INDIA DAILY

May 7, 2018 India 4-May 1-day 1-mo 3-mo Sensex 34,915 (0.5) 3.8 2.4 Nifty 10,618 (0.6) 2.8 1.4 Contents Global/Regional indices Dow Jones 24,263 1.4 1.4 (2.5) Special Reports Nasdaq Composite 7,210 1.7 4.3 2.2 Theme Report FTSE 7,567 0.9 5.3 4.0 Banks: The price of populism Nikkei 22,406 (0.3) 5.2 (3.7) Hang Seng 29,927 (1.3) 0.3 (1.3) Daily Alerts KOSPI 2,461 (1.0) 1.3 2.7 Value traded – India Results Cash (NSE+BSE) 322 343 355 Avenue Supermarts: 4QFY18: revenue misses estimates Derivatives (NSE) 3,676 8,956 7,244

Adani Ports and SEZ: Bulk and container both to drive share gains Deri. open interest 3,556 3,481 3,857

Ambuja Cements: Volume disappoints Forex/money market IIFL Holdings: Capital businesses shine; agency marginally weak Change, basis points 4-May 1-day 1-mo 3-mo

Castrol India: In-line results Rs/US$ 66.8 (8) 188 260

10yr govt bond, % 8.0 - 35 3 PVR: Stepping up its game Net investment (US$ mn) Company alerts 3-May MTD CYTD FIIs (13) (65) 1,117

L&T: Divestments: takeaways beyond valuation MFs 54 55 6,967

Top movers

Change, %

Best performers 4-May 1-day 1-mo 3-mo

NEST IN Equity 9,111 0.1 9.2 30.0

AL IN Equity 164 0.1 11.9 23.4

TTAN IN Equity 958 (0.1) 1.9 22.3

EXID IN Equity 249 0.2 4.0 21.7

SHTF IN Equity 1,600 1.6 0.9 20.7

Worst performers

PNB IN Equity 92 (0.5) (10.4) (41.5)

RCOM IN Equity 15 2.0 (37.0) (39.0)

HDIL IN Equity 31 0.6 (24.3) (38.7)

BOI IN Equity 100 (0.9) (11.4) (28.9)

UNBK IN Equity 91 (0.5) (10.6) (26.3)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. ATTRACTIVE Banks India MAY 07, 2018 THEME BSE-30: 34,915

The price of populism. The BJP’s manifesto for Karnataka, released prior to the forthcoming election, includes the now-all-too--familiar agriculture loan waiver. The waiver would apply to loans up to `0.1 mn from nationalized banks and co-operatives. If the BJP does win, it would be a while before the details of any waivers are released or put into effect; meanwhile, the temptation to default is likely to be high. Public banks and MFIs are likely to bear the brunt of this impact. Ujjivan’s recent price performance leaves negligible upside. Downgrade to REDUCE from ADD (TP unchanged).

Another State election, another waiver QUICK NUMBERS BJP’s new manifesto pledges that loan waivers are likely if the party is voted into power in Karnataka. The party has announced `0.1 mn waiver on agriculture crop loans for borrowers  Agriculture loan who have taken loans from nationalized banks and co-operatives. It is early to determine the waiver announced impact of this announcement, but we underscore the pattern of slippages reported by public in BJP manifesto for sector banks when UP, Rajasthan, Maharashtra and Punjab went into election mode or had to Karnataka for up to address issues faced by farmers last year. Such loans are eventually recovered as ineligible `0.1 mn borrowers must repay to get loans renewed or sanctioned but such resolution takes time.  Bank NPLs in NPLs continue to rise and talk of waivers fuels the fire in the short term agriculture Karnataka accounts for 8% of all agriculture loans in India and this news of waivers impacts portfolio in most banks. SBI’s share of agriculture loans has declined share while nationalized banks have Karnataka are high seen an increase (see Exhibit 2). Gross NPLs in this book have been gradually rising over the past at 9% of loans few years for all banks. Public banks have 15% NPLs in this book while private banks are at 3% (see Exhibit 5). These issues take time to settle as we have seen in States like Maharashtra and  Downgrade Ujjivan UP where such waivers have been announced in the past. Financial Services to REDUCE from ADD MFI business equally at risk; downgrade Ujjivan to REDUCE from ADD (TP unchanged) Similar events in the past indicate that waivers have an immediate negative impact on the MFI portfolios of banks and NBFCs. MFIs have just emerged from the demonetization-led crisis with Karnataka having been keenly affected (see Exhibit 6 and 7); we watch closely to check the impact of the latest waiver announcement. Ujjivan Financial Services and Bharat Financial have ~11-15% of their loan book in this State (see Exhibit 8). These portfolios are quite quick to deteriorate. MFI stocks have seen stellar performance on the back of their recovery and we would use current price points to lighten our positions in them. We downgrade Ujjivan Financial Services to REDUCE from ADD (TP unchanged). Our multiples are unchanged at 2.5X FY2019E M B Mahesh CFA book and 20X EPS for RoEs at ~13-15% in the medium term.

Pradhan Mantri Fasal Bima Yojana (PMFBY) on track; hopefully, will put paid to waivers Nischint Chawathe We have seen good progress on PMFBY with banks insisting on insurance protection measures before loan disbursements (see Exhibit 9). The sums assured and farmers covered have increased while the claim settlement process, barring the initial couple of years of bottlenecks, Abhijeet Sakhare appears easier. However, these schemes protect volume loss and not value at this stage and it is likely that it is this value loss that fuelled the demand for loan waivers. Good monsoons in the past few years have resulted in lower payouts. The government is trying to address the issue of Dipanjan Ghosh value loss through a new scheme that is linked to the cost of production. Hopefully, these two measures will result in fewer loan-waiver announcements.

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

Exhibit 1: Karnataka sees 15% of total loans going to agriculture Composition of loans in Karnataka, March fiscal year-ends, 2005-17 (%)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Composition of credit (%) Agriculture 14.5 12.5 12.0 12.4 12.6 13.3 14.0 14.7 15.4 17.9 16.6 16.7 16.5 Industry 33.0 35.7 35.9 34.6 34.6 35.1 34.3 34.5 35.3 34.3 33.8 30.4 28.6 Transport operators 1.3 1.3 1.6 1.9 1.9 2.7 2.4 2.3 2.3 1.8 1.4 1.3 1.2 Professional and others 6.1 7.0 7.6 10.0 11.4 13.1 11.7 9.3 9.5 9.0 9.3 10.5 10.1 Personal loans 29.9 30.0 26.7 25.9 25.8 23.6 23.1 23.4 24.4 24.2 26.2 27.2 29.8 Housing 16.5 17.8 16.6 15.6 15.7 14.6 14.1 13.8 14.7 14.1 15.9 16.5 17.4 Vehicles — — — — 2.1 1.4 1.7 1.8 2.0 2.0 2.3 2.4 2.7 Others 13.4 12.2 10.2 10.2 8.0 7.6 7.3 7.8 7.7 8.1 8.0 8.3 9.7 Trade 6.3 5.7 7.4 6.7 6.7 6.5 6.2 8.2 8.6 6.8 6.8 6.5 7.2 Finance 3.1 3.4 5.7 3.6 4.2 2.6 4.6 4.1 3.0 4.2 4.1 5.1 3.8 Others 5.7 4.2 3.0 5.0 2.9 2.9 3.9 3.3 1.3 1.9 1.8 2.2 2.6 Growth in credit (%) Agriculture 28.8 24.4 31.5 19.4 9.1 15.9 19.5 22.1 20.2 35.2 3.9 14.9 5.2 Industry 33.2 55.5 38.1 11.2 7.7 11.4 11.0 16.4 18.1 12.6 10.5 2.7 (0.1) Transport operators 56.4 47.6 62.2 36.6 8.3 58.6 (1.2) 15.3 14.8 (11.0) (14.1) 6.3 2.0 Professional and others 38.5 64.5 48.2 53.0 21.4 27.1 1.1 (7.7) 18.0 10.1 15.8 28.1 2.5 Personal loans 47.7 44.4 22.3 11.8 7.0 0.7 11.3 17.1 20.4 15.0 21.7 18.0 16.6 Housing 52.6 54.8 28.0 9.2 7.5 2.1 9.8 13.4 23.5 11.1 26.5 17.8 12.2 Vehicles — — — — — (26.2) 40.2 20.6 29.3 14.7 29.0 18.3 20.8 Others 42.1 31.6 14.0 16.2 (15.9) 4.9 8.8 23.6 12.9 22.5 11.5 18.3 24.1 Trade 25.5 29.7 79.0 4.4 7.5 7.1 8.1 52.6 21.1 (8.0) 11.6 8.5 18.9 Finance 28.2 56.7 126.5 (27.3) 26.5 (32.0) 99.4 4.2 (14.4) 59.2 10.8 42.1 (21.5) Others 2.6 5.8 (2.2) 92.6 (37.8) 11.0 49.9 (0.9) (53.7) 64.1 7.7 42.0 23.0 Total 34.1 43.7 37.2 15.7 7.4 9.8 13.8 15.6 15.4 16.2 12.1 13.9 6.3

Source: RBI, Kotak Institutional Equities

Exhibit 2: SBI has slowed agriculture loan disbursement in recent years; nationalized banks have gained share Market share and loan growth in agriculture loans in Karnataka, March fiscal year-ends, 2005-17 (%)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Market share across banks SBI 22.3 24.1 25.2 25.2 27.1 27.7 25.0 22.1 23.4 19.4 19.9 18.2 17.3 Public banks 52.9 56.7 50.7 46.2 44.7 44.3 40.2 47.6 41.5 46.4 43.9 46.9 50.2 Private 7.2 5.7 6.6 11.0 11.3 9.4 13.9 14.3 15.9 12.6 15.3 15.1 15.5 RRB and foreign 17.7 13.6 17.5 17.7 16.9 18.6 20.8 16.0 19.2 21.6 20.9 19.8 17.1 Growth SBI 25.1 34.3 37.7 19.4 17.3 18.6 7.9 7.8 27.1 12.3 6.6 4.7 0.2 Public banks 33.4 33.3 17.7 8.7 5.7 14.8 8.5 44.6 4.8 50.9 (1.6) 22.7 12.5 Private 2.0 (1.5) 53.2 97.8 12.4 (3.5) 77.2 24.9 33.7 7.7 25.7 13.8 7.5 RRB and foreign 34.4 (4.3) 69.1 20.8 4.4 27.2 34.0 (6.2) 44.7 51.6 0.5 8.9 (9.3)

Source: RBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Banks

Exhibit 3: Karnataka consumes 8% of total agriculture loans Exhibit 4: Loan growth has slowed in agriculture as well as in Share of Karnataka in agriculture loans for all banks, March fiscal Karnataka year-ends, 2007-17 (%) Growth in loans in Karnataka and industry, March fiscal year-ends, 2007-17 (%) 10 Karnataka Industry 45 9

36 9 27

8 18

8 9

7

0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015 2016

2017

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015 2016 2017 Source: RBI, Kotak Institutional Equities Source: RBI, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Exhibit 5: Break-up of loans across banks, March fiscal year-ends, 3QFY18

Loans in Karnataka Agriculture loans Gross NPL Agriculture NPL Gross NPL Agriculture NPL (Rs mn) (Rs mn) (Rs mn) (Rs mn) (%) (%) Public sector banks Allahabad Bank 26,433 651 1,942 99 7.3 15.2 Andhrabank 63,412 3,571 3,261 175 5.1 4.9 Bank of Baroda 94,878 6,211 2,885 728 3.0 11.7 Bank of India 128,492 26,862 13,083 1,653 10.2 6.2 Bank of Maharastra 46,987 3,045 3,038 425 6.5 13.9 Canara Bank 629,399 172,199 54,001 12,857 8.6 7.5 Central Bank of India 46,894 5,958 2,646 454 5.6 7.6 Corporation Bank 268,628 78,827 24,060 2,618 9.0 3.3 Dena Bank 13,086 1,953 1,968 179 15.0 9.2 IDBI Bank 109,932 25,309 11,021 1,876 10.0 7.4 Indian Bank 68,952 6,947 1,175 337 1.7 4.9 Indian Overseas Bank 54,332 10,190 4,301 664 7.9 6.5 OBC 29,301 2,209 4,299 295 14.7 13.4 Punjab and Synd Bank 21,305 36 1,383 1 6.5 2.0 Punjab National Bank 105,159 4,063 31,312 444 29.8 10.9 S.Bk.of India 1,001,643 143,712 59,522 41,400 5.9 28.8 Syndicate Bank 365,704 113,661 20,544 5,681 5.6 5.0 UCO Bank 29,926 2,342 6,324 178 21.1 7.6 Union Bank Of India 126,010 23,900 6,448 29,941 5.1 NA United Bank of India 21,477 350 3,216 2 15.0 0.4 Vijaya Bank 256,930 65,070 8,994 3,066 3.5 4.7 Total - public sector banks 3,508,878 697,065 265,424 103,070 7.6 14.8 Private banks Karnataka Bk.Ltd 179,295 32,562 4,638 1,376 2.6 4.2 Kotak Mahendra Bank 116,604 8,106 1,165 306 1.0 3.8 Catholic Syrian Bank 4,898 702 253 9 5.2 1.3 City Union Bk. 13,066 1,076 279 40 2.1 3.7 Dhanalakshmi Bk. 4,333 191 346 — 8.0 — Federal Bank Ltd.. 61,875 8,426 945 262 1.5 3.1 J & K Bank Ltd. 25,620 1,561 4,352 3 17.0 0.2 Karur Vysya Bank 25,982 2,694 483 123 1.9 4.6 Lakshmi Vilas Bk. 35,015 737 331 1 0.9 0.1 Ratnakar Bank 27,720 8,412 179 67 0.6 0.8 South Indian Bk. 30,373 2,752 190 — 0.6 — Tamilnadu Merc. Bk. 5,553 376 329 16 5.9 4.3 HDFC Bank 59,109 5,508 481 69 0.8 1.3 ICICI Bank 378,421 29,165 2,751 712 0.7 2.4 AXIS Bank 270,955 22,393 7,383 484 2.7 2.2 IndusIndBank 264,735 25,231 5,666 787 2.1 3.1 Yes Bank 101,224 12,218 250 128 0.2 1.0 Total-private banks 1,604,776 162,111 30,019 4,384 1.9 2.7 Regional rural business Cauvery Kalpatharu Gr. Bk. 59,669 37,819 3,520 1,525 5.9 4.0 Karnataka Vikas Gr Bk 131,912 98,530 5,850 2,243 4.4 2.3 Pragathi Krishna Gr Bk 100,791 66,988 6,831 2,140 6.8 3.2 Total-regional rural banks 292,372 203,337 16,200 5,907 5.5 2.9 Total 5,113,654 859,176 295,443 107,454 5.8 12.5 Total (Comm.Banks-ex RRB) 5,406,026 1,062,513 311,643 113,361 5.8 10.7 Co-operative sector KSCARD Bk.Ltd 18,367 17,937 — — — — K.S.Coop Apex Bank ltd 326,348 125,954 8,942 212 2.7 0.2 Indl.Co.Op.Bank ltd. 1,706 — — — Total - co-operative sector 346,421 143,891 8,942 212 2.6 0.1 KSFC 17,333 — 3,375 — 19.5 Total 5,769,780 1,206,404 323,959 113,573 5.6 9.4

Source: Company, Public documents, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 India Banks

Exhibit 6: Karnataka has among the largest MFI portfolios for banks and NBFCs Loans outstanding and PAR performance in Karnataka as of December 2017

Outstanding PAR Loans Average Loans Loans Borrowers outstanding ticket size Borrowers outstanding Borrowers outstanding (Rs) (Rs) (Rs) (Rs mn) (Rs mn) (%) (%) Bengaluru (Urban) 766,007 15,698 20,494 407,113 6,185 53.1 39.4 Mysore 593,154 12,064 20,339 10,582 178 1.8 1.5 Belgaum 544,739 10,958 20,115 25,698 403 4.7 3.7 Tumkur 447,526 9,408 21,022 25,312 588 5.7 6.2 Shivmoga 333,914 8,217 24,607 11,773 192 3.5 2.3 Mandya 363,893 8,044 22,105 1,078 9 0.3 0.1 Davangere 355,437 7,368 20,729 33,423 393 9.4 5.3 Hassan 299,242 6,769 22,620 14,145 225 4.7 3.3 Dakshina Kannada 235,105 6,203 26,383 135 4 0.1 0.1 Chamarajapuranagara 273,679 5,776 21,105 5,137 59 1.9 1.0 Chitradurga 277,919 5,672 20,409 26,083 333 9.4 5.9 Ballary 287,204 5,622 19,573 27,239 503 9.5 9.0 Udupi 203,019 5,609 27,629 53 3 0.0 0.1 Kodagu 176,707 5,418 30,658 310 15 0.2 0.3 Chikkamagalur 207,093 5,323 25,705 4,549 65 2.2 1.2 Dharwad 252,157 4,833 19,166 32,204 444 12.8 9.2 Uttara Kannada 178,053 4,262 23,934 2,939 67 1.7 1.6 Haveri 221,533 4,041 18,239 17,346 228 7.8 5.6 Ramanagara 166,050 3,546 21,354 6,025 48 3.6 1.3 Raichur 186,929 3,404 18,210 5,061 67 2.7 2.0 Kolar 157,833 3,296 20,880 648 11 0.4 0.3 Vijaypura 193,302 3,122 16,150 27,004 413 14.0 13.2 Bengaluru (Rural) 164,319 3,096 18,842 24,644 264 15.0 8.5 Bagalkote 173,238 3,062 17,675 21,608 351 12.5 11.5 Bidar 190,664 2,835 14,870 17,092 243 9.0 8.6 Kalaburgi 188,584 2,826 14,985 27,796 380 14.7 13.5 Chikkaballapura 139,930 2,762 19,741 1,837 16 1.3 0.6 Koppal 162,711 2,746 16,873 4,851 82 3.0 3.0 Gadag 119,310 1,869 15,668 4,007 65 3.4 3.5 Yadgiri 86,290 1,155 13,384 451 0 0.5 0.0 Total 7,945,541 165,001 20,767 786,143 11,834 9.9 7.2

Source: Public documents, Kotak Institutional Equities

Exhibit 7: Overall trends on MFI PAR portfolio in Karnataka have been declining PAR performance of MFI players in Karnataka, March fiscal year-ends, 4QFY16-3QFY18 (%)

4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 30 DPD 0.5 0.4 0.4 5.7 18.0 4.9 3.3 4.2 90 DPD 0.3 0.3 0.3 0.3 12.0 3.9 2.6 3.6 180 DPD 0.2 0.2 0.2 0.3 0.2 2.0 1.8 2.8

Source: MFIN

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Exhibit 8: Karnataka contributes to ~12-15% of the loan portfolio for Ujjivan and Bharat Financial Contribution of Karnataka to overall loans, March fiscal year-ends, 1QFY17-3QFY18

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Ujjivan 16.0 16.0 15.9 15.4 15.3 14.9 14.7 Bharat Financial 13.8 13.6 13.3 12.4 11.9 11.7 11.6 11.3

Source: Company, Kotak Institutional Equities

Exhibit 9: Progress under government scheme Pradhan Mantri Fasal Bima Yojana Sums assured and farmers insured, March fiscal year-ends, 2017-18

2017 2018 Sum assured (Rs bn) Farmers insured ( mn) Farmers insured ( mn) 2015 2016 2017 2018 Loanee Non loanee Total Loanee Non loanee Total 1 Andaman and Nicobar Islands 0 0 0 — 0 — 0 — — — 2 Andhra Pradesh 21 81 86 103 2 0 2 2 0 2 3 Assam 2 2 2 1 0 0 0 0 0 0 4 Bihar 97 110 117 99 3 0 3 2 0 2 5 Chhattisgarh 36 33 72 73 1 0 2 1 0 1 6 Goa 0 0 0 0 0 — 0 0 — 0 7 Gujarat 43 35 123 123 2 0 2 0 1 1 8 Haryana 0 — 118 118 1 0 1 1 0 1 9 Himachal Pradesh 5 6 9 1 0 0 0 0 0 0 10 Jammu and Kashmir 0 — — 2 — — — 0 0 0 11 Jharkhand 7 10 20 14 0 1 1 0 1 1 12 Karnataka 30 37 113 91 2 2 3 1 1 1 13 Kerala 2 2 3 2 0 0 0 0 0 0 14 Madhya Pradesh 186 214 353 441 6 1 7 7 0 7 15 Maharashtra 81 141 245 199 4 8 12 2 8 10 16 Manipur 0 0 0 — 0 0 0 — — — 17 Meghalaya 0 0 0 0 0 — 0 0 — 0 18 Mizoram — — — — — — — — — — 19 Odisha 57 76 73 80 2 0 2 2 0 2 20 Puducherry 0 0 0 — 0 0 0 — — — 21 Rajasthan 70 98 172 141 9 0 9 8 0 8 22 Sikkim 0 0 0 0 — 0 0 0 0 0 23 Tamil Nadu 29 47 64 68 0 1 1 0 1 1 24 Telangana 54 73 55 75 1 0 1 1 0 1 25 Tripura 0 0 0 0 0 0 0 0 0 0 26 Uttar Pradesh 49 134 251 203 7 0 7 5 0 5 27 Uttarakhand 3 5 9 3 0 0 0 0 0 0 28 West Bengal 48 47 123 79 3 1 4 2 1 3 Total 820 1,151 2,010 1,916 44 14 57 35 13 48

Source: Public documents, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 SELL Avenue Supermarts (DMART) Others MAY 07, 2018 RESULT Coverage view:

4QFY18: revenue misses estimates. Dmart’s 4QFY18 net profit of `1.7 bn was below Price (`): 1,490 estimates due to slower-than-expected revenue growth of 22.5% yoy and lower Target price (`): 835 margins. FY2018 SSSG normalized to 14.2% from 21.2% in FY2017, partly on account BSE-30: 34,915 of GST. We increase our new store addition estimate to 27 stores in FY2019 and 30 stores in FY2020 from 25 stores earlier. This drives our 1.4% increase in FY2020 EBITDA, and fuels our new DCF-based target price of `835 (`810 earlier). SELL stays.

Company data and valuation summary Avenue Supermarts Stock data Forecasts/Valuations 2018 2019E 2020E 52-week range (Rs) (high,low) 1,535-692 EPS (Rs) 12.6 16.2 20.4 Market Cap. (Rs bn) 929.6 EPS growth (%) 47.9 28.6 26.4 Shareholding pattern (%) P/E (X) 118.5 92.2 72.9 Promoters 82.2 Sales (Rs bn) 150.1 196.2 249.8 FIIs 3.6 Net profits (Rs bn) 7.8 10.1 12.8 MFs 3.4 EBITDA (Rs bn) 13.4 17.5 22.3 Price performance (%) 1M 3M 12M EV/EBITDA (X) 69.4 53.2 41.7 Absolute 9.6 31.2 92.6 ROE (%) 18.5 19.6 20.3 Rel. to BSE-30 3.6 31.8 66.2 Div. Yield (%) 0.0 0.0 0.0

Slower revenue growth and lower margins lead to earnings miss

Dmart reported revenues of `38.1 bn (+23% yoy) in 4QFY18, lower than expectations. The fourth quarter is indeed seasonally weak and tends to see a decline in sequential revenue, additionally, deflation in prices of staples led to slower revenue growth. Lower revenues, coupled with lower-than expected gross margins led to net profit coming in 13% lower than estimates. That said, the company reported revenue growth of 26% yoy in FY2018, with margin expansion and lower interest expense driving healthy 63% yoy increase in net profit in FY2018.

24 new stores added in FY2018, raises future target

Dmart added 24 new stores in FY2018, of which 14 became operational in 4QFY18. The company is now present in 10 states/UTs, compared to only four states/UTs in 2012. The company’s commentary suggests that it ‘underperformed’ its target in FY2018, leading us to believe that it is looking to add more stores in the future. We thus increase our store addition estimate from 25/25 stores to 27/30 stores in FY2019-20.

SSSG moderates to 14.2%, partly on account of GST; proportion of food declines

SSSG moderated to 14.2% in FY2018, compared to 21.2% in the previous year. We believe the moderation was on account of several factors: (1) GST implementation, which resulted in ~200 bps of reduction in SSSG, and (2) possible base effect, as the growth of mature stores slows down. We believe normalized SSSG (excluding GST impact) for FY2018 would have been 16-16.5%. We note that after remaining stagnant at 53% for the past five years, the proportion of food in Dmart’s product mix declined to 51.6%, with the contribution from the general merchandise category increasing in proportion.

Retain SELL on expensive valuations

The increase in store count in FY2020 drives an increase of 1.4% in our EBITDA estimate, Garima Mishra though lower other income leads to an EPS cut. The EBITDA increase drives an increase in our DCF-based TP from `810 to `835. Valuations at 73X FY2020E P/E remain expensive; retain SELL.

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

Exhibit 1: Standalone quarterly financials of Avenue Supermarts, March fiscal year-ends, (Rs mn) Standalone quarterly financials of Avenue Supermarts, March fiscal year-ends, (Rs mn)

Change (%) Yoy growth 4QFY18 4QFY18E 4QFY17 3QFY18 KIE yoy qoq FY2018 FY2017 (%) Net revenues 38,100 39,489 31,106 40,948 (3.5) 22.5 (7.0) 150,112 118,811 26.3 Purchase of stock-in-trade (33,695) (33,368) (27,722) (31,867) 1.0 21.5 5.7 (128,651) (103,690) 24.1 Changes in inventory of stock in trade 1,263 — 1,025 (2,371) 23.2 (153) 2,139 2,730 (21.6) Employee expenses (724) (742) (542) (704) (2.5) 33.7 2.8 (2,766) (1,895) 46.0 Other operational costs (1,999) (2,014) (1,790) (1,789) (0.8) 11.6 11.7 (7,461) (6,320) 18.1 Total expenses (35,155) (36,124) (29,029) (36,731) (2.7) 21.1 (4.3) (136,738) (109,175) 25.2 EBITDA 2,945 3,364 2,077 4,217 (12.5) 41.8 (30.2) 13,374 9,636 38.8 Finance costs (132) (113) (308) (110) 17.2 (57.1) 20.3 (594) (1,218) (51.2) Depreciation and amortization expense (465) (419) (354) (393) 10.9 31.5 18.4 (1,547) (1,260) 22.7 Other income 149 138 99 137 7.9 51.1 9.1 726 313 132.0 PBT 2,497 2,971 1,515 3,851 (16.0) 64.8 (35.2) 11,959 7,471 60.1 Tax expense (826) (1,040) (548) (1,334) (20.6) 50.7 (38.1) (4,112) (2,645) 55.5 Net profit 1,671 1,931 967 2,518 (13.5) 72.9 (33.6) 7,847 4,826 62.6 Operational metrics Period-ending retail trading area (mn sq. ft) 4.9 5.0 4.1 4.4 (1.2) 19.5 11.6 4.9 4.1 19.5 Revenue per sq. ft (Rs) 31,102 31,846 30,348 37,302 (2.3) 2.5 (16.6) 40,847 38,638 5.7 Store count (#) 155 156 131 141 (0.6) 18.3 9.9 155 131 18.3 Costs as proportion of revenue (%) COGS 85.1 84.5 85.8 83.6 84.3 85.0 Employee expense 1.9 1.9 1.7 1.7 1.8 1.6 Other operational cost 5.2 5.1 5.8 4.4 5.0 5.3 Other ratios (%) Gross margin 14.9 15.5 14.2 16.4 -62 bps 70 bps -151 bps 15.7 15.0 70 bps EBITDA margin 7.7 8.5 6.7 10.3 -79 bps 105 bps -257 bps 8.9 8.1 80 bps PAT margin 4.4 4.9 3.1 6.1 -50 bps 128 bps -176 bps 5.2 4.1 116 bps Tax rate 33.1 35.0 36.2 34.6 -192 bps -311 bps -155 bps 34.4 35.4 -101 bps

Source: Company, Kotak Institutional Equities

Exhibit 2: SSSG at 14% was lower than previous years Exhibit 3: Revenue throughput continued to improve SSSG trend, March fiscal year-ends, 2012-17 (%) xxxxxxxxxx Revenue per sq. ft trend, March fiscal year-ends (Rs 000/sq. ft)

(%) SSSG (%) (Rs 000) Revenue per sq. ft (Rs 000) 35 35 33 31 31.6 30 30 28 26 25 26.1 23 25 22.4 20 21.5 21.2 20 20 20.3 15 15

15 10 14.2

10 5 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018

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

**

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Others Avenue Supermarts

Exhibit 4: Dmart added 24 new stores in FY2018 Year-ending store count of Dmart, March fiscal year-ends, 2012-18

170 Store count (#) 155 150 131 130 110 110 89 90 75 70 62 55 50

30

10 2012 2013 2014 2015 2016 2017 2018

Source: Company, Kotak Institutional Equities

Exhibit 5: Dmart is steadily adding stores in new states Geographic spread of Dmart's stores (#)

31-Mar-12 31-Mar-16 31-Mar-17 31-Mar-18 Maharashtra 34 58 60 62 Gujarat 14 26 29 30 AP & Telangana 4 16 21 29 Karnataka 3 6 10 12 MP & Chattisgarh — 4 5 9 Rajasthan — — 3 5 Daman — — 1 1 NCR — — 1 1 Punjab — — — 3 Tamil Nadu — — 1 3 Total 55 110 131 155

Source: Company, Kotak Institutional Equities

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Avenue Supermarts Others

Exhibit 6: Proportion of food declined, while that of general merchandise increased Category-wise revenue mix, March fiscal year-ends (%)

(% of total) Food Non-food FMCG General merchandise (incl. apparel) 100

26.0 25.8 25.2 25.9 26.4 26.8 28.4 80

21.0 21.2 21.5 21.2 20.6 19.9 60 20.0

40

53.0 52.9 53.3 52.8 53.1 53.3 51.6 20

0 2012 2013 2014 2015 2016 2017 2018

Source: Company, Kotak Institutional Equities

Other takeaways from the results release

 Dmart’s consolidated results include a `200.4 mn loss from associates. We note that the e-commerce entity was an associate till February 1, 2018 (Dmart’s stake: 49%). It appears that the entity would have posted a loss of upwards of `400 mn in FY2018.

 Dmart has elevated Ramakant Baheti to the post of Group CFO and has appointed Niladri Deb as the CFO. Niladri Deb is a new hire within the company, and has earlier worked at Kraft Heinz India (as MD) and ITC (where he was responsible for product costing, budgeting etc.).

 Dmart’s board has approved the issuance of `15 bn of NCDs. This is subject to shareholder approval at the AGM. We believe the company is well capitalized for its immediate capex plans, and hence may not look to raise money by way of NCDs in the near future.

Exhibit 7: Changes in estimates of Dmart (standalone), March fiscal year-ends, 2018-20E

New estimates Old estimates % revision 2019E 2020E 2019E 2020E 2019E 2020E Total Revenue (Rs mn) 196,240 249,765 196,878 246,100 (0.3) 1.5 Revenue growth (%) 31 27 31 25 EBITDA (Rs mn) 17,492 22,286 17,571 21,973 (0.5) 1.4 EBITDA margin (%) 8.9 8.9 8.9 8.9 Net Profit (Rs mn) 10,087 12,753 10,393 13,057 (2.9) (2.3) EPS (Rs) 16.2 20.4 16.7 20.9 (2.9) (2.3) EPS growth (%) 29 26 32 26 SSSG (%) 18.0 17.5 20.0 18.0

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Others Avenue Supermarts

Exhibit 8: DCF valuation of Dmart, March fiscal year-ends, 2018-40E

2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2035E 2040E Net Sales 150,112 196,240 249,765 312,856 387,075 471,187 563,561 663,925 770,465 883,436 1,000,681 1,125,277 1,251,047 1,948,121 2,633,415 Yoy growth (%) 26 31 27 25 24 22 20 18 16 15 13 12 11 8 5 EBIT 11,827 15,428 19,683 25,042 30,915 37,735 45,170 53,165 61,696 70,742 80,131 90,108 100,179 155,998 210,874 EBIT margin (%) 7.9 7.9 7.9 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 EBIT*(1-tax rate) 7,760 10,028 12,794 16,277 20,095 24,528 29,360 34,557 40,102 45,983 52,085 58,570 65,117 101,399 137,068 Depreciation/Amortisation 1,547 2,064 2,603 3,215 3,918 4,698 5,534 6,428 7,384 8,399 9,475 10,616 11,821 13,796 15,694 (Inc.)/Dec. in working capital (3,404) (3,620) (3,983) (4,695) (5,523) (6,259) (6,874) (7,468) (7,928) (8,406) (8,724) (9,271) (9,359) (10,758) (9,436) Capital expenditure (8,383) (10,131) (11,457) (13,027) (15,071) (16,141) (17,283) (18,502) (19,724) (20,859) (22,202) (23,443) (24,754) (6,702) (8,554) Free cash flows (2,480) (1,659) (42) 1,771 3,419 6,826 10,737 15,015 19,835 25,115 30,634 36,472 42,825 97,734 134,772 Years discounted — — 1 2 3 4 5 6 7 8 9 10 11 16 21 Discount factor 1.00 0.90 0.81 0.73 0.66 0.59 0.53 0.48 0.43 0.39 0.35 0.32 0.19 0.11 Discounted cash flow — (1,659) (38) 1,437 2,500 4,497 6,372 8,028 9,554 10,898 11,976 12,845 13,588 18,403 15,060

Risk free rate (%) 6.0 Risk premium (%) 5.0 Beta (X) 1.0 WACC (%) Cost of equity (%) 11.0 580 10.0 10.5 11.0 11.5 12.0 WACC (%) 11.0 4.0 971 861 768 690 622 Terminal growth rate (%) 5.0 Terminal 4.5 1,019 898 798 713 641 Sum of free cash flow (Rs mn) 258,420 growth 5.0 1,078 943 832 740 662 Terminal value (Rs mn) 263,544 rate (%) 5.5 1,149 996 873 771 687 Enterprise value (Rs mn) 521,964 6.0 1,238 1,061 921 808 715 Investments (Rs mn) — Net debt (Rs mn) 2,655 Equity value (Rs mn) 519,309 No. of shares (mn) 624 Equity value per share (Rs) 832

Number of new stores set-up (#) 24 27 30 30 35 35 35 35 35 35 35 35 35 — — Cumulative number of stores (#) 155 182 212 242 277 312 347 382 417 452 487 522 557 557 557

Source: Kotak Institutional Equities

Exhibit 9: Key assumptions for Dmart, March fiscal year-ends, 2012-20E

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E Revenue Net revenues (Rs mn) 22,086 33,409 46,865 64,394 85,838 118,977 150,112 196,240 249,765 312,856 Yoy growth (%) 51 40 37 33 39 26 31 27 25 SSSG (%) 20 32 26 22 21 21 14 18 18 17 Revenue per sq. ft (Rs) 15,324 20,116 23,419 26,388 28,136 32,116 33,680 36,192 38,878 42,269 Margins Gross margin (%) 14.7 14.5 15.0 14.8 14.9 15.3 15.7 15.8 15.8 15.8 EBITDA margin (%) 6.2 6.4 7.3 7.1 7.7 8.2 8.9 8.9 8.9 9.0 Capital expenditure Period-ending store count (#) 55 62 75 89 110 131 155 182 212 242 New store additions (#) 10 7 13 14 21 21 24 27 30 30 Retail trading area (mn sq. ft) 1.6 1.8 2.1 2.7 3.3 4.1 4.9 5.9 6.9 7.9 Capital expenditure (Rs mn) 2,086 1,863 2,999 4,333 3,654 7,108 8,543 10,131 11,457 13,027 Working capital Inventory days (#) 32 30 29 31 29 29 28 28 28 28 Debtor + loans and advances days (#) 10 10 8 8 8 7 7 7 7 7 Creditor days (#) 19 16 14 11 14 13 8 8 8 8

Source: Company, Kotak Institutional Equities

x

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Avenue Supermarts Others

Exhibit 10: Consolidated income statement, balance sheet and cash flow, March fiscal year-ends, 2012-2020E (Rs mn)

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E Income statement Net revenues 22,086 33,409 46,865 64,394 85,838 118,977 150,112 196,240 249,765 312,856 Gross profit 3,246 4,834 7,021 9,522 12,802 18,167 23,600 30,950 39,392 49,343 EBITDA 1,380 2,150 3,418 4,590 6,636 9,812 13,374 17,492 22,286 28,257 Depreciation (375) (458) (570) (815) (984) (1,278) (1,547) (2,064) (2,603) (3,215) EBIT 1,006 1,692 2,848 3,775 5,652 8,534 11,827 15,428 19,683 25,042 Other income 139 143 158 183 179 286 726 510 253 244 Financial charges (260) (426) (557) (724) (913) (1,220) (594) (420) (315) (270) Pre-tax profit 884 1,409 2,449 3,233 4,918 7,600 11,959 15,519 19,621 25,016 Taxation (282) (472) (835) (1,109) (1,715) (2,683) (4,112) (5,432) (6,867) (8,756) Net income 602 937 1,614 2,124 3,203 4,917 7,847 10,087 12,753 16,260 Prior period items (7) 2 (0) (5) — — — — — — Minority interest & associate profits — — — (0) (1) (129) — — — — Reported net income 594 939 1,614 2,119 3,202 4,788 7,847 10,087 12,753 16,260 Year-ending number of shares - diluted (mn) 506 538 546 547 562 563 624 624 624 624 EPS (Rs) 1.2 1.7 3.0 3.9 5.7 8.5 12.6 16.2 20.4 26.1 Balance sheet Shareholders' funds 6,811 7,890 9,550 11,989 15,204 38,418 46,427 56,514 69,268 85,528 Minority interest 3 3 0 1 1 1 — — — — Total debt 3,807 5,261 6,408 9,043 11,923 14,973 5,837 3,500 3,500 2,500 Deferred tax liability 131 203 267 305 399 505 463 463 463 463 Total shareholders' funds + liabilities 10,752 13,356 16,226 21,337 27,527 53,898 52,727 60,477 73,231 88,491 Net fixed assets 8,640 10,428 12,605 16,262 21,752 27,033 33,869 41,937 50,790 60,601 Investments 227 160 155 152 293 532 1,458 1,858 2,158 2,458 Cash balances 479 616 554 380 351 18,843 5,565 1,228 845 1,299 Net current assets excluding cash 1,406 2,153 2,911 4,542 5,220 7,579 10,983 14,602 18,585 23,280 Total assets 10,752 13,356 16,226 21,337 27,527 53,898 52,727 60,477 73,231 88,491 Key ratios (%) Revenue growth NA 51.3 40.3 37.4 33.3 38.6 26.2 30.7 27.3 25.3 EBITDA growth NA 55.8 59.0 34.3 44.6 47.9 36.3 30.8 27.4 26.8 EPS growth NA 48.5 69.4 31.1 47.2 49.1 47.9 28.6 26.4 27.5 Gross margin 14.7 14.5 15.0 14.8 14.9 15.3 15.7 15.8 15.8 15.8 EBITDA margin 6.2 6.4 7.3 7.1 7.7 8.2 8.9 8.9 8.9 9.0 Tax rate 31.9 33.5 34.1 34.3 34.9 35.3 34.4 35.0 35.0 35.0 Debt/equity (X) 0.6 0.7 0.7 0.8 0.8 0.4 0.1 0.1 0.1 0.0 RoE 13 19 20 24 18 18 20 20 21 RoCE 10 13 14 16 14 15 18 19 20 Cash flow Operating profit before working capital changes 1,236 1,821 2,741 3,663 5,101 7,286 9,987 12,571 15,672 19,746 Change in working capital/ other adjustments (510) (746) (759) (1,631) (678) (2,358) (3,404) (3,620) (3,983) (4,695) Capital expenditure (1,833) (2,246) (2,747) (4,473) (6,474) (6,559) (8,383) (10,131) (11,457) (13,027) Free cash flow (1,106) (1,171) (765) (2,440) (2,052) (1,631) (1,800) (1,180) 232 2,024

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 BUY Adani Ports and SEZ (ADSEZ) Infrastructure MAY 07, 2018 RESULT Coverage view: Attractive

Bulk and container both to drive share gains. Recent long-term contracts in the Price (`): 408 bulk segment would accelerate share gains for ADSEZ to ~100 bps in FY2019 from 40 Target price (`): 470 bps annual run-rate. This would have been visible in FY2018 but for client-specific and BSE-30: 34,915 port-specific issues. This bodes well in current times of acceleration in market growth. Free cash generation for ADSEZ would further improve as capex spends moderate in FY2019. The overhang of Mundra power plant remains intact and ADSEZ rejected the option of promoter share sale for de-stressing the group asset. We build in the outperformance in results in our revised `470 SoTP (from `450). BUY.

Company data and valuation summary Adani Port and SEZ Stock data Forecasts/Valuations 2018 2019E 2020E 52-week range (Rs) (high,low) 452-325 EPS (Rs) 20.0 20.0 23.0 Market Cap. (Rs bn) 845.5 EPS growth (%) 6.1 (0.2) 14.7 Shareholding pattern (%) P/E (X) 20.4 20.4 17.8 Promoters 65.8 Sales (Rs bn) 113.2 115.1 131.5 FIIs 18.3 Net profits (Rs bn) 41.5 41.4 47.5 MFs 2.2 EBITDA (Rs bn) 71.5 71.9 78.9 Price performance (%) 1M 3M 12M EV/EBITDA (X) 14.3 13.9 12.2 Absolute 11.0 (2.3) 20.3 ROE (%) 21.5 18.1 17.9 Rel. to BSE-30 5.0 (1.9) 3.8 Div. Yield (%) 0.5 0.6 0.8

ADSEZ to accelerate share gains to 100 bps+ in FY2019 from 40 bps run-rate

If not for client-specific and port-specific issues, Adani Ports would have shown a 100 bps+ share gain in FY2018 (versus the actual market share gain of 40 bps). Part of the 10 mn tons of lost volumes at Mundra (HMEL, Adani Power) and Dhamra, coupled with start of several long- term contracts in crude/bulk segments and strong container growth would drive material outperformance for ADSEZ in FY2019. This coupled with acceleration of market growth to 6% (4% for FY2018, ~8% in 4QFY18) would drive low-double-digit volume growth for Adani Ports. Such growth momentum should sustain in FY2020 as the overhang of nil coal imports by Mundra power plant would be in the base.

Balance sheet has started to reflect the cash-flow generation

ADSEZ has achieved its target (set a year back) of improvement in net debt/EBITDA to 2.5X (from 3.3X) this year. This is after the build-up in receivables (port development income pending from container JVs) and payment of second installment for the Kattuppali port transaction. This coupled with a peaking out of capex spends, should drive a meaningful decline in net debt, possibly towards lower levels of 2.2X. The key assumption here is no lending to related parties; year-end financials hint at nil related party L&A as was the case a year ago. With recent bond issuances, ADSEZ has been able to elongate the average debt maturity to >4 years. It has sufficient cover in US$-denominated revenues (35% share) against US$ debt (65% share).

4QFY18: better-than-expected operational results driven by steady growth and improved margin Aditya Mongia Adjusted for SEZ income, ADSEZ reported a steady 7%/7%/13%/23% yoy growth in 4QFY18 volume/revenue/EBITDA/PAT. Revenue/EBITDA growth would have been in double digits if JV Ajinkya Bhat business was consolidated. This explains an outperformance on volumes and yet in-line revenue and a modest 5%/7%/9% outperformance on EBITDA/PBT/PAT. The endgame in Mundra power plant is still not known. We stick to our call that status quo is not a solution for the Mundra power plant. We do not expect the endgame to materially impact ADSEZ’s business and growth prospects.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Adani Ports and SEZ Infrastructure

FY2018 results—another year of outperformance over all India ports

 Revenue growth led by sustained volume growth and SEZ income. Adani Ports reported FY2018 consolidated revenues of `113 bn, up 34% yoy. Growth was led by 7% volume growth as well as higher SEZ income of `25 bn during the year (port development income, land leasing to Britannia and Concor). Port revenues grew 7% yoy and if the JV terminals (CT-3, CT-4) had been consolidated, port revenues would have reported 12% yoy growth.

 Volume growth outperformed India’s ports, containers grew even faster. Total cargo volumes for FY2018 stood at 180 mn tons, up 7% yoy compared to 4% growth in all India ports. Container volumes grew 20% yoy, outperforming the 13% growth in all India ports. Mundra port also reported 7% volume growth in FY2018 despite suffering an impact of 8 mn tons due to shutdown at HMEL and lower coal imports by Adani Power at Mundra power plant. Had those volumes been received as expected, Mundra port would have reported 14% volume growth. ADSEZ also increase its cargo handling market share to 15.2% (versus 14.8% in FY2017).

 Port EBITDA margin improved further. ADSEZ reported consolidated EBITDA of `71 bn, up 32% yoy in FY2018. Port EBITDA of `52 bn was up 10% yoy. Port EBITDA margin improved to 70.4% (versus 68.6% in FY2017). The company has guided for ~100 bps improvement every year on the back of automation and efficiency improvements, until it caps out at ~73%.

 Higher tax rate led to lower PAT growth. Recurring PAT excluding forex gains/losses stood at `42 bn in FY2018, up 12% yoy. PAT growth was moderated by higher effective tax rate as the key Mundra port came out of the 10-year tax holiday period under Section 80IA of the Income Tax Act.

Exhibit 1: Strong revenue growth in FY2018 led by sustained volume growth and SEZ income; port EBITDA margin improved further Adani Port and SEZ, consolidated - 4QFY18 - key numbers (Rs mn)

% change 4QFY18 4QFY18E 4QFY17 3QFY18 vs est. yoy qoq FY2018 FY2017 % change FY2019E FY2018 % change Net operating income 31,829 23,358 22,315 26,889 36.3 42.6 18.4 113,230 84,394 34.2 115,134 113,230 1.7 Operating expenses (9,669) (6,067) (6,839) 59.4 41.4 (31,995) (21,679) — (31,995) Employee costs (1,196) (1,135) (1,070) 5.3 11.7 (4,473) (3,831) — (4,473) Admin and other exp. (1,650) (1,778) (1,137) (7.2) 45.1 (5,307) (4,736) — (5,307) Total expenditure (12,515) (9,512) (8,979) (9,046) 31.6 39.4 38.3 (41,776) (30,247) 38.1 (43,273) (41,776) 3.6 EBITDA 19,314 13,846 13,335 17,842 39.5 44.8 8.2 71,454 54,147 32.0 71,862 71,454 0.6 Other income 3,044 2,862 3,233 2,360 6.4 (5.8) 29.0 10,109 10,401 (2.8) 10,189 10,109 0.8 Interest expense (3,296) (2,916) (3,956) (3,033) 13.0 (16.7) 8.7 (12,574) (12,812) (1.9) (12,204) (12,574) (2.9) Depreciation (2,989) (3,159) (2,959) (2,937) (5.4) 1.0 1.8 (11,884) (11,602) 2.4 (13,803) (11,884) 16.2 PBT 16,073 10,634 9,654 14,233 51.2 66.5 12.9 57,106 40,134 42.3 56,044 57,106 (1.9) Tax expense (3,961) (2,811) (119) (4,378) 40.9 (15,442) (2,866) 438.7 (14,577) (15,442) (5.6) PAT 12,112 7,822 9,535 9,855 54.8 27.0 22.9 41,664 37,267 11.8 41,467 41,664 (0.5) Extraordinary items (2,821) 2,078 155 (4,765) 1,655 — (4,765) Share of minority interest (23) 56 (69) (163) 193 (32) (163) Reported PAT 9,268 11,669 9,941 (20.6) (6.8) 36,736 39,115 (6.1) 41,435 36,736 12.8 Other comprehensive income 109 124 (1) 94 84 11.6 — 94 Total comprehensive income 9,377 11,793 9,939 (20.5) (5.7) 36,830 39,199 (6.0) 41,435 36,830 12.5

Reported port volume (mn tonnes) 45 44 42 48 3.8 7.3 (4.7) 180 169 6.5 188 180 4.3 Reported port revenue 19,470 16,615 18,340 19,400 17.2 6.2 0.4 73,930 68,800 7.5 82,944 73,930 12.2 Reported port EBITDA 13,710 NA 12,430 13,670 10.3 0.3 52,070 47,230 10.2 58,306 52,070 12.0 Port EBITDA margin (%) 70.4 NA 67.8 70.5 70.4 68.6 70.3 70.4

Key ratios (%) Operating exp./ sales 30.4 27.2 25.4 28.3 25.7 - 28.3 Employee costs/ sales 3.8 5.1 4.0 4.0 4.5 - 4.0 Admin and other exp./ sales 5.2 8.0 4.2 4.7 5.6 - 4.7 EBITDA margin 60.7 59.3 59.8 66.4 63.1 64.2 62.4 63.1 PBT margin 50.5 45.5 43.3 52.9 50.4 47.6 48.7 50.4 PAT margin 38.1 33.5 42.7 36.7 36.8 44.2 36.0 36.8 Effective tax rate 24.6 26.4 1.2 30.8 27.0 7.1 26.0 27.0 EPS (Rs) 5.8 4.3 4.6 4.7 20.0 18.1 20.0 20.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Infrastructure Adani Ports and SEZ

Exhibit 2: Mundra port faced volume impact from lower coal imports at the Mundra power plant in 4QFY18 Quarterly trajectory of volumes of Adani’s port assets, March fiscal year-ends, 1QFY16-4QFY18 (mn tons)

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Yoy (%) Mundra Port 29.9 27.0 26.1 26.0 28.9 28.3 27.8 28.6 30.2 29.3 32.4 29.8 4.5 Dahej port 2.5 1.5 2.4 1.8 1.5 2.0 1.1 1.9 1.6 1.7 2.1 1.6 (11.9) Hazira port 2.9 2.9 3.3 3.2 3.4 4.0 3.9 4.0 4.0 4.1 4.3 4.5 11.5 Dhamra port 3.2 3.8 3.8 3.9 5.4 5.2 5.4 5.5 5.3 5.0 5.4 5.8 5.9 Others 1.0 1.3 2.4 2.7 3.2 3.6 2.8 2.5 2.9 3.0 3.8 3.7 49.2 Total 39.5 36.5 38.0 37.5 42.4 43.0 41.0 42.3 44.0 43.0 48.0 45.4 7.2 YoY(%) 16.8 3.8 (2.3) 3.2 7.3 17.9 8.0 12.8 3.8 (0.0) 17.1 7.2

Source: Company, Kotak Institutional Equities

Exhibit 3: Adani Ports has outperformed major ports in FY2018; targets cargo growth of 1.5X pan-India growth Volumes handled at major ports in the country and by ADSEZ, March fiscal year-ends, 4QFY18 and FY2018

Total cargo (MMT) Container ('000 TEUs) Total cargo (MMT) Container ('000 TEUs) 4QFY18 4QFY17 % chg. 4QFY18 4QFY17 % chg. FY2018 FY2017 % chg. FY2018 FY2017 % chg. Kolkata 5 4 23.2 161 156 3.2 17 16 7.0 640 636 0.6 Haldia 11 9 20.1 39 47 (17.0) 40 34 18.3 156 136 14.7 Paradip 28 24 14.9 2 1 NA 102 89 14.7 7 2 250.0 Visakhapatnam 19 15 24.5 98 89 10.1 65 61 7.0 389 367 6.0 Ennore 9 8 9.7 — — NA 30 30 1.3 — — NA Chennai 12 12 1.3 380 372 2.2 52 50 3.2 1,549 1,495 3.6 Tuticorin (Chidambarnar) 10 10 4.3 199 170 17.1 37 39 (5.2) 698 642 8.7 Cochin 7 7 (0.7) 148 124 19.3 28 25 12.4 556 491 13.2 New Mangalore 11 11 0.8 33 28 17.9 42 40 5.0 115 95 21.1 Mormugao 8 11 (25.3) 7 7 — 27 33 (19.0) 32 30 6.7 Mumbai 15 15 (0.4) 9 9 — 63 63 (0.3) 42 42 — J.N.P.T 17 16 7.9 1,241 1,118 11.0 66 62 6.5 4,833 4,500 7.4 Kandla 29 24 18.4 48 6 NA 110 105 4.4 118 10 NA Major ports total 180 166 8.7 2,365 2,127 11.2 680 648 4.9 9,135 8,446 8.2 Mundra 45 42 7.3 NA NA NA 180 169 6.5 NA NA NA

Source: Company, Indian Ports Association, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Adani Ports and SEZ Infrastructure

Exhibit 4: Volumes estimates for Mundra and other related ports, March fiscal year-ends, 2014-21E

2014 2015 2016 2017 2018E 2019E 2020E 2021E Volumes (mn tons) Mundra port Bulk 47 52 46 42 39 30 32 33 Coal 36 39 34 31 27 18 18 19 Other bulk 10 13 11 11 12 13 13 14 Crude / POL / Liquid 23 22 26 28 28 32 35 38 Container ('000 TEUs) 2,642 2,913 3,238 3,459 4,062 4,647 5,368 5,996 Container (mn tons) 35 38 40 46 54 62 72 80 Mundra volumes 105 111 112 116 121 125 138 150 Other port assets Dahej port 8 12 8 6 7 8 10 11 Hazira port 4 7 12 15 17 19 22 24 Mormugao port — 1 2 2 2 3 4 5 Vizag port — 1 1 1 — — — — Kandla port — 0 4 4 4 4 5 6 Dhamra port 14 15 15 21 21 26 31 35 Ennore + Kattupalli port — — — 5 7 11 17 19 Vizhingam — — — — — — 3 7 Total of key ports 131 149 153 171 179 198 229 256

Source: Company, Kotak Institutional Equities estimates

Exhibit 5: Decline in share of coal and increase in share of high-value cargo handling (such as containers and liquids) has been the sustained theme for the past three years Evolution of cargo handling composition for Adani Ports, March fiscal year-ends, 2015-18 (%)

Coal Container Crude + others 50 47

41 41 41 41 41 40 37 35 32 33 33 33 36 29 30

27 27 26 26 26 20 24 24

10

0 2015 2016 2017 1QFY18 1HFY18 9MFY18 FY2018

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Infrastructure Adani Ports and SEZ

Exhibit 6: Consolidated balance sheet for Adani Ports, March fiscal year-ends, 2014-18 (Rs mn)

Consolidated 2014 2015 2016 2017 2018 Shareholders funds 87,681 107,679 132,236 175,260 210,688 Share capital 4,168 4,168 4,170 4,142 4,142 Reserves & surplus 83,513 103,511 128,066 171,118 206,546 Loan funds 116,940 151,553 214,997 214,861 206,301 Deferred tax liability (net) 6,744 8,590 10,665 (17,759) (11,681) Others (infra usage lease) 7,336 7,188 6,064 — — Minority interest 1,437 1,590 1,429 1,392 1,496 Total sources of funds 220,137 276,600 365,390 373,755 406,804 Net fixed assets 151,475 192,027 208,384 237,319 253,832 Goodwill on consolidation 404 25,997 25,997 26,704 26,671 Investments 634 2,602 3,445 26,114 29,039 Cash & bank balance 5,139 6,338 12,910 19,768 29,676 Foreign currency translation diff. Current assets 89,119 93,858 142,908 106,031 121,428 Inventories 1,694 2,592 2,137 6,571 5,203 Debtors 14,276 17,266 19,657 19,784 35,401 Loans & advances 63,327 62,339 100,327 35,545 33,208 Other current assets 9,822 11,660 20,787 44,131 47,617 Current liabilities & provisions 26,634 44,222 28,254 42,180 53,842 Current liabilities 19,690 36,495 26,524 41,198 52,818 Provisions 6,943 7,727 1,730 982 1,024 Net current assets 62,485 49,636 114,655 63,851 67,586 Total application of funds 220,137 276,600 365,390 373,755 406,804

Net debt (debt-cash-investments) 111,166 142,613 198,643 168,980 147,587

Source: Company, Kotak Institutional Equities

4QFY18 analyst meet takeaways

 Guidance for FY2019. The company expects overall volumes of ADSEZ to grow at 1.5X the rate of all India volume growth and container volumes to grow at 2X the all India container growth rate. The company has signed long-term contracts with guaranteed annual volumes worth 7.7 mn tons in FY2018. The management expects port EBITDA margin to improve to 71% (versus 70% in FY2018) and free cash flow of `17-20 bn (versus `12-13 bn in FY2018). The company has guided for annual capex of ~`25 bn for the next three years. The management expects annual SEZ income of `8-10 bn over the next five years.

 Cargo diversification will continue as the key theme. Cargo diversification is the key pillar of ADSEZ’s strategy for sustainable growth as well as improvement in margins. The achievements and plans on this front include:

. Handling of new types of cargo at various ports such as rail locomotive at Mundra, new liquid chemicals at Hazira, handling of fertilizers, gypsum, steel and agri- commodities at Dahej, handling of fertilizer, gypsum, clinker and slag at Dhamra and finally RoRo, TMT bars and cement at Kattupalli.

. The company is also setting up liquid tank farms of 60 KL capacity at Kattupalli, and expects faster growth of liquid cargo at Mundra and Hazira (up to 1,000 KL in 3 years).

. Adani Ports is also setting up LPG terminals at Mundra (1.8 mn tons) and Dhamra (1.2 mn tons). The company also has commitments from certain key customers to ensure sufficient volume offtake at these terminals.

. Overseas expansion attempts are ongoing, having received shortlisting for a 0.5-0.7 mn TEU capacity terminal in Bangladesh in JV with a partner (~US$100 mn of equity investment required by ADSEZ). The company is also exploring expansion in Indonesia.

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Adani Ports and SEZ Infrastructure

 Strategy for Adani Logistics. Out of the `25 bn annual capex guidance, the capex on logistics facilities will be limited to ~`1.5 bn. Unlike Concor that favors large facilities, the company will set up small private freight terminals (PFTs) on area of 20-30 acres each with expected land acquisition cost of `2-3 mn/acre. Also, unlike Concor, Adani Logistics will not restrict itself to container cargo or rail mode of transport. The company is also discussing with its key customers to finalize the locations of these PFTs (Baroda, Bangalore, Kochi and Panipat terminals are in the offing).

 Pushing up the average debt maturity profile. The company has been able to push up its debt maturity profile to average 4.7 years (versus 4.1 years in FY2017). The company also undertakes derivative contracts to swap INR liabilities for US$-denominated liabilities so as to benefit from the natural hedge on account of dollar-denominated container pricing. Expected improvement in FCF generation will keep the leverage ratios in control.

 Dividend distribution policy. The company has increased dividend payout ratio to 11% in FY2018 (versus 7% in FY2017). From FY2019 onwards, ADSEZ targets to distribute up to 15% of PAT in the form of dividends.

Exhibit 7: Adani Ports has consistently increased market share in cargo handling in the past few years Trend in Adani Ports' cargo handling volumes and market share, March fiscal year-ends, 2015-18

Adani Ports volumes (LHS, mn tonnes) Market share (RHS, %) 15.2 200 14.9 16 13.7 14.1

160 12

120 8 180 80 169 144 152

4 40

- 0 2015 2016 2017 2018

Notes: (1) Acquisition of Kattupalli port drove market share gains in FY2017.

Source: Company, Indian Ports Association, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Infrastructure Adani Ports and SEZ

Exhibit 8: Change in estimates for Adani Ports and SEZ, March fiscal year-ends, 2017-20E

New estimates Previous estimates % revision 2017 2018 2019E 2020E 2019E 2020E 2019E 2020E Volumes (mn tons) Mundra volume 116 121 125 138 119 130 4.8 6.1 Dahej port 6 7 8 10 8 10 — — Hazira port 15 17 19 22 19 22 — — Mormugao port 2 2 3 4 3 3 27.3 50.4 Vizag port 1 — — — — — NA NA Kandla port 4 4 4 5 4 5 — — Dhamra port 21 21 26 31 26 31 1.0 1.0 Ennore + Kattupalli 5 7 11 17 11 17 — (3.9) Vizhingam — — — 3 — 3 NA — Consolidated volumes 171 179 198 229 191 220 3.5 4.1 Consolidated financials Revenues 84,394 113,230 115,134 131,490 121,985 131,814 (5.6) (0.2) Port revenues 63,989 73,896 82,944 97,885 80,549 94,511 3.0 3.6 EBITDA 54,147 71,454 71,862 78,894 74,759 76,825 (3.9) 2.7 Port EBITDA 46,669 51,274 58,306 68,480 56,505 66,079 3.2 3.6 EBITDA margin (%) 64.2 63.1 62.4 60.0 61.3 58.3 Port EBITDA margin (%) 72.9 69.4 70.3 70.0 70.1 69.9 14 bps 4 bps Interest expense (11,157) (12,574) (12,204) (12,418) (12,204) (12,522) — (0.8) PBT 41,789 57,106 56,044 62,585 58,876 60,311 (4.8) 3.8 Net PAT 39,115 41,501 41,435 47,531 43,594 46,261 (5.0) 2.7 EPS (Rs) 18.9 20.0 20.0 23.0 21.1 22.3 (5.0) 2.7

Source: Company, Kotak Institutional Equities estimates

Exhibit 9: We arrive at an SoTP-based target price of Rs470/share for ADSEZ End-Mar-2019E DCF-based SoTP valuation of Adani Ports & SEZ

Entity EV (Rs mn) Net debt Implied equity value Stake (%) Equity Value of stake Value/share Method Mundra Port (excl. SEZ) 322,966 33,285 289,681 100% 289,681 140 FCFF SEZ 73,002 — 73,002 100% 73,002 35 FCFF CT3 (incl. CT-3 extension) 88,787 37,403 51,384 50% 25,692 12 FCFF CT4 34,661 16,019 18,642 50% 9,321 5 FCFF Dahej 59,317 746 58,571 74% 43,343 21 FCFF Dhamra 200,753 38,257 162,495 100% 162,495 78 FCFF Hazira 109,598 12,413 97,185 100% 97,185 47 FCFF Vizhinjam 25,212 6,659 18,553 100% 18,553 9 FCFF Kandla 8,868 13,867 (4,998) 100% (4,998) (2) FCFF Murmugao 8,920 4,101 4,820 100% 4,820 2 FCFF Ennore 12,982 8,191 4,792 100% 4,792 2 FCFF Kattupalli 37,791 13,214 24,577 97% 23,839 12 FCFF Adani Logistics 29,708 5,578 24,130 100% 24,130 12 15X EV/EBIDTA Adani Harbour (marine revenues) 184,577 (19,818) 204,394 100% 204,394 99 15X EV/EBITDA Total 1,197,141 169,913 1,027,228 976,249 471

Source: Company, Kotak Institutional Equities estimates

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Adani Ports and SEZ Infrastructure

Exhibit 10: Consolidated financials of Adani Ports & SEZ, March fiscal year-ends, 2012-21E (Rs mn)

2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E Income statement Net sales 32,708 35,766 48,240 61,520 71,087 84,394 113,230 115,134 131,490 151,857 Total operating costs (12,056) (12,007) (19,036) (22,497) (24,843) (30,247) (41,776) (43,273) (52,596) (65,017) EBITDA 20,653 23,760 29,204 39,023 46,243 54,147 71,454 71,862 78,894 86,840 EBITDA margin (%) 63.1 66.4 60.5 63.4 65.1 64.2 63.1 62.4 60.0 57.2 Other income 596 2,644 6,836 6,856 7,327 10,401 10,109 10,189 11,113 16,517 Depreciation (4,630) (4,220) (6,495) (9,117) (10,630) (11,602) (11,884) (13,803) (15,004) (16,569) Financial charges (4,796) (5,418) (9,768) (11,751) (11,746) (11,157) (12,574) (12,204) (12,418) (10,760) Pre-tax profit 11,822 16,766 19,777 25,012 31,194 41,789 57,106 56,044 62,585 76,028 Taxation (896) (1,231) (2,367) (12,715) (2,828) (2,866) (15,442) (14,577) (14,717) (14,792) Adjusted PAT (before exceptional items) 10,927 15,535 17,410 12,297 28,366 38,922 41,664 41,467 47,868 61,236 Reported PAT post-minority interest 11,021 16,232 17,396 12,196 28,972 39,115 36,736 41,435 47,531 61,084 Adjusted EPS (Rs) 5.3 7.5 8.4 5.9 13.7 18.8 20.1 20.0 23.1 29.6 Balance sheet Shareholders funds 48,385 63,963 87,681 107,679 135,055 175,260 210,688 245,927 285,713 337,559 Share capital 4,035 4,035 4,168 4,168 4,142 4,142 4,142 4,142 4,142 4,142 Reserves and surplus 44,350 59,928 83,513 103,511 130,913 171,118 206,546 241,786 281,571 333,417 Loan funds 175,650 115,858 128,895 177,313 189,535 205,271 206,301 182,058 150,814 160,686 Received/ receivable under LT lease 5,905 5,190 7,336 7,188 — — — — — — Deferred tax liability (net) 15,179 5,286 6,744 8,590 (12,015) (17,759) (11,681) (9,981) (8,281) (6,581) Total sources of funds 246,467 191,720 232,093 302,359 313,814 364,165 406,804 419,652 430,281 494,294 Total fixed assets 217,825 146,065 160,893 195,361 236,427 264,023 280,503 293,437 296,574 296,030 Investments 11,823 2,619 1,038 25,997 5,452 26,114 29,039 29,039 29,039 29,039 Cash and bank balance 11,184 8,306 4,694 8,940 12,782 19,768 29,676 31,591 34,154 92,573 Net current assests excl cash 5,635 34,730 65,468 72,061 59,153 54,261 67,586 65,585 70,514 76,652 Total application of funds 246,467 191,720 232,093 302,359 313,814 364,165 406,804 419,652 430,281 494,294 Cash flows Cash flow from operations 11,997 13,791 11,319 30,651 23,805 40,019 39,675 61,107 60,998 68,055 Cash flow from investing activities (138,760) (46,898) (25,100) (24,931) (41,532) (25,794) (21,180) (16,548) (7,028) 492 Free cash flows (33,475) (24,523) 297 18,361 2,703 3,148 11,311 34,369 42,857 52,030 Cash flow from financing activities 129,763 42,111 7,725 (2,366) 21,704 (13,247) (12,851) (42,643) (51,408) (10,127) Cash generated /utilised 3,000 9,004 (6,056) 3,353 3,978 978 5,644 1,916 2,563 58,419 Net cash at start of year 748 3,747 7,558 1,502 4,452 8,430 9,408 15,052 16,967 19,530 Net cash at end of year (excl. other cash) 3,747 12,752 1,502 4,855 8,430 9,408 15,052 16,967 19,530 77,949

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 REDUCE Ambuja Cements (ACEM) Cement MAY 07, 2018 RESULT Coverage view: Cautious

Volume disappoints. ACEM reported 3% yoy growth in volumes—lower than peers’ Price (`): 237 (+9%-10%) and subsidiary ACC (+8% yoy). The earnings were weak due to flat Target price (`): 245 realizations and cost increase—rising fuel costs and weaker INR:US$ rate will continue BSE-30: 34,915 to exert cost pressure in ensuing quarters even as prices are yet to see a meaningful uptick. Valuations are expensive at 13X/10X CY2018/2019E EV/EBITDA (attributable) and 29X/22X earnings. REDUCE with revised TP of `245 (`260).

Company data and valuation summary Ambuja Cements Stock data Forecasts/Valuations 2018 2019E 2020E 52-week range (Rs) (high,low) 292-223 EPS (Rs) 7.5 8.1 10.6 Market Cap. (Rs bn) 470.0 EPS growth (%) 29.7 7.1 32.0 Shareholding pattern (%) P/E (X) 31.5 29.4 22.3 Promoters 63.1 Sales (Rs bn) 236.0 262.1 288.7 FIIs 17.8 Net profits (Rs bn) 14.9 16.0 21.1 MFs 3.8 EBITDA (Rs bn) 38.6 42.9 52.3 Price performance (%) 1M 3M 12M EV/EBITDA (X) 10.6 9.8 7.6 Absolute 0.0 (8.8) (3.0) ROE (%) 7.4 7.6 9.6 Rel. to BSE-30 (5.4) (8.4) (16.3) Div. Yield (%) 1.5 1.5 1.5

1QCY18 results—volumes disappoint with 3% yoy growth, lower than peers’

ACEM reported standalone revenues of `28.6 bn (+13% yoy, +7% qoq), EBITDA of `5.1 bn (+39% yoy, flat qoq) against our estimate of `29 bn and `4.6 bn, respectively. The volumes increased 3% yoy to 6.2 mn tons (+6% qoq)—ACEM’s volume performance was weaker than peers’ including Ultratech (+10% yoy excluding volumes of acquired capacities), Shree Cement (+9% yoy) and its own subsidiary ACC (+8% yoy). The EBITDA/ton for the quarter declined 6% qoq to `815/ton (+34% yoy) due to (1) flat realizations at `4,602/ton (+9% yoy) and impact of (2) increase in costs. The total cost per ton increased 2% qoq to `3,787/ton (+5% yoy)—this was led by higher raw-material costs (rise in fly-ash, gypsum costs), other expenses. Also, as per the company, an amount of `276 mn was paid during the quarter to a subsidiary for renewal of a technology and know-how agreement which increased costs for the quarter.

ACEM’s net-income declined 3% qoq to `2.7 bn (10% yoy)—lower than our estimate due to decline in other income (`507 mn versus `1,423 mn in 3QFY18).

Subdued prices and rising costs to affect CY2018 earnings Despite a seasonally strong period (construction activity picks up from January to March), cement prices increased by mere `5/bag qoq in 1QCY18 (all-India prices at `327/bag). Cement prices in April 2018 (`326/bag) were flat as well when compared to 1QCY18 prices. On the cost side, we expect continued pressure due to rising fuel costs (higher pet-coke prices) as well as the increase in diesel prices. The weaker INR:US$ rate will also impact costs for cement Murtuza Arsiwalla companies adversely. The pet-coke prices increased to US$108/ton in 1QCY18 from US$98/ton in 4QCY17—note that rising pet-coke prices have a lagged effect on earnings owing to inventory on hand. Abhishek Poddar

Maintain REDUCE rating on expensive valuations; revise TP to `245 (`260 earlier) Samrat Verma Ambuja’s valuations are rich at 13/10X CY2018/2019E EV/EBITDA (attributable), even after factoring in EBITDA growth at 16% CAGR. We maintain our REDUCE rating and revise target price to `245/share (`260 earlier) based on 10X EBITDA (on March 2020E financials). We cut our EBITDA estimate by 3% for CY2018-2020E due to increase in our cost assumptions, tweaking of volumes, realizations Our EPS estimate is cut by 3-4% to `8.1, `10.6 and `13.1 for CY2018E, CY2019E and CY2020E. The stock trades at 29X/22X CY2018/2019E earnings.

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

Exhibit 1: Ambuja reported 3% yoy volume growth in 4QFY18; EBITDA/ton declined 6% qoq to Rs815 due to high cost, subdued prices Quarterly results for Ambuja Cements (Standalone), December year-ends (Rs mn)

(% chg.) 1QCY18 1QCY18E 1QCY17 4QCY17 KIE yoy qoq CY2018E CY2017 (% chg) Sales 28,626 29,222 25,334 26,796 (2) 13 7 119,143 104,469 14 Operating costs Raw material costs (2,118) (2,561) (2,354) (1,102) (10,022) (8,465) Employee costs (1,696) (1,846) (1,677) (1,627) (7,214) (6,614) Freight costs (8,288) (8,058) (7,412) (7,816) (31,652) (28,720) Power & fuel costs (6,351) (6,850) (5,388) (6,448) (25,818) (22,342) Other costs (5,102) (5,243) (4,853) (4,728) (20,338) (18,927) Total operating costs (23,555) (24,557) (21,684) (21,720) (95,045) (85,067) EBITDA 5,071 4,665 3,651 5,076 9 39 (0) 24,099 19,401 24 EBITDA margin (%) 18 16 14 19 20 19 Other income 507 1,423 1,310 481 5,272 3,591 Interest (257) (239) (377) (217) (965) (1,072) Depreciation (1,393) (1,475) (1,460) (1,427) (5,789) (5,729) PBT 3,928 4,373 3,124 3,912 (10) 26 0 22,617 16,191 40 Current tax (expense)/income (1,211) (1,312) (658) (1,100) (6,785) (3,937) Net income 2,718 3,061 2,465 2,812 (11) 10 (3) 15,832 12,255 29 Extraordinaries (net of taxes) — — — 572 — 241 Reported net income 2,718 3,061 2,465 3,384 (11) 10 (20) 15,832 12,496 27 EPS (Rs) 1.4 1.5 1.2 1.7 8.0 6.2 Per ton analysis Despatches, '000 tons 6,220 6,402 6,020 5,870 (3) 3 6 24,557 22,950 7 Realization (Rs/ton) 4,602 4,565 4,208 4,565 1 9 1 4,852 4,552 7 Operating cost (Rs/ton) 3,787 3,836 3,602 3,700 (1) 5 2 3,870 3,707 Raw materials 340 400 391 188 (15) (13) 81 408 369 Employee costs 273 288 279 277 (5) (2) (2) 294 288 Freight costs 1,333 1,259 1,231 1,331 6 8 0 1,289 1,251 Power & fuel costs 1,021 1,070 895 1,098 (5) 14 (7) 1,051 974 Other costs 820 819 806 805 0 2 2 828 825 Profitability (Rs/ton) 815 729 606 865 12 34 (6) 981 845 16

Source: Company, Kotak Institutional Equities estimates

Changes in our estimates

Exhibit 5 highlights key changes in our estimates.

 Ambuja standalone—cut estimate by close to 1%. We cut our volume estimate by 1% to 24.9 mn tons, 26.8 mn tons and 28.7 mn tons for CY2018E, CY2019E and CY2020E. We broadly retain our realization assumption and tweak our cost assumptions—this results in a cut in our standalone EBITDA estimate by 1% to `24.1 bn, `27.7 bn and `31.6 bn for CY2018E, CY2019E and CY2020E. We estimate standalone EPS of `8 , `9.6 and `11.1 for CY2018E, CY2019E and CY2020E.

 Ambuja consolidated—estimate cut by 3% as incorporate revised estimates of ACC. The above revision combined with our earlier change in ACC’s estimates results in a 3% cut in our EBITDA estimates. We estimate consolidated EBITDA of `42.8 bn, `52.3 bn and `62.5 bn for CY2018E, CY2019E and CY2020E. We estimate consolidated EPS of `8.1, `10.6 and `13.1 for CY2018E, CY2019E and CY202E.

Our target price of `245/share is based on March 2020E financials at 10X EV/EBITDA.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 Cement Ambuja Cements

Key highlights from 1QCY18 results

 Volumes—ACEM’s cement volumes increased by 3% yoy to 6.22 mn tons in 1QCY18 and follows an 8% yoy volume growth reported by ACC for the same quarter. As per the company, the standalone capacity utilization improved to 85% in 1QCY18 versus 81% in 1QCY17. On a consolidated basis, volumes increased 6% yoy to 13.3 mn tons. ACEM is seeing strong growth in the housing building segment (Individual houses) as well as improvement in its infrastructure segment.

 Realizations—ACEM’s standalone realizations increased 1% qoq to `4,602/ton (+9% yoy). The company has large dependence on North (40%) and West markets (40%) and the cement prices in these markets saw movement of (1) - 1% qoq in 1QCY18, per our channel checks.

 Profitability and costs—ACEM’s EBITDA/ton declined 6% qoq to `815/ton (+34% yoy) in 1QCY18 due to an increase in costs. The total cost per ton increased 3% qoq to `3,790/ton (+5% yoy). The company saw increase in (1) raw-material costs to `434/ton (from `410/ton in 4QCY17) due to an increase in fly-ash, gypsum costs, (2) other expenses increased to `820/ton (`806/ton in 4QCY17). The freight costs were flat qoq at `1,330/ton while power & fuel costs declined to `1,020/ton (from `1,098/ton in 4QCY17)---note that the previous quarter was impacted due to a temporary adverse fuel mix due to the ban on pet-coke in Rajasthan.

Also, an amount of `276 mn was paid during the quarter to a subsidiary for renewal of a technology and know-how agreement.

 Consolidated financials—strong improvement. On a consolidated basis, ACEM’s EBITDA increased 38% yoy to `10 bn (+5% qoq) aided by strong earnings subsidiary ACC (EBITDA: `4.2bn, +24% yoy, +16% qoq) on the back of 8% yoy volume growth; consolidated volumes increased 6% yoy to 13.2 mn tons. ACEM’s net income increased to `3.9 bn (+34% yoy, -5% qoq).

 Greenfield project in Rajasthan. Ambuja is investing in a new greenfield project in Rajasthan— the company will set up a 3.1 mtpa clinkerisation plant at Marwar Mundwa. The project will be set-up in two phases, in the first phase Ambuja will invest `13.9 bn for setting up a 1.7 mtpa clinkerisation capacity expected to be commissioned by 2HCY20. We highlight that Ambuja’s standalone capacities operated at close to 78% utilization in CY2017 and thereby provides potential for strong volume over the next three years

ACC—good volume growth, earnings beat attributable to lower overhead costs

ACC reported healthy volume growth of 8% yoy for 1QCY18—not aided by a de- monetization base as volume growth in 1QCY17 was healthy at 4% yoy. The company reported revenue of `35.5 bn (+15% yoy, +4% qoq), EBITDA of `4.2bn (+24% yoy, +16% qoq) and PAT of `2.4 bn (+16% yoy, +20% qoq) against our estimate of `35.2 bn, `3.5 bn and `1.9 bn respectively. Realizations remained largely flat at `4,626/ton (`4,569/ton in 4QCY17) reflecting the weak pricing environment during the quarter. Higher power and fuel cost, owing to a combination of higher pet-coke prices as well as an increase in import duty for pet-coke, was offset by lower employee and overhead expenses. Profitability for the quarter improved to `550/ton (`483/ton in 1QCY17)—see Exhibit 3.

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Ambuja Cements Cement

Exhibit 2: Ambuja's consolidated volumes increased 6% yoy aided by better performance at subsidiary ACC (+8% yoy) Quarterly results for Ambuja Cements (Consolidated), December year-ends (Rs mn)

(% chg.) 1QCY18 1QCY17 4QCY17 yoy qoq CY2018E CY2017 (% chg) Sales 64,596 56,319 61,377 15 5 262,071 235,984 11 Operating costs Raw material costs (7,703) (6,977) (7,061) (31,499) (27,760) Employee costs (3,764) (3,702) (3,758) (16,375) (15,112) Freight costs (18,275) (15,680) (17,196) (68,820) (63,075) Power & fuel costs (13,850) (11,876) (13,549) (55,787) (49,529) Other costs (10,989) (10,811) (10,286) (46,702) (41,932) Total operating costs (54,581) (49,045) (51,849) (219,183) (197,409) EBITDA 10,015 7,274 9,528 38 5 42,887 38,576 11 EBITDA margin (%) 16 13 16 16 16 Other income 864 1,562 941 4,092 3,226 Interest (442) (619) (542) (1,718) (2,058) Depreciation (2,882) (3,126) (3,021) (12,566) (12,195) PBT 7,555 5,090 6,905 48 9 32,696 27,550 19 Current tax (expense)/income (2,447) (1,147) (2,732) (11,601) (8,470) Net income 5,108 3,943 4,173 30 22 21,095 19,080 11 Extraordinaries (net of taxes) 36 27 572 - 241 Minority interest 1,245 1,055 655 5,107 4,158 Reported net income 3,899 2,915 4,090 34 (5) 15,988 15,164 5 EPS (Rs) 2.0 1.5 2.1 8.1 7.5 Per ton analysis Despatches, '000 tons 13,330 12,620 12,780 6 4 51,701 48,674 6 Realization (Rs/ton) 4,846 4,463 4,803 9 1 5,069 4,848 5 Operating cost (Rs/ton) 4,095 3,886 4,057 4,239 4,056 Raw materials 578 553 552 609 570 Employee costs 282 293 294 317 310 Freight costs 1,371 1,242 1,346 1,331 1,296 Power & fuel costs 1,039 941 1,060 1,079 1,018 Other costs 824 857 805 903 861 Profitability (Rs/ton) 751 576 746 30 1 830 793 5

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 Cement Ambuja Cements

Exhibit 3: ACC's volumes increased 8% yoy in 1QCY18 and was ahead of parent Ambuja (+3% yoy) Quarterly results for ACC Limited (Standalone), December year-ends (Rs mn)

(% chg.) 1QCY18 1QCY18E 1QCY17 4QCY17 KIE yoy qoq CY2018E CY2017 (% chg) Sales 35,570 35,202 30,997 34,171 1 15 4 142,486 129,310 10 Operating costs Raw material costs (5,646) (5,584) (4,647) (6,058) (21,859) (19,676) Employee costs (1,982) (2,110) (1,952) (2,048) (8,852) (8,190) Freight costs (10,023) (9,773) (8,304) (9,419) (37,322) (34,510) Power costs (7,488) (7,539) (6,477) (7,089) (29,927) (27,145) Purchased cement (21) (2) (2) (1) (8) (8) Other expenditure (6,175) (6,747) (6,197) (5,901) (26,364) (24,226) Total operating costs (31,335) (31,755) (27,579) (30,515) (124,331) (113,755) EBITDA 4,235 3,447 3,418 3,656 23 24 16 18,155 15,555 17 EBITDA margin (%) 11.9 9.8 11.0 10.7 12.7 12.0 Other income 1,144 1,105 1,101 1,231 4,398 4,853 Interest (193) (244) (252) (334) (790) (1,023) Depreciation (1,474) (1,630) (1,650) (1,579) (6,713) (6,401) PBT 3,712 2,677 2,617 2,975 39 42 25 15,050 12,984 16 Current tax (1,261) (803) (502) (930) (4,966) (3,511) Deferred tax — — — — 150 (318) Net income 2,451 1,874 2,115 2,045 31 16 20 10,234 9,155 12 Extraordinaries (net of tax) — — — — — — Reported net income 2,451 1,874 2,115 2,045 31 16 20 10,234 9,155 EPS - adjusted (Rs) 13.0 10.0 11.3 10.9 54.3 48.7 Sales (mn tons) 7.1 7.0 6.6 6.9 2 8 3 27.7 26.2 6 Realization (Rs/ton) 4,626 4,680 4,348 4,569 (1) 6 1 4,760 4,564 4 Operating costs (Rs/ton) 4,407 4,549 4,179 4,410 4,485 4,340 Raw materials 794 800 704 875 789 751 Employee costs 279 302 296 296 319 312 Freight costs 1,410 1,400 1,258 1,361 1,346 1,317 Power & fuel costs 1,053 1,080 981 1,024 1,080 1,036 Purchased cement 3 — — — 0 0 Other expenditure 869 967 939 853 951 924 Profitability (Rs/ton) 550 494 483 473 11 14 16 655 593 10

Source: Company, Kotak Institutional Equities estimates

Exhibit 4: Ambuja's volumes increased 3% yoy to 6.2 mn tons in 1QCY18 Volume (mn tons) and raw material cost (Rs/ton), December year-ends

Volumes- mn tons (LHS) Profitability- Rs/ton (RHS) 6.5 1,200

6.0 1,000 5.5

5.0 800 4.5

4.0 600 3.5

3.0 400

4QCY14 1QCY15 2QCY15 3QCY15 4QCY15 3QCY16 4QCY16 1QCY17 2QCY17 3QCY17 1QCY14 2QCY14 3QCY14 1QCY16 2QCY16 4QCY17 1QCY18

Source: Company, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Ambuja Cements Cement

Exhibit 5: Ambuja Cements, Change in estimates, December year-ends, 2018-2020E (mn tons, Rs mn)

Revised estimate Previous estimate Change (%) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E Ambuja Cement (Consolidated) Volume and realizations (mn tons, Rs/ton) Volumes (mn tons) 52.6 55.9 59.3 52.9 56.1 59.5 (0) (0) (0) Realizations (Rs/ton) 4,978 5,168 5,356 5,000 5,189 5,382 (0) (0) (0) EBITDA (Rs/ton) 815 936 1,055 839 960 1,079 (3) (3) (2) Earnings estimates (Rs mn) Revenue (Rs mn) 262,071 288,682 317,550 264,383 291,158 320,210 (1) (1) (1) EBITDA (Rs mn) 42,887 52,288 62,542 44,378 53,871 64,230 (3) (3) (3) PAT (Rs mn) 15,988 21,110 26,060 16,741 21,757 26,756 (4) (3) (3) EPS (Rs/share) 8.1 10.6 13.1 8.4 11.0 13.5 (4) (3) (3) Ambuja Cement (Standalone) Volume and realizations (mn tons, Rs/ton) Volumes (mn tons) 24.9 26.8 28.7 25.2 27.0 29.0 (1) (1) (1) Realizations (Rs/ton) 4,852 4,948 5,045 4,851 4,948 5,044 0 0 0 EBITDA (Rs/ton) 981 1,048 1,114 984 1,051 1,117 (0) (0) (0) Earnings estimates (Rs mn) Revenue (Rs mn) 119,143 130,623 143,159 120,240 131,827 144,480 (1) (1) (1) EBITDA (Rs mn) 24,099 27,670 31,617 24,389 27,997 31,982 (1) (1) (1) PAT (Rs mn) 15,832 19,024 22,112 16,035 19,252 22,368 (1) (1) (1) EPS (Rs/share) 8.0 9.6 11.1 8.1 9.7 11.3 (1) (1) (1)

Source: Kotak Institutional Equities estimates

Exhibit 6: Our earnings assumptions factor 5-8% yoy growth in volumes and improved realizations Key assumptions in the profit model for Ambuja Cement, December year-ends, 2016-20E (Rs mn)

Growth (%) 2016 2017 2018E 2019E 2020E 2017 2018E 2019E 2020E Ambuja—standalone (Rs mn) Revenue 91,604 104,469 119,143 130,623 143,159 14 14 10 10 EBITDA 15,753 19,401 24,099 27,670 31,617 23 24 15 14 PAT 9,701 12,255 15,832 19,024 22,112 26 29 20 16 Key operating metrics Volumes (mn tons) 21.1 23.0 24.6 26.4 28.4 9 7 8 8 Realization (Rs/ton) 4,267 4,480 4,780 4,880 4,980 5 7 2 2 Operating cost (Rs/ton) 3,520 3,634 3,798 3,832 3,866 3 5 1 1 Profitability (Rs/ton) 747 845 981 1,048 1,114 13 16 7 6 ACC—standalone (Rs mn) Revenue 109,364 129,310 142,486 157,618 173,949 18 10 11 10 EBITDA 11,949 15,555 18,155 23,984 30,291 30 17 32 26 PAT 6,451 9,154 10,234 14,913 19,521 42 12 46 31 Key operating metrics Volumes (mn tons) 23.0 26.2 27.7 29.1 30.5 14 6 5 5 Realization (Rs/ton) 4,757 4,934 5,140 5,417 5,696 4 4 5 5 Operating cost (Rs/ton) 4,237 4,340 4,485 4,593 4,704 2 3 2 2 Profitability (Rs/ton) 520 593 655 824 992 14 10 26 20 Consolidated Revenue 200,940 235,984 262,071 288,682 317,550 17 11 10 10 EBITDA 28,693 38,576 42,887 52,288 62,542 34 11 22 20 PAT 11,509 14,922 15,988 21,110 26,060 30 7 32 23

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Cement Ambuja Cements

Exhibit 7: Our fair value of Rs245/share is based on March 2020E financials Fair value estimate of Ambuja Cement, March 2020E (Rs/share)

March-2020E Attributable EBITDA (Rs mn) 41,438 EV/EBITDA (X) 10 Attributable EV (Rs mn) 416,447 Attributable net cash (Rs mn) 70,981 Equity value (Rs mn) 487,428 No. of shares 1,986 Target price 245

Source: Kotak Institutional Equities estimates

Exhibit 8: Profit model, balance sheet, cash model of Ambuja Cement (consolidated), December year-ends, 2015-20E (Rs mn)

2015 2016 2017 2018E 2019E 2020E Profit model (Rs mn) Net sales 93,880 200,940 235,984 262,071 288,682 317,550 EBITDA 14,489 28,693 38,576 42,887 52,288 62,542 Other income 4,466 7,680 3,226 4,092 5,308 5,935 Interest (925) (1,405) (2,058) (1,718) (1,462) (1,322) Depreciation (6,298) (14,632) (12,195) (12,566) (13,038) (13,511) Pretax profits 11,733 20,336 27,550 32,696 43,096 53,644 Tax (3,654) (5,760) (8,470) (11,601) (14,544) (17,843) Net profits before minority 8,079 14,576 19,080 21,095 28,552 35,801 Minority interest — (3,067) (3,916) (5,107) (7,442) (9,741) Net profit 8,079 11,509 15,164 15,988 21,110 26,060 Earnings per share (Rs) 5.2 5.8 7.5 8.1 10.6 13.1 Balance sheet (Rs mn) Total equity 102,715 195,455 206,722 214,103 226,607 244,060 Total borrowings 236 239 259 259 259 259 Minority interest 7 43,778 46,080 48,942 54,139 61,635 Deferred tax liability 5,656 10,534 11,392 10,563 9,109 7,325 Currrent liabilities 32,714 77,325 90,551 88,996 99,215 110,065 Total liabilities and equity 141,328 327,330 355,004 362,863 389,328 423,343 Cash 28,532 16,962 62,316 50,940 71,643 99,798 Current assets 25,442 62,562 75,503 93,515 100,314 107,686 Total fixed assets 65,388 140,758 136,839 138,062 137,024 135,514 Goodwill 478 79,097 78,815 78,815 78,815 78,815 Investments 21,488 27,951 1,531 1,531 1,531 1,531 Total assets 141,328 327,330 355,004 362,863 389,328 423,343 Free cash flow (Rs mn) Operating cash flow, excl. working capital 15,391 25,637 34,153 34,549 41,598 48,850 Working capital change 175 2,513 285 (19,567) 3,419 3,478 Capital expenditure (6,192) (8,853) (8,329) (13,789) (12,000) (12,000) Free cash flow 9,374 19,298 26,109 1,194 33,017 40,328 Ratios Book value (Rs/share) 66 98 104 108 114 123 RoAE (%) 8.5 7.7 7.4 7.6 9.6 11.1 RoACE (%) 8.4 5.9 7.4 7.6 9.6 11.1 CRoCI (%) 11.2 14.6 12.0 11.8 13.4 15.5

Source: Company, Kotak Institutional Equities estimates

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH SELL IIFL Holdings (IIFL) NBFCs MAY 07, 2018 RESULT Coverage view: Neutral

Capital businesses shine; agency marginally weak. IIFL Holdings’ strong performance Price (`): 743 was driven by high growth in the lending business across IIFL Finance and the Wealth Target price (`): 625 NBFC. Growth in capital market-linked income was weak, largely due to lower BSE-30: 34,915 commission yields from the intra-day business. The agency income realizations in the wealth business were down as well. With a strong franchise in a niche (ultra HNI) segment, wealth will emerge as the strongest business post demerger. This is already factored in the current market price; we retain SELL with TP of `625 (up from `600).

Company data and valuation summary India Infoline Stock data Forecasts/Valuations 2018 2019E 2020E 52-week range (Rs) (high,low) 874-434 EPS (Rs) 28.6 33.5 40.7 QUICK NUMBERS Market Cap. (Rs bn) 236.9 EPS growth (%) 32.4 17.3 21.4 Shareholding pattern (%) P/E (X) 26.0 22.2 18.3  PAT increased 33% Promoters 29.0 NII (Rs bn) 21.9 25.6 29.5 yoy in 4QFY18 FIIs 22.4 Net profits (Rs bn) 9.1 10.7 13.0 MFs 2.4 BVPS 158.8 183.9 214.4  IIFL Finance’s AUM Price performance (%) 1M 3M 12M P/B (X) 4.7 4.0 3.5 up 40% yoy to `311 Absolute 2.8 (2.4) 53.3 ROE (%) 19.0 19.3 20.0 Rel. to BSE-30 (2.8) (2.0) 32.3 Div. Yield (%) 0.8 1.0 1.2 bn

 39% yoy growth in Wealth business emerges to be the most attractive wealth AUA to `1.3 tn  Post the demerger of IIFL Holdings, we believe that IIFL Wealth will emerge as the most attractive stock given its strong franchise in a niche segment, increasing and innovative bouquet of products, investments in business by consistently adding new RMs and buoyancy in financial savings in general. We expect the company to deliver 23% earnings CAGR during FY2018-21E (somewhat lower than its guidance of 25%) on the back of 20% CAGR in AUA.

 We expect IIFL Finance to deliver 16-17% RoE over the medium term on the back of 17-18% loan book CAGR, translating into 19% CAGR in earnings. The company has delivered 31% earnings growth in FY2018 on the back of 40% loan book growth translating into 2.2% RoA and 15% RoE. The business has multiple growth drivers including mortgages, SME loans, real estate, gold and CVs, which are all currently in a sweet spot. However, absence of identifiable niche will likely put pressure on valuation multiples.

 The capital market-linked business is relatively small with 14% contribution to overall segmental PBT. Key concerns on this business include volatility in earnings due to high dependence to capital markets, i.e. absence of stable revenue source, shrinking commission yields and questionable prospects for the standalone broking business. Nischint Chawathe Revising estimates and valuation multiples; retain SELL

We are raising our pre-minority earnings estimates by 4-5% on the back of higher estimates in M B Mahesh CFA the wealth and the NBFC businesses. Post the revision, we expect the company to deliver 19% earnings CAGR during FY2018-21E and 19-20% RoE. A strong and growing franchise of the wealth business will drive its valuations while concerns on long-term prospects of the broking Abhijeet Sakhare business will put pressure on the broking business; high loan book growth will support near- term valuations of IIFL Finance even as long-term concerns on its differentiators remain. We are revising our March 2020E-based TP for IIFL Holdings to `625 to reflect (1) 2.2X book to IIFL Dipanjan Ghosh Finance, (2) 20X earnings for the wealth business and (3) 12X earnings for the broking business.

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

Exhibit 1: IFL Holdings – quarterly financial statements March fiscal year-ends, 4QFY17-4QFY18 (` mn)

(% chg.) 4QFY18 4QFY18E 4QFY17 3QFY18 4QFY18E 4QFY17 3QFY18 FY2017 FY2018 (% chg.) FY2019E (% chg.) Quarterly financials Total income 17,636 17,385 14,044 16,868 1 26 5 49,248 65,208 32 76,664 18 Broking and related income 1,886 2,098 1,510 1,793 (10) 25 5 5,673 7,186 27 7,931 10 Distribution (insurance etc) 2,741 2,365 2,309 2,350 16 19 17 7,158 10,215 43 10,536 3 Insurance distribution 411 389 415 163 6 (1) 152 894 1,405 57 1,566 11 Wealth management 2,330 1,976 1,894 2,187 18 23 7 6,264 8,810 41 8,970 2 Financing income 13,298 12,861 10,190 11,977 3 30 11 36,294 46,868 29 58,037 24 Other income (290) 61 35 748 (572) (928) (139) 124 939 656 160 (83) Operating expenses 6,229 6,282 4,658 5,410 (1) 34 15 15,523 21,901 41 23,828 9 Direct expenses 771 2,151 1,314 1,957 (64) (41) (61) 3,603 6,384 77 6,052 (5) Employees expenses 3,099 3,130 2,275 2,774 (1) 36 12 7,840 10,602 35 12,199 15 Administration expneses 2,359 1,000 1,068 679 136 121 247 4,080 4,916 20 5,576 13 EBDITA 11,407 11,103 9,387 11,458 3 22 (0) 33,725 43,306 28 52,836 22 Depreciation 191 113 144 169 68 33 13 540 671 24 738 10 EBITA 11,216 10,990 9,243 11,289 2 21 (1) 33,185 42,635 28 52,098 22 Interest 6,730 6,280 5,611 6,992 7 20 (4) 20,922 25,954 24 32,470 25 PBT 4,486 4,710 3,633 4,297 (5) 23 4 12,263 16,681 36 19,628 18 Taxation 1,306 1,492 1,286 1,284 (12) 2 2 4,018 5,054 26 5,888 17 PAT bef. minority interest 3,180 3,224 2,347 3,013 (1) 36 6 8,245 11,620 41 13,740 18 Minority interest 697 626 482 655 11 45 6 1,361 2,508 84 3,052 22 PAT 2,483 2,598 1,865 2,358 (4) 33 5 6,884 9,112 32 10,688 17 Tax rate (%) 29.1 31.7 35.4 29.9 -257 bps -629 bps -77 bps 32.8 30.3 -247 bps 30.0 -30 bps Average daily volumes and market share IIFL - F&O (Rs bn) 159 92 135 73 18 Market - F&O (Rs bn) 7,040.0 2,920.7 6,812.9 141 3 Market share - F&O (%) 2.3 2.4 2.0 -9 bps 27 bps IIFL - cash (Rs bn) 15.6 11.3 14.1 39 11 Market - cash (Rs bn) 386.5 207.0 358.9 87 8 Market share - cash (%) 4.0 4.1 3.9 -2 bps 11 bps Overall margins (%) 1.7 2.2 1.9 -46 bps -19 bps Loan under management (Rs bn) 343.2 299.9 229.0 290.5 14 50 18 Segmental results (Rs mn) PBT 4,486 3,633 4,297 23 4 8,392 6,491 (23) 10,026 54 Broking and related income 365 433 558 (16) (35) Finance 3,312 2,480 2,983 34 11 Distribution and marketing 804 723 403 11 99

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: IIFL Holdings: NBFC and wealth drive value SoTP-based valuation, March fiscal year-end, March 2020E

Valuation (Rs mn) (Rs/ share) Comments NBFC (85% stake) 109,750 344 2.2X PBR Wealth management (53% stake) 62,680 196 20X PER Broking 26,942 84 12X PER Total 199,373 625

Source: Company, Kotak Institutional Equities estimates

Loan growth strong, realization and margins down

IIFL Holdings reported 33% yoy growth in consolidated PAT after minority interest to `2.48 bn, 4% below estimate.

 IIFL Finance delivered 33% earnings growth on the back of 40% yoy growth in AUM to `311 bn even as NIM declined 50 bps yoy.

 IIFL Wealth delivered 12% yoy PBT growth on the back of 39% AUA growth to `1.3 tn though retention yields declined to 65 bps from 77 bps in 4QFY18; 25% yoy growth in NII and 85% yoy growth in wealth NBFC loan book supported earnings for this segment.

 Capital market-linked revenue growth was lower at around 25% yoy as compared to 39% cash volume growth due to higher share of intra-day business.

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH IIFL Holdings NBFCs

IIFL Wealth: relatively weak quarter

 PBT growth of 12% yoy. IIFL Wealth delivered 12% yoy PBT growth as revenue growth was 21% yoy, offset by 30% yoy growth in expenses. Lower tax rate due to higher share of carry income led to 37% yoy PAT growth.

 Fee income growth of 20% yoy; yields decline. Agency fee income growth was 20% yoy, slower than 39% yoy AUA growth. Blended yields in agency business declined to 65 bps from 77 bps in 4QFY17 and 66 bps in 3QFY18. Yields on the distribution side are 55-60 bps net of direct costs and 65-70 bps on active asset management side.

 Net new money up 4% yoy. Net new money (NNM) in 4QFY18 was up 4% yoy. Over FY2018, AUA growth of 39% yoy to `1.3 tn was driven by net new money flow of `250 bn and market returns of `117 bn. Adverse market movement in 4QFY18 offset the NNM during the period leading to 3% qoq AUM growth. On a low base, advisory assets have almost doubled, distribution assets were up 33% yoy and AMC up 39%.

 Declining spreads in lending business. Wealth NBFC loan book grew 85% yoy and 15% qoq, driving 25% yoy growth in NII. Calculated NIM in 4QFY18 declined to 4.9% from 6% in 3QFY18 and 7.5% in 4QFY17. Management expects to maintain lending book at 5-7% of total AUM compared to 5% currently.

 Expense growth remains high. Operating costs increased 30% yoy, compared with ~25% growth in 3QFY18. Staff expense grew 39% yoy. The company continues to add relationship managers (RM) – number of RMs increased to 330 from 317 in 3QFY18 and 226 at FY2017 and 195 at FY2016; total employees including the investment team are about 700. Period-end AUM per RM is ~`4.0 bn, down 5% yoy. Non-staff expense growth was 13% yoy.

 One-fourth of agency fee exposed to change in MF regulation. IIFL Wealth earned nearly 25% of FY2017 agency fees from mutual fund distribution. This can potentially be at risk if regulations mandate lower expense ratios on mutual funds, leading to pass- through of lower revenues from asset managers to distributors. However, in the earnings call, management highlighted that incrementally the ultra HNI segment has reduced focus on mutual funds and is more into alternatives. As such, the impact of any such regulation will be relatively lower.

 Broking income at 5-6% of total agency income. IIFL Wealth has a separate in-house broking license. Broking revenues contribute about 5-6% of its total revenue.

 23% earnings CAGR over the medium term. We expect IIFL Wealth to deliver 27% PAT growth in FY2019E followed by about 21% over the next two years. We expect AUA growth to be about 20% annually with about 10% growth in distribution assets and significantly higher growth in other segments. Net realizations will continue to decline over time, i.e. 62 bps in FY2019E and 58 bps in FY2020E from 71 bps in FY2018; this may be partially offset by reduction in cost to income ratio to 31% in FY2019E from 35% in FY2018. Management has guided that the Wealth NBFC will remain at 5-6% of AUA and earn about 200 bps of gross yields.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 NBFCs IIFL Holdings

Exhibit 3: IIFL Wealth – strong earnings growth at 37% yoy in 4QFY18 Quarterly P&L summary, March fiscal year-ends, 4QFY16-4QFY18 (Rs mn)

4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 YoY (%) QoQ (%) Income statement Income from operations 1,741 1,721 2,435 2,668 3,454 3,448 4,034 4,552 4,300 24 (6) Agency 1,741 1,266 1,292 1,270 1,748 1,781 2,105 2,025 2,103 20 4 Interest income — 455 1,143 1,398 1,706 1,667 1,929 2,527 2,197 29 (13) Other income 10 — — 157 — — — — — Total income 1,751 1,721 2,435 2,825 3,454 3,448 4,034 4,552 4,300 24 (6) Total expenses 1,117 810 925 1,195 1,219 1,153 1,409 1,499 1,580 30 5 Employee expenses 595 542 641 698 789 808 968 1,056 1,094 39 4 Other expenses 522 268 284 497 430 345 441 443 486 13 10 EBITDA 634 911 1,510 1,630 2,235 2,295 2,625 3,053 2,720 22 (11) Interest 37 115 653 674 1,090 1,008 1,422 1,724 1,431 31 (17) Provisions 11 53 25 21 26 47 23 41 38 46 (7) PBT 586 743 832 935 1,119 1,240 1,180 1,288 1,251 12 (3) Tax 125 216 260 283 366 376 225 287 219 (40) (24) PAT before minority interest 461 527 572 652 753 864 955 1,001 1,032 37 3

Assets under advice (Rs bn) 622 654 749 812 949 1,126 1,175 1,282 1,318 39 3 Cost-income ratio (%) 64 47 38 45 35 33 35 33 37 145 bps 381 bps PAT margin (%) 27 33 32 30 32 35 37 35 36 412 bps 57 bps No. of RMs 195 211 176 220 226 253 283 317 330 46 4

Source: Company, Kotak Institutional Equities

Exhibit 4: IIFL Wealth earns net commission of 65 bps Wealth assets and commission yields, March fiscal-year ends, 4QFY16-4QFY18

4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Wealth assets (Rs bn) 740 654 749 812 1,081 1,269 1,175 1,282 1,318 (% of total) Distribution 70 69 68 65 68 68 68 63 65 AMC/Discretionary 9 10 10 11 10 9 9 11 10 Advisory 3 3 8 11 11 12 13 16 17 Discretionary (offshore) 18 18 16 13 11 11 10 10 8 Retention yield ex-FPI assets- KS (%) Net commission/fees 0.73 0.74 0.65 0.74 0.61 0.69 0.66 0.65 Including fund based activities 0.23 1.02 1.02 1.00 0.83 0.85 0.92 0.88

Source: Company, Kotak Institutional Equities

Exhibit 5: IIFL's market share in MF commissions continued to decline in FY2017 Income from mutual fund distribution, March fiscal year-end, 2013-17 (Rs mn)

2013 2014 2015 2016 2017 YoY (%) IIFL group 753 1,356 3,036 1,712 1,819 6 Industry 23,886 26,027 47,293 36,476 49,867 37 Market share 3.2 5.2 6.4 4.7 3.6

Source: AMFI, Kotak Institutional Equities

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH IIFL Holdings NBFCs

Exhibit 6: High income from distribution for IIFL Wealth Mapping of income across business lines of IIFL Wealth, March fiscal year-end, 2017 (Rs mn)

Share in Amount revenues (Rs mn) (%) Comments Fund management revenues 1,525 20 Revenue on IIFL Asset Management and IIFL Asset Management (Mauritius) Investment AUM (Rs bn) 199 AMC/discretionary and offshore discretionary AUM NBFC- NII 2,170 28 Loan book (Rs bn) 36 NIM (%) 5.2 Distribution 4,051 52 MF commissions 1,574 20 Third party commission on mutual fund sales earned by IIFL Wealth Other commissions 2,477 32 Balance revenues for IIFL Wealth Distribution AUM (Rs bn) 649 Advisory AUM (Rs bn) 97 FPI (offshore, Rs bn) 130 Total 7,746

Source: Company, Kotak Institutional Equities

Exhibit 7: IIFL Wealth Management – key ratios and growth rates March fiscal year-ends, 2017-21E (%)

2017 2018 2019E 2020E 2021E YoY (%) Agency income (1) 44 12 11 13 Total income 83 59 21 18 16 PBT 60 37 28 21 19 PAT 48 54 27 21 19 AUA 53 39 20 19 20 Investments 96 (44) 10 10 10 Loan book 85 25 25 25 Key ratios (%) Agency income/AAUA 0.7 0.7 0.6 0.6 0.6 Agency and capital income/AAUA 1.0 0.9 0.9 0.9 0.8 Cost-income ratio 40.4 34.5 31.3 30.0 28.5 PBT margin 45.9 46.1 50.0 51.5 53.5 PAT margin 24.0 23.6 24.7 25.3 26.1 Yield on loans/investments 14.2 12.5 12.5 12.5 12.0 Cost of funds 9.2 9.0 9.2 9.2 9.0 Spread 5.0 3.5 3.3 3.3 3.0 NIM 5.2 3.5 3.8 4.1 4.1 RoA 6.1 4.9 5.0 5.0 4.9 RoE 18.2 22.6 23.0 22.1 21.2

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 NBFCs IIFL Holdings

Exhibit 8: IIFL Wealth management – income statement and balance sheet March fiscal year-ends, 2017-21E (` mn)

2017 2018 2019E 2020E 2021E AUA break-up (Rs bn) Total 949 1,318 1,576 1,871 2,237 Distribution 645 856 942 1,036 1,140 AMC/Discretionary 95 132 158 198 247 Advisory 104 224 381 552 773 Discretionary (offshore) 104 105 95 85 77

Income statement (Rs mn) Income from operations 10,278 16,334 19,806 23,330 27,074 Agency 5,576 8,014 8,970 9,997 11,298 Interest income 4,702 8,320 10,836 13,333 15,776 Other income 157 — — — — Total income 10,435 16,334 19,806 23,330 27,074 Total expenses 4,149 5,641 6,202 7,009 7,724 Employee expenses 2,670 3,926 4,230 4,800 5,250 Other expenses 1,479 1,715 1,972 2,209 2,474 EBITDA 6,286 10,693 13,603 16,321 19,350 Interest 2,532 5,585 7,071 8,432 9,915 Provisions 125 149 168 209 262 PBT 3,629 4,959 6,365 7,680 9,173 Tax 1,125 1,107 1,464 1,766 2,110 PAT 2,504 3,852 4,901 5,913 7,063

Balance sheet (Rs mn) Fixed assets 565 806 1,048 1,257 1,446 Investments 19,343 10,761 11,837 13,021 14,323 Net Loans 36,166 67,011 83,764 104,705 130,881 Net Current Assets 12,969 10,594 10,594 10,594 10,594 Total assets 69,043 89,172 107,243 129,577 157,244

Share capital 156 160 160 160 160 Reserves and Surplus 15,086 18,736 23,637 29,550 36,613 Net worth 15,242 18,896 23,797 29,710 36,773 Minority Interest — — — — — Borrowings 53,801 70,276 83,446 99,867 120,471 Total liabilities and net worth 69,043 89,172 107,243 129,577 157,244

Source: Company, Kotak Institutional Equities estimates

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH IIFL Holdings NBFCs

IIFL Finance: 40% yoy AUM growth in FY2018 driven by home loans

 AUM growth picks pace; up 40% yoy in 4QFY18. IIFL Finance reported AUM of `311 bn, up ~40% yoy and 14% qoq. Excluding the capital market loans, AUM growth was marginally higher at 42% yoy in 4QFY18. Growth is driven by home loans, construction finance and MSME loans. CV loans remained strong given the upsurge in demand in the CV market. Additionally, gold loan growth revived momentum this quarter.

 Strong earnings growth at 33% yoy in 4QFY18. IIFL Finance’s PAT growth of ~33% yoy was driven by strong loan growth and margin expansion (reported NIM) by 40 bps (flat yoy). Growth in expenses was high at 43% yoy in 4QFY18 leading to 510 bps increase in cost-to-income ratio. Investment in infrastructure and focus on increasing penetration (addition of 226 branches in 2HFY18) is driving spike in operating expenses. Credit cost witnessed 66 bps qoq drop to 0.9% (down 40 bps yoy) on the back of improved asset quality across most segments.

 Steep jump in home loan growth at 61% yoy in 4QFY18. Retail home loans, being the focus area going forward, grew by 61% yoy and 14% qoq. IIFL is positioned at the lower end of the ticket size with average ticket size of ₹2.1 mn (down from ₹2.6 mn in 3QFY17) IIFL’s retail home loan business is directly linked to superior performance in the construction finance business with the latter generating leads for the former. Going ahead, this segment is expected to demonstrate robust growth.

 MSME and micro-finance loans rally in 4QFY18. MSME and MFI loans increased by 1.6X yoy to `33.2 bn by 4QFY18. MSME loans increased 1.4X yoy to `24.8 bn by 4QFY18 whereas MFI loans witnessed rapid jump at 2.5X yoy to `8.4 bn on a low base. As the economy stabilizes post demonetization and IIFL Finance increases its branch penetration, this segment will see robust growth going ahead.

 De-focus of LAP business continues. LAP growth was modest at 2% yoy and 3% qoq. The company is gradually de-focusing this book owing to asset quality pressure faced in the past few quarters. NNPL increased at a rapid rate to 1.9% by 2QFY18 from 0.9% in 4QFY17. NNPL ratio, however, improved in 4QFY18 (down 70 bps qoq to 1%). Target segment is smaller-ticket LAP in the range of `7-8 mn largely spread across the country with average portfolio yield of ~12-13%.

 Significant improvement in asset quality. GNPL ratio dropped 40 bps qoq to 1.7%. Provision coverage increased at a steep pace to 54% (from 44% qoq). Improvement in collections led to the sharp improvement in asset quality. The major improvement was seen across LAP, CV and construction finance segments where NNPL dropped 70 bps qoq to 1%, 80 bps qoq to 1.5% and 90 bps qoq to 1.4% respectively in 4QFY18 Write-offs were lower in 4QFY18 at 4% of GNPL compared to ~16-25% in the past three quarters.

 Near-term margin compression. We project ~17% AUM CAGR over FY2018-21E driven by retail loans, CV and growing MSME/ MFI loans on a low base. Over the medium-to-long term NIM will trend down due to decline in loan yields on the back of greater competition in the fast-growing home loan space (marginally offset from the high yielding MSME and MFI products). Calculated yields will drop 70 bps yoy in FY2019E to 14.6% and decline further to 14.1% by FY2021E. Borrowing cost are also expected to increase going ahead led by rise in bond yields and increase in MCLR rates by banks (the company has 38% of borrowings in the form of term loans as of 4QFY18). Calculated cost of borrowings is expected to increase to 9.3% by FY2021E from 9.1% in FY2018. We hence expect NIM (calculated) to drop 90 bps yoy in FY2019E to 5.3% and further moderate to 4.8% by FY2021E.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 NBFCs IIFL Holdings

Exhibit 9: IIFL Finance - quarterly data March fiscal year-ends, 4QFY17-4QFY18 (` mn)

4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 YoY (%) QoQ (%) Income statement (Rs mn) Interest income 8,056 8,004 8,861 9,186 19 (100) (100) Interest expenses 4,476 4,544 4,848 5,087 14 (100) (100) Net interest income 3,580 3,460 4,013 4,099 4,475 25 9 Other income 462 607 653 887 738 60 (17) Provisions 618 709 958 898 563 (9) (37) Operating expenses 1,572 1,588 1,671 1,898 2,254 43 19 PBT 1,852 1,770 2,037 2,190 28 (98) (99) Tax 647 607 715 734 24 (96) (97) PAT 1,205 1,163 1,322 1,456 1,602 33 10 Outstanding loan book (Rs bn) 193 204 230 236 276 43 17 Loans outside balance sheet (Rs bn) 30 29 30 37 35 17 (6) Loans under management (Rs bn) 223 233 260 273 311 40 14 Home Loans 53 60 67 75 86 61 14 Loans Against Property 56 55 55 56 57 2 3 Construction & Real Estate 31 35 35 38 43 41 14 Gold 29 28 31 34 40 39 18 Commercial Vehicle 30 30 32 36 41 37 14 Capital Market 11 12 22 10 11 (4) 7 Micro-finance 2 3 4 6 8 47 MSME & Others 10 11 15 19 25 142 33 Key ratios (%) NIM - KS Estimate 7.5 7.0 7.4 7.0 7.0 CAR 18.1 20.6 18.4 18.2 16.2 Asset quality Gross NPL (%) 1.8 2.0 2.0 2.1 1.7 Net NPL (%) 0.6 0.9 1.1 1.2 0.8

Source: Company, Kotak Institutional Equities

Exhibit 10: IIFL Finance has made high write-offs in 4QFY18 March fiscal year-ends, 1QFY17-4QFY18 (` mn)

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Gross NPL 3,323 3,452 3,410 3,509 4,158 4,489 4,948 4,722 Net NPL 1,535 1,532 1,231 1,118 1,916 2,509 2,780 2,182 Outstanding provisions 1,788 1,920 2,178 2,391 2,242 1,980 2,168 2,541 Provisions in the quarter 292 416 433 618 709 958 898 563 Implied write-offs 99 284 174 406 858 1,220 710 190 Write-off as % of open GNPL (%) 4 9 5 12 24 29 16 4 Credit cost (%) 0.7 0.9 0.9 1.3 1.4 1.8 1.5 0.9

Source: Company, Kotak Institutional Equities

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH IIFL Holdings NBFCs

Exhibit 11: Share of terms loans continue to trend downwards Borrowings mix, March fiscal year-ends, 2012-18 (%)

Term loan NCD CP 100

23 19 18 21 23 29 28 27 80 34 34

34 34 60 20 33 39 35 20 35 32 28

40

51 46 45 47 48 20 40 42 38 41 38

0 2012 2013 2014 2015 2016 2017 1QFY18 2QFY18 3QFY18 2018

Source: Company, Kotak Institutional Equities

Exhibit 12: Performance metrics of IIFL Finance Product portfolio break-up, March fiscal year-end, 4QFY18

Average Portfolio share Net NPL Yield ticket LTV (%) (%) (%) (Rs mn) (%) Home loan 28 0.3 9.8 2.1 68 Loan against property 18 1.0 12.8 7.2 49 Construction finance 14 1.4 14.8 107.0 46 Commercial vehicle finance 13 1.5 15.7 1.5 75 Gold loan 13 0.1 21.5 0.1 65 Capital market finance 3 — 11.2 7.1 42 MSME loan 8 1.4 16.6 0.7 54 Microfinance 3 — 25.1 Total 100 0.8 14.4

Source: Company, Kotak Institutional Equities

Exhibit 13: Significant improvement in asset quality across most segments Product-wise net NPL ratios, March fiscal year-ends, 3QFY17-3QFY18 (%)

4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Home loan 0.3 0.3 0.3 0.3 0.3 Loan against property 0.9 1.1 1.9 1.7 1.0 Construction finance 0.1 0.2 1.4 2.3 1.4 Commercial vehicle finance 1.9 4.2 3.2 2.3 1.5 Gold loan — 0.2 0.2 0.2 0.1 Capital market finance — — — — — MSME loan 1.7 2.3 1.2 1.3 1.4 Microfinance 0.5 Total 0.6 0.9 1.1 1.2 0.8

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 37 NBFCs IIFL Holdings

Exhibit 14: IIFL Finance – key ratios, growth rates and financial statements March fiscal year-ends, 2016-21E

2016 2017 2018E 2019E 2020E 2021E Key ratios (%) Interest yield (%) 16.0 16.2 15.3 14.6 14.4 14.1 Interest cost (%) 11.5 10.7 9.1 9.3 9.3 9.3 Spread (%) 4.5 5.5 6.2 5.3 5.1 4.8 NIM (%) 6.1 6.6 7.0 6.2 6.1 5.8 Loan growth (%) 21.2 8.5 43.2 15.3 16.1 16.7 Income on investments (%) 2.0 2.0 2.0 2.0 2.0 2.0 Opex/ loans (%) 3.0 3.0 3.2 2.9 2.7 2.5 Credit cost/ loans (%) 0.7 1.0 1.3 1.0 0.9 0.9 PAT / average loans (%) 2.1 2.3 2.4 2.2 2.3 2.3 Du Pont Analysis (% of total assets) NII/ assets 5.9 6.1 6.4 6.0 5.8 5.6 Other income/ assets 0.8 0.8 1.0 1.0 1.0 1.0 Provisions/ assets 0.6 0.9 1.2 1.0 0.9 0.9 Opex/ assets 2.9 2.8 2.9 2.8 2.6 2.4 PBT/ assets 3.1 3.3 3.3 3.2 3.4 3.4 (1-tax rate) 0.7 0.7 0.7 0.7 0.7 0.7 PAT/ assets 2.0 2.1 2.2 2.1 2.2 2.2 Average assets/ average equity (X) 8.2 7.1 6.9 7.5 7.6 7.8 PAT/ average equity 16.6 15.1 15.0 15.9 17.0 17.5 Profit and loss statement (Rs mn) Interest income 25,947 30,064 35,952 43,326 49,379 56,568 Interest expenses 16,091 17,875 19,637 24,771 28,498 33,222 Net interest income 9,856 12,189 16,315 18,556 20,881 23,346 Other income 1,377 1,587 2,618 3,063 3,605 4,265 Other interest income 120 169 598 748 935 1,169 Provisions 1,087 1,760 3,130 2,973 3,096 3,605 Operating expenses 4,937 5,525 7,411 8,621 9,289 10,013 Employee expenses 2,690 3,010 4,038 4,697 5,061 5,456 Other opex 1,987 2,255 3,024 3,518 3,791 4,086 Depreciation 260 260 349 406 437 471 PBT 5,209 6,491 8,392 10,026 12,101 13,994 Tax 1,822 2,260 2,849 3,404 4,108 4,751 PAT 3,387 4,231 5,543 6,622 7,993 9,243 Balance sheet (Rs mn) Fixed assets 655 1,241 919 1,149 1,436 1,795 Investments 2,475 14,365 10,898 7,629 7,629 7,629 Loan book 177,695 192,798 276,155 318,383 369,670 431,366 Total assets 179,358 218,934 290,943 330,876 383,163 446,073 Borrowings 153,127 181,044 249,059 283,644 329,217 385,232 Total liabilities 157,967 184,235 251,657 286,892 333,277 390,306 Networth 21,391 34,699 39,286 43,984 49,886 55,767

Source: Company, Kotak Institutional Equities estimates

Yield pressure in broking business

Equity broking revenues grew 34% yoy compared to 39% yoy growth in cash equities ADV and 73% yoy growth in derivatives ADV for IIFL. Consequently, blended yields declined 20 bps qoq and 50 bps yoy to 1.7%. This was driven by general pressure on yields as well as lower share of delivery volumes during the quarter.

38 KOTAK INSTITUTIONAL EQUITIES RESEARCH IIFL Holdings NBFCs

Exhibit 15: Cash equity market volume increased 30% yoy in 4QFY18 Average daily volumes on BSE and NSE, March fiscal year-ends, 2008-2018 (` bn)

Volumes in cash market BSE NSE Total YoY F&O- NSE YoY Total vol. YoY Period (Rs bn) (Rs bn) (Rs bn) (%) (Rs bn) (%) (Rs bn) (%) 2008 62 144 205 78 530 77 735 77 2009 45 113 158 (23) 453 (15) 611 (17) 2010 56 168 224 41 717 58 941 54 2011 44 141 184 (18) 1,148 60 1,332 42 2012 26 113 139 (25) 1,269 11 1,408 6 2013 32 127 158 (15) 1,306 56 1,465 43 2014 21 112 133 2 1,530 21 1,663 19 2015 36 181 217 63 2,327 52 2,544 53 1QFY16 26 177 203 (10) 2,700 45 2,903 39 2QFY16 28 177 205 (5) 2,602 9 2,807 8 3QFY16 27 163 189 (4) 2,236 (5) 2,425 (5) 4QFY16 28 173 201 (12) 3,012 12 3,212 10 1QFY17 26 174 200 (2) 2,983 10 3,183 10 2QFY17 34 216 249 21 3,762 45 4,011 43 3QFY17 29 195 224 18 4,036 80 4,259 76 4QFY17 65 232 298 48 4,469 48 4,767 48 1QFY18 41 254 295 48 5,367 80 5,662 78 2QFY18 38 270 308 23 6,259 66 6,567 64 3QFY18 46 312 358 60 6,806 69 7,164 68 4QFY18 45 342 386 30 8,249 85 8,635 81

Source: BSE, NSE, Kotak Institutional Equities

Exhibit 16: Equity market volumes were strong in FY2018 Volumes on BSE and NSE, March fiscal year-ends, 1996-4QFY18 (` bn)

Volumes (CM) (LHS) Volumes (F&O) (LHS) Volume growth (CM) (RHS) Volume growth (F&O) (RHS) 9,000 500

7,500 400

6,000 300

4,500 200

3,000 100

1,500 -

- (100)

1996 2000 2001 2002 2003 2007 2008 2009 2010 2014 2015 2016 1997 1998 1999 2004 2005 2006 2011 2012 2013

1QFY17 2QFY18 3QFY18 4QFY18 3QFY17 4QFY17 1QFY18 2QFY17

Source: BSE, NSE, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39 NBFCs IIFL Holdings

Exhibit 17: IIFL Holdings is currently trading at 22.6X one-year forward EPS IIFL Holdings - Rolling PER (X)

25

20

15

10

5

-

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16 Apr-17 Apr-18

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Exhibit 18: IIFL Holdings – summary of estimate changes March fiscal year-end, 2019E-21E (Rs mn)

New estimates Old estimates New vs old (%) 2019E 2020E 2021E 2019E 2020E 2019E 2020E Income (inclduing NII) 44,194 50,657 57,408 47,562 55,750 (7) (9) Broking and related income 7,885 9,164 10,660 8,119 9,085 (3) 1 Insurance and wealth management 10,582 11,853 13,433 11,616 13,665 (9) (13) Net interest income 25,566 29,480 33,156 27,667 32,840 (8) (10) Other income 160 160 160 160 160 — — Operating expenses 24,566 26,859 29,610 28,117 32,448 (13) (17) Brokerage/ direct expenses 6,052 6,355 6,673 7,205 8,286 (16) (23) Employee expenses 12,199 13,663 15,029 13,360 16,032 (9) (15) Others expenses 6,314 6,841 7,908 7,552 8,130 (16) (16) PBT 19,628 23,798 27,798 19,444 23,303 1 2 Tax 5,888 7,139 8,339 6,222 7,457 (5) (4) PAT 13,740 16,658 19,459 13,222 15,846 4 5 Minority interest 3,052 3,683 4,353 2,623 3,198 16 15 PAT (after minority interest) 10,688 12,976 15,106 10,600 12,648 1 3 EPS (Rs/ share) 33.5 40.7 47.4 33.3 39.8 0 2

Loan book (Rs bn) 318 370 431 305 364 4 2 PBT/ total income (%) 44 47 48 41 42 Cost/ income (%) 56 53 52 59 58

Source: Kotak Institutional Equities estimates

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH IIFL Holdings NBFCs

Exhibit 19: IIFL Holdings – key ratios and growth rates March fiscal year-ends, 2016-21E (%)

2016 2017 2018E 2019E 2020E 2021E Key parameters Volume in equity markets (Rs bn) 697,301 1,003,893 1,722,217 2,014,994 2,317,243 2,664,829 IIFL's volumes (Rs bn) 16,818 22,066 34,645 40,642 47,681 55,945 Per day (Rs bn) 74 96 163 192 225 265 Market share (%) 2.4 2.2 2.0 2.0 2.1 2.1 Commission yield (bps) 2.37 2.27 1.85 1.85 1.85 1.84 Key ratios Yield on loans (%) 16.0 16.2 15.3 14.6 14.4 14.1 Cost of borrowings (%) 11.0 10.4 9.1 9.2 9.2 9.2 Spread (%) 5.0 5.8 6.3 5.4 5.2 5.0 Total operating costs/ total income (%) 58.0 48.1 46.6 45.5 43.6 41.9 PBT margins (%) 20.5 24.9 25.8 25.6 26.9 27.2 YoY growth (%) Total revenues 12 20 31 19 15 15 Brokerage commission (5) 26 28 17 17 17 Life insurance distribution fees (9) (8) 94 1 15 15 Media income (16) (37) 22 15 15 15 Operating costs 5 (3) 32 12 10 9 EBIT 17 32 28 22 18 18 Interest and finance charges 17 25 24 25 16 18 Profit before tax 16 46 36 18 21 17 Net profit 14 34 33 17 21 16 Dividend 41 8 34 17 21 16 EPS 12 34 32 17 21 16 Growth in balance sheet line items Total assets 18 31 32 16 17 19 Shareholders equity 14 50 16 16 17 17 Contribution to total revenues(%) Commission on equity broking 9.7 10.2 9.9 9.8 10.0 10.1 Brokerage in commodities 0.1 0.1 0.1 0.1 0.1 0.1 Fees earned on distribution (MF) 0.3 0.2 0.1 0.1 0.1 0.1 Life insurance commissions 1.5 1.1 1.7 1.4 1.4 1.4 Other mortgage and loan distribution 13.7 12.7 12.4 11.7 11.3 11.1 Interest earned on margin trading/ finance income 72.5 73.7 74.1 75.7 76.0 76.2 Merchant banking income 0.5 1.0 1.1 0.4 0.3 0.3 Media and other income 1.3 0.7 0.6 0.6 0.6 0.6 Du pont analysis (% of average assets) Net brokerage revenue 0.2 0.5 0.2 0.4 0.5 0.6 Income from distribution 3.0 2.6 2.6 2.4 2.3 2.2 Other income 14.5 14.1 14.1 13.8 13.8 13.5 Operating costs 13.7 12.6 12.1 12.0 11.7 11.5 (1-tax rate) 65.8 67.2 69.7 70.0 70.0 70.0 RoA (%) 2.6 3.1 3.3 3.2 3.4 3.3 Average assets/ average equity (X) 6.1 5.4 5.7 6.0 5.9 6.0 RoE (%) 16.0 16.9 19.0 19.3 20.0 19.9

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 41 NBFCs IIFL Holdings

Exhibit 20: IIFL Holdings – income statement and balance sheet March fiscal year-ends, 2016-21E (` mn)

2016 2017 2018E 2019E 2020E 2021E Consolidated income statement Total revenues 41,016 49,248 64,591 76,664 88,401 102,015 Commission on equity broking 3,987 5,013 6,417 7,537 8,806 10,291 Brokerage in commodities 60 40 40 48 58 69 Fees earned on distribution (MF) 140 120 40 46 53 61 Life insurance commissions 613 564 1,095 1,103 1,271 1,462 Wealth management/ distribution 5,610 6,264 8,037 8,970 9,997 11,298 Interest income 29,754 36,294 47,861 58,037 67,224 77,762 Media income 526 330 402 463 532 612 Merchant banking income 210 500 700 300 300 300 Other income 116 124 (0) 160 160 160 Operating costs 14,045 13,627 18,013 20,101 22,103 24,052 Brokerage/ direct expenses 3,583 3,603 5,764 6,052 6,355 6,673 Business promotion and marketing 284 299 388 446 513 590 Staff expenses 7,045 7,840 10,608 12,199 13,663 15,029 Administrative expenses 3,133 1,885 1,253 1,403 1,571 1,760 Provisions 1,087 1,896 3,277 3,727 3,944 4,665 EBITDA 25,884 33,725 43,301 52,836 62,354 73,297 Depreciation/Amortization 661 540 671 738 812 893 EBIT 25,223 33,185 42,630 52,098 61,542 72,404 Interest and finance charges 16,800 20,922 25,954 32,470 37,744 44,606 Profit before tax 8,423 12,263 16,676 19,628 23,798 27,798 Taxation 2,878 4,018 5,056 5,888 7,139 8,339 Net profit 5,545 8,222 11,620 13,740 16,658 19,459 Minority interest in loss/profit 433 1,361 2,508 3,052 3,683 4,353 Net profit for appropriation 5,112 6,861 9,112 10,688 12,976 15,106 Dividend 1,345 1,449 1,945 2,286 2,775 3,230 Adjusted number of shares 317 318 319 319 319 319 EPS (Rs) 16.1 21.6 28.6 33.5 40.7 47.4 EPS -fully diluted (Rs) 14.8 19.8 26.2 30.8 37.4 43.5 DPS (Rs) 4.3 4.6 6.1 7.2 8.7 10.1 DPS -fully diluted (Rs) 3.9 4.2 5.6 6.6 8.0 9.3 Dividend payout ratio(%) 25 25 25 25 25 25 BVPS (Rs) 92.2 137.8 158.8 183.9 214.4 250.0 BVPS -fully diluted (Rs) 84.7 126.6 145.9 169.0 197.0 229.6 Consoidated balance sheet (Rs mn) Goodwill (on consolidation) 578 637 — — — — Net owned assets 4,805 6,766 7,899 3,648 4,087 4,643 Current Assets 25,607 27,446 21,815 25,042 26,906 34,693 Cash and bank balance 16,288 17,195 10,540 12,639 13,263 19,685 Loans and advances 177,695 228,962 343,167 402,147 474,375 562,246 Total assets 228,765 299,672 395,398 456,732 535,146 635,828

Borrowings 159,476 243,304 329,734 380,000 445,000 530,000 Current liabilities & prov. 28,332 — — — — — Total liabilities 187,808 243,304 329,734 380,000 445,000 530,000 Shareholders equity 29,200 43,816 50,661 58,677 68,409 79,738 Paid-up capital 633 636 638 638 638 638 Reserves and surplus 28,566 43,180 50,023 58,039 67,771 79,100

Source: Company, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Castrol India (CSTRL) Energy MAY 07, 2018 RESULT Coverage view: Attractive

In-line results. Castrol’s results were in line with our estimates, as modestly lower Price (`): 185 growth in volumes was offset by slightly higher margins due to cost controls. We retain Target price (`): 215 ADD with a TP of `215 (`220 previously), expecting the company to deliver 11% CAGR BSE-30: 34,915 in EPS over the next three years and high single-digit growth in earnings in the long term despite muted growth in volumes. Any sharp spike in base oil prices is a near-term risk to our view, although Castrol has demonstrated strong pricing power historically.

Company data and valuation summary Castrol India Stock data Forecasts/Valuations 2018 2019E 2020E 52-week range (Rs) (high,low) 226-172 EPS (Rs) 6.9 7.8 8.7 Market Cap. (Rs bn) 182.4 EPS growth (%) 3.3 13.6 10.9 Shareholding pattern (%) P/E (X) 26.9 23.7 21.3 Promoters 51.0 Sales (Rs bn) 35.8 39.9 43.5 FIIs 9.9 Net profits (Rs bn) 6.8 7.7 8.6 MFs 5.3 EBITDA (Rs bn) 10.3 11.6 12.9 Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.9 14.9 13.4 Absolute (11.1) 2.8 (14.9) ROE (%) 67.9 73.6 78.6 Rel. to BSE-30 (15.9) 3.2 (26.6) Div. Yield (%) 2.6 3.2 3.8

Muted 2.6% growth in volumes offset by robust EBITDA margins at 29.6%

Castrol’s results were broadly in line with our estimates in 1QCY18 as modestly lower-than-expected 2.6% yoy growth in volumes to 51.5 mn liters was offset by higher-than-expected EBITDA margins at 29.6% (-200 bps qoq). Employee cost and other expenses were both below our estimate, indicating cost controls amid a rising RM environment. A sharp 23% yoy jump in other income to `228 mn was offset by a 16% yoy increase in depreciation to `143 mn. Reported net income was in line with our estimate, increasing by 1.6% yoy to `1.82 bn (EPS of `1.8).

 Subdued 2.6% growth in volumes. Castrol’s revenues increased by 5% yoy to `9.27 bn in 1QCY18, led by 2.6% yoy growth in volumes to 51.5 mn liters and 0.9% sequential increase in realizations to `180/liter. Personal mobility and CVO segments recorded mid-single digit growth in volumes, while industrial segment saw a decline. We expect the company to deliver 3-4% growth in volumes in CY2018-19E, even as the quarterly print may look volatile due to a sharply lower base of 2QCY17 and subsequent higher base of 2HCY17.

 Expected moderation in margins to 29.6%. EBITDA increased by 4% yoy to `2.7 bn, 1% above our estimate, as sequential 110 bps moderation in gross margins was offset by lower- than-expected employee cost and other expenses. Gross contribution declined 1.1% qoq to `96.6/liter, as a 3.3% qoq increase in RM cost was offset by 1% increase in realization. The company undertook a 3-4% price hike in February, which will be reflected fully in the current quarter. Unit EBITDA declined by 5.5% qoq to `53.3/liter, 1.7% ahead of our estimate due to lower employee cost and other expenditure.

Modest 1% cut in CY2018-19 EPS estimates; near-term risk from spike in crude/base oil prices Tarun Lakhotia We cut our EPS estimates by ~1% for CY2018-19, as we factor in modestly lower volumes and margins versus our earlier assumptions. We retain ADD with a revised TP of `215 (`220 earlier), at 25X CY2019E EPS, expecting the company to deliver high single-digit growth in earnings in the Akshay Bhor long term, driven by modest growth in volumes and enhancement of unit profitability. A sharp spike in crude/base oil prices is a key risk to our near-term estimates and positive view on the stock, although Castrol has established strong pricing power in the lubricants industry historically by increasing or maintaining its unit profitability/margins even in adverse crude price environment.

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

Exhibit 1: Interim results of Castrol, calendar year-ends (Rs mn)

(% chg.) yoy 1QCY18 1QCY18E 1QCY17 4QCY17 1QCY18E 1QCY17 4QCY17 CY2018E CY2017 (% chg.) Net sales 9,271 9,281 8,822 9,703 (0.1) 5.1 (4.5) 39,904 35,843 11.3 Raw materials 4,294 4,240 4,042 4,388 1.3 6.2 (2.1) 18,654 16,660 12.0 Employees 469 520 498 507 (9.9) (5.8) (7.5) 2,044 1,956 4.5 Other expenses 1,765 1,814 1,649 1,742 (2.7) 7.0 1.3 7,574 6,897 9.8 Total expenditure 6,528 6,574 6,189 6,637 (0.7) 5.5 (1.6) 28,272 25,513 10.8 EBITDA 2,743 2,707 2,633 3,066 1.3 4.2 (10.5) 11,631 10,330 12.6 Other income 228 180 185 164 26.4 23.2 39.0 712 651 9.4 Interest 7 3 3 6 14 12 Depreciation 143 118 123 103 21.6 16.3 38.8 521 455 14.6 Pre-tax profits 2,821 2,767 2,692 3,121 1.9 4.8 (9.6) 11,808 10,514 12.3 Extraordinaries — — — — — 186 Current tax 1,020 977 917 1,026 4.4 11.2 (0.6) 4,183 3,651 14.6 Deferred tax (17) (20) (15) 128 (97) 131 Net income 1,818 1,810 1,790 1,967 0.5 1.6 (7.6) 7,721 6,918 11.6 Adjusted net income 1,818 1,810 1,790 1,967 0.5 1.6 (7.6) 7,721 6,798 13.6 Effective tax rate (%) 35.6 34.6 33.5 37.0 34.6 35.3 Adjusted EPS (Rs) 1.8 1.8 1.8 2.0 0.5 1.6 (7.6) 7.8 6.9 13.6

Other details Sales volumes (mn liters) 51.5 51.7 50.2 54.4 (0.4) 2.6 (5.3) 211.8 204.6 3.5 Gross realization (Rs/liter) 180.0 179.5 175.7 178.4 0.3 2.4 0.9 188.4 175.2 7.5 Raw material (Rs/liter) 83.4 82.0 80.5 80.7 1.7 3.6 3.3 88.1 81.4 8.1 Contribution (Rs/liter) 96.6 97.5 95.2 97.7 (0.9) 1.5 (1.1) 100.3 93.8 7.0 EBITDA (Rs/liter) 53.3 52.4 52.5 56.4 1.7 1.5 (5.5) 54.9 50.5 8.8 Gross margin (%) 53.7 54.3 54.2 54.8 (63)bps (50)bps (109)bps 53.3 53.5 (27)bps EBITDA margins (%) 29.6 29.2 29.8 31.6 42 bps (26)bps (201)bps 29.1 28.8 33 bps

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Muted growth in volumes during 1QCY18 Quarterly volumes, Calendar year-ends, 2008-18YTD (mn liters)

1Q 2Q 3Q 4Q Sales volumes (mn liters) 2008 54.3 63.9 50.6 46.0 2009 45.2 56.0 50.7 53.7 2010 54.6 60.2 50.4 53.8 2011 55.9 54.1 46.0 51.8 2012 52.6 56.7 46.1 48.5 2013 50.1 54.1 44.8 47.8 2014 48.8 53.3 45.6 48.2 2015 46.0 53.7 45.3 46.1 2016 50.1 56.5 45.7 47.0 2017 50.2 50.9 49.1 54.4 2018 51.5 Growth (% yoy) 2008 6 3 1 (17) 2009 (17) (12) 0 17 2010 21 8 (1) 0 2011 2 (10) (9) (4) 2012 (6) 5 0 (6) 2013 (5) (5) (3) (1) 2014 (3) (1) 2 1 2015 (6) 1 (1) (4) 2016 9 5 1 2 2017 0 (10) 7 16 2018 3

Source: Company, Kotak Institutional Equities

44 KOTAK INSTITUTIONAL EQUITIES RESEARCH Castrol India Energy

Exhibit 3: Base oil prices have remained steady despite an increase in global crude prices in recent months Singapore base oil price (US$/ton)

(US$/ton) Bright Stock SN 500 1,400

1,200

1,000

800

600

400

200

-

Jul-15

Jul-16

Jul-17

Jan-15

Jan-16

Jan-17

Jan-18

Jun-15

Jun-16

Jun-17

Oct-15

Oct-16

Oct-17

Feb-15

Feb-16

Feb-17

Feb-18

Apr-15

Sep-15

Apr-16

Sep-16

Apr-17

Sep-17

Apr-18

Dec-15

Dec-16

Dec-17

Nov-15

Nov-16

Nov-17

Mar-15

Mar-16

Mar-17

Mar-18

Aug-15

Aug-16

Aug-17

May-15 May-16 May-17

Source: ICIS, Kotak Institutional Equities

Exhibit 4: We expect 3-4% growth in volumes and 29-30% EBITDA margins Key assumptions, calendar year-ends, 2012-19E

2013 2014 2015 2016 2017 2018E 2019E 2020E Macro assumptions Exchange rate (Rs/US$) 58.0 61.0 64.1 67.2 65.1 65.9 67.5 68.5 Global base oil (US$/ton) 1,032 1,029 705 565 667 742 752 762 Domestic base oil (Rs/liter) 62.9 66.0 47.5 39.9 45.6 51.4 53.4 54.9 Change (%) (2.4) 4.8 (28.0) (15.9) 17.9 11.3 1.3 1.3 Realization (Rs/liter) Gross realization [A] 161.5 173.1 172.6 169.0 175.2 188.4 196.8 204.7 Change (%) 5.5 7.2 (0.3) (2.1) 3.7 7.5 4.5 4.0 Raw material cost [B] 93.0 98.1 82.6 77.6 81.7 88.1 91.6 94.9 Change (%) 3.8 5.5 (15.9) (6.1) 5.3 7.8 4.1 3.6 Gross contribution [A] - [B] 68.6 75.0 90.0 91.5 93.5 100.3 105.2 109.7 Gross margins (%) 42.4 43.3 52.2 54.1 53.4 53.3 53.4 53.6 EBITDA 34.9 36.6 46.8 50.1 50.5 54.9 58.2 61.3 EBITDA margin (%) 21.6 21.1 27.1 29.7 28.8 29.1 29.6 30.0 Volume (Kilo liters) Non-automotive grades 26,718 27,974 26,015 27,706 27,249 27,522 28,623 29,768 Automotive grades 163,947 161,816 159,065 165,427 171,052 177,894 185,899 194,265 Traded items 6,155 6,140 6,035 6,277 6,277 6,402 6,690 6,991 Total 196,820 195,929 191,115 199,410 204,578 211,818 221,212 231,023 Growth (%) (3.5) (0.5) (2.5) 4.3 2.6 3.5 4.4 4.4

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 45 Energy Castrol India

Exhibit 5: Castrol is trading at a discount to FMCG sector stocks, given muted volume/earnings growth Valuation summary of consumer sector companies, March fiscal year-ends, 2018-20E

4-May-18 Mkt cap. EPS growth (%) P/E (X) Company Price (Rs) (US$ mn) 2018E 2019E 2020E 2018E 2019E 2020E Asian Paints 1,190 17,071 6.1 14.5 14.7 56.0 48.9 42.6 Castrol India (a) 185 2,728 3.3 13.6 10.9 26.9 23.7 21.3 Colgate-Palmolive (India) 1,098 4,466 16.4 19.1 19.0 45.7 38.4 32.3 Dabur India 370 9,753 7.2 16.1 11.7 47.7 41.0 36.8 GlaxoSmithKline Consumer 5,901 3,710 2.0 14.5 11.5 37.1 32.4 29.0 Godrej Consumer Products 1,107 11,278 14.4 14.8 14.4 50.6 44.1 38.5 Hindustan Unilever 1,464 47,381 19.0 17.4 12.3 62.7 53.4 47.5 ITC 277 50,560 8.9 10.0 11.7 30.8 28.0 25.1 Jubilant Foodworks 2,567 2,532 172.6 58.2 35.7 89.6 56.7 41.8 Marico 317 6,115 7.4 16.7 13.7 50.6 43.3 38.1 Nestle India 9,111 13,133 21.1 28.1 13.5 71.7 56.0 49.3 Pidilite Industries 1,071 8,127 6.6 22.5 16.7 59.9 48.9 41.9 Tata Global Beverages 288 2,715 33.9 26.6 22.2 35.3 27.9 22.8 Titan Company 958 12,716 31.7 32.5 21.7 81.5 61.5 50.6 Median 11.6 17.1 14.0 50.6 43.7 38.3

Notes: (a) Calendar year-ends, i.e. FY2018 represents CY2017.

Source: Kotak Institutional Equities estimates

Exhibit 6: Castrol stock is trading at 23X forward EPS 12-month forward P/E for Castrol India (X)

(X) CSTRL 12-month forward P/E 50 45 40 35 30 25 Five-year average P/E 20 15 10 5

-

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16 Jan-17 Jan-18

Source: Bloomberg, Company, Kotak Institutional Equities estimates

46 KOTAK INSTITUTIONAL EQUITIES RESEARCH Castrol India Energy

Exhibit 7: Profit model, balance sheet, cash model, calendar year-ends, 2012-19E (Rs mn)

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E Profit model (Rs mn) Net sales 31,209 31,796 33,923 32,980 33,703 35,843 39,904 43,539 47,280 EBITDA 6,226 6,875 7,167 8,949 9,994 10,331 11,631 12,873 14,171 Other income 722 836 481 646 681 651 712 798 831 Interest (18) (17) (24) (8) (15) (12) (14) (17) (21) Depreciation (266) (305) (361) (390) (450) (455) (521) (556) (590) Pretax profits 6,663 7,390 7,263 9,197 10,210 10,515 11,808 13,098 14,391 Extraordinaries — 228 — 313 193 186 — — — Current tax (2,278) (2,411) (2,606) (3,238) (3,880) (3,651) (4,183) (4,633) (5,086) Deferred tax 89 (121) 89 (119) 181 (131) 97 100 105 Adjusted net profits 4,474 4,933 4,746 5,950 6,579 6,798 7,721 8,565 9,411 Earnings per share (Rs) 4.5 5.0 4.8 6.0 6.7 6.9 7.8 8.7 9.5

Balance sheet (Rs mn) Total equity 6,492 7,514 4,968 5,756 9,815 10,202 10,780 11,012 11,494 Deferred taxation liability (651) (530) (618) (499) (672) 188 91 (9) (115) Total borrowings — — — — — — — — — Currrent liabilities 8,303 8,636 9,951 10,860 9,740 9,380 11,194 11,882 12,580 Total liabilities and equity 14,145 15,621 14,300 16,117 18,883 19,770 22,065 22,885 23,959 Cash 5,746 5,942 4,315 6,965 8,219 7,842 9,154 9,458 10,037 Current assets 6,828 7,925 8,108 7,300 8,822 9,965 11,081 11,751 12,437 Total fixed assets 1,571 1,753 1,877 1,853 1,842 1,962 1,831 1,675 1,485 Investments — — — — — — — — — Total assets 14,145 15,621 14,300 16,117 18,883 19,770 22,065 22,885 23,959

Free cash flow (Rs mn) Operating cash flow, excl. working capital 4,428 4,704 4,873 6,262 6,372 6,727 7,434 8,222 9,064 Working capital 223 (756) 580 1,128 252 (645) 698 18 11 Capital expenditure (348) (260) (504) (370) (358) (563) (390) (400) (400) Free cash flow 4,303 3,688 4,950 7,020 6,266 5,519 7,742 7,840 8,676 Investments — — — — (492) 1,633 — — — Other income 356 559 366 392 520 444 712 798 831

Ratios (%) RoAE 79.0 79.3 83.7 128.1 93.1 70.8 72.6 78.3 84.1 RoACE 79.3 77.1 84.0 124.0 91.5 69.7 72.7 78.4 84.2

Assumptions Volume (mn liters) 203.9 196.8 195.9 191.1 199.4 204.6 211.8 221.2 231.0 Gross realization (Rs/liter) 153.1 161.5 173.1 172.6 169.0 175.2 188.4 196.8 204.7 Gross contribution (Rs/liter) 63.4 68.6 75.0 90.0 91.5 93.5 100.3 105.2 109.7 EBITDA margins (%) 19.9 21.6 21.1 27.1 29.7 28.8 29.1 29.6 30.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 47 REDUCE PVR (PVRL) Media MAY 07, 2018 RESULT Coverage view: Attractive

Stepping up its game. PVR reported 68% yoy growth in EBITDA, 12% ahead of our Price (`): 1,425 estimate, led by the success of the deferred blockbuster movie ‘Padmaavat’. The Target price (`): 1,425 company is stepping up the pace of screen additions, upgradation of its existing screen BSE-30: 34,915 portfolio and is gearing to participate in the final leg of industry consolidation. This augurs well for revenue and EBITDA growth and can potentially expand PVR’s lead over competition but push back FCF generation by 2-3 years. At 12X FY2020E, the stock is fairly valued.

Company data and valuation summary PVR Stock data Forecasts/Valuations 2018 2019E 2020E 52-week range (Rs) (high,low) 1,601-1,142 EPS (Rs) 26.8 37.5 50.0 Market Cap. (Rs bn) 66.6 EPS growth (%) 25.5 39.8 33.2 Shareholding pattern (%) P/E (X) 53.1 38.0 28.5 Promoters 20.3 Sales (Rs bn) 23.5 27.9 33.1 FIIs 43.6 Net profits (Rs bn) 1.3 1.8 2.3 MFs 9.7 EBITDA (Rs bn) 4.2 5.1 6.3 Price performance (%) 1M 3M 12M EV/EBITDA (X) 17.7 14.6 12.1 Absolute 13.1 9.5 (7.4) ROE (%) 12.3 15.2 17.5 Rel. to BSE-30 6.9 9.9 (20.1) Div. Yield (%) 0.1 0.3 0.4

4QFY18—defying seasonal weakness; key metrics (except footfalls) tracking well PVR reported its strongest March quarter in the past seven years thanks to the deferred release of the blockbuster movie 'Padmaavat’ and good box office performance of a few other movies. Most metrics that indicate PVR’s execution were solid—(1) ATP at `209 (+10% yoy), (2) SPH at `87 (+12% yoy) and (3) ad revenues `720 mn (+37 yoy). Headline footfalls grew 4% yoy to 19 mn. The disappointing bit was the 2% yoy decline in footfalls on same-store basis despite a solid movie line-up; PVR partly attributed it to a strike in South India during 4Q. EBITDA at `983 mn was 12% ahead of our estimate led by the revenue beat; EBITDA margin at 16.7% (KIE15.5%) was up 490 bps yoy. Net profit was `262 mn as against a loss of `1 mn in 4Q last year. For full year FY2018, EBITDA/PAT grew 17%/30% yoy whereas footfall growth was modest at 1%. Acceleration in screen addition and portfolio premiumisation PVR has guided for (1) 90+ screen openings in FY2019E versus an average of 45 screens/year over FY2014-18. The high screen addition rate can sustain for 2-3 years; it is driven by pickup in mall development activity and more screens per mall, (2) accelerated upgradation of its screen portfolio to increase premium format screens (such as Gold class) to 20%+ of total screens from 9% at present, (3) capex of `4-4.5 bn/year (50% above usual run rate) over the next two years in view of #1 and #2. Further, PVR’s board has approved fund raising of upto `10 bn via NCDs (enabling resolution). PVR is preparing for acquisition opportunities that come its way as the multiplex industry goes through another round of consolidation over the next 1-2 years. It looks like PVR is on track to meet its target of 1,000 screens (625 at present) in the next 3-4 years. Upgrade EBITDA by 6% and tweak EPS. Stock is fairly valued; await better entry point We raise PVR’s FY2019-20E EBITDA by 6% as we model: (1) higher screen openings (85 screens/year from 55 earlier), (2) higher convenience fee in view of upcoming renewals with Bookmyshow and PayTM, (3) slightly higher ATP and ad revenues (benefit of premiumisation Jaykumar Doshi drive). Our FY2020E EPS declines marginally as EBITDA upgrade is more than offset by higher depreciation and interest costs. We value PVR at 12X FY2020E EV/EBITDA; raise TP to `1,425 from `1,350 (led by EBITDA upgrade). We like PVR’s execution and industry leadership, and believe it may race ahead (expand lead over competition) over the next 2-3 years. However, we do not see a case of re-rating given regulatory risks and threat from OTT platforms that the business faces. Stock is fairly valued and we would wait for a better entry price.

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

PVR’s expansion and premiumisation drive—understanding opportunities and risks

 Organic screen addition. As PVR is stepping up the pace of organic screen openings, three questions that come up are:

(1) Quality/location of new screens and dilutive impact on ATP, SPH and ad revenue/screen, if any? As 75% of the screen openings in FY2019E will be in tier-I or tier-II cities and it is unlikely to put pressure on ATP, SPH or ad revenues/screen.

(2) Will it result in cannibalization of footfalls? About 45% of screens to be opened in FY2019E are in South where penetration of multiplexes is relatively low and there is an opportunity to gain share from single screens. That said, some cannibalization of footfalls from PVR’s existing screens and other multiplexes cannot be ruled out.

(3) Will competitive intensity rise? We expect some pick up in organic screen additions of INOX and Cinepolis as well, over the next 2-3 years. Given this, it has to be seen whether acceleration in screen additions puts any pressure on occupancy of the industry especially as we may see some change in consumption patterns with led by digital (most movies will be available on OTT after 2 months of theatrical release).

 Accelerated premiumisation of existing screen portfolio. PVR plans to upgrade its screen portfolio and increase premium format screens (such as Gold class) to 20% of total screens from 9% at present. The idea is to have a mix of Gold class (premium services, recliner seats at about 2X price) and regular screens at all prominent properties just the same way as airlines have ‘business class’ and ‘economy class’ sections on the same flight. PVR’s experience indicates that demand for ‘premium class’ is higher than the existing supply and RoI of premium screens justifies upgrade of 1 or 2 screens at several multiplex properties. Two questions that come up are:

. Is this a one-time exercise or will refurbishing cost/maintenance capex remain elevated? We believe PVR may upgrade a few screens ahead of regular refurbishment cycle (7-9 years) in view of this premiumisation drive. From long-term perspective, refurbishment cycle may shorten if technology advancement happen at a rapid pace.

. Is the demand for ‘premium’ experience big enough; what if all of the top-3 players embark on similar premiumisation drives? We note that peer INOX has upped its game and has upgraded several properties in the recent past. We will have to closely track renovations of PVR, INOX and Cinepolis to better understand supply side dynamics of ‘premium formats’. If supply exceeds demand, it can put pricing pressure in the near term.

 Inorganic opportunities. Standalone multiplexes or smaller multiplex chains are finding it difficult to operate profitably and compete with large chains. It is likely that several such properties will be up for sale over the next 1-2 years especially as prevailing valuations are tempting for a small player looking to exit. Key questions that come up are

. How does PVR intend to fund acquisitions; are PVR’s promoters open to further equity dilution. We believe that a small acquisition may be completely funded by debt (PVR has passed enabling resolution to raise up to `10 bn through NCDs for acquisition and some debt refinancing). In the event of a large acquisition (say about `6-7 bn+ or multiple acquisitions), PVR promoters may dilute further (promoter shareholding is about 20% at present).

. The size of acquisitions and valuations that PVR may pay; will it generate value for investors? We believe that other than SPI cinemas (Tamil Nadu’s premium multiplex chain), consideration required to acquire most other small multiplex chains will be

KOTAK INSTITUTIONAL EQUITIES RESEARCH 49 Media PVR

under `5 bn. SPI cinemas acquisition can be around `1 bn or more (as per unauthentic media articles, PVR had looked at this chain in the past and engaged with its owners). We believe sellers owning good multiplex properties are expecting 10-12X 1-2 year forward ‘potential’ EBITDA, just marginally lower than PVR’s prevailing valuations and perhaps higher than INOX’s valuations. Acquisitions at such valuations may not create any value for the investors in the near term.

To sum it up, we believe PVR may potentially race ahead of competition (widen revenue and screen gap versus competition) over the next 2-3 years. Whether or not this strategy pays off in terms of RoIs in medium-term will be a function of (1) theatrical consumption trends as digital ecosystem evolves, and (2) response and strategy of PVR’s competition (INOX and Cinepolis). Premiumisation gains can fall short of expectation if all the top three multiplex players pursue aggressive upgradation thus competing for a relatively small and limited premium audience segment.

Key highlights from 4QFY18 results and conference call

 Footfalls grew 4% yoy to 19 mn (KIE 18.8 mn)—Comparable properties’ (SSG) footfalls declined 2% yoy. Key movies during the quarter were ‘Padmaavat’, ‘Sonu Ke Titu Ki Sweety’, ‘Raid’,’ Padman’, ‘Black Panther’ and spillover of ‘Tiger Zinda hain’ as against ‘Raees’, ‘Badrinath Ki Dulhania’, ‘Jolly LLB 2’, ‘Kaabil’ and spillover of ‘Dangal’ in 4Q last year

 Average ticket price (ATP) grew 10% yoy to `209; ATP growth for comparable properties was 9%

 F&B spends per head (SPH) increased 12% yoy to `87; F&B gross margin was steady at 73.6%

 Ad revenues grew 37% yoy; ad revenue growth for comparable properties was solid 31% yoy partly driven by blockbuster movie ‘Padmaavat’

 FY2018 roundup—Footfalls grew 1.1% (SSG -6%); ATP grew 7% to `210 (SSG 7%); SPH was up 11% (SSG 10%) and ad revenue/screen increased 20% yoy. Revenues grew 9%, EBITDA growth was higher at 15% and net profit at `1.25 bn increased 33% yoy. Balance sheet—net debt increased by `793 mn to `7.96 bn. Capex for the year was about `3.5 bn. PVR added 46 screens (net of closure of three screens) during FY2018.

 Screen addition guidance. PVR has guided 90+ screen additions in FY2019; break-up: (1) tier-wise—40+ in tier-I (top 8-10 cities), 29+ in tier-II (next 30-35 cities) and 21+ in tier-III, (2) region-wise—41+ in South, 34+ in North, 11+ in West and 4+ in East. We note that PVR has missed screen addition guidance by 20%+ over the past 3-4 years due to unanticipated delays (usually in license procurement). The management has indicated that (1) 23 screens are ready and awaiting licenses, (2) 58 screens are under fit-out and expected to be completed in the next 5-8 months, (3) 50-60 screens are expected to be handed over for fit out in FY2019. It looks like the company has kept adequate buffer in FY2019 guidance.

 We note that PVR has not included state government subsidy (potentially `100-120 mn over 2Q-4QFY18) pertaining to tax exemptions due to lack of clarity on the refund mechanism under GST. PVR management has made representations to most state governments and is awaiting response.

 Average capex per new screen is about `30 mn. Upgradation (renovation) capex will be around `1.25 bn; PVR renovated 17-18 properties in FY2018 and it intends to upgraded about 12-15 properties in FY2019

50 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

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

% chg. 4QFY18 4QFY18E 4QFY17 3QFY18 KIE yoy qoq FY2018 FY2017 % chg. FY2019E % chg. Total revenues 5,888 5,651 4,942 5,577 4 19 6 23,534 21,564 9 27,865 18 Ticket sales 3,124 3,027 2,646 2,931 3 18 7 12,481 11,172 12 14,541 17 F&B sales 1,571 1,547 1,285 1,438 2 22 9 6,077 5,505 10 7,719 27 Advertising 720 712 527 867 1 37 (17) 2,949 2,450 20 3,527 20 Convenience fees 145 150 147 143 (4) (2) 1 597 582 3 767 28 Other operating revenues 329 215 336 200 53 (2) 65 1,431 1,854 (23) 1,310 (8) Total expenditure (4,905) (4,774) (4,358) (4,569) 3 13 7 (19,368) (17,991) 8 (22,716) 17 Film hire costs (1,271) (1,362) (1,118) (1,323) (7) 14 (4) (5,377) (4,639) 16 (6,301) 17 F&B consumption (414) (402) (335) (379) 3 24 9 (1,591) (1,402) 13 (1,930) 21 Employee expenses (653) (625) (538) (622) 4 21 5 (2,541) (2,205) 15 (3,002) 18 Rent (1,061) (1,030) (1,005) (994) 3 6 7 (4,111) (3,847) 7 (4,918) 20 Other expenses (1,506) (1,355) (1,362) (1,252) 11 11 20 (5,749) (5,899) (3) (6,565) 14 EBITDA 983 876 584 1,008 12 68 (2) 4,166 3,572 17 5,149 24 EBITDA Margin (%) 16.7 15.5 11.8 18.1 17.7 16.6 18.5 Other income 36 35 55 27 3 (35) 31 120 188 (36) 150 25 Finance costs (210) (200) (216) (212) 5 (3) (1) (837) (806) 4 (846) 1 Depreciation (394) (400) (363) (375) (2) 9 5 (1,491) (1,384) 8 (1,799) 21 Exceptional items — — (15) - (6) (41) - Pretax profits 415 311 45 449 33 829 (8) 1,952 1,530 28 2,654 36 Taxes (153) (106) (45) (154) (704) (570) 24 (903) 28 Net profit before minorities 262 206 (0) 295 1,247 960 30 1,752 40 Minority interest (0) 1 (1) (7) (0) (1) — Net profit 262 207 (1) 289 27 NA (9) 1,247 959 30 1,752 40 EPS (Rs/share) 6.2 4.4 - 6.2 27.1 20.4 33 37.5 38

Key operational metrics Screens (#) 625 625 579 603 625 579 710 14 Footfalls (mn) 19.0 18.8 18.2 17.4 1 4 9 76.1 75.3 1.1 83.5 10 Average ticket price (ATP) (Rs) 209 203 190 212 3 10 (1) 210 197 7 224 7 F&B spends per head (SPH) (Rs) 87 87 78 92 0 12 (5) 89 81 11 97 9 Ad rev/screen (annualized) (Rs mn) 4.7 4.6 3.7 5.8 1 27 (19) 4.9 4.5 9 5.0 1 Film hire costs as % of ticket sales 40.7 45.0 42.3 45.1 43.1 41.5 43.3 Rent as % of sales 18.0 18.2 20.3 17.8 17.1 17.8 17.6 F&B COGS as % F&B sales 26.4 26.0 26.1 26.4 26.2 25.5 25.0 Occupancy (%) 31.5 30.0 31.7 29.1 31.3 32.9 32.0

Comparable properties (same store) growth (%) Footfalls (2.0) 7.0 (7.0) (6.0) (3.0) Average ticket price (ATP) 9.0 2.0 6.0 7.0 3.0 F&B spends per head (SPH) 11.0 4.0 12.0 10.0 8.0 Ad revenues 31.0 5.0 12.0 17.0 5.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 51 Media PVR

Exhibit 2: Revised earnings estimates of PVR, FY2019E-20E (Rs mn)

Revised Previous Change (%) 2019E 2020E 2019E 2020E 2019E 2020E Ticket sales (net) 14,541 17,140 14,276 16,059 1.9 6.7 F&B sales 7,719 9,442 7,627 9,032 1.2 4.5 Ad revenues 3,527 4,197 3,496 4,083 0.9 2.8 Other operating income 2,078 2,281 1,941 2,169 7.0 5.2 Total revenues 27,865 33,059 27,340 31,342 1.9 5.5 Film hire charges (6,301) (7,444) (6,388) (7,226) (1.4) 3.0 F&B consumption (1,930) (2,360) (1,945) (2,258) (0.8) 4.5 Employee costs (3,002) (3,563) (2,927) (3,349) 2.5 6.4 Rent (4,918) (5,839) (4,759) (5,343) 3.3 9.3 Other operating costs (6,565) (7,594) (6,459) (7,264) 1.6 4.5 Total operating costs (22,716) (26,800) (22,479) (25,440) 1.1 5.3 EBITDA 5,149 6,259 4,861 5,902 5.9 6.0 PAT 1,752 2,334 1,741 2,427 0.6 (3.9) EPS (Rs/share) 37.5 50.0 37.3 52.0 0.6 (3.9)

Key assumptions EBITDA margin (%) 18.5 18.9 17.8 18.8 Screen additions (#) 85 85 60 55 41.7 54.5 Footfalls (mn) 84 93 85 91 (1.6) 1.7 ATP gross (Rs) 224 237 216 226 3.5 5.0 SPH gross (Rs) 97 107 100 110 (2.8) (2.8) Ad revenue grow th (%) 18 19 17 17 Occupancy (%) 32.0 32.0 32.0 32.0

Source: Company, Kotak Institutional Equities estimates

52 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 3: Net box office collections (NBOC) of promising movies, March fiscal year-ends (Rs mn)

FY2015 FY2016 FY2017 FY2018 NBOC NBOC NBOC NBOC Movie (Rs mn) Movie (Rs mn) Movie (Rs mn) Movie (Rs mn) Holiday 1,100 Tanu Weds Manu Returns 1,510 The Jungle Book (All) 1,802 Bahubali 2 (Hindi) 5,058 2 States 1,020 ABCD 2 1,042 Fan (Shah Rukh Khan) 835 Bahubali 2 (Regional) 5,500 Ek Villan 989 Fast And Furious 7 979 Housefull 3 1,068 The Fate Of The Furious 831 Humshakals 557 Gabbar Is Back 788 Baaghi 743 Half Girlfriend 557 The Amazing Spider-Man 2 510 Piku 778 Udta Punjab 573 Hindi Medium 633 Hits Heropanti 507 Jaurassic World 767 Captain America : Civil War 541 Tubelight 1,170 Mein Tera Hero 506 Dil Dhadakne Do 763 Sairat 800 The Amazing Spider-Man 2 510 Avengers: Age of Ultron 731 X-Men: Days of Future Past 420 1Q Total 6,119 Total 7,357 6,362 13,749 Bhoothnath Returns 355 Hamari Adhuri Kahani 323 Ki & Ka 487 Sachin: A Billion Dreams 408 Revolver Rani Detective Byomkesh Bakshy! 251 Begum Jaan 186 Bombay Velvet 221

Flops

Total 355 Total 795 Total 487 Total 594 Kick 2,140 Bajrangi Bhaijaan 3,168 Sultan (Salman Khan) 3,000 Toilet Ek Prem Katha 1,350 Singham Returns 1,397 Bahubali (a) 2,604 Kabali 2,065 Baadshaho 665 Humpty Sharma ki Dulhania 752 Welcome Back 902 Rustom (Akshay Kumar) 1,221 Spider-Man: Homecoming 577 Entertainment 628 Brothers 788 Dishoom 646 Mubarakan 531 Hits Mary Kom 559 Drishyam 751 PINK 563 Annabelle: Creation 450 Phantom 500 Mission Impossible - 5 480 2Q Total 5,476 Total 8,212 7,495 3,573 Mardaani 350 Terminator Genisys (3D / Imax 3D)234 Mohenjo Daro (Hrithik Roshan) 537 Jab Harry Met Sejal 577 Finding Fanny 276 Hero 293 Baar Baar Dekho 269 Jagga Jasoos 506 Daaw at-e-Ishq 248 Katti Batti 181 Happy Bhag Jayegi 261 Shubh Mangal Saavdhan 350 Flops Khoobsurat 248 The Fantastic Four (Imax) 63 Akira 258 MOM 337 Great Grand Masti 128 Simran 161 Total 1,122 Total 770 Total 1,452 1,931 PK 3,243 Prem Ratan Dhan Payo 1,875 Dangal (Aamir Khan) 1,923 Tiger zinda hain 2,030 Happy New Year 1,884 Bajirao Mastaani 1,698 M.S. Dhoni 1,201 Golmaal Again 2,045 Bang Bang 1,449 Dilw ale (SRK, Kaajol) 1,439 Ae Dil Hai Mushkil 1,116 Judw aa 2 1,333 Action Jackson 576 Singh Is Bling 740 Shivaay (Ajay Devgan) 1,006 Fukrey returns 747 Hits Haider 501 Tamasha 672 Dear Zindagi 673 Secret Superstar 596 Befikre 579 Thor: Ragnarok 569 3Q

Total 7,652 Total 6,423 Total 6,497 7,320 The Shaukeens 209 Spectre (Imax) 369 Force 2 313 Tumhari Sulu 330 Shaandaar 359 Kahaani 2 314 Star Wars: The Last Jedi 89 Flops Jazbaa 233 Rock On 2 87 Total 209 Total 961 Total 714 419 Baby 788 Airlift (Akshay Kumar) 1,248 Dangal (Contd.) 1,823 Tiger Zinda Hai (Contd.) 1,280 MSG: The Messenger 672 Neerja 696 Raees (SRK) 1,311 Padmaavat 2,823 Kapoor & Sons 709 Kaabil (Hrithik Roshan) 927 Sonu Ke Titu Ki Sw eety 1,050 Jolly LLB 2 (Akshay Kumar) 1,068 Raid 1,019 Hits Badrinath Ki Dulhaniya 1,135 Padman 813 Black Panther 503 Baaghi 2 (2 days) 450 4Q Total 1,460 Total 2,653 Total 6,265 7,938 Roy 406 Rocky Handsome 215 Rangoon 202 Hichki 425 Tevar 372 Fitoor 173 The Ghazi Attack 182 Hate Story IV 201 Badlapur Don't Miss The Beginning356 Wazir 378 Commando 2 244 Pari 242 Flops NH 10 293 Jai GangaaJal 306 Logan 246 Batman v Superman: Daw n of Justice317 xXx: Return of Xander Cage 310 Total 1,425 Total 1,389 Total 1,184 Total 868

Source: boxofficeindia.co.in, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 53 Media PVR

Exhibit 4: Expect better year from Hollywood; Bahubali 2 (Hindi) creates high base for FY2019 Comparison of key Bollywood and Hollywood movies, March fiscal-year end, 2018-19

NBOC Potential NBOC Movie titles (FY2018) Big star / Franchise (Rs mn) Movie titles (FY2019E) Big star / Franchise (Rs mn)- KIE Blockbusters Potential blockbusters 1 Baahubali 2 Baahubali 2 (Hindi) 5,058 Thugs of Hindostan Aamir Khan, Amitabh Bacchan 3500+ 2 Tiger Zinda Hain Salman Khan 3,310 Dabangg 3 Salman Khan; (Tentatively in FY2018) 3000+ 3 Padmaavat Ranveer Singh | Deepika Padukone 2,823 Race 3 Salman Khan 2000+ 4 Golmaal Again Ajay Devgan 2,045 Zero Shah Rukh Khan 2000+ 5 Toilet: Ek Prem Katha Akshay Kumar 1,350 Gold Akshay Kumar 1500+ 6 Judwaa 2 Varun Dhawan 1,333 Kesari Akshay Kumar 1500+ 7 Tubelight Salman Khan 1,170 Baaghi 2 (a) Tiger Shroff 1,350 8 Sonu Ke Titu Ki Sweety Pyar Ka Punchnama franchise 1,050 Simbaa Ranveer Singh 1000+ 9 Raid Ajay Devgan 1,019 2.0 (Hindi version) Rajinikanth + Akshay Kumar 1000+ 10 Padman Akshay Kumar 813 Student of the Year 2 Tiger Shroff 1000+ 11 Fukrey returns Pulkit Samrat | Richa Chadha 718 Total Dhamaal Ajay Devgan 750+ 12 Secret Superstar Aamir Khan productions 596 Thackeray Nawazuddin Siddiqui 500+ 13 Hindi Medium Irrfan Khan 633 Sanju Ranbir Kapoor 500+ 14 Jab Harry Met Sejal Shah Rukh Khan 577 Manikarnika Kangana Ranaut 500+ 15 Baadshaho Ajay Devgan 665 Raazi Alia Bhatt 500+ Top-15 Bollywood 23,159 Top-15 Bollywood 21,000+

11 The Fate Of The Furious Fast & Furious 8 831 Avengers: Infinity war Marvel 2000+ 12 Spiderman : Homecoming Spiderman 577 Jurassic World: Fallen Kingdom 900+ 13 Thor : Ragnarok Marvel 569 Mission Impossible : 6 Tom Cruise 650+ 14 Jumanji: Welcome To The JungleJumanji 540 Captain Marvel Marvel 650+ 15 Black Panther Marvel 503 Aquaman DC Comics 300+ Top-5 Hollywood 3,019 Top-5 Hollywood 4,500+ Total 26,179 Total 25,000+

Notes: (a) Baaghi 2's garnered Rs1.8 bn at box office (net) of which Rs450 mn (first two days) was in FY2018.

Source: Box Office data, Kotak Institutional Equities estimates

54 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 5: Movie pipeline in FY2019E

Rel. Date Movie Cast Bollywood- key titles 30-Mar-18 Baaghi 2 Shraddha Kapoor, Disha Patani, Tiger Shroff 6-Apr-18 Blackmail Irrfan Khan , Kirti Kulhari 13-Apr-18 October Varun Dhaw an, Banita Sandhu 20-Apr-18 Omerta Rajkummar Rao 27-Apr-18 Baazaar Saif Ali Khan, Radhika Apte, Chitrangda Singh 11-May-18 Raazi Alia Bhatt, Vicky Kaushal, Jaideep Ahlaw at 1-Jun-18 Veere Di Wedding Kareena Kapoor, Sonam Kapoor 14-Jun-18 Race 3 Salman Khan 29-Jun-18 Sanju Ranbir Kapoor 29-Jun-18 Soorma Taapsee Pannu, Diljit Dosanjh, Angad Bedi 13-Jul-18 Fanney Khan Aishw arya Rai, Anil Kapoor 3-Aug-18 Manikarnika : The Queen Of Jhaansi Kangana Ranaut, Sonu Sood, Danny Denzongpa 15-Aug-18 Gold Akshay Kumar 28-Sep-18 Sui Dhaga - Made In India Varun Dhavan, Anushka Sharma 2-Oct-18 Vishal Bhardw aj Next Irfan Khan, Deepika Padukone 19-Oct-18 Ajay Devgan Luv Ranjan Next Ajay Devgan, Kajol 19-Oct-18 Junglee Vidyut Jamwal 7-Nov-18 Thugs Of Hindstan Amitabh Bachchan, Aamir Khan, Katrina Kaif 23-Nov-18 Student Of The Year 2 Tiger Shroff, Tara Sutaria, Sara Ali Khan, Ananya Pandey 7-Dec-18 Namastey England Arjun Kapoor, Parineeti Chopra 21-Dec-18 Zero Shahrukh Khan, Katrina Kaif, Anushka Sharma 21-Dec-18 Dabangg 3 (Tentative) Salman Khan 7-Dec-18 Total Dhamaal Riteish Desmukh, Ajay Devgan, Madhuri Dixit, Anil Kapoor 21-Dec-18 Kedarnath Sushant Singh Rajput, Sara Ali Khan 21-Dec-18 Simmba Ranveer Singh 25-Jan-19 Thackeray Nawazuddin Siddiqui 25-Jan-19 Super 30 Hrithik Roshan 14-Feb-19 Gully Boy Alia Bhatt, Ranveer Singh 20-Mar-19 Kesari Akshay Kumar TBD Robot 2.0 Rajinikanth, Akshay Kumar, Mayur Bansiwal Hollywood (English) 27-Apr-18 Avengers: Infinity War Karen Gillan, Pom Klementieff, Tessa Thompson 18-May-18 Blumhouse'S Truth Or Dare Horror film 25-May-18 Solo: A Star Wars Story (3D) Emilia Clarke, Alden Ehrenreich, Paul Bettany 8-Jun-18 Jurassic World Fallen Kingdom Chris Pratt, Bryce Dallas Howard 15-Jun-18 Ocean's Eight Richard Armitage, Olivia Munn, Matt Damon, Caate Blanchett 6-Jul-18 Ant Man And The Wasp (3D Imax) Paul Rudd, Evangeline Lilly, Michelle Pfeiffer, Judy Greer, Michel Pena 27-Jul-18 MI: 6 - Mission Impossible (Imax) Tom Cruise, Jeremy Reener, Rebecca Ferguson 24-Aug-18 Cadaver Horror film 19-Oct-18 Mowgli Andy Serkis, Benedict Cumberbatch, Christian Bale, Cate Blanchett, Frida Pinto 2-Nov-18 X Men : Dark Phoenix Sophie Turner 14-Dec-18 Spiderman Animated (3D) Live Schreiber, Mahershala Ali 21-Dec-18 Aquaman (3D Imax) Jason Momoa, Amber Heard, Nicole Kidman 28-Dec-18 Transformers 6 6-Mar-19 Captain Marvel Marvel Studios

Source: Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 55 Media PVR

Exhibit 6: Comparable properties' footfalls have declined in 4 out of the past five years Trends in PVR's footfalls, March fiscal year-ends

Footfalls (mn) Comparable properties footfalls growth (%) (SSG) 80 40

70 30

60 19.0 20 16.0 50 11.0 10

40 0 (3.0) (6.0) (6.0) 30 (10) (13.0)

20 (20) 2012 2013 2014 2015 2016 2017 2018

Source: Company, Kotak Institutional Equities

Exhibit 7: PVR: Gross box office collections (GBOC) from Bollywood movies, March fiscal year-ends

PVR's GBOC from Bollywood (LHS, Rs mn) As % of PVR's total GBOC (RHS, %) 73 72 10,000 75 63 61 58 58 8,000 60

6,000 45

4,000 30

2,000 15

0 0 2013 2014 2015 2016 2017 2018

Source: Company, Kotak Institutional Equities

56 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 8: PVR: Gross box office collections (GBOC) from Hollywood movies, March fiscal year-ends

PVR's GBOC from Hollywood (LHS, Rs mn) As % of PVR's total GBOC (RHS, %) 24 5,000 25 21 20 19 19 4,000 20 16

3,000 15

2,000 10

1,000 5

0 0 2013 2014 2015 2016 2017 2018

Source: Company, Kotak Institutional Equities

Exhibit 9: PVR: Gross box office collections (GBOC) from regional movies, March fiscal year-ends

PVR's GBOC from Regional movies (LHS, Rs mn) As % of PVR's total GBOC (RHS, %)

5,000 25 22

19 19 4,000 18 20

3,000 15 12

9 2,000 10

1,000 5

0 0 2013 2014 2015 2016 2017 2018

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 57 Media PVR

Exhibit 10: Footfalls grew 4% yoy and declined 2% yoy for comparable properties Trends in PVR's footfalls, March fiscal year-ends (mn)

Footfalls (LHS, mn) Growth (RHS, yoy %) 24 25 25 30 21 21 19 20 19 19 20 19 19 18 19 18 17 20 16 17 15 16 12 15 16 9 8 10 12 3 4 12 1 1 1 (2) (3) (5) 0 8 (12) (10) 4

0 (20)

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18 3QFY18 4QFY18

Source: Company, Kotak Institutional Equities

Exhibit 11: ATP grew 10% yoy and 9% yoy for comparable properties Trends in PVR's average ticket price (ATP), March fiscal year-ends

ATP (LHS, Rs) Growth (RHS, yoy %) 240 12

220 214 9 212 209 204 200 202 199 200 195 6 187 190 181 184 183 182 176 180 3 168

160 0

140 (3)

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18 3QFY18 4QFY18

Source: Company, Kotak Institutional Equities

58 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 12: SPH grew 12% yoy and 11% for comparable properties Trends in PVR's F&B spends per head (SPH), March fiscal year-ends

SPH (LHS, Rs) Growth (RHS, yoy %) 100 50 91 92 87 87 90 84 82 40 78 78 80 74 74 73 30 67 68 70 64 63 62 20 56 60 54 54 54 48.4 48 48 10 50 46

40 0

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18 3QFY18 4QFY18

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

Exhibit 13: Ad revenues grew 37% yoy and 31% yoy for comparable properties Trends in PVR's ad revenues, March fiscal year-ends

Ad revenues (LHS, Rs mn) Growth (RHS, yoy %) 1,000 50

800 35 37 40 31 28 29 600 27 30 19 400 15 16 16 20 14 13 13 13 10 11 200 10

0 0

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18 4QFY18

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 59 Media PVR

Exhibit 14: Condensed consolidated financials for PVR, March fiscal year-ends, 2012-21E (Rs mn)

2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E Profit model Revenues 5,177 8,064 13,475 14,813 18,688 21,628 23,535 27,865 33,059 38,841 EBITDA 761 1,169 2,117 2,044 3,306 3,570 4,212 5,149 6,259 7,516 Other income 123 91 113 46 283 189 119 150 205 250 Depreciation (365) (560) (944) (1,168) (1,252) (1,384) (1,537) (1,799) (2,113) (2,430) Interest expense (185) (368) (795) (783) (839) (806) (837) (846) (815) (792) Pretax profits 310 319 523 118 1,432 1,528 1,952 2,654 3,536 4,543 Tax (57) 124 (19) (8) (232) (570) (704) (903) (1,202) (1,545) PAT before minority interest 253 443 504 110 1,200 958 1,247 1,752 2,334 2,999 Minority interest 1 2 57 11 (5) (1) (—) — — — PAT 254 445 561 121 1,194 958 1,247 1,752 2,334 2,999 Diluted EPS (Rs) 9.5 14.9 13.7 2.9 25.6 20.5 26.7 37.5 50.0 64.2 Balance sheet Total equity 2,791 6,427 3,993 4,092 8,695 9,650 10,754 12,294 14,348 16,986 Deferred taxation liability 106 (10) 4 11 93 9 6 6 6 6 Total borrowings 2,035 6,566 6,134 7,470 6,623 8,196 8,305 9,055 9,055 8,555 Minority interest 139 854 771 383 401 405 8 8 8 8 Current liabilities 986 1,939 2,600 2,309 3,276 3,926 4,316 5,073 5,986 6,996 Total liabilities and equity 6,126 15,852 13,533 14,288 19,108 22,257 23,488 26,537 29,503 32,651 Cash and cash equivalents 211 732 495 261 2,674 309 339 432 209 357 Other current assets 2,038 3,229 3,763 4,605 5,763 5,363 5,880 6,592 7,587 8,685 Tangible fixed assets 2,621 5,710 6,990 7,523 8,824 10,447 11,270 13,536 15,750 17,674 Goodwill and Intangibles 374 4,712 1,466 1,273 1,262 4,640 4,629 4,606 4,585 4,564 CWIP 876 1,453 806 611 570 1,056 1,017 1,017 1,017 1,017 Total assets 6,126 15,852 13,533 14,288 19,108 22,257 23,488 26,537 29,503 32,651 Cash flow Operating cash flow, excl. w-capital 679 1,429 2,003 2,170 3,169 3,442 3,502 4,246 5,056 5,971 Working capital changes (193) (239) 128 (617) 204 (246) (127) 45 (82) (88) Capital expenditure (1,160) (7,704) (1,273) (2,064) (2,334) (6,324) (2,810) (4,041) (4,306) (4,332) Other income (90) 47 76 22 43 29 119 150 205 250 Interest expense (net) (207) (430) (812) (827) (797) (730) (837) (846) (815) (792) Free cash flow (971) (6,896) 123 (1,317) 284 (3,830) (152) (446) 58 1,008 Key ratios and assumptions Footfalls (mn) 24.7 37.2 59.9 59.1 69.6 75.2 76.1 83.5 92.9 102.0 Average ticket price (ATP) (Rs) 156 163 168 177 188 196 210 224 237 251 Screens (#) 166 360 421 464 516 579 625 710 795 880 EBITDA margin (%) 14.7 14.5 15.7 13.8 17.7 16.5 17.9 18.5 18.9 19.3 Net debt 1,824 5,835 5,638 7,209 3,949 7,887 7,967 8,623 8,846 8,198 RoAE (%) 8.2 9.7 10.8 3.0 18.7 10.4 12.2 15.2 17.5 19.1 RoACE (%) 7.0 10.0 10.3 7.8 14.4 9.1 9.4 11.2 12.4 13.9

Source: Company, Kotak Institutional Equities estimates

60 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY L&T (LT) Industrials MAY 07, 2018 UPDATE Coverage view: Neutral

Divestments: takeaways beyond valuation. L&T would cede the better part of its Price (`): 1,369 road portfolio at a modest 1.8X invested book, a hit possibly taken to create a platform Target price (`): 1,505 for future asset monetization. Coupled with the Kattupalli port and E&A deals, the InvIT BSE-30: 34,915 would be marginally EPS/RoE/SoTP accretive. The remaining large non-core assets would take longer to get monetized. Difficulties in selling non-core assets may deter L&T from recycling proceeds, paving the way for the strength of a good EPC business to reflect more in operating results and may increase the already high dividend payout ratio.

Company data and valuation summary Larsen & Toubro Stock data Forecasts/Valuations 2018 2019E 2020E 52-week range (Rs) (high,low) 1,470-1,108 EPS (Rs) 55.9 63.6 76.6 Market Cap. (Rs bn) 1,917.9 EPS growth (%) 32.1 13.8 20.4 Shareholding pattern (%) P/E (X) 24.5 21.5 17.9 Promoters 0.0 Sales (Rs bn) 1,208.7 1,365.1 1,540.7 FIIs 18.5 Net profits (Rs bn) 78.2 89.0 107.2 MFs 15.5 EBITDA (Rs bn) 140.7 171.4 197.4 Price performance (%) 1M 3M 12M EV/EBITDA (X) 20.6 17.8 15.9 Absolute 5.6 (3.3) 18.6 ROE (%) 16.0 16.5 18.0 Rel. to BSE-30 (0.1) (2.9) 2.3 Div. Yield (%) 1.5 1.7 2.0

Three deals coming for closure will be 3% EPS accretive and 50 bps RoE accretive

 Roads invIT (US$0.8 bn EV): L&T investing in the platform. The proposed roads invIT would transfer L&T’s equity stake at assumptions of 5%/13.5% traffic CAGR/cost of equity. The valuation is 25% below our base case (with 6%/13.5% assumptions) and ~45% below the quantum suggested by the EY valuation report (~6.8% /13.5% assumptions). The InvIT will provide a small 1%/20 bps consolidated EPS/RoE accretion in FY2020. Quantum would be higher at 3.5%/60 bps if all road assets get transferred at a similar 1.8X multiple to invested book.

 E&A (US$2 bn EV): Doesn’t reflect premium for strategic fit for buyer. The proposed sale of E&A business to Schneider Electric would enable the global major to get a foothold into the key business of low and medium voltage switchgear in India. The valuations however fall short of reflecting any premium to account for filling up of such gap in the buyer’s portfolio. The transaction would be slightly EPS/RoE accretive for L&T in FY2020.

 Kattupalli (US$0.3 bn EV): Doesn’t reflect premium for strategic fit for buyer. The deal valuation was likely finalized in 2016 at a modest 10-11X forward EV/EBITDA multiple in spite of it enabling Adani Ports and SEZ to compete with a large and congested Chennai port. Checkered history of selling non-core assets would deter recycling of proceeds

In the five key transactions (US$200mn to US$2 bn EV) done over the past four years, L&T has been unable to get fair valuations. This is in spite of three of these five assets being of good strategic value to the buyer (Dhamra port, Kattupalli port, E&A business). The fate of the other asset in Seawoods was even worse with L&T having to take a hit against book value. Beyond Aditya Mongia the impending closure of the recent deals, the remaining assets in Nabha Power and Hyderabad Metro would take much longer to elicit investor interest. We expect the past four years of history to deter L&T from recycling proceeds of impending asset sales. Ajinkya Bhat Stage set for core E&C prowess to reflect more in financials and increase dividend payout ratio

Sale of E&A business, roads invIT and Kattupalli port can improve FY2020 RoE to 17.5%. Apart from reflecting the E&C business more in the results, this may set the stage for L&T’s dividend payout ratio (incl. dividend tax) to cross the already high 35% current levels.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Industrials L&T

Road InvIT – modest valuations mask larger purpose Takeaways from section 1:  Reasonable profile of assets. L&T’s recently launched InvIT, named IndInfravit, has started small with only five projects in its fold namely (1) Krishnagiri-Thopur, (2) BPP Tollway, (3) Devihalli-Hassan, (4) Krishnagiri-Walajahphet and (5) Western Andhra Tollways. Cumulatively, the set of these five projects made a loss of `2.9 bn in FY2017, mainly led by a similar quantum of loss in L&T BPP Tollway. The other four projects were close to breakeven in FY2017 or generated a small profit.

 Equity transferred at ~2X invested book. The transaction represents a valuation of 2X invested equity in these five projects. The InvIT will provide a small 1-2% consolidated EPS accretion and 20-30 bps consolidated ROE accretion in FY2019 and FY2020.

 IndInfravit will provide a platform to L&T for future divestments. Our analysis suggests that if all the operational road projects are sold to the InvIT at ~2X book, the total consolidated EPS accretion would be 2.5% and ROE accretion would be 40 bps in FY2020.

 Cumulative impact of recent transactions will partially hide losses in Hyderabad Metro. The cumulative impact of the InvIT, Kattupalli and E&A divestment will lead to 3% or `2/share consolidated EPS accretion and 50 bps ROE accretion in FY2020. The EPS accretion will partially reduce the estimated `6/share negative EPS impact of Hyderabad Metro in FY2020.

Exhibit 1: Summary financials of L&T's roads InvIT projects, March fiscal year-ends, 2016-17 (Rs mn)

Revenue EBITDA PAT Length (kms) Project cost FY2016 FY2017 FY2016 FY2017 FY2016 FY2017 InvIT projects L&T Krishnagiri Thopur Toll Road 86 6,821 1,529 1,573 1,029 1,031 (23) 204 L&T BPP Tollway 244 24,720 2,424 3,075 2,016 2,522 (2,231) (2,912) Devihalli-Hassan 77 3,745 377 481 238 290 (115) (35) Krishnagiri-Walajahpet 148 12,983 1,397 1,508 917 938 6 (251) L&T Western Andhra Tollways 56 3,092 632 667 453 463 6 98 Total 611 51,361 6,358 7,303 4,652 5,244 (2,356) (2,895)

Depreciation Cash loss Debt Equity invested FY2016 FY2017 FY2016 FY2017 FY2016 FY2017 FY2016 FY2017 InvIT projects L&T Krishnagiri Thopur Toll Road (405) (394) 382 598 3,463 3,413 788 788 L&T BPP Tollway (353) (434) (1,878) (2,478) 19,323 19,434 2,472 2,472 Devihalli-Hassan (44) (58) (71) 23 2,854 2,787 900 900 Krishnagiri-Walajahpet (49) (51) 55 (200) 7,735 10,184 900 900 L&T Western Andhra Tollways (194) (156) 201 254 2,214 2,146 565 565 Total (1,046) (1,093) (1,310) (1,803) 35,589 37,964 5,625 5,625

Source: Company, Kotak Institutional Equities

62 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Industrials

Exhibit 2: As per the InvIT regulations, L&T as the sponsor will retain 15% stake in the post-issue InvIT fund Components of offer for L&T Roads InvIT

(Rs mn) % of total New offering 27,909 73.4 Offer for sale by L&T 4,391 11.6 Residual holding by L&T as sponsor 5,700 15.0 Total InvIT fund size 38,000 100.0

Source: InvIT DRHP, Kotak Institutional Equities

Exhibit 3: L&T will transfer its equity stake at 1.8X multiple to historical invested book value Valuation multiple of the Roads InvIT

(Rs mn) Offer for sale by L&T 4,391 Add: value of 15% shareholding in InvIt 5,700 Total value of equity for L&T 10,091 Invested book 5,625 Implied multiple (X) 1.8

Source: InvIT DRHP, Kotak Institutional Equities

Exhibit 4: Equity valuation implied by the invIT is much lower than our and EY's estimate Valuation of L&T's equity stake in the proposed InvIT (Rs bn)

25

21 20 16 15

10 10

5

- Valuation offered by the InvIT KIE valuation EY valuation report of DRHP

Source: Company, InvIT DRHP, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 63 Industrials L&T

Exhibit 5: The transfer/KIE/EY valuation build in sub-5%/6%/7% traffic CAGR at 13.5% cost of equity Sensitivity of equity valuation of L&T's stake in the five road projects Equity valuation of Traffic CAGR (%) five projects (Rs bn) 5.0 5.5 6.0 6.5 7.0 12.5 12.8 15.4 18.1 21.0 24.0 Cost of 13.0 12.0 14.4 17.0 19.7 22.6 equity 13.5 11.2 13.5 16.0 18.5 21.2 (%) 14.0 10.5 12.7 15.0 17.4 20.0

14.5 9.8 11.9 14.1 16.4 18.8

Source: Company, Kotak Institutional Equities estimates

Exhibit 6: Roads InvIT will lead to only 1-2% consolidated EPS accretion and 20-30 bps consolidated ROE accretion in FY2019 and FY2020 Pure impact of Roads InvIT on L&T's consolidated metrics, March fiscal year-ends, 2017-20E

Consolidated EPS (Rs) Pro-forma consolidated EPS (Rs) Consolidated RoE (%) Pro-forma consolidated RoE (%)

100 20 17.1 17.3 76.9 77.9 15.6 15.9 80 16 15.0 15.0 63.9 65.3 12.5 12.5 56.3 56.3 60 12 42.3 42.3 40 8

20 4

- - 2017 2018E 2019E 2020E 2017 2018E 2019E 2020E

Notes: (1) Since the InvIT transaction has happened in FY2019, pro-forma numbers show the impact in FY2019 and FY2020 only.

Source: Company, Kotak Institutional Equities estimates

64 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Industrials

Exhibit 7: The combined effect of all the recently announced transactions of InvIT, Kattupalli and E&A divestment will lead to ~3% EPS accretion in FY2020 Pro-forma estimates of consolidated EPS in FY2020, March fiscal year-ends (Rs/share)

Pro-forma 95 estimate 5.6 89.2 90 Estimate after announced Base 85 divestments 1.2 estimate 3.6 0.2 80 0.5 0.7 79.0 76.9 1.0 75

70

E&A

EPS

EPS

EPS

metro

L&T valves L&T

Hyderabad

divestment

divestment

break-even

Roads InvIT Roads

Pro-forma

Pro-forma

divestment

consolidated

consolidated

Consolidated

Shipbuilding

Kattupalli port Kattupalli

improvement defence orders defence

Working capital Working

Source: Company, Kotak Institutional Equities estimates

Exhibit 8: The combined effect of all the recently announced transactions of InvIT, Kattupalli and E&A divestment will lead to ~50 bps ROE accretion in FY2020 Pro-forma estimates of consolidated ROE in FY2020, March fiscal year-ends (%)

25 Pro-forma estimate Estimate after 138 bps 20.9 Base announced divestments 74 bps 20 estimate 127 bps 11 bps 15 bps -5 bps 17.1 21 bps 17.5

15

10

E&A

RoE

RoE

metro

RoE

orders

capital

defence

L&T valves L&T

Hyderabad

Working

divestment

divestment

break-even

Roads InvIT Roads

Pro-forma

Pro-forma

Shipbuilding

divestment

consolidated

consolidated

Consolidated improvement Kattupalli port Kattupalli

Source: Company, Kotak Institutional Equities estimates

Takeaways from Checkered history of selling non-core assets may deter recycling of proceeds section 2  L&T has found it difficult to sell non-core assets in the past

 For assets with strategic value to the buyer, L&T has not been able to get a valuation premium. In case of its roads portfolio, it has had to lower the valuation in order to set up an investment platform in the form of an invIT.

 For the sale of the Seawoods retail asset, the company had to absorb the cost overruns and thus had to sell the asset at less than book value.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 65 Industrials L&T

Exhibit 9: L&T has faced difficulties in selling its non-core assets Recent key sale transactions of L&T's non-core assets

Deal value Fair value Timeline of (equity) (equity) Deviation Fair valuation Asset class deal terms (Rs bn) (Rs bn) (%) methodology Inference No strategic premium paid by the Dhamra Port May-14 28 35 -21 11X forward EV/EBITDA bidder for filling gap in its portfolio No strategic premium paid by the Kattupalli Port Nov-16 20 23 -13 11X forward EV/EBITDA bidder for filling gap in its portfolio Adding back Rs4 bn of L&T had to absorb the cost L&T Retail mall May-17 11 15 -27 hit taken through overruns in selling a reasonable Seawoods decapitalization retail asset 20% discount to fair Industrial No strategic premium paid by bidder E&A Apr-18 140 146 -4 24X EV/EBITDA multiple switchgears for filling gap in its portfolio for ABB L&T has likely had to lower the Roads DCF at 6% traffic CAGR valuation with an aim to set up a Roads invIT May-18 10 16 -37 portfolio and 13.5% equity perpetual platform for monetizing remaining assets Total 209 235 -11

Source: Company, Kotak Institutional Equities estimates

Takeaways from Modest impact of recent transactions on SOTP section 3 From an SOTP perspective, the five roads InvIT projects, Kattupalli port and E&A division represented `8/share (2X book), `7/share (2X book) and `85/share (assuming no debt on E&A, 18X P/E multiple) in our target price. After the divestment, these components will be removed from SOTP and the corresponding consideration (cash + residual InvIT units) equivalent to `10/share, `14/share and `100/share will accrue to the valuation. The net impact thus will be a negligible `24/share or ~1.6% accretion in our SOTP of `1,505/share.

Exhibit 10: L&T- SoTP-based target price of Rs1,505/share

March-19 March-20 Earnings/Book Target multiple Value Valuation basis Stake Value Per share Per share (Rs mn) (X) (Rs bn) (%) (Rs bn) (Rs) (Rs) Core E&C business (consolidated) 68,254 18.0 1,229 P/E 100.0 1,229 878 1,039 L&T Finance Holdings 275 (at KIE TP) 66.7 183 131 149 L&T Infotech 243 (at KIE TP) 84.3 205 147 167 L&T Technology Services 7,934 17.0 135 P/E 89.8 121 87 103 IDPL- Roads, Transmission 31,881 2.0 64 P/B 97.4 62 44 51 Hyderabad Metro 41,268 1.0 42 P/B 100.0 42 30 34 Kattupalli port (held for sale) 3,880 2.0 8 P/B 97.0 8 5 6 Power development 47 P/B 100.0 47 33 38 Total subsidiaries 651 15% holding co. disc. 534 406 466 Grand total 1,284 1,505 One-year-forward SoTP 1,505

Source: Company, Kotak Institutional Equities estimates

66 KOTAK INSTITUTIONAL EQUITIES RESEARCH L&T Industrials

Exhibit 11: Consolidated financials of L&T, March fiscal year-ends, 2012-20E (Rs mn)

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E Income statement Revenues 643,131 744,980 851,284 906,546 1,019,753 1,100,110 1,208,746 1,365,059 1,540,692 Expenditure (555,711) (646,894) (743,986) (806,690) (915,125) (989,363) (1,068,073) (1,193,671) (1,343,320) EBITDA 87,420 98,087 107,298 99,856 104,628 110,747 140,673 171,388 197,372 EBITDA margin (%) 13.6 13.2 12.6 11.0 10.3 10.1 11.6 12.6 12.8 Other income 8,290 10,959 9,818 10,072 9,044 14,010 15,451 19,575 22,031 Interest & finance charges 11,019 20,950 31,380 28,507 16,551 13,398 15,051 26,216 27,822 Depreciation 15,523 16,371 14,458 26,225 17,867 23,699 20,704 23,320 26,368 PBT 69,167 71,725 71,277 55,195 79,254 87,659 120,369 141,427 165,213 Tax 22,826 23,855 26,284 20,876 24,848 20,066 34,019 44,916 51,873 PAT 47,151 48,976 45,468 32,631 41,387 59,198 78,199 88,977 107,172 EPS (Rs) 33.7 35.0 32.5 23.3 29.6 42.3 55.9 63.6 76.6 Reported PAT 47,719 53,124 49,020 47,648 42,329 60,412 81,432 90,786 108,981 Balance Sheet Share holder's funds 311,402 365,126 408,908 459,077 470,732 537,801 583,607 634,674 695,976 Capital 1,225 1,231 1,854 1,859 1,863 1,866 1,866 1,866 1,866 Reserves and surplus 292,643 337,366 375,262 407,232 439,941 500,299 546,105 597,172 658,474 Minority interest 17,535 26,529 31,792 49,986 28,928 35,636 35,636 35,636 35,636 Loan funds 471,501 619,937 803,304 905,714 881,355 939,763 1,067,020 1,221,724 1,320,909 Deferred tax liability 818 1,837 3,375 (1,846) (7,364) (11,252) (11,252) (11,252) (11,252) Total sources of funds 827,898 986,900 1,250,405 1,393,267 1,344,861 1,481,268 1,654,330 1,860,102 2,020,589 Gross block 257,568 382,216 414,765 457,586 165,705 170,056 244,615 392,697 419,732 Acc. depreciation 63,560 77,884 90,790 110,206 23,948 39,317 60,021 83,341 109,709 Net block 194,008 304,332 323,975 347,381 141,757 130,739 184,595 309,356 310,023 Cash & bank balances 35,221 36,312 41,353 58,555 53,899 55,725 81,581 89,753 97,155 Investments 87,895 87,675 81,090 96,121 154,651 231,828 250,374 250,374 250,374 Loans & advances towards financing activities 247,732 320,021 438,517 553,669 665,946 720,612 840,115 947,911 1,073,168 Net current assets 113,915 125,492 223,686 182,304 203,069 191,156 217,271 246,215 273,375 Total application of funds 827,898 986,900 1,250,405 1,393,267 1,344,861 1,481,268 1,654,330 1,860,102 2,020,589 Yoy growth (%) Revenues 23.5 15.8 14.3 6.5 12.5 7.9 9.9 12.9 12.9 EBITDA 25.2 16.4 15.0 8.4 13.4 8.1 8.0 11.8 12.5 PAT 10.0 3.9 (7.2) (28.2) 26.8 43.0 32.1 13.8 20.4

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 67 March 2018: Results calendar India Daily Summary Daily Summary India Mon Tue Wed Thu Fri Sat Sun

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK 7-May 8-May 9-May 10-May 11-May 12-May 13-May Exide Industries ABB India Arvind Apollo Tyres Aditya Birla Fashion J K Cements ICICI Bank Godrej Consumer Products Eicher Motors Asian Paints Canara Bank Vardhman Textiles Tata Chemicals Jubilant Foodw orks Federal Bank Laurus Labs Gillette India Kajaria Ceramics Jindal Steel & Pow er MphasiS GlaxoSmithkline Consumer SKF India Jubilant Life Sciences Tata Communications Havells India Whirlpool of India Magma Fincorp Titan Co. Oracle Financial SIS Ujjivan Financial Services Procter & Gamble Union Bank of India Sun TV Netw ork Zee Entertainment Enterprises Tata Global Beverages 14-May 15-May 16-May 17-May 18-May 19-May 20-May -

Dr Lal Pathlabs Britannia Industries AIA Engineering Bajaj Finance Amara Raja Batteries May 7, May 7, 2018 Godrej Agrovet Crompton Greaves Consumer Hindalco Industries Bajaj Finserv Ashok Leyland Hindustan Unilever Karnataka Bank JK Lakshmi Cement Coffee Day Enterprises Bajaj Auto South Indian Bank Lupin JSW Steel Escorts Bajaj Holdings & Investment

P I Industries TVS Motor Co. Voltas Manappuram Finance WABCO India Thermax 21-May 22-May 23-May 24-May 25-May 26-May 27-May Colgate-Palmolive Bata India Godrej Industries GlaxoSmithkline Pharma Cadila Healthcare Timken Cipla Grasim Industries Pidilite Industries PC Jew eller Dr Reddys Laboratories L&T Infotech United Spirits Tech Mahindra HCG Motherson Sumi Systems Indian Oil Corp. The Ramco Cements 28-May 29-May 30-May 31-May 1-Jun 2-Jun 3-Jun Bharat Heavy Electricals Info Edge Mahindra & Mahindra Suprajit Engineering

Source: BSE, NSE, Kotak Institutional Equities

68 KOTAK INSTITUTIONAL EQUITIES RESEARCH 68

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn) Automobiles Amara Raja Batteries REDUCE 859 780 (9.2) 147 2.2 171 29 34 39 1.7 20.2 14.5 30.2 25.1 21.9 16.1 13.7 12.0 4.9 4.2 3.7 17.4 18.1 17.9 0.5 0.6 0.7 6.2 Apollo Tyres BUY 286 335 16.9 164 2.4 541 13 20 25 (39.9) 52.7 25.7 22.1 14.5 11.5 12.0 8.6 7.0 1.7 1.6 1.4 8.4 11.6 13.1 1.0 0.9 0.9 13.0 Ashok Leyland ADD 164 165 0.6 481 7.2 2,926 5.5 6.7 9.1 9.4 23.3 34.9 30.1 24.4 18.1 17.4 14.1 10.6 6.7 5.7 4.8 24.0 25.3 28.7 1.0 1.2 1.7 38.4 Bajaj Auto SELL 2,889 2,900 0.4 836 12.5 289 147 166 182 11.4 12.6 9.8 19.6 17.4 15.9 13.6 11.8 10.3 4.3 3.8 3.4 23.5 23.4 22.8 2.0 2.3 2.5 14.4 Balkrishna Industries ADD 1,250 1,290 3.2 242 3.6 193 40 53 64 7.2 30.8 22.0 31.0 23.7 19.4 16.6 13.1 10.7 5.7 4.7 3.9 20.1 21.8 21.9 0.4 0.4 0.4 8.5 Bharat Forge SELL 733 650 (11.3) 341 5.1 466 20 24 27 33.2 25.0 10.8 37.4 30.0 27.0 20.3 16.9 15.1 7.1 6.1 5.2 20.5 21.9 20.8 0.6 0.8 0.9 13.8 CEAT ADD 1,507 1,770 17.5 61 0.9 40 65 103 118 (29.5) 59.4 14.7 23.3 14.6 12.7 11.3 9.2 7.7 2.3 2.1 1.8 10.4 15.0 15.3 0.8 1.1 1.2 16.4 Eicher Motors SELL 29,208 24,000 (17.8) 796 11.9 27 781 907 1,087 27.4 16.2 19.9 37.4 32.2 26.9 26.5 22.1 18.2 14.2 10.6 8.1 44.7 37.7 34.0 0.1 0.1 0.1 19.8 Escorts BUY 972 1,140 17.3 83 1.8 89 38 53 67 69.6 37.8 26.7 25.3 18.4 14.5 14.4 10.9 8.7 3.4 3.0 2.5 13.6 16.2 17.6 0.6 0.8 1.0 19.1 Exide Industries SELL 249 205 (17.5) 211 3.2 850 8 10 11 1.6 14.7 11.1 30.0 26.1 23.5 17.2 14.9 13.2 4.0 3.6 3.3 13.7 14.5 14.7 1.2 1.2 1.2 6.1 Hero Motocorp SELL 3,660 3,500 (4.4) 731 10.9 200 185 204 228 9.5 10.2 11.6 19.8 17.9 16.1 12.4 11.1 9.8 6.2 5.4 4.8 33.7 32.3 31.7 2.6 2.8 3.1 18.6 Mahindra CIE Automotive ADD 239 275 15.3 90 1.4 378 10 13 15 107.0 35.8 12.9 24.9 18.3 16.2 12.3 9.3 8.1 2.4 2.1 1.9 10.4 12.5 12.4 ——— 1.5 Mahindra & Mahindra BUY 854 945 10.6 1,062 15.9 1,138 39 43 49 19.9 9.5 13.2 21.7 19.8 17.5 15.1 13.1 11.4 3.2 2.9 2.6 15.9 15.4 15.5 0.9 1.0 1.1 28.5 Maruti Suzuki ADD 8,678 9,700 11.8 2,622 39.2 302 256 330 395 5.1 29.2 19.6 33.9 26.3 22.0 18.8 14.7 11.8 6.3 5.4 4.6 19.8 22.0 22.6 0.7 1.0 1.1 72.2 Motherson Sumi Systems SELL 335 265 (20.8) 704 10.5 2,105 8 11 14 9.3 30.4 24.3 39.7 30.4 24.5 14.8 11.9 9.7 7.5 6.5 5.5 20.1 22.9 24.4 0.7 1.0 1.2 19.3 MRF REDUCE 75,694 77,000 1.7 321 4.8 4 2,669 3,914 4,501 (23.9) 46.7 15.0 28.4 19.3 16.8 12.9 9.4 8.0 3.3 2.8 2.4 12.3 15.7 15.5 0.1 0.1 0.1 9.6 Schaeffler India BUY 5,394 6,000 11.2 90 1.3 17 143 171 207 22.0 19.4 21.1 37.7 31.5 26.1 22.2 19.1 15.4 5.3 4.7 4.1 15.0 15.8 16.9 0.3 0.6 0.8 0.5 SKF REDUCE 1,830 1,700 (7.1) 94 1.4 51 59 69 81 28.5 15.8 18.2 30.8 26.6 22.5 19.7 16.9 14.1 5.2 4.6 4.1 17.0 17.5 18.2 1.0 1.1 1.3 0.8 Suprajit Engineering SELL 286 235 (17.9) 40 0.6 140 9 11 12 0.5 20.3 17.6 32.5 27.0 22.9 18.2 15.7 13.4 6.5 5.4 4.6 21.8 22.0 21.6 0.5 0.6 0.7 0.2 Tata Motors BUY 334 465 39.1 1,136 15.9 3,396 22 36 42 (22.2) 65.2 18.1 15.5 9.4 7.9 4.6 3.9 3.6 1.6 1.4 1.2 11.5 16.1 16.2 ——— 56.7 Timken SELL 682 660 (3.2) 46 0.7 68 14 22 27 1.4 50.2 25.0 47.0 31.3 25.1 26.3 17.7 14.2 6.6 5.8 5.1 14.9 19.7 21.6 0.2 1.0 1.2 0.4 TVS Motor SELL 616 410 (33.4) 293 4.4 475 14 18 22 31.4 30.3 18.8 43.6 33.4 28.1 24.1 18.9 16.3 11.0 9.1 7.5 27.6 29.9 29.3 0.7 0.9 1.0 9.5 WABCO India SELL 7,870 6,130 (22.1) 149 2.2 19 134 176 215 18.7 31.5 22.4 58.9 44.8 36.6 38.6 29.2 23.6 10.0 8.3 6.9 18.3 20.2 20.6 0.1 0.2 0.2 0.7 Automobiles Neutral 10,739 160 1.5 30.0 17.6 26.6 20.5 17.4 12.1 9.8 8.4 4.3 3.7 3.2 16.2 18.2 18.4 0.8 1.0 1.1 374.4 Banks Axis Bank ADD 520 600 15.3 1,336 20.0 2,567 1 19 38 (93.0) 1,711.8 93.0 484.4 26.7 13.9 ——— 2.5 2.3 1.9 0.5 7.6 13.2 - 0.6 1.1 75.4 Bank of Baroda NR 140 —— 370 5.5 2,310 4 27 30 (40.4) 647.6 11.1 39.2 5.2 4.7 ——— 1.4 1.1 0.8 2.2 15.5 15.3 0.5 3.8 4.2 39.9 Bank of India ADD 100 140 39.8 175 2.6 1,341 (21) 19 30 (42.8) 191.0 54.3 (4.7) 5.2 3.4 ——— 2.3 1.6 1.1 (10.5) 9.2 13.1 (4.2) 3.8 5.9 19.4 Canara Bank ADD 256 350 36.9 187 2.8 733 2 51 63 (91.8) 3,202.9 23.5 166.6 5.0 4.1 ——— 1.1 0.9 0.7 0.3 8.9 10.0 — 1.1 1.3 36.4 City Union Bank ADD 187 180 (3.5) 124 1.9 661 8 10 11 1.0 19.3 11.6 22.1 18.5 16.6 ——— 3.3 2.9 2.6 14.7 15.6 15.4 0.8 1.0 1.1 2.9 DCB Bank ADD 191 210 9.8 59 0.9 308 8 10 12 13.8 24.7 25.9 24.0 19.3 15.3 ——— 2.4 2.2 2.0 10.9 11.4 12.8 — 0.5 0.6 5.8 Equitas Holdings BUY 169 190 12.5 57 0.9 340 0.9 4.4 8.3 (80.4) 374.7 88.2 182.6 38.5 20.4 ——— 2.6 2.5 2.2 1.4 6.4 11.0 ——— 4.2 Federal Bank BUY 100 140 39.9 197 2.9 1,832 5.4 7.8 9.0 13.0 43.1 15.2 18.4 12.8 11.1 ——— 1.6 1.4 1.3 9.4 11.2 11.8 1.1 1.5 1.8 14.9 HDFC Bank REDUCE 1,989 1,900 (4.5) 5,164 77.2 2,595 67 78 94 18.7 15.7 20.7 29.5 25.5 21.1 ——— 4.9 3.7 3.3 17.9 16.7 16.1 0.5 0.6 0.7 41.5 ICICI Bank BUY 283 400 41.4 1,818 27.2 6,408 9 16 25 (40.3) 70.0 58.9 31.0 18.2 11.5 ——— 2.2 1.9 1.6 5.8 9.2 13.4 0.6 1.1 1.7 93.3 IDFC Bank NR 46 —— 158 2.4 3,404 2.5 1.6 3.3 (16.0) (38.5) 109.8 18.4 29.9 14.2 ——— 1.0 1.0 1.0 5.7 3.4 6.9 1.1 0.7 1.4 5.9 Daily Summary India IndusInd Bank REDUCE 1,891 1,800 (4.8) 1,135 17.0 600 60 72 87 25.3 19.1 22.0 31.5 26.4 21.7 ——— 4.9 4.0 3.5 16.7 17.7 17.0 — 0.5 0.6 30.1 J&K Bank BUY 55 110 100.2 31 0.5 521 5 15 17 115.9 210.7 11.0 11.0 3.6 3.2 ——— 0.7 0.6 0.5 4.5 13.1 13.1 1.9 5.9 6.6 0.5 Karur Vysya Bank ADD 104 135 29.9 76 1.1 728 5 8 15 (52.7) 75.9 80.4 22.1 12.6 7.0 ——— 1.6 1.4 1.2 6.1 9.4 15.5 1.1 2.0 3.6 1.9 Punjab National Bank ADD 92 150 63.8 253 3.8 2,426 (13) (5) 20 (308.0) 62.3 516.2 (7.1) (18.7) 4.5 ——— 1.2 0.9 0.7 (7.9) (2.9) 11.5 (3.1) (1.2) 4.8 82.0 RBL Bank SELL 524 450 (14.0) 220 3.3 420 15 20 25 27.3 32.9 21.8 34.6 26.0 21.4 ——— 3.4 3.1 2.8 11.5 12.0 13.2 0.4 0.6 0.7 9.0 State Bank of India BUY 242 380 57.1 2,159 32.3 8,632 (0) 22 45 (100.1) NM 108.5 NM 11.1 5.3 ——— 2.1 1.6 1.1 (0.0) 8.5 15.9 1.2 1.3 1.3 97.5 Ujjivan Financial Services REDUCE 420 420 (0.1) 51 0.8 119 (2) 18 21 (110.1) 1,153.9 14.9 (239.6) 22.7 19.8 ——— 3.0 2.6 2.4 (1.2) 12.0 12.4 (0.0) 0.4 0.5 6.5

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Union Bank ADD 91 150 64.6 107 1.6 726 (55) 20 34 (776.6) 136.2 73.3 (1.7) 4.6 2.7 ——— 3.1 2.4 0.8 (20.2) 7.8 12.3 — 3.3 5.6 15.1 YES Bank SELL 345 325 (5.8) 795 11.9 2,303 18 18 21 25.7 (0.2) 14.5 18.8 18.9 16.5 ——— 3.2 2.8 2.5 17.5 15.4 15.5 0.9 0.9 1.0 76.1 Banks Attractive 14,472 216 (47.2) 213.4 59.5 54.9 17.5 11.0 1.9 1.7 1.5 3.4 9.5 13.4 0.5 0.9 1.2 658.3

Source: Company, Bloomberg, Kotak Institutional Equities estimates -

May 7, May 7, 2018

KOTAK INSTITUTIONAL EQUITIES RESEARCH 69

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Target O/S ADVT Price (Rs) price 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 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn) NBFCs Bajaj Finance REDUCE 1,857 1,750 (5.8) 1,073 16.0 573 44 61 76 31.5 37.7 25.4 42.1 30.6 24.4 — — — 6.5 5.5 4.6 19.5 19.6 20.6 1.3 1.8 2.3 27.0 Bajaj Finserv ADD 5,348 5,600 4.7 851 12.7 159 184 222 274 20.3 20.5 23.2 29.0 24.1 19.5 — — — 4.1 3.5 3.0 16.1 15.8 16.7 0.3 0.3 0.3 12.7 Bharat Financial Inclusion NA 1,158 — — 161 2.4 139 33 43 54 55.5 31.1 27.2 35.4 27.0 21.3 — — — 5.4 4.4 3.6 16.7 17.9 18.5 — — — 11.4 Cholamandalam REDUCE 1,636 1,510 (7.7) 256 3.8 156 62 76 92 35.5 22.3 20.8 26.3 21.5 17.8 — — — 5.2 4.4 3.6 20.6 21.0 21.2 0.4 0.6 0.7 7.4 HDFC ADD 1,910 2,075 8.6 3,202 47.9 1,676 75 58 67 52.1 (23.1) 15.2 25.3 33.0 28.6 — — — 5.0 4.4 4.0 23.9 14.3 14.5 1.0 1.1 1.2 85.9 HDFC Standard Life Insurance SELL 500 405 (19.1) 1,007 15.0 2,007 6 6 7 24.4 14.8 10.9 90.5 78.8 71.1 — — — 23.4 20.9 18.7 27.3 28.0 27.7 0.3 0.3 0.4 12.3 ICICI Lombard SELL 720 600 (16.6) 327 4.9 454 19 26 30 22.0 36.4 17.0 37.9 27.8 23.7 — — — 7.2 6.1 5.1 20.8 23.7 23.5 0.6 0.9 1.1 3.5 ICICI Prudential Life BUY 434 500 15.2 623 9.3 1,436 11 12 13 (3.7) 3.8 7.6 38.5 37.1 34.4 — — — 9.5 7.9 6.7 25.0 23.2 20.9 1.3 0.5 0.5 10.0 IIFL Holdings SELL 743 625 (15.8) 237 3.5 319 29 34 41 32.4 17.3 21.4 26.0 22.2 18.3 — — — 4.7 4.0 3.5 19.0 19.3 20.0 0.8 1.0 1.2 4.2 L&T Finance Holdings REDUCE 176 160 (9.2) 352 5.3 1,895 7 9 10 33.7 25.3 12.8 24.0 19.1 17.0 — — — 3.7 3.2 2.8 16.4 18.1 17.8 1.0 1.2 1.2 11.0 LIC Housing Finance ADD 518 605 16.9 261 3.9 505 44 50 58 3.2 13.8 17.5 11.9 10.4 8.9 — — — 2.0 1.7 1.4 14.5 14.3 14.4 1.3 1.5 1.8 14.8

Mahindra & Mahindra Financial REDUCE 505 475 (6.0) 312 4.7 614 15 22 26 105.0 53.5 16.6 34.8 22.7 19.4 — — — 3.6 3.2 2.9 11.3 14.0 14.8 0.8 1.2 1.4 13.3 -

Max Financial Services BUY 509 650 27.7 137 2.0 267 6 6 6 4.0 7.0 0.5 84.9 79.3 78.9 — — — — — — 8.6 8.7 8.4 0.5 0.5 0.5 5.3 May7, 2018 Muthoot Finance ADD 442 500 13.0 177 2.6 400 41 37 41 39.3 (10.0) 11.8 10.8 12.0 10.7 — — — 2.3 2.0 1.7 23.0 17.7 17.3 1.9 1.7 1.9 4.7 PNB Housing Finance REDUCE 1,406 1,375 (2.2) 234 3.5 167 50 61 77 57.8 23.0 25.3 28.3 23.0 18.3 — — — 3.7 3.4 3.0 14.0 15.2 16.8 0.6 0.2 0.2 3.2 SBI Life Insurance ADD 702 815 16.1 702 10.5 1,000 12 15 18 20.8 26.0 22.9 60.9 48.3 39.3 — — — 10.9 9.2 7.7 19.4 20.6 21.3 0.3 0.3 0.4 4.9

Shriram City Union Finance ADD 2,362 2,550 8.0 156 2.3 66 101 140 174 19.6 39.4 23.8 23.5 16.8 13.6 — — — 3.0 2.6 2.3 12.5 15.5 16.7 0.8 0.7 0.9 1.1 Shriram Transport REDUCE 1,600 1,600 0.0 363 5.4 227 69 105 125 24.7 52.1 18.7 23.2 15.2 12.8 — — — 3.1 2.7 2.3 13.1 17.6 18.0 0.7 0.9 1.1 18.6 NBFCs Neutral 10,479 157 37.5 7.4 18.4 29.2 27.2 23.0 5.2 4.5 3.9 17.9 16.5 17.1 0.7 0.7 0.8 658.3 Cement ACC SELL 1,528 1,560 2.1 287 4.3 188 49 54 84 41.9 11.8 54.6 31.4 28.1 18.2 16.7 15.3 10.5 3.1 2.9 2.6 10.2 10.6 14.9 1.1 1.1 1.1 7.9

Ambuja Cements REDUCE 237 245 3.5 470 7.0 1,986 8 8 11 29.7 7.1 32.0 31.5 29.4 22.3 10.6 9.8 7.6 2.3 2.2 2.1 7.4 7.6 9.6 1.5 1.5 1.5 10.3 Dalmia Bharat ADD 2,858 2,980 4.3 255 3.8 89 65 117 160 68.5 78.8 36.6 43.7 24.4 17.9 13.7 9.9 7.7 4.2 3.6 3.0 10.5 15.7 18.1 0.1 0.1 0.1 7.7 Grasim Industries ADD 1,074 1,275 18.7 706 10.6 657 52 49 67 (22.9) (5.5) 35.7 20.5 21.7 16.0 9.0 7.4 6.8 1.2 1.1 1.1 7.6 5.3 6.9 0.5 0.5 0.5 16.4 India Cements REDUCE 135 165 21.9 42 0.6 308 4 8 11 (24.2) 84.0 44.0 31.5 17.1 11.9 9.2 7.3 6.0 0.8 0.8 0.7 2.6 4.6 6.3 0.8 0.8 0.8 8.1 J K Cement REDUCE 993 1,020 2.7 69 1.0 70 41 66 84 18.2 61.2 28.3 24.3 15.1 11.8 11.9 10.2 9.5 3.5 2.9 2.4 15.3 21.2 22.4 0.8 0.8 0.8 0.8 JK Lakshmi Cement ADD 408 450 10.3 48 0.7 118 9 26 39 34.4 181.2 47.7 43.7 15.5 10.5 12.0 8.0 6.1 3.2 2.7 2.2 7.6 19.0 23.0 0.5 0.5 0.5 0.8 Orient Cement ADD 139 165 19.1 28 0.4 205 2 8 12 237.8 250.7 64.8 64.2 18.3 11.1 13.3 8.6 6.3 2.8 2.5 2.1 4.4 14.3 20.6 0.5 1.1 1.4 0.3 Shree Cement SELL 16,334 13,360 (18.2) 569 8.5 35 397 497 672 3.4 25.1 35.1 41.1 32.9 24.3 22.1 16.4 12.8 6.4 5.5 4.5 16.7 17.9 20.4 0.3 0.3 0.3 5.1 UltraTech Cement SELL 3,986 3,125 (21.6) 1,095 16.4 275 89 119 160 (7.0) 32.4 34.8 44.5 33.6 25.0 20.6 16.2 13.0 4.2 3.8 3.3 9.9 11.9 14.2 0.3 0.3 0.3 12.9 Cement Cautious 3,569 53 11.1 20.5 37.0 32.9 27.3 19.9 13.3 10.6 8.8 2.5 2.4 2.1 7.7 8.7 10.8 0.6 0.6 0.6 70.2

Source: Company, Bloomberg, Kotak Institutional Equities estimates

70 KOTAK INSTITUTIONAL EQUITIES RESEARCH

70

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn) Consumer products Asian Paints REDUCE 1,190 1,100 (7.6) 1,142 17.1 959 21 24 28 6.1 14.5 14.7 56.0 48.9 42.6 34.7 30.2 26.3 13.7 12.6 11.5 25.6 26.8 28.2 1.0 1.2 1.4 14.5 Bajaj Corp. ADD 456 520 14.1 67 1.0 148 14 17 19 (10.5) 18.7 10.5 32.2 27.1 24.6 25.6 21.9 18.7 13.7 13.2 12.6 42.3 49.4 52.4 2.6 2.9 3.1 0.4 Britannia Industries ADD 5,385 5,350 (0.6) 646 9.7 120 85 105 127 15.0 24.2 21.0 63.5 51.1 42.3 42.2 34.0 28.1 19.4 15.8 13.0 33.8 34.1 33.8 0.5 0.7 0.8 10.0 Coffee Day Enterprises REDUCE 340 340 0.1 72 1.1 206 4 9 14 77.3 136.5 51.5 85.5 36.1 23.9 — — — 3.0 2.8 2.5 3.6 7.9 10.9 — — — 1.9 Colgate-Palmolive (India) ADD 1,098 1,225 11.5 299 4.5 272 24 29 34 16.4 19.1 19.0 45.7 38.4 32.3 26.3 22.4 19.1 19.7 16.9 14.4 46.8 47.3 48.1 1.2 1.5 1.7 5.7 Dabur India REDUCE 370 350 (5.5) 652 9.8 1,762 8 9 10 7.2 16.1 11.7 47.7 41.0 36.8 40.2 34.8 30.5 11.4 11.5 10.0 25.9 27.9 29.1 2.0 1.0 1.2 9.6 GlaxoSmithKline Consumer ADD 5,901 6,500 10.1 248 3.7 42 159 182 203 2.0 14.5 11.5 37.1 32.4 29.0 25.2 21.0 18.1 7.3 6.8 6.2 20.6 21.7 22.3 1.4 1.6 1.9 2.1 Godrej Consumer Products REDUCE 1,107 980 (11.5) 754 11.3 681 22 25 29 14.4 14.8 14.4 50.6 44.1 38.5 36.6 31.3 27.2 12.3 10.7 9.2 26.1 25.9 25.6 0.7 0.8 0.9 8.7 Hindustan Unilever REDUCE 1,464 1,300 (11.2) 3,169 47.4 2,160 23 27 31 19.0 17.4 12.3 62.7 53.4 47.5 43.6 37.7 33.2 44.9 41.9 39.5 74.5 81.1 85.5 1.2 1.4 1.6 22.8 ITC ADD 277 315 13.7 3,382 50.6 12,235 9 10 11 8.9 10.0 11.7 30.8 28.0 25.1 20.5 18.5 16.4 7.0 6.7 6.4 21.8 23.4 25.6 2.1 2.4 2.8 44.5 Jubilant Foodworks BUY 2,567 2,500 (2.6) 169 2.5 66 29 45 61 172.6 58.2 35.7 89.6 56.7 41.8 37.0 26.9 20.8 18.4 15.4 12.7 21.9 29.7 33.5 0.4 0.6 0.8 33.0 Jyothy Laboratories ADD 375 405 8.1 68 1.0 182 9 12 14 34.8 34.6 14.6 42.6 31.7 27.6 27.4 21.7 18.9 6.1 5.8 5.4 14.5 18.7 20.3 1.6 1.9 2.1 0.7 Manpasand Beverages BUY 382 450 17.9 44 0.7 114 9 12 17 39.5 32.0 43.8 43.1 32.6 22.7 21.9 15.1 11.0 3.5 3.2 2.8 8.4 10.2 13.2 0.1 0.2 0.4 1.0 Marico ADD 317 345 8.9 409 6.1 1,291 6 7 8 7.4 16.7 13.7 50.6 43.3 38.1 35.6 29.9 26.0 16.1 14.9 13.8 33.2 35.7 37.5 1.3 1.5 1.7 7.1 Nestle India ADD 9,111 9,000 (1.2) 878 13.1 96 127 163 185 21.1 28.1 13.5 71.7 56.0 49.3 39.3 31.2 27.4 25.7 23.7 21.9 36.6 44.1 46.2 0.9 1.2 1.4 10.0 Page Industries SELL 23,636 18,200 (23.0) 264 3.9 11 299 358 438 27.2 20.0 22.3 79.2 66.0 53.9 50.9 41.7 34.4 31.7 25.6 20.7 44.5 42.9 42.5 0.5 0.6 0.8 6.6 PC Jeweller REDUCE 175 520 197.7 69 1.0 394 15 19 23 29.9 25.9 17.5 11.4 9.1 7.7 5.2 3.9 3.1 1.6 1.4 1.2 15.7 16.3 16.6 0.9 1.1 1.7 69.5 Pidilite Industries NR 1,071 — — 544 8.1 513 18 22 26 6.6 22.5 16.7 59.9 48.9 41.9 38.7 32.5 27.6 13.7 11.7 10.0 24.5 25.8 25.7 0.6 0.7 0.8 8.4 S H Kelkar and Company BUY 242 325 34.3 35 0.5 145 8 10 11 4.0 26.3 20.7 32.1 25.4 21.1 19.5 15.5 12.8 3.9 3.5 3.1 12.8 14.6 15.6 0.7 0.7 0.8 0.6 Tata Global Beverages ADD 288 300 4.2 182 2.7 631 8 10 13 33.9 26.6 22.2 35.3 27.9 22.8 18.8 15.8 13.6 2.7 2.6 2.4 8.0 9.5 10.9 0.9 1.1 1.3 15.3 Titan Company SELL 958 670 (30.1) 851 12.7 888 12 16 19 31.7 32.5 21.7 81.5 61.5 50.6 53.9 40.5 32.8 17.3 14.6 12.3 22.8 25.8 26.5 0.4 0.5 0.6 36.2 United Breweries SELL 1,128 850 (24.7) 298 4.5 264 14 18 21 64.4 25.3 19.1 78.9 63.0 52.9 34.3 30.1 26.5 11.3 9.9 8.7 15.2 16.8 17.5 0.2 0.3 0.4 6.5 United Spirits SELL 3,478 2,800 (19.5) 506 7.6 145 38 56 73 39.7 47.1 30.3 91.1 61.9 47.5 49.7 37.1 29.8 19.5 13.3 9.7 24.5 25.5 23.6 — — 0.3 19.1 Varun Beverages ADD 720 750 4.2 131 2.0 183 12 17 22 377.8 45.4 29.8 62.5 43.0 33.1 19.1 15.4 13.2 7.4 6.4 5.4 12.1 16.0 17.7 — — 0.1 0.7 Consumer products Cautious 14,880 222 14.9 17.6 15.0 48.4 41.2 35.8 31.0 26.5 23.0 12.0 10.9 9.9 24.7 26.6 27.7 1.2 1.3 1.6 335.0 Energy BPCL REDUCE 380 410 7.8 825 12.3 1,967 36 37 40 (11.9) 2.3 7.4 10.6 10.3 9.6 8.1 7.6 7.1 2.3 2.1 1.9 22.6 20.9 20.4 4.2 4.3 4.6 35.5 Castrol India ADD 185 215 16.4 182 2.7 989 7 8 9 3.3 13.6 10.9 26.9 23.7 21.3 16.9 14.9 13.4 17.9 16.9 16.6 67.9 73.6 78.6 2.6 3.2 3.8 5.3 GAIL (India) BUY 330 400 21.3 744 11.1 2,255 22 24 27 31.5 9.5 10.2 15.0 13.7 12.4 9.4 8.7 7.9 1.8 1.7 1.5 12.5 12.7 13.0 2.2 2.4 2.6 19.8 GSPL SELL 180 180 0.3 101 1.5 564 12 12 14 41.1 0.4 8.7 14.4 14.4 13.2 7.4 6.9 6.0 2.0 1.8 1.6 14.7 13.3 13.1 1.4 1.4 1.5 2.2 HPCL REDUCE 295 350 18.7 449 6.7 1,524 39 32 33 (10.4) (16.8) 2.0 7.6 9.2 9.0 6.9 7.9 8.1 1.9 1.8 1.6 27.0 20.1 18.6 5.6 4.7 4.7 25.2 Indraprastha Gas SELL 273 250 (8.3) 191 2.9 700 10 12 14 20.3 16.7 12.4 26.2 22.4 19.9 16.1 13.8 12.2 5.6 4.9 4.4 23.1 23.4 23.2 0.9 1.2 1.6 11.1 IOCL REDUCE 162 175 8.4 1,568 23.4 9,479 19 17 18 (28.8) (11.6) 7.3 8.3 9.4 8.8 4.9 5.5 5.1 1.4 1.3 1.2 17.7 14.5 14.6 6.2 5.0 5.3 36.1 Mahanagar Gas SELL 867 910 4.9 86 1.3 99 50 53 54 26.7 4.1 2.0 17.2 16.5 16.2 9.9 9.4 9.0 4.1 3.7 3.4 25.4 23.7 22.0 2.4 3.0 3.1 8.6 ONGC ADD 180 215 19.3 2,313 34.6 12,833 20 21 22 17.2 7.5 3.3 9.1 8.5 8.2 4.9 4.3 4.0 1.0 0.9 0.9 11.2 11.4 11.1 3.3 3.9 4.2 14.5 Oil India SELL 221 220 (0.5) 251 3.8 1,135 23 23 23 15.6 0.3 0.1 9.5 9.5 9.4 6.6 6.1 6.1 0.8 0.8 0.8 9.0 8.8 8.5 4.7 4.8 4.8 4.5 Daily Summary India Petronet LNG BUY 219 290 32.1 329 4.9 1,500 14 16 17 21.4 12.5 12.0 15.9 14.1 12.6 10.3 9.1 7.7 3.5 3.0 2.6 23.4 22.6 22.1 1.6 2.1 2.8 11.1 Reliance Industries REDUCE 954 930 (2.5) 5,645 84.4 5,922 59 67 76 16.9 14.2 12.2 16.1 14.1 12.6 12.5 10.2 8.7 1.9 1.7 1.5 11.6 11.9 11.9 0.6 0.7 0.7 97.3 Energy Attractive 12,685 190 1.9 4.7 8.0 12.2 11.6 10.8 8.1 7.3 6.6 1.6 1.5 1.4 13.3 12.8 12.7 2.4 2.4 2.6 271.2

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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May 7, May7, 2018

KOTAK INSTITUTIONAL EQUITIES RESEARCH 71

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Target O/S ADVT Price (Rs) price 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 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn) Industrials ABB SELL 1,286 1,100 (14.5) 273 4.1 212 20 27 34 12.1 34.1 29.2 64.9 48.4 37.5 35.8 29.0 22.5 7.6 6.9 6.1 12.2 14.9 17.3 0.3 0.7 0.7 1.9 BHEL SELL 84 80 (5.2) 310 4.6 3,671 2.5 3.8 5.9 86.2 53.0 52.4 33.6 21.9 14.4 20.1 9.0 5.4 0.9 0.9 0.9 2.8 4.2 6.2 0.8 1.2 1.8 9.4 Carborundum Universal SELL 374 325 (13.2) 71 1.1 189 11 15 18 23.5 28.4 22.4 32.7 25.4 20.8 17.6 13.1 11.2 4.6 4.1 3.7 14.9 17.2 18.7 0.9 1.2 1.4 0.9 CG Power and Industrial REDUCE 81 87 7.9 51 0.8 627 1.3 4.3 6.0 (56.2) 234.8 40.0 62.6 18.7 13.4 14.2 8.7 6.6 1.5 1.4 1.3 2.1 7.6 10.1 0.3 1.1 1.5 2.4 Crompton Greaves Consumer SELL 245 210 (14.3) 154 2.3 627 5.1 6.1 7.5 8.3 21.4 22.1 48.4 39.9 32.7 29.2 24.6 20.5 16.8 11.8 8.9 43.7 34.8 31.0 0.4 0.4 0.4 4.1 Cummins India REDUCE 752 715 (5.0) 209 3.1 277 25 30 34 (5.1) 20.1 13.9 30.2 25.1 22.1 26.8 21.7 18.3 5.2 4.8 4.5 17.8 20.0 21.1 1.8 2.1 2.4 5.1 Havells India SELL 540 450 (16.7) 338 5.1 625 11 14 17 14.8 26.0 20.8 49.6 39.3 32.6 32.2 24.8 20.5 9.3 8.4 7.6 19.7 22.4 24.5 0.8 1.1 1.5 9.2 Kalpataru Power Transmission BUY 500 575 15.0 77 1.1 153 17 28 40 21.7 62.4 42.5 28.9 17.8 12.5 9.6 7.9 6.2 2.9 2.6 2.2 10.5 15.3 18.7 0.4 0.4 0.4 0.9 KEC International ADD 425 455 6.9 109 1.6 257 16 23 30 37.1 39.8 32.8 26.2 18.7 14.1 13.0 10.3 8.2 5.6 4.5 3.6 23.7 26.8 28.2 0.5 0.7 1.0 5.2 L&T BUY 1,369 1,505 10.0 1,918 28.7 1,399 56 64 77 32.1 13.8 20.4 24.5 21.5 17.9 20.6 17.8 15.9 3.7 3.4 3.1 16.0 16.5 18.0 1.5 1.7 2.0 46.5 Siemens SELL 1,024 975 (4.8) 365 5.5 356 24 29 36 20.0 23.4 23.5 43.2 35.0 28.4 24.7 19.7 15.7 4.5 4.2 3.9 10.7 12.4 14.3 0.9 1.2 1.4 3.9

Thermax REDUCE 1,133 1,065 (6.0) 135 2.0 113 27 34 43 24.2 28.9 24.4 42.6 33.1 26.6 28.7 23.2 19.3 4.6 4.2 3.7 11.3 13.3 14.9 0.5 0.7 0.7 1.1 -

Voltas SELL 615 526 (14.5) 203 3.0 331 17 18 21 11.9 6.0 14.5 35.8 33.7 29.5 29.2 24.7 21.0 5.4 4.9 4.3 16.1 15.2 15.5 0.6 0.7 0.8 15.3 May7, 2018 Industrials Neutral 4,211 63 26.1 22.1 24.6 31.1 25.5 20.4 21.6 17.4 14.7 3.5 3.2 2.9 11.2 12.7 14.4 1.1 1.3 1.6 105.8 Infrastructure Adani Ports and SEZ BUY 408 470 15.1 845 12.6 2,071 20 20 23 6.1 (0.2) 14.7 20.4 20.4 17.8 14.3 13.9 12.2 4.0 3.4 3.0 21.5 18.1 17.9 0.5 0.6 0.8 20.7

Ashoka Buildcon BUY 281 310 10.2 53 0.8 188 12 13 13 18.9 9.0 4.5 24.2 22.2 21.2 17.4 14.9 13.2 2.6 2.3 2.1 11.2 10.9 10.2 0.7 1.1 0.8 1.7 Container Corp. SELL 1,364 1,265 (7.3) 332 5.0 244 35 42 51 7.3 20.0 21.4 38.6 32.1 26.5 25.6 19.9 15.8 3.5 3.3 3.0 9.4 10.6 11.9 1.3 1.3 1.6 6.9 Dilip Buildcon BUY 1,164 1,365 17.3 159 2.4 137 44 62 76 68.3 40.6 21.6 26.3 18.7 15.4 13.1 9.2 7.5 6.5 4.7 3.6 28.1 29.1 26.5 — — — 6.6 Gateway Distriparks BUY 164 270 64.7 18 0.3 109 6 10 14 (7.8) 55.8 41.9 26.3 16.9 11.9 19.5 15.6 12.3 1.7 1.6 1.5 6.5 9.6 12.7 1.1 1.8 2.5 0.6 Gujarat Pipavav Port BUY 144 180 24.7 70 1.0 483 4.4 6.3 8.2 (15.0) 43.2 29.9 32.9 23.0 17.7 16.7 12.7 10.0 3.4 3.3 3.1 10.4 14.4 18.0 2.4 3.3 4.3 1.0 IRB Infrastructure BUY 266 330 24.1 93 1.4 351 23 31 33 10.8 36.8 7.1 11.8 8.6 8.0 7.9 7.4 7.8 1.6 1.4 1.2 14.5 17.6 16.3 0.9 1.2 1.5 11.2 Mahindra Logistics BUY 490 540 10.2 35 0.5 71 10 14 19 16.2 44.3 32.0 50.0 34.6 26.2 28.8 19.2 14.4 8.3 6.9 5.7 18.2 21.8 23.8 — — — 0.7 Sadbhav Engineering ADD 371 475 27.9 64 1.0 172 15 19 20 33.2 31.1 5.0 25.4 19.4 18.5 18.3 14.4 10.9 3.4 2.9 2.5 14.1 16.1 14.7 — — — 0.7 Infrastructure Attractive 1,669 25 10.5 13.3 15.7 23.1 20.4 17.6 14.3 12.6 11.0 3.6 3.1 2.7 15.7 15.4 15.6 0.7 0.8 1.0 50.0 Internet Info Edge REDUCE 1,206 1,290 7.0 147 2.2 121 22 28 33 32.1 23.3 19.1 54.0 43.8 36.8 40.0 31.4 25.7 6.1 5.6 5.1 12.4 13.3 14.4 1.0 0.6 0.7 2.2 Just Dial SELL 436 500 14.7 29 0.4 67 20 23 25 16.0 14.0 8.5 21.5 18.9 17.4 11.4 9.4 8.0 3.1 2.7 2.4 14.8 15.4 14.6 — 0.5 0.6 18.8 Internet Cautious 176 3 24.7 20.2 15.7 43.4 36.1 31.2 30.4 24.4 20.5 5.3 4.8 4.3 12.2 13.2 13.7 0.9 0.6 0.7 20.9 Media DB Corp. REDUCE 301 360 19.5 55 0.8 184 18 23 27 (10.0) 26.4 14.3 16.3 12.9 11.3 8.8 6.9 6.0 3.3 3.2 3.1 20.8 25.2 27.6 4.3 5.3 6.6 0.7 DishTV ADD 75 84 12.1 138 2.1 1,066 (0.4) 0.5 0.9 (134.5) 248.3 70.8 NM 143.0 83.8 17.4 15.2 14.1 17.6 15.7 13.2 (8.0) 11.6 17.1 — — — 8.6 Jagran Prakashan REDUCE 168 190 13.4 52 0.8 311 11 14 15 3.6 26.7 10.3 15.2 12.0 10.9 7.4 6.1 5.5 2.5 2.4 2.3 16.3 20.6 21.4 2.4 5.1 5.4 0.8 PVR REDUCE 1,425 1,425 (0.0) 67 1.0 47 27 38 50 25.5 39.8 33.2 53.1 38.0 28.5 17.7 14.6 12.1 6.2 5.4 4.6 12.3 15.2 17.5 0.1 0.3 0.4 4.9 Sun TV Network REDUCE 864 975 12.9 340 5.1 394 29 36 40 10.8 22.8 12.6 29.8 24.3 21.6 20.4 16.5 14.5 7.4 6.6 5.9 — — — 1.4 2.0 2.3 20.5 Zee Entertainment Enterprises ADD 586 625 6.7 563 8.4 960 13 18 21 (7.9) 38.4 17.2 45.6 33.0 28.1 25.8 21.2 17.9 7.2 6.2 5.4 17.0 20.1 20.6 0.6 0.8 0.9 12.5 Media Attractive 1,215 18 (4.8) 33.7 16.0 38.6 28.9 24.9 19.1 15.8 13.8 6.9 6.1 5.4 17.8 21.1 21.9 1.0 1.4 1.6 48.1 Source: Company, Bloomberg, Kotak Institutional Equities estimates

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn) Metals & Mining Coal India RS 271 — — 1,684 25.2 6,207 19 24 25 25.4 26.7 5.8 14.5 11.4 10.8 9.0 6.9 6.2 5.5 5.1 4.7 39.5 46.3 45.1 4.8 6.1 6.5 17.1 Hindalco Industries BUY 232 315 36.0 520 7.8 2,227 21 26 30 147.9 21.2 16.5 10.9 9.0 7.7 6.6 5.7 4.9 1.0 0.9 0.8 9.7 10.5 11.1 0.4 0.4 0.4 45.9 Hindustan Zinc REDUCE 304 325 7.0 1,284 19.2 4,225 22 24 28 9.3 13.6 13.8 14.1 12.4 10.9 8.8 7.3 6.0 3.6 3.0 2.6 27.2 26.4 25.6 2.6 2.6 2.7 14.4 Jindal Steel and Power REDUCE 241 250 3.9 233 3.5 915 (9) 8 17 56.4 191.0 106.9 (26.5) 29.1 14.1 10.1 7.2 6.2 0.8 0.8 0.7 (2.8) 2.7 5.3 — — — 40.2 JSW Steel ADD 318 315 (0.8) 768 11.5 2,417 19 23 25 27.4 21.4 10.2 17.1 14.1 12.8 8.9 8.1 7.8 2.8 2.4 2.0 17.6 18.2 17.2 0.7 0.7 0.7 25.1 National Aluminium Co. ADD 78 85 8.5 151 2.3 1,933 6 7 7 54.4 19.3 10.3 13.8 11.6 10.5 6.3 5.1 4.4 1.4 1.3 1.2 10.3 11.5 12.0 3.8 3.8 3.8 13.5 NMDC SELL 121 125 3.6 382 5.7 3,164 13 10 11 55.4 (24.0) 8.8 9.5 12.5 11.5 5.8 8.0 7.2 1.6 1.5 1.4 17.1 12.2 12.7 4.6 4.6 4.6 7.7 Tata Steel ADD 581 750 29.1 666 10.0 1,205 66 66 73 59.3 0.5 10.9 8.8 9 7.9 5.6 5.9 5.5 1.4 1.3 1.1 18.9 15.4 15.0 1.7 1.7 1.7 90.7 Vedanta BUY 282 435 54.4 1,047 15.7 3,717 22 36 45 9.6 67.6 23.9 13.0 7.8 6.3 6.5 4.9 4.0 1.6 1.5 1.3 12.9 20.1 22.1 2.8 3.9 4.8 57.5 Metals & Mining Attractive 6,734 101 40.4 25.2 14.5 13.4 10.7 9.4 7.4 6.3 5.5 2.1 1.9 1.7 15.6 17.5 17.9 2.8 3.3 3.5 312.1 Pharmaceutical Apollo Hospitals ADD 1,101 1,230 11.7 153 2.3 139 13 23 30 (19.7) 81.8 30.6 86.3 47.5 36.4 21.5 18.1 15.4 4.0 3.8 3.5 4.8 8.2 10.1 0.3 0.5 0.7 6.9 Aurobindo Pharma ADD 612 690 12.7 359 5.4 584 43 46 50 9.6 7.4 7.9 14.2 13.2 12.2 9.9 9.1 8.2 3.0 2.5 2.1 23.9 20.8 17.2 0.4 0.5 0.6 24.5 Biocon SELL 626 300 (52.1) 375 5.6 601 6 8 15 (39.2) 26.8 86.5 101.0 79.7 42.7 45.3 33.4 21.8 6.7 6.2 5.6 6.9 8.1 13.8 0.3 0.4 0.8 26.4 Cipla BUY 597 720 20.6 481 7.2 805 21 31 38 64.6 49.6 22.1 29.0 19.4 15.9 16.0 11.5 9.5 3.4 3.0 2.6 12.2 16.3 17.4 0.7 1.1 1.3 19.0 Dr Lal Pathlabs REDUCE 839 880 4.9 70 1.0 83 21 24 29 7.7 18.7 18.5 40.7 34.3 29.0 24.7 20.8 17.3 8.7 7.2 6.0 23.5 23.0 22.6 0.4 0.4 0.5 0.6 Dr Reddy's Laboratories SELL 2,107 2,250 6.8 349 5.2 166 62 96 136 (15.1) 55.5 42.3 34.2 22.0 15.5 15.0 10.1 7.4 2.6 2.4 2.1 8.0 11.4 13.7 0.4 0.7 1.0 18.0 HCG REDUCE 308 305 (0.8) 27 0.4 85 2 3 5 (35.5) 87.1 58.0 182.9 97.7 61.9 26.4 20.2 17.1 5.4 5.1 4.7 3.1 5.4 7.9 — — — 0.6 Laurus Labs ADD 506 540 6.7 54 0.8 106 17 23 34 (3.5) 34.3 45.1 29.1 21.7 15.0 14.6 12.1 9.1 3.5 3.0 2.5 12.9 15.1 18.4 — — — 1.0 Lupin REDUCE 795 840 5.7 359 5.4 450 30 37 47 (46.5) 20.1 27.7 26.1 21.8 17.0 11.9 10.4 8.4 2.4 2.2 2.0 9.7 10.7 12.4 0.6 0.7 0.9 19.9 Narayana Hrudayalaya ADD 268 320 19.5 55 0.8 204 3 4 7 (32.8) 61.7 68.7 98.1 60.6 35.9 27.6 19.4 14.5 5.4 4.9 4.3 5.6 8.5 12.8 — — — 0.6 Sun Pharmaceuticals REDUCE 518 500 (3.5) 1,243 18.6 2,406 13 20 26 (55.0) 54.0 30.8 39.8 25.8 19.8 19.8 13.2 10.2 3.3 2.9 2.6 8.4 11.9 14.0 0.3 0.8 1.0 51.8 Torrent Pharmaceuticals NR 1,394 — — 236 3.5 169 40 59 73 (28.0) 47.3 25.0 35.1 23.8 19.0 19.3 14.1 11.8 4.8 4.2 3.6 14.6 17.6 18.8 0.7 1.0 1.2 4.8 Pharmaceuticals Neutral 3,760 56 (30.1) 37.4 27.9 33.1 24.1 18.8 16.9 12.8 10.3 3.4 3.0 2.7 10.3 12.6 14.2 0.4 0.7 0.9 173.9 Real Estate Brigade Enterprises BUY 273 340 24.7 37 0.6 136 10 10 10 (26.4) 0.7 (3.7) 27.5 27.3 28.3 11.9 12.1 11.9 1.6 1.6 1.5 6.7 5.8 5.4 0.9 0.9 0.9 0.5 DLF RS 211 — — 377 5.6 1,784 47.0 1.8 2.1 1,107.8 (96.3) 20.6 4.5 120.5 100.0 21.4 16.5 16.7 1.2 1.2 1.2 29.4 1.0 1.2 0.9 0.9 0.9 22.8 Godrej Properties SELL 810 400 (50.6) 175 2.6 216 8.0 8.7 15.5 (15.8) 8.2 77.9 100.6 93.0 52.3 108.8 392.8 74.5 8.0 7.4 6.5 8.3 8.3 13.2 — — — 2.1 Oberoi Realty REDUCE 515 535 4.0 175 2.6 340 14 57 50 21.4 318.9 (12.7) 38.0 9.1 10.4 28.2 9.8 14.5 2.9 2.2 1.8 7.8 27.5 19.2 0.4 0.4 0.4 4.6 Prestige Estates Projects ADD 291 315 8.3 109 1.6 375 9 12 13 (6.7) 30.0 5.9 30.9 23.8 22.4 16.5 14.5 14.4 2.3 2.1 2.0 7.7 9.3 9.1 0.5 0.5 0.5 1.4 Sobha REDUCE 529 510 (3.5) 50 0.7 96 21 23 26 25.6 9.1 13.4 25.2 23.1 20.4 14.1 13.5 12.6 1.8 1.8 1.7 7.5 7.8 8.3 1.3 1.3 1.3 2.9 Sunteck Realty REDUCE 423 330 (22.0) 62 0.9 140 17 16 17 19.3 (6.4) 2.6 24.3 26.0 25.3 17.8 21.4 21.4 2.2 2.1 1.9 10.9 8.2 7.8 0.3 0.2 0.2 1.6 Real Estate Neutral 985 15 357.3 (65.1) 0.7 9.9 28.4 28.2 22.3 16.6 17.5 1.8 1.8 1.7 18.7 6.2 5.9 0.6 0.6 0.6 35.7

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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May 7, May7, 2018

KOTAK INSTITUTIONAL EQUITIES RESEARCH 73

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Target O/S ADVT Price (Rs) price 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 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn) Technology HCL Technologies REDUCE 930 975 4.9 1,295 19.4 1,409 62 67 70 5.3 7.3 4.4 14.9 13.9 13.3 10.5 9.0 8.3 3.6 3.1 2.8 24.8 23.8 22.0 0.9 3.1 3.3 32.7 Hexaware Technologies SELL 388 400 3.1 115 1.7 304 16 19 22 19.8 18.6 11.6 23.6 19.9 17.8 16.7 14.4 12.2 5.9 5.1 4.4 26.6 27.5 26.5 1.0 2.1 2.1 9.4 Infosys ADD 1,173 1,250 6.6 2,562 38.3 2,175 65 69 75 3.0 6.5 8.6 18.2 17.0 15.7 12.4 11.5 10.4 3.9 3.7 3.4 21.8 22.4 22.7 2.4 3.7 3.3 86.2 L&T Infotech ADD 1,489 1,100 (26.1) 256 3.8 175 65 70 80 15.9 8.4 14.4 23.0 21.3 18.6 19.2 15.4 13.3 6.8 5.7 4.8 32.3 29.1 28.1 1.3 1.6 1.7 6.2 Mindtree ADD 1,011 910 (10.0) 166 2.5 165 35 42 49 37.8 20.5 18.7 29.3 24.3 20.5 21.3 15.2 12.8 6.1 5.2 4.5 21.4 23.1 23.6 1.1 1.2 1.5 35.6 Mphasis SELL 977 650 (33.5) 189 2.8 193 42 46 48 9.0 9.2 5.7 23.4 21.4 20.3 16.5 14.6 13.4 3.5 3.2 3.0 14.0 15.7 15.4 2.0 2.0 2.0 5.0 TCS REDUCE 3,481 3,100 (10.9) 6,663 99.6 1,914 135 153 165 1.1 13.1 8.3 25.8 22.8 21.1 19.0 16.4 15.0 7.6 7.1 6.6 29.4 32.3 32.6 1.4 2.9 3.1 130.2 Tech Mahindra ADD 663 685 3.4 585 8.7 883 39 42 48 22.3 7.9 12.4 16.9 15.7 13.9 11.4 9.2 7.9 3.1 2.7 2.4 19.6 18.5 18.0 1.4 1.4 1.4 30.5 Wipro REDUCE 270 280 3.7 1,221 18.3 4,507 17 19 21 (3.1) 10.3 11.5 15.9 14.4 12.9 10.0 8.6 7.6 2.5 2.2 2.0 16.0 16.2 16.2 0.4 0.6 3.7 15.7 Technology Cautious 13,052 195 1.0 8.5 8.7 20.5 18.9 17.4 14.7 12.8 11.6 4.8 4.4 4.0 23.6 23.2 23.1 1.5 2.7 3.1 351.7 Telecom

Bharti Airtel ADD 397 470 18.5 1,585 23.7 3,997 5 (4) 0 (42.9) (187.4) 104.6 83.8 (95.8) ###### 8.5 9.7 7.8 2.3 2.4 2.4 2.8 (2.4) 0.1 1.3 0.3 0.0 44.3 -

Bharti Infratel SELL 322 285 (11.6) 596 8.9 1,850 14 13 11 (7.4) (8.7) (9.0) 23.4 25.7 28.2 8.6 9.4 9.9 3.5 3.7 3.7 15.7 14.0 13.1 4.5 3.1 2.9 24.7 May7, 2018 IDEA REDUCE 63 75 20.0 272 4.1 4,359 (10) (15) (14) (656.8) (54.9) 6.4 (6.5) (4.2) (4.5) 12.9 23.5 17.4 1.0 1.3 1.8 (16.0) (26.9) (34.0) — — — 17.6 Tata Communications ADD 617 740 19.9 176 2.6 285 1 5 10 (94.2) 751.3 95.6 1,019 119.7 61.2 11.0 9.6 8.4 15.9 13.9 11.3 1.3 12.4 20.4 1.1 1.1 1.2 4.4 Telecom Cautious 2,630 39 (95.2) (2,079.6) 36.8 923.3 (46.6) (73.7) 9.2 10.9 9.1 2.3 2.5 2.7 0.2 (5.4) (3.6) 1.8 0.9 0.7 90.9

Utilities CESC ADD 1,035 1,140 10.1 137 2.1 133 87 98 115 66.5 12.8 17.7 11.9 10.6 9.0 7.3 6.9 6.1 0.9 0.8 0.8 7.7 8.2 9.0 1.1 1.1 1.2 8.2 JSW Energy REDUCE 75 80 6.3 123 1.8 1,640 3.1 5.9 8.2 (19.2) 92.2 38.7 24.5 12.8 9.2 7.4 5.9 4.8 1.1 1.1 1.0 4.7 8.5 11.0 2.7 2.7 2.7 2.6 NHPC ADD 28 30 7.7 286 4.3 10,259 2.9 3.1 3.4 (3.4) 10.2 7.4 9.8 8.9 8.2 9.1 7.4 6.4 1.0 0.9 0.9 9.9 10.5 10.9 5.7 6.1 6.6 2.8 NTPC BUY 171 190 11.2 1,409 21.1 8,245 12 17 17 (2.6) 38.1 4.8 14.2 10.3 9.8 11.1 8.3 7.1 1.4 1.3 1.2 9.9 12.7 12.3 2.2 2.9 3.1 12.7 Power Grid BUY 207 250 20.5 1,085 16.2 5,232 16 19 21 11.7 17.3 13.4 12.9 11.0 9.7 8.7 7.5 6.9 2.0 1.8 1.6 16.0 16.9 17.1 2.3 2.7 3.1 20.0 Reliance Power SELL 37 40 9.1 103 1.5 2,805 3.5 5.1 5.2 (16.4) 45.6 2.7 10.5 7.2 7.0 8.1 7.0 6.8 0.5 0.4 0.4 4.5 6.1 5.9 — — — 5.8 Tata Power REDUCE 85 83 (2.9) 231 3.5 2,705 6.4 6.6 8.3 8.1 3.8 25.1 13.4 12.9 10.3 11.5 10.1 9.2 1.7 1.5 1.3 13.7 12.5 13.7 — — — 7.0 Utilities Attractive 3,374 50 3.2 26.0 10.3 13.2 10.5 9.5 9.6 7.9 7.0 1.3 1.2 1.1 10.2 11.9 12.0 2.3 2.8 3.0 59.1 Source: Company, Bloomberg, Kotak Institutional Equities estimates

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 4-May-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E (US$ mn) Others Astral Poly Technik SELL 950 570 (40.0) 114 1.7 120 15 19 23 22.8 24.9 22.0 63.7 51.0 41.8 37.5 28.8 23.1 11.2 9.3 7.6 19.2 19.8 20.0 0.1 0.1 0.1 1.3 Avenue Supermarts SELL 1,490 835 (43.9) 930 13.9 624 13 16 20 47.9 28.6 26.4 118.5 92.2 72.9 69.4 53.2 41.7 20.0 16.4 13.4 18.5 19.6 20.3 — — — — Bayer Cropscience ADD 4,436 4,450 0.3 175 2.6 34 96 115 134 17.2 19.1 16.9 46.0 38.6 33.0 37.5 30.0 23.9 8.5 7.3 6.2 17.2 20.3 20.3 0.4 0.5 0.6 0.8 Cera Sanitaryware REDUCE 3,037 2,950 (2.9) 39 0.6 13 82 100 116 7.3 22.7 15.3 37.1 30.2 26.2 22.6 18.4 15.5 6.4 5.3 5.3 18.9 19.3 20.3 0.3 0.3 0.2 0.6 Dhanuka Agritech REDUCE 595 690 16.0 29 0.4 49 25 28 31 3.3 11.5 14.3 24.1 21.6 18.9 16.7 14.1 12.0 4.8 4.2 3.6 21.5 20.7 20.5 1.0 1.2 1.3 0.2 Godrej Agrovet ADD 708 615 (13.2) 136 2.0 189 12 16 21 (1.6) 34.4 25.5 58.1 43.2 34.5 30.2 24.0 19.6 7.5 6.5 5.5 15.1 16.3 17.4 0.3 0.3 0.4 4.0 Godrej Industries RS 585 — — 197 2.9 336 15 16 20 6.8 8.9 24.2 40.1 36.9 29.7 36.0 30.5 33.2 5.4 4.8 4.2 14.4 13.9 15.1 0.3 0.3 0.3 5.0 HSIL REDUCE 379 390 2.9 27 0.4 72 11 18 23 (19.3) 56.0 27.4 33.0 21.2 16.6 12.2 9.3 7.7 1.8 1.7 1.6 5.6 8.4 10.0 1.1 1.1 1.1 0.4 InterGlobe Aviation BUY 1,182 1,500 26.9 454 6.8 383 59 79 107 27.2 35.0 34.9 20.2 14.9 11.1 11.8 8.6 6.0 6.4 4.6 3.4 41.3 36.0 35.4 0.5 0.7 0.9 24.0 Kaveri Seed SELL 503 470 (6.5) 33 0.5 66 32 34 36 19.8 5.9 5.0 15.5 14.7 14.0 13.1 11.9 10.7 4.3 3.5 3.0 23.8 26.3 23.3 1.2 1.6 2.0 4.2 PI Industries BUY 870 940 8.0 120 1.8 138 27 34 43 (18.1) 23.3 27.3 32.0 25.9 20.4 22.5 18.0 14.1 6.2 5.1 4.2 21.1 21.6 22.7 0.4 0.5 0.6 1.7 Rallis India ADD 218 235 8.0 42 0.6 195 9 11 13 (1.5) 26.4 19.7 25.2 20.0 16.7 16.1 13.2 11.2 3.6 3.2 2.9 14.6 16.9 18.1 1.5 1.7 1.8 0.9 SIS REDUCE 1,311 1,100 (16.1) 96 1.4 73 25 35 41 90.9 39.2 18.6 52.7 37.8 31.9 29.8 23.9 20.2 8.9 7.3 6.0 22.5 21.4 20.6 — — — 0.4 SRF BUY 2,315 2,185 (5.6) 133 2.0 57 83 102 129 (7.8) 23.2 26.4 28.0 22.7 18.0 15.7 12.2 10.0 3.7 3.3 2.8 14.0 15.3 16.8 0.5 0.6 0.6 5.5 Tata Chemicals ADD 766 760 (0.8) 195 2.9 255 45 43 50 (6.6) (3.8) 15.9 17.0 17.6 15.2 6.6 6.9 5.8 1.8 1.7 1.6 12.3 10.0 10.9 1.7 2.0 2.2 8.7 TeamLease Services SELL 3,078 1,700 (44.8) 53 0.8 17 43 57 74 9.9 34.5 28.3 72.2 53.7 41.8 75.7 52.6 40.7 11.6 9.5 7.8 17.5 19.5 20.5 — — — 2.6 UPL ADD 704 850 20.8 358 5.4 507 43 47 53 20.9 9.0 13.5 16.4 15.0 13.2 11.2 9.8 8.3 3.9 3.2 2.7 26.4 23.6 22.4 1.1 1.3 1.5 15.9 Vardhman Textiles ADD 1,210 1,400 15.7 69 1.0 55 106 138 140 (5.5) 30.6 1.6 11.4 8.8 8.6 10.2 7.0 6.6 1.4 1.2 1.1 12.9 15.1 13.7 1.7 1.7 2.5 0.5 Whirlpool SELL 1,543 1,150 (25.5) 196 2.9 127 27 36 44 8.7 30.4 23.7 56.6 43.4 35.1 32.9 26.1 21.0 11.1 9.2 7.7 21.3 23.2 23.9 0.3 0.4 0.6 1.5 Others 3,331 50 13.8 20.3 22.1 32.9 27.3 22.4 20.1 16.6 13.6 6.0 5.0 4.3 18.1 18.5 19.0 0.5 0.6 0.7 77.1 KIE universe 108,028 1,614 2.7 24.2 21.4 24.3 19.6 16.1 12.2 10.6 9.3 3.0 2.7 2.4 12.2 13.7 15.0 1.2 1.5 1.7 KIE universe (ex-energy) 95,342 1,425 2.9 30.1 24.7 28.1 21.6 17.3 13.6 11.7 10.1 3.3 3.0 2.7 11.9 14.0 15.6 1.1 1.4 1.6

Notes: (a) We have used adjusted book values for banking companies. (b) 2018 means calendar year 2017, similarly for 2019 and 2020 for these particular companies. (c) Exchange rate (Rs/US$)= 66.89

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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May 7, May7, 2018

KOTAK INSTITUTIONAL EQUITIES RESEARCH 75 India Daily Summary - May 7, 2018 sufficient of of the following strategic transaction

Asof March 2018 31, y, no longer are in effect for this stock n a merger or

Percentageof companies covered by Kotak Equities,Institutional within the specified category. Percentageof companies within each category whichfor Kotak Institutional Equities and or its affiliates has provided investment banking services within the previousmonths. 12 The * above categories are defined as expectfollows: this = Buy We stock to deliver more than 15% returns theover next months; 12 Add = expectWe this stock to deliver 5-15% returns over the next months; 12 Reduce =expectWe this stock to deliver -5-+5% returns over the next months; 12 =Sell expectWe this stock to deliver lessthan -5% returns over the next months. 12 targetOur prices are also on a 12-month horizon Thesebasis. ratings are used illustratively to comply with applicableregulations. As of 31/03/2018 Kotak InstitutionalEquities Investment Research had investmentratings on 207 equity securities.

months. SELL 1.4% 23.7%

3.9% 25.6% target target price, any, if have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) +5% returns over the next 12 months. REDUCE

- 5 - 15% returns over the next 12 5% returns over the next months.12 The information is not available for display is not or applicable. - -

month horizon basis. -

ADD 33.8% 3.9% Kotak SecuritiesKotak has suspended coverage of this company. tak Securities Research has suspended the investment and rating price target, if any,for this stock,because there is not a

Ko

The information is not meaningful and is therefore excluded.

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 2.4% 16.9% We expect this stock to deliver We expect this stock to deliver 5 We expect this to stock deliver < We expect this to stock deliver more than 15% returns over the next months.12

0% 20% 10% 60% 50% 40% 30% 70% Source:Kotak Institutional Equities Kotak Institutional Equities Research Equities KotakInstitutional coverage universe Distributionof 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 target. The previous investment and rating price target,if an Other definitions Other Coverage view. designations: ratings/identifiers Other NR = Rated.Not ADD. REDUCE. SELL. Our target prices are also on a 12 Ratings other and definitions/identifiers ratings of Definitions BUY.

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 2018 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. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Institutional Equities Research Group of Kotak Securities Limited. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Private Client Group. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment. Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of BSE Limited (BSE), National Stock Exchange of India Limited (NSE), MSEI a. Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). Kotak Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. 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We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: YES Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the"three years" icon in the price chart). Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +91-22 43360 000, Fax No.: +91-22- 6713 2430. Website: www.kotak.com. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSEI INE 260808130/INB 260808135/INF 260808135, Research Analyst INH000000586, AMFI ARN 0164 and PMS INP000000258. NSDL: IN-DP-NSDL-23-97. CDSL: IN-DP-CDSL-158-2001. Compliance Officer Details: Mr. Manoj Agarwal. Call: +91-22-4285 6825, or Email: [email protected]. In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Online Customers - 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on +91-22-4285 8445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on +91-22-4285 8208. Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Manoj Agarwal) at [email protected] or call on +91-22-4285 6825. 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