11 February 2021

ASIAMONEY Brokers Poll 2020 () Today’s top research idea : Remarkable recovery in Jewelry; festive demand trends encouraging ❖ TTAN reported a largely in line set of 3QFY21 earnings. The management commentary continues to remain strong on near as well as longer term growth prospects in the Jewelry business. The recovery in Watches and Eyewear businesses is also encouraging. Market snapshot ❖ There is a strong growth runway given TTAN's market share of less than 10% in the Jewelry industry and the continuing struggles of unorganized and other Equities - India Close Chg .% CY20.% organized peers. Unabated store expansions indicate the company's and Sensex 51,309 0.0 24.2 Nifty-50 15,107 0.0 24.0 franchisees' confidence on its medium and long-term growth prospects. Nifty-M 100 22,926 0.8 33.7 ❖ While valuations of 67.9x/52.2x FY22E/FY23E EPS appear expensive because of Equities-Global Close Chg .% CY20.% the impact of COVID-19 in FY21, the long runway for profitable growth deserves S&P 500 3,910 0.0 20.0 Nasdaq 13,973 -0.3 53.7 premium multiples. FTSE 100 6,524 -0.1 -14.2 ❖ Maintain Buy with a TP of INR1,800/share (60x FY23E EPS). DAX 13,933 -0.6 4.1 Hang Seng 11,810 1.8 4.3 Nikkei 225 29,563 0.2 25.0 Commodities Close Chg .% CY20.% Research covered Brent (US$/Bbl) 61 -0.1 -7.8 Gold ($/OZ) 1,843 0.2 21.5 Cos/Sector Key Highlights Cu (US$/MT) 8,303 1.8 34.7 Titan Company Remarkable recovery in Jewelry; festive demand trends encouraging Almn (US$/MT) 2,075 1.2 16.9 Currency Close Chg .% CY20.% In-line; RE in-line; strong operating performance in VECV USD/INR 72.8 -0.1 2.3 Deleveraging continues USD/EUR 1.2 0.0 8.1 USD/JPY 104.6 0.0 -3.8 GAIL (India) Strong performance expected in 4QFY21 CY20 YIELD (%) Close 1MChg chg Hindalco Inds. Outlook strong on higher LME prices 10 Yrs G-Sec 6.0 -0.06 -0.5 Operationally in line with our estimates 10 Yrs AAA Corp 6.8 -0.07 -0.9 Flows (USD b) 10-Feb MTD CY21 Miss on EBITDA due to lower CNG volumes FIIs 0.25 3.27 5.00 Athleisure, festive demand drive sales beat DIIs -0.28 -1.24 -2.59 ABB |Endurance Tech. | | Guj.St.Petronet | Volumes (INRb) 10-Feb MTD* YTD* Other Notes Cash 839 939 823 | Kaveri Seed Co. | Economy (Brics) F&O 46,513 42,200 37,740 Note: *Average

Chart of the Day: Titan Company (Remarkable recovery in Jewelry) ’s LTL growth stands at 7% in 3QFY21

Tanishq- LTL Growth (%) 51.0 52.0 32.0 30.0 18.0 27.0 15.0 12.0 17.0 14.0 10.0 9.0 7.0 (12.0) (5.0) 3.0 4.0 2.0 2.0 (8.0)(25.0) (9.0)(18.0) (9.0)

(40.0)

Jun'20

4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 2QFY21 3QFY21 3QFY15 Source: Company, MOFSL

Research Team ([email protected]) Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. In the news today

Kindly click on textbox for the detailed news link

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China says disengagement Adar Poonawalla-led Rising Star Holdings to buy controlling has begun at Pangong Tso stake in Magma Fincorp India and China have begun Magma Fincorp Ltd on Wednesday said that Serum Institute of India's simultaneously disengaging their CEO Adar Poonwalla-led company Rising Star Holdings will be buying troops at Pangong Tso lake in the controlling stake in the company. The deal will rake place via a Ladakh as part of an agreement fresh capital raise of ₹3,456 through a preferential allotment, Magma reached during the last round of Fincorp said in a regulatory filing… military talks, the Chinese defence ministry said on Wednesday, a statement that India did not deny.…

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Govt to sell 20% stake in BharatPe close to unicorn tag National Fertilizers Ltd with $108 mn funding through OFS Lending and digital payments The GoI intends to disinvest 20% 5 startup BharatPe has raised close paid up equity capital of NFL out to $108 million in Series D of its shareholding of 74.71%, IndiGo starts hiring, gives primary and secondary equity through 'Offer for Sale' (OFS) offer letters to 32 pilots for funding led by existing investor method of shares by promoters ATR-72 fleet New York-headquartered hedge through the stock exchanges' as IndiGo has become one of the fund Coatue Management at a per Securities and Exchange Board first airlines in the world to valuation of $900 million… of India (SEBI) Rule and resume hiring since Covid-19 Regulations… wreaked havoc on aviation, besides several other sectors, signalling a gradual recovery. The pandemic hit few sectors harder than air travel, wiping out tens of thousands of jobs… 6 7

PLI scheme may trigger BPCL to buy out Oman Oil's investments worth Rs 50,000 36.62% stake in Bina refinery crore into pharma sector for Rs 2,400 cr Major pharma players have Privatisation-bound Bharat warmed up to the bulk drug Petroleum Corporation Ltd production-linked incentive (PLI) (BPCL) on Wednesday said it will scheme. According to industry buyout Oman Oil Company's insiders, once the second shares in the Bina refinery tranche of the scheme covering project for about Rs 2,400 formulations comes online, it crore.… may trigger investments worth Rs 50,000 crore…

11 February 2021 2

10 February 2021 3QFY21 Results Update | Sector: Consumer

Titan Company

Estimate changes CMP: INR1,563 TP: INR1,800 (+15% ) Buy TP change

Rating change Remarkable recovery in Jewelry; festive demand

Bloomberg TTAN IN trends encouraging Equity Shares (m) 888 ◼ TTAN reported a largely in line set of 3QFY21 earnings. The management M.Cap.(INRb)/(USDb) 1387.9 / 19 commentary continues to remain strong on near and longer term growth 52-Week Range (INR) 1621 / 720 prospects in the Jewelry business. 1, 6, 12 Rel. Per (%) -4/7/-1 ◼ Commentary on Jan’21 retail sales growth as well as management outlook 12M Avg Val (INR M) 3817 on its components like wedding/studded sales growth is encouraging as is

Financials & Valuations (INR b) the recovery in Watches and Eyewear businesses Y/E March 2020 2021E 2022E 2023E ◼ We retain our Buy rating (upgraded in Aug'20) given the healthy growth Sales 210.5 196.4 255.8 315.9 outlook and attractive opportunity as highlighted in our CEO meet note. Sales Gr. % 6.4 -6.7 30.3 23.5 EBITDA 24.9 15.6 30.9 38.9 Broadly in line performance EBITDA Margin. % 11.8 8.0 12.1 12.3 ◼ Consolidated revenue grew 16.7% YoY in 3QFY21 to INR76.2b (in line). Adj. PAT 15.2 8.6 20.4 26.6 Adj. EPS (INR) 17.1 9.7 23.0 30.0 EBITDA increased 8.2% YoY to INR8.5b (v/s our estimate of INR8.1b). PBT EPS Gr. % 8.9 -43.0 136.6 30.1 rose 10% YoY to INR7.4b (v/s our expectation of INR7b) and recurring PAT BV/Sh.(INR) 75.2 77.2 88.7 100.7 grew 7.5% YoY to INR5.3b (in line). Ratios ◼ This has been the highest ever quarterly sales, EBITDA, and PAT. RoE (%) 23.8 12.8 27.8 31.6 ◼ Consolidated gross margin fell 300bp to 22.6%. RoCE (%) 22.5 12.0 24.9 29.0 ◼ Higher other expenses as a percentage of sales (up 20bp YoY to 6.5%) was Payout (%) 23.8 45.0 50.0 60.0 Valuation offset by lower staff costs (down 110bp to 3.5%) and lower advertising P/E (x) 91.6 160.6 67.9 52.2 spends (down 120bp to 1.4%). EBITDA margin fell 90bp YoY to 11.1% (in P/BV (x) 20.8 20.3 17.6 15.5 line) in 3QFY21. EV/EBITDA (x) 55.8 88.3 44.4 35.1 ◼ Segmental performance: a) Jewelry sales grew 21.9% YoY to INR68.4b, including gold sales of INR3.4b. Segmental margin fell 180bp YoY to 11.2%. Shareholding pattern (%) b) Sales of Watches declined 12.2% YoY to INR5.5b, with EBIT margin down As On Dec-20 Sep-20 Dec-19 350bp YoY to 2.7% in 3QFY21. Promoter 52.9 52.9 52.9 DII 11.2 11.3 9.3 ◼ 9MFY21 performance: Sales/EBITDA/PAT declined 13.4%/51.7%/64.9%. FII 18.6 18.1 18.3 EBITDA margin stood at 6.4% in 9MFY21 as against 11.5% in 9MFY20. Others 17.3 17.7 19.5 FII Includes depository receipts Highlights from the management commentary ◼ Return to positive growth has been ahead of earlier expectation (4QFY21). The management expects strong growth in FY22 as well. ◼ Retail sales in Jewelry rose 13%/27-28% YoY in 3QFY21/Jan’21 led by activation. ◼ Wedding demand increased 10%/16% in 3QFY21/Jan’21. The management expects double-digit growth in wedding demand for the next two quarters. ◼ After a tough 1HFY21 for high margin studded Jewelry sales, TTAN is seeing a good recovery in studded, with 9% growth in 3QFY21. This has improved further to 16% in Jan’21.

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Valuation and view ◼ Changes to the model have led to ~8% higher EPS growth forecasts for FY21E and ~2.5% each for FY22E/FY23E. ◼ Store expansions continue unabated, indicating the company's and franchisees' confidence on its medium and long-term growth prospects. This would further increase the opportunity to gain from unorganized and other organized players as they are expected to struggle even further going forward ◼ TTAN's medium- to long-term earnings growth opportunity is best-of-breed, which is reflected in the ~24% EPS CAGR over the past three years. There is a strong growth runway given TTAN's market share of less than 10% and the continuing struggles of unorganized and other organized peers. ◼ While valuations of 67.9x/52.2x FY22E/FY23E EPS appear expensive, the long runway for profitable growth deserves premium multiples. Near term valuations appear expensive because of the impact of COVID-19 in FY21. Maintain Buy with a TP of INR1,800/share (60x FY23E EPS).

Consol. Quarterly Perf. (INR b) Y/E March FY20 FY21 FY20 FY21E FY21 Var. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 3QE (%) Net Sales 51.5 46.6 65.3 47.1 19.8 45.5 76.2 54.8 210.5 196.4 75.6 0.8 YoY change (%) 15.7 2.1 11.2 -3.6 -61.6 -2.3 16.7 16.4 6.4 -6.7 15.8 Gross Profit 14.1 13.9 16.7 14.3 4.3 14.2 17.2 15.6 59.0 51.4 19.1 Margin (%) 27.4 29.7 25.5 30.4 21.9 31.2 22.6 28.5 28.0 26.2 25.3 EBITDA 5.7 5.2 7.8 6.1 -2.5 3.1 8.5 6.6 24.9 15.6 8.1 4.2 EBITDA growth % 18.8 11.4 32.6 36.6 -144.1 -40.1 8.2 7.2 25.1 -37.2 3.9 Margin (%) 11.1 11.2 12.0 13.0 -12.8 6.9 11.1 12.0 11.8 8.0 10.8 Depreciation 0.8 0.8 0.9 1.0 0.9 0.9 1.0 1.0 3.5 3.9 1.0 Interest 0.3 0.4 0.4 0.4 0.5 0.5 0.5 0.5 1.7 2.1 0.6 Other Income 0.6 0.3 0.2 0.4 0.4 0.5 0.4 0.5 1.5 1.8 0.5 PBT 5.2 4.3 6.7 5.1 -3.6 2.2 7.4 5.5 21.3 11.6 7.0 5.2 Tax 1.6 1.1 1.8 1.7 -0.6 0.4 2.1 1.0 6.2 2.9 1.6 Rate (%) 30.0 26.4 26.8 32.6 17.9 20.2 28.5 18.1 28.9 25.2 23.0 Adjusted PAT 3.6 3.1 4.9 3.4 -2.9 1.7 5.3 4.5 15.2 8.6 5.4 -2.3 YoY change (%) 11.0 3.8 19.9 -1.5 -180.3 -44.6 7.5 32.0 8.9 -43.0 10.0 E: MOFSL Estimates

11 February 2021 4

10 February 2021 3QFY21 Results Update | Sector: Automobile

Eicher Motors

Estimate changes CMP: INR2,899 TP: INR3,275 (+13%) Buy TP change

Rating change In-line; RE in-line; strong operating performance in VECV Good demand recovery for RE, led by Meteor; VECV gaining share Bloomberg EIM IN ◼ Eicher Motors (EIM)’s 3QFY21 performance was in-line, supported by good Equity Shares (m) 273 M.Cap.(INRb)/(USDb) 792.2 / 11.1 volume recovery in both RE and VECV. Despite cost inflation (BS6 & 52-Week Range (INR) 3036 / 1246 precious metals), EBITDA margins per unit were stable YoY. a) Good 1, 6, 12 Rel. Per (%) 0/1/27 response to Meteor, b) the upcoming launch of the new Classic, and c) 12M Avg Val (INR M) 4458 normalized production would support RE volume recovery going forward. VECV is also firmly on the recovery path. Financials & Valuations (INR b) ◼ We upgrade FY22 consol. EPS by 17% as we upgrade volumes and margins

Y/E March FY20 FY21E FY22E for both RE and VECV. Maintain Buy, with TP of INR3,275 (Mar’23 SOTP). Sales 91.5 87.7 129.9 RE – EBITDA/unit stable despite cost pressures EBITDA 21.8 18.3 33.1 Adj. PAT 18.3 13.9 26.6 ◼ Consol. revenues/EBITDA/PAT grew 19%/13%/7% YoY to EPS (INR) 66.9 51.0 97.6 ~INR28.3b/INR6.7b/INR5.3b. 9MFY21 consol. revenues/EBITDA/PAT EPS Gr. (%) -17.8 -23.7 91.1 declined 16.8%/34.4%/46% YoY. BV/Sh. (INR) 366 402 483 ◼ RE 3QFY21 realizations grew 8.6% YoY (-0.4% QoQ) to INR140.4k, driven by Ratios price hikes taken for BS6 and in Sep’20 (1–1.5%). RoE (%) 19.3 13.3 21.7 ◼ S/A gross margins declined 440bp YoY to 40.9% (est. 42%) on higher RoCE (%) 18.7 13.0 21.7 commodity cost (impact of 80–100bp) as well as the BS6 cost impact. Payout (%) 21.7 29.5 16.8 EBITDA grew 11% YoY to INR6.6b (v/s est. INR6.76b). Although EBITDA Valuations margins declined 170bp YoY (+70bp QoQ) to 23.5% (v/s est. 23.9%), per unit P/E (x) 43.3 56.8 29.7 EBITDA was stable YoY at INR33k (v/s INR32.6k in 3QFY20). P/BV (x) 7.9 7.2 6.0 Div. Yield (%) 0.4 0.4 0.5 ◼ VECV EBITDA margins were at 8.6% (+220bps YoY, v/s est. 8.1%). PAT grew

94% YoY to INR580m (v/s est. INR707m). FCF Yield (%) 1.5 1.0 3.1 Highlights from management commentary Shareholding pattern (%) ◼ RE is seeing good demand recovery across the country, driven by Meteor. As On Dec-20 Sep-20 Dec-19 Overall bookings are stronger than last year. Even matured markets such as Promoter 49.2 49.3 49.3 and are reviving. The share of the Top-20 markets DII 9.5 10.1 8.3 is now back at 25% (v/s 20% during COVID and 27–30% pre-COVID). FII 28.9 28.2 31.2 ◼ Distribution expansion continued with the addition of 43 large stores and 129 Others 12.4 12.5 11.2 studio stores in 3Q, taking the total number of outlets to 1,889 (spanning 1,550 FII Includes depository receipts cities). It plans to add 600 stores in FY21 (368 adds in 9MFY21). ◼ The Meteor booking trend has been 1.5–1.7x higher than Thunderbird, and it has not cannibalized any other model. ◼ With improved production, the waiting period has reduced (~1 month). While there are some niggles on the supply side, it is not facing any material constraints (not even related to semi-conductor availability). ◼ RM cost saw an impact of 80–100bp in 3Q due to commodity cost inflation. The 2–3% price increase taken in Jan'21 and Feb'21 would partly take care of the cost inflation expected in 4Q.

Valuation and view ◼ We believe the recently launched Meteor and upcoming products would help expand addressable markets and drive the next phase of growth for

RE. The stock trades at 29.7x/23.7x FY22E/FY23E consol. EPS. Maintain Buy.

11 February 2021 5

Quarterly performance (Consolidated) INR m FY20 FY21E FY20 FY21E FY21E Y/E March 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 3QE Net Operating income 23,819 21,925 23,710 22,082 8,182 21,336 28,283 29,877 91,536 87,677 28,307 Growth (%) -6.5 -9.0 1.3 -11.7 -65.7 -2.7 19.3 35.3 -6.6 -4.2 19.4 EBITDA 6,144 5,414 5,923 4,322 38 4,711 6,720 6,806 21,804 18,275 6,644 EBITDA Margins (%) 25.8 24.7 25.0 19.6 0.5 22.1 23.8 22.8 23.8 20.8 23.5 PAT 4,309 5,644 4,821 3,183 102 3,472 5,012 4,922 17,957 13,508 4,933 Share of JV Loss/(PAT)/ Min. Int. -209 -83 -166 140 654 39 -314 -807 -317.1 -428 -384 Recurring PAT 4,517 5,727 4,987 3,043 -552 3,433 5,326 5,729 18,274 13,936 5,317 Growth (%) -21.6 1.1 -6.4 -44.2 -112.2 -40.0 6.8 88.3 -17.7 -23.7 6.6 Standalone (Royal Enfield) Net operating income 23,526 21,819 23,635 21,795 7,692 21,233 28,041 30,711 90,775 87,677 28,307 Growth (%) -7.6 -9.2 0.8 -12.8 -67.3 -2.7 18.6 40.9 -7.3 -3.4 19.8 EBITDA 6,093 5,460 5,952 4,533 12 4,838 6,580 7,305 22,038 18,735 6,759 EBITDA Margins (%) 25.9 25.0 25.2 20.8 0.2 22.8 23.5 23.8 24.3 21.4 23.9 Depreciation 868 890 942 1,079 971 1,036 1,219 1,212 3,779 4,438 1,150 Other income 1,884 1,450 1,358 1,462 1,153 998 1,241 1,049 6,153 4,440 1,080 Interest cost 29 27 27 25 30 18 22 20 109 90 25 PBT before EO item 7,079 5,993 6,341 4,891 163 4,782 6,580 7,121 24,303 18,647 6,664 Tax 2,097 288 1,452 1,429 40 1,173 1,696 1,729 5,265 4,638 1,616 Effective tax rate (%) 29.6 4.8 22.9 29.2 24.7 24.5 25.8 24.3 21.7 24.9 24.3 Recurring PAT 4,982 5,705 4,889 3,462 123 3,609 4,885 5,392 19,038 14,008 5,048 Growth (%) -15.7 15.8 -2.5 -27.9 -97.5 -36.7 -0.1 55.8 -7.8 -26.4 3.2 VECV: Quarterly performance Net Op. Income 22,550 20,040 21,640 21,010 6,410 17,030 26,800 35,100 85,244 85,340 25,894 Growth (%) -13.6 -32.4 -23.2 -34.5 -71.6 -15.0 23.8 67.1 -26.5 0.1 19.7 EBITDA 1,250 1,050 1,375 333 -720 1,180 2,305 3,348 4,013 6,063 2,108 EBITDA Margins (%) 5.5 5.2 6.4 1.6 -11.2 6.9 8.6 9.5 4.7 7.1 8.1 Recurring PAT 380 150 300 -251 -1,200 -73 580 1,480 583 787 707 Growth (%) -67.8 -89.4 -60.6 -118.0 -416.3 -149.0 93.6 -690.7 -87.7 35.0 56.9 E: MOFSL Estimates

11 February 2021 6

11 February 2021 3QFY21 Results Update | Sector: Metals

Tata Steel

Estimate change CMP: INR690 TP: INR708 (+3%) Neutral TP change Deleveraging continues Rating change Near-term margin outlook strong Bloomberg TATA IN ◼ Tata Steel (TATA) reported a strong 3QFY21, with consolidated EBITDA Equity Shares (m) 1,145 rising 161% YoY to INR94.6b (the highest ever) on the back of higher M.Cap.(INRb)/(USDb) 795.1 / 11.1 prices. Furthermore, net debt fell INR103b QoQ to INR884b (the lowest in 52-Week Range (INR) 731 / 251 1, 6, 12 Rel. Per (%) -8/34/30 the last 12 quarters), led by working capital release of INR72b. 12M Avg Val (INR M) 7614 ◼ We estimate 4QFY21 EBITDA to be even stronger at INR132b (+40% QoQ), with standalone EBITDA/t of INR25,780/t (the highest in 12 years). Spot Financials & Valuations (INR b) steel spreads have, however, declined in the past month, and we expect Y/E MARCH 2021E 2022E 2023E further moderation on softening prices. Moreover, a structural solution Sales 1,493 1,587 1,589 EBITDA 293 282 280 for the Europe business remains elusive. Maintain Neutral. Adj. PAT 74.0 98.2 101.9 EBITDA Margin (%) 19.7 17.7 17.6 Best ever quarterly EBITDA Cons. Adj. EPS (INR) 64.6 85.7 89.0 Consolidated revenue / EBITDA / adj. PAT at INR396b/INR94.6b/INR38.3b, EPS Gr. (%) 613.3 32.7 3.8 was +11%/+161%/NA YoY and +5%/19%/23% v/s our estimate. However, BV/Sh. (INR) 640 712 787 EBITDA adj. for fair value changes stood at INR82.8b (+128% YoY / +36% QoQ Ratios and +4% v/s estimate). Net D:E 1.2 1.1 0.9 ◼ Standalone: EBITDA rose 45% QoQ to INR67.0b (est. INR57.1b) on the RoE (%) 10.5 12.7 11.9 back of 18% QoQ improvement in realization to INR53,709/t (est. RoCE (%) 11.0 10.7 10.6 INR51,615/t). This was partly offset by 7% QoQ decline in volumes to Payout (%) 12.5 9.4 9.1 3.34mt (+5% v/s estimate). EBITDA/t stood at INR20,035/t, +56% QoQ Valuations P/E (x) 10.7 8.0 7.8 (+12% v/s est. INR17,858/t). Adj. PAT stood at INR37.5b, +69% QoQ (+27% P/BV (x) 1.1 1.0 0.9 v/s estimate). EV/EBITDA(x) 5.8 5.9 5.6 ◼ (TSE): EBITDA loss stood at INR7.2b (v/s est. EBITDA Div. Yield (%) 1.4 1.6 1.7 profit of INR5.7b and loss of INR4.6b in 2QFY21) due to the reversal of FCF Yield (%) 30.1 16.2 19.9 EUR94m of the wage aid provision made in 1HFY21 and higher provision for carbon emissions (~2x of 2QFY21). TSE sales volumes declined 7% QoQ Shareholding pattern (%) to 2.1mt; however, production was up 20% QoQ to 2.59mt. EBITDA loss As On Dec-20 Sep-20 Dec-19 stood at USD46/t v/s USD27/t in 2QFY21. Promoter 34.4 34.4 33.1 ◼ Tata Steel BSL: Tata Steel BSL had earlier reported EBITDA of INR16.2b DII 26.1 30.1 29.5 FII 16.9 11.5 15.3 (est. INR12.4b), up 47% QoQ, on the back of higher realization (+19% Others 22.6 24.0 22.1 QoQ) at INR51,185/t. EBITDA stood at INR14,153/t, +64% QoQ. FII Includes depository receipts ◼ Consolidated net debt fell INR103b QoQ to INR884b (INR186b in 9MFY21) on the back of strong FCF generation of INR121b (INR206b in 9MFY21) in 3Q. However, the receipt of export advance of INR60b would be offset by exports over the next two years. ◼ 9MFY21 revenue / EBITDA / adj. PAT stood at INR1,010b/ INR161.8b/ INR9.0b (-5%/+25%/NA).

Management guides for further improvement in profitability ◼ Realization is guided to improve by INR6,000–7,000/t QoQ in 4QFY21. ◼ The company plans to resume work on the pellet plant (40% completed) and cold rolling mill (CRM) complex at Kalinganagar – which, once completed, would be margin-accretive.

11 February 2021 7

◼ Tata Steel has called up INR465/sh as the final call on partly paid shares (77.7m share o/s). This would result in inflow of INR35.8b. The record date has been fixed as 19th Feb 2021.

Valuation and view ◼ With captive raw material availability, TATA’s India operations are a play on steel prices. Given prevailing high prices, we expect profitability to be strong. Expansion in working capital and the resumption of capex could, however, limit FCF. ◼ While we expect TSE’s EBITDA to turn positive in 4QFY21, sustenance would be the key to meeting cash outflow requirements (capex, debt, and interest). ◼ Deleveraging has been strong this year, aided by robust prices and margins. The management continues to guide for an annual debt reduction of USD1b. We expect net debt to decline INR212b (INR185/sh) to INR859b over FY20–22E. ◼ At CMP, the stock trades at 5.9x FY22E EV/EBITDA. Maintain Neutral, with TP of INR708/sh based on FY22E EV/EBITDA of 6x for India operations and 5x for Europe.

Quarterly Perf.(Consolidated) (INR b) Y/E March FY20 FY21 FY20 FY21E MOSL vs Est 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 3QE (%) Net Sales 359.5 345.8 355.2 337.7 242.9 371.5 395.9 482.2 1,398.2 1,492.6 377.0 5 Change (YoY %) -5.0 -20.6 -13.8 -20.4 -32.4 7.4 11.5 42.8 -11.3 6.8 6.1 EBITDA 53.8 38.2 36.2 46.5 5.1 61.1 94.6 132.5 174.6 293.3 79.3 19 Change (YoY %) -16.9 -57.2 -46.2 -38.2 -90.6 60.0 161.4 185.2 -40.6 68.0 119.1 (% of Net Sales) 15.0 11.0 10.2 13.8 2.1 16.4 23.9 27.5 12.5 19.7 21.0 EBITDA(USD/tss) 122 83 70 100 14 111 189 248 93 157 158 20 Interest 18.1 18.7 19.3 19.3 20.0 19.4 17.8 16.8 75.3 74.0 18.5 -4 Depreciation 20.8 21.3 20.2 22.2 21.1 22.6 22.7 23.1 84.5 89.6 22.9 -1 Other Income 2.5 1.8 0.9 13.2 1.9 2.2 2.1 2.3 18.4 8.6 2.2 -4 PBT (before EO Inc.) 17.4 0.0 -2.4 18.1 -34.1 21.3 56.3 94.9 33.3 138.3 40.1 40 EO Income(exp) 0.2 -0.3 -3.3 -31.6 0.6 0.4 -1.5 -35.0 -0.5 PBT (after EO Inc.) 17.5 -0.3 -5.7 -13.4 -33.5 21.7 54.7 94.9 -1.8 137.8 40.1 37 Total Tax 11.2 -40.5 6.2 -2.6 12.7 6.1 15.7 26.0 -25.7 60.6 10.0 % Tax 64.6 na -263 -14.5 -37.3 28.8 27.9 27.5 -77.2 44 24.9 Reported PAT 6.3 40.2 -11.9 -10.8 -46.2 15.6 39.0 68.8 23.9 77.2 30.1 30 Minority Interests -0.1 -1.0 -1.4 -1.4 -2.4 0.9 3.1 2.0 -3.8 3.6 -0.7 Share of asso. PAT 0.5 0.2 0.2 0.9 0.2 0.7 0.9 0.8 1.9 2.6 0.4 Adj. PAT (after MI & asso) 6.8 -0.5 -7.0 13.8 -44.3 15.0 38.3 67.6 10.4 74.0 31.2 23 Change (YoY %) -70.5 NA NA NA NA NA -647.0 390.0 -89.8 613.3 *Note: Sum of quarterly Adj. PAT does not match with full year due to pref. dividend accounted in full year

11 February 2021 8

11 February 2021 3QFY21 Results Update | Sector: Oil & Gas

GAIL (India)

Estimate change CMP: INR134 TP: INR165 (+24%) Buy TP change Strong performance expected in 4QFY21; biggest candidate for re-rating Rating change ◼ GAIL reported in line EBITDA, weighed by - in line performance of Bloomberg GAIL IN transmission business (NatGas and LPG), while a much smaller loss in Equity Shares (m) 4,510 trading segment was largely offset by outstanding performance of the M.Cap.(INRb)/(USDb) 602.3 / 8.1 petchem business. 52-Week Range (INR) 146 / 66 ◼ Petchem margins have improved QoQ on the back of improved product 1, 6, 12 Rel. Per (%) -5/3/-16 prices, led by strong demand from downstream manufacturers. The uptrend 12M Avg Val (INR M) 1996 in petchem margins continues in 4QFY21’TD. However, these multi-year high margins would normalize with the increasing supply glut, especially due

to additions from China. Financials & Valuations (INR b) ◼ GAIL expects the Trading segment to turn profitable in 4QFY21, benefitting Y/E March 2021E 2022E 2023E from the current spot LNG prices – still above the 9MFY21 average. Sales 589.6 693.5 730.3 ◼ GAIL expects incremental trading volumes of ~11mmscmd to be sold in EBITDA 59.9 95.8 100.9 India within another year (i.e., entire volumes that were sold abroad up to Adj. PAT 44.7 70.5 74.9 Adj. EPS (INR) 9.9 15.6 16.6 2QFY21) with the commissioning and ramp-up of various fertilizer plants. ◼ EPS Gr. (%) -39.8 58.0 6.2 We re-emphasize that a) the de-risking of the US HH contract over the next 2–3 BV/Sh.(INR) 112.3 122.5 133.3 quarters, b) strong tailwinds such as the boost in transmission volumes from Ratios increased domestic gas production, c) upcoming LNG terminals, and d) NGT’s Net D:E 0.1 0.1 0.1 increasing impetus on curbing air pollution are factors likely to drive the re- RoE (%) 9.8 14.3 13.9 rating of the stock – as highlighted in our report Improving macros to drive RoCE (%) 8.2 11.8 11.7 earnings/rerating. Reiterate Buy, with TP of INR165 (at 8x FY23E EPS). Payout (%) 35.0 35.0 35.0 ◼ The board has declared an interim dividend of INR2.5/share (resulting in Valuations dividend yield of ~2% on CMP). It has further approved the buyback of P/E (x) 13.5 8.5 8.0 ~1.55% of the total number of shares (not exceeding 69.8m shares) at a P/BV (x) 1.2 1.1 1.0 price of INR150/share – for an aggregate amount not exceeding INR10.5b, EV/EBITDA (x) 8.0 5.5 5.1 excluding applicable taxes.

Div. Yield (%) 2.6 4.1 4.3 Update on commissioning of fertilizer plants FCF Yield (%) -1.0 6.6 6.5 ◼ GAIL has started supplying gas to various fertilizer plants (~2.3mmscmd

totally) –~0.8mmscmd to Mangalore Chemicals & Fertilizers, ~1mmscmd to Shareholding pattern (%) the Ramagundam plant, and ~0.5mmscmd to the Gorakhpur plant. The As On Dec-20 Sep-20 Dec-19 Promoter 51.8 51.8 51.8 commissioning of Ramagundam and Gorakhpur is likely by Mar’21, post DII 28.0 28.2 25.3 which volumes would increase to ~2mmscmd for each of the plants. FII 16.2 15.7 18.4 ◼ Even Matix is likely to reach full capacity by Apr’21 and would consume Others 4.0 4.4 4.6 ~2.5mmscmd of gas at its peak capacity. FII Includes depository receipts ◼ The Barauni and Sindri fertilizer plants would enter the pre-commissioning stage over Feb–Mar’21; they are expected to be commissioned in Nov’21 and would consume ~1.9mmscmd of gas each by end-FY22.

EBITDA in line with estimates ◼ GAIL reported EBITDA in line with est. at INR19.2b (-7% YoY). Reported PAT stood at INR14.9b (+15% est., +19% YoY), primarily attributable to lower tax rate of 20.4% in 3Q. Adjusted PAT (for tax credit of INR0.4b from the previous period) stood at INR14.5b. ◼ For 9MFY21, EBITDA was 34% YoY lower at INR38.8b, with adj. PAT down 18% YoY to INR29.4b.

11 February 2021 9

➢ Performance was dragged down by huge loss in gas trading in 9MFY21 (EBIT loss of INR9.8b v/s gains of INR15.5b in 9MFY20). ➢ However, petchem did well and EBIT stood at INR4.6b (v/s loss of INR3.2b over the same period last year). ➢ LPG and HC segment EBIT was down 21% YoY to INR8.3b (primarily due to lower realization on decline in Brent prices).

Valuation and view ◼ With ever-increasing gas demand in the country, transmission pipelines would play a critical role in connecting consumers with both imported and domestically produced gas. ◼ Trading at ~34% discount to long-term 1-year forward P/E of 13x, GAIL offers an excellent investment opportunity. ◼ The stock is trading at 8x FY23 EPS of INR16.6 and 5.1x FY23 EV/EBITDA. We value the stock at 8x FY23 EPS (~34% discount to LT average) and add investments (of INR39/share) to arrive at Target Price of INR165. Reiterate Buy.

Quarterly Performance (INR m) Y/E March FY20 FY21 FY20 FY21E FY21 Var. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 3QE vs est Net Sales 1,83,115 1,80,411 1,77,688 1,77,550 1,20,875 1,36,445 1,54,568 1,77,738 7,18,764 5,89,625 1,47,703 5% Change (%) 5.9 -6.4 -10.2 -5.4 -34.0 -24.4 -13.0 0.1 -4.3 -18.0 -16.9 EBITDA 22,590 15,627 20,724 24,754 6,226 13,381 19,195 21,053 83,694 59,856 19,667 -2% % of Net Sales 12.3 8.7 11.7 13.9 5.2 9.8 12.4 11.8 11.6 10.2 13.3 Depreciation 4,057 4,398 4,890 5,016 4,583 4,843 4,895 4,548 18,360 18,869 4,619 6% Interest 239 275 242 329 495 274 331 313 1,085 1,414 315 5% Other Income 1,512 4,401 3,124 5,132 2,413 7,239 4,708 4,058 14,168 18,419 2,580 82% Extraordinary item* 0 0 0 1,016 0 0 0 0 1,016 0 0 PBT 19,805 15,355 18,716 25,557 3,562 15,503 18,677 20,250 79,434 57,992 17,313 8% Tax 6,930 4,713 6,210 -4,625 1,007 3,107 3,804 5,016 13,227 12,934 4,358 Rate (%) 35.0 30.7 33.2 -18.1 28.3 20.0 20.4 24.8 16.7 22.3 25.2 PAT 12,875 10,643 12,507 30,182 2,555 12,397 14,873 15,234 66,206 45,059 12,955 15% Change (%) 2.2 -45.8 -25.6 168.9 -80.2 16.5 18.9 -49.5 9.9 -31.9 3.6 Extraord.: Tax Prov. Write Back 0 0 173 -9,176 0 0 405 0 -9,003 405 0 Adj PAT 12,875 10,643 12,334 38,341 2,555 12,397 14,469 15,234 74,193 44,654 12,955 12% Change (%) 2.2 -45.8 -25.2 163.6 -80.2 16.5 17.3 -60.3 17.3 -39.8 5.0 Key Assumptions Gas Trans. volume (mmscmd) 105 109 110 109 90 106 110 112 108 105 108 2% Petchem sales ('000MT) 136 217 211 174 183 224 231 170 738 808 200 16%

11 February 2021 10

11 February 2021 3QFY21 Results Update | Sector: Metals

Hindalco

Estimate change CMP: INR279 TP: INR325 (+16%) Buy TP change Rating change Outlook strong on higher LME prices

Bloomberg HNDL IN Costs to stay under control Equity Shares (m) 2,229 ◼ 3QFY21 earnings for its India business was strong, as expected, with M.Cap.(INRb)/(USDb) 627.6 / 8.6 EBITDA up 20% QoQ to INR15.2b on higher LME prices. Consolidated net 52-Week Range (INR) 286 / 85 debt declined INR42b QoQ to INR538b (INR623b in 1QFY21) and net debt- 1, 6, 12 Rel. Per (%) -1/22/21 to-EBITDA declined to 3.1x (3.8x in 1QFY21). 12M Avg Val (INR M) 3002 ◼ We broadly maintain our FY21E/FY22E estimate and reiterate HNDL as

Financials & Valuations (INR b) our top non-ferrous pick. We expect 26% EPS CAGR over FY21-23E driven Y/E MARCH 2021E 2022E 2023E by better margin and continued deleveraging.

Sales 1,281 1,480 1,537 EBITDA rises 25% YoY on higher LME prices EBITDA 165.5 195.5 204.4 Adj. PAT 51.3 73.1 82.1 ◼ India (standalone+Utkal) EBITDA was up 25% YoY (20% QoQ) to INR15.2b EBITDA Margin (%) 12.9 13.2 13.3 (in line). Adjusted PAT was up 133% YoY/41% QoQ to INR5.4b. Cons. Adj. EPS (INR) 23.1 32.9 36.9 ◼ EBITDA for the Aluminum segment rose 24% to INR13.2b due to higher EPS Gr. (%) 31.9 42.6 12.2 LME prices (+13%), while integrated CoP was flattish QoQ. However, the BV/Sh. (INR) 181 211 245 Ratios entire benefit of higher LME prices did not flow through as the company Net D:E 1.3 1.0 0.7 had hedged 58% Aluminum at USD1,715/t (v/s an average LME price of RoE (%) 13.1 16.8 16.2 USD1,925/t during 3QFY21). Volume stood at 315kt (-4% YoY), while RoCE (%) 8.4 9.8 10.1 EBITDA/t was strong at USD563 (+20% QoQ) on higher LME prices. Payout (%) 8.6 9.6 8.6 Valuations ◼ Copper EBITDA fell 4% QoQ to INR2.0b due to lower volumes (75kt, -3%), P/E (x) 12.4 8.7 7.7 but was above our estimate of INR1.5b due to strong by-product pricing P/BV (x) 1.6 1.3 1.2 and volumes. Copper EBITDA/t came in at USD371/t, flat QoQ. EV/EBITDA(x) 7.0 5.6 4.9 ◼ Div. Yield (%) 0.6 0.9 0.9 In 3QFY21, consolidated revenue/EBITDA/PAT was up 12%/12%/13% QoQ FCF Yield (%) 11.9 14.5 17.1 at INR350b/INR52.4b/ INR20.2b. ◼ In 9MFY21, consolidated revenue/EBITDA/PAT increased 3%/15%/8% YoY Shareholding pattern (%) to INR915b/INR127b/INR36b. As On Dec-20 Sep-20 Dec-19 Management expects Aluminum CoP to remain low Promoter 34.7 34.7 34.7 DII 22.1 25.1 25.3 ◼ The management expects demand for Aluminum and Copper to remain FII 23.1 19.9 21.0 strong in CY21 on the back of a stimulus driven economic recovery. It Others 20.2 20.4 19.1 expects commodity prices to sustain at current levels. FII Includes depository receipts ◼ Net debt declined INR42b QoQ to INR538b (INR623b in 1QFY21). Debt breakup: India – INR148b and Novelis – INR390b. The management is focused on reducing debt at Novelis. ◼ Aluminum CoP is guided to increase 3% QoQ in 4QFY21 due to rise in input commodity prices like CT Pitch, coke, etc. ◼ Hedge position for 4QFY21/FY22: 58%/28% LME at USD1,715/USD1,840 per tonne. ◼ Commissioning of Utkal 500ktpa refinery expansion would take place in 1QFY22 (earlier guided in 4QFY21). CoP at Utkal refinery is ~50% of other alumina refineries, which would result in cost savings. ◼ It maintained its guidance of USD475-500/t on a sustainable basis in the Novelis business. The latter achieved an integration synergy rate of USD54m in 3QFY21 (USD38m in 2QFY21).

11 February 2021 11

Robust business trading at reasonable valuation; maintain Buy ◼ HNDL is our preferred non-ferrous pick owing to: a) robust volume growth outlook in both India and Novelis; b) strong profitability in its Aluminum business, given its low-cost integrated operations in India (in the top quartile globally), and higher LME; c) solid FCF generation, which should reduce leverage sharply; and d) reasonable valuations. ◼ The outlook for Novelis is positive due to resilience in the Beverage Can business and recovery in Auto demand (a high margin business). With better cost control and accruing synergies from Aleris, we expect margin for the Novelis business to remain strong over USD480/t. ◼ With ~75% EBITDA contribution now coming in from the non-LME business (Novelis), we see relatively higher stability in HNDL’s earnings. ◼ While we expect aluminum prices to sustain on the back of demand recovery, higher inventory could limit further upside. We factor in average LME of USD1,780/USD1,850 per tonne in FY21E/FY22E. A USD100/t change in Aluminum prices impacts HNDL’s FY22E EPS by 11% and our TP by 9%. ◼ The stock trades at 4.9x EV/EBITDA and 7.7x P/E on a FY22E basis. We value it at INR325/share on a SoTP basis. Reiterate Buy.

Quarterly performance (SA+Utkal) – INR m Y/E March FY20 FY21E FY20 FY21E v/s our 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 3QFY21E est (%) Net Sales 1,00,790 99,770 1,02,540 1,00,140 74,640 95,650 1,14,250 1,12,695 4,02,815 3,97,335 1,01,083 13 EBITDA 11,560 11,120 12,200 13,450 8,930 12,740 15,230 16,384 48,330 53,304 15,201 0 Aluminum 8,480 8,060 9,640 10,390 8,560 10,660 13,230 14,428 36,570 46,878 13,703 -3 USD/t 379 349 413 457 372 469 563 591 399 501 574 -2 Copper 3,080 3,060 2,560 3,060 370 2,080 2,000 1,957 11,760 6,427 1,498 34 Interest 4,710 4,790 4,780 4,380 4,570 3,890 3,800 3,800 18,660 16,060 4,190 -9 Depreciation 5,000 5,010 5,110 5,230 5,140 5,060 4,970 5,057 20,350 20,227 5,143 -3 Other Income 720 1,580 1,190 1,290 2,450 2,010 1,970 1,998 4,780 8,428 1,228 60 PBT (before EO item) 2,570 2,900 3,500 5,130 1,670 5,800 8,430 9,525 14,100 25,445 7,095 19 EO item -220 -310 610 1,000 -390 -660 -680 1,080 -1,730 PBT (after EO item) 2,350 2,590 4,110 6,130 1,280 5,140 7,750 9,525 15,180 23,715 7,095 9 Total Tax 940 830 1,490 2,340 440 1,890 2,800 3,143 5,600 8,273 2,342 20 Tax (%) 40.0 32.0 36.3 38.2 34.4 36.8 36.1 33.0 36.9 34.9 33.0 Reported PAT 1,410 1,760 2,620 3,790 840 3,250 4,950 6,382 9,580 15,442 4,754 4 Adjusted PAT 1,696 1,914 2,310 3,386 1,096 3,828 5,384 6,382 9,306 16,690 4,754 13

11 February 2021 12

RESULTS 10 February 2021 Results Flash | Sector: Healthcare FLASH Aurobindo

BSE SENSEX S&P CNX CMP: INR 968 Buy 51,309 9,422 Operationally in line with our estimates

Conference Call Details Date: 11th Feb 2021 ◼ ARBP’s 3QFY21 sales rose 8% YoY to INR63.6b (v/s our estimate of INR62.9b). Time: 8:30 am IST ◼ Growth was largely led by Formulation segment sales, up 11% YoY to INR56.8b. Dial-in details: ◼ +91-22-6280 1437 ARV Formulation sales grew 42% YoY to INR4.4b (7% of sales). ◼ Revenue from growth markets grew 14.6% to INR4b in 3QFY21 (6% of sales). ◼ The same from Europe grew 13% YoY to INR16.7b (26% of sales). Financials & Valuations (INR b) ◼ US sales grew 7% YoY to INR31.7b (50% of sales). In constant currency, US Y/E MARCH 2021E 2022E 2023E Formulation sales increased 3% YoY to USD431m. Sales 254.5 262.8 285.4 ◼ API sales declined 14% to INR6.8b (11% of sales). EBITDA 55.5 59.1 65.4 ◼ Gross margin is up 310bp YoY to 59.6% due to superior product mix. Adj. PAT 33.0 36.0 40.3 ◼ EBITDA margin expanded at a lower rate of 100bp to 21.5% (v/s our estimate EBIT Margin (%) 17.8 18.2 18.6 of 21.8%) due to increase in R&D expenses (+180bp as a percentage of sales). Cons. Adj. EPS (INR) 56.3 61.5 68.7 EPS Gr. (%) 14.6 9.1 11.8 ◼ EBITDA was up 13.3% YoY to INR13.7b (in line with our expectation). BV/Sh. (INR) 340.4 398.3 463.0 ◼ Reported other income was INR728m for 3QFY21, including ~INR400m for Ratios write back of provisions made previously. Net D:E 0.1 -0.1 -0.2 ◼ ARBP recorded an exceptional item of INR28b for 3QFY21 due to: RoE (%) 18.0 16.6 16.0 ➢ Gain on disposal of Natrol business (INR30.9b), RoCE (%) 14.5 14.0 14.0 ➢ Re-measurement of equity interest in Eugia Pharma (INR1.5b), and Payout (%) 4.5 5.7 5.8 Valuations ➢ Impairment charges (INR4.3b). P/E (x) 17.2 15.7 14.1 ➢ Tax expense for these exceptional items was INR7b. EV/EBITDA (x) 10.4 9.3 8.0 ◼ Adjusting for the exceptional items and write-back of provisions, PAT grew 8% Div. Yield (%) 0.3 0.4 0.4 YoY to INR7.7b (v/s our expectation of INR8.1b) led by revenue growth, better FCF Yield (%) 2.4 5.4 4.3 operating margin, and lower interest costs YoY. EV/Sales (x) 2.3 2.1 1.8 ◼ For 9MFY21, sales/EBITDA/adjusted PAT grew 11%/17%/18% YoY to INR188b/INR41.2b/INR23.8b

Other highlights ◼ R&D expense for 3QFY21 stood at INR3.9b (6.1% of revenue), up 180bp YoY as a percentage of sales. ◼ ARBP filed eight ANDAs and received final approval for 13 (including nine injectables). The company launched 11 products during the quarter gone by, including four injectables.

11 February 2021 13

Consolidated quarterly performance (INR b) Y/E March FY20 FY21 FY20 FY21E v/s our 1Q 2Q 3Q 4Q 1Q 2Q 3Q 3QFY21E estimate Net Sales 54.4 56.0 59.0 61.6 59.2 64.8 63.6 231.0 254.5 62.9 1.3% YoY Change (%) 28.1 17.9 11.9 16.4 8.8 15.8 8.0 18.1 10.2 6.6 EBITDA 11.5 11.7 12.1 13.4 13.2 14.3 13.7 48.6 55.5 13.7 -0.1% YoY Change (%) 47.1 13.8 11.2 18.8 14.9 22.7 13.3 20.9 14.1 13.4 Margin (%) 21.1 20.8 20.5 21.8 22.2 22.1 21.5 21.1 21.8 21.8 Depreciation 2.4 2.4 2.5 2.3 2.6 2.6 2.8 9.7 10.2 2.6 EBIT 9.1 9.2 9.6 11.1 10.6 11.8 10.9 39.0 45.2 11.1 YoY Change (%) 45.0 7.2 3.8 17.6 17.3 27.2 14.0 16.2 16.1 15.8 Margin (%) 16.6 16.5 16.2 18.0 17.9 18.1 17.2 16.9 17.8 17.6 Interest 0.5 0.4 0.4 0.3 0.2 0.2 0.2 1.6 1.0 0.3 Other Income 0.1 0.2 0.2 0.3 0.9 0.5 0.3 0.9 2.6 0.5 PBT before EO expense 8.7 9.0 9.4 11.1 11.3 12.1 11.1 38.2 46.9 11.3 -2.2% Forex loss/(gain) 0.0 0.3 -0.1 0.3 0.4 -0.1 -0.6 0.4 0.3 0.0 Exceptional (expenses)/income -0.1 -0.1 -0.1 0.1 0.0 0.0 28.5 -0.3 0.0 0.0 PBT 8.6 8.6 9.4 11.0 11.0 12.1 40.2 37.6 46.6 11.3 255.6% Tax 2.3 2.2 2.3 2.3 3.0 3.9 10.6 9.1 13.3 3.1 Rate (%) 26.5 26.0 24.8 20.8 27.7 31.9 26.3 24.3 28.5 27.0 Minority Interest 0.0 0.0 0.0 0.2 0.1 0.2 0.1 0.1 0.5 0.1 Reported PAT 6.4 6.4 7.1 8.5 7.8 8.1 29.5 28.3 32.8 8.1 262.3% Adjusted PAT 6.4 6.7 7.1 8.6 8.1 8.0 7.7 28.8 33.0 8.1 -5.8% YoY Change (%) 25.9 0.9 2.3 29.7 26.0 19.7 8.1 13.9 14.6 14.8 Margin (%) 11.8 11.9 12.0 14.0 13.6 12.4 12.0 12.5 13.0 12.9

11 February 2021 14

11 February 2020 3QFY20Results Update | Sector: Oil & Gas

Indraprastha Gas

Estimate change CMP: INR557 TP: INR520 (-7%) Neutral TP change Miss on EBITDA due to lower CNG volumes Rating change ◼ Indraprastha Gas (IGL) missed our EBITDA estimate by 7% on lower-than- Bloomberg IGL IN estimated CNG volumes in 3QFY21 (-9% est.; -9% YoY). Equity Shares (m) 700 ◼ Gross margin expansion was aided by lower gas cost, while opex cost was M.Cap.(INRb)/(USDb) 389.7 / 5.3 higher during the quarter. 52-Week Range (INR) 581 / 285 ◼ OMCs have been in talks with CGDs to increase commissions to sell CNG at 1, 6, 12 Rel. Per (%) -4/9/-17 their ROs. We may see a hike in rentals for IGL soon. 12M Avg Val (INR M) 1718 ◼ We build in EBITDA/scm of INR6.7/INR6.4 (unchanged) for FY22/FY23, factoring in a rise in rentals to OMCs as well as APM cost – which the Financials & Valuations (INR b) company may not be able to fully pass on to consumers. Y/E March 2021E 2022E 2023E ◼ The stock trades at a ~69% premium to GUJGA, which has similar volume Sales 47.3 67.4 75.5 growth potential for a 10–12% CAGR over the medium term, despite a EBITDA 15.2 18.0 19.2 much larger base. We value the company at 24x FY23E adj. EPS of INR18.6 Adj. PAT 10.4 12.3 13.2 and add value from the JV to arrive at Target Price of INR520. Adj. EPS (INR) 14.9 17.6 18.8 ◼ High leverage to CNG may pose a threat to long-term volume growth (with EPS Gr. (%) -8.2 17.7 7.3 the advent of EVs). Maintain Neutral. 84.2 97.8 112.6 BV/Sh.(INR) EBITDA/scm in line with estimate Ratios ◼ Total volumes were 6% below est. at 6.26mmscmd (-6% YoY). Net D:E -0.3 -0.3 -0.3 ➢ RoE (%) 19.0 19.3 17.9 This was primarily due to a 9% miss on CNG volumes to 4.48mmscmd RoCE (%) 18.5 18.8 17.5 (-9% YoY). PNG volumes were in-line at 1.78mmscmd (flat YoY). Payout (%) 20.1 22.8 21.2 ◼ EBITDA/scm was in line with est. at INR8.7/scm, while the 7% miss on Valuation EBITDA at INR5b was due to lower volumes. P/E (x) 37.3 31.7 29.5 ➢ Realization was INR25.1/scm (-INR1.9/-INR0.7 YoY/QoQ). The gross P/BV (x) 6.6 5.7 4.9 margin expanded to INR14.6/scm on lower gas cost at INR10.5/scm. On EV/EBITDA (x) 24.4 20.4 18.9 the other hand, opex was higher at INR5.9/scm (+INR0.5/+INR0.2 Div. Yield (%) 0.5 0.7 0.7 YoY/QoQ). FCF Yield (%) -0.4 2.0 1.4 ◼ PAT stood at INR3.3b (-12% est.; +18% YoY). ◼ For 9MFY21, EBITDA was down 13% YoY to INR9.9b, with EBITDA/scm at Shareholding pattern (%) INR7.5 (v/s INR6.4 in 9MFY20). PAT was down 24% YoY to INR6.7b, weighed As On Dec-20 Sep-20 Dec-19 Promoter 45.0 45.0 45.0 by higher depreciation cost (+15% YoY). Total volumes were down 26% YoY DII 21.1 22.4 20.7 to 4.8mmscmd, primarily attributable to low CNG volumes (-31% YoY to FII 23.2 21.3 24.5 3.3mmscmd). PNG was down 11% YoY to 1.5mmscmd. Others 10.7 11.3 9.8 Valuation and view FII Includes depository receipts ◼ IGL could increase its sales volumes from new areas such as Rewari, Karnal, and Muzaffarnagar; Haryana City Gas; and the newly-awarded GAs in the 10th round — (a) Kaithal (Haryana), (b) Ajmer, Pali, and Rajsamand (Rajasthan), and (c) Kanpur, Fatehpur, and Hamirpur (). ◼ The introduction of EVs could dent CNG demand over the long term. The recently revised EV policy in Delhi is directed more at 2Ws and 3Ws – thus impacting 3W CNG volumes (which form ~10% of total volumes). Also, the management expects EV buses to ply on the roads of Delhi over the next 2–3 years, challenging ~25% of the total volumes currently used by CNG buses. ◼ The stock trades at around 29.5x FY23E EPS of INR18.8 and EV/EBITDA of 18.9x in FY23. On a one-year forward PE basis, the company trades at 79% premium to its long-term average of 17.5x. Maintain Neutral.

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Quarterly performance (INR m) Y/E MARCH FY20 FY21 FY20 FY21E FY21 Variance 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 3QE vs Est Net Sales 15,761 16,925 16,642 15,525 6,386 13,054 14,462 13,408 64,853 47,310 14,426 0% Change (%) 22.4 19.1 10.3 0.6 -59.5 -22.9 -13.1 -13.6 12.6 -27.1 -13.3 EBITDA 3,585 3,926 3,918 3,767 834 4,071 5,007 5,313 15,196 15,225 5,382 -7% EBITDA (INR/scm) 6.3 6.5 6.4 6.6 3.4 8.0 8.7 8.6 6.4 7.8 8.7 -1% % Change 21.5 27.5 23.3 13.7 -76.7 3.7 27.8 41.0 21.4 0.2 37.4 Depreciation 605 621 641 655 682 711 750 706 2,523 2,849 712 5% Interest 16 18 20 27 24 23 31 37 81 114 20 Other Income 354 390 508 313 306 657 259 358 1,564 1,581 441 -41% PBT before EO 3,318 3,677 3,764 3,398 435 3,994 4,485 4,929 14,157 13,844 5,091 -12% Rate (%) 34.2 -3.6 24.6 25.4 26.9 22.9 25.3 25.2 19.7 24.6 25.2 PAT 2,184 3,810 2,839 2,534 318 3,079 3,349 3,688 11,365 10,435 3,810 -12% Adj. PAT 2,184 3,810 2,839 2,534 318 3,079 3,349 3,688 11,365 10,435 3,810 -12% PAT (Rs/scm) 3.8 6.3 4.6 4.5 1.3 6.1 5.8 6.0 4.8 4.8 6.2 -6% Change (%) 24.1 103.4 43.4 12.4 -85.4 -19.2 18.0 45.6 44.5 -8.2 34.2 Gas Volumes (mmscmd) CNG 4.66 4.92 4.91 4.49 1.60 3.91 4.48 4.94 4.75 3.73 4.91 -9% PNG 1.59 1.65 1.78 1.74 1.11 1.59 1.78 1.89 1.69 1.59 1.78 0% Total 6.25 6.58 6.70 6.23 2.71 5.50 6.26 6.83 6.44 5.33 6.70 -6% E: MOFSL Estimates

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10 February 2021 3QFY21 Results Update | Sector: Consumer

Page Industries

Estimate changes CMP: INR31,943 TP: INR28,800 (-10%) Neutral TP change Rating change Athleisure, festive demand drive sales beat

◼ Page Industries (PAG) reported double-digit topline growth in 3QFY21, led Bloomberg PAG IN Equity Shares (m) 11 by healthy festive demand, continued strong demand in the Athleisure M.Cap.(INRb)/(USDb) 356.3 / 4.6 segment, and strong winter product sales. While growth is still well below 52-Week Range (INR) 32372 / 16187 the ~29% topline CAGR reported over FY08–18, the quarter seems to be a 1, 6, 12 Rel. Per (%) 2/36/8 step in the right direction. Interestingly, whether there is sustained 12M Avg Val (INR M) 1087 momentum in Athleisure – a segment that has benefitted immensely from people spending more time at home and thus spending less on Formal Financials & Valuations (INR b) Wear – remains to be seen. Y/E March 2020 2021E 2022E 2023E ◼ The management indicated operating margins would be closer to historical Sales 29.5 27.1 34.7 39.3 levels of 21–22% going forward as discretionary spending was still not back Sales Gr. (%) 3.3 -7.9 28.0 13.1 at normalized levels in 3QFY21. EBITDA 5.3 5.3 7.6 8.8 ◼ Changes to the model have resulted in EPS estimates for FY21/FY22/FY23E EBITDA Margin (%) 18.1 19.5 22.0 22.3 being revised by +17.2%/+5.5%/+7.2%. Rich valuations of 69.9x FY22E and Adj. PAT 3.4 3.4 5.1 5.8 Adj. EPS (INR) 307.7 303.7 457.3 523.0 61.1x FY23E EPS lead us to maintain our Neutral rating on the stock – EPS Gr. (%) -12.9 -1.3 50.6 14.4 despite incipient growth revival and ROEs likely to rebound to FY19 levels of BV/Sh.INR 735.1 765.4 811.2 837.3 over 50% of going forward.

Ratios Beat on all fronts v/s estimates RoE (%) 41.9 39.7 56.4 62.5 ◼ PAG posted 16.8% YoY sales growth to INR9.3b in 3QFY21 (est. INR8.7b). RoCE (%) 39.7 35.8 50.9 55.8 Payout (%) 79.1 90.0 90.0 95.0 EBITDA grew 62.9% YoY to INR2.3b (est. INR1.9b). PBT grew 77.3% YoY to Valuations INR2.1b (est. INR1.7b). Adj. PAT grew 76.6% YoY to INR1.5b (est. INR1.2b). P/E (x) 103.8 105.2 69.9 61.1 ◼ Overall volumes grew 10% during the quarter. P/BV (x) 43.5 41.7 39.4 38.1 ◼ The gross margin expanded 230bp YoY to 55.4%. EV/EBITDA (x) 67.0 67.0 46.8 40.8 ◼ Employee expenses rose 8.6% YoY to INR1.5b, while other expenses Div. Yield (%) 0.5 0.9 1.3 1.6 declined 4.7% YoY to INR1.4b. ◼ As a percentage of sales, employee expenses decreased 120bp YoY to Shareholding pattern (%) 15.8%; other expenses also decreased 340bp YoY to 15.3%. This led to As On Dec-20 Sep-20 Dec-19 EBITDA margin expansion of 690bp YoY to 24.4% (est. 21.5%). Promoter 48.3 48.3 48.3 ◼ 9MFY21 sales/EBITDA/PAT declined 18.8%/24.8%/27.9% to DII 16.3 15.5 8.5 INR19.5b/INR3.6b/INR2.3b. FII 25.3 25.2 31.5 ◼ The company has repaid all its outstanding borrowings and is now debt- Others 10.1 11.0 11.7 free. FII Includes depository receipts ◼ Cash and cash equivalents increased 23% QoQ and 275% YoY to INR4.9b. ◼ The company has declared a second interim dividend of INR150 per share, in addition to the first interim dividend of INR100 per share announced in Nov’20.

Highlights from management commentary ◼ While yarn prices have been sharper than usual, the company has sufficient low-cost inventory and is willing to take a price increase possibly in March to mitigate increasing RM costs. ◼ Medium-term margins would be in the 21–22% range as discretionary expenses would return to normal levels, unlike in 3QFY21. ◼ A&SP spend, usually 4–5% of sales, has been around half of the usual levels thus far.

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Valuation and view ◼ PAG has an immensely impressive earnings growth track record. Its recent efforts on balance sheet improvement are commendable. Also, management endeavors to improve channel efficiency and revitalize growth are likely to turn fruitful eventually. However, the path to earnings recovery is unclear. EPS growth has been flat for the preceding two years. ◼ Category slowdown and competitive headwinds present other significant challenges. While 3QFY21 topline growth was good, led by Athleisure, the festive season, and winter sales growth, it has only been the second quarter of double-digit topline growth since 3QFY19. It also remains to be seen whether the sales boost from Athleisure in recent quarters could be sustained in forthcoming years. ◼ The stock is trading at 69.9x FY22E and 61.1x FY23E EPS. We value the company at 55x FY23E EPS to arrive at TP of INR28,800. Maintain Neutral.

Quarterly Performance (INR m) Y/E MARCH FY20 FY21 FY20 FY21E FY21 Var. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 3QE (%) Net Sales 8,350 7,754 7,938 5,413 2,848 7,403 9,271 7,597 29,454 27,119 8,732 6.2% YoY change (%) 2.4 12.3 7.5 -11.0 -65.9 -4.5 16.8 40.4 3.3 -7.9 10.0 Gross Profit 4,598 4,344 4,220 3,185 1,370 4,106 5,139 4,245 16,346 14,861 4,977 Gross margin (%) 55.1 56.0 53.2 58.8 48.1 55.5 55.4 55.9 55.5 54.8 57.0 Other Expenditure 2,731 2,854 2,832 2,603 1,717 2,452 2,878 2,519 11,021 9,567 3,100 % to sales 32.7 36.8 35.7 48.1 60.3 33.1 31.0 33.2 37.4 35.3 35.5 EBITDA 1,866 1,490 1,388 581 -347 1,654 2,261 1,726 5,326 5,294 1,877 20.5% Margins (%) 22.4 19.2 17.5 10.7 -12.2 22.3 24.4 22.7 18.1 19.5 21.5 YoY change -1.4 4.4 -16.0 -51.4 P/L 10.9 62.9 197.0 -13.7 -0.6 35.3 Depreciation 140 147 164 163 160 157 156 168 614 641 172 Interest 83 81 90 85 77 75 74 89 339 314 90 Other Income 55 57 35 99 61 37 42 51 246 190 52 PBT 1,699 1,321 1,169 432 -524 1,459 2,073 1,520 4,620 4,528 1,668 24.3% Tax 592 175 299 122 -128 350 536 383 1,188 1,141 429 Rate (%) 34.8 13.3 25.6 28.2 24.5 24.0 25.8 25.2 25.7 25.2 25.7 PAT 1,107 1,145 870 310 -396 1,109 1,537 1,137 3,432 3,387 1,239 24.0% YoY change (%) -11.1 23.6 -14.6 -58.6 P/L -3.2 76.6 266.5 -12.9 -1.3 42.4 E: MOFSL Estimates

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RESULTS 10 February 2021 FLASH Results Flash | Sector: Capital Goods

ABB India

BSE SENSEX S&P CNX CMP:INR1,445 Buy 51,309 15,107 Lower other expenses leads to earnings surprise; revenue

Conference Call Details and order inflow disappoint Date: 11th February 2021 4QCY20 earnings snapshot Time: 10:00 am IST ◼ Dial-in details: Revenue fell 13% YoY to INR17b and was 10% below our expectation. +91-22-6280 1376 Gross margin declined 160bp YoY to 32.1%. Thus, gross profit was down 17% YoY. Financials & Valuations (INR b) ◼ On account of a sharp decline in other expenses (-42% YoY), EBITDA grew Y/E Dec 2020 2021E 2022E 41% YoY to INR2b and was 80% ahead of our expectation. We await Sales 58.2 78.4 87.7 management clarity to understand the reasons for such a sharp decline in EBITDA 3.7 6.1 7.4 other expenses. EBITDA margin stood at 11.5% v/s 7.1% last year. PAT 2.5 4.6 5.8 ◼ Adjusted PAT grew 16% YoY to INR1.3b and was 58% ahead of our EBITDA (%) 6.3 7.7 8.5 EPS (INR) 11.9 21.6 27.3 expectation. EPS Gr. (%) (28.4) 81.6 26.6 ◼ Few one-offs: a) Aggregate impact of INR795m in the Energy industries BV/Sh. (INR) 170.2 186.6 207.3 division (part of the Industrial Automation segment). The management Ratios has reassessed efforts to be expended on long-term legacy projects and Net D/E (0.6) (0.6) (0.7) recoverability of related receivables. b) VRS in one of the divisions of RoE (%) 7.0 11.6 13.2 Industrial Automation - additional employee cost of INR135m in the P&L RoCE (%) 7.6 12.2 13.7 statement. c) INR56m towards discontinued business. Payout (%) 33.7 20.0 20.0 Valuations ◼ As a result, reported PAT stood at INR576m. P/E (x) 121.8 67.0 53.0 ◼ Order inflows fell 8% YoY to INR14.7b. Order book was flat YoY at P/BV (x) 8.5 7.7 7.0 INR41b. EV/EBITDA (x) 77.0 46.4 37.2 Segmental highlights Div Yield (%) 0.3 0.3 0.4 ◼ Revenue from Robotics and Motion declined 8% YoY to INR6.9b. PBIT FCF Yield (%) 0.7 1.3 2.0 margin stood strong at 17.7%. ◼ Revenue from Electrification Products was down 22% YoY at INR6.5b. PBIT margin came in at 14.1%. ◼ Industrial Automation revenue fell 7% YoY to INR3.9b. Adjusted for one- offs, PBIT margin stood at 5.9%.

Quarterly performance (INR m) Y/E December CY19 CY20 CY19 CY20 MOSL Var 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4QE (%) Sales 18,503 17,258 17,456 19,533 15,222 9,858 16,122 17,008 73,151 58,210 18,948 -10.2% Change (%) 18.1 3.6 17.0 -0.7 -17.7 -42.9 -7.6 -12.9 9.3 -20.4 -3.0 EBITDA 1,455 1,239 1,234 1,384 145 234 1,214 1,956 5,312 3,689 1,085 80.2% Change (%) 62.6 41.5 88.7 -35.8 -90.0 -81.1 -1.6 41.3 16.0 -30.5 -21.6 As a % of Sales 7.9 7.2 7.1 7.1 1.0 2.4 7.5 11.5 7.3 6.3 5.7 Depreciation 233 220 227 224 271 249 247 297 904 1,204 258 14.9% Interest 26 96 44 47 34 38 28 69 214 169 31 126.5% Other Income 191 204 164 384 458 266 201 144 943 1,069 305 -52.9% Extra-ordinary Income 272 - - (748) 456 10 (48) (742) (476) (323) - PBT (Before Exceptionals) 1,387 1,127 1,127 1,497 298 214 1,140 1,733 5,137 3,385 1,101 57.4% Tax 497 429 339 362 108 62 285 416 1,627 870 266 56.6% Effective Tax Rate (%) 35.8 38.1 30.1 24.2 36.3 28.8 25.0 24.0 31.7 25.7 24.1 Reported PAT 1,162 697 788 387 646 163 807 576 3,034 2,192 836 -31.1% Adj. PAT 890 697 788 1,135 190 153 855 1,317 3,510 2,515 836 57.6% Change (%) 95.2 58.9 118.6 -11.8 -78.7 -78.1 8.5 16.1 38.1 -28.4 -26.3

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10 February 2021 3QFY21 Results Update | Sector: Automobile

Endurance Technologies

Estimate changes CMP: INR1,483 TP: INR1,750 (+18%) Buy TP change

Rating change Above est.; strong all-round performance in both businesses India outlook remains positive; EU near-term challenges due to COVID Bloomberg ENDU IN ◼ Endurance Technologies (ENDU) reported a strong all-round beat in Equity Shares (m) 141 M.Cap.(INRb)/(USDb) 208.6 / 2.8 3QFY21, with contribution from both businesses. While recovery in the 52-Week Range (INR) 1490 / 562 India business continues to be strong, the EU business is seeing the 1, 6, 12 Rel. Per (%) 0/19/17 impact of a second wave of COVID. ENDU’s outperformance of the 12M Avg Val (INR M) 155 underlying 2W industry would continue on the back of a content increase and the mining of recently added customers. Thus, we believe it is the Financials & Valuations (INR b) best proxy for the 2W industry in India. Y/E March FY20 FY21E FY22E ◼ We upgrade our FY21/FY22 EPS by 8%/6%, reflecting a strong Sales 68.8 63.0 77.6 10.9 9.9 13.5 performance in both the businesses. Maintain Buy, with TP of INR1,750. EBITDA Adj. PAT 5.4 4.7 7.2 Highest ever consolidated revenue and EBITDA EPS (Rs) 38.0 33.1 51.1 ◼ Consol. net revenues grew 24% to ~INR20.4b (v/s est. INR18.8b). EBITDA EPS Growth (%) 3.2 -13.1 54.4 BV/Share (INR) 213.7 236.8 272.5 grew 35% YoY to INR3.5b (v/s est. INR3.07b). This translated to adj. PAT Ratios growth of 60% YoY to ~INR2b (v/s est. ~INR1.6b). 9MFY21 revenues / EBITDA Net Debt/Equity -0.1 -0.2 -0.3 / adj. PAT declined 17%/20%/25%. RoE (%) 19.2 14.7 20.0 ◼ India revenues grew 32% YoY to ~INR15.3b (v/s est. INR14.3b) – 14.5% 16.4 13.0 18.3 RoCE (%) YoY growth was reported in the 2W industry. State incentives (150bp) and Payout (%) 28.5 29.3 30.1 Valuations op. leverage benefit boosted EBITDA margins by 290bp YoY (+80bps QoQ) P/E (x) 39.0 44.8 29.0 to 17% (v/s est. 16.5%). EBITDA grew 59% YoY to INR2.6b. Adj. PAT rose P/BV (x) 6.9 6.3 5.4 76% YoY to INR1.59b (v/s est. INR1.41b). Div. Yield (%) 0.6 0.6 0.9 ◼ EU business revenues grew 7% YoY to INR5.1b (v/s est. INR4.6b). In EUR 2.2 2.7 3.0 FCF Yield (%) terms, revenues declined 3.6%; new car registrations also declined 7.6%.

EBITDA margins contracted 220bp YoY to 18% (v/s est. 15.6%), driven by Shareholding pattern (%) As On Dec-20 Sep-20 Dec-19 higher staff and other expenses. EBITDA fell 4.8% YoY to INR921m (v/s Promoter est. 719m). Adj. PAT grew 16.8% YoY to INR395m (v/s est. ~INR187m). 75.0 75.0 75.0 DII 12.8 11.9 6.9 Highlights from management commentary FII 10.6 11.6 16.8 ◼ Outlook: 4QFY21 for India business appears very good, led by OEM Others 1.6 1.5 1.3 schedules. For EU, vehicle registrations were down 15–20% in Jan’21 and FII Includes depository receipts are expected to decline 10–15% over Feb–Mar’21. This is largely attributable to COVID-19-related lockdown and restrictions. ◼ New business wins from OEMs (ex-Bajaj) were INR4.44b in 9MFY21, with peak sales in FY23E. RFQs worth INR11.45b are under consideration. ◼ Brakes business capacity almost doubled: Considering new business for disc brakes from Bajaj, TVS, HMSI, Yamaha, and RE, it is increasing brake assembly capacity by 90% from 285k units/month to 575k units/month, and disc brake capacity would be increased by 80% to 675k units/month by Aug’21. ◼ Alloy wheel capacity expansion: It plans to increase 2W alloy wheel capacity by 33% to 160k wheels/month from 3QFY22 (Aug–Sep). ◼ EUR12.6m new business from FCA, Audi, and Maserati would commence from FY22. Over the last three years, it has won EUR120m worth of orders for EVs and hybrids, of which EUR30m is for EVs.

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Valuation and view ◼ ENDU is the best proxy on India’s 2W industry and has the scope to increase content on the back of technological changes and new products. Coupled with its knowledge in aluminum die-casting in the EU, we believe there is scope to increase contribution from the PV segment. ◼ The stock trades at 29x/23.8x at FY22/FY23E consol EPS. Maintain Buy, with TP of INR1,750 (28x Mar’23E consol. EPS).

Consolidated – Quarterly Y/E March FY20 FY21E FY20 FY21E FY21E INR m 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 3QE Net Sales 18,619 17,713 16,405 16,038 6,031 17,422 20,409 19,185 68,775 63,046 18,884 YoY Change (%) 0.1 -8.5 -9.5 -14.3 -67.6 -1.6 24.4 19.6 -8.4 -8.3 15.1 RM Cost (% of sales) 55.6 54.0 53.4 54.0 47.9 54.9 54.1 54.5 54.3 53.8 55.7 Staff Cost (% of sales) 9.6 9.4 10.3 10.1 21.9 9.6 8.9 9.1 9.8 10.4 8.9 Other Exp. (% of sales) 19.0 20.2 20.4 20.6 23.1 19.1 19.8 20.0 20.0 20.0 19.2 EBITDA 2,941 2,911 2,605 2,449 427 2,852 3,521 3,140 10,906 9,940 3,073 Margins (%) 15.8 16.4 15.9 15.3 7.1 16.4 17.3 16.4 15.9 15.8 16.3 Depreciation 927 986 1,000 1,230 856 973 1,045 1,236 4,143 4,109 1,025 Interest 58 49 43 26 42 35 42 31 175 149 37 Other Income 68 114 119 174 109 71 58 135 476 373 110 PBT before EO expense 2,024 1,990 1,681 1,368 -361 1,916 2,493 2,008 7,064 6,055 2,121 Exceptional Item -472 0 0 70 0 -279 112 0 -402 -167 0 PBT after EO 2,496 1,990 1,681 1,298 -361 2,195 2,380 2,008 7,465 6,222 2,121 Eff. Tax Rate (%) 33.7 15.1 26.2 17.7 31.0 23.9 20.2 27.5 24.2 23.2 24.7 Rep. PAT 1,656 1,691 1,240 1,068 -249 1,672 1,901 1,457 5,655 4,779 1,598 Adj. PAT 1,298 1,691 1,240 1,122 -249 1,457 1,987 1,457 5,351 4,651 1,598 YoY Change (%) 4.2 35.0 11.9 -12.4 -119.2 -13.8 60.2 29.9 3.2 -13.1 28.8

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10 February 2021 3QFY21 Results Update | Sector: Utilities

Torrent Power

Estimate change CMP: INR330 TP: INR388 (+17%) Buy TP change Distribution business recovering Rating change Balance Sheet healthy; demand at DFs normalizing Bloomberg TPW IN ◼ TPW’s 3QFY21 result highlights normalizing demand at its distribution Equity Shares (m) 481 franchisee (DF) business. Adjusted EBITDA fell 1% YoY to INR8.3b. M.Cap.(INRb)/(USDb) 158.7 / 2.1 ◼ The distribution business was impacted by lower volumes due to the impact 52-Week Range (INR) 369 / 240 1, 6, 12 Rel. Per (%) -7/-37/-17 of the COVID-19 outbreak. A recovery in demand and collections and a 12M Avg Val (INR M) 478 healthy Balance Sheet have helped it tide over this wave. Maintain Buy with a TP of INR388 per share.

Financials & Valuations (INR b) Y/E MARCH 2020 2021E 2022E Operationally in line; lower interest costs kick in Sales 136.4 134.5 140.7 ◼ Adjusted EBITDA fell 1% YoY to INR8.3b in 3QFY21 (v/s our estimate of EBITDA 35.6 32.7 37.8 INR8b) on higher renewable contribution and normalizing DF business, but Adj. PAT 13.5 10.8 14.9 was partly offset by lower merchant volumes. EBITDA Margin (%) 26.1 24.3 26.9 ◼ In 3QFY21, EBITDA was adjusted for one-offs relating to: 1) benefit of Cons. Adj. EPS (INR) 28.0 22.6 30.9 INR310m from the reversal of provisions for doubtful debts, and 2) INR50m EPS Gr. (%) 49.7 -19.4 37.1 of net recoveries in UnoSugen. BV/Sh. (INR) 190.5 208.9 231.6 ◼ Power purchase at Bhiwandi and Agra fell 2% YoY. In 9MFY21, T&D losses at Ratios Net D:E 0.9 0.7 0.5 Bhiwandi/Agra declined to 19.1%/13.2% v/s losses of 23%/ 16% in 1H. RoE (%) 14.9 11.3 14.0 ◼ Renewable generation was up 32% YoY at 317MUs, led by capacity addition. RoCE (%) 9.6 8.8 10.6 ◼ Interest costs decreased 6% QoQ/19% YoY to INR1.9b (v/s our expectation Payout (%) 41.4 28.8 26.7 of INR2.1b) on the back of lower debt and borrowing costs (down 140bp Valuations YoY). Adjusted PAT fell 10% YoY to INR2.8b (v/s our estimate of INR2.3b). P/E (x) 9.7 14.6 10.7 Reported PAT came in at INR3.2b, down 24% YoY. P/BV (x) 1.4 1.6 1.4 EV/EBITDA(x) 5.9 7.0 5.8 Highlights from the management commentary Div. Yield (%) 4.3 2.0 2.5 ◼ Demand from end-consumers have recovered in 3QFY21, with demand in FCF Yield (%) 14.5 12.9 10.8 DL (distribution license) and DF down just 1% and 3% YoY, respectively. Collection efficiencies stood at 107% in the quarter gone by and is Shareholding pattern (%) continuing in Jan’21. As On Dec-20 Sep-20 Dec-19 ◼ The management expects demand in DFs to grow at 6% in FY22. AT&C Promoter 53.6 53.6 53.6 DII 19.5 19.4 19.9 losses are expected to reduce to 12-13% in FY22. FII 9.1 9.1 8.1 ◼ Capex for FY21 would be ~INR11b, of which DL/DF would be Others 17.9 17.9 18.4 INR9b/INR2.25b. The management expects average capex of INR15b for the FII Includes depository receipts next three years for its distribution business. Capex for 100MW of GUVNL would be INR38-40b and would largely be in FY22.

Strong positioning and healthy Balance Sheet; Maintain Buy ◼ The COVID-19 outbreak has impacted the DF business. However, demand and collections have recovered and profitability is expected to bounce back in FY22E. Outlook for TPW’s gas plants has improved with the recent offtake of UnoSugen PPA. Continued capitalization within regulated distribution and debt repayment would aid earnings. The company remains well poised to capitalize on opportunities from privatization of distribution companies. We maintain our Buy rating with a TP of INR388/share – implying a 17% upside from current levels.

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Consolidated quarterly performance (INR b) Y/E March FY20 FY21 FY20 FY21E 3Q v/s our 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE FY21E est. % Net Sales 37.4 38.4 30.8 29.8 26.6 31.3 29.5 47.1 136.4 134.5 30.6 -4 YoY Change (%) 5.9 11.5 -5.4 2.0 -28.7 -18.6 -4.1 57.9 -0.5 Total Expenditure 29.0 27.9 22.4 21.6 19.6 23.0 21.2 38.1 100.8 101.9 23 -6 EBITDA 8.3 10.5 8.4 8.3 7.0 8.3 8.3 9.0 35.6 32.7 8.0 4 Margin (%) 22.3 27.5 27.3 27.7 26.2 26.6 28.3 19.2 26.2 Depreciation 3.2 3.2 3.3 3.4 3.2 3.2 3.2 3.3 13.0 12.8 3.3 -4 Interest 2.5 2.5 2.3 2.2 2.2 2.0 1.9 1.9 9.5 8.0 2.1 -8 Other Income 0.5 0.5 0.4 0.4 0.3 0.4 0.4 0.4 1.8 1.5 0.3 8 PBT before EO expense 3.2 5.3 3.2 3.1 2.0 3.5 3.6 4.3 14.7 13.4 3.0 21 Extra-Ordinary expense 0.0 0.0 0.0 10.0 -2.7 1.2 -0.4 0.0 10.0 -1.9 0.0 PBT 3.2 5.3 3.2 -6.9 4.7 2.3 4.0 4.3 4.7 15.3 3.0 33 Tax 0.4 -2.2 -1.1 -4.2 0.9 0.3 0.8 1.2 -7.0 3.2 0.7 Rate (%) 13.5 -41.8 -33.5 60.5 20.1 12.1 19.3 28.3 -148.3 21.0 24.0 MI and Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0 0 Reported PAT 2.8 7.5 4.2 -2.7 3.7 2.0 3.2 3.1 11.7 12.0 2.3 41 PAT 2.8 4.7 3.1 2.8 1.7 3.2 2.8 3.1 13.5 10.8 2.3 25 YoY Change (%) 21.9 15.1 32.8 1,075 -39.4 -32.1 -9.6 8.8 49.7 -19.8 -27.7

Source: MOFSL, Company

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11 February 2021 3QFY21 Results Update | Sector: Oil & Gas

Gujarat State Petronet

Estimate changes CMP: INR 226 TP: INR350 (+55% ) Buy TP change Rating change Strong volume uptick of 3QFY21 to sustain, barring over Jan–Feb’21 ◼ Gujarat State Petronet (GUJS)’s 3Q volumes were driven by higher demand from Bloomberg GUJS IN the CGD segment and revival in demand from the Fertilizer segment, further Equity Shares (m) 564 M.Cap.(INRb)/(USDb) 127.9 / 1.7 supported by strong gas consumption in the Power sector. Gas volumes for the 52-Week Range (INR) 250 / 146 Refining/Petchem segment declined due to decreased offtake by RIL. 1, 6, 12 Rel. Per (%) 3/-27/-33 ◼ On account of the huge demand-supply mismatch across the globe (due to 12M Avg Val (INR M) 188 production challenges, along with higher winter demand), spot LNG prices jumped

in 4QFY21’TD. As per our channel checks, this has resulted in lower gas offtake to Financials & Valuations (INR b) ~4–5mmscmd (from ~10mmscmd in 3QFY21) by the Power sector, in addition to Y/E March FY21E FY22E FY23E Sales 17.2 19.7 21.1 decline seen from the Refining/Petchem segment. EBITDA 13.5 15.2 16.3 ◼ That said, RIL has bought 4.8mmscmd of its own KG Basin gas (in the second PAT 8.4 9.5 10.1 auction). Also, various companies (such as GSPC, , GSFC) have procured EPS (INR) 14.8 16.8 17.9 gas in round one auction of 5mmscmd; we believe substantial volume would flow EPS Gr. (%) -24.5 13.3 6.3 to Gujarat and thus on pipeline of GUJS – recouping current lost volumes. BV/Sh.(INR) 132.0 146.9 162.8 ◼ We reiterate our belief that GUJS’ volumes would jump to ~42mmscmd in FY22 as Ratios the company is also a beneficiary of the (a) upcoming LNG terminals in Gujarat, and Net D:E -0.6 -0.6 -0.6 (b) increased demand owing to the focus on reducing industrial pollution – Gujarat RoE (%) 11.8 12.1 11.6 has five geographical areas (GAs) identified as severely/critically polluted. RoCE (%) 11.9 12.2 11.7 Payout (%) 13.5 11.9 11.2 ◼ We keep our FY22/FY23 volume estimate unchanged at 42/45mmscmd, while Valuations lowering our estimate to 33.6mmscmd for 4QFY21 (from ~40mmscmd earlier). P/E (x) 15.2 13.4 12.6 ◼ At a 25% Holdco discount, the 54% stake in provides a valuation of P/BV (x) 1.7 1.5 1.4 INR225/share for GUJS (i.e., ~100% of CMP), thus offering the standalone business EV/EBITDA (x) 9.3 7.9 7.0 for free. We value GUJS at 7x standalone and reiterate Buy. Div. Yield (%) 0.9 0.9 0.9 Largely in line with estimates FCF Yield (%) 5.2 6.4 5.1 ◼ Transmission volumes stood at 39.4mmscmd (-4% est., +7% YoY), with implied tariff

of INR1,243/scm (in-line, flat QoQ). Shareholding pattern (%) As On Dec-20 Sep-20 Dec-19 ◼ Reported EBITDA stood at INR4b (+5% est., +5% YoY) – due to lower opex. Promoter 37.6 37.6 37.6 ◼ PAT stood at INR2.5b (+11% YoY), with tax rate of 25.6% during the quarter. DII 31.0 30.9 33.9 ◼ For 9MFY21, EBITDA was down 8% YoY at INR11.3b, with PAT at INR7.2b (down FII 15.9 15.6 15.9 19% YoY due to DTL benefits incurred in 2QFY20). Transmission volumes were at Others 15.4 15.9 12.6 37.5mmscmd (-2% YoY), with implied tariff at INR1,257/scm (-10% YoY). FII Includes depository receipts Volume growth drivers in 3QFY21

◼ Higher demand was seen from the CGDs at 12.6mmscmd (+18% YoY, +17% QoQ). ◼ Demand from the Fertilizer segment revived to 3.9mmscmd (-3% YoY, +24% QoQ). ◼ This was supported by strong gas consumption from the Power sector at 9.1mmscmd (+53% YoY, flat QoQ). ◼ Refining/Petchem demand stood at 7.1mmscmd (-40% YoY, -29% QoQ) – due to a decrease in gas offtake by RIL. ◼ Other demand stood at 6.3mmscmd (+55% YoY, -7% QoQ). Valuation and view ◼ GUJS plans on spending ~INR18b over the next two years and an additional ~INR22b over the next 3–4 years as capacity utilization increases from the upcoming terminals (against NFA of ~INR43b for the HP pipeline in 2018).

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◼ Total outstanding debt at the end of 9MFY21 was at INR11.5b. ◼ The company generated FCF of ~INR12.5b in FY20, and our model estimates suggest overall FCF generation over FY21–23 could be ~INR21.3b. The company plans to use the excess cash flow for capacity expansion; thus, it would attempt to keep implied tariffs at the same level (as IRR is based on gross block). ◼ Although we revise down our target multiple to 7x (from 8x), factoring in a likely change in tariff going forward (note that we do not build in any impact in our model for now). The stock trades at 12.6x FY23 EPS of INR17.9 and 7.0x FY23 EV/EBITDA. Maintain Buy, with Target Price of INR350/share.

Standalone - Quarterly Perf. (INR m) Y/E March FY20 FY21 FY20 FY21 FY21 Var. vs 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 3QE est. Net Sales 5,126 5,411 4,524 4,388 4,028 4,634 4,590 3,914 19,449 17,166 4,673 -2% YoY Change (%) 31.0 -9.6 -0.3 1.1 -21.4 -14.4 1.5 -10.8 3.6 -11.7 3.3 EBITDA 4,020 4,371 3,800 3,557 3,462 3,807 3,984 2,284 15,749 13,536 3,810 5% YoY Change (%) 16.9 -15.3 7.6 8.0 -13.9 -12.9 4.8 -35.8 2.1 -14.1 0.2 Margins (%) 78.4 80.8 84.0 81.1 85.9 82.2 86.8 58.3 81.0 78.9 81.5 Depreciation 489 498 497 483 488 554 511 528 1,966 2,081 567 -10% Interest 479 438 383 346 290 249 220 220 1,645 979 228 -3% Other Income 77 454 52 67 43 515 74 54 649 687 57 31% PBT 3,129 3,890 2,972 2,795 2,727 3,519 3,328 1,589 12,786 11,163 3,072 8% Tax 1,068 -659 751 539 733 808 853 397 1,699 2,791 773 10% Rate (%) 34.1 -16.9 25.3 19.3 26.9 23.0 25.6 25.0 13.3 25.0 25.2 Reported PAT 2,061 4,549 2,221 2,256 1,994 2,711 2,475 1,192 11,087 8,372 2,299 8% YoY Change (%) 42.7 40.7 28.0 47.1 -3.3 -40.4 11.4 -47.2 39.5 -24.5 3.5 Margins (%) 40.2 84.1 49.1 51.4 49.5 58.5 53.9 30.5 57.0 48.8 49.2 Key Operating Parameters Transmission Volume (mmscmd) 38.2 39.2 36.9 36.8 33.3 39.8 39.4 33.6 37.8 36.5 41.0 -4% Implied Tariff (INR/mscm) 1,434 1,461 1,311 1,284 1,297 1,239 1,243 1,241 1,374 1,255 1,239 0% E: MOFSL Estimates

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10 February 2020 3QFY20 Results Update | Sector: Oil & Gas

Mahanagar Gas

Estimate change CMP: INR1,129 TP: INR1,290 (+14%) Buy

TP change Margin sustainability now a concern besides volume growth Rating change

◼ Mahanagar Gas (MAHGL) reported numbers in line with estimates. Total Bloomberg MAHGL IN sales volumes were still down 9% YoY (CNG down 15% YoY), with Equity Shares (m) 99 EBITDA/scm margin at INR12.4. M.Cap.(INRb)/(USDb) 111.6 / 1.5 ◼ The company highlighted that the impact of the lockdown continues with 52-Week Range (INR) 1220 / 656 restrictions on public transport, offices, schools, etc., still in place. In Jan’21, 1, 6, 12 Rel. Per (%) -4/-18/-31 CNG volumes were still down 9% YoY to ~2msmcmd. 12M Avg Val (INR M) 1017 ◼ Currently, ~75%/85% of taxis/autos and ~90% of private cars and cab aggregators are back on the road. Financials & Valuations (INR b) ◼ Also, there are concerns over the sustainability of the current level of Y/E March 2021E 2022E 2023E EBITDA/scm (highest ever) margins. OMCs have demanded a steep hike in Sales 20.9 25.8 26.7 commissions to sell CNG at their ROs – currently under negotiation. EBITDA 9.7 11.2 11.6 ◼ Any further hike from current commissions (~INR4.5/kg), along with an Adj. PAT 6.6 7.8 8.0 expected increase in APM prices (from 1st April’21), is likely to test the Adj. EPS (INR) 67.2 78.5 80.6 company’s ability to pass on the increased cost to the end consumer. EPS Gr. (%) -16.3 16.8 2.7 ◼ That said, MAHGL has taken a CNG price hike of INR1.5/kg (on 8th Feb’21), BV/Sh.(INR) 336.8 381.2 426.7 to counter the increase in opex. Although, the company has guided that Ratios opex would reduce in the future with improvement in volumes. Also, the Net D:E -0.4 -0.5 -0.5 company has started procuring ~0.1mmscmd of RIL’s KG Basin gas (~25% of RoE (%) 21.1 21.9 20.0 current industrial consumption). RoCE (%) 21.2 21.8 19.9 ◼ We expect volumes to normalize at pre-COVID levels in 4QFY21 Payout (%) 43.6 43.6 43.6 (unchanged). We increase our EBITDA/scm margin estimate to INR12.8 for Valuation 4QFY21 (factoring in the recent price hike) and INR10/INR10 for FY22/FY23 P/E (x) 16.8 14.4 14.0 (from INR10/INR9 earlier), arriving at an EPS upgrade of 10%/0%/12% for P/BV (x) 3.4 3.0 2.6 EV/EBITDA (x) 11.2 9.2 8.6 FY21/FY22/FY23E. Div. Yield (%) 2.6 3.0 3.1 ◼ The board has declared an interim dividend of INR9/share (the record date nd FCF Yield (%) 2.7 6.2 5.5 is 22 Feb’21). We maintain Buy considering MAHGL’s attractive valuations. Largely in line with our estimates Shareholding pattern (%) ◼ EBITDA stood at INR3.2b (+22% YoY), with PAT at INR2.2b (+17% YoY). As On Dec-20 Sep-20 Dec-19 Volumes were in line with our estimate at 2.77mmscmd (-9% YoY, +34% QoQ). Promoter 32.5 32.5 32.5 ◼ CNG volumes were still down 15% YoY to 1.88mmscmd, but up 48% QoQ. DII 28.1 30.1 26.1 ◼ PNG – I/C volumes were down 9% YoY to 0.38mmscmd (+13% QoQ). FII 29.6 25.6 31.9 ◼ PNG – Domestic volumes continue to grow at 0.51mmscmd (+24% YoY). Others 9.9 11.8 9.5 EBITDA/scm stood at INR12.4 (+35% YoY and +7% QoQ). FII Includes depository receipts ◼ Realization stood at INR26.1/scm (flat YoY and QoQ). ◼ The gross margin expanded to INR17.7/scm (+28% YoY, 3% QoQ), led by lower gas cost at INR8.4/scm (-33% YoY, -9% QoQ). ◼ Opex was flat sequentially at INR4.5/scm, but up 13% YoY. Employee cost returned to FY20 levels of INR0.8/scm on an increase in volumes. For 9MFY21, EBITDA/PAT stood at INR6.2b/INR4.1b (-24%/-35% YoY). ◼ This was weighed by a 34% YoY fall in volumes to ~2mmscmd (primarily impacted by a 45% fall in CNG volumes to 1.2mmscmd). ◼ EBITDA/scm is up YoY to 11.4mmscmd (v/s INR9.9 in 9MFY20).

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A value play in CGDs: Maintain Buy ◼ The company has guided for volume growth of 5–6% per year (with double-digit growth in FY22 over FY21 – a COVID-led poor base). ◼ BEST is likely to add another 800–1,000 CNG buses over and above the current ongoing induction of 500 buses. This, along with the boost in volumes from an increasing need for personal mobility in the current COVID times – should aid volume growth for the company. ◼ PNG-commercial penetration in MAHGL’s GAs is just ~20%; it has the pipeline infrastructure already, but last-mile connectivity is required. ◼ A volume boost is expected from further developments at Raigad (peak demand of 0.6mmscmd expected over 3–4 years). ◼ The company is also looking forward to the 11th CGD round (~44 GAs are up for offer) and may bid for the same once it is open for bidding. ◼ The company trades at a ~54% discount to IGL’s P/E and EV/EBITDA (despite enjoying the highest EBITDA/scm), offering the highest dividend yield among CGDs at ~3% (FY20 dividend stands at INR35/share). The stock trades at 14x FY23E EPS of INR80.6; valuing it at 16x (in line with its LT average) FY23E EPS, we arrive at Target Price of INR1,290. Maintain Buy.

Standalone - Quarterly Perf. (INR m) Y/E March FY20 FY21 FY20 FY21E FY21 Var. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 3QE vs Est. Net Sales 7,575 7,836 7,445 6,866 2,618 5,067 6,664 6,566 29,721 20,915 5,762 16% YoY Change (%) 22.3 12.5 -1.1 -5.0 -65.4 -35.3 -10.5 -4.4 6.5 -29.6 -22.6 EBITDA 2,768 2,734 2,588 2,438 800 2,211 3,167 3,510 10,528 9,688 2,977 6% EBITDA/SCM 10.3 9.9 9.2 9.6 7.9 11.6 12.4 12.8 9.7 11.8 12.0 4% Margins (%) 36.5 34.9 34.8 35.5 30.6 43.6 47.5 53.5 35.4 46.3 51.7 Depreciation 372 391 415 440 423 425 441 470 1,617 1,758 440 0% Interest 14 15 16 21 15 20 17 26 65 79 20 Other Income 203 230 287 270 245 184 204 429 990 1,062 261 -22% PBT 2,586 2,558 2,444 2,247 607 1,950 2,913 3,443 9,835 8,913 2,778 5% Rate (%) 34.2 -5.8 23.9 25.9 25.5 26.0 25.4 25.3 19.3 25.5 25.2 Reported PAT 1,702 2,706 1,861 1,666 453 1,443 2,172 2,572 7,935 6,640 2,079 4% Adj PAT 1,702 2,706 1,861 1,666 453 1,443 2,172 2,572 7,935 6,640 2,079 4% YoY Change (%) 32.7 98.6 25.4 24.8 -73.4 -46.7 16.7 54.4 45.2 -16.3 11.8 Margins (%) 22.5 34.5 25.0 24.3 17.3 28.5 32.6 39.2 26.7 31.7 36.1 Sales Volumes (mmscmd) CNG 2.2 2.2 2.2 2.0 0.5 1.3 1.9 2.1 2.1 1.4 1.9 0% PNG - Domestic 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.4 0.5 0.4 15% PNG - Industry/ Commercial 0.4 0.4 0.4 0.4 0.2 0.3 0.4 0.4 0.4 0.3 0.4 1% PNG - Total 0.8 0.8 0.8 0.8 0.6 0.8 0.9 1.0 0.8 0.8 0.8 9% Total Volumes 3.0 3.0 3.1 2.8 1.1 2.1 2.8 3.0 3.0 2.2 2.7 2% E: MOFSL Estimates

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10 February 2021 3QFY21 Results Update | Sector: Agri

Kaveri Seed Co.

Estimate change CMP: INR522 TP: INR633 (+21%) Buy TP change Non-cotton segments on strong footing Rating change Performance below est. ◼ Kaveri Seed (KSCL)’s 9MFY21 revenue increased 12% on account of growth Bloomberg KSCL IN in the Hybrid Rice, Selection Rice, Maize, and Vegetable Seed segments, Equity Shares (m) 63 whereas Cotton Seed volumes were largely flat (2% decline). M.Cap.(INRb)/(USDb) 31.5 / 0.4 ◼ Performance was below our estimates; however, we maintain our 52-Week Range (INR) 682 / 274 FY21/FY22/FY23 estimates as just 10% of revenue contribution comes from 1, 6, 12 Rel. Per (%) -8/-54/-14 the 3Q of the financial year. Maintain Buy.

12M Avg Val (INR M) 182 Non-cotton seed drives growth ◼ KSCL’s revenue (standalone) was up 2% YoY to INR1,001m (est. INR1,127m) Financials & Valuations (INR b) in 3QFY21. EBITDA was up 3% YoY to INR69m (est. INR146m). The EBITDA Y/E Mar 2021E 2022E 2023E margin expanded 10bp YoY to 6.9%, and gross margin was 49.7% v/s 52.5% Sales 9.9 11.1 11.9 last year. Employee cost as a percentage of sales stood at 20.6% v/s 19.8%. EBITDA 2.9 3.2 3.5 PAT 3.1 3.2 3.5 Other expense increased to 22.8% vs. 20.9% of sales. Adj. PAT was up 23% EBITDA (%) 29.4 28.7 29.2 YoY to INR75m (est. INR131m), led by higher other income, lower EPS (INR) 52.2 53.2 57.6 depreciation, and a lower tax rate. EPS Gr. (%) 21.1 2.1 8.1 ◼ In 9MFY21, revenue/EBITDA/PAT grew 12%/19%/ 32%. BV/Sh. (INR) 182 200 221 ◼ In 9MFY21, cotton seed volumes remained flat YoY at 7m packets, leading Ratios to marginal revenue de-growth of 2% to INR4,350m. The company has Net D/E (0.5) (0.5) (0.5) gained market share in Cotton Seed in Gujarat and Haryana, whereas it has RoE (%) 30.6 27.9 27.4 lost share in Andhra Pradesh and Telangana. The contribution of new RoCE (%) 31.4 31.3 30.8 Payout (%) 55.2 67.6 62.5 products was up from 31% to 35% of volumes. Valuations ◼ In 9MFY21, maize volumes increased 19% to 10,077mt and revenues grew P/E (x) 10.0 9.8 9.1 14% YoY to INR1,860m. EV/EBITDA (x) 11.3 10.4 9.5 ◼ Hybrid rice volumes increased 48% YoY to 5,584m packets in 9MFY21, Div Yield (%) 4.0 5.1 5.1 leading to 59% YoY revenue growth to INR1,320m. The introduction of the FCF Yield (%) 10.1 9.1 9.9 new hybrid KPH 468, KPH 471, and KPH 7299 has helped achieve this strong *Consol growth. In 9MFY21, selection rice volumes increased 50% YoY to 14,641mt

and revenue grew 52% to INR960m. Shareholding pattern (%) ◼ Vegetable seed revenue grew 2.1x YoY to INR300m in 9MFY21, driven by As On Dec-20 Sep-20 Dec-19 2.5x volume growth to 179m packets. Promoter 55.5 55.5 55.1 DII 12.2 11.0 6.6 Highlights from management commentary FII 14.1 19.0 24.8 ◼ Cotton acreage is expected to remain stable next year. The management Others 18.1 14.4 13.5 expects 5–10% growth in the Cotton Seed segment, driven by market share gains. ◼ In the Vegetable Seed segment, the company aims to reach revenue of INR1b over the next five years. 40–50% revenue growth is expected in this segment in FY22. ◼ The EBITDA margin for non-cotton is upwards of 30%, while cotton stands below 20%. ◼ The company has sent samples to 9–10 countries. The INR300m revenue generated from exports (in 9MFY21) could increase to INR1b over the next couple of years. Realization is moderately lower in exports than in the domestic market, but would increase as scale is achieved. ◼ Guidance for FY22: Revenue growth of 10–12% would be driven by 5–10% growth in cotton and 15–20% in non-cotton; profit growth would be 15%.

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Valuation and view ◼ KSCL is well on track to diversify from cotton seed sales by increasing the share of rice and vegetables (non-cotton seed sales contribution to overall sales increased to 53% in 9MFY21 v/s 46% for 9MFY20). These segments are not only growing at a faster pace but also yielding higher margins (v/s the Cotton segment). ◼ The management expects stable cotton acreage in FY22, and the company remains confident of growing the Cotton Seed segment by 5–10% on the back of market share gains. ◼ Performance was below our estimates; however, we maintain our FY21/FY22/FY23 estimates as just 10% of revenue contribution comes from the 3Q of the financial year. ◼ We value the company at 11x FY23E EPS (in line with three-year average P/E) to arrive at TP of INR633. Maintain Buy.

Quarterly - Standalone (INR m) Y/E March FY20 FY21 FY20 FY21E FY21 Var 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE 3Q % Net Sales 6,555 774 984 519 7,485 834 1,001 567 8,833 9,886 1,127 -11 YoY Change (%) 12.6 3.0 46.5 16.1 14.2 7.7 1.7 9.2 14.9 11.9 14.5 Total Expenditure 4,222 661 917 637 4,692 703 932 658 6,437 6,984 980 EBITDA 2,333 113 67 -118 2,793 130 69 -91 2,395 2,902 146 -53 Margins (%) 35.6 14.6 6.8 -22.6 37.3 15.7 6.9 -16.0 27.1 29.4 13.0 Depreciation 59 59 62 64 52 53 54 58 243 217 69 Interest 0 0 1 1 0 2 0 1 2 4 1 Other Income 43 30 77 315 241 111 82 80 466 514 100 PBT before EO expense 2,317 84 82 132 2,982 187 96 -70 2,616 3,195 177 PBT 2,317 84 82 132 2,982 187 96 -70 2,616 3,195 177 Tax 28 15 22 39 72 -26 22 -20 103 48 46 Rate (%) 1.2 17.5 26.2 29.3 2.4 -13.8 22.8 29.3 3.9 1.5 26 Reported PAT 2,289 69 60 94 2,910 212 75 -49 2,513 3,147 131 -43 Adj PAT 2,289 69 60 94 2,910 212 75 -49 2,513 3,147 131 -43 YoY Change (%) 8.7 -41.9 65.8 NA 27.1 206.4 23.2 -152.8 17.0 25.2 116 Margins (%) 34.9 9.0 6.1 18.0 38.9 25.5 7.4 -8.7 28.4 31.8 11.6 *Quarterly numbers are standalone and annual numbers are consol.

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11 February 2021 Economy | 4QCY20 Chart Book

BRICS+

BRICS+: 4QCY20 - India vis-à-vis other emerging markets (EMs)

4QCY20 - India vis-à-vis other emerging markets (EMs) ❖ COVID-19 changed global macroeconomic outlook substantially in CY20. The same is expected to be restored in CY21. China and Taiwan were the two least affected countries last year, while India, Russia, and South Africa were worst affected. To counter the effects of the pandemic, almost all countries widened their fiscal deficit and central banks flushed massive liquidity into the economy. It led to the best- possible cocktail for the financial markets, especially equities. Due to weak growth, inflation eased in most EMs (except India). The external sector improved, notwithstanding lower exports. A sharp increases in foreign exchange reserves in most EMs, with India leading the pack, provided a cushion against volatility. ❖ This quarterly publication provides a comparative analysis of macroeconomic conditions in the world’s 10 major EMs. Quite often, these economies are clubbed together as a basket, especially in terms of portfolio allocation. The 10 EMs included in this publication are: ❖ 1. Brazil (BR), 2. China (CN), 3. India (IN), 4. Indonesia (ID), 5. South Korea (KR), 6. Malaysia (MY), 7. Russia (RU), 8. South Africa (SA), 9. Taiwan (TW), 10. Thailand (TH).

4QCY20: Key highlights

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In conversation

Tata Steel: Higher coking coal will impact profitability in Q4FY21; TV Narendran, MD & CEO  Steel prices higher by Rs. 6000-7000/t vs Q3FY21  Higher coking coal will impact profitability in Q4FY21  Stripped off one-off, Europe EBITDA/t would be positive in Q3FY21  Reversal of wage support from Netherlands hit Europe EBITD/t by $50 m  Steel contracts in Europe got revised in January 2021; revised European steel contracts will reflect positively in Q4FY21  Splitting UK & Netherlands to make the entities leaner and focussed  In discussion with Dutch and UK Government constantly to aid European operations  Will look at proposal to sell European assets if approached; not actively soliciting buyers  Gross debt will reduce by Rs. 12000 crore in this quarter; stick to debt reduction target of $1 bn per year  Deleveraging continues to remain priority  Will be keen on Neelachal Ispat Nigam as its focus is on long products

Maruti Suzuki: Continue to see recovery in sales; currently 15% below last year’s level; Shashank Srivastava, ED-International Operations  Production was normal in January and continues to be the same in February  Have not yet been hit by the global chip shortage  Demand was chasing supply in January  Vaahan data comes with a lag so need to read it with caution  States like Telangana and Andhra Pradesh are not part of vaahan numbers; contribute 12% to sales  COVID wave in Europe is unlikely to affect us  We have very low inventory at dealerships  Need to undertake extra production to fill inventory levels  Price rise in precious metals leading to input cost inflation for auto sector  We will have to take a balanced view w.r.t margin. Sometimes one has to take cut on the bottomline to protect topline  Hatch segment seeing some revival; SUV segment continued to grow. Attractively-priced entry level SUVs are doing well

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HDFC Life: Fairly pleased with the performance in January; continue to expect growth to return to normal levels; Vibha Padalkar, MD & CEO  Fairly pleased with performance in January  Group business is lump and credit protection is still recovering  Considering high base of last year, growth was good  Happy to have clocked double-digit growth for the year so far  IRRs on ‘Click To Invest’ products are compelling  Company is not focused on high-ticket ULIP cases  Worst case impact of ULIP tax will be 3% on topline, Nil on bottomline  Saw an inflection point after September 2020 in protection  Retail protection share is about 8% today  Sum assured has been impacted by lower credit protect business  The mid and younger insurers require capital, FDI will help them; FDI is a good indication that India is open for business  We should be able to inch beyond last year’s VNB  Market share has been increasing constantly

Muthoot Fin.: Seeing good demand for gold loans; stress in housing and vehicle finance space; George Alexander Muthoot, MD  Business has been better than pre-COVID levels  Seeing good demand for gold loans  FY21 YTD growth was 22%  Competition is there; but market is expanding which is aiding growth  Non-gold loan portfolio share is down to 10% from 13% in FY20  Spread would continue to remain around 10%  Average disbursal loan to value is at 69-70%  New customers are moving towards banks and other players  Non-gold loan portfolio share is down to 10% from 13% in FY20

Apollo Tyres: Seeing pick-up in freight movement due to economic reforms, huge infra boost; Neeraj Kanwar, VC & MD  Company made huge gains in market share in Q3; market share gains are sustainable  Company gained 400 bps market share in passenger car segment  Personal mobility has picked up due to COVID-19 outbreak  Freight movement has picked up due to economic reforms and huge boost in infra  Government bringing tyres into the import restriction list is a big positive  We have put fresh capital into building our into building our plants  There is softness in the European markets  Winter tyre sales have been slow  We will be conservative in Q4 due to second wave of COVID-19 in Europe

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Varroc Engineering: Awaiting PLI scheme to map out strategy; T Srinivasan, Group CFO  Second wave of COVID-19 impacted our operations in Europe  Volume ramp-up in the new plants has been slower than expected  Expect volume to recover from the current quarter  Cautiously optimistic that we will continue to see strength  Awaiting PLI scheme to map out strategy  The new plants are strategic investments based on confirmed orders

CEAT: Raw material price rise significant; semiconductor shortage may have trickle-down effect; Kumar Subbiah, CFO  Impact of semiconductor shortage has been insignificant  Demand continues to be robust; expect Q4 to be as good as Q3 w.r.t demand  Haven’t seen usual seasonal dip in demand in January  Prices of crude derivatives have shot up a lot more than crude itself  If semiconductor shortage continues, it may have a trickle-down impact  Raw material price rise is having 8-10% impact on finished products prices  Will have to take appropriate pricing decisions to counter raw material inflation

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From the think tank

MODERN MONETARY THEORY: LET’S LOOK AT IT FROM INDIA’S PERSPECTIVE  Stephanie Kelton is one of the most influential advocates of Modern Monetary Theory, or MMT. The MMT challenge to mainstream thinking on how to manage an economy has grown in popularity in recent years. It especially challenges the view that government spending to support an economy is constrained by tax collections. Kelton has written a lucid introduction to MMT, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. Much of it deals with the situation in the US. I read it through Indian eyes. Is MMT relevant to India?  This is worth asking for two reasons. First, the recent fiscal expansion to bolster the ongoing economic recovery will ensure that public debt as a proportion of the Indian economy is at its highest in several decades. The 15th Finance Commission, in its recent report, has estimated that public debt will be at 85.7% of gross domestic product (GDP) in 2025-26, even after the government begins to chip away at its fiscal deficit. Second, Kelton makes an important argument in her book. The ability of a government to spend its way out of an economic downturn is contingent on its institutional details, especially the idea of monetary sovereignty. Any country that issues its own fiat current, and only borrows in that currency, is in effect released from the usual concerns about how to fund a budget deficit. Kelton illustrates this through two extreme examples. The US prints the global reserve currency. Greece has signed away its monetary sovereignty to the European Central Bank. Interestingly, Kelton writes that even the US did not have complete monetary sovereignty under the Bretton Woods system, when its dollar was linked to gold.  Most countries are somewhere between the two extremes. Kelton rightly says that monetary sovereignty is a continuum rather than a binary classification. Countries have different levels of monetary sovereignty. Where would India fit in? The Indian government mostly borrows in rupees. Yet, the country as a whole borrows from the rest of the world. One of the central claims of MMT is that governments do not face any financial constraints. They only face real constraints. However, countries such as India do face a financial constraint. It is called the balance of payments. India needs foreigners to buy domestic assets to get the dollars it needs to fund its current account deficit. It is a financing constraint, and one that is not unrelated to government budgetary policy.  The MMT camp is not unconcerned about inflation. It climbs when the economy runs faster than its productive capacity. Kelton also argues that inflation can take hold if people hold too much money that they may spend, thus pushing up prices, though the focus is on nominal spending rather than the printing of money by the central bank. Some MMT arguments involve straw men. Few mainstream economists believe that the government budget faces the same constraints as a household budget. Kelton almost exclusively cites politicians rather than economists in this context. However, mainstream economists believe that budget deficits are sustainable so long as the borrowing costs of the government are lower than nominal economic growth.  Kelton does not completely dismiss this concern, but points out that a government with monetary sovereignty has total control over the domestic rate

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of interest. The central bank can provide the monetary support to make any level of government borrowing sustainable, at least till inflation begins to accelerate. India does not have this freedom. It is a price taker rather than a price maker in the global financial system. Indian interest rates are influenced by global rates through flows of international capital into local financial markets. MMT economists argue that governments create money so that citizens have the means to pay taxes. People use the currency as a medium of exchange later. This has clear roots in the early 20th century school of thought known as chartalism. Changes in tax rates are a means to either keep or take away more money from citizens, thus allowing the government to regulate economic activity. It is not clear how frequent changes in taxes to manage aggregate demand will affect long-term investment decisions of households and firms.  One final point. The MMT view is that inflation takes off only when resources are fully employed. This is also what Abba P. Lerner argued many decades ago in his articles on functional finance. The job of fiscal policy is to ensure full employment, rather than maintain “sound finances". Most of these arguments are in the context of developed economies that face weak demand as well as excess production capacity. The situation in India is far more complex. The labour market is informal. Employment is often seasonal. There is a persistent problem of disguised unemployment. Labour force participation is low, especially for women. The structural challenge is to create jobs outside agriculture. It is doubtful that these issues can be dealt with through the management of aggregate demand alone. There exist several theoretical critiques of MMT. This column has focused on some of the operational grey areas, especially whether it is a viable option for a country like India.

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