INDIA DAILY

October 8, 2020 India 7-Oct 1-day 1-mo 3-mo Sensex 39,879 0.8 3.9 9.8 Nifty 11,739 0.7 3.7 9.6 Contents Global/Regional indices Dow Jones 28,303 1.9 2.9 8.6 Daily Alerts Nasdaq Composite 11,365 1.9 4.8 8.3 Results FTSE 5,946 (0.1) 0.3 (3.4) TCS: Triumphant return Nikkei 23,490 0.3 0.9 4.7 Hang Seng 24,243 1.1 (1.5) (7.2)  Excellent quarter with significant outperformance on revenues and margins KOSPI 2,399 0.5 (0.1) 11.1  Confident of longer-term opportunity, strong deal wins to aid near term Value traded – India

 Raise FY2021-23E EPS by 4-8%; Fair Value at Rs2,800 Cash (NSE+BSE) 563 585 621 14,67 Derivatives (NSE) 23,548 13,372 9 Sector alerts Deri. open interest 4,140 3,851 3,435 Gas Utilities: Initial steps before the leap

 A few steps undertaken recently to gradually liberalize the entire gas value Forex/money market

chain Change, basis points  Inclusion of gas under GST and full deregulation of domestic gas are crucial 7-Oct 1-day 1-mo 3-mo pending steps Rs/US$ 73.4 (0) (37) (153) 10yr govt bond, % 6.3 (2) 7 12  GAIL to benefit the most; ONGC/OIL may get a blessing in disguise; CGDs Net investment (US$ mn) at risk 6-Oct MTD CYTD Health Care Services: Diagnostics: near-term Covid boost FIIs 145 445 4,485 MFs 18 18 2,699  Tailwinds from Covid testing to drive strong revenue growth in FY2021 Top movers  Revenues to return to normal trajectory by 2HFY22 as Covid testing Change, % declines Best performers 7-Oct 1-day 1-mo 3-mo

APHS IN Equity 2,173 2.2 31.6 55.9  Raise FY2021-22 estimates; retain SELL rating on DLPL/METROHL TTMT/A IN Equity 64 (1.3) 10.2 52.7 Oil, Gas & Consumable Fuels: 2QFY21 preview WPRO IN Equity 335 1.6 18.7 50.3 JSTL IN Equity 291 0.0 3.7 49.2  RIL: higher petchem, Jio and retail EBITDA to offset lower crude throughput AL IN Equity 77 0.5 13.4 47.4 and stronger rupee Worst performers

 OMCs: lower normalized profits reflecting moderation in auto fuel YES IN Equity 13 (1.1) (5.7) (49.5)

marketing margins IHFL IN Equity 151 (1.9) (25.1) (33.9)

 Gas utilities: robust recovery in volumes for GAIL and PLNG; higher margins BHEL IN Equity 28 (3.2) (24.3) (31.2) for CGDs PNB IN Equity 28 (2.1) (17.5) (25.5) BHARTI IN Equity 422 (1.0) (15.2) (24.7)  Upstream: higher oil prices provide a relief before reduction in domestic gas price for 2HFY21

Telecommunication Services: The pricing jam – a game theory perspective

 Four actors, three choices

 R-Jio – would prefer status quo on pricing

 Bharti – indifferent; would prefer prices to go up

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. REDUCE TCS (TCS) IT Services OCTOBER 07, 2020 RESULT Sector view: Attractive

Triumphant return. TCS reported strong all-round growth driven by market share gains, CMP (`): 2,737 and resilient spending by clients. Strong revenue growth 4.8% qoq in c/c drove a sharp Fair Value (`): 2,800 margin expansion and net profit outperformance. TCS will be at the forefront of the BSE-30: 39,879 transformation journey of clients backed by its full spectrum of offerings, ability to shape and stich together integrated deals and excellent product and platform offerings. We raise FY2021-23E EPS estimate by 4-8% and FV to Rs2,800 (Rs2,320 earlier), valuing the stock at 25X December 2022E earnings. Full valuations lead to an unchanged stock view.

TCS Stock data Forecasts/valuations 2021E 2022E 2023E 52-week range (Rs) (high,low) 2,770-1,504 EPS (Rs) 86.6 99.6 110.7 Mcap (bn) (Rs/US$) 10,272/140.1 EPS growth (%) 0.4 15.0 11.2 ADTV-3M (mn) (Rs/US$) 11,373/155 P/E (X) 31.6 27.5 24.7 Shareholding pattern (%) P/B (X) 12.0 10.1 9.3 Promoters 72.0 EV/EBITDA (X) 22.1 19.5 17.5 FIIs 15.8 RoE (%) 37.8 39.7 39.3 MFs/BFIs 2.6/5.5 Div. yield (%) 1.6 2.2 3.2 Price performance (%) 1M 3M 12M Sales (Rs bn) 1,602 1,795 2,008 Absolute 18 21 36 EBITDA (Rs bn) 447 500 553 Rel. to BSE-30 13 11 28 Net profits (Rs bn) 325 368 410 Excellent quarter with significant outperformance on revenues and margins TCS reported sequential c/c revenue growth rate of 4.8% (3.2% decline yoy), ahead of our estimate of 2.9%. Revenues grew 7.2% qoq to US$5.4 bn. Revenue growth was broad-based across verticals (except communications) and geographies (India grew 20% qoq). Revenue growth was led by wallet share gains and increased tech spending by clients. Spending was driven by the need for better customer & employee experience and greater business & operational resilience. Revenue growth could also have been aided by end of supply-side constraints. The strong revenue growth flowed through EBIT margin that increased 260 bps qoq and 220 bps yoy. The entire increase yoy was led by decline in SG&A cost. Net profit before exceptional items stood at Rs84.3 bn (+4.9% yoy, +20.3% qoq), 3.9% higher than our estimate. The company provided Rs12.2 bn towards the EPIC legal claim amounting to post-tax extraordinary charge of Rs9.6 bn. Confident of longer-term opportunity, strong deal wins to aid near term Consistent with our view, TCS management indicated that IT spending will accelerate. Current focus of clients is on operational resilience, which will shift towards building a multifaceted digital core that will finally culminate in utilizing the native capabilities of the digital core to create new business models and differentiated customer experiences. None of these themes are new; the urgency to achieve these objectives has increased post-Covid. TCS reported strong deals of US$8.6 bn, which include US$2.5 bn 10-year deal with Phoenix Group. Deal wins in 2QFY20 were plenty of small-size projects. The company indicated that the pipeline is good and in line with the historic trend of a mix of large and small deals. 2HFY21 could possibly have the exaggerated impact of furloughs in a few verticals, which will be offset by good business momentum. Raise FY2021-23E EPS by 4-8%; Fair Value at Rs2,800 Kawaljeet Saluja

We incorporate TCS’ strong performance and resilience in IT spending of clients and raise FY2021-23E revenue estimates by 4-5%. Noting the relative lack of pricing pressure and growth Sathishkumar S leverage, we raise FY2021-23E EBIT margin assumption by 1-1.1% and EPS by 4-8%. We raise our Fair Value by 20% to Rs2,800 (Rs2,320 earlier), valuing the stock at 25X December 2022E EPS. TCS will be at the forefront of the transformation journey of clients backed by its full spectrum of offerings, ability to shape and stich together integrated deals and excellent product and platform offerings. The stock price more than adequately discounts these positives. We maintain REDUCE rating on the stock. [email protected] Contact: +91 22 6218 6427

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

Sharp EBIT margin expansion

EBIT margin increased 260 bps qoq and 220 bps yoy. The qoq increase can be explained by—(1) leverage from growth and (2) absolute 2.6% qoq decline in SG&A costs. Other costs in SG&A declined 48% qoq and aided EBIT margin by 70 bps. Not surprisingly, travel costs barely changed. TCS has announced wage revision for all employees starting October 1, 2020. Management indicated that the current margin levels are contingent on growth but expressed confidence on its sustenance.

DSO declines to a new low driving strong FCF

DSO declined to 86 days from 94 days in 1QFY21. Sharp decline in DSO drove robust FCF/adjusted net income of 94.2%.

Demand picks up across verticals; demand strong in financial services

Three verticals stood out in terms of sequential revenue growth—(1) BFSI grew 6.2% qoq, (2) retail grew 8.8% off a low base and (3) continued momentum in the life sciences and healthcare vertical. Retail grew strongly due to a low base and gained from flight to quality by customers. TCS indicated good demand recovery in essential retailers and CPG. Growth in financial services was led by retail banking and mortgages, while growth in insurance and capital markets was moderate.

Steady deal wins excluding Phoenix Group

Deal wins TCV increased 34.4% yoy to US$8.6 bn. Note that the Phoenix deal, which was announced in December 2019, was signed and included in TCV for the quarter. Phoenix deal TCV is US$$2.5 bn over a period of 10 years. Excluding Phoenix, TCV was moderate at US$6.1 bn and declined 5% on yoy comparison. Management indicated that bookings in the quarter reflected high volume of small deals. The deal pipeline is strong with distribution of deals in size that is in line with historic trends.

Buyback of equity shares through tender route at Rs3,000/share

TCS has announced buyback of 53.3 mn share at Rs3,000/share for an aggregate amount of Rs160 bn excluding taxes. Shares bought back will represent 1.42% of outstanding shares. The buyback will be through the tender route.

TCS perspective on IT spending acceleration

TCS indicated that the company is positioned at the start of the initial phase of a multi-year technology transformation cycle. Companies have been forced to accelerate investments in building a strong digital foundation and for collaboration, security and resiliency. IT budgets will expand as a consequence. TCS indicated that cloud migration and adoption of SaaS technologies is the first phase of digital transformation leading to reduction in legacy IT estate. TCS’ view is akin to our view of pull forward in digital transformation spending of organizations. Core modernization is an important component of this transformation and is a large opportunity in which TCS is well-positioned to benefit. While accelerated spending on transformation will drive strong demand in the medium term, TCS goes a step further and believes that once organizations have migrated from legacy infrastructure to the cloud, they will continue invest in new technologies such as AI that are native to the cloud platform, further driving demand for the industry. TCS did not comment on the potential timing and opportunity size of the post transformation opportunity.

Full service model, expertise across legacy and digital technology stacks, leadership across digital competencies, ability to stitch together multiple offerings and offer solution on outcome basis and healthy portfolio of products and platforms will enable TCS to be at the forefront of the digital transformation journey of clients.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 IT Services TCS

Key highlights from earnings call and press conference

 Demand recovery. TCS indicated that recovery in demand is sustainable and not purely driven by pent-up demand. The quality of client conversations and deal pipeline are good. TCS indicated that recovery in revenues was pulled forward by a quarter and recovery in margins was pulled forward by a couple of quarters. Strong demand is broad-based across clients, and driven by urgency of technology transformation agenda. TCS indicated that health risks from the pandemic and risks to economic growth continue to exist.

 Seasonal weakness in 3QFY20. TCS indicated that seasonal weakness in the December quarter can be exaggerated for a few verticals.

 Wage hikes. TCS indicated that wage hikes will be in line with previous years and across all employee bands. Wage hikes will be effective from October 2020.

 H-1B risk. TCS indicated that the company is working through implications of proposed changes to H-1B provisions but was confident of its ability to withstand shocks from any adverse event.

 Top technology trends. TCS indicated that (1) cloud migration, (2) higher collaboration with external ecosystem through open APIs and micro services and (3) cost structure variabilization are key technology trends in the industry.

 Deal wins and pipeline. TCS indicated that deals won in the quarter consisted of relatively higher middle and small sized deals compared to large deals. TCS indicated accelerated deal closure for middle and small sized deals. TCS indicated that the middle and early stage pipeline had a more even mix of large and small opportunities similar to the deal pipeline composition in previous quarters. TCS indicated quite a few large deals in the pipeline, which are progressing well.

 Pricing. TCS indicated ability to charge higher pricing in pockets in high demand areas in digital.

 UK commentary. The UK posted strong sequential growth in the quarter although on a low base. TCS indicated that the region continues be a structurally volatile and a weak market.

 Hiring. TCS added 9.864 employees on net basis leading to a headcount of 453,540. The company remotely onboarded 8,000 freshers during the quarter and is set to onboard 12,000 freshers in the next quarter.

 Products and platforms. TCS indicated strong demand for the products and platforms business. Demand was strong for Ignio, BaNCS, MasterCraft and Optumera.

 Deal wins. TCS indicated that TCV of deal wins in North America was US$3.2 bn. TCV of deal wins in BFSI was US$1.7 bn while that in retail was US$1 bn.

 Contextual knowledge. TCS indicated that the company values contextual knowledge immensely, which helps provide seamless services to clients and reduces risks in delivery. Contextual knowledge is highly differentiated and difficult to obtain. An industry-leading retention rate has helped TCS build high contextual knowledge of clients’ business processes and technology landscape.

 Supply constraints. TCS indicated that supply-side issues were not meaningful.

 IT budgets. TCS expects IT budgets to increase across verticals. TCS indicated that funding for technology transformation is available in most industries barring highly

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH TCS IT Services

distressed sectors like airlines. TCS indicated that a few bankruptcies can be positive for IT demand and noted that the path out of bankruptcy will also require technology investments.

 Capital allocation. TCS announced US$2.18 bn buyback at Rs3,000/share. TCS also declared interim dividend of Rs12/share.

Exhibit 1: TCS Interim Results 2QFY21 (consolidated, IFRS)

% chg. 2QFY21 2QFY21E 2QFY20 1QFY21 KIE yoy qoq 1HFY21 1HFY20 % chg. FY2021E FY2020E % chg. Re/US$ rate 74.0 74.2 70.6 75.8 (0.3) 4.7 (2.3) 74.9 70.1 6.9 74.1 71.2 4.0 Revenues (US$ mn) 5,424 5,292 5,517 5,059 2.5 (1.7) 7.2 10,468 11,002 (4.9) 21,623 22,031 (1.9) Revenues 401,350 392,678 389,770 383,220 2.2 3.0 4.7 784,570 771,490 1.7 1,602,214 1,569,490 2.1 Cost of revenues (237,150) (232,739) (230,630) (232,140) 1.9 2.8 2.2 (469,290) (457,840) 2.5 (953,220) (923,220) 3.2 Gross profit 164,200 159,939 159,140 151,080 2.7 3.2 8.7 315,280 313,650 0.5 648,994 646,270 0.4 SG&A expenses (59,050) (60,890) (65,530) (60,600) (3.0) (9.9) (2.6) (119,650) (127,840) (6.4) (241,604) (260,470) (7.2) EBIT 105,150 99,049 93,610 90,480 6.2 12.3 16.2 195,630 185,810 5.3 407,390 385,800 5.6 Other Income 7,400 7,531 11,680 4,560 (1.7) (36.6) 62.3 11,960 25,860 (53.8) 27,730 36,680 (24.4) Profit before tax 112,550 106,580 105,290 95,040 5.6 6.9 18.4 207,590 211,670 (1.9) 435,120 422,480 3.0 Provision for tax (27,930) (25,020) (24,710) (24,550) 11.6 13.0 13.8 (52,480) (49,560) 5.9 (109,243) (98,010) 11.5 Net income before MI 84,620 81,560 80,580 70,490 3.8 5.0 20.0 155,110 162,110 (4.3) 325,877 324,470 0.4 Minority Interest (290) (418) (160) (410) (700) (380) (1,298) (1,070) Net income (before EO items) 84,330 81,141 80,420 70,080 3.9 4.9 20.3 154,410 161,730 (4.5) 324,579 323,400 0.4 Extraordinary items (9,580) — — — (9,580) — (9,580) — Net income 74,750 81,141 80,420 70,080 (7.9) (7.1) 6.7 144,830 161,730 (10.4) 314,999 323,400 (2.6)

EPS (Rs/ share) 19.9 21.6 21.4 18.7 (7.8) (7.0) 6.7 41.2 43.1 (4.5) 86.6 86.2 0.4 No of shares outstanding (mn) 3,751 3,753 3,753 3,752 3,752 3,753 3,750 3,752 As % of revenues Gross profit margin 40.9 40.7 40.8 39.4 40.2 40.7 40.5 41.2 Operating margin (EBIT) 26.2 25.2 24.0 23.6 24.9 24.1 25.4 24.6 SG&A expenses 14.7 15.5 16.8 15.8 15.3 16.6 15.1 16.6 Tax rate (% of PBT) 24.8 23.5 23.5 25.8 25.3 23.4 25.1 23.2

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: TCS: key changes to FY2021-23 estimates

New Old Change (%) Rs mn 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Revenues 1,602,214 1,795,154 2,007,526 1,571,899 1,739,218 1,924,121 1.9 3.2 4.3 EBIT 407,390 460,711 513,021 383,057 427,995 472,802 6.4 7.6 8.5 Net Profit 324,579 368,299 409,452 313,845 353,057 384,591 3.4 4.3 6.5 EPS (Rs/ share) 86.6 99.6 110.7 83.6 94.1 102.5 3.5 5.8 8.0

Revenues (US$ mn) 21,623 23,935 26,072 20,817 22,884 24,989 3.9 4.6 4.3 Revenue growth (US$, %) (1.9) 10.7 8.9 (5.5) 9.9 9.2 Revenue growth (c/c, %) (2.4) 10.7 8.9 (4.5) 9.9 9.2 Revenue growth (organic c/c, %) (2.4) 10.7 8.9 (4.5) 9.9 9.2

Re/$ rate 74.1 75.0 77.0 75.5 76.0 77.0 (1.9) (1.3) —

EBIT margin 25.4 25.7 25.6 24.4 24.6 24.6

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 IT Services TCS

Exhibit 3: Revenue mix across geographies and verticals (Sep 2020)

Revenues Growth (%) C/C growth (%) (US$ mn) QoQ YoY % of total QoQ YoY Total revenues 5,424 7.2 (1.7) 100.0 4.8 (3.2) Revenue by geography North America 2,707 4.1 (3.0) 49.9 3.6 (3.0) Latin America 92 7.2 (12.0) 1.7 5.5 (2.7) UK 841 8.6 (2.3) 15.5 3.8 (8.1) Continental Europe 884 12.0 9.8 16.3 6.1 3.7 India 271 24.7 (13.8) 5.0 20.0 (10.7) Asia Pacific 526 6.1 1.5 9.7 2.9 (1.8) MEA 103 7.2 (15.1) 1.9 8.0 (5.4) Revenue by verticals BFSI 1,730 9.3 1.2 31.9 6.2 (1.1) Retail & CPG 792 11.8 (3.0) 14.6 8.8 (5.7) Communication & Media 353 (1.8) (8.7) 6.5 (2.4) (10.1) Manufacturing 510 3.9 (5.7) 9.4 1.4 (7.3) Life sciences & healthcare 532 9.4 18.9 9.8 6.9 17.2 Technology & Services 483 4.9 0.6 8.9 3.1 (1.5) Regional markets and others 1,025 5.5 (9.8) 18.9 3.7 (9.2)

Source: Company, Kotak Institutional Equities

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH TCS IT Services

Exhibit 4: Revenue growth across geographies and verticals in constant-currency terms

Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Constant currency revenue (qoq %) Revenue by geography North America 3.7 2.6 NA NA NA NA NA NA NA 3.6 Latin America 2.6 7.1 NA NA NA NA NA NA NA 5.5 UK 8.2 6.0 NA NA NA NA NA NA NA 3.8 Continental Europe 5.3 4.1 NA NA NA NA NA NA NA 6.1 India (1.0) 5.0 NA NA NA NA NA NA NA 20.0 Asia Pacific 3.6 4.5 NA NA NA NA NA NA NA 2.9 MEA (4.6) 0.3 NA NA NA NA NA NA NA 8.0 Revenue by verticals - NEW BFSI 3.7 3.5 NA NA NA NA NA NA NA 6.2 Retail & CPG 3.6 3.4 NA NA NA NA NA NA NA 8.8 Communication & Media 5.1 — NA NA NA NA NA NA NA (2.4) Manufacturing 2.3 1.6 NA NA NA NA NA NA NA 1.4 Life sciences & healthcare 4.3 5.7 NA NA NA NA NA NA NA 6.9 Energy & Utilities 5.2 — NA NA NA NA NA NA NA Travel & hospitality Technology & Services 2.4 2.3 NA NA NA NA NA NA NA 3.1 Regional markets and others 5.9 7.3 NA NA NA NA NA NA NA 3.7 Total growth 4.1 3.7 1.8 2.4 NA NA NA NA NA 4.8

Constant currency revenue (yoy %) Revenue by geography North America 7.0 8.1 8.2 9.9 7.7 5.3 4.1 0.2 (6.1) (3.0) Latin America 5.2 6.8 7.6 16.2 6.4 7.3 6.2 3.9 0.2 (2.7) UK 18.7 22.8 25.1 21.3 16.0 13.3 7.5 5.4 (8.5) (8.1) Continental Europe 18.6 17.4 17.6 17.5 15.0 16.0 15.9 11.9 2.7 3.7 India (4.7) 7.4 9.7 11.3 15.9 7.7 6.4 (1.9) (27.6) (10.7) Asia Pacific 10.8 12.5 12.6 11.5 9.5 6.5 5.7 3.5 (3.2) (1.8) MEA (3.6) (4.4) (3.3) (4.0) 6.4 7.3 10.8 1.3 (11.7) (5.4) Revenue by verticals - Old BFSI 4.1 6.1 8.6 11.6 Retail & CPG 12.7 15.6 10.5 9.9 Communication & Media 9.5 8.0 10.8 10.0 Manufacturing 6.9 6.9 6.7 9.2 Life sciences & healthcare 12.1 14.7 15.7 18.2 Energy & Utilities 30.9 22.2 18.1 11.3 Travel & hospitality Technology & Services 6.7 5.8 5.8 6.0 Regional markets and others 11.8 19.8 22.6 20.8 Revenue by verticals - NEW BFSI 9.2 8.0 5.3 (1.3) (4.9) (1.1) Retail & CPG 7.9 4.8 5.1 4.2 (12.9) (5.7) Communication & Media 8.4 11.8 9.5 9.3 (3.6) (10.1) Manufacturing 5.5 7.8 9.2 7.0 (7.1) (7.3) Life sciences & healthcare 18.1 16.0 17.1 16.2 13.8 17.2 Technology & Services 7.8 5.6 3.3 3.5 (4.0) (1.5) Regional markets and others 16.9 9.3 5.7 (0.7) (12.5) (9.2)

Revenue by services Digital revenues 44.8 59.8 52.7 46.4 42.6 27.9 NA NA NA NA Total growth 9.3 11.5 12.1 12.7 10.6 8.4 6.8 3.0 (6.3) (3.2) Notes: (a) Verticals reclassifed in Jun-19 quarter (b) Travel & Hospitality vertical included in Retail & CPG vertical from Jun-18

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 IT Services TCS

Exhibit 5: TCS' yoy constant-currency revenue growth trend

20

16

12

8

4

-3.2

0

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17 Dec-18

(4) Dec-19

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19 Mar-20

(8)

Notes: (1) YoY growth in US$ revenues until March 2015 and YoY growth in c/c terms thereafter.

Source: Company, Kotak Institutional Equities

Exhibit 6: Quarterly revenue and margin evolution for FY2021E

Revenues (US$ mn) EBIT margin (%) 6,000 26.2 26.5 26.0 26.0 5,800 25.6 25.2 25.5 25.0 25.1 5,600 25.0

5,400 24.5

5,200 23.6 5,807 24.0 5,586 5,636 5,504 23.5 5,000 5,444 5,409 23.0 4,800 5,059 22.5

4,600 22.0 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20E Mar-21E Jun-21E

Source: Company, Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH TCS IT Services

Exhibit 7: EBIT margin expands by 260 bps qoq to 26.2%

32

30

28

26.2 26

24

22

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18 Mar-19 Mar-20

Source: Company, Kotak Institutional Equities

Exhibit 8: TCS: BFSI revenue growth trends

BFSI revenue growth rate (c/c yoy,%) 14 11.6 12 9.2 10 8.6 8.0 8 6.1 5.3 5.1 4.7 6 4.1 4 2.9

2 0.2 0 -1.3 -1.1

-2

Jun-17

Jun-18

Jun-19

Jun-20

Sep-17

Sep-18

Sep-19

Sep-20

Dec-17

Dec-18

Dec-19

Mar-18 Mar-19 -4 Mar-20 -4.9 -6

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 IT Services TCS

Exhibit 9: TCS: Retail vertical revenue growth trends

Retail & CPG revenue growth rate (c/c yoy, %) 20 15.6 15 12.7 10.5 9.9 10 8.4 7.9 5.1 4.8 4.2 5 3.0

(1.4) 0 (3.4) -5.7

-5

Jun-17

Jun-18

Jun-19

Jun-20

Sep-17

Sep-18

Sep-19

Sep-20

Dec-17

Dec-18

Dec-19

Mar-18

Mar-19 Mar-20

-10 -12.9

-15

Source: Company, Kotak Institutional Equities

Exhibit 10: TCS: employee costs as a % revenues

Employee costs (Rs bn) Employee costs as a % of revenues 60.0 227 250 58.0 200 56.0 56.5

54.0 150 52.0

50.0 100

48.0 50 46.0

44.0 -

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Dec-14

Dec-15

Dec-16

Dec-17 Dec-18 Dec-19

Source: Company, Kotak Institutional Equities

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH TCS IT Services

Exhibit 11: Strong TCV of deal wins helped by inclusion of US$2.5 bn deal with Phoenix Group

Quarterly TCV of deal wins (US$ bn) 10 8.9 9 8.6 8 6.9 7 6.4 6.2 6 5.9 5.7 6 4.9 4.9 5 4 3 2 1 0 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20

Source: Company, Kotak Institutional Equities

Exhibit 12: Number of clients in various client buckets

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Client metrics US$1 mn clients 963 978 989 996 1,008 1,014 1,032 1,053 1,072 1,066 1,076 US$5 mn clients 495 508 513 519 532 551 554 557 565 564 565 US$10 mn clients 350 355 365 370 371 384 398 395 391 382 386 US$20 mn clients 207 206 213 211 215 219 225 232 240 230 228 US$50 mn clients 97 97 98 99 99 100 101 102 105 100 97 US$100 mn clients 38 40 44 45 44 44 47 47 49 48 49

Source: Company, Kotak Institutional Equities

Exhibit 13: Subcontracting costs declined by 40 bps qoq to 7.6%

Subcontracting costs as a % of revenue 8.5

8.0

7.5 7.6 7.0

6.5

6.0

5.5

5.0

Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20

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

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 IT Services TCS

Exhibit 14: TCS: DSO reduces by 8 days in 2QFY21

DSO quarterly annualized 96 95 94 94 94 94 93 93 91 92 90 90 91 91 90 90 89 88 87 88 87 87 86 86

84

82

80

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Dec-16

Dec-17

Dec-18

Dec-19

Mar-17

Mar-18 Mar-19 Mar-20

Source: Company, Kotak Institutional Equities

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH TCS IT Services

Exhibit 15: TCS: quarterly operating metrics

Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Revenues (US$ mn) 5,215 5,250 5,397 5,485 5,517 5,586 5,444 5,059 5,424 Revenues (Rs mn) 368,540 373,380 380,100 381,720 389,770 398,540 399,460 383,220 401,350 Exchange rate (Re/US$) 70.7 71.1 70.4 69.6 70.6 71.3 73.4 75.8 74.0 Revenue by geography (%) North America 51.1 51.2 50.7 50.6 50.6 50.1 50.3 51.4 49.9 Latin America 2.0 2.0 2.0 1.8 1.9 1.9 1.8 1.7 1.7 UK 15.6 15.5 15.9 15.8 15.6 15.9 16.0 15.3 15.5 Continental Europe 14.0 14.1 14.1 14.3 14.6 14.9 15.2 15.6 16.3 India 5.6 5.7 5.8 6.0 5.7 5.7 5.5 4.3 5.0 Asia Pacific 9.6 9.4 9.5 9.4 9.4 9.3 9.3 9.8 9.7 MEA 2.1 2.1 2.0 2.1 2.2 2.2 1.9 1.9 1.9 Vertical split of revenues (%)- old BFSI 31.2 30.8 30.8 Retail & CPG 16.6 16.5 16.2 Communication & Media 6.9 6.9 6.9 Manufacturing 7.2 7.2 7.2 Life sciences & healthcare 7.5 7.6 7.7 Energy & Utilities 4.6 4.7 4.6 Travel & hospitality Technology & Services 7.6 7.6 7.4 Regional markets and others 18.4 18.7 19.2 Total 100.0 100.0 100.0 - Vertical split of revenues (%)- new classification BFSI 31.2 30.8 30.9 30.8 31.0 30.4 29.7 31.3 31.9 Retail & CPG 15.4 15.5 15.1 15.0 14.8 15.2 15.4 14.0 14.6 Communication & Media 6.8 6.9 6.8 6.9 7.0 7.0 7.2 7.1 6.5 Manufacturing 9.8 9.8 9.6 9.8 9.8 10.0 10.1 9.7 9.4 Life sciences & healthcare 7.5 7.6 7.7 7.9 8.1 8.3 8.8 9.6 9.8 Technology & Services 8.9 8.7 8.6 8.8 8.7 8.4 8.7 9.1 8.9 Regional markets and others 20.4 20.7 21.3 20.8 20.6 20.7 20.1 19.2 18.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Digital revenues 28.1 30.1 31.0 32.2 33.2 Discontinued Discontinued Discontinued Discontinued Client metrics US$1 mn clients 989 996 1,008 1,014 1,032 1,053 1,072 1,066 1,076 US$5 mn clients 513 519 532 551 554 557 565 564 565 US$10 mn clients 365 370 371 384 398 395 391 382 386 US$20 mn clients 213 211 215 219 225 232 240 230 228 US$50 mn clients 98 99 99 100 101 102 105 100 97 US$100 mn clients 44 45 44 44 47 47 49 48 49

Employee metrics Total employees - incl Indian subsidiaries 411,102 417,929 424,485 436,641 450,738 446,675 448,464 443,676 453,540 Gross addition Net addition 10,227 6,827 6,556 12,156 14,097 (4,063) 1,789 (4,788) 9,864 Attrition rate (%) 10.9 11.2 11.3 11.5 11.6 12.2 12.1 11.1 8.9 Attrition rate - qtrly annualized (%)

Notes: (1) TCS stopped disclosing fixed price/ time & material metrics and onsite/ offshore revenue mix from Jun-15 quarter. (2) TCS stopped disclosing utilization from Mar-16 quarter. (3) TCS stopped disclosing revenue split by service offerings from June -17 quarter (4) Verticals reclassified in Jun-19 quarter (5) TCS stopped disclosing digital revenue mix from Dec-19 quarter.

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 IT Services TCS

Exhibit 16: Profit model, balance sheet, cash model of TCS, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E Profit model Revenues 1,086,462 1,179,660 1,231,040 1,464,630 1,569,490 1,602,214 1,795,154 2,007,526 Cost of sales (608,996) (668,870) (712,880) (851,580) (923,220) (953,220) (1,054,144) (1,182,985) SG&A expenses (189,565) (207,550) (213,140) (238,550) (260,470) (241,604) (280,299) (311,520) EBIT 287,901 303,240 305,020 374,500 385,800 407,390 460,711 513,021 Other income 30,503 41,890 35,900 41,130 36,680 27,730 32,532 35,362 Pre-tax profits 318,404 345,130 340,920 415,630 422,480 435,120 493,243 548,383 Provision for tax (75,027) (81,560) (82,120) (100,010) (98,010) (109,243) (123,676) (137,663) Recurring net income 243,377 263,570 258,800 315,620 324,470 325,877 369,567 410,720 Minority Interest (1,229) (680) (540) (900) (1,070) (1,298) (1,268) (1,268) Extraordinary items — — — — — (9,580) — — Reported net income 242,148 262,890 258,260 314,720 323,400 324,579 368,299 409,452 EPS (Rs) 61.4 66.7 67.5 83.1 86.2 86.6 99.6 110.7 Balance Sheet Shareholders funds 731,899 883,150 872,410 915,560 862,400 850,288 997,607 1,079,497 Borrowings 825 710 540 440 — — — — Minority interest 3,542 3,660 4,020 4,530 6,230 7,528 8,796 10,064 Other non-current liabilities 20,169 20,890 28,840 10,300 88,820 82,708 76,938 71,256 Total liabilities 756,436 908,410 905,810 930,830 957,450 940,523 1,083,341 1,160,818 Net fixed assets 117,900 117,410 116,000 116,500 199,320 196,710 199,543 199,936 Goodwill 38,120 37,210 38,840 38,340 38,500 38,500 38,500 38,500 Intangibles 1,343 470 120 1,790 2,830 2,830 2,830 2,830 Investments 3,431 3,440 3,010 2,390 2,160 2,160 2,160 2,160 Other non-current assets 90,393 89,740 94,185 74,920 69,700 69,700 69,700 69,700 Cash and bank balances 330,134 482,234 474,365 494,128 441,092 400,948 518,642 578,026 Net current assets excluding cash 175,116 177,906 179,290 202,762 203,848 229,675 251,966 269,666 Total assets 756,436 908,410 905,810 930,830 957,450 940,523 1,083,341 1,160,818 Cash flow Operating cash flow, excl. working capital 231,753 237,230 248,820 295,040 362,630 327,977 376,225 414,867 Working capital changes (48,707) (11,060) (3,060) (23,120) (45,000) (25,679) (21,421) (16,741) Capital expenditure (19,894) (19,900) (18,060) (20,708) (30,880) (34,349) (42,023) (39,902) Acquisitions — — — — (2,270) — — — Other income 30,503 41,890 35,900 41,130 36,680 27,730 32,532 35,362 Free cash flow 193,655 248,160 263,600 292,342 321,160 295,678 345,313 393,585 Ratios (%) Gross profit margin 43.9 43.3 42.1 41.9 41.2 40.5 41.3 41.1 EBITDA margin 28.2 27.4 26.4 27.0 26.8 27.9 27.8 27.5 EBIT margin 26.5 25.7 24.8 25.6 24.6 25.4 25.7 25.6 EPS growth 22.5 8.6 1.1 23.1 3.8 0.4 15.0 11.2 RoAE 37.1 32.6 29.4 35.2 36.4 37.9 39.9 39.4

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH ATTRACTIVE Gas Utilities India OCTOBER 07, 2020 UPDATE BSE-30: 39,879

Initial steps before the leap. PNGRB and the government have undertaken a few steps in the recent weeks, which are directed to liberalize the gas value chain—(1) open access of CGD networks, (2) unified tariff for national gas gird, (3) regulations for gas exchange and (4) partial gas marketing reform. Inclusion of gas under GST and full deregulation of domestic gas are crucial pending steps. GAIL and PLNG are our preferred picks, while CGD entities may face a complete turnaround in operating environment with deregulation of input gas and competition in output supplies.

A few steps undertaken recently to gradually liberalize the entire gas value chain  Open-access of CGD network. PNGRB has notified (1) draft regulation for determination of transportation rate for CGD business, (2) final guidelines for declaring CGD network as common carrier or contract carrier and (3) amendment for determining capacity of a CGD network. The regulator has addressed key issues that may have prevented third-party access of CGD infrastructure. Final notification of regulation for transportation rate in the near term may set the stage for competition to come in key CGD areas of Gujarat Gas, IGL and MGL.  Unified pipeline tariffs for national gas grid. PNGRB has notified a draft amendment to implement unified tariffs for national gas grid, which includes key pipelines of GAIL, GSPL and EWPL. The regulator proposes to calculate unified tariffs on a fortnightly basis by taking sum-product of actual/contractual volumes and respective zonal tariffs across the national gas grid and dividing it by sum of actual/contractual volumes—it will be then be split on a volume-weighted basis across two zones and charged to the end-customers across the country. Any surplus or deficit for the pipeline companies will be settled between them.  Gas exchange. PNGRB has notified regulations for establishment and operations of gas exchange, which will facilitate a fair and competitive mechanism for price discovery.  Gas marketing reform. The government has approved a policy to (1) standardize e-bidding process for sale of deregulated gas in a transparent and competitive manner and (2) provide marketing freedom for the blocks where pricing freedom is already approved; it is applicable for all the gas discoveries and field development plans approved from March 2019 onwards. Inclusion of gas under GST and full deregulation of domestic gas are crucial pending steps  Inclusion of gas in GST. It is high time for the government to include natural gas under GST ambit, in order to put it at least on an equal footing with dirtier fuels such as coal, pet coke and fuel oil, all of which have been under GST from the beginning.  Full deregulation of domestic gas. It is also an opportune time to deregulate pricing and allocation of domestic gas as a market-based price discovery may be somewhat reasonable currently given lower prices of spot LNG, global gas hubs and alternative liquid fuels. The consuming sectors were paying over US$3.5-5/mn BTU for domestic gas historically, as per existing formula. Spot LNG prices remain around US$4-5/mn BTU and a market-based price discovery at a reasonable 8-10% slope to crude will yield a price of US$3-4/mn BTU. GAIL to benefit the most; ONGC/OIL may get a blessing in disguise; CGDs at risk GAIL is a beneficiary of (1) unified tariffs, as it enhances volumes/economics for its upcoming Tarun Lakhotia large projects and (2) inclusion of gas in GST, which will remove stranded taxes on input gas for LPG/petchem; its dominant presence in the value chain makes it well-positioned to benefit from Hemang Khanna higher gas consumption in the long run. ONGC and OIL can potentially benefit from higher realizations on domestic gas, which is a key risk to our negative stance on both; however, it is worth noting that these stocks actually de-rated post removal of subsidies on crude given other issues such as uninspiring production trajectory, capital allocation and the government’s supply. CGD companies (Gujarat Gas, IGL and MGL) generating super-normal returns while operating as unregulated monopolies, may be at significant risk from onset of competition in the near term and plausible full deregulation of domestic gas price/allocation in the medium term. [email protected] Contact: +91 22 6218 6427

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

Exhibit 1: PNGRB has proposed draft amendment to implement unified tariffs Natural gas pipelines to be included by PNGRB for unified tariff calculation

Source: PNGRB, Kotak Institutional Equities

Exhibit 2: PNGRB’s calculated unified tariffs of Rs56.84/mn BTU may lead to an increase in effective cost for end-consumers across all pipelines except EWPL, JHBDPL and SPPL networks Unified tariffs compared to zonal tariffs of pipelines in national gas grid, FY2020 (Rs/mn BTU)

Zone-wise volume (mcm/d) Zonal tariff (Rs/mn BTU) Unified tarrif Entity Pipeline Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 (Rs/mn BTU) Chhainsa Hissar 1.1 7.9 GAIL Dabhol Bengaluru 0.01 0.7 0.2 45.4 45.4 45.4 Dadri Nangal 0.6 6.5 14.0 14.1 IOCL Dadri Panipat 5.2 16.5 Dahej Uran Dabhol 3.6 12.1 29.6 39.9 GAIL Integrated HVJ 8.7 0.3 14.5 43.6 19.8 36.9 45.4 49.6 RGTIL East West 15.7 0.1 0.01 0.2 2.3 65.5 75.3 78.7 79.8 80.2 56.84 GSPL GSPL High Pressure 13.0 11.6 10.5 33.2 34.8 34.9 GITL Mallavaram Bhilwara GIGL Bhatinda Jammu Srinagar 0.005 0.01 GAIL Jagdishpur Haldia Bokaro Dhamra 0.01 63.5 GIGL Mehsana Bhatinda 1.7 0.9 41.4 RGPL Shahdol Phulpur 0.9 96.3

Source: PNGRB, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Gas Utilities India

Exhibit 3: We compute 10-20% impact on profits of CGD entities, if they were to provide open access for 20-30% of volumes on regulated rates Potential impact of regulated transportation rates on CGD companies, March fiscal year-end, 2020 (Rs mn)

IGL MGL GujGas Reported net fixed assets 34,349 19,309 54,377 Less: security deposit received from customers 7,716 5,823 9,076 Normative net fixed assets 26,633 13,486 45,301 Normative working capital 2,044 904 1,562 Normative capital employed 28,677 14,390 46,863 Post-tax RoCE (%) 12.0 12.0 12.0 Pre-tax RoCE (%) 16.1 16.1 16.1 Implied EBIT 4,627 2,322 7,562 Add: depreciation 2,523 1,617 3,180 Add: operating cost 12,863 5,398 7,843 Implied gross contribution 20,012 9,337 18,584 Volumes (mcm/d) 6.4 3.0 9.4 Blended transportation rate (Rs/scm) 8.5 8.7 5.4 Reported gross margins (Rs/scm) 11.9 14.7 7.0 Negative impact on gross margins for third-party volumes (Rs/scm) (3.4) (6.1) (1.6)

Impact of regulated rates on 20% of volumes EBITDA (1,594) (1,309) (1,120) Net income (1,185) (974) (833) EPS (Rs) (1.7) (9.9) (1.2) Reported EPS (Rs) 16.7 74.6 13.0 EPS (%) (10.2) (13.2) (9.3) Impact of regulated rates on 30% of volumes (a) EBITDA (2,391) (1,964) (1,680) Net income (1,778) (1,460) (1,250) EPS (Rs) (2.5) (14.8) (1.8) Reported EPS (Rs) 16.7 74.6 13.0 EPS (%) (15.2) (19.8) (14.0)

Notes: (a) Open access for minimum 20% of capacity may allow competition to garner higher percentage of actual volumes.

Source: Company, PNGRB, Kotak Institutional Equities estimates

Exhibit 4: Domestic gas price has declined in sharply in the recent years Domestic gas price, 2HFY15 onwards (US$/mn BTU)

(US$/mn BTU) India domestic gas price (NCV) 6 5.6 5.2 5 4.2 4.1 4 3.7 3.6 3.4 3.4 3.2 3 2.8 2.8 2.7

2.0 2.0 2

1

0

2HFY15

1HFY16

2HFY16

1HFY17

2HFY17

1HFY18

2HFY18

1HFY19

2HFY19

1HFY20

2HFY20

1HFY21 2HFY21 1HFY22E

Source: PPAC, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 India Gas Utilities

Exhibit 5: Ceiling gas prices for difficult fields have declined further in 2HFY21 Ceiling gas price, 1HFY17 onwards (US$/mn BTU)

(US$/mn BTU) India ceiling gas price (NCV) 12 10.4 10 9.4 8.5 8 7.3 7.5 7.0 6.2 5.9 6.2 6 4.5 4

2

0

1HFY17

2HFY17

1HFY18

2HFY18

1HFY19

2HFY19

1HFY20

2HFY20

1HFY21 2HFY21

Source: PPAC, Kotak Institutional Equities

Exhibit 6: Spot LNG prices have increased in recent months Comparative price of LNG contracts, spot LNG and liquid fuels in calorific equivalent terms, January 2019 onwards (US$/mn BTU)

(US$/mn BTU) Spot LNG RasGas LNG Gorgon LNG US LNG Fuel oil 16

14

12

10

8

6

4

2

0

Jul-18

Jul-19

Jul-20

Jan-18

Jan-19

Jan-20

Jun-18

Jun-19

Jun-20

Feb-18

Oct-18

Feb-19

Oct-19

Feb-20

Oct-20

Apr-18

Sep-18

Apr-19

Sep-19

Apr-20

Sep-20

Dec-18

Dec-19

Nov-18

Nov-19

Mar-18

Mar-19

Mar-20

Aug-18

Aug-19

Aug-20

May-18 May-19 May-20

Source: Reuters, Bloomberg, Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Gas Utilities India

Exhibit 7: Spot LNG prices trade at lower slope to crude oil in the recent years Spot LNG prices versus slope of Dated Brent crude oil, calendar year-ends, 2010 onwards (US$/mn BTU)

(US$/mn BTU) Spot LNG Spot LNG as a % of Brent (%) 18 18

16 15.6 16 14.6 14.4 14.0 14 14.1 14.1 14 12.9 12 13.4 12 10 10 8.8 8.7 8 8 7.5 6 6 4 4 2 2

0 0

2010

2011

2012

2013

2014

2015

2016

2017

2018 2019

CYTD20

Source: Reuters, Bloomberg, Kotak Institutional Equities

Exhibit 8: We compute upside of ~8% to GAIL's EPS from inclusion of gas in GST Potential upside to GAIL's FY2021E EPS (Rs bn)

Upside from savings on petchem/LPG production segment RM cost for LPG and petchem segments 30.6 RM cost pertaining to gas/LNG purchased in Gujarat (@75%) 23.0 Effective VAT paid on input gas, irrecoverable currently 3.0 Net savings on PAT 2.2 Net gains on EPS (Rs) 0.5 Potential upside to FY2021E EPS (%) 5.3 Upside from savings on internal consumption Cost of domestic gas used as fuel and internal consumption 11.9 Effective VAT paid on input gas, irrecoverable currently 1.5 Net savings on PAT 1.2 Net gains on EPS (Rs) 0.3 Potential upside (%) 2.7

Source: Company, Kotak Institutional Equities estimates

Exhibit 9: ONGC and OIL's earnings are highly leveraged to domestic gas prices Earnings sensitivity of ONGC and OIL to domestic gas prices, March fiscal year-end, 2022E

Base case 2022E Natural gas prices 2.0 2.5 3.0 3.5 4.0 ONGC Earnings per share (Rs) 7.0 8.3 9.6 10.8 12.1 % upside/(downside) 18.2 36.5 54.7 72.9 Oil India Earnings per share (Rs) 6.1 8.1 10.1 12.1 14.1 % upside/(downside) 32.6 65.1 97.7 130.3

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 India Gas Utilities

Exhibit 10: Prefer GAIL and PLNG among gas utilities Comparative valuation of gas utilities and upstream companies, March fiscal year-ends, 2020-22E

KIE Price (Rs) FV Market cap. P/E (X) EV/EBITDA (X) rating 7-Oct-20 (Rs) (US$ mn) 2020 2021E 2022E 2020 2021E 2022E Gas utilities GAIL India BUY 87 140 5,333 6.6 11.4 7.8 5.1 8.3 5.7 Gujarat State Petronet SELL 195 200 1,498 11.3 14.7 16.5 7.9 9.7 10.7 Indraprastha Gas SELL 384 380 3,668 23.0 26.8 18.6 16.8 19.1 13.4 Mahanagar Gas ADD 829 1,115 1,117 11.1 15.4 10.2 8.1 10.7 7.0 Petronet LNG BUY 219 300 4,489 12.4 12.0 10.1 6.8 6.5 5.6 Upstream Oil India SELL 92 70 1,360 4.5 NA 15.0 3.3 8.5 7.4 ONGC SELL 71 60 12,097 5.3 NA 10.0 2.6 3.8 3.0

Source: Company, Kotak Institutional Equities estimates

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH ATTRACTIVE Health Care Services India OCTOBER 08, 2020 UPDATE BSE-30: 39,879

Diagnostics: near-term Covid boost. Business updates from diagnostics companies indicate strong revenue growth in 2QFY21, primarily on the back of Covid testing. Recovery in non-Covid segment is largely in line with our estimates. We expect Covid testing to continue to drive robust revenue growth in the near term. However, we caution against extrapolation of recent trends given Covid cases will peak and decline at some point in the near future driving lower testing. We also expect further reduction in RT-PCR pricing while rapid development in testing techniques will drive shift towards point-of-care testing. Expensive valuations drive our SELL rating on DLPL/METROHL.

Tailwinds from Covid testing to drive strong revenue growth in FY2021

Metropolis has provided a business update on 2QFY21 with revenues growing at 25% yoy (40% qoq). Growth was largely driven by Covid testing which contributed ~Rs900 mn (+2.2X qoq) to revenues. The non-Covid business has recovered to 85% of pre-Covid levels with 100% recovery in September (including Covid associated tests), largely in line with our estimates. Strong revenue growth has led to operating leverage driving margin expansion yoy (KIE estimate of 32.9% EBITDA margin in 2QFY21). We also expect DLPL to post robust 17% yoy revenue growth, with non-Covid business recovery at 95-97% and Covid contributing to ~Rs720 mn in revenues for the quarter.

Given high testing levels across the country, we believe Covid testing will continue to drive healthy revenue growth over the over the next 6-9 months. We expect tailwinds from Covid testing to continue till 1HFY22 with antibody testing aiding revenues once India kicks off its vaccination exercise with government targeting to cover ~250 mn citizens by July 2021. Testing for antibodies will play a key role in India’s vaccination drive. Revenues to return to normal trajectory by 2HFY22 as Covid testing declines

Even as we acknowledge the challenge in accurately forecasting Covid cases and testing in India, we caution against extrapolation of current revenues in perpetuity for the following reasons:

 India’s cases will peak and decline at some point in the near future which will lead to a decline in Covid testing. Swift progress in more accurate and cheaper rapid testing (such as Abbott point- of-care test) will also shift a large part of testing away from labs, driving decline in RT-PCR testing.

 Further reduction in RT-PCR test prices from current level of Rs2,400-2,500 is likely, given the reduction in the cost of reagents. Haryana, UP and Karnataka have already reduced prices to ~Rs1,200-1600 and other states will follow this trend. In case of antibody testing, higher competition will keep prices in check.

 Recovery in non-Covid segment is also driven by Covid associated biomarker tests such as D- Dimer, C reactive protein, etc and such tests will see a decline in volumes with reduction in Kumar Gaurav

cases. Chirag Talati, CFA Raise FY2021-22 estimates; retain SELL rating on DLPL/METROHL

We increase our FY2021/22 estimates for DLPL and METROHL by 13%/6% and 22%/6% respectively, primarily driven by Covid testing. Our FY2023 numbers are largely unchanged. We revise our DCF-based fair value for DLPL and METROHL to Rs1,330 and Rs1,340 as we roll forward to September 2022E. Post the recent rally, DLPL and METROHL are trading at expensive

valuations of 51X and 45X FY2023E respectively, driving our SELL rating. [email protected] Contact: +91 22 6218 6427

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

Exhibit 1: Metropolis witnessed 25% yoy growth in revenues in Exhibit 2: We expect Dr Lal to post 17% yoy revenue grwth in 2QFY21 driven by Covid testing 2QFY21 Revenues versus pre-Covid levels, March fiscal year-ends (%) Revenues versus pre-Covid levels, March fiscal year-ends (%)

Non-Covid Covid Non-Covid Covid 140 140 125 117 120 120

40 22 100 100 80 80 71 80 17 60 20 60 95 40 85 40 63 51 20 20

0 0 1QFY21 2QFY21 1QFY21 2QFY21E

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

Exhibit 3: New Covid cases moderated in the past few weeks Exhibit 4: Covid testing ramped up sharply in the past quarter Daily new Covid cases, March-October 2020 Tests conducted per day, April-October 2020

1,600,000 120,000 1,400,000

100,000 1,200,000

80,000 1,000,000 800,000 60,000 600,000 40,000 400,000

20,000 200,000

0

0

8-Jul

1-Apr

2-Sep

22-Jul

5-Aug

5-Jul

10-Jun

24-Jun

15-Apr

29-Apr

16-Sep

30-Sep

7-Jun

19-Aug

13-May

27-May

19-Jul

1-Mar 2-Aug

21-Jun

12-Apr

26-Apr

13-Sep

27-Sep

15-Mar

29-Mar

16-Aug

30-Aug 10-May 24-May Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Health Care Services India

Exhibit 5: We build in Rs3.4 bn revenues from Covid testing in FY2021 for DLPL Revenue build-up, March fiscal year ends, 2018-23E (Rs mn)

2018 2019 2020 2021E 2022E 2023E Non-COVID Patient volumes (mn) 15.2 17.6 19.4 17.8 25.0 28.3 Growth (%) 14 16 10 (8) 30 13 Realizations (Rs) 695 684 686 668 691 691 Revenues (Rs mn) 10,569 12,034 13,304 11,927 17,281 19,527 COVID Patient volumes (mn) — — — 2.4 1.2 — RT-PCR (mn) — — — 1.1 0.3 — Antibody (mn) — — — 1.3 0.90 — Realizations (Rs) 1,432 797 RT-PCR (Rs) — — — 1,800 1,500 — Antibody (Rs) — — — 1,100 600 — Revenues (Rs mn) — — — 3,427 918 — RT-PCR (Rs mn) — — — 2,041 378 — Antibody (Rs mn) — — — 1,386 540 —

Consolidated revenues (Rs mn) 10,569 12,034 13,304 15,354 18,199 19,527 Revenue growth (%) 15.8 13.9 10.6 15.4 18.5 7.3

Source: Company, Kotak Institutional Equities estimates

Exhibit 6: We build in Rs3.6 bn revenues from Covid testing in FY2021 for METROHL Revenue build-up, March fiscal year ends, 2018-23E (Rs mn)

2018 2019 2020 2021E 2022E 2023E Non-COVID Patient volumes (mn) 7.7 8.9 10.0 8.8 12.3 14.1 Growth (%) 16 12 (12) 40 15 Realizations (Rs) 836 855 856 854 824 879 Revenues (Rs mn) 6,436 7,612 8,564 7,517 10,150 12,395 COVID Patient volumes (mn) — — — 2.5 1.4 — RT-PCR (mn) — — — 1.2 0.4 — Antibody (mn) — — — 1.3 1.1 — Realizations (Rs) 1,444 830 RT-PCR (Rs) — — — 1,800 1,500 — Antibody (Rs) — — — 1,100 600 — Revenues (Rs mn) — — — 3,573 1,170 — RT-PCR (Rs mn) — — — 2,187 540 — Antibody (Rs mn) — — — 1,386 630 —

Consolidated revenues (Rs mn) 6,436 7,612 8,564 11,090 11,320 12,395 Revenue growth (%) 15.8 18.3 12.5 29.5 2.1 9.5

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 India Health Care Services

Exhibit 7: We increase our FY2021-22E estimates by 13% and 6% for DLPL Change to estimates, March fiscal year ends, 2020-23E (Rs mn)

New estimates Old Estimates Changes % 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Sales 15,354 18,199 19,527 14,352 17,598 19,527 7.0 3.4 0.0 Gross profits 10,602 13,951 15,231 10,072 13,610 15,231 5.3 2.5 0.0 EBITDA 3,748 4,951 5,183 3,361 4,706 5,183 11.5 5.2 0.0 EBITDA (adjusted for Ind-AS) 3,387 4,556 4,750 3,000 4,311 4,750 12.9 5.7 0.0 PBT (adjusted) 3,404 4,437 4,838 3,017 4,192 4,838 12.8 5.8 0.0 PAT 2,517 3,285 3,583 2,228 3,103 3,583 12.9 5.9 0.0 FD EPS (Rs mn) 30.1 39.3 42.9 26.7 37.2 42.9 12.9 5.9 0.0 EBITDA margin (%) 24.4 27.2 26.5 23.4 26.7 26.5 EBITDA margin (adjusted for Ind-AS) (%) 22.1 25.0 24.3 20.9 24.5 24.3

Source: Company, Kotak Institutional Equities estimates

Exhibit 8: We increase our FY2021-22E estimates by 22% and 6% for METROHL Change to estimates, March fiscal year ends, 2020-23E (Rs mn)

New estimates Old estimates Change (%) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E Revenues 11,090 11,320 12,395 9,596 11,057 12,395 15.6 2.4 - EBITDA 2,884 3,235 3,506 2,440 3,081 3,465 18.2 5.0 1.2 EBITDA (pre-Ind-AS) 2,706 3,046 3,306 2,262 2,892 3,265 19.6 5.3 1.3 PBT 2,486 2,856 3,075 2,042 2,702 3,034 21.7 5.7 1.4 PAT 1,847 2,125 2,288 1,517 2,010 2,257 21.8 5.7 1.4 EPS 36.5 42.0 45.2 30.0 39.7 44.6 21.8 5.7 1.4

Source: Company, Kotak Institutional Equities estimates

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Health Care Services India

Exhibit 9: We expect DLPL to report 16% PAT CAGR over FY2020-23E March fiscal year ends, 2013-23E (Rs mn)

2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Net revenues 4,517 5,579 6,596 7,913 9,124 10,569 12,034 13,304 15,354 18,199 19,527 Gross profit 3,544 4,403 5,204 6,184 7,153 8,309 9,410 10,317 10,602 13,951 15,231 EBITDA 977 1,386 1,560 2,097 2,365 2,640 2,936 3,436 3,748 4,951 5,183 Depreciation & amortisation (204) (272) (282) (283) (282) (331) (382) (728) (907) (982) (1,057) EBIT 773 1,113 1,278 1,815 2,084 2,309 2,554 2,708 2,841 3,969 4,126 Net interest 29 79 119 193 249 304 452 397 563 467 712 Profit before tax 802 1,192 1,397 2,007 2,333 2,613 3,006 3,105 3,404 4,437 4,838 Tax and deferred tax (246) (389) (447) (675) (781) (895) (1,001) (829) (872) (1,136) (1,238) Less: minority interest (5) (7) (8) (10) (10) (10) (13) (17) (16) (16) (16) Net income 551 796 942 1,322 1,542 1,708 1,992 2,259 2,517 3,285 3,583 Net income (ex-ESOP) 725 901 1,107 1,328 1,542 1,708 1,992 2,259 2,517 3,285 3,583 Weighted avg. no. of shares (mn) 54.6 54.6 54.6 68.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 Fully diluted number of shares 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 83.5 EPS (Rs) 10.1 14.6 17.3 19.3 18.5 20.5 23.9 27.1 30.1 39.3 42.9 EPS (adjusted) (Rs) 13.3 16.5 20.3 19.4 18.5 20.5 23.9 27.1 30.1 39.3 42.9 FD EPS (adjusted) (Rs) 8.7 10.8 13.3 15.9 18.5 20.5 23.9 27.1 30.1 39.3 42.9 Balance sheet Cash & equivalents 762 1,143 1,861 2,940 3,456 4,583 6,751 7,334 9,031 11,668 14,462 Debtors 198 252 310 363 418 412 532 514 841 798 856 Other current assets 207 309 646 935 792 1,235 853 1,079 930 1,057 1,097 Current assets 1,167 1,703 2,816 4,237 4,666 6,230 8,136 8,927 10,802 13,523 16,415 Fixed assets (incl. goodwill) 1,271 1,400 1,510 1,697 1,699 2,204 2,121 2,900 2,644 2,427 2,147 Other non-current assets 252 412 427 318 536 755 648 1,917 1,917 1,917 1,917 Total assets 2,690 3,515 4,753 6,252 6,901 9,189 10,905 13,744 15,363 17,867 20,479 Short-term loans 4 9 — — — — — — — — — Creditors and other liabilities 887 965 1,118 915 848 1,012 1,089 2,274 2,115 2,304 2,392 Current liabilities 891 974 1,118 915 848 1,012 1,089 2,274 2,115 2,304 2,392 Secured loans — — — — — — — — — — — Other liabilities (incl. deferred) 163 208 202 242 73 228 306 930 930 930 930 Total liabilities 1,053 1,182 1,319 1,157 921 1,240 1,395 3,204 3,045 3,234 3,322 Equity 1,637 2,333 3,434 5,095 5,980 7,949 9,510 10,540 12,318 14,633 17,158 Total equity and liabilities 2,690 3,515 4,753 6,252 6,901 9,189 10,905 13,744 15,363 17,867 20,479 Cash flow CFO pre-WC changes 1,243 1,577 1,834 2,087 2,504 2,816 3,135 3,652 3,246 4,431 4,644 Working capital (28) (94) (321) 69 (81) 95 93 122 (337) 104 (10) Tax (334) (503) (534) (687) (706) (940) (1,043) (935) (872) (1,136) (1,238) Cash flow from operations 881 980 979 1,469 1,716 1,971 2,185 2,839 2,038 3,399 3,395 Capex (including acquisitions) (196) (328) (353) (441) (516) (625) (420) (1,060) (300) (400) (400) Free cash flow 685 652 626 1,027 1,200 1,346 1,765 1,779 1,738 2,999 2,995 Key ratios (%) Sales growth (% 23.5 18.2 20.0 15.3 15.8 13.9 10.6 15.4 18.5 7.3 EBITDA margin (%) 21.6 24.8 23.6 26.5 25.9 25.0 24.4 25.8 24.4 27.2 26.5 RoAE (%) 44.3 45.4 38.4 31.1 27.8 24.5 22.8 22.5 22.0 24.4 22.5 RoACE (post-tax, ex-cash) (%) 61.0 72.2 62.7 64.6 59.2 51.6 55.6 58.1 56.8 85.1 97.1 Net debt to equity (X) (0.5) (0.5) (0.5) (0.6) (0.6) (0.6) (0.7) (0.7) (0.7) (0.8) (0.8)

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 India Health Care Services

Exhibit 10: We expect METROHL to report 15% PAT CAGR over FY2020-23E March fiscal year ends, 2014-23E (Rs mn)

2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E Net revenues 3,883 4,555 4,755 5,447 6,436 7,612 8,564 11,090 11,320 12,395 Gross profit 2,735 3,228 3,477 4,071 4,920 5,821 6,454 7,154 8,281 9,204 EBITDA 1,066 1,181 1,265 1,519 1,725 2,004 2,328 2,884 3,235 3,506 Depreciation & amortisation (160) (205) (166) (172) (190) (201) (393) (484) (534) (584) EBIT 906 976 1,098 1,347 1,535 1,803 1,936 2,400 2,701 2,922 Net interest 44 35 144 226 68 77 2 86 154 153 Profit before tax 950 1,011 1,242 1,573 1,603 1,866 1,933 2,486 2,856 3,075 Tax and deferred tax (324) (331) (456) (527) (506) (629) (412) (636) (731) (787) Less: minority interest (61) (70) (18) (29) (75) (35) (2) (2) — — Net income 565 610 768 1,017 1,023 1,201 1,273 1,847 2,125 2,288 Net income (adjusted) 565 610 768 1,017 1,023 1,201 1,519 1,847 2,125 2,288 Fully diluted number of shares (mn) 50.2 50.2 50.2 50.2 50.2 50.2 50.6 50.6 50.6 50.6 FD EPS (adjusted) (Rs) 11.3 12.2 15.3 20.3 20.4 23.9 30.0 36.5 42.0 45.2 Balance sheet Cash & equivalents 1,540 1,957 1,278 1,746 1,606 1,113 2,230 3,155 4,618 6,130 Debtors 496 708 702 803 1,007 1,368 1,282 1,823 1,861 2,038 Other current assets 250 294 273 303 393 566 458 530 536 567 Current assets 2,286 2,958 2,253 2,851 3,006 3,047 3,971 5,507 7,015 8,735 Fixed assets (incl. goodwill) 1,500 1,531 1,422 2,033 2,074 2,186 2,397 2,309 2,200 2,068 Other non-current assets 140 146 284 267 223 293 1,155 1,255 1,355 1,455 Total assets 3,926 4,635 3,959 5,152 5,303 5,526 7,522 9,071 10,570 12,258 Short-term loans 2 2 4 4 4 4 — — — — Creditors and other liabilities 507 602 905 1,515 902 510 1,695 1,946 1,968 2,075 Current liabilities 508 604 910 1,519 906 514 1,695 1,946 1,968 2,075 Long-term loans 197 135 5 4 2 176 — — — — Other liabilities (incl. deferred) 42 51 106 188 104 637 576 676 776 876 Total liabilities 748 790 1,020 1,710 1,012 1,327 2,271 2,622 2,744 2,951 Equity 3,178 3,845 2,939 3,442 4,291 4,200 5,252 6,450 7,826 9,307 Total equity and liabilities 3,926 4,635 3,959 5,152 5,303 5,526 7,522 9,071 10,570 12,258 Cash flow CFO pre-WC changes 1,128 1,181 1,321 1,569 1,847 2,083 2,515 2,603 2,915 3,145 Working capital (58) (196) (5) (39) (177) (508) 280 (362) (22) (101) Tax (300) (320) (403) (513) (576) (674) (644) (636) (731) (787) Cash flow from operations 769 666 913 1,018 1,094 902 2,150 1,605 2,162 2,257 Capex (203) (231) (164) (166) (157) (196) (486) (200) (200) (200) Free cash flow 566 435 749 852 938 706 1,664 1,405 1,962 2,057 Key ratios (%) Sales growth (% 17.3 4.4 14.6 18.1 18.3 12.5 29.5 2.1 9.5 EBITDA margin (%) 27.5 25.9 26.6 27.9 26.8 26.3 27.2 26.0 28.6 28.3 RoAE (%) 17.8 15.9 26.1 29.5 23.8 28.6 28.9 28.6 27.1 24.6 RoACE (post-tax, ex-cash) (%) 32.5 32.4 41.7 52.6 39.1 36.6 50.4 54.2 62.7 68.4 Net debt to equity (X) (0.4) (0.5) (0.4) (0.5) (0.4) (0.2) (0.4) (0.5) (0.6) (0.7)

Source: Company, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH ATTRACTIVE Oil, Gas & Consumable Fuels India OCTOBER 07, 2020 UPDATE BSE-30: 39,879

2QFY21 preview. We expect (1) RIL to report sequential improvement in EBITDA driven by higher contribution from petchem, Jio and retail segments, which will be partially offset by lower refining throughput and a stronger rupee, (2) OMCs to report qoq decline in normalized profits led by moderation in auto fuel margins, (3) ONGC and OIL to gain from higher oil prices and (4) gas utilities to benefit from rebound in volumes, while CGD entities realize higher unit margins amid favorable pricing changes.

RIL: higher petchem, Jio and retail EBITDA to offset lower crude throughput and stronger rupee

We expect RIL’s standalone EBITDA to rise by 10% qoq to Rs78.3 bn driven by higher petchem segment EBITDA, which will be partly offset by lower refining EBITDA. Higher petchem EBITDA will be driven by a likely increase in sales volumes, which will mitigate lower regional margins across polymer and polyester chain. Refining segment EBITDA is expected to reduce qoq as modestly higher refining margins (+0.2/bbl) amid higher product spreads will be more than offset by lower crude discounts, lower throughput and a stronger rupee against the US dollar. We expect consolidated EBITDA to increase by 5% qoq to Rs178 bn driven by—(1) Jio (+Rs5.1 bn qoq) reflecting a rise in subscriber base to 410 mn (+12 mn qoq) and ARPU to Rs144/month (+Rs3.5 qoq) and (2) retail (+Rs5.4 bn qoq) reflecting a healthy rebound in revenues. OMCs: lower normalized profits reflecting moderation in auto fuel marketing margins

We expect normalized EBITDA of OMCs to decline sequentially led by moderation in auto fuel marketing margins (-Rs3/liter qoq), which will be partly offset by (1) an increase in underlying refining margins, (2) higher crude throughput and (3) sequential recovery in domestic sales volumes. On a reported basis, the companies may account negligible impact from movement in inventory given stability in crude prices and large forex gains given appreciation in the rupee. We estimate EBITDA, including inventory/forex movement, for (1) BPCL at Rs33.3 bn versus Rs39.2 bn in 1QFY21, (2) HPCL at Rs35.9 bn versus Rs45.5 bn in 1QFY21 and (3) IOCL at Rs59.5 bn versus Rs55.1bn in 1QFY21; IOCL’s reported EBITDA will be higher qoq as it accounted large inventory loss in the previous quarter contrary to adventitious gains accounted by others. Gas utilities: robust recovery in volumes for GAIL and PLNG; higher margins for CGDs

We expect GAIL to report sharp sequential jump in EBITDA to Rs15.4 bn on the low base of 1QFY21 reflecting (1) higher profits for LPG and petrochemicals segments amid favorable prices and lower gas cost, (2) reduction in loss for gas marketing segment and (3) recovery in volumes across segments; we assume (1) 11-13% qoq increase in gas marketing and transmission volumes to 90 mcm/d and 102 mcm/d and (2) 8% qoq increase in petchem sales volumes to 198 ktons. We expect PLNG’s EBITDA to increase 27% qoq to Rs11.5 bn, reflecting 30% qoq uptick in overall volumes, with Dahej and Kochi utilization rising to 106% and 17% respectively. We expect MGL and IGL to record sharp sequential jump in EBITDA reflecting (1) higher volumes, albeit significantly lower yoy amid lockdowns and (2) increase in unit gross margins due to favorable change in CNG/PNG prices. We expect GSPL’s EBITDA to increase 9% qoq driven by 8% qoq rise in volumes to 36 mcm/d and steady realized tariffs. Tarun Lakhotia

Upstream: higher oil prices provide a relief before reduction in domestic gas price for 2HFY21 Hemang Khanna We expect ONGC and OIL to report reasonable profits in 2QFY21 led by (1) increase in crude realizations to ~US$42/bbl (+US$11-12/bbl qoq) and (2) higher price of value-added products, which will be partly offset by weaker volumes across oil and gas; gas price remained steady at US$2.66/mn BTU. The earnings trajectory for these companies are all set to deteriorate with recent reduction in domestic gas price and likely higher costs to be accounted in 2HFY21.

[email protected] Contact: +91 22 6218 6427

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

Exhibit 1: Kotak India refining margins increased modestly in 2QFY21 to US$1/bbl Refining margins, March fiscal year-ends, April 2016 onwards (US$/bbl)

(US$/bbl) Singapore refining margins Kotak India refining margins 14 12 10 8 6 4 2 0 (2) (4) (6)

(8)

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Oct-16

Oct-17

Oct-18

Oct-19

Feb-17

Feb-18

Feb-19

Feb-20

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20

Dec-16

Dec-17

Dec-18

Dec-19

Aug-16

Aug-17

Aug-18

Aug-19 Aug-20

Kotak India refining margins Singapore refining margins 2018 2019 2020 2021 2021 2018 2019 2020 2021 1Q 6.1 6.4 6.6 3.7 0.8 6.4 6.1 3.5 (1.0) 2Q 5.2 8.3 6.8 6.4 1.0 8.3 6.1 6.5 0.0 3Q 7.4 7.9 5.7 6.8 7.3 4.3 2.0 4Q 6.7 7.2 4.1 4.0 7.0 3.2 1.2 Average 6.4 7.5 5.8 5.2 0.9 7.2 4.9 3.2 (0.5)

Source: Kotak Institutional Equities estimates

Exhibit 2: Gasoline and diesel spreads over crude increased in 2QFY21 Product spreads for diesel and gasoline, 1QFY16 onwards (US$/bbl)

(US$/bbl) Gasoline cracks Diesel cracks 25

20

15.5 14.7 15.0 14.7 15.2 15.0 15 13.5 13.4 13.6 13.3 12.3 12.8 12.7 12.0 11.4 10.5 10.6 10.8 11.2 9.6 10 19.6 19.3 18.2 18.7 15.0 14.9 16.0 14.9 14.3 14.6 13.5 13.5 12.6 11.8 11.7 4.5 4.7 5 11.4 8.0 6.7 5.2 4.8 3.9 1.2

0

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21 2QFY21

Source: Kotak Institutional Equities estimates

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH Oil, Gas & Consumable Fuels India

Exhibit 3: Differential between light and heavy crudes and Saudi’s OSP differential for Asia declined sharply in 2QFY21 Light-heavy crude differential, 1QFY16 onwards (US$/bbl)

(US$/bbl) Light-heavy crude differential Saudi Arab Light OSP differential for Asia 4.0 3.4 3.4 3.2 3.1 3.1 2.7 2.7 2.8 2.9 2.9 2.7 2.9 2.9 3.0 2.2 2.2 2.3 2.2 2.3 2.3 2.3 1.7 1.7 2.0 1.5 1.7 1.4 1.5 1.4 1.6 1.5 0.7 1.0 0.7 0.5 0.1 0.30 0.0 (0.1) (0.1) (1.0) (0.3) (0.3) (0.7) (0.5) (0.5) (0.9) (1.1) (2.0) (3.0) (4.0) (5.0)

(6.0) -5.4

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21 2QFY21

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 4: Auto fuel marketing margins moderated in 2QFY21, albeit remaining well above normative levels Gross marketing margins on diesel and gasoline, 1QFY16 onwards (Rs/liter)

(Rs/liter) Marketing margins on diesel Marketing margins on gasoline 9

8

7

6

5

4 8.4 7.4 3 6.46.5 4.7 4.8 2 3.7 3.9 4.0 2.9 3.13.3 3.1 3.13.1 3.13.0 3.0 3.4 3.1 2.52.5 2.9 2.42.6 2.52.7 2.72.7 2.6 2.62.5 2.6 2.6 2.8 1 1.9 2.2 1.92.3 2.31.8 2.0 1.8 1.2

0

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20 1QFY21 2QFY21

Source: PPAC, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 India Oil, Gas & Consumable Fuels

Exhibit 5: The decline in petroleum consumption moderated in the first two months of 2QFY21 versus 1QFY21 Petroleum consumption volumes and growth, 1QFY18 onwards

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Jul-Aug'20 Consumption (mn tons) MS 6.6 6.5 6.5 6.6 7.1 6.9 7.0 7.2 7.8 7.5 7.5 7.1 5.0 4.6 HSD 21.3 18.3 20.9 20.5 22.1 18.8 21.4 21.3 22.6 18.8 21.5 19.8 15.1 10.4 LPG 5.3 5.9 6.0 6.1 5.8 6.2 6.1 6.8 5.7 6.8 7.0 6.9 6.5 4.5 SKO 1.0 0.9 1.0 0.9 0.9 0.9 0.8 0.8 0.8 0.6 0.5 0.5 0.5 0.3 ATF 1.8 1.8 1.9 2.0 2.1 2.0 2.1 2.1 2.0 2.0 2.1 1.9 0.4 0.5 FO & LSHS 1.8 1.6 1.6 1.6 1.6 1.7 1.7 1.6 1.5 1.6 1.6 1.5 1.3 1.0 Others 13.9 13.8 14.8 14.9 14.8 13.3 14.4 15.7 14.7 13.7 14.9 15.2 12.1 8.6 Domestic consumption 51.8 48.9 52.8 52.6 54.5 49.8 53.5 55.5 55.1 50.9 55.1 52.8 40.9 30.0 Growth (%) MS 10.9 9.1 7.2 13.5 8.4 6.6 7.8 9.4 8.7 (4.7) 1.0 (5.6) (29.5) (9.0) HSD 5.9 6.7 4.7 9.5 3.7 2.9 2.0 3.5 6.1 (16.7) 14.2 (8.0) (23.8) (20.1) LPG 10.7 8.6 6.1 7.0 9.6 5.1 0.9 11.5 (15.2) 18.0 2.6 (1.3) (5.1) (1.7) SKO (34.1) (37.2) (18.5) (20.9) (13.2) (6.5) (11.0) (9.0) (5.6) (23.0) (15.2) (2.1) (5.8) (31.8) ATF 9.3 8.9 7.9 10.1 12.0 11.2 8.3 4.0 (5.7) 0.2 7.9 (10.4) (79.6) (63.0) FO & LSHS (6.5) (9.2) (8.3) 0.6 (9.5) 0.3 1.8 (1.2) (7.8) 5.9 (1.2) (5.6) (11.3) (5.1) Others (0.0) 0.8 17.0 11.0 6.6 (4.1) (2.9) 5.8 (6.6) (6.5) 8.8 1.8 (20.3) (8.6) Domestic consumption 3.7 3.6 7.4 9.1 5.2 1.7 1.2 5.5 (0.8) (7.5) 8.2 (4.1) (22.6) (14.2)

Source: PPAC, Kotak Institutional Equities

Exhibit 6: Petchem margins declined sequentially in 2QFY21; product prices were higher for polymers Asia petchem margins and prices, 1QFY19 onwards (US$/ton)

Change (%) 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 yoy qoq Global margins HDPE – naphtha 595 544 509 501 434 405 298 269 473 424 4.6 (10.5) LLDPE – naphtha 564 479 444 510 446 422 314 294 469 427 1.2 (8.8) PP – naphtha 593 577 573 556 532 537 448 379 539 513 (4.6) (5.0) PVC – naphtha 329 293 237 389 286 381 328 319 466 422 10.8 (9.4) PSF – naphtha 673 639 771 766 677 668 587 549 670 436 (34.8) (35.0) PFY – naphtha 991 941 1,049 1,075 1,021 949 820 793 913 676 (28.7) (25.9) PSF – 0.85 x PTA – 0.34 x MEG 276 210 281 330 323 355 373 367 401 292 (17.8) (27.3) PFY – 0.85 x PTA – 0.34 x MEG 594 512 560 639 667 636 607 611 644 532 (16.3) (17.4) PX – naphtha 338 389 592 539 417 320 254 238 239 138 (56.7) (42.2) Global prices HDPE 1,216 1,196 1,143 1,000 996 893 819 800 729 809 (9.5) 10.9 LLDPE 1,184 1,132 1,078 1,009 1,008 911 835 825 724 812 (10.8) 12.1 PP 1,213 1,230 1,207 1,055 1,094 1,026 968 910 795 898 (12.5) 12.9 PVC 949 946 871 887 848 870 849 850 722 807 (7.2) 11.9 PSF 1,293 1,292 1,405 1,264 1,239 1,157 1,108 1,080 926 821 (29.0) (11.3) PFY 1,612 1,593 1,683 1,573 1,583 1,438 1,341 1,324 1,169 1,061 (26.2) (9.2) PX 958 1,042 1,226 1,038 979 808 775 769 495 523 (35.3) 5.8

Source: Platts, Kotak Institutional Equities

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Oil, Gas & Consumable Fuels India

Exhibit 7: India’s LNG consumption has recovered back to normalcy in the recent months Sector-wise LNG consumption, January 2018 onwards (mcm/d)

(mcm/d) 90 Fertilizers Power CGD Others 80 35 41 70 38 36 36 34 34 36 35 37 37 36 38 60 37 38 36 37 38 36 32 34 38 34 35 38 31 32 32 32 32 34 11 50 14 28 6 7 14 14 14 15 13 14 6 40 11 11 11 10 11 11 11 11 11 23 13 13 12 11 11 11 11 11 11 11 11 10 10 7 9 12 30 7 10 9 11 9 8 6 9 11 8 8 13 7 5 6 11 8 5 9 5 5 6 8 6 5 9 1 20 28 27 26 26 27 28 30 31 26 26 29 31 31 10 24 23 24 22 24 23 24 23 23 21 23 25 24 20 23 26 25 24 24

-

Jul-18

Jul-19

Jul-20

Jan-18

Jan-19

Jan-20

Sep-18

Sep-19

Nov-18

Nov-19

Mar-18

Mar-19

Mar-20

May-18 May-19 May-20

Source: PPAC, Kotak Institutional Equities estimates

Exhibit 8: India’s domestic gas supply remains lower than its pre-Covid levels Sector-wise domestic gas consumption, January 2018 onwards (mcm/d)

(mcm/d) Fertilizers Power CGD Others 100 90 80 28 70 24 17 13 14 14 14 15 14 15 15 14 15 14 20 16 60 13 13 13 13 14 15 16 15 14 14 12 12 21 12 50 14 13 14 14 14 11 6 11 11 13 13 13 14 14 14 15 15 16 15 16 15 16 16 16 16 15 16 17 17 17 4 13 40 12 10 25 24 24 30 25 25 26 27 25 23 25 25 25 27 28 26 26 25 22 24 23 21 20 21 20 19 21 20 19 20 18 21 20 20 24 23 10 17 19 18 17 16 19 17 18 17 17 16 17 16 17 19 18 17 17 17 19 19 19 19 19 17 17 16 19 16 17

-

Jul-18

Jul-19

Jul-20

Jan-18

Jan-19

Jan-20

Sep-18

Sep-19

Nov-18

Nov-19

Mar-18

Mar-19

Mar-20

May-18 May-19 May-20

Source: PPAC, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 India Oil, Gas & Consumable Fuels

Exhibit 9: Gross margins on CNG for IGL and MGL increased in the recent months Estimated gross margins on CNG for IGL and MGL, April 2018 onwards (Rs/scm)

(Rs/scm) MGL IGL 21

20

19

18

17

16

15

14

13

12

11

Jun-18

Jun-19

Jun-20

Oct-18

Feb-19

Oct-19

Feb-20

Oct-20

Apr-18

Apr-19

Apr-20

Dec-18

Dec-19

Aug-18

Aug-19 Aug-20

Source: Company, Kotak Institutional Equities estimates

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH Oil, Gas & Consumable Fuels India

Exhibit 10: Higher EBITDA for petchem, Jio and retail to offset lower refining contribution 2QFY21E preview for RIL (Rs mn)

Change (%) Sep-19 Jun-20 Sep-20E yoy qoq Comments Reliance Industries (Standalone) Net sales 871,370 474,610 544,129 (38) 15 EBITDA 136,660 71,280 78,271 (43) 10 We expect (1) petchem segment EBITDA to increase qoq EBIT 113,490 49,540 56,220 (50) 13 as higher volumes offset weaker margins and (2) PBT 122,550 43,850 73,254 (40) 67 refining segment EBITDA to decline qoq as lower crude Reported PAT 97,020 97,530 58,230 (40) (40) throughput (-11% qoq) and adverse exchange rate Adjusted PAT 97,020 97,530 58,230 (40) (40) offset modestly higher margins (+US$0.2/bbl qoq). EPS (Rs/share) 15.3 8.4 9.2 (40) 9 Jio Net sales 131,300 165,570 178,541 36 8 EBITDA 51,390 70,050 75,120 46 7 EBIT 33,640 42,670 45,418 35 6 We estimate Jio's EBITDA to increase qoq led by ~12 mn PBT 15,200 33,750 36,685 141 9 addition to the subscriber base; we assume ARPU to Reported PAT 9,900 25,200 27,330 176 8 increase qoq to Rs144/month. Adjusted PAT 9,900 25,200 27,330 176 8 EPS (Rs/share) 1.7 4.3 4.6 176 8 Reliance Industries (Consolidated) Net sales 1,485,260 882,530 963,830 (35) 9 EBITDA 221,520 168,750 177,990 (20) 5 We expect higher EBITDA from (1) Jio (+Rs5.1 bn qoq) EBIT 168,370 105,670 112,277 (33) 6 led by a rise in subscriber base to 410 mn (+12 mn qoq) PBT 150,010 82,200 111,730 (26) 36 and ARPU to Rs144/month (+Rs3.5 qoq) and (2) retail Reported PAT 112,620 132,330 82,830 (26) (37) (+Rs5.4 bn qoq) led by sequential recovery in revenues. Adjusted PAT 112,620 82,670 82,830 (26) 0 EPS (Rs/share) 19.0 14.0 14.0 (26) 0 Refining assumptions Exchange rate (Rs/US$) 70.4 75.9 74.4 6 (2) Refining throughput (mn tons) 16.7 16.6 14.8 (11) (11) Refining margin (US$/bbl) 9.4 6.3 6.5 (31) 3 Petchem volumes ('000 tons) Polymer 1,480 — 1,382 (7) Polyester 730 — 617 (16) Fiber intermediates 2,863 — 2,531 (12) Telecom assumptions End-period subscriber base (# mn) 355 398 410 15 3 Average subscriber base (# mn) 343 393 404 18 3 ARPU (Rs/month) 128 140 144 13 2

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 India Oil, Gas & Consumable Fuels

Exhibit 11: EBITDA for BPCL and HPCL to decline qoq; IOCL to report higher EBITDA given large inventory loss accounted in 1QFY21 2QFY21E preview for downstream companies (Rs mn)

Change (%) Sep-19 Jun-20 Sep-20E yoy qoq Comments BPCL Net sales 643,408 387,851 553,039 (14) 43 We expect BPCL's EBITDA to decline sequentially led by (1) lower auto fuel EBITDA 23,749 39,158 33,392 41 (15) marketing margins (-Rs3/liter qoq) and (2) nil adventitious gains amid stable EBIT 14,227 29,200 23,342 64 (20) oil prices, which will be partly offset by increase in (1) refining margin, (2) PBT 16,551 29,262 26,149 58 (11) crude throughput and (3) marketing sales volumes. Tax 5,270 8,500 7,845 49 (8) Reported PAT 17,085 20,762 18,305 7 (12) We assume (1) normalized refining margins to increase to US$2.5/bbl EPS (Rs/share) 5.7 10.6 9.3 62 (12) (+US$0.6/bbl qoq), (2) crude throughput to increase 8% qoq to 5.5 mn tons Assumptions and (3) domestic sales volumes to decline 12% yoy to 9 mn tons. Crude throughput (mn tons) 7.7 5.1 5.5 (28) 8 Domestic sales (mn tons) 10.3 7.5 9.0 (12) 20 Reported refining margin (US$/bbl) 3.4 0.4 2.5 (26) 541 Normalized refining margin (US$/bbl) 3.8 1.9 2.5 (35) 30 Marketing margin (Rs/ton) 5,588 8,472 6,917 24 (18) Adventitious gain/(loss) - refining (1,750) (4,380) — NM NM Adventitious gain/(loss) - marketing 1,490 10,030 — NM NM Forex gain/(loss) (3,870) (566) 4,012 NM NM HPCL Net sales 608,633 377,209 505,976 (17) 34 We expect HPCL's EBITDA to decline sequentially led by (1) lower auto fuel EBITDA 23,189 43,536 35,917 55 (18) marketing margins (-Rs3/liter qoq) and (2) nil adventitious gains amid stable EBIT 15,068 34,875 27,136 80 (22) oil prices, which will partly increase in refining margins and marketing sales PBT 16,170 37,284 27,891 72 (25) volumes. Tax 5,647 9,146 7,252 28 (21) Reported PAT 10,523 28,138 20,639 96 (27) We assume (1) normalized refining margins to improve to US$2/bbl EPS (Rs/share) 6.9 18.4 13.5 96 (27) (+US$2.9/bbl qoq), (2) crude throughput to remain steady at 4 mn tons and (3) Assumptions domestic sales volumes to decline 11% yoy to 8 mn tons. Crude throughput (mn tons) 4.6 4.0 4.0 (12) 1 Domestic sales (mn tons) 9.0 7.2 8.0 (11) 10 Reported refining margin (US$/bbl) 2.8 0.0 2.0 (29) NM Normalized refining margin (US$/bbl) 2.5 (0.9) 2.0 (22) (329) Marketing margin (Rs/ton) 5,944 9,646 8,114 37 (16) Adventitious gain/(loss) - refining 660 2,010 — NM NM Adventitious gain/(loss) - marketing (130) 4,320 — NM NM Forex gain/(loss) (1,219) 490 1,263 NM 158 IOCL Net sales 1,116,897 623,966 880,983 (21) 41 We expect IOCL's EBITDA to increase sequentially led by (1) lack of inventory EBITDA 35,722 55,123 59,484 67 8 loss amid stable oil prices versus a large loss in 1QFY21, (2) higher crude EBIT 14,747 31,577 35,538 141 13 throughput and (3) marketing sales volumes, which will be offset by (1) lower PBT 8,145 26,286 30,179 271 15 auto fuel marketing margins (-Rs3/liter qoq) and (2) lower refining margin. Tax 2,511 7,177 7,696 207 7 Reported PAT 5,634 19,108 22,483 299 18 We assume (1) normalized refining margins to decline to US$2.5/bbl (- EPS (Rs/share) 0.6 2.0 2.4 299 18 US$1.9/bbl qoq), (2) crude throughput to increase 12% qoq to 14.5 mn tons Assumptions and (3) domestic sales volumes to decline 13% yoy to 17.6 mn tons. Crude throughput (mn tons) 17.5 12.9 14.5 (17) 12 Domestic sales (mn tons) 20.2 15.2 17.6 (13) 15 Reported refining margin (US$/bbl) 1.3 (2.0) 2.5 95 NM Normalized refining margin (US$/bbl) 3.0 4.4 2.5 (16) (43) Marketing margin-EBITDA (Rs/ton) 1,614 3,823 2,496 55 (35) Adventitious gain/(loss) - refining (15,340) (45,880) — NM NM Adventitious gain/(loss) - marketing 3,560 13,920 — NM NM Forex gain/(loss) (11,350) 810 11,765 (204) 1,352 Castrol India Net sales 8,492 4,906 6,864 (19) 40 EBITDA 2,445 953 1,792 (27) 88 We expect EBITDA to decline 27% yoy impacted by weakness in lubricants EBIT 2,259 747 1,576 (30) 111 demand amid lower vehicular movement post Covid-19. PBT 2,372 885 1,725 (27) 95 Reported PAT 1,884 654 1,275 (32) 95 We assume (1) 10% yoy decline in volumes to 39.8 mn liters and (2) ~270 EPS (Rs/share) 1.9 0.7 1.3 (32) 95 bps yoy contraction in EBITDA margins to 26.1% amid lower realizations, Assumptions which will be partly offset by favorable RM cost. EBITDA margin (%) 28.8 19.4 26.1 (269)bps 668 bps Volumes (mn liters) 44.2 29.0 39.8 (34) 37 Gross realizations (Rs/liter) 192.1 169.2 172.6 (12) 2 Net realizations (Rs/liter) 105.4 86.8 94.2 (18) 9

Source: Company, Kotak Institutional Equities estimates

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH Oil, Gas & Consumable Fuels India

Exhibit 12: Earnings for all gas utilities to rise sequentially driven by robust rebound in volumes 2QFY21E preview for gas sector companies (Rs mn)

Change (%) Sep-19 Jun-20 Sep-20E yoy qoq Comments GAIL (India) Net sales 182,259 120,869 116,738 (36) (3) We expect sharp sequential increase in EBITDA led by (1) higher profits for EBITDA 17,487 6,226 12,016 (31) 93 LPG and petrochemicals segments amid lower gas cost, (2) recovery in EBIT 13,089 1,644 7,254 (45) 341 volumes across segments and (3) moderation in loss for gas marketing PBT 17,215 3,562 10,851 (37) 205 segment. Reported PAT 10,643 2,555 8,030 (25) 214 We assume (1) 11-13% qoq increase in gas marketing and transmission EPS (Rs/share) 2.6 0.6 1.8 (33) 214 volumes to 90 mcm/d and 102 mcm/d and (2) 8% qoq increase in petchem Assumptions sales volumes to 198 ktons. Transmission volumes (mcm/d) 108.7 90.2 101.9 (6) 13 Gas sales volumes (mcm/d) 94.7 81.2 90.1 (5) 11 Polymers volumes ('000 tons) 217.0 183.0 197.5 (9) 8 LPG volumes ('000 tons) 234.0 222.0 235.0 0 6 Other liquids ('000 tons) 95.0 43.0 60.2 (37) 40 Transmission tariff (Rs/cu. m) 1.60 1.54 1.54 (4) 0 GSPL Net sales 6,354 4,643 5,505 (13) 19 We expect 9% qoq increase in EBITDA driven by higher volumes amid an EBITDA 4,371 3,462 3,771 (14) 9 increase in off-take by key sectors from a low base of 1QFY21, which was EBIT 3,873 2,974 3,246 (16) 9 impacted by Covid-19. PBT 3,889 2,727 3,141 (19) 15 Reported PAT 4,549 1,994 2,336 (49) 17 We assume (1) 8% qoq increase in gas transmission volumes to 36.1 EPS (Rs/share) 5.6 3.5 4.1 (26) 17 mcm/d from 33.3 mcm/d in 1QFY21 and (2) steady regulated tariffs at Assumptions Rs1.3/scm. Volumes (mcm/d) 39.2 33.3 36.1 (15) 8 Transmission tariff (Rs/cu. m) 1.3 1.3 1.3 (3) 0 Petronet LNG Net sales 93,612 48,836 60,494 (35) 24 We expect 27% sequential increase in EBITDA led by higher volumes EBITDA 11,605 9,099 11,513 (1) 27 reflecting a strong rebound in LNG demand from a low base of 1QFY21, EBIT 9,644 7,164 9,538 (1) 33 which was impacted by Covid-19. PBT 9,568 6,966 9,575 0 37 Reported PAT 11,031 5,202 7,110 (36) 37 We assume overall LNG re-gasification volumes at 247 tn BTUs as EPS (Rs/share) 5.2 3.5 4.7 (10) 37 compared to 190 tn BTUs in 1QFY21 and 250 tn BTUs in 2QFY20 with Assumptions utilization at Dahej terminal increasing to 106% for the quarter. Total volumes (tn BTUs) 250.0 190.0 247.0 (1) 30 Blended regas tariff (Rs/mn BTU) 53.5 55.1 53.6 0 (3) Indraprastha Gas Net sales 16,925 6,386 11,990 (29) 88 We expect IGL's EBITDA to decline 11% yoy reflecting lower off-take of EBITDA 3,926 834 3,507 (11) 320 volumes amid lockdown in Delhi/NCR region and negative operating EBIT 3,305 153 2,796 (15) 1,731 leverage, which will be partly offset by higher gross margins. PBT 3,677 435 3,111 (15) 615 Reported PAT 4,192 372 2,310 (45) 520 We assume (1) overall volumes to decline 23% yoy at 5.1 mcm/d and (2) EPS (Rs/share) 5.0 0.5 3.3 (34) 520 unit EBITDA margins to increase to Rs7.5/scm from Rs3.4/scm in 1QFY21 Assumptions led by an increase in realizations for the CNG segment and lower gas cost. Volumes (mcm/d) 6.6 2.7 5.1 (23) 86 CNG sales (mn kgs.) 320 105 245 (23) 134 PNG sales (mscm) 152 101 125 (18) 23 Operating profit (Rs/scm) 6.5 3.4 7.5 16 123 Mahanagar Gas Net sales 7,836 3,095 4,372 (44) 41 We expect MGL's EBITDA to decline by 43% yoy reflecting sharply lower off- EBITDA 2,734 1,001 1,570 (43) 57 take of volumes amid extended lockdown in Mumbai and negative EBIT 2,343 546 1,139 (51) 109 operating leverage, which will be partly offset by reduction in certain cost PBT 2,558 748 1,396 (45) 87 items. Reported PAT 2,706 552 1,032 (62) 87 We assume (1) overall volumes to decline 40% yoy to 1.8 mcm/d and (2) EPS (Rs/share) 21.7 5.6 10.5 (52) 87 unit EBITDA margins to rise to Rs9.4/scm from Rs7.9/scm in 1QFY21, Assumptions benefitting from higher CNG realizations and lower gas cost. Volumes (mcm/d) 3.0 1.1 1.8 (40) 63 CNG sales (mn kgs.) 203 44 101 (50) 132 PNG sales (mscm) 73 58 65 (11) 13 Operating profit (Rs/scm) 9.9 7.9 9.4 (5) 19

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 India Oil, Gas & Consumable Fuels

Exhibit 13: ONGC/OIL to report sharp sequential increase in EBITDA led by higher oil and VAP realizations 2QFY21E preview for upstream companies (Rs mn)

Change (%) Sep-19 Jun-20 Sep-20E yoy qoq Comments ONGC Net sales 244,926 130,113 163,179 (33) 25 We expect 28% qoq increase in EBITDA led by (1) higher crude EBITDA 132,900 59,077 75,327 (43) 28 realization at US$41.7/bbl (+US$12.1/bbl qoq) and (2) higher price EBIT 70,347 9,585 20,036 (72) 109 of value-added products; gas price remain steady at US$2.66/mn PBT 90,383 9,035 33,385 (63) 270 BTU. Reported PAT 62,631 4,960 23,036 (63) 364 We model (1) overall crude oil sales volumes to decline 3% yoy to EPS (Rs/share) 4.9 0.4 1.8 (63) 364 5.2 mn tons and (2) natural gas sales volumes to decline 8% yoy to Assumptions 4.5 bcm, reflecting lower production in the recent months. Total crude sales (mn tons) 5.4 5.2 5.2 (3) 2 Total gas sales (bcm) 4.9 4.2 4.5 (8) 7 Net crude realization (US$/bbl) 62.2 29.6 41.7 (33) 41 Gas price realization (US$/mn BTU) 4.1 2.7 2.7 (35) 0 Subsidy burden (Rs bn) — — — Oil India Net sales 32,136 17,439 21,005 (35) 20 We expect 63% qoq increase in EBITDA led by higher crude EBITDA 14,884 3,118 5,069 (66) 63 realization at US$41.7/bbl (+US$11.3/bbl qoq); gas price will EBIT 8,275 (1,613) 368 (96) (123) remain steady at US$2.66/mn BTU. PBT 9,746 (1,585) 1,599 (84) (201) Reported PAT 6,272 (2,486) 1,182 (81) (148) Extraordinaries — (934) — We model (1) 9% yoy decline in crude oil sales volumes to 0.72 mn Adjusted PAT 6,272 (1,564) 1,182 (81) (176) tons and (2) 15% yoy decline in natural gas sales volumes to 0.56 EPS (Rs/share) 5.2 (1.3) 1.0 (81) (176) bcm, reflecting lower production in the recent months. Assumptions Total crude sales ('000 tons) 790 733 720 (9) (2) Total gas sales (mcm) 661 576 559 (15) (3) Net crude realization (US$/bbl) 61.3 30.4 41.7 (32) 37 Gas price realization (US$/mn BTU) 4.1 2.7 2.7 (35) 0 Subsidy burden (Rs bn) — — —

Source: Company, Kotak Institutional Equities estimates

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH ATTRACTIVE Telecommunication Services India OCTOBER 07, 2020 UPDATE BSE-30: 39,879

The pricing jam – a game theory perspective. A no/slow price hike scenario is likely to be negative for two out of the four key actors in the Indian wireless industry, the two being VIL and the government. A ‘pricing status quo’ scenario is a net positive for R-Jio and Bharti, in our view, even as the degree may be different for the two. In this backdrop, the onus of price hikes falls squarely on VIL and/or the government (through a floor tariff regulation or other means). We do not see R-Jio or Bharti initiating price hikes; we would perhaps not do so ourselves, if we were in either’s shoes.

Four actors, three choices

Using a simple game theory perspective, we argue that there are three choices facing the four key actors (R-Jio, Bharti, VIL and the government) insofar as pricing in the Indian wireless market is concerned –

 Price reduction

 Status quo

 Price increase

We now present our views on how each of the actors would look at these choices. Our assessment also bakes in player-specific nuances – hard factors like the shape of the balance sheet, capital availability, etc. as well as soft factors like culture, business approach, ability to influence policy, etc.

R-Jio – would prefer status quo on pricing

Having moved to the #1 position in the market on both subs and revenue market share, we believe a price cut choice is no longer a rational one even for an R-Jio as the incremental absolute gains from subscriber gains may not be enough to compensate for the hit taken on the existing revenue base. One can argue that there is upside in the form of ‘potential quick demise of the #3 player’ if R-Jio were to cut prices. We agree; however, even a status quo on pricing would achieve this objective with much lesser ‘cost to self’. Jio taking price increases allows the #3 player a fighting chance at reviving itself. Left to it, we believe R-Jio would prefer a status quo on pricing. It is under no pressure to shoot for an immediate jump in ARPU unless such an outcome was a key element of the recent large fund raise at Jio Platforms; we do not know.

Bharti – indifferent; would prefer prices to go up

Even as recent price action in the stock suggests that the Street sees immediate price hikes as uber-critical for Bharti, we disagree strongly. We believe Bharti is in a position where it does not need to initiate price hikes. The company has no pressing cashflow-mismatch or leverage issues. Rohit Chordia More important, a ‘pricing status quo’ scenario also creates value for Bharti as the market moves to a 2+1 structure from its current 3+1 dynamic. We have been amused with the Street’s interpretation of Bharti’s comments on similar lines (‘we do not need to initiate price hikes; will Aniket Sethi happily follow’) as company’s reluctance to raise prices.

[email protected] Contact: +91 22 6218 6427

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

VIL – the one most desperately in need of price hikes

We do not think VIL can raise enough risk capital to survive without a price hike for too long. Such arguments (involving names of large US corporations, no less) have been made and we have generally struggled to see much logic.

The viability challenge facing VIL is real and massive. A moratorium here, a deferral there, a small cash inflow from Indus stake sale to BHIN, some inflows from fiber monetization (there would be a corresponding EBITDA hit here), residual contracted cash inflow of a billion USD from Vodafone PLC pertaining to regulatory liabilities, etc. do not change the big picture. These may kick the can down the road and delay the ‘no price hike, no viability’ eventuality for VIL for a while (may be a year or two). But these wouldn’t really help a VIL become a viable business in the absence of meaningful price hikes. As we have argued in the past, VIL’s ARPU needs to at least double from the current levels in the next 3-4 years for the company to have any shot at surviving and staying competitive in the market.

In this backdrop, VIL’s strategic choice should be rather clear – gun for price increases as quick as possible. We believe the remit of the VIL promoters and senior management should be a single-minded pursuit of this objective. Rebranding exercise, no matter how well executed, wouldn’t help much if pricing doesn’t move up.

VIL needs price hikes, it has been quite vocal in acknowledging that it does and yet we haven’t seen any pricing action from the company since Dec 2019 and more importantly, for more than a month now since the final ruling on the AGR case. From a game theory perspective, we believe the only plausible explanation is that VIL is unsure of whether R-Jio would follow or not. We do not think VIL is worried about lack of response from Bharti. Given this uncertainly, VIL is perhaps waiting for the floor tariff regulation to see the light of the day. The regulation has been in the works for a while. We see two problems with this dynamic of waiting for a regulation to take pricing up –

 There is no defined timeline – the regulation could come in a week, a month, a year or more; even ‘never’ is a possibility. How long does VIL wait?

 Waiting for a regulation to do what you are free to do anyway (pricing is under forbearance; isn’t regulated) lends a quasi-PSU feel to the industry. We hope this is not the path the industry is headed towards. The industry does have several regulatory linkages, to be sure – licensing, spectrum, etc. However, other decisions like pricing, capex, technology, etc. have not had a regulatory linkage so far and regardless of the poor outcome of such ‘free market construct’ for several players/investors, we do not think even a quasi-regulated pricing construct can ever be good. If pricing becomes regulated, fully or partially or even in spirit, we would see that as a massive de-rating event for the sector.

The most important actor – the government

We would refrain from saying much here except highlighting that the government does have a meaningful skin in the game here; there is a lot at stake. The massive deferred spectrum and AGR liabilities make government the largest lender to the sector with huge exposure to VIL as well (at close to US$20 bn, government’s exposure to VIL is nearly 5X the banks’/FIs’ exposure to VIL). The government is also the majority shareholder of BSNL and MTNL, the two state-owned telcos that continue to be in deep trouble (see here) despite the massive bailout package announced last year (see here).

38 KOTAK INSTITUTIONAL EQUITIES RESEARCH September 2020: Results calendar 39

Mon Tue Wed Thu Fri Sat Sun 12-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 18-Oct Wipro Infosys Mindtree Federal Bank HDFC Bank HCL Technologies 19-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct 25-Oct ACC Hindustan Unilever Bajaj Finance Ambuja Cements JSW Steel L&T Technology L&T Infotech Bajaj Finserv Asian Paints Rallis India Mahindra CIE Automotive Syngene International Bajaj Auto UltraTech Cement Bajaj Holding & Investment Biocon HDFC AMC L&T Finance Holdings Mphasis 26-Oct 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 1-Nov Mahindra & Mahindra Financial Amara Raja Batteries Axis Bank Cholamandalam IOCL ICICI Bank Castrol India Dr Reddy's Laboratories TVS Motor GlaxoSmithkline Pharmaceuticals Hero Motocorp IIFL Wealth Titan Company 2-Nov 3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 8-Nov HDFC Dabur India Godrej Consumer Products Bosch The Ramco Cement Kansai Nerolac 9-Nov 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 15-Nov Endurance Technologies Daily Summary India

Source: NSE, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK -

October 8, October 8, 2020

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India

Fair O/S ADVT

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo Company Rating 7-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Automobiles & Components Amara Raja Batteries REDUCE 740 700 (5) 126 1.7 171 34 44 49 (10.9) 27.3 12.9 21 16.9 15.0 11.5 9.3 8.0 3.1 2.7 2.4 15.2 17.1 17.0 1.2 1.5 1.7 9.8 Apollo Tyres BUY 136 140 3 78 1.1 638 2.9 9.9 15.1 (64.7) 238.7 51.8 46.4 13.7 9.0 7.4 5.5 4.2 0.8 0.8 0.7 1.8 5.6 8.1 1.0 2.0 2.0 14.5 Ashok Leyland BUY 77 85 11 225 3.1 2,936 (0.4) 3.0 6.6 (134.0) 807.7 123.2 NM 25.8 11.6 33.9 11.9 6.6 3.1 2.9 2.5 NM 11.6 23 0.0 1.2 2.6 47 Bajaj Auto BUY 3,077 3,900 27 890 12 289 154 188 219 (12.6) 21.9 16.5 20.0 16.4 14.1 14.7 11.4 9.4 4.1 3.7 3.4 21 24 25 3.0 3.7 4.3 41 Balkrishna Industries SELL 1,448 1,150 (21) 280 3.8 193 48 58 71 (3.4) 21.7 21.0 30.2 24.8 20.5 17.1 14.1 11.7 5.1 4.5 4.0 17.6 19.3 21 1.5 1.7 1.8 15.5 Bharat Forge SELL 468 340 (27) 218 3.0 466 1 14 21 (87.3) 1,341.4 53.6 491.5 34.1 22.2 39.5 17.9 13.1 4.1 3.8 3.3 0.8 11.6 15.9 0.0 0.6 0.6 22 CEAT BUY 1,022 940 (8) 41 0.6 40 44 68 89 (30.5) 56.9 30.1 23.5 15.0 11.5 8.9 7.2 6.2 1.4 1.3 1.2 5.9 8.8 10.6 1.2 1.2 1.2 3.6 Eicher Motors SELL 2,238 1,920 (14) 611 8.3 272 59 83 107 (11.7) 39.8 28.9 37.8 27.0 21.0 28.7 20.3 15.2 6.3 5.3 4.4 18.0 21 23 0.6 0.6 0.6 71 Endurance Technologies REDUCE 1,092 875 (20) 154 2.1 141 29 46 57 (27.6) 59.6 22.1 38 23.5 19.2 15.4 11.0 9.0 4.6 3.9 3.4 12.2 16.8 17.5 0.4 0.7 0.8 1.6 Escorts BUY 1,246 1,300 4 111 2.3 101 55 74 88 1.4 34.2 17.8 22.5 16.8 14.2 13.1 9.4 7.6 2.5 2.2 2.0 11.2 13.4 13.9 0.7 0.9 1.1 43

Exide Industries REDUCE 164 155 (5) 139 1.9 850 7.8 9.1 9.9 (21.7) 16.5 9.0 21.0 18.0 16.5 11.3 9.8 9.0 2.1 2.0 1.8 10.2 11.2 11.4 2.1 2.1 2.1 9.2 -

Hero Motocorp SELL 3,233 2,700 (16) 646 8.8 200 132 170 203 (17.0) 29.0 19.4 24.5 19.0 15.9 15.2 11.5 9.4 4.3 3.9 3.6 18.1 22 24 2.7 3.2 3.8 61 October 8, 2020 8, October Mahindra CIE Automotive SELL 139 95 (31) 53 0.7 378 1.6 7.5 11.3 (83.0) 366.5 49.9 86.1 18.5 12.3 13.5 7.5 5.5 1.1 1.1 1.0 1.3 5.9 8.2 — — — 0.6 Mahindra & Mahindra BUY 632 725 15 785 10.7 1,138 30 42 48 26.3 40.8 13.8 21.0 14.9 13.1 13.1 9.7 8.2 1.9 1.7 1.5 9.5 12.1 12.4 0.5 1.0 1.1 55 Maruti Suzuki SELL 7,047 4,500 (36) 2,129 29.0 302 140 225 284 (25.0) 60.2 26.6 50 31 25 30.2 18.1 13.6 4.2 3.8 3.4 8.5 12.6 14.4 0.7 0.8 1.0 116

Motherson Sumi Systems ADD 117 115 (2) 370 5.0 3,158 1.6 6.6 8.6 (55.6) 302.2 29.5 71.1 17.7 13.6 11.1 5.4 4.3 3.3 2.7 2.1 4.6 16.7 17.4 1.0 1.3 1.4 23 MRF SELL 60,602 58,500 (3) 257 3.5 4 2,159 2,896 3,578 (35.7) 34.2 23.5 28 20.9 16.9 10.3 8.2 6.7 2.0 1.8 1.6 7.2 9.0 10.1 0.1 0.1 0.2 13.8 Schaeffler India SELL 3,630 3,150 (13) 113 1.5 31 83 128 148 (29.7) 55.1 15.6 44 28 24 21.4 14.7 12.6 3.6 3.2 2.8 8.4 11.9 12.3 — — — 0.8 SKF REDUCE 1,474 1,550 5 73 1.0 49 43 58 72 (26.2) 33.6 25.3 34 26 20 24.9 17.8 14.0 4.9 4.3 3.7 14.5 16.7 17.9 7.3 0.7 0.8 1.2 Tata Motors SELL 141 90 (36) 507 6.4 3,829 (20.5) 3.9 11.9 1.0 118.8 208.5 NM 36.5 11.8 6.8 4.4 3.8 0.9 0.9 0.8 NM 2.5 7.3 — — — 133 Timken SELL 1,064 825 (22) 80 1.1 75 22 35 42 (34.2) 60.6 21.7 49 31 25 28.3 18.6 15.2 5.9 5.0 4.3 11.0 17.6 18.2 0.1 0.1 0.2 0.8 TVS Motor SELL 479 285 (40) 227 3.1 475 7.4 14.7 18.7 (43.1) 98.4 27.4 65 33 26 23.3 15.7 13.0 6.0 5.3 4.6 9.5 17.3 19.3 0.6 0.8 1.0 18.6 Varroc Engineering BUY 306 380 24 41 0.6 135 (13) 22 38 (7,121.8) 267.2 72.4 NM 14.0 8.1 10.4 5.6 4.3 1.4 1.3 1.2 NM 9.5 14.2 — — — 1.8

Automobiles & Components Cautious 8,155 111.5 (30.3) 154.1 32.9 57.2 22.5 17.0 13.7 9.0 7.3 2.8 2.6 2.3 5.0 11.6 13.8 1.1 1.3 1.6 703 Banks AU Small Finance Bank SELL 724 590 (18) 222 3.0 304 19.7 23.0 31.2 (11.3) 17.0 35.6 37 31 23 — — — 4.7 4.1 3.5 12.8 13.2 15.5 — — — 7.6 Axis Bank BUY 453 600 32 1,386 18.9 2,822 35.1 41 49 509.3 17.8 17.5 13 10.9 9.3 — — — 1.4 1.3 1.2 11.1 11.9 12.7 1.2 1.4 1.6 173 Bandhan Bank REDUCE 315 330 5 507 6.9 1,610 20.2 20.6 25.1 7.3 2.4 21.4 15.6 15.2 12.6 — — — 2.9 2.4 2.0 19.3 16.5 17.0 — — — 98 Bank of Baroda ADD 42 65 57 192 2.6 4,627 7.3 17.3 19 516.4 137.1 9.3 6 2.4 2.2 — — — 0.4 0.3 0.3 5.0 11.1 11.0 3.5 8.3 9.1 21 Canara Bank REDUCE 89 90 1 130 1.8 1,454 (5.0) 7.5 21.7 76.9 249.7 188.9 NM 11.9 4.1 — — — 0.4 0.4 0.4 NM 2.1 5.8 — — — 16.4 City Union Bank ADD 144 140 (3) 106 1.4 737 5.6 10.2 11.6 (13.8) 82.6 13.6 26 14.2 12.5 — — — 2.1 1.9 1.6 7.5 12.7 13.0 0.7 1.3 1.4 5.3 DCB Bank BUY 80 150 88 25 0.3 310 9.3 10.3 15.1 (14.7) 10.4 46.8 8.6 7.8 5.3 — — — 0.8 0.7 0.6 8.7 8.9 11.9 1.2 1.3 1.9 3.4 Equitas Holdings BUY 53 100 89 18 0.2 342 5.5 8.8 16.2 (8.0) 58.7 84.6 9.5 6.0 3.3 — — — 0.6 0.6 0.5 6.6 9.6 15.6 — — — 8.3 Federal Bank BUY 51 80 55 103 1.4 1,993 6.1 6.9 10.4 (21.2) 12.7 50.8 8.4 7.5 5.0 — — — 0.7 0.7 0.6 8.1 8.6 12.0 2.6 3.0 4.5 28 HDFC Bank ADD 1,162 1,200 3 6,396 87.2 5,483 49 54 64 2.9 10.3 18.6 24 21 18 — — — 3.4 3.0 2.7 14.9 14.6 15.5 0.8 0.9 1.1 194 ICICI Bank BUY 383 470 23 2,639 36.0 6,893 22.0 25 27 79.4 12.9 10.3 17 15.4 14.0 — — — 1.9 1.8 1.6 11.7 11.4 11.5 1.1 1.3 1.4 192 IndusInd Bank ADD 619 600 (3) 468 6.4 756 26 64 78 (59.2) 147.6 21.6 24 9.6 7.9 — — — 1.3 1.1 1.0 5.3 11.8 13.0 0.6 1.6 1.9 171 Karur Vysya Bank BUY 32 65 100 26 0.4 799 4.2 6 9 41.4 55.6 40.8 8 5.0 3.6 — — — 0.5 0.4 0.4 4.9 7.4 9.8 3.3 5.2 7.3 1.6 Punjab National Bank REDUCE 28 33 19 261 3.6 9,411 1 5 7 5.7 885.4 34.5 53 5.3 4.0 — — — 0.5 0.5 0.4 0.7 6.0 7.4 — — — 15.0 RBL Bank BUY 177 270 52 90 1.2 509 10.3 20 24 3.4 97.2 18.8 17 8.7 7.4 — — — 0.9 0.8 0.8 4.8 9.0 9.9 0.8 1.5 1.8 66 State Bank of India BUY 191 340 78 1,702 23.2 8,925 24 29 40 49.2 17.9 38.4 8 6.7 4.8 — — — 0.9 0.8 0.7 8.9 9.6 11.9 0.1 0.1 0.1 174 Ujjivan Financial Services BUY 219 490 124 27 0.4 121 33.6 44 - 24.9 31.6 (100.0) 7 5.0 - — — — 1.1 0.9 — 17.0 19.3 NM 1.9 2.7 0.0 10.8 Ujjivan Small Finance Bank ADD 33 39 20 56 0.8 1,750 2 2 3 (12.3) 2.5 82.3 20 19.1 10.5 — — — 1.9 1.7 1.5 9.3 8.7 13.9 0.0 0.0 0.0 0.0 Union Bank REDUCE 24 25 3 156 2.1 6,407 (1) 0 4 86.0 135.5 901.5 NM 57.6 5.8 — — — 0.4 0.4 0.4 NM 0.5 4.7 (0.7) 0.3 2.6 1.7 YES Bank SELL 13 10 (24) 329 4.5 25,055 (1) (0) 0 89.7 84.7 190.1 NM NM 71.2 — — — 1.3 1.3 1.2 NM NM 1.4 0.0 0.0 0.0 41 Banks Attractive 14,839 202.4 97.0 36.1 27.2 18 13.3 10.4 1.3 1.2 1.1 7.5 9.4 10.8 0.8 1.0 1.1 1,228

Source: Company, Bloomberg, Kotak Institutional Equities estimates

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH

40

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 7-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Building Products Astral Poly Technik SELL 1,163 765 (34) 175 2.4 151 18.3 25 31 11.3 37.9 24.6 64 46 37 34.8 26.2 20.9 10.1 8.5 7.2 17.0 20.0 21 0.2 0.3 0.5 2.7 Building Products Cautious 175 2.4 11.3 37.9 24.6 64 46 37 34.8 26.2 20.9 10.0 8.5 7.2 15.8 18.4 19.4 0.2 0.3 0.5 2.7 Capital goods ABB SELL 877 840 (4) 186 2.5 212 9 21 26 (50.0) 140.4 22.5 100 42 34 64.5 26.8 21.6 5.2 4.8 4.4 5.3 12.1 13.7 0.7 0.8 0.9 2.4 Ashoka Buildcon BUY 65 130 100 18 0.2 281 9.3 11.4 12.4 (32.8) 23.3 8.3 7.0 5.7 5.3 4.7 3.8 3.1 0.6 0.6 0.5 9.6 10.9 10.8 2.3 2.8 3.0 2.0 Bharat Electronics BUY 94 130 38 229 3.1 2,437 6.2 6.9 7.0 (16.7) 11.3 1.4 15.1 13.6 13.4 8.6 7.5 6.8 2.1 1.9 1.8 14.5 14.9 13.9 2.5 2.8 2.8 22 BHEL SELL 28 28 (2) 99 1.3 3,482 (2.2) 2.4 2.7 48.4 208.5 14.1 NM 12.0 10.5 (18.3) 5.0 4.3 0.3 0.3 0.3 NM 2.8 3.2 (3.4) 3.4 3.4 28 Carborundum Universal ADD 263 285 8 50 0.7 189 12.1 15.2 17.4 (15.9) 26.0 14.1 22 17.3 15.2 12.1 9.6 8.2 2.5 2.3 2.1 11.8 13.7 14.3 1.3 1.6 1.8 1.4 Cochin Shipyard BUY 340 530 56 45 0.6 132 38 46 38 (21.6) 21.8 (16.8) 9.0 7.4 8.8 4.5 4.4 4.7 1.1 1.0 0.9 12.9 14.3 11.0 3.5 3.8 4.1 2.4 Cummins India BUY 443 500 13 123 1.7 277 18 26 29 (28.8) 41.2 14.2 24 17.3 15.1 28.0 17.4 15.2 2.8 2.7 2.6 11.9 16.1 17.6 2.3 3.2 3.6 9.1 Dilip Buildcon BUY 351 545 55 48 0.7 137 27 46 65 (12.3) 73.2 40.4 13.1 7.6 5.4 5.4 4.0 3.3 1.2 1.0 0.9 9.6 14.7 17.5 0.1 0.2 0.3 2.3 IRB Infrastructure BUY 112 150 33 40 0.5 351 15 12 9 (26.7) (22.8) (21.0) 7.5 9.7 12.2 6.4 5.8 4.9 0.6 0.5 0.5 7.7 5.7 4.3 3.4 2.1 2.4 5.0 Kalpataru Power Transmission BUY 238 470 97 37 0.5 153 25 40 44 (1.2) 57.4 11.8 9.5 6.0 5.4 4.2 3.6 3.1 1.0 0.9 0.8 10.9 15.4 15.1 1.4 1.9 2.2 1.7 KEC International BUY 345 360 4 89 1.2 257 24.5 30 34 11.6 24.3 12.6 14.1 11.3 10.1 8.1 6.7 6.0 2.7 2.2 1.9 21 21 20 0.8 1.0 1.1 2.0 L&T BUY 888 1,210 36 1,246 17.0 1,403 33 61 73 (47.3) 83.8 19.7 27 14.5 12.1 21.0 15.2 14.2 1.8 1.7 1.6 7.5 12.1 13.4 1.7 2.1 2.6 61 Sadbhav Engineering BUY 53 105 98 9 0.1 172 4.7 10.9 11.9 12.8 130.1 9.3 11.2 4.9 4.4 6.4 4.0 3.5 0.4 0.4 0.4 3.8 8.3 8.4 — — — 0.6 Siemens SELL 1,275 1,000 (22) 454 6.2 356 32 36 43 70.6 11.7 17.5 39 35 30 26.7 23.7 20.2 4.4 4.1 3.7 11.7 12.1 13.0 0.7 0.8 0.9 13.9 Thermax BUY 718 810 13 86 1.2 113 14 29 36 (24.9) 102.5 24.2 51 25 20 32.8 17.8 14.4 32.8 17.8 14.4 5.2 10.3 12.3 1.3 2.0 2.6 0.8 Capital goods Attractive 2,758 37.6 (28.9) 70.1 15.0 26 15.5 13.5 1.7 1.6 1.5 6.6 10.4 11.2 1.3 1.9 2.2 155 Commercial & Professional Services SIS BUY 368 395 7 54 0.7 149 14 19 23 (10.2) 36.2 26.3 27 19.9 15.7 12.2 10.3 8.8 3.5 3.0 2.5 13.6 16.1 17.4 0.2 0.3 0.3 0.7 TeamLease Services ADD 2,290 2,450 7 39 0.5 17 49 67 93 140.9 36.5 38.1 46 34 25 32.9 25.6 19.6 6.0 5.1 4.2 13.7 16.1 18.7 — — — 1.3 Commercial & Professional Services Attractive 93 1.3 10.1 36.3 29.8 32 24 18.4 16.2 13.4 11.1 4.2 3.6 3.0 12.8 15.0 16.3 0.1 0.1 0.2 2 Commodity Chemicals Asian Paints REDUCE 2,105 1,800 (14) 2,019 27.5 959 21.9 36.1 42.1 (19.4) 64.9 16.6 96 58 50 56.7 38.1 33.3 18.0 15.5 13.4 19.7 29 29 0.5 0.8 1.0 63 Berger Paints SELL 608 430 (29) 590 8.1 971 6.2 9.4 11.1 (8.5) 51.7 18.2 98 65 55 58.4 41.1 35.3 19.2 16.3 13.8 21 27 27 0.3 0.5 0.6 12.3 Kansai Nerolac ADD 481 485 1 259 3.5 539 8.1 12.6 14.7 (18.6) 55.3 17.0 59 38 33 37.2 25.1 21.8 6.4 5.9 5.3 11.2 16.0 17.0 0.6 0.9 1.1 1.9 Tata Chemicals ADD 301 330 10 77 1.0 255 23.1 35.2 39.3 (27.0) 52.2 11.9 13.0 8.6 7.6 4.9 3.8 3.3 0.6 0.6 0.5 4.5 6.6 7.1 2.7 4.1 4.6 13.2 Commodity Chemicals Neutral 2,945 40.2 (19.1) 59.6 16.2 79 50 43 41.8 29.3 25.7 9.3 8.4 7.6 11.8 17.0 17.9 0.5 0.9 1.0 90 Construction Materials ACC BUY 1,482 1,550 5 278 3.8 188 61.4 79.5 83.6 (15.1) 29.5 5.2 24 18.6 17.7 10.9 8.4 7.5 2.3 2.2 2.0 9.8 12.0 11.9 2.1 2.7 2.8 20

Ambuja Cements BUY 235 235 0 466 6.4 1,986 9.5 12.4 14.6 (10.2) 31.0 17.6 25 18.9 16.1 8.8 6.5 5.1 1.8 1.7 1.5 7.6 9.2 10.0 0.6 0.6 0.6 12.4 Daily Summary India Dalmia Bharat BUY 791 1,075 36 148 2.0 192 18.4 38.5 60.6 31.9 109.3 57.3 43 21 13.0 7.6 5.8 4.6 1.4 1.3 1.2 3.3 6.6 9.6 — — — 1.6 Grasim Industries ADD 760 700 (8) 500 6.8 657 42.5 71.6 99.6 (19.3) 68.5 39.1 17.9 10.6 7.6 8.7 5.9 4.4 0.8 0.8 0.7 4.8 7.6 9.8 0.1 0.3 0.6 31 J K Cement ADD 1,586 1,550 (2) 123 1.7 77 52.2 96.1 115.6 (18.7) 84.0 20.2 30 16.5 13.7 12.7 8.6 7.3 3.7 3.0 2.5 12.6 20 20 0.6 0.6 0.6 1.9 JK Lakshmi Cement BUY 265 340 28 31 0.4 118 16.0 27.4 35.2 (32.0) 71.4 28.6 16.6 9.7 7.5 6.0 4.7 3.9 1.7 1.5 1.3 10.6 16.2 17.9 0.9 1.5 2.0 1.2 Orient Cement ADD 61 75 23 12 0.2 205 3.7 6.3 9.0 (12.9) 72.1 41.4 16.5 9.6 6.8 6.1 5.0 4.0 1.1 1.0 0.9 6.6 10.8 14.0 3.3 3.3 3.3 0.3 Shree Cement SELL 20,705 16,000 (23) 747 10.2 36 382.0 651.5 720.3 (12.2) 70.5 10.6 54 32 29 21.9 15.2 13.4 5.4 4.7 4.1 10.3 15.8 15.3 0.5 0.5 0.5 18.4 UltraTech Cement BUY 4,213 4,600 9 1,216 16.6 289 133.7 219.9 284.3 0.6 64.4 29.3 32 19.2 14.8 14.3 9.7 7.8 2.9 2.5 2.2 9.4 13.9 15.6 0.4 0.5 0.6 30 Construction Materials Attractive 3,521 48.0 (10.1) 59.6 26.8 29 18.2 14.4 11.6 8.1 6.5 2.1 1.9 1.7 7.1 10.3 11.6 0.6 0.7 0.8 116

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

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October 8, 2020 8, October

KOTAK INSTITUTIONAL EQUITIES RESEARCH 41

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 7-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 275 210 (24) 172 2.4 627 6.9 8.8 10.1 (12.8) 27.1 15.5 40 31 27 29 24 20 8.9 7.4 6.1 26 26 24 0.0 0.9 0.9 3.2 Havells India SELL 681 490 (28) 426 5.8 626 8.7 13.8 16.2 (26.1) 58.5 17.7 78 49 42 51 34 28 9.2 8.3 7.5 12.2 17.7 18.7 0.4 0.7 0.8 17.0 Page Industries REDUCE 21,234 18,250 (14) 237 3.2 11 240 407 474 (22.2) 70.0 16.3 89 52 45 55 35 30 25.7 20.7 17.2 31 44 42 0.6 1.1 1.3 15.4 Polycab ADD 825 875 6 123 1.7 149 40 53 58 (21.5) 30.7 10.5 20 15.6 14.1 14 10 9 2.8 2.5 2.1 14.7 16.8 16.2 0.7 0.9 1.0 3.1 TCNS Clothing Co. REDUCE 394 380 (4) 24 0.3 66 0 14 17 (99.8) 69,289.2 24.5 19,687 28 23 26 11 8.8 3.7 3.1 2.7 0.0 11.9 12.6 — — — 0.3 Vardhman Textiles ADD 811 720 (11) 47 0.6 57 25 90 104 (70.8) 260.6 16.1 33 9.0 7.8 12.2 5.8 5.0 0.7 0.7 0.7 2.3 8.0 8.7 1.5 2.5 3.1 0.3 Voltas SELL 677 530 (22) 224 3.1 331 12.9 19.7 22.8 (20.8) 52.8 16.1 53 34 30 48 28 24 4.9 4.4 4.0 9.6 13.5 14.2 0.5 0.7 0.9 19.6 Whirlpool SELL 2,132 1,700 (20) 270 3.7 127 30 49 61 (21.3) 67.1 24.4 72 43 35 49 30 24 9.7 8.7 7.9 14.1 21 24 0.4 0.9 1.4 2.0 Consumer Durables & Apparel Cautious 1,524 20.8 (28.7) 62.5 55 34 29 35 23 19 5.9 5.2 10.7 15.5 16.2 0.5 0.9 61 Consumer Staples

Bajaj Consumer Care ADD 181 200 11 27 0.4 148 12.8 13.1 14.1 2.1 2.7 7.7 14.1 13.7 12.8 10.8 10.3 9.2 3.5 3.2 2.9 27 24 24 3.3 4.4 5.0 3.5 -

Britannia Industries ADD 3,786 4,150 10 911 12.4 240 81 86 100 36.7 6.3 16.6 47 44 38 35 33 29 17.1 13.6 10.9 39 34 32 0.7 0.9 1.1 39 October 8, 2020 8, October Colgate-Palmolive (India) ADD 1,439 1,550 8 391 5.3 272 31 36 42 8.1 18.0 14.9 47 40 35 30.0 25.8 22.7 24.4 23.2 22.0 52 60 65 2.0 2.4 2.7 15.1 Dabur India REDUCE 524 415 (21) 926 12.6 1,767 9.5 11.0 12.3 10.2 15.3 11.9 55 48 43 45 38 33 12.9 11.8 10.7 24 26 26 1.1 1.3 1.5 23 Godrej Consumer Products ADD 729 750 3 745 10.2 1,022 15.4 18.5 21.2 11.8 20.3 14.6 47 39 34 32 27 24 8.3 7.5 6.8 18.6 19.9 21 1.0 1.3 1.6 13.2

Hindustan Unilever ADD 2,139 2,500 17 5,027 68.6 2,343 35 45 53 12.3 28.1 17.1 61 48 41 43 34 29 11.6 11.0 10.5 32 24 27 1.5 1.9 2.2 72 ITC BUY 170 260 53 2,086 28.4 12,318 10.6 12.5 13.8 (7.9) 17.9 9.8 15.9 13.5 12.3 11.2 9.3 8.3 3.2 3.1 3.0 19.2 22 24 5.4 6.3 7.0 72 Jyothy Laboratories ADD 143 160 12 52 0.7 367 5.5 6.0 6.9 17.5 9.1 13.5 26 24 21 17.7 16.3 14.5 4.0 3.8 3.6 16.1 16.6 17.7 2.5 2.8 3.2 1.6 Marico ADD 369 390 6 476 6.5 1,290 8.8 9.7 10.5 8.2 11.2 8.1 42 38 35 29 26 24 14.6 13.6 13.4 36 37 39 1.9 2.1 2.4 14.3 Nestle India REDUCE 16,112 16,000 (1) 1,553 21.2 96 227 270 317 10.9 19.1 17.4 71 60 51 47 41 36 63.2 50.5 41.1 100 94 89 1.1 1.3 1.5 29 Tata Consumer Products ADD 505 470 (7) 465 6.3 922 9.8 11.9 13.5 22.3 22.4 12.9 52 42 37 27 25 22 3.2 3.1 2.9 6.4 7.4 8.0 0.7 0.8 1.0 36 United Breweries ADD 958 1,120 17 253 3.5 264 4.9 20.3 26.3 (70.0) 318.8 29.5 197 47 36 56 24 20 7.1 6.2 5.5 3.6 14.1 16.0 0.1 0.6 0.9 10.6 United Spirits ADD 530 620 17 385 5.3 727 8.6 14.0 16.9 (25.0) 62.8 20.6 62 38 31 33 23 20 8.5 6.9 6.0 14.6 20 20 — — 0.9 20

Varun Beverages BUY 684 825 21 197 2.7 289 6.5 25.5 32.5 (60.0) 291.5 27.7 105 27 21 21 12 10 5.5 4.7 3.9 5.4 18.9 20 0.2 0.3 0.4 2.6 Consumer Staples Attractive 13,497 184.1 3.1 23.2 13.9 41 33 29 29 24 21 8.1 7.6 7.1 19.8 23 24 1.9 2.3 2.6 353 Diversified Financials Bajaj Finance REDUCE 3,331 2,800 (16) 2,007 27.4 600 74 131 173 (28) 77 32 45 25 19.3 — — — 5.5 4.6 3.8 13.0 19.8 22 0.2 0.4 0.5 351 Bajaj Finserv BUY 5,905 7,600 29 940 12.8 159 252 402 522 19 60 30 23 14.7 11.3 — — — 2.7 2.3 2.0 12.1 16.8 18.7 0.2 0.2 0.2 66 Cholamandalam BUY 254 300 18 208 2.8 820 13.9 20.2 24.6 8 45.0 22.0 18.3 12.6 10.3 — — — 2.5 2.1 1.8 13.1 16.7 17.5 0.6 0.9 1.1 26 HDFC ADD 1,949 2,075 6 3,496 47.7 1,732 64 73 92 (38.0) 14 27.2 31 27 21 — — — 3.6 3.3 3.0 12.3 12.9 15.0 1.1 1.3 1.7 117 IIFL Wealth ADD 959 1,200 25 84 1.1 88 33.4 48.7 65.1 41 45.8 33.6 29 19.7 14.7 — — — 2.7 2.6 2.5 9.7 13.7 17.5 2.3 3.3 3.4 0.6 L&T Finance Holdings ADD 62 90 45 124 1.7 2,005 5 9 14 (44.2) 85 57.1 13.1 7.1 4.5 — — — 0.8 0.7 0.6 6.3 10.9 15.3 2.3 2.6 2.6 15.1 LIC Housing Finance ADD 282 375 33 142 1.9 505 44.0 71.5 83.5 (8) 62.6 16.7 6.4 3.9 3.4 — — — 0.9 0.8 0.6 11.6 16.8 17.1 2.6 4.3 5.0 19.7 Muthoot Finance REDUCE 1,176 1,100 (6) 472 6.4 401 77 87 102 2.4 13 16.8 15.3 13.5 11.6 — — — 3.4 2.8 2.4 24 23 22 1.3 1.5 1.7 52 Shriram City Union Finance BUY 907 1,300 43 60 0.8 66 101 177 192 (33.3) 75 8.3 9.0 5.1 4.7 — — — 0.8 0.7 0.6 8.9 14.1 13.6 1.4 2.9 3.2 0.9 Shriram Transport BUY 634 1,050 66 160 2.2 253 73.2 107.4 142.5 (34) 46.6 32.8 8.7 5.9 4.4 — — — 0.8 0.7 0.6 9.5 12.2 14.5 1.7 2.5 3.4 45 Diversified Financials Attractive 7,910 107.9 (22.7) 39.9 24.9 25 17.9 14.3 2.9 2.5 2.3 11.4 14.2 16.0 0.9 1.1 1.3 734

Source: Company, Bloomberg, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH

42

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 7-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Electric Utilities CESC BUY 609 820 35 81 1.1 133 108 124 135 10 14.8 8.3 5.6 4.9 4.5 4.6 4.0 3.5 0.6 0.5 0.5 11.0 11.4 11.3 2.1 2.1 2.4 3.3 JSW Energy BUY 56 65 16 92 1.3 1,640 4.8 5.3 5.6 (25) 12 4.7 11.8 10.5 10.1 5.7 4.9 4.5 0.7 0.7 0.6 6.5 6.8 6.6 0.0 — — 2.0 NHPC ADD 20 26 29 203 2.8 10,045 3.0 3.2 3.3 5.9 9 1.2 6.8 6.3 6.2 8.0 7.1 6.6 0.6 0.6 0.6 9.3 9.8 9.5 8.6 9.3 9.3 1.6 NTPC BUY 83 130 57 819 11.2 9,895 13.0 15.4 16.6 17.3 18.3 7.7 6.3 5.4 5.0 7.5 5.9 5.0 0.7 0.6 0.6 11.0 12.0 11.9 4.4 5.6 6.0 33 Power Grid BUY 160 220 38 835 11.4 5,232 22.0 25 28 6 16.1 8.9 7.3 6.3 5.7 6.3 5.6 5.1 1.2 1.1 1.0 17.2 18.3 18.1 6.7 7.7 8.4 23 Tata Power BUY 56 70 25 179 2.4 2,705 4.4 6.3 7.1 0 42 12.9 12.6 8.9 7.9 8.2 7.5 7.0 0.8 0.7 0.7 6.4 8.5 8.8 0.0 — — 23 Electric Utilities Attractive 2,209 30.1 9.1 17.1 7.8 7.2 6.1 5.7 0.8 0.8 0.7 11.4 12.3 12.3 5.0 5.9 6.4 86 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 5,755 3,400 (41) 259 3.5 45 134.2 149.9 166.0 3.8 11.7 10.8 43 38 35 31 27 24 8.5 7.2 6.2 21 20 19.2 0.5 0.5 0.6 3.0 Dhanuka Agritech SELL 740 650 (12) 35 0.5 48 37.0 40.8 45.8 24.4 10.4 12.2 20.0 18.1 16.2 14.9 13.2 11.4 4.2 3.6 3.2 23 21 21 1.2 1.7 2.2 1.6 Godrej Agrovet SELL 536 420 (22) 103 1.4 192 14.9 17.5 20.4 29.1 17.2 17 36 31 26 18 16 13 4.2 3.8 3.4 12.3 13.0 13.6 1.0 1.1 1.3 1.7 PI Industries SELL 2,043 1,600 (22) 310 4.2 152 45.6 57.8 69.2 38.0 27 20 45 35 30 30 24 20 9.7 7.9 6.5 24 25 24 0.3 0.5 0.7 8.2 Rallis India SELL 277 265 (4) 54 0.7 195 11.3 14.8 18.0 25.0 30.9 21.4 24.5 18.7 15.4 16.5 12.8 10.4 3.4 3.0 2.6 14.7 17.0 17.9 1.0 1.1 1.2 4.7 UPL SELL 511 390 (24) 390 5.3 765 31.9 36.5 40.2 37.6 14.2 10.3 16 14.0 12.7 8.1 7.4 6.6 2.2 1.9 1.7 14.2 14.6 14.4 1.6 1.8 2.0 36 Fertilizers & Agricultural Chemicals Cautious 1,151 15.7 31.8 16.7 13.1 26 22 19.7 12.7 11.4 10.1 3.9 3.5 3.1 15.1 15.5 15.5 0.9 1.1 1.2 55 Gas Utilities GAIL (India) BUY 87 140 61 391 5.3 4,510 7.6 11.0 12.4 (42.1) 44.8 12.3 11.4 7.8 7.0 8.3 5.7 4.9 0.9 0.8 0.8 7.7 10.6 11.2 4.6 5.8 6.9 18.3 GSPL SELL 195 200 3 110 1.5 564 13.2 11.8 8.0 (23.1) (10.6) (32.2) 14.7 16.5 24.3 5.8 6.1 7.9 1.5 1.4 1.3 10.6 8.7 5.6 1.0 1.2 1.0 3.0 Indraprastha Gas SELL 384 380 (1) 269 3.7 700 14.4 20.7 23.1 (13.9) 44.1 11.5 26.8 18.6 16.7 18.5 13.0 11.4 4.7 4.0 3.5 18.6 23 22 0.7 1.2 1.6 23 Mahanagar Gas ADD 829 1,175 42 82 1.1 99 53.8 81.3 86.6 (27.9) 51.1 6.5 15.4 10.2 9.6 9.9 6.4 5.7 2.5 2.2 1.9 17.0 23 22 2.4 4.1 4.9 14.0 Petronet LNG BUY 219 300 37 329 4.5 1,500 18.3 21.7 24.1 3.6 18.6 11.4 12.0 10.1 9.1 6.5 5.6 5.1 2.8 2.7 2.6 24 27 29 6.3 8.0 9.5 14.1 Gas Utilities Attractive 1,181 16.1 (26.2) 31.8 8.9 14.0 10.6 9.7 8.6 6.6 5.9 1.6 1.5 1.4 11.5 14.1 14.4 3.7 4.8 5.7 72 Health Care Services Apollo Hospitals BUY 2,173 1,840 (15) 302 4.1 139 -18.1 32 60 (198) 277 86 NM 67.7 36.4 40.6 19.1 15.8 9.5 8.7 7.2 NM 13.4 21 (0.3) 0.6 1.1 32 Dr Lal Pathlabs SELL 2,228 1,330 (40) 186 2.5 83 30.1 39.3 42.9 11.4 30.5 9.1 73.9 56.6 51.9 47.1 35.2 33.0 15.4 12.9 11.0 22 25 23 0.4 0.5 0.6 4.2 HCG BUY 122 150 23 15 0.2 143 (8.7) (2.4) (1.7) 28 73 27 NM NM NM 12.6 7.0 6.0 1.8 1.9 1.9 NM NM NM — — — 0.2 Metropolis Healthcare SELL 2,032 1,340 (34) 103 1.4 51 36.5 42.0 45.2 21.6 15.0 8 55.7 48.4 45.0 34.8 30.6 27.8 16.0 13.2 11.1 32 30 27 0.5 0.6 0.7 3.1 Narayana Hrudayalaya BUY 365 345 (6) 75 1.0 204 -7.4 7.6 10.8 (227.9) 202 42 NM 48.2 33.9 67.7 16.1 13.2 7.6 6.6 5.5 NM 14.6 17.7 — — — 1.0 Health Care Services Attractive 750 10.2 (89) 1,402 40 726.9 48.4 34.7 27.0 16.2 13.9 7.2 6.5 5.6 1.0 13.4 16.1 0.0 0.5 0.7 41 Hotels & Restaurants Jubilant Foodworks ADD 2,347 2,500 7 310 4.2 133 13 34 44 (45) 163.1 30 181.3 68.9 52.9 41.5 26.5 21.8 25.8 19.6 15.6 14.7 32 33 0.2 0.5 0.6 31

Lemon Tree Hotels BUY 28 35 26 22 0.3 790 -1.2 0.6 1.0 (932) 147 77 NM 47.8 26.9 35.0 11.8 8.1 3.0 2.9 2.8 NM 6.2 10.6 — 0.9 1.4 0.8 Daily Summary India Hotels & Restaurants Attractive 332 4.5 (76) 579 35 450.0 66.3 49.1 40.7 23.3 18.5 17.1 14.1 11.8 3.8 21 24 0.2 0.5 0.7 31 Insurance HDFC Life Insurance REDUCE 579 560 (3) 1,169 15.9 2,010 6.8 7.4 7.8 5.8 8.2 6.3 85 78 74 — — — 15.3 14.1 13.0 18.8 18.7 18.3 0.3 0.3 0.3 28 ICICI Lombard SELL 1,272 950 (25) 578 7.9 454 32.1 34.3 37.9 22 7 11 40 37 34 — — — 7.8 6.8 5.8 21 20 18.7 0.3 0.6 0.6 8.5 ICICI Prudential Life BUY 434 500 15 623 8.5 1,436 8.5 9.6 9.9 14 13.2 3.4 51 45 44 — — — 7.3 6.5 5.8 15.2 15.2 14.0 0.3 0.4 0.4 13.5 Max Financial Services NR 610 — — 164 2.2 343 9.5 26.7 16.0 (6) 180 (40) 64 23 38 — — — — — — 13.5 38 17.3 — 1.1 0.3 14.8 SBI Life Insurance BUY 828 1,050 27 828 11.3 1,001 15.5 16.6 17.7 8.9 7.4 6.5 53 50 47 — — — 8.9 7.8 6.8 18.0 16.7 15.5 — 0.3 0.3 18.2 Insurance Attractive 3,363 45.9 (30.9) 22.0 (0.6) 56.7 46.5 47 9.5 7.7 7.3 16.7 16.6 15.6 0.2 0.3 0.3 83

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

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October 8, 2020 8, October

KOTAK INSTITUTIONAL EQUITIES RESEARCH 43

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 7-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Internet Software & Services Info Edge SELL 3,460 2,800 (19) 445 6.1 128.3 26.7 43.1 52.8 (0.7) 61.3 22.4 129.4 80.2 65.6 119.7 73.3 58.0 9.7 8.9 8.1 9.8 11.6 12.9 0.2 0.3 0.4 21 Just Dial ADD 386 400 4 25 0.3 61.8 24.7 29.9 35.5 (41.1) 21.0 18.8 15.6 12.9 10.9 8.3 5.7 4.0 2.0 1.7 1.5 12.2 14.1 14.5 — — — 7.4 Internet Software & Services Cautious 470 6.4 (17.6) 48.9 21.5 94.8 63.7 52.4 86.9 57.6 46.9 8.1 7.4 6.6 8.6 11.6 12.6 0.2 0.3 0.4 28 IT Services HCL Technologies ADD 828 900 9 2,247 30.6 2,716 44.6 48.4 52.9 9.3 8.7 9.2 18.6 17.1 15.7 11.3 10.1 9.1 3.7 3.2 2.8 22 20 19.2 1.2 1.7 1.7 89 Hexaware Technologies REDUCE 467 375 (20) 140 1.9 302 23.3 24.6 26.4 9.7 5.8 7.3 20.1 19.0 17.7 13.3 11.8 10.6 4.4 3.8 3.4 23 22 21 1.7 2.1 2.6 7.7 Infosys BUY 1,067 1,115 5 4,543 62.0 4,259 40.5 45.2 50.9 4.0 11.7 12.5 26.3 23.6 21.0 17.6 15.8 14.0 6.3 5.8 5.4 25 26 27 2.4 2.8 3.3 158 L&T Infotech ADD 2,667 2,800 5 466 6.3 176 91.0 110.6 130.3 5 21.5 17.8 29.3 24.1 20.5 19.0 16.6 14.1 7.4 6.2 5.2 27 28 28 1.2 1.3 1.5 8.4 Mindtree REDUCE 1,388 980 (29) 229 3.1 165 54.9 62.5 67.0 43 14 7 25.3 22.2 20.7 15.2 13.5 12.6 6.1 5.1 4.4 26 25 23 1.2 1.3 1.4 20 Mphasis REDUCE 1,339 1,100 (18) 250 3.4 187 64.3 70.6 77.7 1 9.9 10.1 20.8 19.0 17.2 13.5 12.0 10.8 3.9 3.5 3.2 19.6 19.6 19.5 2.6 2.6 2.6 8.7

TCS REDUCE 2,737 2,800 2 10,272 140.1 3,750 86.6 99.6 110.7 0 15.0 11.2 31.6 27.5 24.7 22.1 19.5 17.5 12.1 10.1 9.4 38 40 39 1.3 2.2 3.2 155 -

Tech Mahindra BUY 846 845 (0) 737 10.1 880 40.8 51.3 61.0 (11.0) 25.7 18.9 20.7 16.5 13.9 11.8 9.2 7.6 3.1 2.8 2.5 15.7 17.9 19.0 1.8 2.0 2.2 61 October 8, 2020 8, October Wipro ADD 335 285 (15) 1,916 26.1 5,703 17.0 18.2 19.8 2.4 7.1 8.6 19.7 18.4 16.9 12.3 11.3 10.1 3.0 2.8 2.6 16.2 15.7 15.9 0.6 2.5 2.7 70 IT Services Attractive 20,799 283.7 2.3 12.2 11.3 26.2 23.3 20.9 17.3 15.4 13.8 6.4 5.7 5.2 24 24 25 1.5 2.3 2.9 578 Media

DB Corp. REDUCE 79 81 2 14 0.2 175 5.3 14.1 14.2 (66.5) 166.7 1.2 15.0 5.6 5.6 4.8 2.4 2.5 0.8 0.8 0.8 5.4 14.3 14.6 2.5 15.2 16.4 0.4 Jagran Prakashan REDUCE 37 37 1 10 0.1 281 3.9 7.3 8.4 (43.6) 87 NA 9.3 5.0 NA 1.9 1.2 NA 0.5 0.5 NA 5.7 10.3 11.5 5.5 13.7 13.7 0.3 PVR BUY 1,263 1,650 31 70 1.0 55 -70.7 53.3 67.1 (344) 175 26 NM 23.7 18.8 (41.0) 9.6 8.1 3.2 2.8 2.5 NM 12.6 14.1 (0.6) 0.4 0.5 45 Sun TV Network REDUCE 462 435 (6) 182 2.5 394 38.5 40.2 42.3 8 4.6 5.1 12.0 11.5 10.9 8.1 7.6 7.2 3.0 2.9 2.8 26 26 26 5.4 5.9 6.5 16.6 Zee Entertainment Enterprises ADD 206 250 21 198 2.7 960 11.5 17.3 19.1 2.9 50.8 10.4 18.0 11.9 10.8 10.8 7.2 6.1 2.0 1.8 1.6 11.4 15.7 15.5 1.7 1.9 2.2 105 Media Cautious 474 6.5 (21.3) 64.3 9.1 19.5 11.9 10.9 11.0 6.9 6.2 2.2 2.0 1.9 11.1 16.9 17.1 2.9 3.9 4.3 167 Metals & Mining Hindalco Industries BUY 173 285 65 388 5.3 2,220 16.2 26.7 32.3 (8.9) 65.1 21 10.7 6.5 5.4 6.3 4.7 3.9 0.6 0.6 0.5 6.0 9.2 10.1 0.6 0.6 0.6 43

Hindustan Zinc BUY 211 290 38 890 12.1 4,225 15.3 20.1 21.3 (5.0) 31.5 5.9 13.8 10.5 9.9 7.6 5.8 5.4 2.7 2.7 2.7 17.5 25 27 7.3 9.5 10.1 5.7 Jindal Steel and Power BUY 192 270 41 195 2.7 1,020 12.8 20.4 21.7 267 60 6 15.0 9.4 8.8 5.6 4.8 4.4 0.6 0.6 0.5 4.0 6.0 6.0 — — — 39 JSW Steel ADD 291 300 3 704 9.6 2,402 12.6 24.7 31.4 25.0 96 26.9 23.1 11.8 9.3 9.2 6.4 5.5 1.8 1.6 1.4 8.0 14.2 15.7 0.7 0.7 0.7 35 National Aluminium Co. SELL 31 26 (17) 59 0.8 1,866 0.9 1.5 2.6 23 61 74.0 34.3 21.3 12.3 5.6 6.0 5.2 0.6 0.6 0.6 1.7 2.7 4.6 0.0 2.3 4.1 7.3 NMDC REDUCE 82 110 34 251 3.4 3,062 13.5 11.1 12.3 (7.4) (18.4) 12 6.1 7.4 6.7 4.0 4.8 4.5 0.8 0.8 0.8 14.5 11.1 11.7 8.2 6.7 7.5 11.7 Tata Steel BUY 371 550 48 422 5.8 1,146 (0.6) 69.1 84.3 (102) 11,559 22 NM 5.4 4.4 8.6 5.2 4.8 0.6 0.6 0.5 NM 11.0 12.2 2.8 3.5 3.8 82 Vedanta BUY 123 165 34 459 6.3 3,717 11.6 17.8 20.7 77 54 16.5 10.7 6.9 5.9 4.9 3.9 3.4 0.8 0.8 0.8 7.9 11.9 13.3 9.9 9.2 12.0 34 Metals & Mining Attractive 3,369 46.0 (2.3) 77.9 17.0 14.7 8.3 7.1 6.8 5.1 4.5 1.0 0.9 0.9 6.9 11.5 12.4 4.4 5.0 5.6 258

Source: Company, Bloomberg, Kotak Institutional Equities estimates

44 KOTAK INSTITUTIONAL EQUITIES RESEARCH

44

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 7-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Oil, Gas & Consumable Fuels BPCL BUY 342 480 40 742 10.1 1,967 35 37 39 229.9 6.0 5.8 9.9 9.3 8.8 7.9 7.6 6.9 1.8 1.7 1.5 19.5 18.8 18.2 5.1 5.4 5.7 72.8 Coal India BUY 114 195 70 705 9.6 6,163 20 18 18 (28) (8.4) 2.5 5.8 6.4 6.2 5.3 5.5 4.9 2.2 2.3 2.4 37.8 35.4 37.6 17.5 17.5 17.5 20.7 HPCL BUY 171 265 55 261 3.6 1,524 34 29 32 371.9 (13.2) 10.1 5.1 5.8 5.3 6.7 6.9 6.3 0.8 0.8 0.7 17.0 13.7 14.0 9.9 8.6 9.4 23.4 IOCL BUY 75 110 46 708 9.7 9,181 9.6 12.9 13.9 343.8 34.3 7.4 7.8 5.8 5.4 5.5 4.8 4.6 0.7 0.7 0.6 9.2 11.6 11.7 5.8 7.7 8.3 27.9 Oil India SELL 92 70 (24) 100 1.4 1,084 3 6 10 (85) 103.6 56.9 30.5 15.0 9.6 8.5 7.4 5.9 0.4 0.4 0.4 1.3 2.7 4.1 1.0 2.7 4.2 1.2 ONGC SELL 71 60 (15) 887 12.1 12,580 4 7 12 (74) 101.4 76.2 20.1 10.0 5.7 4.7 3.5 2.7 0.4 0.4 0.4 1.9 3.8 6.4 2.7 4.1 6.8 19.9 Reliance Industries ADD 2,258 2,150 (5) 13,380 182.5 5,926 67 93 110 (0.1) 40.0 18.2 33.9 24.2 20.5 15.9 10.8 10.6 2.7 2.4 2.4 8.3 10.8 12.1 0.3 0.3 0.3 618.7 Oil, Gas & Consumable Fuels Attractive 16,783 228.9 2.9 34.1 19.2 21.8 16.2 13.6 10.6 8.0 7.5 1.8 1.6 1.5 8.1 9.6 11.1 1.7 1.9 2.1 785 Pharmaceuticals Aurobindo Pharma REDUCE 823 790 (4) 482 6.6 586 55 59 62 12.9 8 4.7 15.1 14.0 13.4 9.1 8.0 7.2 2.5 2.1 1.9 16.3 15.3 14.2 0.9 1.1 1.3 51.2 Biocon SELL 452 225 (50) 543 7.4 1,202 8.2 10.1 11.6 32 23 15.8 55 45 39 24.9 20.2 17.8 6.7 6.0 5.3 12.1 13.3 13.8 0.6 0.8 0.9 35.9 Cipla BUY 774 840 9 624 8.5 806 28.2 33 45 47.3 16 38 27 23.5 17.0 15.1 13.1 9.5 3.5 3.1 2.7 12.7 13.3 16.0 0.7 0.8 1.1 90.7 Dr Reddy's Laboratories SELL 5,105 3,700 (28) 849 11.6 166 157 203 267 21 29 31.5 32 25.1 19.1 18.4 14.1 11.0 4.8 4.1 3.5 14.8 16.4 18.1 0.5 0.6 0.6 148.3 Laurus Labs REDUCE 326 175 (46) 175 2.4 535 10.9 11.1 13 128.6 1 19 30 29.5 24.8 18.7 17.6 14.6 7.4 5.9 4.8 24.8 20.1 19.2 — — — 30.0 Lupin ADD 1,026 1,000 (3) 465 6.3 450 28 44 52 30.3 54 20 36 24 19.7 15.9 11.2 9.2 3.4 3.0 2.7 9.3 12.8 13.5 0.4 0.6 0.8 58.6 Sun Pharmaceuticals REDUCE 512 510 (0) 1,228 16.7 2,406 19.7 23.1 28 17.6 17 22 26 22 18.2 14.2 12.0 10.0 2.6 2.4 2.2 10.2 11.3 11.8 0.2 0.9 1.1 76.5 Torrent Pharmaceuticals REDUCE 2,812 2,450 (13) 476 6.5 169 72 89 105 25.3 24 18 39 32 27 19.8 16.8 14.8 8.5 7.2 6.1 21.7 22.8 22.8 0.9 1.1 1.3 30.4 Pharmaceuticals Attractive 4,841 66.0 24.9 20 22 29 24 19.6 15.5 12.9 10.7 3.7 3.3 2.9 12.8 13.7 14.6 0.5 0.8 1.0 522 Real Estate Brigade Enterprises BUY 170 235 38 35 0.5 204 6.8 15 17 6 114 15 25.0 11.7 10.1 10.4 5.4 4.8 1.5 1.3 1.2 6.0 12.0 12.6 1.5 1.5 1.5 0.8 DLF BUY 159 200 26 393 5.4 2,475 4.8 8.5 9.8 303 75 15 33 18.8 16.3 44.3 26.0 26.0 1.1 1.1 1.0 3.4 5.8 6.4 1.3 1.3 1.3 29.7 Embassy Office Parks REIT ADD 361 400 11 279 3.8 772 13.1 15.0 15.6 32 14 4 28 24 23 16.2 14.9 13.3 1.3 1.4 1.5 4.6 5.6 6.2 7.3 8.2 9.3 2.9 Godrej Properties SELL 903 690 (24) 228 3.1 252 12.2 15.8 32.1 14.0 29 103.5 74 57 28 85.3 147.6 48.9 4.5 4.1 3.6 6.2 7.5 13.7 — — — 8.4 Mindspace REIT ADD 304 330 9 180 2.5 593 14 16 18 69.4 9.5 13 21.0 19.2 16.9 17.2 14.0 12.6 1.1 1.1 1.1 9.1 5.7 6.5 2.7 6.7 7.2 — Oberoi Realty ADD 399 450 13 145 2.0 364 22 28 34 14.1 28.8 21 18.4 14.3 11.9 14.5 12.2 8.9 1.6 1.4 1.3 8.8 10.3 11.3 0.5 0.5 0.5 2.4 Prestige Estates Projects ADD 260 275 6 104 1.4 401 6.6 10.2 18 (39.0) 54 81 39 25 14.0 8.3 7.0 5.8 1.9 1.8 1.6 4.9 7.2 11.9 0.6 0.6 0.6 2.7 Sobha BUY 259 400 54 25 0.3 95 32 40 59 9 24.7 45.9 8.0 6.4 4.4 4.5 4.2 3.6 0.9 0.8 0.7 12.1 13.6 17.4 2.7 2.7 2.7 1.5 Sunteck Realty BUY 250 300 20 37 0.5 140 8.8 18.1 20 23.5 105 9 28 13.9 12.7 22.0 12.3 11.5 1.2 1.1 1.0 4.2 8.1 8.1 0.4 0.4 0.4 2.6 Real Estate Attractive 1,424 19.4 96.7 39 24 29 21 16.5 17.3 13.8 11.7 1.4 1.4 1.3 4.9 6.7 8.0 2.3 3.0 3.3 51 Retailing Aditya Birla Fashion and Retail BUY 132 150 14 109 1.5 773 (4.1) 2.7 4.4 (92.4) 165.6 62.8 NM 49 30 16.9 8.6 7.5 6.7 5.4 4.8 NM 12.4 17.2 — — — 3.9

Avenue Supermarts SELL 2,066 1,530 (26) 1,338 18.3 648 19.2 39 47 (8.7) 105.2 18.6 108 53 44 71 35 30 10.9 9.0 7.5 10.6 18.7 18.5 — — — 23.9 Daily Summary India Titan Company BUY 1,254 1,270 1 1,113 15.2 888 9.0 20 26 (46.8) 127.6 29.8 140 62 47 74 39 31 15.5 13.1 11.0 11.5 23.1 25.3 0.2 0.5 0.6 52.5 Retailing Attractive 2,560 34.9 (35.0) 166.2 25.6 149 56 45 62 32 26 12.2 10.1 8.4 8.2 18.1 18.9 0.1 0.2 0.3 80 Speciality Chemicals Castrol India BUY 111 165 49 109 1.5 989 5.1 8.9 9.7 (39.5) 75.0 9.1 21.9 12.5 11.5 14.1 8.3 7.6 8.0 7.8 7.7 36.5 63.0 67.5 4.5 7.7 8.6 2.0 Pidilite Industries REDUCE 1,494 1,400 (6) 759 10.4 508 18.3 28 34 (20.4) 54.9 18.3 81 53 44 56 37 32 15.2 13.0 11.1 19.7 26.7 27.0 0.4 0.7 0.8 19.2 S H Kelkar and Company BUY 82 105 27 12 0.2 141 5.3 6.5 7.3 14.3 22.0 13.2 15.6 12.8 11.3 8.2 6.6 6.1 1.3 1.2 1.2 8.8 10.0 10.8 1.2 2.1 3.0 1.5 SRF ADD 4,156 4,000 (4) 239 3.3 57 150 193 244 8.7 28.4 26.5 27.7 21.6 17.1 16.1 13.0 10.5 4.2 3.6 3.0 16.2 17.8 19.1 0.4 0.4 0.5 17.3 Speciality Chemicals Attractive 1,119 15.3 (17.1) 48.5 18.4 47 32 26.9 29.1 20.5 17.5 8.6 7.5 6.5 18.3 23.6 24.2 0.8 1.3 1.5 40

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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October 8, 2020 8, October

KOTAK INSTITUTIONAL EQUITIES RESEARCH 45

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 7-Oct-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Telecommunication Services Bharti Airtel BUY 422 710 68 2,305 31.4 5,456 4.8 13.8 24.8 87.9 87.9 87.9 87.9 30.5 17.0 6.8 5.5 4.5 3.8 3.6 3.1 3.8 12.1 19.5 1.4 1.4 1.4 172.1 Bharti Infratel ADD 185 215 16 343 4.7 1,850 16.3 17.5 18.7 (1.1) 7.4 6.9 11.4 10.6 9.9 4.5 4.2 4.0 2.5 2.5 2.5 22.2 23.7 25.2 8.6 9.2 9.7 35.9 Vodafone Idea RS 9 — — 246 3.4 28,735 (7.3) (6.3) (4.0) NM NM NM NM NM NM 9.9 8.0 6.1 (1.1) (0.6) (0.5) 251.4 57.2 24.6 — — — 74 Tata Communications BUY 845 975 15 241 3.3 285 29.9 37.3 45.8 28.2 24.5 22.9 28.2 22.7 18.5 7.9 6.8 5.9 NM 60.6 15.9 NM NM 136.3 0.5 0.7 0.8 2.1 Telecommunication Services Attractive 3,134 42.7 59.4 56.4 208.6 NM NM 45.8 7.3 6.1 4.9 6.1 8.3 8.5 NM NM 18.5 2.0 2.1 2.2 284 Transportation Adani Ports and SEZ BUY 361 415 15 733 10.0 2,032 19.3 22.5 24.6 (28.4) 16.5 9.7 18.7 16.1 14.6 13.3 11.3 9.9 2.5 2.2 2.0 14.4 14.9 14.4 0.9 0.9 0.9 21.7 Container Corp. SELL 364 350 (4) 222 3.0 609 7.7 12.6 17.1 (54.7) 63.8 35.6 47 29 21 21.7 14.9 11.5 2.2 2.1 2.0 4.6 7.4 9.7 1.1 1.9 2.6 15.6 Gateway Distriparks BUY 97 135 39 12 0.2 125 4.2 3.6 6.6 0.4 (15.1) 82.6 22.9 27.0 14.8 6.6 6.9 5.6 0.8 0.8 0.8 3.8 3.0 5.4 3.1 3.1 3.1 0.2 GMR Infrastructure BUY 24 26 10 143 1.9 6,036 (5.8) (2.8) (1.6) (95.8) 52.7 41.4 NM NM NM (137.6) 23.6 16.5 (2.6) (2.1) (2.3) 88.2 26.9 16.3 — — — 7.2

Gujarat Pipavav Port BUY 85 111 30 41 0.6 483 4.5 5.8 6.7 (24.9) 27.3 15.7 18.7 14.7 12.7 8.2 7.2 6.3 2.0 2.0 2.0 10.6 13.5 15.7 5.0 6.4 7.3 0.6 -

InterGlobe Aviation BUY 1,338 1,520 14 515 7.0 383 (202.0) 70.9 107.8 (3,015.5) 135.1 52.1 NM 19 12.4 NM 4.6 3.2 (70.1) 25.8 3.2 NM 433.4 102.0 — — — 47 Mahindra Logistics ADD 349 305 (13) 25 0.3 71 5.3 10.9 14.5 (40.8) 106.4 33.1 66 32 24 20.0 13.5 10.8 4.4 3.9 3.5 6.7 12.9 15.4 — — — 0.6 2020 8, October Transportation Attractive 1,690 23.1 (235.0) 203.3 40.5 NM 25 17.7 38.0 10.4 8.4 4.6 4.0 3.3 NM 16.0 18.7 0.7 0.8 0.9 92 KIE universe 121,066 1651.5 8.1 44.2 21.9 28 19.6 16.1 13.3 10.2 9.0 2.6 2.4 2.2 9.2 12.1 13.6 1.4 1.8 2.1

Notes: (a) We have used adjusted book values for banking companies. (b) 2021 means calendar year 2020, similarly for 2022 and 2023 for these particular companies. (c) Exchange rate (Rs/US$)= 73.32

Source: Company, Bloomberg, Kotak Institutional Equities estimates

46 KOTAK INSTITUTIONAL EQUITIES RESEARCH

46

India Daily Summary - October 8, 2020

India of of the following trategic transaction As of June 30, 2020 n a merger or s any, noare longer in effect for this stock , if, fair value KOTAK INSTITUTIONAL EQUITIES RESEARCH , any, if for this stock,because is there notsufficient a

fair valuefair

.

Percentage of companies covered by Kotak Institutional Equities, the specifiedwithin category. Percentage of companies each within category for which Kotak Institutional Equities and or its affiliates has provided investment banking services the previouswithin months.12 * The above categories are defined as follows: Buy = We expect this stock to deliver more returns than 15% over the next months;12 Add = We expect this stock to deliver returns 5-15% over the next months;12 Reduce = We expect this stock to deliver returns over -5-+5% the next months;12 Sell = We expect this stock to deliver less returns overthan -5% the next months.12 Our target prices are also on a horizon 12-month basis. These ratings are used illustratively to comply with applicable regulations. As of 30/06/2020 Kotak Institutional Equities Investment Research had investment ratings on 203 equity securities. luded

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

SELL 1.5%

19.2% fair valuefair

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

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

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

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

The information is not meaningful and is therefore exc

Kotak SecuritiesKotak does not cover this company.

The investment and rating

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

Attractive, Neutral, Cautious. BUY 4.4% 45.3% We expect this stock to deliver We this expect stock to deliver5 We expect this to stock deliver < We expect this to stock deliver more than 15% returns over the next months.12

Fair Value estimates

0% 30% 20% 10% 70% 60% 50% 40% Source: Kotak Institutional Equities Kotak Institutional Equities Research coverage universe coverage Research Equities Institutional Kotak Distribution of ratings/investment banking relationships and shouldnot be relied upon. = NA AvailableNot or Applicable.Not = NM Meaningful.Not and/or and/or Kotak Securities policies in circumstances when Securities Kotak or its affiliates is acting in an advisory capacity i involving this company and in certain other circumstances. CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. fundamental basis for determining an investment rating or Other definitions Other Coverage view. designations: ratings/identifiers Other NR = Rated.Not REDUCE. SELL. Our Our Ratings System notdoes t strictly be in accordance with the Rating System all at times. Ratings other and definitions/identifiers ratings of Definitions BUY. ADD.

47 Economy

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

Copyright 2020 Kotak Institutional Equities (Kotak Securities Limited). All rights reserved. 1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and 2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. 3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at [email protected]. This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore. Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. 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Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange(MCX). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). 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We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us Details of Associates are available on website i.e. www.kotak.com Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES. Visit our website for more details We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. 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CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com / www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No. INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262. AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. Investments in securities market are subject to market risks, read all the related documents carefully before investing. 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