capital (31) (1,046) 5,093 (471) 634 (2,139) (474) (996) (942) Capital expenditure (1,858) (1,302) (2,049) (2,461) (2,759) (2,634) (2,950) (3,200) (3,250) Free cash flow (181) (590) 6,063 622 1,365 (626) 1,065 1,138 2,026 Investments (68) 581 610 (131) 352 (8) — — — Other income (23) (622) 471 51 61 29 370 381 414 Ratios (%) EBITDA margin 9.2 7.9 8.9 8.5 7.8 6.0 8.8 9.1 9.4 EBIT margin 8.1 6.5 7.4 6.9 6.1 3.8 6.3 6.6 7.0 Debt/equity 106.9 135.5 52.5 24.4 19.4 27.9 24.5 21.0 17.7 Net debt/equity 104.2 131.3 47.6 22.5 18.0 25.6 21.4 17.9 12.4 Book value (Rs/share) 35 55 68 89 107 116 127 141 158 RoAE 30.0 20.5 20.1 14.7 11.8 10.4 12.3 13.0 13.6 RoACE 15.9 10.0 12.7 11.6 9.9 8.3 11.2 12.2 13.2 RoACE (adjusted for goodwill) 16.2 8.8 12.4 12.0 10.4 7.9 11.4 12.4 13.6

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 ADD Tata Chemicals (TTCH) Commodity Chemicals AUGUST 03, 2020 RESULT Sector view: Neutral

A blip. Tata Chemicals started off on a weak note in FY2021 led by a sharp decline in CMP (`): 298 volumes/margins for the basic chemistry segment, which was partly offset by robust Fair Value (`): 330 growth in the specialty products business. The management expects soda ash demand BSE-30: 36,940 to normalize over the next two quarters, albeit dependent on the curtailment of Coivd- 19. We cut FY2021E EPS by 25% and FY2022-23 by 6%; retain ADD with a revised FV of Rs330 (Rs320 earlier) amid higher MTM value of investments.

Tata Chemicals Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 344-197 EPS (Rs) 31.7 23.1 35.2 Mcap (bn) (Rs/US$) 76/1.1 EPS growth (%) (26.2) (27.0) 52.2 ADTV-3M (mn) (Rs/US$) 592/8 P/E (X) 9.4 12.9 8.5 Shareholding pattern (%) P/B (X) 0.6 0.6 0.5 Promoters 34.6 EV/EBITDA (X) 4.6 4.9 3.8 FIIs 9.3 RoE (%) 6.4 4.5 6.6 MFs/BFIs 18.7/15.5 Div. yield (%) 3.7 2.7 4.1 Price performance (%) 1M 3M 12M Sales (Rs bn) 104 98 115 Absolute (3) 5 20 EBITDA (Rs bn) 19 18 23 Rel. to BSE-30 (6) (4) 21 Net profits (Rs bn) 8 6 9

Sharp sequential decline in EBITDA impacted by Covid-19

Consolidated EBITDA declined 30% qoq to Rs3.6 bn in 1QFY21, 6% below our estimate, led by weak performance for soda ash across domestic and international operations reflecting a significant decline in volumes and margins impacted by Covid-19. Reported net income declined 93% qoq to a modest Rs133 mn (EPS of Rs0.5) impacted by an increase in depreciation, interest cost and tax rate and lower other income. Tata Chemicals’ consolidated net debt reduced to Rs37.6 bn as of June 30, 2020 from Rs40.4 bn a quarter ago.

Weak performance for basic chemistry, specialty products driven by strong margins for Rallis

 Basic chemistry—weak performance across geographies. Domestic revenues declined 13% qoq to Rs6.1 bn and EBIT declined 19% qoq to Rs1.6 bn led by 26% decline in soda ash volumes, which was partly offset by 3% qoq increase in salt volumes. North America revenues declined 23% qoq to Rs6.2 bn reflecting 30% qoq decline in volumes due to sharply lower exports, which was partly offset by 6% increase in realizations in US$-terms; however, EBITDA plunged 83% qoq impacted by higher costs and negative operating leverage. Europe operations witnessed 13-45% qoq decline in revenues and EBITDA led by 13% qoq decline in volumes and lower realizations. Revenues from African operations declined 13% qoq and EBITDA declined 9% qoq.

 Specialty products—strong growth in EBIT. Specialty portfolio revenues increased by 7% yoy to Rs6.8 bn reflecting (1) muted 6% growth for Rallis and (2) healthy increase in volumes for silica and specialty products, which was partly offset by lower volumes for nutritional solutions. Segment EBIT increased 24% yoy to Rs934 mn in 1QFY21 from Rs755 mn in 1QFY20, driven by expansion in gross as well as EBITDA margins for Rallis. Rallis’ 1QFY21 Tarun Lakhotia

EBITDA increased 35% yoy to Rs1.3 bn. Hemang Khanna Cut FY2021E EPS by 25% and FY2022-23E EPS by 6%; retain ADD with revised FV of Rs330 We cut our EPS estimates for FY2020 by 25% and FY2022-23 by 6% on factoring—(1) lower volumes and realizations/margins across geographies, due to the impact of Covid-19 on global soda ash demand for FY2021, (2) lower other income and higher interest cost, (3) higher depreciation and (4) other minor changes. We retain ADD with a revised SoTP-based Fair Value of Rs330 (Rs320 earlier) factoring an increase in MTM value of investments. [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. Tata Chemicals Commodity Chemicals

Key takeaways from conference call

 Domestic demand for soda ash may remain muted in FY2021. The management indicated that soda ash demand from (1) flat glass (~25% share) segment may decline sharply in FY2021 impacted by weaker off-take from automobiles and real estate sectors, (2) detergents has been robust and is anticipated to remain healthy led by possible down- trading to lower-value detergents, which have higher soda ash content and (3) recovery in container glass has been healthy following the reopening of alcohol retail outlets in 1QFY21 and has led to a gradual revival in demand from the bottled beverages segment.

 Global soda ash outlook. No large global capacities are anticipated to shut down permanently due to the impact of Covid-19; however, a few capacities in China have taken extended maintenance shutdowns until revival in global demand. Planned capacity expansion by the US and Chinese players in CY2020 are anticipated to be delayed further. Current global inventory levels are elevated at ~0.9-1 mn tons; however, higher demand amid a recovery in economic activity could lead to a quick normalization.

 Outlook on international operations. Volumes in the US business had been impacted by sharp 45% decline in exports amid a plunge in demand from key consuming markets of South America and Southeast Asia. The company is optimistic of a revival in export demand over the next two quarters. Margins for Magadi are anticipated to improve in 2QFY21 amid a moderation in input costs, which the company could not realize in 1QFY21 due to existing crude oil hedges. Volumes for Magadi and EU are expected to normalize quicker than the US given low dependence on the flat glass segment and steady uptick in demand from the container glass segment.

 Capex to moderate in FY2021. The company has guided FY2021 capex may decline by 10% yoy to around Rs10-11 bn. The company has postponed its electric battery project amid a bleak outlook in the light of the pandemic and is expediting its capacity expansion project for salt production to 1.5 mn tons from about 1 mn ton currently.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Commodity Chemicals Tata Chemicals

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

(% chg.) 1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 (% chg.) Net sales 23,482 21,932 25,803 23,781 7 (9) (1) 98,267 103,568 (5) Operating costs (19,884) (18,094) (20,690) (19,779) 10 (4) 1 (80,296) (84,076) (4) EBITDA 3,598 3,838 5,113 4,002 (6) (30) (10) 17,971 19,492 (8) Other income 587 910 878 756 (36) (33) (22) 2,900 3,111 (7) Interest cost (1,179) (870) (928) (855) 35 27 38 (3,884) (3,419) 14 Depreciation (1,899) (1,810) (1,627) (1,739) 5 17 9 (7,755) (6,665) 16 PBT 1,107 2,068 3,435 2,163 (46) (68) (49) 9,232 12,519 (26) Tax (358) (496) (1,026) (193) (28) (65) 85 (2,216) (2,197) 1 Exceptionals — — (80) — — (80) PAT before MI 749 1,572 2,329 1,970 (52) (68) (62) 7,016 10,243 (32) MI 616 550 756 123 12 (19) 401 1,130 2,257 (50) PAT 133 1,022 1,573 1,847 (87) (92) (93) 5,886 7,986 (26) Adjusted PAT 133 1,022 1,653 1,847 (87) (92) (93) 5,886 8,066 (27) Adjusted EPS (Rs) 0.5 4.0 6.5 7.3 (87) (92) (93) 23.1 31.7 (27)

EBITDA margins (%) 15.3 17.5 19.8 16.8 (218)bps (449)bps (151)bps 18.3 18.8 (53)bps Tax rate (%) 32.3 24.0 29.9 8.9 24.0 17.5

Segment sales Basic chemistry products 16,723 19,455 19,987 (14) (16) 72,164 80,137 (10) Specialty products 6,759 6,337 3,776 7 79 25,947 23,289 11 Unallocated 27 36 28 266 242 10 Less: inter-segment (27) (25) (9) 6 198 (111) (101) 10 Total sales 23,482 25,803 23,781 (9) (1) 98,267 103,568 (5) Segment profits Basic chemistry products 1,117 3,182 3,544 (65) (68) 10,182 13,555 (25) Specialty products 934 755 (368) 24 (354) 2,268 1,669 36 Unallocated (235) 346 158 666 714 (7) Total EBIT 1,816 4,283 3,334 (58) (46) 13,116 15,938 (18) Segment margins (%) Basic chemistry products 6.7 16.4 17.7 (968)bps (1,105)bps 14.1 16.9 (280)bps Specialty products 13.8 11.9 (9.7) 190 bps 2,356 bps 8.7 7.2 158 bps EBIT margin (%) 7.7 16.6 14.0 (887)bps (629)bps 13.3 15.4 (204)bps Segment assets Basic chemistry products 167,853 153,683 171,500 171,500 Specialty products 28,641 26,811 28,041 28,041 Unallocated 75,020 95,657 77,982 77,982 Total assets 271,515 276,151 277,522 277,522 Segment liabilities Basic chemistry products 28,442 25,906 28,934 28,934 Specialty products 11,762 10,202 9,301 9,301 Unallocated 93,865 83,062 102,672 102,672 Total liabilities 134,068 119,171 140,908 140,908

Source: Company, Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Chemicals Commodity Chemicals

Exhibit 2: Standalone basic chemistry segment EBIT declined qoq amid lower volumes and margins Quarterly details of standalone business, 1QFY19 onwards (Rs mn)

Change (%) 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Yoy Qoq Volumes ('000 tons) Soda ash 169 171 172 182 163 154 158 159 118 (28) (26) Salt 288 272 279 283 298 295 301 290 298 0 3 Financials (Rs mn) Net sales 9,960 10,140 10,190 10,590 7,149 7,041 7,560 7,340 6,280 (12) (14) Basic chemistry products 7,400 7,390 7,460 8,530 7,045 6,920 7,260 7,030 6,120 (13) (13) Consumer products 4,380 4,600 4,710 4,790 — — — — — — — Specialty products 110 120 120 70 107 120 210 310 160 49 (48) Unallocated 40 40 10 10 — — — — — Inter-segment (1,980) (2,000) (2,090) (2,810) — — 90 — — EBITDA 2,620 2,560 2,240 2,660 1,850 1,941 1,950 1,400 1,560 (16) 11 EBIT 2,800 2,510 2,360 2,850 2,003 2,002 2,040 1,830 1,440 (28) (21) Basic chemistry products 2,030 1,710 1,830 2,050 2,041 2,065 2,130 1,960 1,590 (22) (19) Consumer products 820 860 590 860 — — — — — — Specialty products (50) (60) (60) (60) (48) (63) (80) (130) (150) NM NM PBT 3,680 3,800 1,890 2,830 2,802 2,398 1,990 1,420 1,420 (49) 0 PAT 2,640 2,950 1,280 2,300 2,025 2,346 1,500 1,180 1,090 (46) (8)

Source: Company, Kotak Institutional Equities

Exhibit 3: Unit EBITDA in the US declined sharply impacted by negative operating leverage amid a sharp drop in export volumes Quarterly details of the US business, 1QFY19 onwards (Rs mn) Change (%) 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Yoy Qoq Volumes ('000 tons) 536 555 571 550 541 570 569 553 387 (28) (30) Financials (Rs mn) Net sales 7,650 8,580 8,890 8,700 8,450 8,860 8,720 8,000 6,190 (27) (23) Net sales per ton (US$) 213 221 216 225 225 221 215 200 211 (6) 6 EBITDA 1,320 1,700 1,710 2,050 1,890 1,860 1,830 2,040 350 (81) (83) EBITDA per ton (US$) 37 44 42 53 50 46 45 51 12 (76) (77) PBT 520 890 800 2,340 910 860 790 920 (1,190) NM NM PAT 210 450 350 2,070 470 460 400 790 (1,070) NM NM

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Commodity Chemicals Tata Chemicals

Exhibit 4: EBITDA from Europe and Africa declined sequentially Quarterly details of Europe/Africa business, 1QFY19 onwards (Rs mn)

Change (%) 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Yoy Qoq Volumes ('000 tons) Europe-soda ash 82 83 83 76 68 77 70 71 62 (9) (13) Magadi-soda ash 55 72 80 79 63 74 40 75 57 (10) (24) Financials (Rs mn) Net sales 4,520 4,810 5,150 5,220 4,300 4,760 4,270 4,800 4,160 (3) (13) Europe 3,570 3,530 3,710 3,810 3,070 3,370 3,480 3,650 3,160 3 (13) Magadi 950 1,280 1,440 1,410 1,230 1,390 790 1,150 1,000 (19) (13) Net sales per ton - Europe (US$) 650 607 620 712 650 622 698 709 672 3 (5) Net sales per ton - Africa (US$) 258 254 250 254 281 267 277 211 231 (18) 9 EBITDA 330 460 430 580 350 720 370 620 380 9 (39) Europe 450 330 140 270 150 450 460 510 280 87 (45) Magadi (120) 130 290 310 200 270 (90) 110 100 (50) (9) EBITDA per ton - Europe (US$) 82 57 23 50 32 83 92 99 60 87 (40) EBITDA per ton - Africa (US$) (33) 26 50 56 46 52 (32) 20 23 (49) 14 PBT (200) 100 120 (70) (60) 240 (120) 90 (170) NM NM PAT (200) 100 (160) 80 (60) 240 (120) 90 (170) NM NM

Source: Company, Kotak Institutional Equities

Exhibit 5: We model a recovery in soda ash volumes and realizations in FY2022-23E Segment-wise assumptions, March fiscal year-ends, 2018-23E (Rs mn)

2018 2019 2020 2021E 2022E 2023E Consolidated segment revenues Basic chemistry products 76,729 83,091 80,137 72,164 83,536 87,235 Consumer products 15,122 18,473 — — — — Specialty products 18,434 20,263 23,289 25,947 31,022 36,097 Unallocated 190 171 242 266 293 322 Inter-segment (7,022) (9,034) (101) (111) (122) (134) Revenues 103,454 112,963 103,568 98,267 114,729 123,521 Consolidated segment EBIT Basic chemistry products 14,611 13,036 13,555 10,182 13,817 14,752 Consumer products 2,347 3,139 — — — — Specialty products 2,039 1,721 1,669 2,268 3,126 3,966 Unallocated (32) 2,160 714 666 698 727 EBIT 18,965 20,056 15,938 13,116 17,641 19,446 EBIT margin (%) Basic chemistry products 19.0 15.7 16.9 14.1 16.5 16.9 Consumer products 15.5 17.0 — — — — Specialty products 11.1 8.5 7.2 8.7 10.1 11.0 EBIT margin 18.3 17.8 15.4 13.3 15.4 15.7

Source: Company, Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Chemicals Commodity Chemicals

Exhibit 6: We model recovery in revenues and margins during FY2022-23E Segment-wise financials, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E Exchange rate (Rs/US$) 65.5 67.2 64.5 69.9 70.6 75.5 76.0 77.0 Volumes (k-tons) Soda ash and related chemicals 3,820 3,901 3,981 3,736 3,619 3,195 3,641 3,694 India 792 802 793 797 737 626 749 772 USA 2,129 2,241 2,345 2,222 2,236 1,960 2,236 2,256 Europe 592 586 507 431 395 368 400 405 Africa 307 272 336 286 251 241 256 261 Salt 1,042 1,073 1,059 1,155 1,057 1,089 1,110 1,188 Prices/Margins Soda ash and related chemicals India prices (Rs/kg) 20.2 19.3 24.7 27.4 26.6 24.7 25.6 26.2 USA margins (US$/ton) 46.1 41.9 45.5 43.7 48.3 38.9 45.9 46.8 Europe margins (US$/ton) 45.1 58.5 66.7 34.9 56.3 57.8 60.4 61.9 Africa margins (US$/ton) 57.2 18.6 39.1 29.5 27.7 25.4 30.2 31.5

Source: Company, Kotak Institutional Equities estimates

Exhibit 7: We value TTCH at Rs330/share SoTP valuation for TTCH, March 2022E basis

March 2022E Multiple Valuation Business Methodology (Rs bn) (X) (Rs bn) (Rs/share) Basic chemistry products EV/EBITDA 18.6 5.5 102.5 402 Specialty products (ex-Rallis) EV/Sales 2.6 1.0 2.6 10 Rallis Fair value 26.2 0.8 21.0 82 Investments CMP 20.1 0.8 16.1 63 Enterprise value 142.0 558 Less: Net debt (38.7) (152) Less: Pension and other liabilities (19.2) (75) Fair value 84.1 330

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Commodity Chemicals Tata Chemicals

Exhibit 8: Consolidated profit model, balance sheet and cash flow statement for Tata Chemicals, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020E 2021E 2022E 2023E Profit model (Rs mn) Sales 148,729 129,418 102,697 112,963 103,568 98,267 114,729 123,521 EBITDA 20,917 22,236 21,907 20,951 19,492 17,971 22,906 25,189 Other income 1,253 1,661 1,595 4,116 3,111 2,900 3,043 3,170 Interest (5,255) (4,112) (3,256) (3,631) (3,419) (3,884) (3,646) (3,577) Depreciation (5,261) (5,347) (5,180) (5,714) (6,665) (7,755) (8,307) (8,913) Extraordinary items 742 1,348 14,585 624 (80) — — — Profit before tax 12,397 15,787 29,650 16,346 12,439 9,232 13,996 15,869 Tax expense (2,484) (3,573) (3,118) (3,469) (2,197) (2,216) (3,569) (4,067) Minority interest (2,356) (2,410) (2,694) (2,309) (2,218) (1,082) (1,416) (1,719) Income from associates 149 128 492 992 (39) (49) (54) (59) PAT 7,706 9,931 24,331 11,559 7,986 5,886 8,958 10,024 Adjusted PAT 7,112 8,888 9,746 10,936 8,066 5,886 8,958 10,024 Adjusted EPS (Rs) 27.9 34.9 38.3 42.9 31.7 23.1 35.2 39.3

Balance sheet (Rs mn) Equity 68,543 79,082 111,017 123,413 128,977 132,797 138,611 145,118 Total borrowings 90,699 70,483 64,180 61,429 77,020 78,357 76,774 75,457 Deferred tax liability/minority interest 38,423 38,620 40,397 42,119 23,977 25,107 26,576 28,353 Current liabilities and provisions 45,888 47,866 43,192 42,089 47,549 42,442 46,318 48,389 Total liabilites 243,552 236,051 258,786 269,049 277,522 278,703 288,279 297,317 Net fixed assets 120,196 112,654 114,358 124,386 139,090 141,834 146,277 150,114 Goodwill/Intangible assets 17,619 16,984 17,319 18,590 19,998 19,998 19,998 19,998 Investments 21,879 27,907 28,683 56,425 43,060 43,060 43,060 43,060 Cash and equivalents 12,654 16,654 44,830 19,522 20,795 23,615 23,447 25,816 Other current assets and miscellaneous 71,205 61,852 53,596 50,126 54,579 50,195 55,497 58,329 Total assets 243,552 236,051 258,786 269,049 277,522 278,703 288,279 297,317

Free cash flow (Rs mn) Operating cash flow 17,769 18,751 21,149 15,018 16,010 11,871 15,691 17,545 Working capital changes (652) 12,103 (5,691) (2,144) (1,299) (723) (1,426) (761) Capital expenditure (net) (6,896) (6,453) (7,306) (10,795) (11,695) (10,500) (12,750) (12,750) Free cash flow 10,221 24,401 8,152 2,079 3,016 648 1,515 4,033

Ratios EBITDA margin (%) 14.1 17.2 21.3 18.5 18.8 18.3 20.0 20.4 Net debt/equity (X) 1.14 0.68 0.17 0.34 0.44 0.41 0.38 0.34 Book value (Rs/share) 269 310 436 484 506 521 544 570 RoAE (%) 11.5 12.0 10.3 9.3 6.4 4.5 6.6 7.1 RoACE (%) 10.7 12.7 12.8 9.2 6.9 5.4 7.6 8.4

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH REDUCE Exide Industries (EXID) Automobiles & Components AUGUST 03, 2020 RESULT, CHANGE IN RECO. Sector view: Cautious

Quarter aided by replacement segment. Exide reported 1QFY21 EBITDA of Rs1.5 bn CMP (`): 155 (-64% yoy), significantly above our estimates. Revenues declined by 44% yoy led by Fair Value (`): 155 steep yoy decline in OEM revenues and other industrial segments, partly offset by BSE-30: 36,940 strong recovery during the latter half of 1QFY21 in automotive replacement and UPS segments. We upgrade the stock to REDUCE (from SELL) on fair valuations. However, we remain concerned on the long-term growth prospects given the company’s lack of R&D investments in lithium-ion technology and growth moderation in the UPS segment due to improving power availability in India.

Exide Industries Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 209-122 EPS (Rs) 10.0 7.7 9.0 Mcap (bn) (Rs/US$) 132/1.8 EPS growth (%) 10.3 (22.7) 16.6 ADTV-3M (mn) (Rs/US$) 578/8 P/E (X) 15.5 20.1 17.2 Shareholding pattern (%) P/B (X) 2.1 2.0 1.8 Promoters 46.0 EV/EBITDA (X) 9.5 10.6 9.3 FIIs 9.4 RoE (%) 13.8 10.1 11.1 MFs/BFIs 16.3/8.3 Div. yield (%) 2.7 2.3 2.3 Price performance (%) 1M 3M 12M Sales (Rs bn) 99 88 99 Absolute 1 (2) (15) EBITDA (Rs bn) 14 12 14 Rel. to BSE-30 (2) (10) (14) Net profits (Rs bn) 8 7 8

1QFY21 EBITDA significantly above estimates

Exide reported 1QFY21 EBITDA of Rs1.5 bn (-64% yoy), significantly above our estimates due to stronger-than-expected revenue growth, partly offset by weaker-than-expected gross margins. Revenues declined by 44% yoy (KIE: -60% yoy), which was possibly led by (1) sharp decline in the auto OEM segment (15-20% of the revenues) due to 70-90% yoy decline in automotive volumes, (2) weakness in the industrial segment (except UPS segment), (3) 30-40% yoy decline in replacement (35-40% of the revenues) and UPS segments and (4) channel-filling by the company. During the latter half of the quarter, the company witnessed a surge in demand for automotive replacement and UPS batteries segments. EBITDA margin came in at 9.6% (down 510 bps yoy and down 360 bps qoq), which was 450 bps above our estimates due to lower- than-expected other expenses, partly offset by GM deterioration. Gross margin deteriorated by 700 bps qoq possibly due to reversal of finished goods inventory. Other expenses as a % of sales declined to 12.6% in 1QFY21 versus 17.3% in 4QFY20; this is surprising given sharp decline in volumes on a qoq basis. Adjusted net profit came in at Rs440 mn (-80% yoy), which was way above our estimates due to outperformance at EBITDA level.

Fine-tune FY2021-23E EPS estimates; upgrade to REDUCE (from SELL earlier)

We have fine-tuned our FY2021-23E EPS estimate led by 3-4% increase in revenue estimate, partly offset by lower other income assumptions. Upgrade the stock to REDUCE (from SELL earlier) as the stock price has corrected since our last downgrade. The stock is currently trading at 13.6X our FY2022E core EPS estimates. SoTP-based Fair Value is revised to Rs155 (from Hitesh Goel Rs150 earlier) based on 13X September 2022E EPS (from 13X March 2022E) earlier for the core business. Despite better-than-expected 1QFY21 results, we remain concerned about long-term Rishi Vora growth prospects for the company. We believe inverter/UPS segment (~20-22% of revenues) growth will moderate as the power availability situation will improve across India. With limited expertise in lithium-ion technology and muted R&D investments, we believe (over the long term), terminal growth potential of both the companies in the sector will get negatively impacted resulting in further multiple de-rating.

[email protected] Contact: +91 22 6218 6427

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

Exhibit 1: EBITDA was significantly above our estimates due to better-than-expected revenue print, offset by gross margin deterioration Interim results, March fiscal year-ends (Rs mn) change (%) 1QFY21 1QFY21E 1QFY20 4QFY20 1QFY21E 1QFY20 4QFY20 FY2021E FY2020 Yoy (%) FY2022E FY2021E Yoy (%) Net sales 15,476 11,117 27,793 20,551 39.2 (44.3) (24.7) 87,715 98,567 (11.0) 98,628 87,715 12.4 Raw materials (10,642) (6,893) (17,920) (12,703) 54.4 (40.6) (16.2) (55,333) (62,664) (11.7) (62,455) (55,333) 12.9 Staff costs (1,396) (1,346) (1,667) (1,583) 3.7 (16.3) (11.8) (6,331) (6,664) (5.0) (6,837) (6,331) 8.0 Other expenses (1,954) (2,315) (4,129) (3,562) (15.6) (52.7) (45.2) (13,808) (15,589) (11.4) (15,333) (13,808) 11.0 Total expenses (13,992) (10,554) (23,716) (17,849) 32.6 (41.0) (21.6) (75,472) (84,917) (11.1) (84,625) (75,472) 12.1 EBITDA 1,485 563 4,077 2,702 163.6 (63.6) (45.1) 12,243 13,650 (10.3) 14,003 12,243 14.4 Depreciation (914) (940) (864) (939) (2.8) 5.7 (2.7) (3,983) (3,626) (4,403) (3,983) EBIT 571 (377) 3,213 1,764 8,260 10,024 (17.6) 9,600 8,260 16.2 Other income 70 50 164 169 40.8 (57.1) (58.2) 582 639 688 582 Interest expense (14) (30) (18) (37) (40) (94) (20) (40) Exceptional expenses — — — — — (217) — — Profit before tax 627 (357) 3,359 1,895 (81.3) (66.9) 8,802 10,569 (16.7) 10,267 8,802 16.6 Tax expense (188) — (1,116) (216) (2,253) (2,097) (2,628) (2,253) Profit after tax 440 (357) 2,243 1,679 6,549 8,255 (20.7) 7,639 6,549 16.6 Adjusted net profit 440 (357) 2,243 1,679 (80.4) (73.8) 6,549 8,472 (22.7) 7,639 6,549 16.6 No. of shares 850 850 850 850 850 850 850 850 EPS (Rs/share) 0.5 (0.4) 2.6 2.0 7.7 10.0 (22.7) 9.0 7.7 16.6 Tax rate (%) 29.9 — 33.2 11.4 25.6 19.8 25.6 25.6 As % of net revenues Raw material 68.8 62.0 64.5 61.8 63.1 63.6 63.3 63.1 Staff costs 9.0 12.1 6.0 7.7 7.2 6.8 6.9 7.2 Other expenses 12.6 20.8 14.9 17.3 15.7 15.8 15.5 15.7 EBITDA margin 9.6 5.1 14.7 13.1 14.0 13.8 14.2 14.0 EBIT margin 3.7 (3.4) 11.6 8.6 9.4 10.2 9.7 9.4

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Exide Industries has underperformed Amara Raja Batteries in terms of revenue growth in FY2020 Comparison of revenue growth, gross margin and EBITDA margin of Amara Raja and Exide, March fiscal year-ends, 1QFY18-1QFY21 (%)

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Amara Raja Revenue growth (%) 13.4 7.1 17.1 17.6 18.8 22.8 9.1 (0.9) 2.0 (3.3) 3.1 0.9 NA Gross margin (%) 30.0 34.0 33.1 31.3 28.5 30.9 32.8 34.8 32.4 35.9 35.5 36.3 NA Employee cost to sales (%) 5.4 5.2 4.9 5.0 4.7 5.3 5.1 5.2 5.4 5.8 5.4 5.9 NA Other cost to sales (%) 11.7 12.1 12.7 13.0 11.4 12.1 12.7 14.1 11.6 12.8 13.9 15.0 NA EBITDA margin (%) 12.9 16.7 15.6 13.3 12.4 13.5 14.9 15.5 15.4 17.2 16.2 15.4 NA Exide Revenue growth (%) 4.6 22.4 32.7 24.5 31.8 15.4 9.7 5.7 0.2 (4.0) (3.4) (20.9) (44.3) Gross margin (%) 37.1 32.6 34.5 34.8 33.6 33.1 35.1 35.1 35.5 36.2 36.2 38.2 31.2 Employee cost to sales (%) 6.8 6.3 6.7 6.3 5.8 6.1 6.5 5.7 6.0 6.7 6.9 7.7 9.0 Other cost to sales (%) 14.9 13.8 15.4 14.8 13.6 14.8 16.1 15.0 14.9 15.5 16.0 17.3 12.6 EBITDA margin (%) 15.4 12.6 12.4 13.7 14.1 12.2 12.5 14.4 14.7 14.1 13.3 13.1 9.6

Source: Companies, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Exide Industries Automobiles & Components

Exhibit 3: LME lead prices have declined by 4% qoq in 1QFY21 Quarterly LME lead prices (assuming 1.5-quarter lag), March fiscal-year ends, 1QFY16-1QFY21 ($/ton)

LME lead (US$/ton) USD:INR rate LME lead (Rs/ton) Qoq increase (%) 1QFY16 1,901 62.7 119,247 0.6 2QFY16 1,806 63.8 115,228 (3.4) 3QFY16 1,690 65.7 111,084 (3.6) 4QFY16 1,687 67.0 113,049 1.8 1QFY17 1,758 67.0 117,759 4.2 2QFY17 1,762 67.1 118,276 0.4 3QFY17 1,984 66.8 132,542 12.1 4QFY17 2,244 67.9 152,368 15.0 1QFY18 2,243 65.3 146,468 (3.9) 2QFY18 2,200 64.4 141,680 (3.3) 3QFY18 2,428 64.7 157,092 10.9 4QFY18 2,539 64.1 162,750 3.6 1QFY19 2,388 65.6 156,653 (3.7) 2QFY19 2,232 69.0 154,008 (1.7) 3QFY19 1,999 72.4 144,728 (6.0) 4QFY19 2,049 70.5 144,352 (0.3) 1QFY20 1,882 69.5 130,874 (9.3) 2QFY20 2,033 70.4 143,141 9.4 3QFY20 2,038 71.2 145,167 1.4 4QFY20 1,834 72.4 132,782 (8.5) 1QFY21 1,676 75.8 127,041 (4.3) July average 1,834 74.9 137,385

Source: Bloomberg, Kotak Institutional Equities

Exhibit 4: We expect 4% CAGR in automotive volumes over FY2020-23E Automotive sales volume breakdown of Exide Industries by segments, March fiscal year-ends, 2011-23E (mn units, %)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Four-wheeler volumes (mn units) OEM 3.8 4.0 3.9 3.8 3.8 3.8 3.9 4.2 4.4 3.5 2.8 3.2 3.6 Yoy change (%) 22.6 5.3 (2.0) (4.0) 0.7 (0.3) 2.4 8.0 5.0 (20.0) (20.0) 15.0 10.0 Replacement 3.8 3.7 4.3 4.5 5.2 5.7 6.2 6.7 7.4 7.8 7.6 8.4 9.1 Yoy change (%) 7.7 (1.3) 15.9 5.0 15.0 10.0 9.0 8.0 10.0 5.0 (2.0) 10.0 8.0 Total four-wheeler volumes 7.6 7.7 8.2 8.3 9.0 9.5 10.1 10.9 11.8 11.3 10.4 11.6 12.6 Yoy change (%) 14.7 2.0 6.6 0.7 8.5 5.7 6.4 8.0 8.1 (4.3) (7.6) 11.3 8.6 Replacement/OEM mix (X) 1.0 0.9 1.1 1.2 1.4 1.5 1.6 1.6 1.7 2.2 2.7 2.6 2.6 Two-wheeler volumes (mn units) OEM 7.2 10.1 11.4 12.2 13.2 13.6 14.3 15.4 16.2 12.6 10.7 12.3 13.6 Yoy change (%) 30.9 39.4 13.5 7.0 8.0 3.0 5.0 8.0 5.0 (22.0) (15.0) 15.0 10.0 Replacement 3.0 3.7 5.0 5.2 6.2 7.1 8.2 9.6 11.2 12.1 11.8 13.2 14.6 Yoy change (%) (7.3) 23.6 35.2 5.0 19.7 14.0 15.0 18.0 16.0 8.0 (2.0) 12.0 10.0 Total two-wheeler volumes 10.9 13.7 16.4 17.4 19.4 20.7 22.4 25.0 27.3 24.7 22.5 25.6 28.1 Yoy change (%) 25.3 25.8 19.3 6.4 11.5 6.5 8.4 11.6 9.2 (9.7) (8.6) 13.4 10.0 Replacement/OEM mix (X) 0.4 0.4 0.4 0.4 0.5 0.5 0.6 0.6 0.7 1.0 1.1 1.1 1.1 Automotive volumes (mn units) Total OEM volumes 11.0 14.1 15.3 16.0 17.0 17.4 18.1 19.6 20.6 16.1 13.5 15.6 17.1 Total replacement volumes 6.7 7.4 9.3 9.7 11.4 12.8 14.4 16.4 18.6 19.8 19.4 21.6 23.6 Total auto volumes 18.5 21.4 24.6 25.7 28.4 30.2 32.5 35.9 39.1 36.0 33.0 37.2 40.7 Yoy change (%) 20.7 16.0 14.7 4.5 10.5 6.3 7.8 10.5 8.9 (8.1) (8.3) 12.8 9.5

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Automobiles & Components Exide Industries

Exhibit 5: We expect overall revenues to grow by 3% CAGR over FY2020-23E Revenue breakdown of Exide Industries by segments, March fiscal year-ends, 2014-23E (Rs mn, %)

2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Revenue (Rs mn) Four-wheeler OEM 6,538 6,978 6,612 7,040 8,363 8,957 6,807 5,337 6,138 6,751 Four-wheeler replacement 15,157 17,207 18,928 21,456 25,490 29,161 30,619 30,007 33,007 35,648 Two-wheeler OEM 5,513 5,629 5,508 6,014 7,145 7,652 5,670 4,723 5,432 5,975 Two-wheeler replacement 3,242 3,688 4,204 5,028 6,527 7,798 8,422 8,254 9,244 10,168 Auto revenue 30,450 33,501 35,251 39,539 47,525 53,568 51,518 48,320 53,820 58,542 Inverter battery 17,632 21,933 20,377 21,997 23,584 25,220 21,437 17,150 19,208 20,744 Inverter 960 1,122 962 1,077 1,185 1,339 1,205 964 1,080 1,166 UPS 8,855 8,588 8,588 9,103 10,469 12,353 12,353 9,882 11,068 11,954 Telecom 584 705 705 846 4,500 4,050 2,835 2,835 3,175 3,493 Submarine and others (such as E-rickshaw) 432 432 432 600 1,100 3,000 2,675 2,675 3,209 3,851 Exports 730 2,461 2,324 2,672 3,501 6,353 6,544 5,889 7,067 7,915 Industrial revenue 29,192 35,241 33,387 36,296 44,338 52,315 47,048 39,395 44,807 49,123 Total revenues 59,642 68,742 68,537 75,835 91,863 105,883 98,567 87,715 98,628 107,665 Revenue breakup (%) Four-wheeler OEM 11.0 10.2 9.6 9.3 9.1 8.5 6.9 6.1 6.2 6.3 Four-wheeler replacement 25.4 25.0 27.6 28.3 27.7 27.5 31.1 34.2 33.5 33.1 Two-wheeler OEM 9.2 8.2 8.0 7.9 7.8 7.2 5.8 5.4 5.5 5.5 Two-wheeler replacement 5.4 5.4 6.1 6.6 7.1 7.4 8.5 9.4 9.4 9.4 Auto revenue 51.1 48.7 51.4 52.1 51.7 50.6 52.3 55.1 54.6 54.4 Inverter battery 29.6 31.9 29.7 29.0 25.7 23.8 21.7 19.6 19.5 19.3 Inverter 1.6 1.6 1.4 1.4 1.3 1.3 1.2 1.1 1.1 1.1 UPS 14.8 12.5 12.5 12.0 11.4 11.7 12.5 11.3 11.2 11.1 Telecom 1.0 1.0 1.0 1.1 4.9 3.8 2.9 3.2 3.2 3.2 Submarine and others (such as E-rickshaw) 0.7 0.6 0.6 0.8 1.2 2.8 2.7 3.0 3.3 3.6 Exports 1.2 3.6 3.4 3.5 3.8 6.0 6.6 6.7 7.2 7.4 Industrial revenue 48.9 51.3 48.7 47.9 48.3 49.4 47.7 44.9 45.4 45.6 Total 100.0 100.0 100.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Company, Kotak Institutional Equities estimates

Exhibit 6: We have fine-tuned our FY2021-23E estimates Earnings revision table, March fiscal year-ends, 2021-23E (Rs mn, %)

New estimates Old estimates % change 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Net sales 87,715 98,628 107,665 84,803 95,358 104,071 3.4 3.4 3.5 EBITDA 12,243 14,003 15,283 11,840 13,625 14,877 3.4 2.8 2.7 Margin (%) 14.0 14.2 14.2 14.0 14.3 14.3 Net Profit 6,549 7,639 8,330 6,427 7,721 8,564 1.9 (1.1) (2.7) Standalone EPS 7.7 9.0 9.8 7.6 9.1 10.1 1.9 (1.1) (2.7)

Source: Kotak Institutional Equities estimates

Life insurance business adds Rs33/share to our Fair Value

We value Exide Life Insurance at Rs33/share (versus Rs30 earlier), i.e. 1X FY2021E (refer to Exhibit 8 for SoTP valuation). Exide Life reported EV of Rs25.5 bn in March 2020 with 6% yoy growth (no disclosures from the company post that). We are building in 10% EV CAGR between March 2020 and March 2021 in our forecasts. We note that a detailed EV walk (contribution of investment and economic assumption changes in EV growth) constrains our ability to value the business.

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Exide Industries Automobiles & Components

Exhibit 7: We value Exide Industries at Rs155/share SoTP of Exide Industries (Rs)

EPS Multiple Value per share Comments (Rs) (X) (Rs) September 2022 EPS 9.4 13 122 We build in 10% yoy growth in Embedded Value (EV) over ING Vysya (100% stake value) 33 FY2020-21E and assign 1X multiple to March 2021E EV SOTP-based value 155

Fair value 155

Source: Kotak Institutional Equities estimates

Exhibit 8: Exide Life Insurance adds Rs33/share to our Fair Value EV and RoEV, March fiscal year-ends, 2HFY17-2HFY21E

2HFY17 1HFY18 2HFY18 1HFY19 2HFY19 1HFY20 2HFY20 1HFY21E 2HFY21E Embedded Value (Rs bn) 20.5 20.4 21.4 21.2 24.0 24.0 25.5 25.5 28.0 RoEV (%) 10 4 13 6 10 Multiple to EV (X) 1.0 Valuation (Rs bn) 28

Value per share of Exide (Rs/share) 32.9

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Automobiles & Components Exide Industries

Exhibit 9: We expect EPS to remain flattish over FY2020-23E Financial summary of Exide Industries, March fiscal year-ends, 2011-23E (Rs mn)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model (Rs mn) Net sales 45,536 51,070 60,714 59,642 68,742 68,537 75,835 91,863 105,883 98,567 87,715 98,628 107,665 EBITDA 8,633 6,839 7,841 8,145 9,077 10,161 10,825 12,408 14,113 13,650 12,243 14,003 15,283 Other income 1,038 668 753 353 320 517 1,039 584 385 639 582 688 808 Interest (57) (48) (36) (12) (17) (17) (43) (52) (61) (94) (40) (20) (20) Depreciation (835) (1,007) (1,135) (1,256) (1,395) (1,579) (2,063) (2,459) (3,135) (3,626) (3,983) (4,403) (4,876) Profit before tax 8,780 6,452 7,423 7,231 7,985 9,082 9,757 10,480 11,303 10,569 8,802 10,267 11,196 Tax expense (2,740) (1,840) (2,195) (2,360) (2,526) (2,837) (2,821) (3,378) (3,945) (2,097) (2,253) (2,628) (2,866) Adjusted net profit 6,180 4,612 5,228 4,871 5,459 6,245 6,936 6,976 7,682 8,472 6,549 7,639 8,330 Adjusted earnings per share (Rs) 7.3 5.4 6.2 5.7 6.4 7.3 8.2 8.2 9.0 10.0 7.7 9.0 9.8 Balance sheet (Rs mn) Equity 27,425 30,573 34,236 37,315 40,546 45,114 49,636 53,893 59,870 62,961 66,535 71,199 76,553 Total borrowings 22 — — — — 1,025 1,702 — — — — — — Deferred Tax Liability 675 825 977 1,051 1,259 1,270 1,552 1,405 1,751 1,019 1,019 1,019 1,019 Current liabilities 7,964 9,546 10,271 11,201 12,046 13,975 14,866 18,671 20,103 18,441 17,293 20,579 22,546 Total liabilities 36,085 40,944 45,484 49,566 53,851 61,384 67,756 73,969 81,724 82,421 84,846 92,796 100,118 Net fixed assets 9,018 9,932 10,532 10,490 11,728 14,512 16,874 21,918 25,522 26,431 25,947 26,044 25,669 Investments 13,780 15,546 16,401 19,670 18,957 26,978 26,739 19,690 21,994 20,708 25,708 30,708 35,708 Cash 148 577 748 1,200 298 738 196 872 736 1,546 1,413 1,538 1,341 Other current assets 13,140 14,889 17,803 18,207 22,868 19,155 23,947 31,489 33,473 33,736 31,778 34,506 37,400 Total assets 36,085 40,944 45,484 49,566 53,851 61,384 67,756 73,969 81,724 82,421 84,846 92,796 100,118 Free cash flow (Rs mn) Operating cash flow 6,959 5,769 6,514 6,201 7,062 7,615 8,150 8,729 10,506 11,291 10,532 12,042 13,205 Working capital changes (2,015) (168) (2,188) 526 (3,804) 5,783 (3,840) (3,563) (468) (2,155) 810 558 (927) Capital expenditure (2,708) (1,921) (1,735) (1,214) (2,633) (3,948) (4,158) (7,714) (5,510) (4,827) (3,500) (4,500) (4,500) Free cash flow 2,237 3,680 2,591 5,513 626 9,450 152 (2,548) 4,528 4,310 7,842 8,100 7,778 Ratios Gross margin (%) 39.7 34.9 35.7 36.5 36.0 38.1 37.8 34.6 34.2 36.4 36.9 36.7 36.5 EBITDA margin (%) 19.0 13.4 12.9 13.7 13.2 14.8 14.3 13.5 13.3 13.8 14.0 14.2 14.2 PAT margin (%) 13.6 9.0 8.6 8.2 7.9 9.1 9.1 7.6 7.3 8.6 7.5 7.7 7.7 Book Value (Rs/share) 32.3 36.0 40.3 43.9 47.7 53.1 58.4 63.4 70.4 74.1 78.3 83.8 90.1 RoAE (%) 24.9 15.9 16.1 13.6 14.0 14.6 14.6 13.5 13.5 13.7 10.1 11.1 11.3 RoACE (%) 23.9 15.3 15.7 13.8 14.0 14.3 13.7 13.6 13.6 11.9 9.4 10.3 10.5

Source: Company, Kotak Institutional Equities estimates

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Just Dial (JUST) Internet Software & Services AUGUST 04, 2020 RESULT, CHANGE IN RECO. Sector view: Cautious

1QFY21 beats expectations but uncertainty persists. JUST’s 1QFY21 revenues beat CMP (`): 366 estimates on higher-than-expected paid campaign base. Realizations declined 22% yoy Fair Value (`): 400 due to increased proportion of tier II/III cities and payment holiday offered to customers. BSE-30: 36,940 Weaker demand from SMEs may continue throughout FY2021. Cash on books of Rs16.4 bn provides support. We trim FY2022-23E EPS by 9%, resulting in a new FV of Rs400. We downgrade our rating a notch to ADD.

Just Dial Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 758-250 EPS (Rs) 42.0 24.7 29.9 Mcap (bn) (Rs/US$) 24/0.4 EPS growth (%) 31.4 (41.1) 21.0 ADTV-3M (mn) (Rs/US$) 1,240/16 P/E (X) 8.7 14.8 12.2 Shareholding pattern (%) P/B (X) 1.8 1.9 1.6 Promoters 33.4 EV/EBITDA (X) 3.1 7.4 5.0 FIIs 42.7 RoE (%) 23.8 12.2 14.1 MFs/BFIs 14.1/0.6 Div. yield (%) 0.0 0.0 0.0 Price performance (%) 1M 3M 12M Sales (Rs bn) 10 7 8 Absolute (4) (10) (47) EBITDA (Rs bn) 3 1 2 Rel. to BSE-30 (7) (17) (47) Net profits (Rs bn) 3 2 2

Revenues beat estimates on higher customer retention

JUST reported a better-than-expected performance with revenues beating our estimates by 46.1% on account of decent retention of paying customers. Revenue decline of 32.4% yoy was driven by a 13.7% yoy decline in paid campaigns and 21.7% yoy decline in realizations. The sharp reduction in realizations was on account of: (1) campaign mix moving in favor of lower- priced campaigns from tier-II/ III cities, and (2) discounts or payment holiday provided to customers during the lockdown. Collections declined by 52% yoy, higher than the decline in revenues, indicating that revenues may remain on a weak trajectory in 2QFY21 as well.

Ad-spends down sharply in 1Q; cost controls drive healthy margin print

Higher-than-expected revenues as well as aggressive cost controls drove a healthy EBITDA margin print of 23.1%. Cost reduction of 29% yoy can be attributed largely to lower advertising and sales promotion spends. This cost saving may not be permanent in nature and ad-spends will increase in subsequent quarters. Net profit of Rs833 mn was boosted by higher other income of Rs769 mn.

B2B listings may not provide sizeable boost to near-term revenues

In an attempt to boost revenues, JUST is attempting to add B2B listings on its portal. We are not very clear yet on how JUST would market and position this platform, given it has focused exclusively on B2B listings till date. In order for this business to become a sizeable revenue Kawaljeet Saluja stream, it would require special marketing focus, something that may not materialize in the very near term. We thus do not separately bake in any additional revenue from this business. Garima Mishra

Cut estimates; downgrade rating to ADD Shubhangi Nigam

JUST ended 1QFY21 with cash balance of Rs16.4 bn, up from Rs15.9 bn as of March 2020. The company’s buyback via the tender offer route will result in buyback of ~4.8% of existing shares for a total consideration of Rs2.2 bn. While there is downside support from cash (Rs263/share as of March 2022), weakness in core earnings will persist for the foreseeable future. We thus trim our FY2022-23E EPS by 9%. We downgrade our rating a notch to ADD with a revised FV of Rs400 (based on 8X June 2022E EPS to which we separately add cash per share). [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. Internet Software & Services Just Dial

Exhibit 1: Revenue decline of 32% yoy driven by decline in paid campaigns and lower realizations Standalone quarterly financials of Just Dial, March fiscal year-ends (Rs mn)

Change (%) Yoy growth 1QFY21 1QFY21E 1QFY20 4QFY20 KIE Est yoy qoq FY2020 FY2019 (%) FY2021E Sales 1,624 1,112 2,402 2,350 46.1 (32.4) (30.9) 9,531 8,915 6.9 6,791 Expenses (1,249) (963) (1,759) (1,606) 29.7 (29.0) (22.2) (6,802) (6,626) 2.7 (5,360) Employee (1,078) (775) (1,340) (1,291) 39.2 (19.6) (16.5) (5,329) (4,971) 7.2 (4,284) Other expenses (172) (189) (419) (315) (9.2) (59.1) (45.5) (1,473) (1,654) (11.0) (1,076) Operating profit 375 148 642 744 153.1 (41.6) (49.6) 2,729 2,289 19.2 1,431 Other income 769 300 311 381 156.4 147.6 101.7 1,397 930 50.3 1,048 EBIDT 1,144 448 953 1,125 155.3 20.0 1.7 4,126 3,219 28.2 2,479 Interest (15) (23) (18) (23) (89) (1) (88) Depreciation (116) (125) (136) (127) (6.9) (14.6) (8.1) (521) (337) 54.7 (467) PBT 1,013 300 799 975 237.5 26.8 3.8 3,517 2,881 22.1 1,924 Tax (180) (63) (226) (215) 184.9 (20.6) (16.4) (793) (813) (2.4) (398) Net profit 833 237 573 761 251.5 45.5 9.5 2,723 2,068 31.7 1,526 Extraordinary items — — — — — — — — Reported PAT 833 237 573 761 251.5 45.5 9.5 2,723 2,068 31.7 1,526 Key ratios (%) Employee cost/sales 66.4 69.7 55.8 54.9 55.9 55.8 63.1 Other operating expenses/sales 10.6 17.0 17.5 13.4 15.4 18.6 15.8 EBITDA margin 23.1 13.3 26.7 31.7 28.6 25.7 21.1 PBT margin 62.3 27.0 33.3 41.5 36.9 32.3 28.3 Tax rate 17.7 21.0 28.3 22.0 22.6 28.2 20.7 PAT margin 51.3 21.3 23.8 32.4 27.450 28.6 23.2 22.5 Other operating metrics Total campaigns (#) 444,934 525,606 515,300 536,236 (15.3) (13.7) (17.0) 536,236 500,838 402,177 Price per campaign (Rs) 14,603 16,779 18,643 17,526 (13.0) (21.7) (16.7) 17,774 17,800 16,885 Headcount (#) 10,984 — 13,601 12,423 (19.2) (11.6) Advertising spend (Rs mn) 5 — 190 125 (97.4) (96.0) Unearned revenue (Rs mn) 2,871 — 3,991 3,360 (28.1) (14.6)

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Campaign additions increasingly driven to tier II/III cities

Yoy growth 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 (%) Total Revenue 1,900 1,945 1,968 2,005 2,114 2,210 2,268 2,323 2,402 2,426 2,354 2,350 1,624 (32.4) Tier 1 1,492 1,585 1,574 1,584 1,639 1,669 1,678 1,695 1,705 1,698 1,624 1,621 1,072 (37.1) Tier 2/3 409 360 394 421 476 542 590 627 696 728 730 728 552 (20.7) % share of Tier 2/3 22 19 20 21 23 25 26 27 29 30 31 31 34 (13.7) Campaigns 435,980 439,700 440,600 445,110 452,900 470,620 485,410 500,838 515,300 528,915 534,960 536,236 444,934 Tier 1 252,868 259,423 253,345 253,713 253,624 258,841 262,121 262,940 257,650 264,458 262,130 262,756 200,220 (22.3) Tier 2/3 183,112 180,277 187,255 191,397 199,276 211,779 223,289 237,898 257,650 264,458 272,830 273,480 244,714 (5.0) % share of Tier 2/3 42 41 43 43 44 45 46 48 50 50 51 51 55

Source: Company, Kotak Institutional Equities

JUST’s revenue stream is dependent on spending on advertisements by SMEs. Loss of revenues for SMEs, on account of Covid, has driven them to stop/defer spends on the platform. Further, the business mortality may also result in erosion of JUST’s client base. Also, July collections currently stand at 60% of pre-Covid levels. The company highlighted that challenges in the business are to sustain for at least 1-2 quarters.

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Just Dial Internet Software & Services

Exhibit 3: Declining realizations implying deteriorating pricing power

30 Tier 2/3 Tier 1

25

26.5

25.8

25.7 25.7

25.8

25.8

25.6

25.0

24.9

24.8 24.7

20 24.4

23.6 21.4 15

10

11.0

10.8

10.7

10.7

10.6

10.5

9.5

10.2

9.0

8.9 8.8

5 8.4 8.0

0

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21

Source: Company, Kotak Institutional Equities

Exhibit 4: Pace of campaigns growth slowed down by 14% yoy End of the period paid campaigns (#, LHS) and yoy growth (%, RHS), March fiscal year-ends

(#, '000) Paid campaigns (LHS) Yoy growth in paid campaigns (RHS) Yoy growth (%) 32

510

535 536

470 529 24

515 501

430 485

471 16

453

445

445 441

390 440

436

435 425

350 409 8 389

310 369

355

350 347

270 331 0

313 296

230 278

(8)

262 250

190 239 222

150 (16)

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 Internet Software & Services Just Dial

Exhibit 5: Total paid campaigns decline by ~91k in 1Q Sequential campaign addition, March fiscal year-ends (#, 000)

(#, '000) 40 18 18 21 19 16 17 16 17 16 16 18 15 15 14 20 11 13 14 11 14 5 5 8 6 3 1 4 1 1 0

(20)

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21

(40)

(60)

(80)

(100) (91)

Source: Company, Kotak Institutional Equities

Exhibit 6: Realization is trending down on higher Tier II/III contribution Yoy change in per campaign realization, March fiscal year-ends (%)

Yoy growth (%) 8

3

(2)

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20 4QFY20 (7) 1QFY21

(12)

(17)

(22)

Source: Company, Kotak Institutional Equities

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Just Dial Internet Software & Services

Exhibit 7: Steady growth in listings database Total listings database of Just Dial, March fiscal year-ends (mn)

(#, mn) 30 29 29 28 27 28 26 25 24 23 24 22 21 20 19 20 17 18 16 16 17 17 15 15 16 16 14 15 15 12 12 10 11 9 9 10 8

4

0

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21

Source: Company, Kotak Institutional Equities

Exhibit 8: Unearned revenue base declines and puts future growth under question Unearned revenue growth, March fiscal year-ends

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Unearned revenue (Rs mn) 2,904 2,774 2,852 3,330 3,713 3,749 3,786 4,054 3,991 3,804 3,712 3,360 2,871 Yoy growth (%) 20 13 11 21 28 35 33 22 7 1 (2) (17) (28) Revenue (Rs mn) 1,900 1,945 1,968 2,005 2,114 2,210 2,268 2,323 2,402 2,426 2,354 2,350 1,624 Yoy growth (%) 8 8 9 10 11 14 15 16 14 10 4 1 (32)

Source: Company, Kotak Institutional Equities

Exhibit 9: Core and non-core employee count End of the period employee count in sales and other functions, March fiscal year-ends (#, ‘000)

(#, '000) Sales and marketing (#) Others (#)

12 3.4 3.3 3.2 3.3 3.0 3.5 3.3 3.2 10 4.5 4.3 3.4 3.5 3.3 2.9 4.4 3.9 3.4 3.4 4.5 4.4 8 4.1 4.2 3.9 3.6 3.7 6 10.2 9.9 9.2 9.2 9.4 9.7 9.4 8.1 8.8 7.5 7.5 7.9 7.8 7.5 7.6 8.1 6.8 7.3 4 6.2 6.2 6.0 5.8 5.6 5.3 5.5

2

1QFY15 4QFY15 3QFY16 2QFY17 1QFY18 4QFY18 3QFY19 4QFY19 2QFY20 3QFY20 1QFY21 2QFY15 3QFY15 1QFY16 2QFY16 4QFY16 1QFY17 3QFY17 4QFY17 2QFY18 3QFY18 1QFY19 2QFY19 1QFY20 4QFY20

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 Internet Software & Services Just Dial

Exhibit 10: Revenue per employee declines steeply in 1Q End of the period employee count (#, LHS) and revenue per employee (Rs 000, RHS), March fiscal year-ends

(#, '000) Revenue per employee (Rs 000) 16 190 180 14 170 12 160 150 10 140 8 130 120 6 110

4 100

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21

Source: Company, Kotak Institutional Equities

Exhibit 11: Campaigns per sales employee metric in 1Q End of the period sales and marketing employee count (#, LHS) and campaigns per employee (#, RHS), March fiscal year-ends

Campaigns per (#, '000) employee (#) 11 63

10 60 9 57 8 54 7 51 6

5 48

4 45

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21

Source: Company, Kotak Institutional Equities

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Just Dial Internet Software & Services

Exhibit 12: Mobile visitors’ share continues to improve Unique visitors of Just Dial across various platforms, March fiscal year-ends (mn)

(mn) Mobile Internet Voice 180

160 8 9 8 140 23 8 22 22 7 9 9 120 9 21 21 22 20 9 9 24 100 10 10 3 24 16 9 26 25 80 28 10 10 11 11 11 9 10 60 10 26 125 130 128 12 11 11 25 24 110 111 28 27 24 25 27 101 105 26 92 40 29 25 74 79 81 30 63 69 52 42 47 20 31 36 38 37 37 39 21 24 27

0

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21

Source: Company, Kotak Institutional Equities

Exhibit 13: App downloads per day decelerate by 41% yoy Key operating metrics of JUST's platform, March fiscal year-ends

Yoy growth 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 (%) Unique visitors (mn) 100.5 105.0 107.6 111.6 125.2 131.3 134.2 139.1 156.1 161.2 157.1 138.9 100.0 (35.9) Total listings (mn) 18.8 19.8 20.7 21.8 22.7 23.8 24.8 25.7 26.6 27.6 28.6 29.4 29.6 11.3 Total images in listings (mn) 35.6 38.5 41.4 44.8 47.9 51.4 55.3 60.3 66.8 73.4 78.4 84.2 85.1 27.4 Listings with geocodes (mn) 7.8 9.2 10.1 10.9 11.8 12.3 13.4 14.0 14.5 15.2 15.9 16.5 16.8 15.9 Ratings and reviews (mn) 73.1 76.1 79.0 81.9 85.1 88.0 91.3 95.6 98.1 100.8 105.9 109.7 110.5 12.6 Cumulative app downloads (mn) 15.4 17.3 18.7 19.8 20.8 21.8 22.8 23.7 24.5 25.4 26.0 26.6 27.1 10.6 Android 12.9 14.7 16.0 17.0 17.9 18.9 19.8 20.6 21.4 22.2 22.8 — — iOS 1.7 1.8 1.9 2.0 2.1 2.1 2.2 2.3 2.3 2.4 2.4 — — Others 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 — — Add downloads per day (#) 26,533 23,871 19,103 15,501 14,351 13,555 14,437 12,588 13,131 13,849 11,912 10,120 7,693 (41.4)

Source: Company, Kotak Institutional Equities

Other takeaways from the earnings call

 Traffic levels. Covid impacted traffic from the start of the lockdown. Traffic (ex- advertising) has come back reasonably well but monetization will depend on easing restrictions in tier-I cities. SMEs are taking a cautious stance on advertisements. Average daily traffic (with-advertising) improved to 88% in July versus 48% of pre-Covid levels in April. Traffic without advertising was up 6-7% from pre-Covid levels in July.

 Paid campaigns. Customers have opted to renew contracts at later dates. These deferrals, as well as discounts, delay in activation of campaigns led to a decline in collections by 52% yoy in 1Q.

 Costs. Cash expenses were brought down to Rs350-360 mn in April-May but picked up to ~Rs380 mn in June. Currently, monthly costs are averaging at Rs370 mn. Of the Rs140-150 mn a month of cost savings against pre-Covid levels, 30% of them are expected to be sticky in nature. Savings of about Rs70-80 mn from salary expenses, Rs15- 20 mn from incentives, Rs40-50 mn from ads and 15-20 mn from other optimizations.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Internet Software & Services Just Dial

 Monthly contracts. Earlier in February 2020, the company pushed to increase monthly plans and improved it to 70% of total campaigns. The plan was to monetize customers using setup fees and provide customers the flexibility. Of the Rs1,135 mn of collection, Rs500-520 mn were from monthly plans. From 70% of monthly plans, it has now dropped to 25-26%. Ideally, the company wants monthly plans back to 70-75% of total.

 Split between tier I and tier II/III cities. Tier II/III cities represent 34% of revenues and 55-56% in terms of campaigns. 55% of both listings and traffic are from tier I cities. Growth in tier II/III indicates lower ticket sizes (~40-45% of tier I). Also, the lockdown restrictions are easing earlier in tier II/III cities.

 B2B business. Nearly ~Rs2 bn of annual revenues come from B2B businesses. The company has also diversified its presence across sectors with no sector contributing more than 3-4% to the business. JUST is also trying to get a digital catalogue of all the businesses. It has employed a third party agency to expedite the process.

 Churn. Customer churn has remained at 40-45% yearly for the last two decades. About 18-20% can be attributed to business mortality. The company has not seen any material difference in churn rates of monthly plan and upfront payment plan customers.

Exhibit 14: Key changes in estimates for Just Dial, March fiscal year-ends, 2021-23E (Rs mn)

New estimates Old estimates % revision 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Total revenues 6,791 7,538 8,141 6,791 7,834 8,461 — (3.8) (3.8) EBITDA 1,431 1,672 1,790 1,397 1,919 2,057 2.4 (12.9) (13.0) EBITDA margin (%) 21.1 22.2 22.0 20.6 24.5 24.3 PAT 1,526 1,847 2,195 1,498 2,037 2,417 1.8 (9.3) (9.2) EPS (Rs) 24.7 29.9 35.5 24.3 33.0 39.1 1.8 (9.3) (9.2) Tax rate (%) 20.7 21.8 21.9 20.6 22.1 22.1 Yoy growth metrics (%) Sales (28.8) 11.0 8.0 (28.8) 15.4 8.0 EBITDA (47.6) 16.9 7.1 (48.8) 37.4 7.2 PAT (44.0) 21.0 18.8 (45.0) 35.9 18.7

Source: Kotak Institutional Equities estimates

Exhibit 15: Details of the estimates for Just Dial, March fiscal year-ends, 2015-23E (Rs mn)

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Search Campaigns (#) 331,200 367,000 429,840 445,110 500,838 536,236 402,177 446,416 482,130 Revenues from core business (Rs mn) 5,898 6,640 7,062 7,818 8,915 9,531 6,791 7,538 8,141 Yoy growth (%) 27.9 12.6 6.4 10.7 14.0 6.9 (28.8) 11.0 8.0 Other revenues — 37 132 — — — — — — Total revenues 5,898 6,677 7,186 7,818 8,915 9,531 6,791 7,538 8,141 Yoy growth (%) 27.9 13.2 7.6 8.8 14.0 6.9 -28.8 11.0 8.0 Number of employees (#) 9,533 11,142 11,334 11,452 12,691 13,601 12,601 13,201 13,501 Employee cost/ sales (%) 52.4 56.9 61.4 56.5 55.8 55.9 63.1 61.4 61.6 Other expenses/sales (%) 19.5 21.5 23.4 22.5 18.6 15.4 15.8 16.4 16.4 EBITDA margin (%) 28.1 21.6 15.3 21.0 25.7 28.6 21.1 22.2 22.0 PAT 1,389 1,427 1,214 1,432 2,068 2,723 1,526 1,847 2,195 EPS (Rs) 19.7 20.5 17.5 21.2 31.9 42.0 24.7 29.9 35.5 Yoy growth (%) 15.2 2.8 (15.0) 18.0 44.4 31.7 (44.0) 21.0 18.8

Source: Company, Kotak Institutional Equities estimates

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Just Dial Internet Software & Services

Exhibit 16: Financial snapshot of Just Dial, March fiscal year-ends, 2011-23E (Rs mn)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model Total operating income 1,839 2,621 3,628 4,613 5,898 6,677 7,186 7,818 8,915 9,531 6,791 7,538 8,141 Operating expenses (1,385) (1,948) (2,619) (3,191) (4,240) (5,235) (6,090) (6,174) (6,626) (6,802) (5,360) (5,866) (6,351) Employee expenses (947) (1,308) (1,779) (2,286) (3,088) (3,799) (4,409) (4,416) (4,971) (5,329) (4,284) (4,626) (5,012) Operating and other expenses (438) (640) (841) (905) (1,152) (1,435) (1,681) (1,758) (1,654) (1,473) (1,076) (1,240) (1,339) EBITDA 454 672 1,008 1,422 1,658 1,442 1,096 1,644 2,289 2,729 1,431 1,672 1,790 Pre-tax profit 423 713 1,000 1,649 1,905 1,931 1,565 1,939 2,881 3,517 1,924 2,361 2,809 PAT 288 504 685 1,206 1,389 1,427 1,214 1,432 2,068 2,723 1,526 1,847 2,195 Weighted diluted number of shares (mn) 53 60 69 70 70 69 70 67 65 65 62 62 62 EPS (Rs) 5 8 10 17 20 21 17 21 32 42 25 30 36 Balance sheet Equity share capital 519 519 695 702 705 695 695 674 648 649 618 618 618 Reserves & surplus 433 542 3,556 4,643 6,029 6,699 8,356 9,118 9,339 12,228 11,586 13,433 15,628 Shareholders funds 954 1,033 4,259 5,345 6,734 7,394 9,052 9,792 9,986 12,877 12,203 14,051 16,245 Loan funds 1 — — — — — — — 42 764 764 802 843 Total source of funds 956 1,033 4,269 5,363 6,734 7,396 9,052 9,792 10,201 13,945 12,967 14,853 17,088 Net fixed assets 272 360 623 539 921 1,474 1,647 1,489 1,321 1,724 1,327 1,154 1,148 Investments 1,182 1,568 4,858 6,257 7,722 8,077 9,768 11,549 13,038 15,642 13,642 14,142 14,642 Cash balances 196 237 239 369 422 336 525 575 404 397 270 2,079 4,020 Net current assets excluding cash (707) (1,102) (1,452) (1,803) (2,355) (2,492) (3,128) (3,946) (4,562) (3,817) (2,271) (2,521) (2,723) Total application of funds 956 1,033 4,269 5,363 6,734 7,396 9,052 9,792 10,201 13,945 12,968 14,853 17,088 Cash flow statement Operating profit before working capital changes 357 595 846 1,379 1,630 1,738 1,615 1,796 2,406 3,333 2,081 2,213 2,397 Change in working capital/other adjustments 230 395 350 351 552 137 636 818 616 (745) (1,546) 250 202 Cashflow from operating activites 586 990 1,196 1,730 2,182 1,875 2,251 2,614 3,022 2,588 535 2,463 2,599 Cash (used)/ realised in investing activities (152) (179) (407) (89) (623) (864) (574) (207) (168) 163 (16) (43) (40) Free cash flow 435 811 789 1,641 1,559 1,012 1,677 2,407 2,854 2,751 519 2,420 2,559 Issue of share capital 8 (425) 2,541 43 170 (767) 444 (692) (1,874) 168 (2,200) — — Cash (used)/realised in financing activities 6 (427) 2,541 (121) 0 (767) 444 (692) (1,833) 801 (2,288) (92) (97) Cash generated/utilised 457 427 3,292 1,529 1,517 270 1,880 1,831 1,318 3,683 (2,127) 2,309 2,442 Cash+investments at beginning of year 922 1,378 1,805 5,097 6,626 8,143 8,414 10,294 12,124 13,442 16,038 13,912 16,220 Cash+investments at end of year 1,378 1,805 5,097 6,626 8,143 8,414 10,294 12,124 13,442 17,125 13,912 16,220 18,662

Notes: (a) Estimates FY2020 onwards are based on Ind-AS 116 and are hence not comparable to prior years.

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 BUY L&T (LT) Capital Goods AUGUST 03, 2020 UPDATE Sector view: Attractive

Standing tall amid challenging environment. FY2020 will be remembered as a year CMP (`): 916 of challenging market environment and demanding customers. L&T’s strong order Fair Value (`): 1,210 backlog can still drive a healthy growth in FY2022 in core E&C revenues despite volatile BSE-30: 36,940 ordering. The hydrocarbon segment continues to gain relevance and has driven half of the 10% four-year CAGR in E&C PAT. Most subsidiaries are making cash profits except Hyderabad Metro, which may require loss funding or refinancing. We retain estimates and Fair Value of Rs1,210. BUY.

L&T Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 1,551-661 EPS (Rs) 63.4 34.9 66.5 Mcap (bn) (Rs/US$) 1,286/17.1 EPS growth (%) 3.3 (44.9) 90.3 ADTV-3M (mn) (Rs/US$) 5,236/70 P/E (X) 14.4 26.2 13.8 Shareholding pattern (%) P/B (X) 2.2 1.9 1.7 Promoters 0.0 EV/EBITDA (X) 15.6 19.2 13.3 FIIs 17.9 RoE (%) 15.8 7.8 13.1 MFs/BFIs 19/20.4 Div. yield (%) 2.0 1.7 2.2 Price performance (%) 1M 3M 12M Sales (Rs bn) 1,455 1,296 1,634 Absolute (3) 2 (33) EBITDA (Rs bn) 163 124 179 Rel. to BSE-30 (5) (7) (33) Net profits (Rs bn) 89 49 93

Core business highlights better positioning of L&T versus peers in current tough environment

L&T’s AR2020 brings out the challenges thrown by the market for EPC players in general: (1) infrastructure business volumes lacking direction and (2) unreliable and demanding customers. Unlike its peers, L&T has stayed within limits in terms of its cash flows and has funded the Mindtree acquisition and past five years of capex from internal accruals. In this, we find the key differentiation for L&T versus peers. Quantum, composition and timing split of its order backlog are supportive of a swift recovery in execution beyond the near-term hurdles posed by Covid- 19. Even after factoring in order cancellations worth Rs240 bn in FY2020 and a volatile ordering scenario, the current order backlog can still drive a 20%+ yoy growth in core E&C revenues once Covid-imposed constraints taper off. The comfort of the order backlog notwithstanding, we do acknowledge issues related to working capital. Key public sector customers are using the balance sheets of the contractors to fund projects, a concern for L&T and its peers.

Subsidiary ARs highlight that most entities barring Metro generating cash profits

We note how a single vertical in the hydrocarbon segment has been instrumental in propping up bottom-line for L&T’s core E&C segment since FY2015, covering up for lack of direction in key infrastructure segment volumes. Other key EPC business verticals beyond standalone in power (now net cash) and forgings (now EBITDA positive) continue to show improvement. The key negative surprise is L&T IDPL not reflecting the proceeds of large cash inflows in debt reduction. Even as IDPL is making operating cash flows at a consolidated level, we do note large debt and deferred premium liabilities that it needs to pay off. Operationally, most of the development businesses are generating cash profits and it is only the recently commissioned Aditya Mongia Hyderabad Metro that would require loss funding and potentially a substitution of its 10% interest cost term loans by lower cost ICDs. Of the project cost overrun of Rs37 bn incurred over Teena Virmani the past two years, ~Rs14 bn has come from the parent and remaining Rs23 bn has come from financial institutions.

Retain BUY rating with Fair Value of Rs1,210

We have incorporated most of financial aspects of standalone and subsidiaries from the L&T AR in the results note. We thus broadly retain our estimates and Fair Value of Rs1,210. [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. L&T Capital Goods

Key takeaways from annual report

We have learnt from our past assessment, the limited relevance of AR analysis for predicting near-term order inflows and margin for L&T. The focus below is thus more on medium-term business trends.

#1: Order backlog comforting on quantum, composition and timing split. After the ~Rs240 bn of cancellations in the previous year, L&T still boasts of healthy Rs3.1 tn order backlog. This provides three years of visibility on trailing revenues. The share of state projects in its domestic order backlog has reduced meaningfully after the cancellations to 27%. This has been compensated by an increase in share of PSUs to 44% from 35% a year ago. Lastly, the timing split of the overall backlog is such that it can drive 20%+ yoy growth in core E&C revenues.

#2: New orders lacking direction in the key infrastructure segment. This is the first trait of an unforgiving market that we explore. Domestic ordering in the key infrastructure segment is up a modest 10% over the past five years after the sharp moderation seen in FY2020. Related overseas ordering has been very volatile. It becomes very difficult for L&T to consistently grow its overall ordering when the market volumes of its biggest segment lack direction.

#3: Hydrocarbon segment taking long to reflect increase in ordering run-rate into execution. Hydrocarbon was the key segment in terms of execution last year, all of which was driven by the domestic segment. The overseas business was possibly impacted by timing issues and has not scaled up execution to the run-rate of ordering over the past three years. AR suggests timing issues were at play in FY2020.

#4: Unreliable and demanding customers reducing market attractiveness. (1) We note meaningful order cancellations that have all happened at a domestic level in FY2020. The same has limited the growth in order backlog to the extent of ~8% in a single year. This is reflective on the changing stance of regulators and customers towards the viability of the awarded projects. (2) Customers have also become more demanding and are using the balance sheets of the contractors to fund projects. We note sharp ~75% increase in trade receivables + contract assets over the past five years against a ~45% increase in revenues and a modest 25% increase in working capital liabilities. (3) We also note a spike-up in provisions related to bad debts for L&T over the past five years.

#5: L&T continues to fund capex and investments through internal accruals even at high working capital. The deterioration in working capital and ability to invest in Mindtree should be seen in context of the past five years of cash flows, rather than focussing on a single year of cash flows. Over such period, L&T has funded all capex and net investment requirements through its cash flow from operations. This is far away from the norm for the sector, which has not even generated free cash flows for long. In this, we find the key differentiation for L&T versus peers. The benefit of property development sales gets negated by the support required to be given for Hyderabad Metro (Rs13 bn support given in FY2020).

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Capital Goods L&T

Exhibit 1: Existing backlog can drive a 25% yoy growth in execution in absence of supply-chain bottlenecks Split of the Rs3.15 tn of order backlog of L&T's consolidated core E&C backlog between time buckets (Rs tn)

Time split of end-2020 order backlog 2020 actuals 400 347 350

300

250 200 200 147 150 123

100

50 24 22

0 OB Within one year 1-2 years 2-3 years More than three years

Source: Company, Kotak Institutional Equities

Exhibit 2: After cancellations, state government projects account for 27% share of domestic/overall backlog Split of order backlog of L&T's consolidated core E&C business for the year ending March 2020

Split of Rs3 tn of order backlog of L&T

Centre+Private State governments 29% 27%

PSUs 44%

Source: Company, Kotak Institutional Equities

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Capital Goods

Exhibit 3: L&T's domestic ordering in infrastructure segment has lacked direction and overseas quantum has been volatile Trends in mix of order inflows for infrastructure segment of L&T (consolidated), March fiscal year-ends, 2015- 20 (Rs bn)

Order inflows Domestic Overseas 1,200 1,027 1,000 932 957 858 849 873 787 145 148 295 800 185 164 242 147 600

400 787 809 709 732 673 607 639 200

0 2015 2016 2017 2018 2018 (new 2019 (excl. 2020 (excl. series) E&A) E&A)

Source: Company, Kotak Institutional Equities

Exhibit 4: Overseas hydrocarbon revenues are taking time to scale up to the average of past three years of order inflows Trends in mix of order inflows for hydrocarbon segment of L&T (consolidated), March fiscal year-ends, 2013-20 (Rs bn)

Order inflows Revenues Domestic Overseas Domestic Overseas 300 279 175 180 250 151 210 126 150 186 75 200 117 157 75 120 103 100 96 80 150 85 90 107 124 59 73 68 98 96 55 100 60 47 72 60 39 30 154 37 100 49 69 134 50 49 98 30 71 47 47 49 50 49 66 62 40 36 23 39 0 0 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 Capital Goods L&T

Exhibit 5: L&T has lost 8% of its order backlog to cancellations in FY2020 Mismatch in period-ending order backlog versus that calculated based on order inflows and execution (%)

Domestic Overseas Overall 15

11

10 8 8 7 5 5 2 2 1 1 -

(5) 2016 2017 2018 2019 2020 1Q20 2Q20 3Q20 4Q20

Source: Company, Kotak Institutional Equities estimates

Exhibit 6: Existing backlog can drive a 25% yoy growth in execution in absence of supply-chain bottlenecks Aggregate increase in key metrics for L&T (standalone) over the past five years ending March 2020 (%)

80 74

60

44

40

24 20

0 Trade receivables+contract assets Revenues Payables+contract liabilities

Source: Company, Kotak Institutional Equities

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Capital Goods

Exhibit 7: L&T 's outstanding provisions on receivables have more than doubled over the past five years Movement of provisions outstanding against receivables (excluding financial services business) for L&T, March fiscal year-ends, 2015-18 (Rs bn)

Standalone Consolidated Net closing balance Write off as bad debts Net closing balance Write off as bad debts 30.0 35.0 32.9 24.8 29.0 30.0 25.0 22.2 22.7 30.0 24.6 19.2 25.0 20.0 19.6 15.7 20.0 15.0 15.0 13.1 10.1 10.0 10.0 5.0 5.0 - - (0.3) (5.0) (1.4) (1.9) (0.1) (0.4) (3.7) (2.5)

(5.0) (3.6) (2.1) (1.6) (10.0)

2015

2016

2017

2018

2019

2020

2015

2016

2017

2018

2019 2020

Source: Company, Kotak Institutional Equities

Exhibit 8: L&T has funded the Mindtree acquisition and others from its FCF generated and divestments made over the past five years Aggregate cash flows for L&T (standalone) over the past five years ending March 2020 (Rs bn)

400 FY2015-20

300 (170) 200 345 126 (53) (243) 100 122 - (139) (135) (100)

(200)

flow

Dividend

payment

Free cash Free

in capex in

Investments

Divestments

dividend

OCF before OCF

to subs/JVs to

Investments in Investments

working capital working

working-capital

Cash flowafter Cash investments and investments Investments/L&A

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 Capital Goods L&T

Three key takeaways from subsidiary annual reports

#1: Key EPC businesses beyond standalone (hydrocarbon, power, forgings) have driven majority of the 10% CAGR in core E&C PAT over the past four years. The hydrocarbon segment has contributed ~45% of the growth in core E&C PAT over the past four years over which it has been profitable all through. It now accounts for 18% of E&C PAT and timing split of order backlog suggests an even higher share in FY2020. The segment has been a key success story for L&T with margin expanding meaningfully to beyond 10% on account of operating leverage benefits. Current margin may include some ~100-150 bps positive bias on account of settlement of insurance claims and provision reversals that happened in FY2020. Other key EPC business verticals beyond standalone in power (now net cash) and forgings (now EBITDA positive) have contributed another 5-7% to the growth in PAT over the past four years. #2: Key negative surprise came in form of limited reduction in IDPL debt as large inflows have been utilized to buy back CCPS and invest in InvIT. We note ~Rs16 bn of cash flows coming into IDPL over the past two years through a combination of (1) proceeds from InvIT and (2) payout of PNG Tollway arbitration. A similar amount has gone out over this period to buy back CCPS issued to Canadian Pension fund and incremental investment in made by IDPL in its InvIT. While we understand that IDPL is making operating cash flows at a consolidated level, we do note large debt and deferred premium liabilities that it needs to pay off. CPPIB did convert its remaining CCPS into 49% equity stake in the year gone buy after a second round of buyback of CCPS worth Rs3.4 bn in FY2020. This implies a value of IDPL at Rs17/20.5/25.5/31 bn at a nil/20/50/75% premium to investment of CPPIB. This compares with Rs31 bn of standalone investments including Rs11 bn in InvIT. We value IDPL at Rs24 bn of 100% equity stake and a modest Rs10 per share of value for L&T’s SoTP for its 51% stake.

#3: Among developmental businesses, Metro would be the key entity requiring report; cost overrun of Rs37.5 bn funded 35:65 through parent and lenders. Most entities beyond metro (Nabha, IDPL consolidated) are generating cash profits. Metro is now completely commissioned and needed ~Rs13/14 bn of support from parent in FY2020/past two years to take care of cost overrun. In our assessment the entity may require a slightly higher Rs16-17 bn of support in FY2021 to account for start of interest cost payment and cash losses related to stoppage of Metro. We do not see any debt having a very high interest cost much above 10%. The benefit of the parent supporting the entity through ICD may thus be limited to ~250 bps or so.

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Capital Goods

Exhibit 9: Hydrocarbon now accounts for ~18% share of core E&C PAT, 50% of related increase since 2016 and would drive execution in FY2021 Performance of hydrocarbon segment in consolidated E&C financials of L&T, March fiscal year-ends, 2016-20(%)

Share of hydrocarbon segment in L&T's E&C Components of PAT of L&T's E&C business (%) (Rs bn) business Overall less… In revenues In PAT 60 20 18 51 48 49 17 50 15 45 16 14 39 12 40 12 11 11 30

8 7 6 20 11 3 9 4 10 4 2 1 0 - 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020

Hydrocarbon segment cost analysis - share of Time split of order backlog of Hydrocarbon sales (Rs bn) segment (%) Raw material Employee cost Time split of end-2020 order backlog 2020 actuals 100 4 400 9 7 7 10 347 4 4 3 9 4 6 6 4 8 6 300

200 200 147 123 83 79 83 83 80 100 24 22 0 0 OB Within one 1-2 years 2-3 years More than 2016 2017 2018 2019 2020 year three years

Source: Company, Kotak Institutional Equities

Exhibit 10: Boiler and turbine JVs are now net cash with Rs4 bn combined PAT Key financials of L&T's boiler and turbine JVs, March fiscal year-ends, 2013-20 (Rs bn)

2013 2014 2015 2016 2017 2018 2019 2020 L&T MHPS Boilers+ Turbine JVs Revenue 34 20 18 24 34 39 35 28 Gross profit 7 8 9 8 11 11 12 11 Gross margin (%) 21.6 38.4 47.2 34.3 32.4 28.5 33.1 38.4 EBITDA 2 3 4 4 5 6 6 6 EBITDA margin (%) 7.1 14.7 20.4 16.3 15.9 15.1 17.3 20.4 PBT 1 1 1 2 4 4 5 5 Recurring PAT 1 0 (0) 1 2 3 3 4 PAT margin (%) 1.6 0.7 (0.5) 4.2 6.4 7.6 9.2 12.9 Net debt 14 14 6 11 3 4 1 (7)

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 37 Capital Goods L&T

Exhibit 11: L&T IDPL has seen large cash inflows get utilized for buybacks and investments in Ind Infravit Key cash inflows and outflows for L&T IDPL, March fiscal year-ends 2019, 20 (Rs bn)

2019 2020 From From Invit 7.4 NHAI (PNG project) 4.2 NHAI (PNG project) 4.2 Sum 4.2 Sum 11.6 Towards Towards Pref. issue to Ind Infravit 4.4 Buyback of CCPS 11.6 Buyback of CCPS 3.4 Sum 11.6 Sum 7.8

Source: Company, Kotak Institutional Equities

Exhibit 12: L&T IDPL generated modest free-cash flow in FY2020, Metro's cash losses have increased Key financials of development business of L&T, March fiscal year-ends, 2014-20 (Rs bn)

CFO less capex less interest outgo IDPL Hyderabad metro 10

0

(10)

(20)

(30)

(40)

(50)

(60) 2014 2015 2016 2017 2018 2019 2020 Notes: We adjust CFO for payments related to PNG project from NHAI over FY2019 and FY2020

Source: Company, Kotak Institutional Equities

38 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Capital Goods

Exhibit 13: L&T's portfolio has become cash neutral in FY2020 Cash loss (EBITDA + interest expense) for L&T's road projects, March fiscal year-ends, 2016-20 (Rs mn)

2016 2017 2018 2019 2020 Yoy growth (%) L&T Panipat Elevated Corridor (133) (99) (4) 94 225 L&T Transportation Infra 54 48 121 152 195 L&T Vadodara Bharuch Tollway 1,336 1,274 1,628 1,716 2,206 Rajkot Vadinar Tollway (411) (420) (279) (16) (232) L&T Halol-Shamlaji Tollway (816) (1,455) (210) (243) (209) Ahmedabad-Maliya Tollway (247) (274) 7 257 241 Interstate Road Corridor (annuity) 27 59 (136) (76) (17) Samakhiali-Gandhidham (a) (871) (927) (842) (961) (1,067) Cash profit (yoy comparable projects) (1,062) (1,794) 286 923 1,341 NA As share of revenues (%) (12) (20) 3 8 12 L&T Deccan Tollways Ltd (a) (6) (6) (644) (1,269) (1,394) Sambalpur-Rourkela (7) (3) (17) 22 95 Total (1,087) (1,824) (372) (315) 54 68 As share of revenues (%) (12) (21) (3) (2) 0

Notes: (a) Interest expense accounts for the intrest related to deferment of premium payments. This explains nil cash profit in and positive cash generation in FY2020

Source: Company, Kotak Institutional Equities

Detailed takeaways for consolidated ex-services segments and development projects

 Hydrocarbon engineering (hydrocarbon segment). Existing order backlog can drive more than a 30% yoy growth in segment revenues in a disruption-free FY2021. Employee cost has reduced to ~5.5% of sales from 9% over the past four years as revenues expanded, improving sustainable margin at high single-digit levels. 10%+ margin print in FY2020 includes 40 bps benefit from Insurance claims settled and 110 bps swing in net provisions. There has been a diversification in terms of customers. Top three customers contributed 47% of revenues versus 72/55% for the past two years. The entity has given ICD of Rs12.5 bn to L&T (potentially used for giving Metro funding). The entity continues to be net cash.

 Special steel and forgings (heavy engineering segment, consolidated at PAT level). Special steel and forgings business reported a positive EBITDA for the second consecutive time on the back of sustained top-line business. Low asset turnover and high debt led to another year of PAT loss and cash loss. Order backlog has defined further to Rs4.7 bn versus Rs4.9 bn in FY2019 and Rs4.7 bn in FY2018. This is on account of another sub-Rs2 bn order inflow print. Such order inflows give visibility of a flattish FY2021.

 L&T MH&PS boiler (power segment, consolidated at PAT level). Rs59 bn of orders in FY2020 after two years of disappointing orders. Backlog at Rs72 bn is up even over a two-year basis (Rs55 bn in FY2018). Next year’s revenue will decline yoy. Such order inflows give visibility of a flattish FY2021.Healthy 40% gross margin and 16% EBITDA margin in FY2020. Loan amount is negligible. Entity (combined with turbine JV) turned net cash in FY2020 (Rs7 bn of combined net cash including current investments).

 Realty (others segment). The realty business revenues in FY2020 at ~Rs22 bn are at average levels seen over the past five years. It’s PAT at ~Rs4.5 bn accounts for ~8% of core E&C PAT. During the year under review, realty segment revenues were spread across Powai (Rs1.7 bn), Bangalore (Rs7 bn), Seawoods (Rs4.5 bn) and Parel/Mulund (Rs6 bn). Based on our interaction with the company, ~L&T has 3,000 units worth Rs50 bn+ of revenues yet to be booked. Of these, 1,200 units are sold and yet to be handed over. Beyond the two-year visibility on such basis, L&T would consider selling space in its Powai and Chennai campuses.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39 Capital Goods L&T

Development projects

 Hyderabad Metro. Full 69.2 km length is operational from Feb 2020. The Metro has averaged daily ridership of Rs10 mn per day, 2X of FY2019 levels. It has completed construction of 1.28 mn sq. ft space of transit-oriented development (TOD) consisting of 4 malls and an office block. Another 0.5 mn sq. ft of office block is under construction. The company has submitted project cost overrun details to the government for an amount of Rs37.56 bn. Of this sum spent over the past two years, ~Rs14 bn has come from the parent and the remaining Rs23 bn has come from financial institutions. There has been no change in the VGF contribution over the past two years – remains at Rs12 bn versus Rs14.6 bn as per contract.

 PNG tollway. Rs12.4 bn of termination payment agreed upon has been paid over FY2019 (Rs 4.2 bn) and in FY2020 (Rs8.1 bn). This is against a similar ~Rs12 bn invested combined by L&T IDPL and lenders.

 IDPL portfolio. IDPL portfolio continues to generate cash profits even after the sale of good assets to the InvIT. Specifically for the remaining road portfolio, the operational set of products generated cash profit (EBITDA less interest cost) of 12% of related revenues. The recently commissioned projects led to an overall nil cash loss versus loss at 2% of overall revenues previous year. The operational road portfolio continues to grow at a modest 5% level yoy in terms of revenues and EBITDA. Over the past two years, the company has bought back Rs11.4 bn out of the Rs20 bn of compulsorily convertible preference shares issued to a consortium of Old Lane Mauritius III and CPP Investment Board Singaporean Holdings 1 Pte Limited in June 2014 for Rs15 bn. CPPIB India Private Holding has converted the remaining Rs8.6 bn of investments into a 49% equity stake. This implies a value of IDPL at Rs17/20.5/25.5/31 bn at a nil/20/50/75% premium to investment of CPPIB. This compares with Rs31 bn of standalone investments including Rs11 bn in invit. L&T IDPL has also invested Rs4.4 bn in IndInfravit through preferential issue, increasing the value of its investment in units to Rs10.9 bn. We note that L&T IDPL had realized a sum of Rs7.7 bn and Invit units worth Rs5.7 bn from sale of its stake in five road projects to an Invit with CPPIB and Allianz Capital Partners as anchor investors.

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Capital Goods

Exhibit 14: Consolidated ex-services financials of L&T, March fiscal year-ends, 2017-23E (Rs mn)

2017 2018 2019 2020 2021E 2022E 2023E P&L statement Net sales 870,100 941,400 1,089,300 1,044,000 848,369 1,131,876 1,197,072 % growth 8.4 8.2 15.7 (4.2) (18.7) 33.4 5.8 EBITDA (prior to corporate expenses) 86,855 99,408 114,282 104,664 76,382 114,186 118,686 Margin (%) 10.0 10.6 10.5 10.0 9.0 10.1 9.9 Reported EBITDA 86,855 99,408 99,700 104,664 71,799 107,335 111,565 EBITDA margin (%) 10.0 10.6 9.2 10.0 8.5 9.5 9.3 EBITDA (adjusted for one of write-offs in realty) 86,855 99,408 106,700 104,664 71,799 107,335 111,565 EBITDA margin (%) 10.0 10.6 9.8 10.0 8.5 9.5 9.3 Other income 10,550 9,600 12,500 16,670 17,367 17,177 18,641 Depreciation (19,950) (15,600) (15,800) (15,911) (16,472) (17,032) (17,593) PBIT 77,455 93,408 96,400 105,423 72,694 107,480 112,613 EBIT margin (%) 8.9 9.9 8.8 10.1 8.6 9.5 9.4 Interest cost (12,630) (14,600) (15,700) (22,290) (21,564) (12,939) (10,351) PBT 64,825 78,296 80,700 83,134 51,130 94,541 102,262 Income tax (15,590) (24,900) (27,300) (23,113) (11,760) (21,744) (23,520) Tax rate (%) 24.0 31.8 33.8 27.8 23.0 23.0 23.0 Recurring PAT 49,235 53,396 53,400 60,021 39,370 72,797 78,742 PAT margin (%) 5.7 5.7 4.9 5.7 4.6 6.4 6.6

Reported PAT for core E&C (consolidated) 48,382 53,207 53,772 57,431 40,304 74,524 82,251 Net shares outstanding (current, mn) 1,403 1,403 1,403 1,403 1,403 1,403 1,403 Reported EPS for core E&C (consolidated) 34.5 37.9 38.3 40.9 28.7 53.1 58.6

Notes: (a) E&A profit of Rs6 bn is excluded in FY2020 and included as other income on sale proceeds from FY2021 (b) FY2020 PAT is lowered to the extent of ~Rs3 bn on account of Covid-19 disruption (c) We build in all of corporate P&L (-Rs12 per share) inside core E&C PAT (Rs54 per share otherwise in FY2020)

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 41 Capital Goods L&T

Exhibit 15: Consolidated ex-services business of L&T, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E Consolidated (ex-services) Orders received 1,145,853 1,201,200 1,273,657 1,388,822 1,455,490 1,156,463 1,266,844 1,400,067 % growth (16) 5 6 14 5 (21) 10 11 Net sales 802,600 870,100 941,500 1,089,300 1,044,000 848,369 1,131,876 1,197,072 % growth 10.1 8.4 8.2 15.7 (4.2) (18.7) 33.4 5.8 Order backlog - year end 2,500,000 2,613,000 2,631,070 2,907,800 3,039,000 3,347,094 3,482,062 3,685,057 % growth 7 5 0.7 11 5 10 4 6 Order execution days 977 975 956 831 996 1,281 1,059 1,044 Bill to book ratio (%) 30.0 30.1 30.7 34.3 29.4 24.0 29.1 29.2 Net EBITDA 76,130 86,855 99,408 99,700 104,664 71,799 107,335 111,565 EBITDA margin (%) 9.5 10.0 10.6 9.2 10.0 8.5 9.5 9.3 Infrastructure Orders received 848,780 786,500 931,670 957,430 1,026,780 821,424 903,566 1,002,959 % growth (1) (7) 18 3 7 (20) 10 11 Revenues 488,500 528,500 627,556 724,200 727,600 593,920 794,473 833,852 % growth 13 8 15 0 -18 34 5 Order backlog - year end 1,875,000 1,933,620 2,052,235 2,218,104 2,248,860 2,476,364 2,585,457 2,754,564 % growth 13 3 6.1 8 1 10 4 7 Order execution days 1,241 1,295 1,125 1,034 1,113 1,382 1,138 1,132 Bill to book ratio (%) 26 26 29 32 29 24 29 29 EBITDA 54,970 53,730 61,501 61,464 58,936 45,732 73,092 75,047 EBITDA margin (%) 11.3 10.2 9.8 8.5 8.1 7.7 9.2 9.0 Defence Engineering Orders received — — 36,924 30,056 22,330 24,563 27,019 29,721 % growth — — (19) (26) 10 10 10 Revenues — — 31,381 37,500 39,700 29,193 29,854 29,163 % growth — — 20 6 (26) 2 (2) Bill to book ratio (%) — — — 27 33 30 32 32 EBITDA — — 2,573 6,063 7,225 4,525 5,165 5,045 EBITDA margin (%) — — 8.2 16.2 18.2 15.5 17.3 17.3 Heavy engineering Orders received 27,380 71,500 22,832 40,664 23,610 23,610 25,971 28,568 % growth (45) 161 (68) 78 (42) — 10 10 Revenues 30,000 30,800 14,118 21,700 28,500 18,988 23,039 25,070 % growth (12) 3 (54.2) 54 31 (33) 21 9 Bill to book ratio (%) 31 28 10 47 49 45 48 48 EBITDA 185 6,144 2,979 5,314 6,128 4,063 5,022 5,465 EBITDA margin (%) 0.6 19.9 21.1 24.5 21.5 21.4 21.8 21.8 Electrical and automation Revenues 46,300 46,400 52,355 57,800 52,320 37,430 61,153 67,117 % growth (3) 0 13 10 (9) (28) 63 10 Bill to book ratio (%) 72 71 130 85 75 83 83 83 EBITDA 5,789 7,000 8,206 10,110 9,365 6,925 11,313 12,417 EBITDA margin (%) 12.5 15.1 15.7 17.5 17.9 18.5 18.5 18.5 Hydrocarbons Orders received 95,830 185,900 158,448 279,344 209,640 125,784 138,362 154,966 % growth (11) 94 (15) 76 (25) (40) 10 12 Revenues 85,200 96,000 117,196 151,300 174,600 122,204 168,159 172,462 % growth 16 13 22.1 29 15 (30) 38 3 Bill to book ratio (%) 44 37 39 35 33 23 31 33 EBITDA 530 6,587 9,024 13,278 19,031 9,625 16,271 16,688 EBITDA margin (%) 0.6 6.9 7.7 8.8 10.4 7.9 9.7 9.7 Power Orders received 27,380 28,600 24,140 30,056 120,480 108,432 119,275 131,203 % growth (82) 4 (15.6) 25 301 (10) 10 10 Revenues 64,300 69,400 61,994 39,800 22,900 32,230 59,333 73,806 % growth 479 8 (10.7) (36) (42) 41 84 24 Bill to book ratio (%) 27 34 45 38 16 18 23 23 EBITDA 1,718 2,450 2,080 1,780 2,748 1,289 2,373 2,952 EBITDA margin (%) 2.7 3.5 3.4 4.5 12.0 4.0 4.0 4.0 Others Revenues 88,300 99,000 42,697 57,000 50,700 51,834 57,017 62,719 Bill to book ratio (%) 40 51 30 35 71 70 76 89 EBITDA 12,939 10,945 13,045 16,273 10,596 11,148 12,262 13,489 EBITDA margin (%) 14.7 11.1 30.6 28.5 20.9 21.5 21.5 21.5

Source: Company, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Capital Goods

Exhibit 16: L&T – SoTP-based Fair Value of Rs1,210/share Valuation of L&T, March fiscal year-ends (Rs/share)

March-22 March-23 Earnings/Book Target multiple Value Valuation basis Stake Value Per share Per share (Rs mn) (X) (Rs bn) (%) (Rs bn) (Rs) (Rs) Core E&C business (consolidated) 74,524 15.0 1,118 P/E 100.0 1,118 798 901 L&T Finance Holdings 171 (at KIE TP) 64.0 109 78 88 L&T Infotech 410 (at KIE TP) 75.0 308 220 248 L&T Technology Services 8,710 17.0 148 P/E 74.6 110 79 89 Mindtree investment 147 (at KIE TP) 60.1 88 63 71 IDPL- Roads, Transmission 23,850 1.0 24 P/B 51.0 12 9 10 Hyderabad Metro 33,272 0.2 7 P/B 100.0 7 5 6 Power development 37 P/B 100.0 37 27 30 Total subsidiaries 755 25% holding co. disc. 538 365 412 Grand total 1,162 1,314 One-year forward fair value (Rs/share) 1,205

Source: Company, Kotak Institutional Equities estimates

Exhibit 17: Consolidated financials of L&T, March fiscal year-ends, 2013-23E (Rs mn)

2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Income statement Revenues 744,980 851,284 906,546 1,019,753 1,100,110 1,196,832 1,410,071 1,454,523 1,296,105 1,633,568 1,748,134 Expenditure (646,894) (743,986) (806,690) (915,125) (989,363) (1,061,118) (1,246,824) (1,291,232) (1,171,824) (1,454,327) (1,554,326) EBITDA 98,087 107,298 99,856 104,628 110,747 135,714 163,247 163,291 124,281 179,241 193,809 EBITDA margin (%) 13.2 12.6 11.0 10.3 10.1 11.3 11.6 11.2 9.6 11.0 11.1 Other income 10,959 9,818 10,072 9,044 14,010 14,120 18,515 23,609 26,781 28,241 31,804 Interest & finance charges 20,950 31,380 28,507 16,551 13,398 15,385 18,060 27,967 37,541 29,190 26,905 Depreciation 16,371 14,458 26,225 17,867 23,699 19,287 20,840 24,623 26,806 29,641 30,874 PBT 71,725 71,277 55,195 79,254 87,659 115,162 142,862 134,310 86,715 148,651 167,834 Tax 23,855 26,284 20,876 24,848 20,066 31,989 43,433 32,632 21,674 36,765 41,726 Recurring PAT before minority and associates 47,870 44,993 34,320 54,406 67,593 83,173 99,428 101,678 65,041 111,886 126,108 Minority interest 722 382 (1,710) (3,118) (4,443) (6,346) (13,115) (13,452) (14,956) (18,537) (18,030) Associate income 384 93 21 (9,902) (3,953) (4,359) (210) 720 (1,080) (96) 3,223 Recurring PAT 48,976 45,468 32,631 41,387 59,198 72,469 86,104 88,946 49,005 93,253 111,301 Recurring EPS (Rs) 34.9 32.4 23.3 29.5 42.2 51.7 61.4 63.4 34.9 66.5 79.3 Exceptional items 4,149 3,553 15,017 942 1,214 1,230 2,948 6,546 93,129 2,614 3,436 Reported PAT after exceptional items 53,124 49,020 47,648 42,329 60,412 73,699 89,051 95,491 142,134 95,867 114,737 Balance Sheet Share holder's funds 365,126 408,908 459,077 470,732 537,801 612,820 692,009 762,441 882,811 948,557 1,026,733 Capital 1,231 1,854 1,859 1,863 1,866 2,803 2,806 2,808 2,808 2,808 2,808 Reserves and surplus 337,366 375,262 407,232 439,941 500,299 553,767 620,943 664,424 781,180 842,811 916,575 Minority interest 26,529 31,792 49,986 28,928 35,636 56,250 68,261 95,208 98,824 102,938 107,351 Loan funds 626,716 803,304 905,714 881,355 939,763 1,075,241 1,255,552 1,410,071 1,249,515 1,267,874 1,289,146 Deferred tax liability 1,837 3,375 (1,846) (7,364) (11,252) (14,941) (31,078) (23,935) (23,935) (23,935) (23,935) Total sources of funds 1,033,218 1,250,405 1,393,267 1,344,861 1,481,268 1,687,740 1,916,515 2,168,418 2,108,423 2,192,527 2,291,976 Gross block 381,603 414,765 457,586 165,705 170,056 199,908 242,857 497,473 519,082 540,449 563,105 Acc. depreciation 77,738 90,790 110,206 23,948 39,317 57,565 73,464 98,086 124,892 154,532 185,407 Net block 303,865 323,975 347,381 141,757 130,739 142,343 169,394 399,387 394,190 385,916 377,698 Cash & bank balances 36,312 41,353 58,555 53,899 55,725 80,325 117,262 151,178 152,092 166,497 200,901 Investments 87,675 81,090 96,121 154,651 231,828 196,572 253,748 237,622 237,622 237,622 237,622 Loans & advances towards financing activities 320,008 438,517 553,669 665,946 720,612 882,646 1,003,197 1,003,128 1,010,004 1,060,504 1,113,529 Net current assets 171,826 223,686 182,304 203,069 191,156 236,295 233,644 300,321 299,861 327,333 347,572 Total application of funds 1,033,218 1,250,405 1,393,267 1,344,861 1,481,268 1,687,740 1,916,515 2,168,418 2,108,423 2,192,527 2,291,976 Yoy growth (%) Revenues 15.8 14.3 6.5 12.5 7.9 8.8 17.8 3.2 (10.9) 26.0 7.0 EBITDA 12.2 9.4 (6.9) 4.8 5.8 22.5 20.3 0.0 (23.9) 44.2 8.1 Recurring PAT 3.9 (7.2) (28.2) 26.8 43.0 22.4 18.8 3.3 (44.9) 90.3 19.4 Key ratios EBITDA margin (%) 13.2 12.6 11.0 10.3 10.1 11.3 11.6 11.2 9.6 11.0 11.1 PAT margin (%) 6.6 5.3 3.6 4.1 5.4 6.1 6.1 6.1 3.8 5.7 6.4 Effective tax rate (%) 33.3 36.9 37.8 31.4 22.9 27.8 30.4 24.3 25.0 24.7 24.9 Net debt to equity (X) 1.6 1.9 1.8 1.8 1.6 1.6 1.6 1.7 1.2 1.2 1.1 RoE (%) 14.5 11.7 7.5 8.9 11.7 12.6 13.2 12.2 6.0 10.2 11.3 RoCE (%) 7.6 6.2 5.1 4.0 5.0 5.4 5.6 5.7 7.9 5.4 6.0 Book value per share (Rs) 241.4 268.8 291.6 315.0 358.0 396.8 444.7 475.7 558.9 602.8 655.4 Net Wcap (excl cash) as days of sales (#) 84.2 95.9 73.4 72.7 63.4 72.1 60.5 75.4 84.4 73.1 72.6

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 43 INDIA Economy Macro AUGUST 03, 2020 UPDATE BSE-30: 36,940

Monetization: Double-edged sword. The government/RBI should explore the options of expenditure switching, external financing, HTM relaxations, FX forwards/spots, and OMOs before direct monetization. Consumption stimulus and its monetization will not address fundamental economic issues. Rather it risks distorting market signals and impacting monetary policy credibility. India should be careful of direct monetization route without a clear exit strategy and a medium-term fiscal consolidation path.

RBI will need to step in eventually to ensure yields stay low

Given the pressures on government finances, we estimate consolidated GFD/GDP of 11.7% in QUICK NUMBERS FY2021E (Exhibit 1). Even with banks substantially increasing their SLR investments (currently around 28.5% of NDTL), we see a shortfall of around Rs4.5 tn in overall demand (Exhibit 2).  Consolidated While system liquidity is comfortable, yields will increase if RBI does not support the markets (in GFD/GDP estimated 2HFY21E) with OMO purchases. The option of direct monetization should be kept as the last at 11.7% in option. However, there is little difference between OMOs and direct monetization except (1) FY2021E mode of liquidity creation and (2) risks to institutional frameworks. Sustained large liquidity surpluses have already unhinged monetary policy signals (reverse repo as effective policy rate).  RBI will have to address around Policy interventions: optimal mix of HTM norms, FX intervention, Operation Twist, and OMOs Rs4.5 tn of excess In our view, funding an excess supply of GSec would require a multi -pronged strategy from the GSec supply to keep RBI: (1) increase the HTM limits, (2) direct FX intervention towards forwards to maintain an yields in check optimal mix of forward and spot to offset rupee liquidity and create room for other measures, and (3) continue with Operation Twist to keep long-end yields under check, given higher demand at the short-end of the yield curve. Once these options are exhausted, (and hopefully the government has tapped into expenditure switching and external finances), the remaining supply-demand gap should be addressed through outright OMO purchases.

Potential negative for savers or lower NIMs for banks, yield curve remains steep without RBI

Higher liquidity in the banking system through monetization of a consumption stimulus can have a few knock-on effects. With banks continuing to earn at the reverse repo rate (currently 3.35%), either deposit rates will move lower or NII/NIMs will be under pressure. In the former, savers will be further penalized (though unlikely to spur consumption). Higher liquidity does not imply that demand at the longer end of the curve increases. We expect the yield curve to remain steep without RBI interventions. Impact of monetization to fund infrastructure could be more benign from a liquidity perspective as banks could be incentivized to restart credit creation.

Risks to inflation, external sector and institutional frameworks Suvodeep Rakshit We have been against consumption stimuli to push growth (refer to India’s economic reboot: Bold or nothing, July 23). Growth drivers need to shift to infrastructure/ investments so that Upasna Bhardwaj consumption growth is more durable on a wider base. Direct monetization will not achieve its objective of spurring demand unless beneficiaries spend immediately. Credit growth is unlikely Avijit Puri to change till banks remain in balance sheet conservation mode. While inflation risks in the near term are minimal, substantial risks exist in the medium term especially in the case of slow unwind of excess spending. On the external sector front, lower savings (private and government) would imply pressure on the external sector though lower investments in the near term will balance it out. Finally, care should be taken that direct monetization done in times of crisis does not become a precedent for a future government. Direct monetization could risk marginalizing market feedback loop and weaken credibility of institutions built up onerously over time. [email protected] Contact: +91 22 6218 6427

For Private Circulation Only. Economy India

Mechanism of direct monetization of fiscal deficit

 RBI balance sheet. Central banks create money in the banking system through reserves (in banks’ accounts with the RBI). Exhibit 3 provides a stylized view of the RBI’s balance sheet in case of large direct monetization and how the balance sheet would shape up under the two scenarios: (1) if the government expenditure leads to individuals spending with withdrawals from the banking system (higher currency with public), and (2) if the government expenditure remains mostly within the banking channels (precautionary savings and spending only on essentials). Other than the normal economic scenario, most large transfers will end up as precautionary savings within the banking deposits.

Step 1. When the government monetizes deficit directly with the RBI, the RBI takes on GSec (or even T-bill) on the asset side. Simultaneously, it credits the government’s account (RBI is the government’s banker) on the liabilities side. Hence, in the first round digital money has been created.

Step 2. When the government spends the money (let’s assume it credits all relevant bank accounts as part of its cash transfer program), the government’s account with the RBI is debited and the bankers’ account with the RBI is credited within the liabilities side of the RBI. The asset side remains unchanged.

Step 3. If individuals demand more money for spending, ‘leakages’ from the banking system in the form of cash withdrawals leads to increase in currency in circulation. The banks’ account reduces and currency in circulation increases within the liabilities side of the RBI. In an alternate scenario of where individuals save most of the transfers, the banking system will be flushed with liquidity and excesses will be parked with the RBI on reverse repo (again shifts within the liabilities side). The asset side remains unchanged.

 Reserve money and money supply. Reserve money is created when the RBI’s balance sheet size increases (excluding net non-monetary liabilities). For example reserve money increases by crediting the government or banks’ account on the liabilities side. However, if asset side increases due to depreciation of INR without any foreign currency asset purchases, reserve money does not increase. In our current scenario, reserve money increases when RBI credited government account for monetization.

However, money supply is not strictly in the RBI’s hand. Money supply is created through the money multiplier which is the process of credit creation and subsequent reserve creation within the banking system. However, even though reserve money growth may be high, money supply may not see a disproportionate growth (in other words, banks may not necessarily feel the same compulsion to engage in aggressive lending). In the current scenario, reserve money growth has been increasing but money supply growth has grown in line with it (stable money multiplier). While credit growth has been low, net foreign currency assets and net credit to government has contributed to money supply growth. Historically, inflation has been well correlated with net credit to government as money supply growth has increased (Exhibit 4-5).

KOTAK ECONOMIC RESEARCH 45 India Economy

It is often believed that banks could lend and exhaust the excess liquidity (assuming that banks are not bothered about credit risks or any incipient NPAs). However, in order to exhaust the current amount of around Rs6.1 tn parked in reverse repo (as on July 31), the banks would have to lend out around Rs28 tn (equivalent of four years of average annual incremental lending over last 10 years). On a different note, once some recovery is underway, it is important to mop up these excesses given the large money supply increase that is possible through credit creation from the excess reserves. Excess reserves parked with RBI do not have credit risk (associated with lending) or interest risk (associated with GSec investments) while being completely liquid. On the other hand, banks could invest the excess liquidity into GSec (although in the shorter end). This could reduce need for deficit monetization. Our demand-supply estimates of SLR securities indicate that if the government sticks to the borrowing calendar, RBI could deploy a variety of measures before outright OMO purchases: (1) increasing the HTM limits to encourage GSec demand, (2) direct FX intervention towards forwards to maintain an optimal mix of forward and spot to offset rupee liquidity and create room for other measures, and (3) continue with Operation Twist to keep long-end yields under check, given higher demand at the short-end of the yield curve (Exhibit 2). Once these options are exhausted, (and hopefully the government has tapped into expenditure switching and external finances), the remaining supply-demand gap should be addressed through outright OMO purchases.

If banks remain as wary of lending (as they are now), direct monetization of any consumption stimulus will lead to another round of excess reserves with the RBI; barring whatever ‘leaks’ out as currency. This increase in currency in circulation is also not guaranteed. Temporary increases in incomes are mostly converted to precautionary savings, especially in times of uncertainty. This severely blunts the objective of such a massive consumption stimulus. By the time the economic situation normalizes and individuals are confident of spending (not due to temporary income increases but due to prospects of permanent income), from a macro prudential perspective it will be time to tighten financial conditions to reign in inflationary risks. This would include winding up the excess reserves/liquidity (entirely in RBI’s control).

Financing of infrastructure stimulus through monetization could still be better justified. The credit creation could continue as the money spent by the government could lead to further creation. This would reduce the excess liquidity with the banks. We have been in favor of infrastructure stimulus rather than a consumption stimulus for a growth recovery. In fact, in a recent report (India’s economic reboot: Bold or nothing, July 23), we had argued that an infrastructure fund could be financed through monetization by the RBI. The fund could issue central government guaranteed bonds which the RBI could subscribe to. The monetization would have a much higher multiplier effect as well as a more productive end-use.

Cost of direct monetization of fiscal deficit Contrary to common belief, direct monetization is not exactly a costless exercise, even if we exclude the inflation risks. There are direct and indirect costs to be shared between the government, banks, RBI, and savers. The intended beneficiary, which is the consumers, unfortunately may or may not utilize the benefits (of ‘free’ money) given to them. If they do, it raises the concerns about inflation risks. And if they do not utilize the benefits, it remains a cost to be shared amongst the other stakeholders in the system.

46 KOTAK ECONOMIC RESEARCH Economy India

 Government and RBI. A closer look at the mechanism explained earlier would indicate that any excess reserves of the banks created due to this process would incur a cost (reverse repo rate). In case the monetization is such that the government does not pay a coupon to the RBI, the reverse repo rate is the net loss to the RBI. However, the government could pay coupon rate at the reverse repo rate and eliminate any losses incurred due to excess reserves being parked with the RBI. However, at the end of the year, when the RBI gives out the dividend, the coupon payment does not really matter. The dividend accruing to the government will be significantly lower to the extent of (1) currency printing cost due to any currency printed due to monetization, (2) payout on additional excess reserves due to monetization, and (3) higher contingency reserves (5.5- 6.5% of balance sheet size as stipulated) to be maintained due to expansion in balance sheet size. All of these would be true if OMOs were used too (except to some extent the currency printing part).

There is also an implicit cost that RBI and in turn the economy bears due to high and sustained monetization. The monetary policy space is considerably weakened. Over a period of time, if the fiscal policy is not reigned in, it risks impacting the credibility of the monetary policy along with raising risk on various macro parameters such as inflation, capital flows, and external sector balance. In case of direct monetization, if market feedback loops through interest rates are considerably weakened, efficacy of monetary policy will also weaken. Years of policies leading up to 1990-91 is a classic example of fiscal excesses coupled with monetization that contributed to the crisis. While it is unlikely that monetization, if any, will be pursued beyond the short term, the overall state of India’s fiscal accounts requires serious thought as to whether monetization is required at all.

 Banks. Assuming that banks are not interested or not in a position to lend to the government, they would be holding on to excess reserves parked with the RBI. The opportunity cost of investing in GSec versus earning the reverse repo rate is a loss not just for banks, but also for the government since the PSBs would likely be paying out a lesser dividend. However, the bigger issue would be managing the more expensive deposits in the face of excess liquidity and low appetite for risky lending which will depress NIIs. The eventual result will be further reduction in deposit and lending rates.

 Savers. While lower lending rates are essential it doesn’t mean much if banks are not willing to take on risks on their balance sheet. However, lower deposit rates will imply a further jolt for the savers whose incomes have reduced significantly over the rate cut cycle. The rates will further reduce as an unintended consequence of monetization. If deposits are not attractive, will this money get diverted to other financial assets? Possibly yes though the cohort of population who received the transfers will end up with lower rates.

 Consumers. This is the segment that is supposed to be the most benefited. However, their behavior is not a certainty. Whether they choose to retain most of the government transfer or consume it, is pretty much conjectural. But theoretically, as we pointed out earlier, temporary increases in incomes are mostly converted to precautionary savings, especially in times of uncertainty. This severely blunts the objective of such massive consumption stimulus yet raises some of the indirect costs and risks as highlighted above.

 Inflation. As we had highlighted earlier, large fiscal deficits have historically contributed to inflation through the net credit to government channel and to a lesser extent through bank credit within money supply sources. Inflation over the past few years has been benign, especially as the government has been on a fiscal consolidation mode (at least been stagnant at consolidated level) and also as the RBI has shifted to the flexible inflation targeting framework. Broadly, with food prices remaining in check along with monetary and fiscal policy working towards keeping inflation around the 4% mark, inflation has been under check. Though not immediately, inflation risks will return especially if fiscal and liquidity excesses are left open as the economy recovers (similar to post-GFC phase leading up to Fed taper tantrum episode).

KOTAK ECONOMIC RESEARCH 47 India Economy

 External sector balance. Till the economy remains under stress from Covid and household and private sector savings are buffeted from low consumption and cost savings, respectively, the fiscal excesses can be tolerated to some extent. However, as the economy recovers, and if the fiscal excesses are not reined in, the savings-investment gap can quickly exacerbate, leading to wide current account deficits (from current account surpluses). `The twin deficit will be back in focus again with capital flows denting RBI’s FX reserves. While it is tempting to run excesses (funded by money printing) given low inflation and steady buildup of FX reserves, sidelining market signals can blind sight efficient monetary policy and impede timely wind up of fiscal excesses. It is important to note that improvement in fiscal health is not guaranteed in FY2022 or beyond. This can lead to serious macro imbalances over the medium term. As we noted earlier, the run up to the 1991 BOP crisis was on the back of years of deficit funding by the RBI (it was the norm then). Market feedback was absent which led to no penalty on running excesses.

Exhibit 1: Fiscal profile is set to deteriorate significantly in FY2021 Trend in center, state and consolidated GFD/GDP (%)

Center GFD/GDP State GFD/GDP Consolidated GFD/GDP 11.7 12

9.4 10 8.4 4.5 7.8 7.6 8 3.0 6.9 6.9 6.7 6.7 6.9 7.0 6.4 2.4 1.9 5.9 5.9 6 5.1 2.1 2.0 3.0 2.2 2.6 2.5 4.1 3.1 3.5 2.4 2.5 4 1.8 1.5 7.2 6.0 6.5 5.9 4.8 4.9 2 4.5 4.1 4.6 4.0 3.3 3.9 3.5 3.5 3.4 2.5

0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 2020E 2021E

Source: RBI, Ministry of Finance, Kotak Economics Research estimates

Exhibit 2: RBI will likely need to step in to keep yields low Demand and supply of SLR securities, March fiscal year-ends, 2019-21E (Rs bn)

2019 2020 2021E Supply of SLR securities 7,798 10,924 18,708 Net market borrowings of the center 4,233 4,740 9,813 T-bills financing 69 1,560 1,800 Net issuances by states 3,496 4,624 7,095 Demand of SLR securities 5,555 10,251 14,253 Banks 1,320 4,911 8,293 Insurance/PFs 3,855 3,799 4,296 Others (MFs, FPIs, corporates, etc.) 380 1,541 1,664 Excess supply (+)/demand (-) 2,243 673 4,455 Net OMOs purchase (+)/sale (-) 2,993 639 4,000 Net excess supply (+)/demand (-) (750) 33 455

Source: Kotak Economics Research estimates

48 KOTAK ECONOMIC RESEARCH Economy India

Exhibit 3: Stylized representation of RBI's balance sheet (Rs bn)

RBI balance sheet (July 24, 2020) Liabilties Assets Notes issued 26,447 Foreign investments 38,930 Deposits of SCBs, etc. 4,658 Domestic investments 11,738 Deposits of governments 1 Loans and advances to governments 57 Other deposits 7,902 Loans and advances to SCBs, etc. 3,057 Other liabilities 15,052 Other assets 279 Total liabilities/assets 54,060 RBI balance sheet (after Rs5 tn of direct monetization) Liabilties Assets Notes issued 26,447 Foreign investments 38,930 Deposits of SCBs, etc. 4,658 Domestic investments 16,738 Deposits of governments 5,001 Loans and advances to governments 57 Other deposits 7,902 Loans and advances to SCBs, etc. 3,057 Other liabilities 15,052 Other assets 279 Total liabilities/assets 59,060 Case 1: RBI balance sheet (after Rs2.5 tn of additional currency demand) Liabilties Assets Notes issued 28,947 Foreign investments 38,930 Deposits of SCBs, etc. 4,733 Domestic investments 16,738 Deposits of governments 1 Loans and advances to governments 57 Other deposits 10,327 Loans and advances to SCBs, etc. 3,057 Other liabilities 15,052 Other assets 279 Total liabilities/assets 59,060 Case 2: RBI balance sheet (after government's transfers remain in bank deposits) Liabilties Assets Notes issued 26,447 Foreign investments 38,930 Deposits of SCBs, etc. 4,808 Domestic investments 16,738 Deposits of governments 1 Loans and advances to governments 57 Other deposits 12,752 Loans and advances to SCBs, etc. 3,057 Other liabilities 15,052 Other assets 279 Total liabilities/assets 59,060 Notes: (a) CRR is kept unchanged at 3%. (b) All other entities of RBI balance sheet is kept unchanged. (c) Other deposits include the reverse repo transactions (along with other RBI's internal operations related items).Loans and advances to SCBs include repo transactions.

Source: RBI, Kotak Economics Research estimates

KOTAK ECONOMIC RESEARCH 49 India Economy

Exhibit 4: Money multiplier has been stable post the effect of demonetization Trend in money multiplier (X)

Money multiplier (M3/RM) 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5

4.0

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17 Dec-18 Dec-19

Source: CEIC, Kotak Economics Research

50 KOTAK ECONOMIC RESEARCH Economy India

Exhibit 5: Recent money supply growth has been due to credit to government and forex assets; inflation historically has seen correlated with credit to government Trend in contribution of sources in M3 growth and trends in M3 growth, CPI inflation, and credit to commercial sector

Credit to govt Credit to comm sector NFCA GCL CPI (%yoy) M3 (%yoy, RHS) NNML M3 18 30 25 16 25 20 14 12 20 15 10 15 10 8 6 10 5 4 5 0 2

(5) 0 0

Jun-10 Jun-12 Jun-14 Jun-16 Jun-18 Jun-20 Jun-11 Jun-13 Jun-15 Jun-17 Jun-19

(10)

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

CPI (%yoy) Net bank credit to govt (%yoy, RHS) CPI (%yoy) Bank credit to comm. sector (%yoy, RHS) 18 60 18 40 16 16 50 35 14 14 30 40 12 12 25 10 30 10 20 8 20 8 15 6 6 10 4 4 10 0 2 2 5

0 (10) 0 0

Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 Jun-16 Jun-04 Jun-05 Jun-10 Jun-11 Jun-12 Jun-17 Jun-18 Jun-19 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Jun-18 Jun-19 Jun-20 Jun-00 Jun-01 Jun-02 Jun-03 Jun-06 Jun-07 Jun-08 Jun-09 Jun-13 Jun-14 Jun-15 Jun-16 Jun-20 Jun-00 Notes: (a) NFCA: Net foreign currency assets, GCL: Government’s currency liabilities, NNML: Net non-monetary liabilities.

Source: RBI, Kotak Economics Research estimates

KOTAK ECONOMIC RESEARCH 51

June 2020: Results calendar India Daily Summary Daily Summary India

Mon Tue Wed Thu Fri Sat Sun

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK 3-Aug 4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 9-Aug Bank of India Astral Poly Technik Adani Gas Adani Enterprises Adani Transmission DCB Bank Exide Industries Godrej Consumer Products Apollo Tyres Adani Pow er Aditya Birla Capital Divi's Laboratories Kansai Nerolac Gujarat Gas Cadila Healthcare Dalmia Bharat Alkem Laboratories Narayana Hrudayalaya Canara Bank GSPL Amara Raja Batteries PI Industries DLF Gujarat Pipavav Port Bata India Tata Consumer Products Godrej Properties Honeyw ell Automation Cipla Varun Beverages JK Lakshmi Cement HPCL Container Corporation Jyothy Labs Indian Hotels Co. Emami

Trent Lemon Tree Hotels Mahanagar Gas

-

Lupin Mahindra & Mahindra 2020 August4, Pidilite Industries REC Torrent Pow er Siemens

Vodafone Idea Sobha Whirlpool The Ramco Cement 10-Aug 11-Aug 12-Aug 13-Aug 14-Aug 15-Aug 16-Aug Bank of Baroda Adani Port and SEZ Aarti Industries 3M India MRF Cochin Shipyard AIA Engineering Ashok Leyland Eicher Motors United Brew eries Equitas Holdings Ashoka Buildcon Bharat Forge Endurance Technologies Ipca Laboratories Bosch Cummins India Godrej Industries KEC International Motherson Sumi Systems Natco Pharma Hero Motocorp Pow er Grid Oracle Financial Services S H Kelkar and Company Timken Shree Cement Shriram City Union Finance Tata Pow er Titan Company Thermax Ujjivan Financial Services

Source: NSE, Kotak Institutional Equities

52 KOTAK ECONOMIC RESEARCH

52

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

53 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 3-Aug-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Automobiles & Components Amara Raja Batteries REDUCE 712 620 (13) 122 1.6 171 39 33 41 36.7 (14.9) 25.9 18 21.6 17.2 11.0 11.4 9.3 3.3 3.0 2.6 18.9 14.5 16.3 1.5 1.2 1.5 12.0 Apollo Tyres BUY 108 110 2 62 0.8 638 8.3 1.7 8.9 (41.9) (79.1) 410.6 13.0 62.2 12.2 6.6 7.0 5.1 0.6 0.6 0.6 4.8 1.1 5.1 2.8 1.2 2.5 12.8 Ashok Leyland BUY 49 65 32 145 1.9 2,936 1.2 (0.6) 2.2 (82.4) (150.8) 447.8 40.3 NM 22.8 13.8 24.1 9.5 2.0 2.0 1.9 4.6 NM 8.6 7.1 0.0 1.3 30 Bajaj Auto BUY 2,917 3,400 17 844 11 289 176 159 194 15.0 (9.9) 22.0 16.6 18.4 15.1 13.5 14.1 10.9 4.2 3.9 3.5 24 22 24 4.1 3.3 4.0 36 Balkrishna Industries SELL 1,310 1,100 (16) 253 3.4 193 50 48 58 25.2 (3.4) 21.7 26.4 27.3 22.5 17.9 15.4 12.7 5.1 4.6 4.1 19.9 17.6 19.3 1.5 1.7 1.8 13.2 Bharat Forge SELL 386 285 (26) 180 2.4 466 8 0 11 (66.2) (94.5) 2,559.2 51.5 930.9 35.0 19.1 37.0 16.9 3.4 3.4 3.2 6.6 0.4 9.5 0.5 0.0 0.8 17.5 CEAT BUY 868 940 8 35 0.5 40 63 45 68 1.9 (28.8) 52.6 13.9 19.5 12.7 7.4 8.2 6.7 1.2 1.2 1.1 8.9 6.1 8.8 1.4 1.4 1.4 2.5 Eicher Motors REDUCE 20,782 17,500 (16) 567 7.5 27 671 573 799 (17.7) (14.7) 39.6 31.0 36.3 26.0 22.9 27.5 19.5 6.8 6.0 5.0 24 17.6 21 0.1 — — 66 Endurance Technologies REDUCE 924 820 (11) 130 1.7 141 40 29 46 11.1 (28.4) 59.2 23 32.1 20.2 11.4 13.1 9.2 4.3 3.9 3.3 18.8 12.1 16.6 0.6 0.5 0.8 1.8 Escorts BUY 1,102 1,300 18 98 1.8 101 55 57 74 0.4 3.5 31.7 20.2 19.5 14.8 14.0 11.8 8.5 2.8 2.2 2.0 14.0 11.4 13.3 0.2 0.8 1.0 40 Exide Industries REDUCE 155 155 0 131 1.7 850 10.0 7.7 9.0 10.3 (22.7) 16.6 15.5 20.1 17.2 9.5 10.6 9.3 2.1 2.0 1.8 13.8 10.1 11.1 2.7 2.3 2.3 7.7 Hero Motocorp REDUCE 2,631 2,600 (1) 525 7.0 200 159 131 172 (6.1) (18.0) 31.6 16.5 20.2 15.3 11.1 12.0 8.9 3.7 3.5 3.2 24 17.9 22 3.7 3.2 3.9 62 Mahindra CIE Automotive SELL 106 95 (10) 40 0.5 378 9.4 1.6 7.5 (34.9) (83.0) 366.5 11.2 65.8 14.1 5.4 10.8 5.9 0.9 0.9 0.8 8.0 1.3 5.9 — — — 0.4 Mahindra & Mahindra BUY 597 725 21 742 9.9 1,138 24 32 43 (50.0) 32.6 36.1 25.1 18.9 13.9 11.5 12.1 9.1 2.0 1.8 1.6 7.8 9.9 12.2 0.4 0.5 1.1 52 Maruti Suzuki SELL 6,166 4,500 (27) 1,863 24.8 302 187 141 223 (24.7) (24.7) 58.5 33 44 28 20.5 25.1 15.1 3.8 3.6 3.3 11.9 8.5 12.6 1.0 0.8 0.9 130 Motherson Sumi Systems ADD 98 110 13 309 4.1 3,158 3.7 1.1 5.1 (27.5) (70.3) 359.1 26.4 88.7 19.3 7.2 9.2 4.8 2.7 2.8 2.4 10.5 3.1 13.2 1.5 1.3 1.8 27 MRF SELL 60,975 55,000 (10) 259 3.4 4 3,355 2,185 2,861 25.8 (34.9) 30.9 18 27.9 21.3 10.6 10.6 8.4 2.1 2.0 1.8 12.3 7.3 8.9 0.2 0.1 0.1 9.5 Schaeffler India SELL 3,563 3,150 (12) 111 1.5 31 118 83 128 (18.3) (29.7) 55.1 30 43 28 16.3 21.0 14.4 3.8 3.5 3.1 13.0 8.4 11.9 — — — 0.5 SKF REDUCE 1,473 1,550 5 73 1.0 49 58 43 58 (10.7) (26.2) 33.6 25 34 26 19.1 24.8 17.8 3.8 4.9 4.3 15.2 14.5 16.7 0.8 7.4 0.7 1.5 Tata Motors SELL 113 90 (20) 407 4.9 3,829 (20.7) (22.6) 2.1 (284.1) (9.1) 109.3 NM NM 53.6 6.1 6.5 4.2 0.6 0.7 0.7 NM NM 1.4 — — — 98 Timken SELL 1,018 825 (19) 77 1.0 75 33 35 42 65.6 6.2 20.1 31 29 24 20.0 17.3 14.1 4.9 4.2 3.6 16.9 15.3 15.9 0.1 0.1 0.1 0.6 TVS Motor SELL 396 260 (34) 188 2.5 475 13.0 7.4 14.7 (7.9) (43.1) 98.4 30 54 27 15.2 19.6 13.1 5.2 5.0 4.4 17.7 9.5 17.3 0.9 0.8 0.9 15.5 Varroc Engineering BUY 198 360 81 27 0.4 135 0 (21) 18 (99.4) (11,519.9) 183.0 1,066.7 NM 11.3 6.3 9.3 4.4 0.9 1.0 0.9 0.1 NM 8.1 — — — 0.9 Automobiles & Components Cautious 7,187 95.6 (39.2) (34.8) 160.1 35.2 53.9 20.7 11.2 12.3 8.1 2.6 2.5 2.3 7.4 4.7 11.2 1.5 1.2 1.4 637 Banks AU Small Finance Bank SELL 714 590 (17) 219 2.9 304 22.2 19.3 23.0 69.8 (13.1) 19.4 32 37 31 — — — 5.1 4.7 4.1 17.9 12.6 13.2 — — — 8.2 Axis Bank BUY 417 600 44 1,178 15.7 2,822 5.8 35 41 (68.3) 509.3 17.8 72 11.9 10.1 — — — 1.5 1.3 1.2 2.1 11.1 11.9 0.0 1.3 1.5 233 Bandhan Bank REDUCE 309 330 7 497 6.6 1,610 18.1 20.7 20.7 10.9 14.3 (0.3) 17.0 14.9 14.9 — — — 3.3 2.8 2.4 22.1 19.8 16.5 — — — 64 Bank of Baroda ADD 47 65 39 216 2.9 4,627 1.2 8.2 18 (27.8) 597.5 119.9 40 5.7 2.6 — — — 0.4 0.4 0.3 0.6 5.6 11.4 0.0 3.5 7.7 27 City Union Bank ADD 118 160 36 87 1.2 737 6.5 5.5 9.8 (30.5) (14.9) 79.0 18 21.4 12.0 — — — 1.8 1.7 1.5 9.4 7.4 12.3 1.0 0.8 1.5 4.0 DCB Bank BUY 80 150 87 25 0.3 310 10.9 10.7 11.6 3.6 (1.9) 9.0 7.4 7.5 6.9 — — — 0.8 0.8 0.7 11.2 10.0 9.9 — 1.3 1.5 3.7 Equitas Holdings BUY 48 100 110 16 0.2 342 6.1 6.0 9.7 (4.3) (1.1) 61.6 7.9 7.9 4.9 — — — 0.6 0.6 0.5 7.8 7.1 10.5 — — — 13.1

Federal Bank BUY 52 80 53 105 1.4 1,993 7.7 6.1 6.9 23.6 (21.2) 12.7 6.8 8.6 7.6 — — — 0.8 0.7 0.7 11.1 8.1 8.6 — 2.6 2.9 26 Daily Summary India HDFC Bank ADD 1,002 1,200 20 5,501 73.2 5,483 48 49 54 23.7 2.9 10.3 21 20 18 — — — 3.3 2.9 2.6 16.4 14.9 14.6 — 1.0 1.1 262 ICICI Bank BUY 343 470 37 2,224 29.6 6,474 12.3 23 27 134.9 88.0 16.6 28 14.9 12.8 — — — 2.1 1.9 1.7 7.7 12.2 12.9 — 1.3 1.6 228 IndusInd Bank ADD 503 600 19 349 4.6 756 64 26 64 16.3 (59.2) 147.6 8 19.4 7.8 — — — 1.1 1.0 0.9 14.9 5.3 11.8 — 0.8 1.9 192 Karur Vysya Bank BUY 33 65 97 27 0.4 799 2.9 4 6 11.5 41.4 55.6 11 7.9 5.1 — — — 0.5 0.5 0.4 3.6 4.9 7.4 0.0 3.3 5.1 1.1 Punjab National Bank NR 33 — — 310 4.1 9,652 0 2 6 102.3 212.6 283.8 66 21.1 5.5 — — — 0.5 0.6 0.5 0.7 2.1 6.8 — — — 19.0 RBL Bank BUY 163 270 66 83 1.1 509 9.9 10 20 (51.1) 3.4 97.2 16 15.8 8.0 — — — 0.8 0.8 0.8 5.6 4.8 9.0 — 0.8 1.7 90 State Bank of India BUY 192 340 77 1,716 22.8 8,925 16 24 29 1,580.3 49.2 17.9 12 7.9 6.7 — — — 1.1 0.9 0.8 6.4 8.9 9.6 — 0.1 0.1 182 Ujjivan Financial Services BUY 227 490 116 28 0.4 121 26.9 34 44 117.0 24.9 31.6 8 6.8 5.1 — — — 1.3 1.1 0.9 15.7 17.0 19.3 1.4 1.8 2.6 19.4 Ujjivan Small Finance Bank ADD 33 39 19 57 0.8 1,728 2 2 2 34.2 (4.7) (2.9) 18 18.5 19.0 — — — 1.9 1.9 1.8 13.6 9.8 8.9 1.1 1.1 1.1 0.0 Union Bank RS 29 — — 186 2.5 9,414 (8) (2) 2 49.4 77.9 187.9 NM NM 17.7 — — — 0.4 0.7 0.7 NM NM 2.6 — (1.0) 0.8 2.4

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Banks Attractive 13,271 176.5 43.1 96.5 42.4 32 16.2 11.4 1.4 1.2 1.1 4.4 7.6 9.9 0.1 0.9 1.1 1,414

Source: Company, Bloomberg, Kotak Institutional Equities estimates

-

August 4, 2020 August4,

KOTAK ECONOMIC RESEARCH 53

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 3-Aug-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Building Products Astral Poly Technik SELL 943 765 (19) 142 1.9 151 16.4 18 25 25.6 11.7 37.7 57 51 37 32.1 28.3 21.1 9.5 8.1 6.8 17.8 17.0 19.8 0.1 0.2 0.3 2.1 Building Products Cautious 142 1.9 26.6 11.7 37.7 57 51 37 32.1 28.3 21.1 9.5 8.1 6.8 16.5 15.8 18.2 0.1 0.2 0.3 2.1 Capital goods ABB SELL 882 840 (5) 187 2.5 212 18 9 21 46.3 (50.0) 140.4 50 100 42 32.2 64.9 27.0 5.3 5.2 4.9 9.9 5.3 12.1 0.5 0.7 0.8 2.6 Ashoka Buildcon BUY 53 130 145 15 0.2 281 13.8 8.5 11.5 16.2 (38.0) 34.7 3.8 6.2 4.6 2.6 4.3 3.2 0.6 0.5 0.5 16.1 8.9 11.1 0.0 2.6 3.5 1.3 Bharat Electronics BUY 97 110 14 236 3.1 2,437 7.5 6.2 6.8 (3.3) (16.5) 8.6 12.9 15.5 14.3 8.0 9.3 8.3 2.3 2.2 2.0 18.9 14.5 14.5 2.9 2.4 2.6 21 BHEL REDUCE 36 28 (22) 126 1.7 3,482 -4.2 -1.5 2.5 (221.0) 64.0 263.0 NM NM 14.6 (48.1) (289.0) 5.8 0.4 0.4 0.4 NM NM 3.0 (5.7) (1.9) 2.8 37 Carborundum Universal ADD 244 285 17 46 0.6 189 14.4 12.1 15.2 9.9 (15.9) 26.0 17.0 20 16.0 11.0 11.1 8.8 2.5 2.3 2.1 15.2 11.8 13.7 1.6 1.4 1.7 0.9 Cochin Shipyard BUY 323 550 70 42 0.6 132 48 39 47 32.5 (19.7) 19.7 6.7 8.3 6.9 3.1 3.8 3.7 1.1 1.0 1.0 18.1 13.2 14.4 4.6 3.6 4.0 2.7 Cummins India BUY 404 460 14 112 1.5 277 26 16 24 (3.2) (35.4) 48.7 15.8 25 16.5 17.8 29.6 16.9 2.7 2.6 2.5 17.0 10.8 15.5 3.5 2.2 3.3 8.6 Dilip Buildcon BUY 287 495 73 39 0.5 137 30 27 45 (45.3) (10.8) 64.8 9.4 10.6 6.4 4.5 5.1 3.1 1.1 1.0 0.8 12.2 9.8 14.2 0.2 0.2 0.3 1.6

IRB Infrastructure BUY 122 150 23 43 0.6 351 21 15 11 (15.2) (27.9) (22.9) 5.9 8.2 10.7 3.5 6.4 6.1 0.6 0.6 0.6 11.1 7.6 5.6 4.1 3.2 2.0 4.8

-

Kalpataru Power Transmission BUY 229 470 106 35 0.5 153 25 25 39 (16.4) 0.1 53.3 9.0 9.0 5.9 4.0 4.0 3.3 1.0 1.0 0.8 12.0 11.1 15.2 1.4 1.4 2.0 1.8 2020 August4, KEC International BUY 268 342 28 69 0.9 257 22.0 25 31 16.3 13.4 24.4 12.2 10.7 8.6 7.1 6.5 5.3 2.5 2.0 1.7 22 21 22 1.3 1.0 1.3 1.6 L&T BUY 916 1,210 32 1,286 17.1 1,403 63 35 66 3.3 (44.9) 90.3 14.4 26 13.8 15.6 19.2 13.3 2.2 1.9 1.7 15.8 7.8 13.1 2.0 1.7 2.2 70 Sadbhav Engineering BUY 43 113 162 7 0.1 172 4.2 5.3 11.4 (61.4) 26.0 115.4 10.3 8.2 3.8 6.0 5.7 3.5 0.4 0.3 0.3 3.5 4.2 8.6 — — — 0.4 Siemens SELL 1,150 1,000 (13) 409 5.4 356 26 33 38 (14.9) 28.2 14.7 44 35 30 29.5 22.9 20.2 4.2 3.9 3.6 9.9 11.8 12.5 0.6 0.8 0.9 66 Thermax BUY 743 820 10 89 1.2 113 19 15 31 (48.8) (22.5) 109.8 39 51 24 21.1 33.0 17.1 21.1 33.0 17.1 7.0 5.4 10.7 0.9 0.7 1.3 0.8 Capital goods Attractive 2,741 36.5 (17.1) (27.1) 70.1 18.4 25 14.8 1.9 1.7 1.6 10.4 6.8 10.8 1.4 1.4 2.0 1,414 Commercial & Professional Services SIS BUY 363 395 9 53 0.7 149 15 14 19 5.0 (10.2) 36.2 24 27 19.6 11.1 12.0 10.1 3.9 3.4 2.9 17.1 13.6 16.1 1.0 0.2 0.3 0.5 TeamLease Services ADD 1,909 2,000 5 33 0.4 17 20 49 67 (64.3) 140.9 36.5 93 39 28 34.1 27.4 21.2 5.7 5.0 4.2 6.3 13.7 16.1 — — — 0.7 Commercial & Professional Services Attractive 86 1.1 (16.7) 10.1 36.3 33 30 22 14.7 15.0 12.4 4.4 3.8 3.3 13.3 12.8 15.0 0.6 0.1 0.2 1.2

Commodity Chemicals Asian Paints REDUCE 1,706 1,800 6 1,636 21.8 959 27.2 21.9 36.1 20.7 (19.4) 64.9 63 78 47 39.1 45.8 30.7 16.1 14.5 12.6 27 19.7 29 0.7 0.6 1.0 65 Berger Paints SELL 525 410 (22) 510 6.8 971 6.8 5.8 9.2 32.2 (15.1) 60.2 78 91 57 48.2 53.2 35.8 19.2 16.7 14.2 26 19.6 27 0.4 0.3 0.6 11.3 Kansai Nerolac ADD 447 485 8 241 3.2 539 9.9 7.0 12.5 14.6 (29.5) 78.1 45 64 36 30.2 39.0 23.6 6.4 6.1 5.5 14.8 9.7 16.1 0.7 0.7 1.0 1.5 Tata Chemicals ADD 298 330 11 76 1.0 255 31.7 23.1 35.2 (26.2) (27.0) 52.2 9.4 12.9 8.5 4.6 4.9 3.8 0.6 0.6 0.5 6.4 4.5 6.6 3.7 2.7 4.1 7.9 Commodity Chemicals Neutral 2,463 32.7 9.2 (21.3) 63.5 53 68 42 31.0 35.5 24.5 8.4 7.8 7.1 15.6 11.5 17.0 0.7 0.6 1.0 85 Construction Materials ACC BUY 1,414 1,550 10 266 3.5 188 72.3 61.4 79.5 35.8 (15.1) 29.5 19.6 23 17.8 9.1 10.3 7.9 2.3 2.2 2.1 12.3 9.8 12.0 1.0 2.2 2.8 24 Ambuja Cements BUY 221 235 6 439 5.8 1,986 10.6 9.5 12.4 49.1 (10.2) 31.0 21 23 17.8 7.5 8.2 6.0 1.8 1.7 1.6 9.0 7.6 9.2 0.7 0.7 0.7 13.3 Dalmia Bharat BUY 751 1,000 33 141 1.9 192 14.0 2.0 19.2 (12.1) (85.4) 844.0 54 369 39 7.4 8.0 5.9 1.4 1.4 1.3 2.5 0.4 3.4 — — — 2.3 Grasim Industries ADD 634 735 16 417 5.5 657 52.6 40.6 71.6 (21.1) (22.9) 76.5 12.0 15.6 8.9 7.6 8.3 5.4 0.7 0.7 0.7 6.0 4.6 7.6 0.6 0.2 0.5 21 J K Cement ADD 1,505 1,525 1 116 1.5 77 64.2 51.8 92.2 83.6 (19.4) 78.1 23 29 16.3 11.4 11.8 8.3 3.8 3.5 2.9 17.3 12.5 19.4 0.5 0.7 0.7 1.7 JK Lakshmi Cement BUY 295 330 12 35 0.5 118 23.5 10.7 23.3 478.2 (54.5) 118.0 12.6 28 12.7 5.6 7.4 5.2 2.1 1.9 1.7 17.4 7.2 14.3 0.8 0.5 1.2 1.6 Orient Cement ADD 63 75 18 13 0.2 205 4.2 3.7 6.3 82.1 (12.9) 72.1 15.0 17.2 10.0 6.5 6.2 5.1 1.2 1.1 1.0 8.0 6.6 10.8 1.2 3.2 3.2 0.9 Shree Cement SELL 21,747 16,000 (26) 785 10.4 36 435.2 382.0 651.5 34.6 (12.2) 70.5 50 57 33 21.3 23.0 16.1 6.1 5.6 4.9 13.9 10.3 15.8 0.5 0.5 0.5 18.4 UltraTech Cement BUY 4,046 4,600 14 1,168 15.5 289 132.9 133.7 219.9 45.2 0.6 64.4 30 30 18.4 14.3 13.8 9.3 3.0 2.7 2.4 10.5 9.4 13.9 0.3 0.4 0.5 32 Construction Materials Attractive 3,378 44.9 21.1 (13.9) 62.7 25 29 17.9 10.8 11.4 7.9 2.1 2.0 1.8 8.4 6.8 10.1 0.5 0.6 0.7 116

Source: Company, Bloomberg, Kotak Institutional Equities estimates

54 KOTAK ECONOMIC RESEARCH

54

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

55 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 3-Aug-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 242 210 (13) 152 2.0 627 7.9 6.9 8.8 33.1 (12.8) 27.1 31 35 28 26 26 21 10.3 7.9 6.5 39 26 26 0.8 0.0 1.0 2.9 Havells India SELL 585 490 (16) 366 4.9 626 11.8 8.7 13.8 (6.6) (26.1) 58.5 50 67 42 34 44 29 8.5 7.9 7.1 17.3 12.2 17.7 1.8 0.5 0.8 20 Page Industries REDUCE 19,662 16,000 (19) 219 2.9 11 308 277 397 (12.9) (10.0) 43.5 64 71 49 41 44 33 26.7 23.1 18.9 43 35 42 0.8 0.8 1.1 10.3 Polycab ADD 829 875 6 124 1.6 149 52 40 53 53.2 (21.5) 30.7 16.1 21 15.7 11 14 11 3.2 2.8 2.5 23 14.7 16.8 0.8 0.7 0.9 3.6 TCNS Clothing Co. REDUCE 327 380 16 20 0.3 66 11 4 15 (47.7) (64.3) 302.6 30 85 21 12 16 8.1 3.2 3.0 2.5 10.9 3.6 12.8 — — — 0.2 Vardhman Textiles ADD 670 720 7 39 0.5 57 85 25 90 (34.1) (70.8) 260.6 7.9 27 7.5 5.9 10.6 5.0 0.6 0.6 0.6 8.3 2.3 8.0 2.6 1.9 3.0 0.2 Voltas SELL 596 440 (26) 197 2.6 331 16.2 10.3 17.8 3.4 (36.5) 73.0 37 58 33 30 55 28 4.6 4.4 4.0 12.8 7.7 12.5 0.6 0.4 0.8 21 Whirlpool SELL 2,117 1,580 (25) 269 3.6 127 38 26 47 17.0 (32.0) 82.8 56 83 45 37 56 32 10.5 9.8 8.8 20 12.2 20 0.2 0.4 0.9 1.5 Consumer Durables & Apparel Cautious 1,385 18.4 2.3 (30.4) 35 51 31 24 33 21 5.8 5.3 16.3 10.5 15.3 1.0 0.5 60 Consumer Staples Bajaj Consumer Care ADD 173 200 15 26 0.3 148 12.5 12.8 13.1 (16.6) 2.1 2.7 13.8 13.6 13.2 10.3 10.2 9.8 3.9 3.4 3.1 33 27 24 1.2 3.5 4.6 2.7 Britannia Industries ADD 3,776 4,150 10 909 12.1 240 59 81 86 22.1 36.7 6.3 64 47 44 50 35 33 20.6 17.0 13.5 32 39 34 0.9 0.7 0.9 46 Colgate-Palmolive (India) ADD 1,411 1,550 10 384 5.1 272 28 31 36 5.9 8.1 18.0 50 46 39 31.6 29.4 25.3 24.1 23.9 22.7 51 52 60 2.0 2.1 2.4 21 Dabur India REDUCE 510 415 (19) 902 12.0 1,767 8.6 9.5 11.0 6.1 10.2 15.3 59 54 47 49 43 37 13.7 12.6 11.4 25 24 26 0.6 1.2 1.4 24 Godrej Consumer Products ADD 699 750 7 715 9.5 1,022 13.8 15.4 18.7 (4.8) 11.6 21.7 51 45 37 34 31 26 9.0 8.0 7.2 18.6 18.7 20 0.9 1.0 1.4 16.0 Hindustan Unilever ADD 2,205 2,500 13 5,176 68.8 2,343 31 35 45 10.9 12.3 28.1 71 63 49 53 44 35 59.3 11.9 11.4 86 32 24 1.1 1.5 1.9 205 ITC BUY 193 260 35 2,368 31.5 12,308 11.6 10.5 12.3 14.4 (9.4) 17.9 16.7 18.4 15.6 11.4 13.1 10.9 3.7 3.6 3.5 21 18.9 22 5.3 4.7 5.5 79 Jyothy Laboratories ADD 125 135 8 46 0.6 367 4.7 5.2 5.7 (15.5) 11.0 8.2 26 24 22 19.3 15.9 14.8 3.7 3.5 3.4 13.6 15.3 15.7 2.4 2.8 3.2 1.0 Marico ADD 363 390 7 469 6.2 1,290 8.1 8.7 9.7 12.4 7.7 11.2 45 42 37 32 29 26 15.5 14.4 13.4 35 36 37 1.8 1.9 2.1 16.2 Nestle India REDUCE 16,525 16,000 (3) 1,593 21.2 96 204 227 270 22.6 10.9 19.1 81 73 61 56 48 42 82.5 64.8 51.8 70 100 94 2.1 1.0 1.2 41 Tata Consumer Products ADD 434 385 (11) 398 5.3 922 8.0 8.2 10.9 13.9 2.9 33.2 54 53 40 30 27 23 2.9 2.8 2.7 6.9 5.4 6.9 0.6 0.8 1.0 24 United Breweries ADD 946 1,180 25 250 3.3 264 16.2 2.5 21.8 (24.0) (84.4) 760.7 58 374 43 29 61 23 7.1 7.1 6.2 12.8 1.9 15.2 0.3 0.1 0.6 10.8 United Spirits ADD 574 620 8 417 5.5 727 11.5 8.6 14.0 21.7 (25.0) 62.8 50 67 41 29 35 25 10.4 9.2 7.5 23 14.6 20 — — — 39 Varun Beverages BUY 684 800 17 197 2.6 289 16.2 14.4 29.1 51.9 (11.3) 102.1 42 47 23 16 16 11 5.9 5.2 4.3 17.6 11.7 20 0.1 0.2 0.3 3.2 Consumer Staples Attractive 13,849 184.2 13.0 2.4 23.4 43 42 34 30 30 24 11.2 8.3 7.8 26 19.7 23 1.8 1.8 2.2 528 Diversified Financials Bajaj Finance REDUCE 3,175 2,800 (12) 1,913 25.4 600 104 74 131 49 (28) 77 31 43 24 — — — 5.9 5.3 4.4 20 13.0 19.8 0.3 0.2 0.4 463 Bajaj Finserv BUY 6,103 7,600 25 971 12.9 159 212 252 402 5 19 60 29 24 15.2 — — — 3.1 2.8 2.4 12.2 12.1 16.8 0.2 0.2 0.2 99 Cholamandalam BUY 201 300 49 165 2.2 820 12.8 13.9 20.2 (15) 8.5 45.0 15.7 14.4 10.0 — — — 2.1 2.0 1.7 14.7 13.1 16.7 0.8 0.8 1.1 39 IIFL Wealth ADD 1,003 1,200 20 87 1.2 88 23.8 37.0 53.7 (47) 55.8 45.1 42 27 18.7 — — — 2.9 2.9 2.8 7.0 10.7 15.1 1.0 2.4 3.5 0.3 L&T Finance Holdings ADD 60 90 51 119 1.6 2,005 8 5 9 (24.1) (44) 84.9 7.0 12.6 6.8 — — — 0.8 0.8 0.7 14.7 6.3 10.9 3.2 2.4 2.7 18.3 LIC Housing Finance ADD 258 350 36 130 1.7 505 47.6 36.2 66.6 4 (24.0) 84.1 5.4 7.1 3.9 — — — 0.8 0.9 0.7 13.9 9.6 16.0 3.1 2.4 4.3 24 Muthoot Finance ADD 1,282 1,025 (20) 514 6.8 401 75 69 85 52.3 (7) 22.8 17.1 18.5 15.1 — — — 4.4 3.8 3.2 28 22 23 1.2 1.1 1.3 47

Shriram City Union Finance BUY 663 1,250 89 44 0.6 66 152 84 158 1.2 (44) 87.1 4.4 7.9 4.2 — — — 0.6 0.6 0.5 14.7 7.5 12.8 0.9 1.6 3.6 0.6 Daily Summary India Shriram Transport BUY 671 1,050 56 152 2.0 227 110.3 81.7 119.0 (2) (25.9) 45.6 6.1 8.2 5.6 — — — 0.9 0.8 0.7 14.8 9.9 13.0 0.7 1.8 2.7 56 Diversified Financials Attractive 7,271 96.7 32.3 (24.5) 42.0 17.8 24 16.6 2.7 2.6 2.3 15.1 11.2 14.2 0.9 0.9 1.2 954

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

-

August 4, 2020 August4,

KOTAK ECONOMIC RESEARCH 55

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 3-Aug-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Electric Utilities CESC BUY 549 810 47 73 1.0 133 99 102 114 9 3.3 11.8 5.6 5.4 4.8 5.0 4.7 4.1 0.6 0.5 0.5 10.7 10.4 10.7 2.3 2.3 2.4 4.3 JSW Energy BUY 46 65 43 75 1.0 1,640 6.3 4.8 5.3 49 (25) 11.6 7.2 9.6 8.6 5.2 5.1 4.4 0.6 0.6 0.6 8.9 6.5 6.8 3— — — 1.5 NHPC ADD 20 26 29 202 2.7 10,045 2.8 3.0 3.2 10.7 6 8.7 7.2 6.8 6.2 7.3 7.9 7.1 0.7 0.6 0.6 9.2 9.3 9.7 7.3 8.6 9.3 1.5 NTPC BUY 86 140 64 847 11.3 9,895 11.1 13.2 15.4 (0.9) 18.7 16.8 7.7 6.5 5.5 9.6 7.5 5.9 0.7 0.7 0.6 10.0 11.1 11.9 3.7 4.6 5.4 21 Power Grid BUY 179 220 23 934 12.4 5,232 20.7 22 25 9 6.3 16.1 8.6 8.1 7.0 6.8 6.5 5.8 1.4 1.3 1.2 17.5 17.0 18.1 5.6 6.0 6.9 27 Tata Power BUY 49 55 13 132 1.8 2,705 4.4 4.9 6.5 110 11 31.8 11.0 9.8 7.5 7.4 6.5 5.9 0.7 0.7 0.6 6.9 7.1 8.7 — — — 22 Electric Utilities Attractive 2,263 30.1 8.2 9.8 16.1 8.0 7.3 6.3 0.9 0.8 0.8 11.2 11.4 12.3 4.5 5.0 5.8 77 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 5,550 3,400 (39) 249 3.3 45 129.3 134.2 149.9 64.7 3.8 11.7 43 41 37 33 30 26 9.7 8.2 6.9 24 21 20 0.5 0.5 0.5 2.5 Dhanuka Agritech SELL 811 650 (20) 39 0.5 48 29.7 37.0 40.8 25.7 24.4 10.4 27.3 21.9 19.8 21.8 16.4 14.5 5.5 4.6 4.0 21 23 21 3.0 1.1 1.5 1.6 Godrej Agrovet SELL 470 420 (11) 90 1.2 192 11.5 14.9 17.5 0.8 29.1 17 41 32 27 23 16 14 4.1 3.7 3.3 10.4 12.3 13.0 1.2 1.1 1.3 1.6

Rallis India SELL 294 265 (10) 57 0.8 195 9.0 11.3 14.8 7.4 25.0 30.9 32.5 26.0 19.8 22.2 17.5 13.6 4.1 3.6 3.2 13.1 14.7 17.0 0.9 0.9 1.0 4.3 -

UPL SELL 452 390 (14) 345 4.6 765 23.2 31.9 36.5 22.7 37.6 14.2 19 14.2 12.4 8.8 7.5 6.8 2.1 1.9 1.7 11.5 14.2 14.6 1.3 1.8 2.1 41 2020 August4, Fertilizers & Agricultural Chemicals Cautious 1,060 14.1 26.7 28.0 15.8 31 24 21.0 14.3 12.1 10.8 4.1 3.6 3.2 13.2 14.9 15.3 0.9 1.0 1.2 56 Gas Utilities GAIL (India) BUY 94 150 59 424 5.6 4,510 13.2 9.5 11.6 (5.5) (28.2) 22.2 7.1 9.9 8.1 5.5 7.2 5.8 1.0 0.9 0.9 13.5 9.4 10.9 6.8 4.3 5.3 22

GSPL SELL 200 210 5 113 1.5 564 17.2 12.8 11.8 21.9 (25.7) (7.6) 11.6 15.6 16.9 5.2 6.2 6.3 1.7 1.5 1.4 15.5 10.2 8.7 1.0 1.0 1.2 2.4 Indraprastha Gas SELL 393 380 (3) 275 3.7 700 16.7 16.0 20.8 38.6 (4.1) 29.8 23.6 24.6 18.9 16.7 17.3 13.3 5.4 4.7 4.0 25 20 23 0.7 0.7 1.1 26 Mahanagar Gas ADD 972 1,175 21 96 1.3 99 74.6 61.9 82.8 32.8 (17.1) 33.9 13.0 15.7 11.7 8.9 10.3 7.4 3.3 2.9 2.6 28 19.6 24 3.6 3.1 4.6 13.9 Petronet LNG BUY 250 300 20 375 5.0 1,500 17.6 18.7 22.2 17.3 6.2 18.5 14.2 13.3 11.3 7.8 7.5 6.5 3.4 3.2 3.1 25 25 28 5.0 5.7 7.2 12.8 Gas Utilities Attractive 1,283 17.1 6.8 (16.9) 20.5 11.2 13.5 11.2 7.3 8.4 7.0 1.8 1.7 1.6 16.5 12.8 14.3 4.2 3.5 4.5 77 Health Care Services Apollo Hospitals BUY 1,574 1,700 8 219 2.9 139 18.4 1 44 9 (97) 6,877 85.3 ##### 36.1 15.7 24.1 13.8 6.6 6.5 5.9 7.7 0.3 17.2 0.7 0.0 1.1 19.2

Dr Lal Pathlabs SELL 1,862 1,300 (30) 155 2.1 83 27.1 26.7 37.2 13.4 (1.4) 39.2 68.8 69.8 50.1 43.0 43.6 30.6 15.1 13.1 11.1 23 20 24 0.4 0.4 0.6 3.3 HCG BUY 127 140 10 11 0.2 143 (12.0) (8.7) (2.4) (258) 28 73 NM NM NM 10.5 9.4 5.2 3.0 1.9 2.0 NM NM NM — — — 0.8 Metropolis Healthcare SELL 1,621 1,300 (20) 82 1.1 51 30.0 28.9 40.1 25.3 (3.6) 39 54.0 56.1 40.4 34.3 33.4 25.0 15.7 13.3 10.9 32 26 30 0.5 0.5 0.7 3.6 Narayana Hrudayalaya BUY 295 360 22 60 0.8 204 5.8 -3.0 8.3 101.0 (152) 376 50.7 NM 35.6 15.5 32.2 12.7 5.3 5.6 4.8 10.7 NM 14.6 — — — 0.8 Health Care Services Attractive 592 7.9 3 (81) 817 62.8 323.7 35.3 16.3 21.8 13.0 6.1 5.7 5.1 9.7 1.8 14.4 0.4 0.2 0.7 28 Hotels & Restaurants Jubilant Foodworks ADD 1,739 1,750 1 229 3.1 133 24 9 30 (2) (62.3) 240 73.8 195.6 57.5 25.4 33.1 20.0 20.3 20.0 15.3 26 10.3 30 0.3 0.2 0.6 28 Lemon Tree Hotels BUY 23 38 64 18 0.2 790 -0.1 -0.9 0.6 (118) (655) 161 NM NM 41.9 13.8 28.4 11.0 2.2 2.4 2.4 NM NM 5.7 — 0.0 0.9 1.4 Hotels & Restaurants Attractive 248 3.3 (18) (85) 868 81.9 536.3 55.4 22.9 32.4 18.1 12.7 13.0 10.8 15.5 2.4 19.6 0.3 0.2 0.6 30 Insurance HDFC Life Insurance REDUCE 603 560 (7) 1,218 16.2 2,010 6.4 6.8 7.4 1.4 5.8 8.2 94 88 82 — — — 17.3 15.9 14.7 20 18.8 18.7 0.0 0.3 0.3 45 ICICI Lombard SELL 1,317 950 (28) 599 8.0 454 26.3 31.9 35.8 14 21 12 50 41 37 — — — 9.8 8.0 6.9 21 21 20 0.3 0.2 0.5 17.8 ICICI Prudential Life BUY 439 500 14 630 8.4 1,436 7.4 8.5 9.6 (6) 14.4 13.2 59 52 46 — — — 8.4 7.4 6.6 14.8 15.2 15.2 0.2 0.3 0.4 16.7 Max Financial Services NR 543 - (100) 146 1.9 343 10.1 9.5 26.7 452 (6) 180 54 57 20 — — — — — — 12.7 13.5 38 — 0.2 1.2 10.5 SBI Life Insurance BUY 875 1,050 20 875 11.6 1,001 14.2 15.5 16.6 7.2 8.9 7.4 62 57 53 — — — 11.0 9.4 8.2 18.4 18.0 16.7 — 0.3 0.3 18.5 Insurance Attractive 3,468 46.1 8.4 12.8 21.3 66.1 58.6 48 11.2 9.8 8.1 17.0 16.7 16.7 0.0 0.2 0.3 109

Source: Company, Bloomberg, Kotak Institutional Equities estimates

56 KOTAK ECONOMIC RESEARCH

56

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

57 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 3-Aug-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Internet Software & Services Info Edge SELL 3,155 2,185 (31) 387 5.1 122.3 26.9 19.8 36.7 4.2 (26.5) 85.4 117.3 159.5 86.1 92.7 139.3 68.9 15.9 14.8 13.1 13.8 9.6 16.1 0.3 0.2 0.3 17.7 Just Dial ADD 366 400 9 24 0.3 61.8 42.0 24.7 29.9 31.4 (41.1) 21.0 8.7 14.8 12.2 3.1 7.4 5.0 1.8 1.9 1.6 24 12.2 14.1 — — — 16.5 Internet Software & Services Cautious 410 5.5 15.2 (34.4) 60.5 68.2 104.0 64.8 56.5 93.2 53.7 11.0 10.7 9.4 16.2 10.3 14.5 0.2 0.1 0.3 34 IT Services HCL Technologies ADD 706 670 (5) 1,916 25.5 2,716 40.8 42.2 46.4 11.4 3.4 9.9 17.3 16.7 15.2 10.9 10.0 8.9 3.9 3.2 2.8 24 21 19.7 0.7 1.5 1.9 50 Hexaware Technologies REDUCE 384 375 (2) 115 1.5 302 21.2 23.3 24.6 9.9 9.7 5.8 18.1 16.5 15.6 13.2 10.9 9.7 4.2 3.6 3.2 25 23 22 2.2 2.1 2.6 5.5 Infosys BUY 957 950 (1) 4,076 54.2 4,259 38.9 40.5 45.2 10.0 4.0 11.7 24.6 23.6 21.2 17.5 15.7 14.0 6.2 5.7 5.2 25 25 26 1.8 2.7 3.1 140 L&T Infotech ADD 2,491 2,350 (6) 434 5.8 176 86.6 91.0 110.6 0 5.1 21.5 28.8 27.4 22.5 20.6 17.7 15.4 8.1 6.9 5.8 30 27 28 1.1 1.3 1.4 4.6 Mindtree REDUCE 1,127 890 (21) 185 2.5 165 38.3 54.9 62.5 (16) 43 14 29.4 20.5 18.0 16.3 12.2 10.7 5.9 5.0 4.2 19.5 26 25 2.7 1.5 1.7 16.3 Mphasis REDUCE 1,145 1,100 (4) 214 2.8 187 63.5 64.3 70.6 13 1.1 9.9 18.0 17.8 16.2 12.2 11.4 10.1 3.7 3.3 3.0 21 19.6 19.6 3.1 3.1 3.1 5.7 TCS REDUCE 2,254 2,040 (10) 8,458 112.5 3,752 86.2 83.6 94.1 4 (3.0) 12.5 26.2 27.0 24.0 19.0 18.9 17.1 9.8 9.1 8.5 36 35 37 3.0 3.0 3.3 114 Tech Mahindra BUY 674 770 14 587 7.8 880 45.9 40.8 51.3 (3.9) (11.0) 25.7 14.7 16.5 13.1 9.1 9.0 7.0 2.7 2.5 2.2 19.2 15.7 17.9 2.3 2.3 2.5 43 Wipro ADD 282 265 (6) 1,609 21.4 5,703 16.6 17.0 18.2 11.1 2.4 7.1 16.9 16.5 15.4 10.8 10.0 9.0 3.0 2.5 2.3 17.3 16.2 15.7 0.5 0.7 3.0 41 IT Services Attractive 17,594 234.0 4.3 0.1 12.0 22.6 22.6 20.2 15.7 14.9 13.3 6.0 5.3 4.8 26 23 24 2.2 2.5 3.0 421 Media DB Corp. REDUCE 72 81 13 13 0.2 175 15.7 5.3 14.1 0.4 (66.5) 166.7 4.6 13.6 5.1 2.7 4.3 2.1 0.7 0.7 0.7 15.7 5.4 14.3 17.4 2.8 16.7 0.4 Jagran Prakashan REDUCE 37 37 1 10 0.1 281 7.0 3.9 7.3 (20.9) (44) NA 5.3 9.4 NA 1.5 1.9 NA 0.5 0.5 NA 10.3 5.7 10.3 12.2 5.4 13.6 0.4 PVR BUY 1,089 1,625 49 56 0.7 51 29.0 -32.7 59.3 (33) (213) 281 37.6 NM 18.4 11.5 33.9 7.7 2.5 3.2 2.8 8.5 NM 16.2 0.2 (0.3) 0.5 40 Sun TV Network REDUCE 385 435 13 152 2.0 394 35.5 34.9 39.7 (2) (1.6) 13.6 10.9 11.0 9.7 7.4 7.0 6.2 2.7 2.6 2.5 25 24 26 6.5 6.5 7.1 14.7 Zee Entertainment Enterprises REDUCE 135 145 7 130 1.7 960 11.1 11.2 15.2 (32.5) 0.0 36.7 12.1 12.1 8.9 7.2 7.1 5.2 1.4 1.3 1.2 11.7 11.2 14.5 2.6 4.1 4.1 60 Media Cautious 360 4.8 (17.7) (19.6) 52.4 11.7 14.5 9.5 6.8 7.8 5.4 1.7 1.7 1.6 14.8 11.8 16.9 4.7 4.4 5.5 115 Metals & Mining Hindalco Industries BUY 161 225 39 362 4.8 2,220 17.8 10.5 20.0 (28.2) (41.1) 91 9.1 15.4 8.1 5.3 6.6 4.9 0.6 0.6 0.6 6.8 3.9 7.1 0.6 0.6 0.6 34 Hindustan Zinc BUY 205 225 10 868 11.5 4,225 16.1 11.9 16.2 (14.5) (26.1) 36.1 12.8 17.3 12.7 7.4 9.1 6.7 2.2 2.6 2.6 18.4 13.7 21 8.0 5.8 7.9 4.1 Jindal Steel and Power BUY 191 250 31 195 2.6 1,020 (7.7) 6.6 16.7 (343) 187 152 NM 28.8 11.4 7.1 6.2 5.2 0.6 0.6 0.6 NM 2.1 5.1 — — — 36 JSW Steel ADD 221 225 2 533 7.1 2,402 10.1 5.3 19.0 (68.3) (47) 257.3 21.9 41.5 11.6 9.6 10.0 6.4 1.4 1.4 1.3 6.8 3.5 11.6 1.0 1.0 1.0 31 National Aluminium Co. SELL 33 24 (27) 61 0.8 1,866 0.7 (0.4) 1.4 (91) (154) 461.1 44.1 NM 22.6 7.8 14.2 6.8 0.6 0.6 0.6 1.4 NM 2.7 4.6 0.0 2.2 7.0 NMDC ADD 84 105 24 259 3.4 3,062 14.6 11.9 11.1 (0.7) (18.8) (7) 5.8 7.1 7.6 4.0 4.9 5.3 0.9 0.9 0.8 16.7 12.8 11.2 6.5 7.0 6.5 7.8 Tata Steel BUY 374 400 7 424 5.6 1,146 35.2 (20.8) 63.3 (61) (159) 404 10.6 NM 5.9 8.3 10.1 5.3 0.6 0.6 0.6 5.9 NM 10.4 2.7 1.8 3.0 65 Vedanta BUY 115 120 4 429 5.7 3,717 6.5 5.5 12.3 (57) (16) 125.0 17.7 21.0 9.4 4.7 6.2 4.7 0.8 0.8 0.8 4.2 3.8 8.7 3.4 10.6 7.4 42 Metals & Mining Attractive 3,131 41.6 (45.5) (46.7) 164.9 13.3 25.0 9.4 6.6 7.8 5.5 0.9 1.0 0.9 7.1 3.9 9.7 3.9 4.1 4.4 43

Source: Company, Bloomberg, Kotak Institutional Equities estimates Daily Summary India

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

-

August 4, 2020 August4,

KOTAK ECONOMIC RESEARCH 57

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 3-Aug-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Oil, Gas & Consumable Fuels BPCL BUY 418 440 5 906 12.1 1,967 11 26 33 (71.0) 144.2 28.4 39.7 16.3 12.7 22.0 11.5 9.7 2.5 2.3 2.1 5.9 14.7 17.4 3.9 3.1 3.9 57.5 Coal India BUY 128 215 67 791 10.5 6,163 27 20 20 (4) (24.7) (3.2) 4.7 6.3 6.5 3.6 5.5 5.2 2.5 2.4 2.5 57.0 38.9 37.6 11.7 15.6 15.6 20.7 HPCL BUY 218 260 19 332 4.4 1,524 7 24 27 (82.0) 235.0 10.7 30.5 9.1 8.2 18.5 9.2 8.2 1.1 1.1 1.0 3.8 12.2 12.7 4.5 5.5 6.1 23.6 IOCL BUY 86 130 51 812 10.8 9,181 (3.9) 9.8 13.2 (121.9) 349.6 34.4 NM 8.8 6.5 23.1 5.7 5.2 0.8 0.8 0.8 NM 9.4 11.9 4.9 5.1 6.9 27.5 Oil India SELL 95 70 (26) 103 1.4 1,084 21 3 6 (32) (85.6) 105.7 4.6 31.8 15.5 3.3 8.7 7.5 0.4 0.4 0.4 8.6 1.3 2.7 11.2 1.3 2.6 2.3 ONGC SELL 76 60 (21) 955 12.7 12,580 13 4 7 (43) (71.7) 89.6 5.6 19.9 10.5 2.7 4.5 3.6 0.4 0.4 0.4 7.3 2.1 3.8 6.6 2.5 4.0 24.8 Reliance Industries ADD 2,008 2,150 7 11,904 158.3 5,926 67 67 93 1.2 (0.1) 40.0 30.1 30.1 21.5 17.3 14.2 9.6 2.6 2.4 2.1 9.4 8.3 10.8 0.3 0.3 0.4 558.1 Oil, Gas & Consumable Fuels Attractive 15,803 210.1 (37.3) (0.0) 38.6 21.1 21.1 15.2 11.1 10.1 7.5 1.8 1.7 1.5 8.4 7.8 9.7 1.8 1.7 2.0 714.5 Pharmaceuticals Aurobindo Pharma REDUCE 868 730 (16) 508 6.8 586 48 51 56 19.3 6 8.8 18.0 16.9 15.6 10.9 10.3 9.0 3.0 2.6 2.3 16.8 15.5 14.8 0.4 0.9 1.0 52.9 Biocon SELL 412 225 (45) 494 6.6 1,202 6.2 8.2 10.1 2 32 22.7 66 50 41 30.8 22.6 18.3 6.7 6.1 5.5 10.6 12.1 13.3 0.1 0.7 0.9 41.4

Cipla BUY 711 650 (9) 573 7.6 806 19.2 27 32 1.1 39 20 37 26.7 22.2 18.1 15.0 12.5 3.6 3.3 2.9 9.9 12.2 13.2 1.1 0.7 0.9 67.5 -

Dr Reddy's Laboratories SELL 4,527 3,400 (25) 753 10.0 166 130 155 201 30 19 29.7 35 29.2 22.5 18.3 15.9 12.5 4.8 4.3 3.7 13.9 14.6 16.3 0.5 0.5 0.7 64.8 2020 August4, Laurus Labs REDUCE 1,007 870 (14) 108 1.4 107 23.9 54.6 55 117.9 129 1 42 18.4 18.2 21.0 11.9 11.1 6.1 4.6 3.7 15.3 24.8 20.1 (0.4) — — 18.5 Lupin ADD 928 900 (3) 420 5.6 450 22 32 46 3.6 46 44 43 29 20.2 16.6 12.9 9.5 3.3 3.0 2.7 7.4 10.4 13.3 0.7 0.5 0.7 36.3 Sun Pharmaceuticals REDUCE 519 510 (2) 1,246 16.6 2,406 16.7 19.7 23 3.8 18 17 31 26 22.5 16.5 14.4 12.2 2.8 2.7 2.4 9.3 10.2 11.3 1.3 0.2 0.9 72.1

Torrent Pharmaceuticals REDUCE 2,728 2,450 (10) 462 6.1 169 57 72 89 22.6 25 24 47 38 31 22.5 19.2 16.3 9.6 8.2 7.0 20.1 21.7 22.8 1.6 0.9 1.1 28.2 Pharmaceuticals Attractive 4,564 60.7 12.5 23 21 34 27 22.7 17.4 14.8 12.2 3.8 3.5 3.1 11.2 12.7 13.6 0.9 0.5 0.9 381.8 Real Estate Brigade Enterprises BUY 139 235 69 28 0.4 204 6.4 7 15 (46) 6 114 21.8 20.5 9.5 10.3 9.5 4.9 1.2 1.2 1.1 5.9 6.0 12.0 1.8 1.8 1.8 0.7 DLF BUY 139 200 44 343 4.6 2,475 (2.4) 5.0 8.7 (140) 310 74 NM 27.7 16.0 33.3 38.4 22.3 1.0 1.0 0.9 NM 3.6 6.0 — 1.4 1.4 21.2 Embassy Office Parks REIT ADD 356 400 12 275 3.7 772 9.9 12.3 14.1 110 24 15 36 29 25 17.5 16.4 15.0 1.2 1.3 1.4 3.4 4.4 5.4 6.8 7.4 8.3 7.5 Godrej Properties SELL 922 640 (31) 232 3.1 252 10.7 11.9 15.4 (2.7) 11 29.4 86 78 60 71.6 87.0 149.7 4.8 4.6 4.2 7.4 6.0 7.3 — — — 6.5

Oberoi Realty ADD 337 450 33 123 1.6 364 19 22 28 (15.7) 14.1 29 17.8 15.6 12.1 13.2 12.5 10.6 1.4 1.3 1.2 8.3 8.8 10.3 0.6 0.6 0.6 1.9 Prestige Estates Projects ADD 200 275 37 80 1.1 401 10.9 6.6 10 25.1 (39) 54 18 30 19.6 6.7 7.2 6.2 1.4 1.4 1.4 8.7 4.9 7.2 0.8 0.7 0.7 2.3 Sobha BUY 211 415 97 20 0.3 95 30 36 45 (5) 21.5 24.1 7.1 5.8 4.7 4.5 4.0 3.7 0.8 0.7 0.7 12.1 13.4 14.8 3.3 3.3 3.3 1.0 Sunteck Realty BUY 182 300 65 27 0.4 140 7.1 8.8 18 (55.9) 23 105 25 20.6 10.1 20.0 17.0 9.7 0.9 0.8 0.8 3.5 4.2 8.1 0.5 0.5 0.5 2.0 Real Estate Attractive 1,128 15.0 (46.2) 100.6 45.5 55 27 18.7 16.0 15.8 12.6 1.4 1.3 1.3 2.5 4.9 6.9 1.9 2.5 2.7 43.1 Retailing Aditya Birla Fashion and Retail BUY 121 150 24 99 1.3 773 (2.1) (4.2) 2.7 (151.4) (96.4) 165.1 NM NM 44 10.3 13.4 8.0 8.6 12.3 9.6 NM NM 24.3 — — — 4.2 Avenue Supermarts SELL 2,093 1,480 (29) 1,356 18.0 648 21.0 20 39 45.1 (4.4) 92.8 100 104 54 62 69 36 11.9 11.0 9.1 15.8 11.1 18.4 — — — 21.0 Titan Company BUY 1,077 1,215 13 956 12.7 888 16.8 10 21 (0.2) (38.6) 102.8 64 104 51 39 57 33 14.3 13.1 11.1 23.4 13.1 23.3 0.4 0.3 0.6 52.2 Retailing Attractive 2,412 32.1 (2.8) (28.4) 141.8 91 127 53 41 53 30 12.8 11.8 9.8 14.0 9.2 18.7 0.1 0.1 0.2 77.4 Speciality Chemicals Castrol India BUY 113 165 45 112 1.5 989 8.4 5.1 8.9 16.8 (39.5) 75.0 13.6 22.4 12.8 8.9 14.5 8.5 8.2 8.2 8.0 65.3 36.5 63.0 4.8 4.4 7.5 2.3 Pidilite Industries REDUCE 1,345 1,325 (2) 684 9.1 508 23.1 17 28 30.1 (24.5) 60.9 58 77 48 43 53 34 15.3 13.8 11.9 27.2 18.8 26.6 0.5 0.5 0.7 16.9 S H Kelkar and Company BUY 73 95 31 10 0.1 141 4.6 4.6 6.2 (24.3) (1.0) 35.8 15.7 15.9 11.7 8.3 7.9 6.2 1.2 1.2 1.1 7.8 7.6 9.8 2.7 1.4 2.4 1.8 SRF ADD 3,840 4,000 4 221 2.9 57 138 150 193 23.5 8.7 28.4 27.8 25.6 19.9 17.2 15.0 12.1 4.5 3.9 3.3 17.5 16.2 17.8 0.4 0.4 0.5 13.6 Speciality Chemicals Attractive 1,027 13.7 22.1 (19.1) 51.2 36 44 29.4 23.9 27.4 19.0 8.9 8.0 6.9 24.7 17.9 23.6 1.0 0.9 1.4 34.6

Source: Company, Bloomberg, Kotak Institutional Equities estimates

58 KOTAK ECONOMIC RESEARCH

58

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

59 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 3-Aug-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E (US$ mn) Telecommunication Services Bharti Airtel BUY 547 710 30 2,986 39.7 5,456 (6.7) 4.8 13.8 NM NM NM NM 113.9 39.5 10.6 8.2 6.7 3.9 4.9 4.6 NM 3.8 12.1 0.4 1.1 1.1 184.2 Bharti Infratel ADD 189 215 14 350 4.7 1,850 16.5 16.3 17.5 25.7 (1.1) 7.4 11.5 11.6 10.8 4.8 4.6 4.3 2.6 2.6 2.6 21.7 22.2 23.7 5.7 8.5 9.0 32.2 Vodafone Idea RS 9 — — 250 3.3 28,735 (25.7) (3.6) (5.9) NM NM NM NM NM NM 8.1 6.9 5.5 4.2 -5.7 (1.2) NM NM 132 — — — 87 Tata Communications BUY 798 975 22 227 3.0 285 16.0 29.9 37.3 49.9 87.3 24.5 49.9 26.6 21.4 9.8 7.6 6.5 NM NM 57.2 NM NM NM 0.5 0.5 0.8 1.2 Telecommunication Services Attractive 3,813 50.7 NM 55.8 67.3 NM NM NM 9.2 7.5 6.2 4.0 5.5 6.7 NM NM NM 0.8 1.7 1.7 304.4 Transportation Adani Ports and SEZ BUY 311 390 25 633 8.4 2,032 26.9 18.7 21.9 34.7 (30.5) 16.9 11.6 16.6 14.2 11.3 12.1 10.4 2.5 2.2 1.9 21.8 14.0 14.5 4.1 1.1 1.0 18.7 Container Corp. SELL 452 390 (14) 275 3.7 609 17.3 8.0 13.0 5.7 (53.6) 62.2 26 56 35 15.1 26.8 18.4 2.7 2.7 2.6 10.3 4.8 7.6 0.7 1.0 1.6 12.5 Gateway Distriparks BUY 83 135 62 9 0.1 125 4.2 4.2 3.6 (37.5) 0.4 (15.1) 19.7 19.6 23.1 6.9 5.6 5.8 0.7 0.7 0.7 3.5 3.8 3.0 4.1 3.6 3.6 0.2 GMR Infrastructure BUY 21 26 22 128 1.7 7,147 (3.1) (1.8) (0.8) (25.4) 40.9 55.9 NM NM NM 16.2 18.9 16.9 (4.8) (7.6) (5.9) 106.6 55.8 25.2 — — — 4.0 Gujarat Pipavav Port BUY 76 106 39 37 0.5 483 6.0 4.5 5.8 42.2 (25.1) 28.0 12.6 16.8 13.2 6.8 7.2 6.3 1.8 1.8 1.8 14.2 10.5 13.5 7.3 5.6 7.1 0.8 InterGlobe Aviation SELL 954 900 (6) 367 4.9 383 (6.5) (200.9) 62.1 (258.9) (2,999.1) 130.9 NM NM 15.4 4.1 (6.4) 1.9 6.2 (52.9) 1.9 NM NM 477.2 — — — 41 Mahindra Logistics ADD 300 305 2 21 0.3 71 8.9 5.3 10.9 (29.0) (40.8) 106.4 34 57 28 13.9 17.2 11.5 3.9 3.7 3.4 12.2 6.7 12.9 — — — 0.4 Transportation Attractive 1,471 19.6 17.6 (191.6) 269.0 31 NM 19.8 10.5 22.5 8.7 3.4 3.6 3.2 11.2 NM 16.1 2.1 0.8 0.9 78 KIE universe 112,401 1494.7 (14.2) 5.1 48.2 29 27.3 18.4 12.7 12.6 9.7 2.6 2.4 2.2 9.2 8.9 12.1 1.5 1.6 1.9

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$)= 75.20

Source: Company, Bloomberg, Kotak Institutional Equities estimates India Daily Summary Daily Summary India

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

-

August 4, 2020 August4,

KOTAK ECONOMIC RESEARCH 59 India Daily Summary - August 4, 2020 of of the following trategic transaction As of June 30, 2020 n a merger or s any, noare longer in effect for this stock , if, fair value , 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 30/06/2020 Kotak Institutional Equities Investment Research had investment ratings on 203 equity securities. luded

r r display is not or applicable. months. . The previous investment and rating

SELL 1.5%

19.2% fair valuefair

term volatility in stock prices related to movements in the market.Hence, a particular Ratingmay not , if, any,have been suspended temporarily.Such suspension is in compliance with applicable regulation(s) - 0.5% 11.8% fair valuefair +5% returns over the next 12 months.

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

ake into account short ADD 23.6% 0.5% Kotak SecuritiesKotak has suspended coverage of this company.

are also on12 a Kotak SecuritiesKotak Research has suspended the investment and rating

The information is not meaningful and is therefore exc

Kotak SecuritiesKotak does not cover this company.

The investment and rating

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

Attractive, Neutral, Cautious. BUY 4.4% 45.3% We expect this stock to deliver We this expect stock to deliver 5 We expect this to stock deliver < We expect this to stock deliver more than 15% returns over the next months.12

Fair Value estimates 0% 40% 30% 20% 10% 70% 60% 50% 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 or its affiliates is acting in an advisory capacity i 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 t strictly be in accordance with the Rating System all at times. Ratings other and definitions/identifiers ratings of Definitions BUY. ADD.

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

Copyright 2020 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. 1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and 2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. 3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at [email protected]. This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment. Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of 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). Kotak Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us Details of Associates are available on website i.e. www.kotak.com Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES. Visit our website for more details We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: Exide Industries, Tata Chemicals, Just Dial - YES Nature of Financial interest: Holding equity shares or derivatives of the subject company. Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. A graph of daily closing prices of securities is available at https://www.moneycontrol.com/india/stockpricequote/ and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the"three years" icon in the price chart). Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com / www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No. INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262. AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. Investments in securities market are subject to market risks, read all the related documents carefully before investing. In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at ‘[email protected]’ and for demat account related queries contact us at [email protected] or call us on: Toll free numbers 18002099191 / 1860 266 9191 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208. Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Mr. Manoj Agarwal) at [email protected] or call on 91- (022) 4285 8484. Level 4 : If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach Managing Director / CEO (Mr. Jaideep Hansraj) at [email protected] or call on 91-(022) 4285 8301. First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject. There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability for the contents of the First Cut Notes.