DAILY

March 25, 2019 India 22-Mar 1-day 1-mo 3-mo Sensex 38,165 (0.6) 5.4 7.6 Nifty 11,457 (0.6) 5.3 7.4 Contents Global/Regional indices Dow Jones 25,502 (1.8) (2.3) 17.0 Special Reports Nasdaq Composite 7,643 (2.5) 1.2 23.4 Strategy FTSE 7,208 (2.0) 0.3 7.8 Strategy: The curious case of India's power sector Nikkei 21,018 (2.8) (2.4) 9.7 Hang Seng 29,113 0.1 0.5 13.5  India to generate about 40-50% CRoCI and about 80% RoE KOSPI 2,150 (1.7) (3.7) 4.6  Regulated power generation utilities will earn around 15% RoE, others Value traded – India much lower Cash (NSE+BSE) 399 391 325

 State-owned distribution companies presumably continue to make large Derivatives (NSE) 8,965 4,643 9,584 losses Deri. open interest 3,694 3,328 3,673

 Cash from coal or use cash from coal for clean air and energy

Forex/money market

Daily Alerts Change, basis points Change in Reco 22-Mar 1-day 1-mo 3-mo Rs/US$ 69.1 (1) (169) (100) InterGlobe Aviation: Disruption benefits 10yr govt bond, % 7.5 (3) (8) 12

 Multiple positive yield drivers in place Net investment (US$ mn)  Indigo's domestic capacity and market-share can improve as competitors 20-Mar MTD CYTD face disruption FIIs 196 3,229 6,112 MFs (103) (988) 346  International: decent growth opportunity though bilateral rights may pose Top movers – 3 mo basis constraints Change, %  Higher yields lead to upward revision in EPS; run-up in stock price leads to Best performers 22-Mar 1-day 1-mo 3-mo revised ADD rating YES IN Equity 253 0.2 10.3 38.6 UPLL IN Equity 935 (0.0) 10.3 27.0

Company alerts TTAN IN Equity 1,103 0.0 5.7 25.3 Zee Entertainment Enterprises: Risk-reward favorable RECL IN Equity 141 (2.7) 6.5 23.9 RIL IN Equity 1,342 (2.5) 8.9 23.2  Weighing pros and cons of Sony and Comcast-Atairos Worst performers

 Key factors from minority investors' standpoint RCOM IN Equity 5 9.4 (12.5) (62.9)  We raise fair value to Rs490 (Rs400); maintain ADD RPWR IN Equity 11 (2.3) (3.6) (61.5) RELI IN Equity 131 (4.8) (0.5) (57.5)

UT IN Equity 1 (3.7) (3.7) (35.0)

IDBI IN Equity 43 (0.9) (0.7) (30.4)

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For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. INDIA Strategy Theme MARCH 22, 2019 UPDATE BSE-30: 38,165

The curious case of India’s power sector. We highlight that the extant policies and regulations of the power sector in India result in a wide range of RoIC for players in the electricity chain (upstream to downstream power distribution). In our view, the government may need to revisit its policy framework on pricing and subsidies in order to focus on (1) environment; the hidden costs of India’s policies to the society are already quite high and (2) sustainability rather than fiscal management alone.

QUICK NUMBERS

Coal India to generate about 40-50% CRoCI and about 80% RoE  COAL to make 80% We expect COAL to generate about 40-50% CRoCI and around 80% RoE over FY2019-21E. RoE, NTPC about COAL’s historical returns have been quite high (2-3X WACC or CoE) and its future profitability 15%, SEBs losses and returns will be even higher following a (1) `100/ton price increase on raw coal from over FY2019-21E February 2018 and (2) imposition of `50/ton evacuation charge from November 2017. Exhibit 1 shows COAL’s historical and future profitability (EBITDA/ton) and key financial return ratios.  Distribution entities to make `700 bn of Regulated power generation utilities will earn around 15% RoE, others much lower losses versus COAL’s We note that the final regulations for regulated power generation utilities for the control period `253 bn of pre-tax April 1, 2019-March 31, 2024 will result in around 15% RoE for regulated power generation profits in FY2019E companies such as CESC, NHPC, NTPC and TPWR. The CERC regulations for April 1, 2019- March 31, 2024 period has fixed regulated return at 15.5% RoE (on the relevant regulated  22 of world’s 30 equity base), which is unchanged from the previous five-year control period. Exhibit 2 gives the most polluted cities key features of the CERC regulations with respect to returns, incentives, working capital, etc. based on quality of We note that most of the non-regulated generation companies hardly generate any returns air are in India currently and many of them are stressed assets for banks.

State-owned distribution companies presumably continue to make large losses

We assume that the state-owned distribution companies continue to make large losses despite the implementation of the ‘UDAY’ scheme and attempts of the distribution entities to improve their financial position through lower AT&C losses and judicious price increases. Their operating and financial data is not available beyond FY2016 (see Exhibit 3) but we note that their dues to generation companies have increased sharply over the past few months (see Exhibit 4). ’s FY2019E pre-tax profits of `253 bn is in stark contrast with `900 bn of losses of SEBs in FY2016. We estimate `700 bn loss in FY2019E. Sanjeev Prasad

Cash from coal or use cash from coal for clean air and energy Sunita Baldawa The Indian government may want to reassess its priorities—(1) continued abnormally high profits for COAL and related dividends and divestment revenues for fiscal management of the government or (2) lower profits for COAL through a cut in the price of coal and better financial Anindya Bhowmik health of state-owned distribution entities and/or (3) higher royalty tax on coal to fund rapid uptake of renewable/clean energy. India will have to address the issue of high air pollution in Indian cities sooner than later. It has among the most polluted cities in the world (see Exhibit 5). We do not see a major change in the contribution of coal to India’s power mix (see Exhibit 6) or fossil fuels in India’s automotive energy mix without the government making a herculean commitment to funding renewable energy at the expense of coal/oil over the next decade.

[email protected] Contact: +91 22 6218 6427

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

Exhibit 1: Coal India has consistently enjoyed high cash returns, owing to high profitability and low capital investment EBITDA/ton and key financial return ratios for Coal India, March fiscal year-ends, 2012-21E (Rs/ton, %)

2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E EBITDA/ton (Rs) 391 432 382 349 337 221 148 325 342 345 RoE (%) 40 39 33 33 38 32 32 78 82 87 RoCE (%) 39 40 35 35 39 34 38 94 99 104 CRoCI (%) 126 165 79 54 43 32 36 52 44 43 Dividend payout ratio (%) 43 51 121 95 121 133 146 77 92 91

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: CERC has kept regulated rate of return unchanged for regulated power generation entities for FY2020-24 Key features of existing, draft and final CERC tariff regulations (FY2020-24) for a coal-based generating station

2004-09 (Final) 2009-14 (Draft) 2014-19 (Final) 2014-19 (Draft) 2014-19 (Final) 2019-24 (Draft) 2019-24 (Final) Return on equity Post-tax RoE (%) 14.0 15.5 15.5 15.5 15.5 15.5 15.5 Depreciation Accelerated depreciation (years) NA 12 12 12 12 12 12 Accelerated depreciation (%) NA 5.28 5.28 5.28 5.28 5.28 5.28 Balance depreciation (%) 3.2 2.0 2.0 2.0 2.0 2.0 2.0 Interest on working capital Coal inventory-pithead station (months) 1.5 1.5 0.5 0.5 0.5 0.5 0.33 Coal inventory-non pithead station (months) 1.5 2.0 1.0 1.0 1.0 0.7 0.67 Advance payment for coal (months) 1.0 1.00 SFO inventory (months) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Receivables (months) 2.0 2.0 2.0 2.0 2.0 1.5 1.5 Maintenance spares (% of O&M) 1.5% of capital cost 20 20 20 20 20 20 O&M in working capital (months) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Cost of secondary fuel SFO consumption- pithead (ml/kWh) 2.0 1.0 0.5 0.5 0.5 0.5 0.5 SFO consumption- non-pithead (ml/kWh) 2.0 1.0 0.5 1.0 0.5 0.5 0.5 Energy charge Normative auxiliary consumption (%) 9.0 8.5 7.8 8.5 7.8 8.0 8.0 Normative gross station heat rate for 500 MW unit (kcal/kWh) 2,450 2,425 2,375 2,375 2,375 2,375 2,390 Incentives Target availability factor (%) 80 85 85 85 85 83 85 Taxes on incentives Reimbursed Not allowed Not allowed Not allowed Not allowed Not allowed Not allowed Rs0.5/0.65 per Increase in fixed unit for non- Rs0.5/unit for Rs0.5/unit for Rs0.5/unit for Rs0.5/unit for Rs0.25/unit for charges peak/peak deemed deemed deemed deemed Incentive formula generation proportionate hours for generation generation generation generation above 80% PLF to availability deemed above 85% PLF above 85% PLF above 85% PLF above 85% PLF above 85% generation above 85% PLF

Source: CERC, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Strategy

Exhibit 3: We expect SEB losses to be steady around Rs1.2 tn in FY2019-20E SEB losses, March fiscal year-ends, 2012-20E (Rs bn)

Loss without subsidy Loss inclusive of subsidy booked Loss inclusive of subsidy received Cash loss inclusive of subsidy received 1,600 1,474 1,347 1,400 1,222 1,223 1,204 1,121 1,200 1,067 1,025 986 1,000 897 864 766 732 800 725 698 676 604 622 634 588 600 505 493 390 386 366 400 296 218 200

-

2012

2013

2014

2015

2016

2017E

2018E 2019E 2020E

Source: PFC, Kotak Institutional Equities

Exhibit 4: State-owned power distribution companies have around four months of dues payables to generation companies Outstanding dues of state-owned power distribution companies to generation companies (Rs bn)

450 Outstanding (Rs bn) [LHS] Outstanding (months) [RHS] 4 400

350 3 300 250 2

200 415

411

372

372

371

371

366

355

355

334

331

329

320

318 317

150 314

303

300 300 100 1 50

- 0

Jul-17

Jul-18

Jan-18

Jun-17

Jun-18

Oct-17

Feb-18

Oct-18

Sep-17

Apr-18

Sep-18

Dec-17

Dec-18

Nov-17

Nov-18

Mar-18

Aug-17 Aug-18 May-18

Source: SEB, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 5: India has 22 of the top-30 cities with highest concentration of PM2.5 Top-30 cities by average annual PM2.5 concentration, calendar year-end, 2018 (ug/m3)

140 120 100 80 60 40 20

0

Pali

Jind

Agra

Aksu

Gaya

Delhi

Patna

Noida

Hotan

Dhaka

Lahore

Rohtak

Kanpur

Kolkata

Bhiwadi

Kashgar

Jodhpur

Varanasi

Singrauli

Lucknow

Faridabad

Faisalabad

Gurugram

Ghaziabad

Xingtai Shi Xingtai

Moradabad

Ahmedabad

Muzaffarpur Shijiazhuang

Mandi Gobindgarh Mandi

Source: Air Visual, Kotak Institutional Equities

Exhibit 6: We model share of ’s power generation mix to remain steady around 70% through FY2025 India's power mix by generation, March fiscal year-ends, 2012-25E

Hydro Diesel Nuclear Renewable 90

80

70

60

50

40

30

20

10

0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: CEA, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 ADD InterGlobe Aviation (INDIGO) Transportation MARCH 22, 2019 CHANGE IN RECO. Coverage view: Attractive

Disruption benefits. Recent events of capacity disruption of competitors can drive up Price (`): 1,427 Indigo’s FY2020 capacity addition as well as yields. Deeper domestic network and Fair Value (`): 1,550 possible availability of slots can lend wings to international aspirations as well. Recent BSE-30: 38,165 events can drive a quicker-than-expected mean reversion of margins. We now bake this in our estimates, resulting in sharp 21-84% upgrade of FY2020-21E EPS. This drives a new fair value of Rs1,550, though rating gets revised to ADD (from BUY).

Company data and valuation summary InterGlobe Aviation Stock data Forecasts/Valuations 2019E 2020E 2021E 52-week range (Rs) (high,low) 1,520-691 EPS (Rs) (5.9) 65.7 96.5 Market Cap. (Rs bn) 548.5 EPS growth (%) (110.1) 1,211.9 46.9 Shareholding pattern (%) P/E (X) (241.5) 21.7 14.8 Promoters 74.9 Sales (Rs bn) 285.7 388.2 486.8 FIIs 15.1 Net profits (Rs bn) (2.3) 25.1 36.9 MFs 5.1 EBITDA (Rs bn) (1.7) 33.5 51.4 Price performance (%) 1M 3M 12M EV/EBITDA (X) (275.0) 13.0 8.2 Absolute 28.0 23.6 13.4 ROE (%) (3.2) 31.3 34.1 Rel. to BSE-30 20.4 15.8 (1.6) Div. Yield (%) 0.0 0.2 0.7

Multiple positive yield drivers in place

After declining by 5% in 9MFY19, we believe Indigo’s yields can improve meaningfully led by (1) capacity cuts by a competitor in financial distress, (2) grounding of Boeing 737MAX aircraft by Spicejet, (3) own pilot issue resulting in slower-than-expected capacity addition by Indigo, and (4) improved price trends in the 0-15-day ticketing window. These can drive a meaningful yield improvement in FY2020, over a relatively weak FY2019 base.

Indigo’s domestic capacity and market-share can improve as competitors face disruption

Disruption of a significant proportion of capacity by a competitor can drive Indigo to add more capacity domestically, as opposed to its earlier plan of deploying a meaningful proportion of incremental capacity abroad. We believe Indigo will try to take up as many slots at metro airports, particularly Mumbai, as possible, as these are precious rights, and will make entry of a new player very challenging.

International: decent growth opportunity though bilateral rights may pose constraints

Indigo is aggressively eyeing international operations, and we believe ~20-30% of future incremental ASKs may be deployed internationally. We believe Indigo can expand the international market similar to its expansion of the domestic market, by connecting new destinations at affordable fares. However, we note that expansion of international operations is subject to bilateral flying agreements negotiated separately with each country. Possible vacating of some of these flying rights by a competitor can be a positive for Indigo.

Higher yields lead to upward revision in EPS; run-up in stock price leads to revised ADD rating

We believe a mean reversion in Indigo’s margins can happen faster than earlier expected, driven by higher yields and cost benefits of A321neo aircraft. Pilot availability can steadily improve as Garima Mishra possibly more domestic pilots become available for hiring, though this may have a cost impact. Higher yield assumptions drive a sharp 21-84% increase in FY2020-21E EPS. This leads to a new fair value of Rs1,550 (Rs1,235 earlier) based on FY2021E P/E multiple of 16X. 25% run-up in stock price in the past month limits upside, leading to a revised rating of ADD (BUY earlier).

[email protected] Contact: +91 22 6218 6427

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

Faster-than-expected yield improvement can drive up financial performance in FY2020

We see multiple yield drivers in the near term, particularly in the lucrative 0-15-day booking window. Disruption of services by a key competitor, which is facing severe capacity curtailment, is driving up fares for other incumbent airlines. Further (1) Spicejet has grounded its Boeing 737MAX aircraft, and (2) Indigo’s own pilot issue has slowed down capacity addition.

While it is difficult to comment if a Kingfisher type situation will emerge, it does appear that yields may strengthen from here, at least in the near term.

Post capacity disruptions in FY2013, not only did Indigo add capacity at a brisk pace, its yields also increased sharply by 21% yoy. Given uncertainties involved, we are not calling for such a sharp yield increase yet, though FY2020 yields should certainly be stronger than FY2019, particularly as we now approach the summer holiday season.

Exhibit 1: Sudden capacity disruption may strengthen yields Industry capacity and yield data, March fiscal year-ends

Scenario I: Pre and post Kingfisher 2011 2012 2013 2014 2015 Capacity (bn ASK) Indigo 12 17 21 26 31 Kingfisher 11 10 — — — Other FSC 17 19 18 17 16 Other industry 28 36 35 37 36 Total capacity 68 82 74 80 83 Yoy growth (%) 20 (10) 9 4 Yields Indigo's yields (Rs/RPK) 3.6 3.8 4.5 4.8 4.9 Yoy increase (%) 4.1 21.0 5.8 2.9 Scenario II: Current 2018 2019E 2020E Capacity (bn ASK) Indigo 54 68 82 19 20 20 Other FSC 23 20 10 Other industry 38 48 56 Total capacity 134 156 167 Yoy growth (%) 16 7 Yields Indigo's yields (Rs/RPK) 4.1 4.1 4.4 Yoy increase (%) (2) 7

Notes: (a) FSC refers to full service carrier.

Source: Companies, DGCA, Kotak Institutional Equities estimates

Inflation data on airfares indicates that yields for the industry are witnessing yoy growth December 2018 onwards.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Transportation InterGlobe Aviation

Exhibit 2: CPI airfare index for 4QFY19 indicates yoy increase in yields Trends in CPI airfare and Indigo's reported airfare, March fiscal year-ends (Rs) CPI airfare - rebased (Rs, LHS) Indigo's reported airfare - rebased (Rs) Yoy growth (%, RHS) (%) 115 40

110 30 105 20 100 95 10 90 - 85 (10) 80 75 (20)

70 (30)

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19 3QFY19 4QFY19 Notes: (a) We have rebased CPI and Indigo airfares to 100 for 1QFY16. (b) 4QFY19 is based on January and February 2019 data.

Source: CEIC, Ministry of Statistics and Programme Implementation, Company, Kotak Institutional Equities

Can Indigo repeat its domestic success in international operations?

Indigo is looking to significantly expand its international operations. We estimate Indigo to deploy ~20-30% of incremental capacity added over the next 2-3 years in international sectors. Domestically, Indigo has consistently added capacity faster than industry, resulting in swift share gain. This has been driven by low fares, improved connectivity across cities, and failure of incumbents to match pace with Indigo’s profitability and expansion. We believe Indigo could adopt a similar strategy for its international operations – offer connectivity to its vast domestic network at affordable fares. This can stimulate demand for foreign travel similar to domestic demand growth during 2006-18 when Indigo meaningfully ramped up its domestic operations. Prior to this, industry growth was a lot more tepid at CAGR of 7.8% during 1998-2005.

Exhibit 3: Indigo's domestic passenger traffic has grown at a pace faster than industry Domestic passenger share of key airlines, March fiscal year-ends, 1998-2019TD Air India Jet Indigo Others (%) (mn) Yoy growth - industry (%, RHS) Yoy growth - Indigo (%, RHS) 140.0 50

120.0 40

100.0 30

80.0 20

60.0 10

40.0 0

20.0 -10

- -20 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Notes: (a) Yoy passenger growth in 2019 is calculated by annualizing 10MFY19 data.

Source: Company, Kotak Institutional Equities

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH InterGlobe Aviation Transportation

Foreign airlines carry a larger share of Indian traffic

Foreign airlines carry a larger chunk of India’s international traffic than domestic airlines. A key reason for this could be tepid international expansion by domestic airlines, particularly Air India. Conversely, several middle-eastern carriers aggressively added capacity to India post 2010, and took away large shares of the lucrative India-Middle east traffic.

We believe India lacks an international LCC offering – Indian LCCs have only 16% share of international traffic; we believe there is potential for this proportion to move up.

Exhibit 4: Foreign carriers carry the bulk of India's international traffic Market-share of foreign and domestic airlines in international air passenger traffic, July-September 2018 (%)

Indian carriers, 40.5

Foreign carriers, 59.5

Source: DGCA, Kotak Institutional Equities

Exhibit 5: India’s LCCs have a small 16% share in the international air passenger market Market-share of top-10 airlines in international traffic in 2QFY19, March fiscal year-ends

Airline Market-share (%) Jet Airways 14.0 Air India 10.1 Emirates 8.8 Indigo 6.5 Air India Express 6.4 Etihad 3.9 Spicejet 3.5 Oman Air 3.5 Qatar Airways 3.2 Srilankan Airlines 3.0 Combined market-share of Indian carriers (%) 40.5

Source: DGCA, Kotak Institutional Equities

Indigo will initially commence flights to short-haul international destinations

Indigo’s single aisle A320/321 aircraft can fly to short-haul international destinations within a maximum flying range of 5.5 hours from the originating airport in India. Indigo intends to fly from the four corners of India in order to cover maximum possible geography. Further, it also intends to compete with several Indian and international airlines on these routes, though notably, most competitors happen to be full service carriers. We believe Indigo will offer cheaper priced tickets to compete with these airlines and gain share on respective routes.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Transportation InterGlobe Aviation

Exhibit 6: Indigo to add destinations in Asia and Middle East to its network Indigo’s international flight plans and key competitors

Middle east Destination Origin Competitors offering direct flights Abu Dhabi Kochi Etihad, Jet Airways Kozikode Etihad, Jet Airways Doha Ahmedabad Qatar Airways Chennai Qatar Airways Delhi Qatar Airways, Jet Airways Hyderabad Qatar Airways Kochi Qatar Airways Kozhikode Qatar Airways Mumbai Air India, Jet Airways, Qatar Airways Thiruvananthapuram Qatar Airways Dubai Ahmedabad Spicejet, Emirates Bengaluru Emirates Chandigarh NA Chennai Air India, Emirates Delhi Air India, Emirates, Flydubai, Jet Airways, Spicejet Hyderbabad Air India, Emirates, Flydubai Kochi Air India, Emirates, Flydubai, Spicejet Kozhikode Air India, Spicejet Mumbai Air India, Emirates, Flydubai, Jet Airways, Spicejet Thiruvananthapuram Emirates Istanbul Delhi Air India, Turkish Airlines Kuwait Ahmedabad Air India, Jazeera Airways Chennai Kuwait Airways Kochi Kuwait Airways, Jazeera Airways Muscat Mumbai Air India, Oman Air Sharjah Lucknow NA Hyderabad Air Arabia Thiruvananthapuram Air Arabia, Air India Asia Destination Origin Competitors offering direct flights Bangkok Bengaluru Thai Airways, Thai AirAsia Chennai Thai Airways, Thai AirAsia Phuket Delhi Go Air Bengaluru Go Air Male Bengaluru Go Air Kochi Spicejet Singapore Bengaluru Jet Airways, Scoot, SilkAir, Singapore Airlines Chennai Air India, Scoot, SilkAir, Singapore Airlines SilkAir, Singapore Airlines Vijayawada NA Colombo Bengaluru Air India, Sri Lankan Airlines Chennai Air India, Spicejet, Sri Lankan Airlines Dhaka Kolkata Biman Bangladesh, Jet Airways, Spicejet Hong Kong Bengaluru Cathay Dragon, Cathay Pacific Kathmandu Delhi Air India, Jet Airways, Royal Nepal Corp Kuala Lumpur Bengaluru Malaysia Airlines, Malindo Air, Jet Airways Delhi Malaysia Airlines, Malindo Air, Jet Airways

Notes: (a) Airline names highlighted in red are Low Cost Carriers (LCCs).

Source: Company, Cleartrip, Kotak Institutional Equities

Among airlines seeking to expand internationally, we believe the two Indian carriers with larger shares of international traffic may not expand significantly in the near term. Specifically, we envisage limited capacity addition on international routes by Air India. The MoCA in its vision 2040 document released during the Global Aviation Summit 2019 mentioned that Air India may see a decline in its domestic and international share as it does not expand its fleet in view of heavy losses expected in FY2019. The second large player in the international arena is witnessing significant capacity disruptions, and its future capacity expansion is unclear. Any vacation of slots by this player could be snapped up by Indigo.

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH InterGlobe Aviation Transportation

Among other private airlines, all carriers have ambitions to increase their international connectivity.

Go Air. Commenced international operations in October 2018 to Phuket and Male. Go Air may seek to fly to more destinations in the pipeline as it receives more A320neo aircraft.

Spicejet. Spicejet intends to steadily expand its international operations as it seeks to connect its domestic network including Tier II/III cities to international destinations. It currently flies to 8 international destinations.

Vistara. The airline received its 21st aircraft in 2018 and is thus eligible to fly overseas (Indian rules mandate a minimum of 20 aircraft deployed domestically before an airline can commence international operations). It has received regulatory approvals to fly international and will scale up its international operations.

AirAsia India. The airline also has 20 aircraft in its fleet currently, and will look to commence international operations once regulatory scrutiny on its current operations abates.

Strategy #1: Create regional hubs instead of relying on only metro cities

Indigo will seek to create strong regional hubs that would lead to superior feed aggregation at those hubs and enable Indigo to offer economical fares on the routes. For instance, for flights to Singapore, Indigo will look to aggregate feed from major domestic airports into regional hubs such as Chennai and Bangalore, which will in turn connect to Singapore. While Singapore Airlines does offer flights on these routes, Indigo will seek to offer cheap fares and target the mid-income group traveler, and not the corporate/high income traveler that Singapore Airlines caters to.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Transportation InterGlobe Aviation

Exhibit 7: Indigo will aggregate domestic feed at hubs and carry to end destination Illustrative illustration of feed aggregation at 1-2 major hubs within India for onward international flights

Source: Company, Kotak Institutional Equities

Strategy #2: Offer convenient connections from Tier II/III cities

Indigo has the widest and deepest domestic network in India, which can provide a rich feed to its international network. Most other airlines operating or seeking to operate internationally do not have the benefit of captive feed, which can be aggregated at hubs and flown abroad. For several international flights, Indigo has begun providing luggage check-in facilities for the entire trip from the origination point; we believe this facility will only improve as Indigo expands its network.

Aviation policy and bilateral rights will be key to Indigo’s international expansion

Civil aviation policy on bilateral rights protects Indian carriers against increase in demand for additional seats by foreign carriers. This is particularly relevant for the high traffic India- Middle East routes where seat quotas have been increased meaningfully over the past 10 years in line with the increase in demand for air travel between these two geographies. The MoCA (Ministry of Civil Aviation) does not permit an increase in seat allocation unless 80% of capacity is utilized by Indian carriers.

The National Civil Aviation Policy of 2016 states:

 The government will enter into an ‘Open sky’ ASA (Air Service Agreement) on a reciprocal basis with SAARC countries and countries with territory located entirely beyond a 5,000 km radius from New Delhi. Unlimited flights above the existing bilateral rights will be allowed directly to and from major international airports within the country as notified by MoCA from time to time. However, the points of call at other airports under the existing ASA will continue to be honored till the same are renegotiated.

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH InterGlobe Aviation Transportation

 For countries partly or fully within 5,000 km radius, where the designated carriers of India have not fully utilized 80% of their capacity entitlements, but foreign carriers /countries have utilized their bilateral rights and are pressing for increase in capacity, a method will be recommended by a committee headed by the Cabinet Secretary for the allotment of the additional capacity entitlements.

 Whenever designated carriers of India have utilized 80% of their capacity entitlements and seek additional capacity entitlements, the capacity entitlements (bilaterals) will be renegotiated in the usual manner.

We plotted bilateral entitlements available to Indian carriers to estimated traffic ferried by Indian carriers along these routes. We note that for lack of data we have simply assumed that of the total traffic on the route, 40% is carried by Indian carriers and the rest by foreign carriers. This may not hold true for each route and the following exercise is thus indicative in nature. The below exercise shows that Indian carriers are close to exhausting their seat quotas on several destinations such as Singapore, Thailand and Middle-East countries. These are also the routes that Indigo is adding to its international network, implying that the company would have to rely heavily on Indian government’s renegotiation of bilateral rights, as well as allocation of those rights to Indigo.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Transportation InterGlobe Aviation

Exhibit 8: Several key international routes are saturated List of Indian entitlements and estimated utilization, December calendar year-end, 4QCY17

Indian entitlements Estimated utilization of entitlements Estimated passengers Route proposed Seats per week in each Passengers to India Passengers from Implied weekly carried by Indian to be flown by Region Country direction in 4QCY17 India in 4QCY17 passenger movement carriers Indigo? North America USA Unlimited 160,142 136,347 22,807 9,123 N Canada 14,000 62,639 57,461 9,238 3,695 N Region Total 24,404 Asia China 16,800 90,622 84,831 13,496 5,399 N Hong Kong 20,920 195,872 179,944 28,909 11,564 Y Japan 16,800 50,544 50,092 7,741 3,096 N Singapore 29,400 572,609 529,604 84,786 33,914 Y Thailand 26,354 449,178 441,605 68,522 27,409 Y Rep. Of Korea 7,600 39,099 35,045 5,703 2,281 N Australia 6,825 19,065 20,407 3,036 1,215 N Others 81,581 397,252 382,754 60,000 24,000 N Region Total 206,280 Europe UK 22,400 375,865 298,027 51,838 20,735 N Austria 6,874 8,660 5,429 1,084 434 N France 18,060 129,371 108,631 18,308 7,323 N Germany 28,368 188,466 149,665 26,010 10,404 N Spain 8,400 7,638 5,514 1,012 405 N Italy 9,600 21,185 15,319 2,808 1,123 N Netherland 11,200 101,816 87,289 14,547 5,819 N Denmark 8,400 8,442 6,218 1,128 451 N Others 53,700 211,728 183,769 30,423 12,169 N Region Total 167,002 Gulf and Middle East Bahrain 16,600 133,827 125,136 19,920 7,968 N UAE 137,130 2,459,014 2,350,725 369,980 147,992 Y Oman 27,405 432,017 411,334 64,873 25,949 Y Qatar 24,778 415,209 382,398 61,354 24,542 Y Kuwait 12,240 156,594 152,699 23,792 9,517 Y Saudi Arabia 20,000 431,772 410,010 64,752 25,901 Y Others 39,830 17,440 17,137 2,660 1,064 N Region Total 277,983 Regional Asia Bangladesh 24,400 135,508 140,503 21,232 8,493 Nepal 30,000 132,739 127,614 20,027 8,011 Y Sri Lanka 44,800 325,751 332,709 50,651 20,260 Y Pakistan 11,200 589 985 121 48 N Afghanistan 5,600 42,144 36,124 6,021 2,408 N Bhutan Unlimited 15,030 14,019 2,235 894 N Myanmar 11,200 11,921 10,902 1,756 702 N Maldives 8,400 39,481 37,700 5,937 2,375 Y Region Total 135,600 Grand Total 970,389

Notes: (a) Estimated passengers flown by Indian carriers are calculated as 40% of total passengers on a particular route. (b) Indian entitlements are for the 2017-18 winter schedule on routes operated by Air India/Air India Express.

Source: Preliminary Information Memorandum for Strategic Investment of Air India, DGCA, Company, Kotak Institutional Equities estimates

Manpower issues are real issues, and can result in higher wage cost

Indigo’s recent flight cancellations due to pilot shortage will require the airline to either invest more in its flight training facility or to get expat pilots – both strategies may lead to higher wage bills going forward. We note that there are several airlines globally which have faced pilot shortages/union strikes at different points of time, and the work around these has invariably been hike in wages, reduction in hours of duty, or both.

We believe Indigo will utilize possible churn at competitor airlines to sort out its own pilot scarcity issue.

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH InterGlobe Aviation Transportation

EPS estimates now bake in higher yield assumptions

Our FY2020 and FY2021 EPS estimates go up sharply as we bake in higher yields. Our margin (RASK-CASK) assumption of Rs0.28 for FY2021 is still below FY2010-18 average of Rs0.31, and there thus remains some scope for earnings upside. We do assume higher employee costs, though this gets offset by higher yield assumption.

The sharp increase in FY2020 EPS is primarily on account of faster-than-expected reversion to average margins, in part due to disruption in capacity of competitors.

As before, higher input cost pressures in the form of crude prices and/or weaker rupee are risks to our estimates.

Exhibit 9: Higher yield assumptions drive up our EPS estimates Estimate changes for Indigo, March fiscal year-ends

New estimates Old estimates Change (%) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E Financials Revenues (Rs mn) 285,720 388,182 486,780 289,034 383,187 478,677 (1) 1 2 EBITDAR (Rs mn) 48,073 97,383 128,186 46,453 83,216 120,864 3 17 6 EBITDA (Rs mn) (1,653) 33,490 51,373 (4,122) 17,944 44,195 NM 87 16 PAT (Rs mn) (2,262) 25,147 36,931 (1,998) 13,703 30,520 NM 84 21 EPS (Rs) (5.9) 65.7 96.5 (5.2) 35.8 79.7 NM 84 21 Operating metrics ASKs (mn) 81,077 103,904 125,262 81,922 104,412 124,971 (1) (0) 0 Yield (Rs/RPK) 4.1 4.4 4.6 4.1 4.3 4.5 (1) 0 1 Load factor (%) 86.4 85.6 85.3 86.1 84.4 84.6 0 1 1 Fuel CASK 1.5 1.5 1.5 1.5 1.5 1.5 (2) (5) 0 RASK-CASK (Rs/ASK) (0.16) 0.21 0.28 (0.18) 0.05 0.23 NM 273 25 Other assumptions Exchange rate (US$/INR) 70 71 72 70 72 72 — (1) — Brent crude price (US$/bbl) 70 70 70 72 73 70 (2) (3) —

Source: Kotak Institutional Equities estimates

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KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Transportation InterGlobe Aviation

Exhibit 10: Summary financials of Indigo, March fiscal year-ends (Rs mn)

2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E Profit model (Rs mn) Sales 55,647 92,031 111,166 139,253 161,399 185,805 230,209 285,720 388,182 486,780 EBITDAR 8,496 22,498 21,769 38,219 56,247 52,687 65,667 48,073 97,383 128,186 EBITDA 489 8,936 5,066 18,697 30,125 21,432 29,565 (1,653) 33,490 51,373 Other income 1,440 2,371 3,155 3,838 5,151 7,891 9,469 10,396 13,862 15,979 Interest (514) (578) (1,226) (1,155) (3,041) (3,308) (3,398) (3,362) (3,138) (3,138) Depreciation (665) (856) (2,260) (3,022) (5,055) (4,573) (4,369) (7,642) (9,043) (12,563) Profit before tax 749 9,873 4,736 18,357 27,181 21,443 31,267 (2,262) 35,170 51,651 Tax expense 657 (2,040) 9 (5,402) (8,373) (4,852) (8,843) — (10,024) (14,721) Extraordinary items — — — — — — — — — — PAT 1,406 7,834 4,744 12,956 18,807 16,591 22,424 (2,262) 25,147 36,931 Year-end number of shares 307 307 307 307 360 360 383 383 383 383 Fully diluted number of shares 344 344 344 344 351 360 383 383 383 383 EPS-fully diluted (Rs) 4 23 14 38 54 46 59 (6) 66 96 Balance sheet (Rs mn) Equity 2,433 3,890 4,076 4,207 27,232 37,792 70,774 68,513 92,146 124,632 Total borrowings 10,156 18,004 33,462 39,262 30,071 23,957 22,414 22,414 22,414 22,414 Deferred incentives 11,804 15,304 17,533 17,516 15,832 21,838 26,017 39,667 51,742 60,256 Other long term liabilities 2,952 8,004 13,869 24,784 20,302 25,602 36,297 47,271 56,978 63,823 Current liabilities and provisions 9,126 13,322 22,075 21,914 32,750 42,908 55,791 67,657 89,763 109,858 Total liabilities 36,471 58,525 91,015 107,682 126,187 152,098 211,293 245,521 313,043 380,982 Net fixed assets 8,860 17,713 39,560 48,765 47,794 38,190 46,113 82,318 117,938 157,800 Investments 4,523 10,105 22,309 27,237 22,318 19,443 18,865 24,569 29,614 33,172 Cash & cash equivalent 18,322 24,789 23,730 25,161 47,048 83,459 129,245 116,289 135,131 151,941 Loans and advances/other current assets 4,765 5,917 5,417 6,519 9,027 11,005 17,070 22,345 30,359 38,070 Total assets 36,471 58,525 91,015 107,682 126,187 152,098 211,293 245,521 313,043 380,982 Free cash flow (Rs mn) Operating cash flow 422 7,717 4,604 15,966 19,730 16,582 20,722 (1,653) 23,466 36,652 Working capital changes 8,535 9,696 11,309 7,765 7,082 22,361 22,269 25,510 30,830 24,185 Capital expenditure (331) (9,153) (23,237) (10,170) (4,084) 5,031 (12,291) (43,847) (44,664) (52,424) Free cash flow 8,626 8,260 (7,324) 13,561 22,728 43,974 30,700 (19,990) 9,632 8,413 Ratios (%) EBITDAR 15.3 24.4 19.6 27.4 34.8 28.4 28.5 16.8 25.1 26.3 EBITDA margin 0.9 9.7 4.6 13.4 18.7 11.5 12.8 (0.6) 8.6 10.6 Net debt/equity (X) (0.0) 0.8 4.1 6.6 0.3 (0.5) (0.7) (0.3) (0.4) (0.4) Book value (R/share) 7.1 11.3 11.9 12.2 77.7 104.9 184.9 179.0 240.8 325.6 ROAE 57.8 201.4 116.4 308.0 72.9 43.9 31.7 (3.3) 27.3 29.6 ROACE 20.7 85.6 13.4 32.3 51.4 NM NM NM NM NM

Source: Company, Kotak Institutional Equities estimates

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Zee Entertainment Enterprises (Z) Media MARCH 25, 2019 UPDATE Coverage view: Attractive

Risk-reward favorable. Zee’s stock is up 40% since our Jan 2019 upgrade. We raise Price (`): 435 our fair value to Rs490 (from Rs400) as we lower our cost of equity assumption and Fair Value (`): 490 roll-over; it implies 22X FY2021E earnings. We see two probable scenarios and upside BSE-30: 38,165 for investors in both cases (1) promoters sell <25% stake and retain operating control. Extent of upside hinges on quality of the strategic investor and related-party disclosures going forward (if applicable) to comfort minority on arms-length dealings, (2) promoters relinquish control triggering an open offer at a significant premium to CMP. ADD.

Company data and valuation summary Zee Entertainment Enterprises Stock data Forecasts/Valuations 2019E 2020E 2021E 52-week range (Rs) (high,low) 610-288 EPS (Rs) 17.2 19.8 22.2 Market Cap. (Rs bn) 417.7 EPS growth (%) 14.7 15.2 11.9 Shareholding pattern (%) P/E (X) 25.2 21.9 19.6 Promoters 41.6 Sales (Rs bn) 78.4 89.7 102.4 FIIs 40.8 Net profits (Rs bn) 16.5 19.1 21.3 MFs 5.8 EBITDA (Rs bn) 25.9 28.9 32.3 Price performance (%) 1M 3M 12M EV/EBITDA (X) 14.8 13.1 11.6 Absolute (3.0) (2.9) (22.2) ROE (%) 20.5 20.7 20.4 Rel. to BSE-30 (8.8) (9.1) (32.5) Div. Yield (%) 1.0 1.3 1.6

Weighing pros and cons of Sony and Comcast-Atairos

Unauthenticated media articles have pegged Sony and Comcast-Atairos as front-runners in the promoter stake sale process of Zee. (1) Sony— Sony has 10-11% network viewership share (versus Zee’s 20-21%) and low-to-mid teen EBITDA margin (versus Zee’s 32%). In a scenario wherein Sony invests in Zee, it would benefit both the companies (assuming eventual merger or perhaps even without a merger)— (a) better bargaining power versus distributors driving better monetization on the subscription front, (b) savings from likely discontinuation of loss- making/less-profitable channels such as &TV, Sony Bangla and Sony Marathi and sharing of resources, especially the OTT platform. Reinvestment of savings/synergies in OTT and sports, (2) Comcast— Comcast has a wider global footprint and perhaps better OTT capabilities (versus Sony) given its investment in Hulu and Sky’s OTT platforms. Key factors from minority investors’ standpoint

In the near-term, stock price would be influenced by deal valuation and whether it triggers an open offer. From a fundamental and medium-term perspective, continuation of management is preferable in our view. Zee’s strength and success (ability to cost-efficiently produce large volumes of content and a knack for getting more rights than wrongs) are attributable to Punit Goenka’s leadership; any change can dilute this strength. Further, we would prefer Zee stepping up disclosures (especially related-party dealings with strategic investor) to offer adequate comfort to monitory investors on arms-length arrangements. Separately, we expect strategic investment to resolve legacy concerns around treasury investments. We raise fair value to Rs490 (Rs400); maintain ADD

Zee’s business fundamentals are intact. We do not expect ongoing implementation of TRAI’s tariff order to have any sustained adverse impact on Zee. In all likelihood, Zee would emerge stronger and can potentially benefit in the medium term. We raise our fair value to Rs490 Jaykumar Doshi (Rs400) as we reduce cost of equity in view of comfort around (1) understanding/arrangement between and lenders, and (2) likely on-track promoter stake sale process. Our valuation is conservative (below historical valuation band) and adequately factors the changing media consumption landscape (TV-to-OTT shift).

[email protected] Contact: +91 22 6218 6427

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

Exhibit 1: Consolidated financial summary of Zee Entertainment, March fiscal year-ends, 2014-21E (Rs mn)

2014 2015 2016 2017 2018 2019E 2020E 2021E Profit model (Rs mn) Total revenues 44,217 48,837 58,514 64,332 66,857 78,424 89,726 102,391 EBITDA 12,033 12,538 15,094 19,260 20,761 25,856 28,895 32,286 Other income 1,807 2,278 2,016 2,240 2,795 2,214 2,563 2,785 Interest (158) (103) (123) (161) (1,448) (100) (50) (50) Depreciation (501) (673) (840) (1,152) (1,821) (2,363) (2,513) (2,704) Pretax profits 13,181 14,040 16,147 20,187 20,287 25,607 28,895 32,318 Extraordinary items —— (331) 12,234 2,955 ——— Taxes (4,291) (4,284) (5,528) (6,805) (8,409) (9,091) (9,824) (10,988) Minority interest 21 20 (22) 5 25 25 25 25 RPS dividends (incl tax) (101) (1,453) (1,457) (1,211) (1,211) (969) (727) (545) PAT 8,810 8,323 8,810 22,205 13,580 15,573 18,370 20,810 Adj PAT (pre-exceptional; excl RPS impact) 8,911 9,776 10,482 13,386 14,428 16,542 19,062 21,321 EPS (Rs) 9.2 8.7 9.2 23.1 14.1 16.2 19.1 21.7 Adj EPS (Rs) - (excl RPS impact) 9.3 10.2 10.9 13.9 15.0 17.2 19.8 22.2

Balance sheet (Rs mn) Total Equity 27,207 35,306 42,145 66,567 75,617 85,987 97,996 110,712 Preference capital 20,169 20,192 20,169 ————— Minority interest 61 4 85 10 141 141 141 141 Total borrowings 29 12 9 19,088 15,254 11,441 7,627 3,814 Currrent liabilities 12,850 14,544 16,532 14,702 20,284 21,829 25,126 28,823 Total capital 47,467 55,514 62,408 85,665 91,012 97,568 105,764 114,666 Cash and cash eq 16,500 20,476 21,346 40,935 33,264 34,275 37,824 42,486 Inventories 11,736 11,878 13,160 16,843 26,278 29,278 33,278 37,278 Receivables 10,281 10,692 13,245 13,059 15,365 17,189 19,666 22,442 Loans and advances 7,645 11,627 12,972 14,156 13,114 14,994 16,723 18,265 Other current assets 1,243 1,706 2,127 3,429 7,026 7,326 7,726 8,126 Net fixed assets 11,730 12,254 14,960 9,721 14,125 14,212 13,549 12,446 Investments 884 894 576 1,321 2,124 2,124 2,124 2,124 Deferred tax assets 298 531 556 903 ———— Total assets 47,467 55,514 62,408 85,665 91,012 97,568 105,764 114,666

Free cash flow (Rs mn) Operating cash flow, excl. W-cap, ex-taxes 12,976 13,209 15,713 19,170 22,390 26,175 28,920 32,312 Working capital (4,904) (2,236) (2,632) (5,670) (8,551) (5,458) (5,310) (5,020) Taxes paid (4,242) (4,164) (5,827) (6,810) (8,295) (9,091) (9,824) (10,988) Capital expenditure (1,482) (1,147) (4,064) (2,768) (4,605) (2,450) (1,850) (1,600) Other income (net) 1,108 1,126 1,003 1,001 1,107 2,114 2,513 2,735 Free cash flow (prior to RPS dividends) 3,456 6,788 4,193 4,923 2,046 11,291 14,449 17,438 RPS dividends (101) (1,453) (1,457) (1,211) (1,211) (969) (727) (545) Free cash flow to equity holders 3,355 5,335 2,736 3,712 835 10,322 13,722 16,893

Key assumptions / metrics Ad revenue growth (%) 21.2 11.8 28.9 9.2 14.5 20.0 16.0 15.0 Domestic subscription revenue growth (%) 13.2 8.0 14.5 11.7 11.8 18.0 13.0 14.0 Overseas subscription revenue growth (%) 5.5 (23.6) 15.7 3.0 (2.8) ——— Content cost as % of revenue 37.7 38.6 41.2 42.2 40.9 35.3 35.6 37.7 Effective tax rate (%) 32.6 30.5 34.2 33.7 41.5 35.5 34.0 34.0 EBITDA margin (%) 27.2 25.7 25.8 29.9 31.1 33.0 32.2 31.5 ROAE 26.6 26.6 22.7 40.9 19.1 19.3 20.0 19.9 ROACE 24.9 21.8 21.6 20.5 15.7 20.7 22.3 23.5

Source: Company, Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks 19 Fair O/S ADVT

Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo Company Rating 22-Mar-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn) Automobiles & Components Amara Raja Batteries REDUCE 716 700 (2) 122 1.8 171 29 35 40 4.9 21 14.7 25 20 17.9 13 10.5 9.0 3.7 3.2 2.8 15.7 16.6 16.6 0.6 0.7 0.8 5.0 BUY 216 310 44 123 1.8 541 16 21 25 20 33 17 13.4 10.1 8.6 7.7 6.6 5.4 1.2 1.1 1.0 9.1 11.2 11.9 1.4 1.4 1.4 8.2 BUY 90 140 56 263 3.8 2,926 6.7 8.0 8.0 12.7 18 -0.2 13.3 11.3 11.3 8.5 6.9 7.2 3.1 2.7 2.3 25 26 22 2.3 2.7 2.7 33 REDUCE 2,950 2,400 (19) 854 12.4 289 147 162 171 5.0 10.3 5.2 20 18.2 17.3 14 13 11.7 4.0 3.6 3.2 21 21 19.7 2.0 2.2 2.3 23 BUY 913 950 4 177 2.6 193 42 49 53 11.1 17 9.6 22 18.8 17.1 11.6 10.2 9.1 3.7 3.2 2.7 18.1 18.2 17.1 0.6 0.6 0.7 9.2 SELL 495 445 (10) 230 3.3 466 23 25 25 43 6.9 2.0 21 19.9 19.5 12 11.3 10.7 4.2 3.7 3.2 21 19.6 17.5 1.0 1.1 1.2 12.2 CEAT ADD 1,114 1,150 3 45 0.7 40 67 80 91 3.2 19 13.9 16.7 14.0 12.3 9.5 8.5 7.6 1.6 1.4 1.3 9.9 10.8 11.2 0.7 0.7 0.8 9.3 SELL 21,447 18,400 (14) 585 8.5 27 855 963 1,039 7.8 12.7 8.0 25 22 21 17 16 14 8.2 6.4 5.2 37 32 28 0.1 0.1 0.0 43 Endurance Technologies SELL 1,151 925 (20) 162 2.3 141 36 42 50 25 16 19 32 27 23 15 12 10.6 6.2 5.2 4.4 19.6 19.1 19.1 0.5 0.6 0.7 3.1 Escorts BUY 807 1,050 30 69 1.4 89 57 66 72 47 15 8.9 14.1 12.2 11.2 8.5 7.2 6.2 2.4 2.1 1.8 17.1 17.0 16.1 1.1 1.2 1.3 23 SELL 221 220 (0) 188 2.7 850 9.1 10.2 11.5 10.9 12.2 12.7 24 22 19.2 13 11.8 10.5 3.2 2.9 2.7 13.7 14.0 14.5 1.4 1.6 1.8 7.0 Hero Motocorp SELL 2,603 2,400 (8) 520 7.5 200 168 173 181 (9.1) 2.9 4.5 15.5 15.0 14.4 9.0 8.6 8.0 4.0 3.6 3.3 27 25 24 3.2 3.3 3.5 28 Mahindra CIE Automotive ADD 239 265 11 90 1.3 378 14.5 16 18 48 7.7 12.2 16.5 15.3 13.6 9.4 8.1 7.1 2.1 1.9 1.6 13.7 12.9 12.7 ——— 0.6 Mahindra & Mahindra BUY 679 1,000 47 844 12.2 1,138 46 50 54 22 8.3 8.7 14.7 13.5 12.5 10.9 9.0 8.1 2.2 2.0 1.8 16.2 15.5 15.0 1.4 1.5 1.6 43 ADD 6,553 7,500 14 1,979 28.7 302 254 297 347 -0.8 17 17 26 22 18.9 14 11.1 9.1 4.2 3.7 3.3 17.2 17.8 18.4 1.0 1.1 1.3 85 SELL 147 125 (15) 464 6.7 3,158 5.5 6.7 7.6 0.1 22 13.8 27 22 19.4 9.9 8.3 7.2 4.2 3.7 3.3 16.5 17.9 17.9 1.0 1.1 1.3 16.1 MRF REDUCE 56,508 56,000 (1) 240 3.5 4 2,672 3,214 3,590 0.1 20 11.7 21 17.6 15.7 8.9 7.6 6.5 2.2 2.0 1.8 11.0 11.8 11.8 0.1 0.1 0.1 6.8 Schaeffler India REDUCE 5,408 5,300 (2) 90 1.3 31 144 179 211 14.9 24 18 38 30 26 11.1 8.5 6.9 6.2 5.2 4.4 17.9 18.8 18.7 0.2 0.2 0.2 0.5 SKF ADD 1,927 2,050 6 99 1.4 51 67 82 97 17 22 17 29 23 19.9 18 15 12 4.7 4.0 3.5 16.4 17.3 17.5 0.6 0.7 0.9 1.0 BUY 175 280 60 596 8.0 3,396 (9.4) 19 30 (147) 301 57 NM 9.3 5.9 5.4 4.1 3.5 0.9 0.8 0.7 NM 9.4 13.1 ——— 48 Timken SELL 578 550 (5) 43 0.6 68 19 22 25 39 16 15.0 31 26 23 18 16 13 4.7 3.9 3.3 16.6 16.2 15.8 0.2 0.2 0.2 0.1 TVS Motor SELL 465 350 (25) 221 3.2 475 14.6 18 19 4.7 22 7.7 32 26 24 16 14 13 6.6 5.7 5.0 22 23 22 0.9 1.1 1.2 11.9 Varroc Engineering BUY 602 950 58 81 1.2 135 32 42 61 (4.1) 32 43 18.8 14.3 10.0 8.9 7.2 5.3 2.5 2.1 1.7 13.2 14.8 17.5 ——— 0.4 WABCO India SELL 6,250 6,100 (2) 119 1.7 19 183 222 230 27 22 3.6 34 28 27 23 19 18 6.4 5.3 4.5 21 21 17.9 0.2 0.2 0.2 0.6 Automobiles & Components Neutral 8,204 118.8 (18.5) 45 17 25 17.3 14.8 9.8 8.0 6.9 3.0 2.6 2.3 11.9 15.3 15.8 1.1 1.2 1.3 417 Banks REDUCE 757 710 (6) 1,947 28.2 2,567 18 46 53 1,555 161 14.4 43 16.3 14.3 ——— 3.1 2.7 2.3 7.0 16.2 16.2 0.4 0.9 1.0 113 ADD 120 140 17 318 4.6 2,652 10.4 25 29 214 143 16 11.5 4.7 4.1 ——— 1.0 0.8 0.6 6.6 15.7 13.8 ——— 26 ADD 272 280 3 205 3.0 733 9.4 53 68 116 458 30 29 5.2 4.0 ——— 1.5 1.0 0.7 1.9 10.1 11.8 ——— 19.3 ADD 201 200 (0) 147 2.1 665 9.5 10.6 12.3 7.1 11.0 16 21 19.0 16.3 ——— 3.3 3.0 2.6 15.7 15.4 15.8 0.8 0.9 1.1 2.4 DCB Bank BUY 197 210 7 61 0.9 308 10.3 12.7 17 29 24 33 19.2 15.5 11.6 ——— 2.3 2.0 1.8 11.7 13.0 15.3 0.5 0.6 0.8 5.6 Daily Summary India Equitas Holdings BUY 135 180 34 46 0.7 340 6.1 9.7 13.4 558 60 39 22 13.9 10.0 ——— 1.9 1.7 1.5 8.7 12.5 15.0 ——— 4.4 BUY 90 110 22 179 2.6 1,972 6.1 8.3 10.1 36 37 22 14.9 10.9 8.9 ——— 1.5 1.4 1.2 9.4 11.9 13.3 1.5 2.1 2.5 16.0 HDFC Bank ADD 2,276 2,200 (3) 6,199 89.9 2,595 78 93 110 15 20 18 29 24 21 ——— 4.3 3.8 3.3 16.6 16.2 16.8 0.7 0.8 0.9 84 ICICI Bank BUY 392 430 10 2,525 36.6 7,072 8.3 27 32 (12.9) 223 19 47 14.5 12.2 ——— 2.6 2.2 1.9 5.0 15.0 15.8 0.4 1.4 1.6 98 IDFC First Bank NR 53 —— 252 4 3,404 (3.3) 1.6 2.6 (229) 149 66 NM 33 20 ——— 1.4 1.3 1.2 NM 4.0 6.4 — 0.5 0.7 12.6 IndusInd Bank BUY 1,699 1,700 0 1,024 14.9 600 56 75 94 (7) 35 25 30 23 18.1 ——— 3.8 3.3 2.9 14.2 15.0 16.4 0.4 0.5 0.6 53 J&K Bank BUY 50 90 80 28 0.4 557 7.1 9.6 18 95 35 84 7.1 5.2 2.8 ——— 0.6 0.5 0.4 6.2 8.0 13.5 2.8 3.8 7.0 0.8 Karur Vysya Bank ADD 70 85 22 56 0.8 799 2.3 4.4 8.6 (51) 89 96 30 15.9 8.1 ——— 1.1 1.0 0.8 2.7 4.9 9.1 0.8 1.6 3.2 1.6 ADD 92 95 4 348 5.0 2,761 (15) 13.0 15 67 188 18 NM 7.0 6.0 ——— 1.9 1.1 0.9 NM 11.2 11.6 ——— 31

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK RBL Bank SELL 636 515 (19) 271 3.9 420 20 28 34 35 35 22 31 23 18.9 ——— 3.7 3.3 2.9 12.2 14.7 15.8 0.5 0.6 0.8 16.0 State BUY 298 370 24 2,660 38.6 8,925 7.4 38 51 201 412 35 40 7.9 5.8 ——— 1.8 1.4 1.1 3.0 13.9 16.2 0.1 0.2 0.2 82 Ujjivan Financial Services BUY 331 350 6 40 0.6 121 15 25 31 2,480 62 23 22 13.3 10.8 ——— 2.1 1.8 1.6 10.1 14.6 15.7 0.4 0.7 1.0 10.5 Union Bank ADD 87 90 4 101 1.5 1,169 0.3 11.2 29 101 3,653 160 290 7.7 3.0 ——— 1.2 0.8 0.5 0.1 5.6 13.3 0.1 1.9 5.0 12.8 SELL 253 200 (21) 584 8.5 2,303 18 18 23 (1.5) 0.1 30 14.0 14.0 10.8 ——— 2.2 1.9 1.6 15.2 13.5 15.6 1.2 1.2 1.5 174 -

Banks Attractive 16,992 246.5 750 166 26 37 13.8 11.0 2.0 1.8 1.6 5.6 12.9 14.2 0.5 0.8 0.9 763 March 25, March2019 25,

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 22-Mar-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn) Building Products Astral Poly Technik SELL 1,152 720 (38) 138 2.0 120 18 22 26 20 25 17 66 52 45 34 28 24 11 9.0 7.6 18.3 18.7 18.3 0.1 0.1 0.1 1.6 Building Products Cautious 138 2.0 20 25 17 65 52 45 34 28 24 11 9.0 7.5 16.4 17.2 16.9 0.1 0.1 0.1 1.6 Capital goods ABB SELL 1,340 1,005 (25) 284 4.1 212 12.0 17 25 12.7 44 44 112 78 54 59 48 34 7.1 6.3 5.7 6.7 8.6 11.1 0.4 0.4 14.9 2.5 Ashoka Buildcon BUY 129 205 59 36 0.5 282 10.2 11.0 11.2 21 7.3 1.8 12.6 11.8 11.6 8.5 7.9 7.2 1.7 1.5 1.3 14.0 13.4 12.2 1.0 1.1 1.1 0.5 BUY 91 100 10 222 3.2 2,437 5.7 5.8 5.2 (2.9) 2.5 (11.6) 16.0 15.6 17.6 9.8 8.2 8.2 2.5 2.3 2.1 16.5 15.4 12.6 2.2 2.2 2.0 14.9 BHEL REDUCE 67 65 (4) 235 3.4 3,482 3.0 2.7 4.2 29 (9.4) 53 22 25 16.2 12 10.3 6.9 0.7 0.7 0.7 3.3 3.0 4.5 2.4 1.8 2.5 10.5 Carborundum Universal SELL 369 315 (15) 70 1.0 189 13.7 17 19 20 22 14.3 27 22 19.3 15 12 10.5 4.0 3.6 3.2 15.7 17.3 17.7 1.1 1.4 1.6 0.8

Cochin Shipyard BUY 380 555 46 50 0.7 132 35 37 39 16 6.4 6.9 11.0 10.3 9.6 4.6 4.5 5.3 1.5 1.4 1.2 13.8 13.8 13.5 2.7 2.8 3.0 0.4 ry ry India REDUCE 753 720 (4) 209 3.0 277 28 32 37 16 15 15 27 23 20 22 19 16 4.9 4.6 4.3 18.8 20 22 2.0 2.3 2.7 7.6

Dilip Buildcon BUY 635 775 22 87 1.3 137 59 54 63 26 (8.0) 16 10.9 11.8 10.1 7.1 6.0 5.5 2.7 2.2 1.8 28 20 19.4 0.2 0.2 0.2 5.2

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IRB Infrastructure BUY 146 250 72 51 0.7 351 27 30 16 21 8.6 (45) 5.4 4.9 8.9 6.4 7.0 8.6 0.8 0.7 0.7 15.7 14.9 7.6 2.1 2.5 2.6 4.9 March2019 25, Kalpataru Power Transmission BUY 446 530 19 68 1.0 153 31 35 43 58 14.6 22 14.5 12.7 10.4 8.5 6.8 5.5 2.2 1.9 1.6 16.3 16.1 16.9 0.4 0.4 0.4 0.4 KEC International BUY 300 360 20 77 1.1 257 20 25 31 11.8 24 23 15.0 12.0 9.8 8.6 7.2 6.0 3.1 2.6 2.1 23 23 23 0.7 0.9 1.1 1.8 L&T BUY 1,395 1,565 12 1,956 28.4 1,401 63 67 76 22 6.5 13.0 22 21 18.3 18 17 15 3.1 2.8 2.6 14.9 14.2 14.7 1.5 1.6 1.8 63

Sadbhav Engineering BUY 247 280 13 42 0.6 172 13.8 17 17 7.3 26 -0.6 17.9 14.2 14.3 12 9.9 8.7 2.0 1.8 1.6 12.0 13.4 11.8 0.0 0.0 0.0 0.8 SELL 1,049 995 (5) 374 5.4 356 29 34 40 14.1 20 17 37 30 26 22 18 15 4.2 3.8 3.5 11.8 13.1 14.0 0.8 0.9 1.1 8.6 Thermax REDUCE 990 990 (0) 118 1.7 113 27 38 43 29 42 12.4 37 26 23 26 18 16 26 18 16 10.7 13.9 14.2 0.8 1.0 1.2 1.3 Capital goods Neutral 3,906 56.7 20 8.8 11.7 22 20 18.0 2.6 2.4 2.2 11.8 11.8 12.1 1.4 1.4 2.7 763 Commercial & Professional Services SIS REDUCE 816 800 (2) 60 0.9 73 27 36 43 19 36 19 31 23 18.9 18 13 11.1 5.0 4.2 3.5 17.7 20 20 0.3 0.4 0.5 0.2 TeamLease Services SELL 3,000 2,000 (33) 51 0.7 17 59 76 99 37 29 30 51 39 30 52 39 30 9.5 7.6 6.1 20 21 22 — — — 0.9

Commercial & Professional Services Cautious 111 1.6 26 33 23 37 28 23 25 19 15 6.4 5.2 4.3 17.1 18.8 19.0 0.2 0.2 0.3 1.1 Commodity Chemicals REDUCE 1,471 1,225 (17) 1,411 20.5 959 24 30 36 19 25 19 60 48 41 37 30 25 15 13 11 26 29 30 0.7 1.0 1.2 28 ADD 581 700 20 148 2.1 255 40 48 53 (22) 18 11.8 14.4 12.2 10.9 6.7 5.5 4.7 1.2 1.2 1.1 8.9 9.8 10.3 2.6 2.9 2.9 7.2 Commodity Chemicals Neutral 1,559 22.6 2.1 23 17 46 38 32 26 21 18 7.2 6.6 6.0 15.6 17.6 18.7 0.9 1.1 1.3 35 Conglomerate Godrej Industries RS 531 — — 281 4.1 336 16 20 — 8.9 24 33 27 41 44 4.4 3.8 13.9 15.1 0.3 0.3 3.0 Conglomerate Neutral 281 4.1 8.9 24 53 42 41 44 6.9 6.0 13.1 14.2 0.2 0.2 3.0 Construction Materials ACC SELL 1,583 1,280 (19) 297 4.3 188 54 68 79 9.9 27 15 30 23 20 16 12 10.7 2.8 2.6 2.4 10.1 11.6 12.2 0.9 0.9 0.9 16.0 REDUCE 230 190 (17) 456 6.6 1,986 7.2 9.4 11.2 (4.8) 31 19 32 24 21 9.8 8.2 6.9 2.0 1.9 1.8 6.6 8.1 9.1 0.7 1.2 1.2 8.2 Dalmia Bharat ADD 1,078 1,170 16 207 2.9 192 6.6 35 50 (55) 421 44 153 29 20 13 9.5 8.2 1.9 1.8 1.6 1.2 6.2 8.3 — — — 0.0 ADD 820 930 13 539 7.8 657 65 74 98 37 13.6 33 12.6 11.1 8.4 7.6 7.0 5.9 0.9 0.8 0.8 7.3 7.9 9.7 0.7 0.7 0.7 16.5 India Cements REDUCE 100 84 (16) 31 0.4 308 3.0 6.4 9.0 (7.9) 112 42 33 15.7 11.0 9.2 7.5 6.6 0.6 0.6 0.5 1.8 3.7 5.0 1.0 1.0 1.0 8.4 J K Cement ADD 846 770 (9) 65 0.9 70 31 61 62 (28) 97 1.9 27 13.9 13.6 11.4 10.0 8.2 2.5 2.1 1.9 10.3 16.5 14.8 0.9 0.9 0.9 0.3 JK Lakshmi Cement ADD 351 325 (7) 41 0.6 118 3.1 22 31 (31) 624 37 113 15.7 11.5 13 7.5 6.1 2.8 2.5 2.0 2.5 16.8 19.5 0.6 0.6 0.6 0.4 Orient Cement ADD 88 80 (9) 18 0.3 205 0.1 6.2 10.4 (97.5) 11,412 67 1,639 14.2 8.5 13 7.0 5.2 1.8 1.7 1.5 0.1 12.4 18.5 1.7 2.3 2.3 0.1 SELL 18,125 11,750 (35) 631 9.2 35 339 512 642 (15) 51 25 54 35 28 23 16 13 6.5 5.6 4.7 12.7 17.0 18.2 0.3 0.3 0.3 6.1 UltraTech Cement SELL 3,930 2,550 (35) 1,079 15.7 275 79 128 166 (10.7) 62 30 50 31 24 21 15 13 3.9 3.5 3.1 8.1 12.0 13.8 0.3 0.3 0.3 21 Construction Materials Cautious 3,354 48.7 4.2 42 28 32 22 17.5 12 9.9 8.2 2.2 2.1 1.9 7.0 9.2 10.7 0.5 0.5 0.5 77

Source: Company, Bloomberg, Kotak Institutional Equities estimates

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH

20

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 22-Mar-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 221 200 (9) 138 2.0 627 6.0 7.2 8.5 16 21 17 37 31 26 23 19 16 12 9.5 7.3 39 35 32 0.9 1.1 — 1.6 India SELL 758 520 (31) 474 6.9 625 13.4 17 20 21 23 18 57 46 39 37 29 25 11 9.8 8.6 21 23 24 0.6 0.8 0.9 14.2 SELL 23,703 22,300 (6) 264 3.8 11 397 479 578 28 21 21 60 49 41 38 32 26 27 22 17 48 48 47 1.1 0.9 1.1 18.7 TCNS Clothing Co. ADD 790 855 8 48 0.7 64 21 22 27 37 5.2 22 38 36 29 25 19 15 8.6 6.7 5.3 26 21 20 — — — 0.3 Vardhman Textiles ADD 1,084 1,230 13 62 0.9 56 124 129 139 20.8 4.1 7.5 8.7 8.4 7.8 6.9 6.6 5.9 1.1 1.0 0.9 13.4 12.6 12.4 1.8 2.8 2.8 0.3 SELL 615 500 (19) 203 3.0 331 16 18 22 (5.2) 11.8 20 37 34 28 28 24 21 4.7 4.3 3.8 13.2 13.4 14.5 0.5 0.6 0.7 10.8 Whirlpool SELL 1,528 1,220 (20) 194 2.8 127 33 40 46 20 21 15 46 38 33 29 23 20 9.1 7.7 6.7 21 22 22 0.3 0.5 0.9 1.4 Consumer Durables & Apparel Cautious 1,385 20.1 17 16 40 35 30 26 22 19 7.3 6.4 18.3 18.6 18.9 0.7 0.8 47 Consumer Staples Bajaj Consumer Care ADD 319 405 27 47 0.7 148 15 17 19 7.8 10.1 9.1 21 18.8 17.2 16 14 12 10 10 10 47 53 57 4.4 4.4 4.7 2.2 REDUCE 3,099 2,935 (5) 745 10.8 240 50 60 71 19 21 18 62 52 44 41 34 29 18 14 12 31 31 30 0.6 0.7 0.9 14.3 Colgate-Palmolive (India) ADD 1,264 1,400 11 344 5.0 272 27 32 37 16 16 17 46 40 34 27 23 20 20 17 15 46 47 48 1.3 1.5 1.8 9.2 India REDUCE 425 390 (8) 751 10.9 1,762 8.8 10.3 11.9 12.8 17 16 48 41 36 41 34 29 13 12 10 27 30 30 0.9 1.1 1.3 15.0 GlaxoSmithKline Consumer RS 6,931 — — 291 4.2 42 218 240 265 31 10.1 10.6 32 29 26 22 20 17 7.3 6.5 5.9 25 24 24 1.3 1.5 1.8 2.4 REDUCE 700 700 0 715 10.4 1,022 15 18 21 6.6 19 16 46 39 34 32 27 23 9.4 8.2 7.2 22 23 23 0.8 0.9 1.0 12.6 REDUCE 1,678 1,600 (5) 3,632 52.7 2,160 29 34 39 18 18 13.8 58 50 44 40 34 30 45 38 32 83 83 79 1.3 1.4 1.6 42 ITC ADD 298 325 9 3,648 52.9 12,275 9.8 11.0 12.2 10.4 11.3 11.8 30 27 24 20 18 16 6.6 6.3 5.9 21 22 24 1.9 2.2 2.6 57 Jyothy Laboratories ADD 185 210 14 68 1.0 364 5.5 6.2 7.2 24 13.8 16 34 30 25 23 20 17 5.1 4.5 3.9 16.2 16.0 16.4 0.5 0.8 1.1 0.6 ADD 340 380 12 439 6.4 1,291 7.2 8.8 10.3 14.5 23 17 47 39 33 34 27 23 16 15 13 35 40 42 1.4 1.6 1.8 8.9 Nestle India REDUCE 10,601 11,100 5 1,022 14.8 96 167 199 229 31 19 15 64 53 46 37 32 27 28 26 24 45 50 53 1.1 1.3 1.5 14.2 Tata Global Beverages ADD 196 220 12 124 1.8 631 7.3 8.7 9.8 — 18 13.0 27 23 20.0 15 13 11.6 1.7 1.6 1.6 6.5 7.4 8.0 1.5 1.8 2.0 6.2 United Breweries REDUCE 1,368 1,390 2 362 5.2 264 24 30 37 59 26 23 58 46 37 29 25 21 11 9.2 7.6 21 22 23 0.3 0.4 0.5 12.2 REDUCE 565 550 (3) 411 6.0 727 10.9 13.3 17 44 22 25 52 42 34 32 26 22 12 8.5 5.8 27 24 20 — 0.4 0.4 13.6 BUY 811 900 11 148 2.1 183 16 19 26 39 22 33 51 42 31 17 15 11.7 7.4 6.4 5.4 15.5 16.5 18.7 0.3 0.1 0.2 1.2 Consumer Staples Cautious 12,745 184.9 16 15 14.3 43 38 33 29 25 21 12 10 9.3 27 28 28 1.3 1.5 1.7 211 Diversified Financials REDUCE 2,837 2,250 (21) 1,640 23.8 575 67 90 118 54 34 31 42 32 24 — — — 8.5 6.9 5.5 22 24 25 0.2 0.3 0.4 60 ADD 6,960 6,500 (7) 1,108 16.1 159 242 307 384 38 27 25 29 23 18.1 — — — 4.5 3.8 3.2 17.5 18.3 19.1 0.2 0.2 0.2 21 Bharat Financial Inclusion NA 1,082 — — 152 2.2 139 63 68 86 93 8.1 27 17.1 15.8 12.5 — — — 3.8 3.0 2.4 25 21 21 — — — 8.0 Cholamandalam BUY 1,348 1,475 9 211 3.1 156 76 91 111 30 20 22 17.6 14.8 12.1 — — — 3.6 2.9 2.4 21 21 21 0.7 0.8 1.0 5.6

HDFC ADD 1,982 2,125 7 3,411 49.5 1,676 54 60 71 (29) 11.6 18 37 33 28 — — — 4.6 4.2 3.8 13.3 13.2 14.4 1.0 1.1 1.4 81 India Daily Summary Daily Summary India IIFL Holdings REDUCE 441 410 (7) 141 2.0 319 26 28 33 (9.0) 9.4 17 17.0 15.5 13.3 — — — 2.5 2.2 2.0 15.6 15.1 15.9 1.3 1.4 1.6 1.5 L&T Finance Holdings REDUCE 146 145 (1) 292 4.2 1,996 11.7 13.0 15.0 59 11.2 16 12.5 11.3 9.7 — — — 2.1 1.9 1.6 17.7 17.7 17.7 1.4 1.7 1.6 13.7 LIC Housing Finance BUY 528 590 12 267 3.9 505 46 54 63 4.8 17 17 11.5 9.9 8.4 — — — 1.8 1.5 1.3 16.2 16.0 16.4 1.3 1.6 1.9 13.9 Magma Fincorp BUY 110 145 31 30 0.4 237 11.3 15 18 16 35 18 9.8 7.2 6.1 — — — 1.1 1.0 0.9 12.1 14.3 14.9 1.5 2.1 2.4 0.3 Mahindra & Mahindra Financial ADD 416 475 14 257 3.7 614 22 27 33 25 23 23 19.0 15.4 12.5 — — — 2.6 2.4 2.1 13.6 14.9 16.4 1.2 1.5 1.8 10.3 ADD 594 550 (7) 238 3.5 400 48 45 50 11.3 (6.0) 11.2 12.4 13.2 11.9 — — — 2.6 2.3 2.0 23 18.3 17.9 1.9 1.7 1.9 9.4 PNB Housing Finance REDUCE 859 950 11 144 2.1 167 62 70 83 (3.5) 12.8 19 13.9 12.3 10.3 — — — 2.0 1.8 1.6 15.1 14.8 15.6 0.4 0.4 0.4 2.5 Shriram City Union Finance ADD 1,802 1,950 8 119 1.7 66 146 158 188 45 8.2 19 12.4 11.4 9.6 — — — 2.0 1.8 1.5 16.2 15.4 16.0 1.0 1.1 1.3 0.4 Shriram Transport BUY 1,199 1,475 23 272 3.9 227 109 128 147 57 18 15 11.0 9.4 8.1 — — — 1.8 1.6 1.4 16.9 17.3 17.2 1.3 1.5 1.8 20 Diversified Financials Neutral 8,279 120.1 8.0 18 21 26 22 18.1 3.8 3.4 2.9 14.9 15.4 16.2 0.8 0.9 1.1 249

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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March 25, March2019 25,

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 22-Mar-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn) Electric Utilities CESC BUY 710 800 13 94 1.4 133 63 97 107 (6.8) 55 10.4 11.4 7.3 6.6 7.0 5.8 5.3 0.8 0.7 0.6 6.7 10.0 10.2 1.6 1.5 1.6 4.8 JSW Energy REDUCE 66 67 2 108 1.6 1,640 4.3 5.4 5.7 42 25 5.6 15.1 12.1 11.5 5.9 5.0 4.5 0.9 0.8 0.8 6.2 7.2 7.1 — — — 1.0 NHPC ADD 25 28 14 247 3.6 10,260 2.7 2.7 3.5 10.4 0.9 28 9.1 9.0 7.1 8.0 7.8 6.7 0.8 0.8 0.8 9.1 8.8 10.9 6.1 5.6 7.4 2.5 NTPC BUY 135 158 17 1,332 19.3 9,895 10.9 12.3 14.0 3.9 12.8 14.1 12.4 11.0 9.6 9.8 8.7 7.4 1.2 1.1 1.1 10.2 10.8 11.4 2.4 2.7 3.1 26 Power Grid BUY 199 235 18 1,038 15.1 5,232 18 21 24 16 17 11.5 10.8 9.3 8.3 7.6 7.0 6.6 1.7 1.5 1.4 16.7 17.6 17.6 3.1 3.6 4.0 18.3 BUY 73 85 17 196 2.8 2,705 4.4 5.2 7.6 (18.3) 19 46 16.6 13.9 9.6 10.1 10.4 10.0 1.2 1.1 1.0 7.5 8.2 10.9 — — — 6.5 Electric Utilities Attractive 3,016 43.8 7.8 15 15 11.7 10.2 8.8 1.3 1.2 1.1 10.7 11.4 12.2 2.7 3.0 3.4 59 Fertilizers & Agricultural Chemicals

Bayer Cropscience SELL 4,325 3,550 (18) 148 2.2 34 94 114 135 7.4 21 19 46 38 32 28 23 19 7.3 6.4 5.5 17.0 18.0 18.6 0.4 0.5 0.6 0.5 ry ry Dhanuka Agritech ADD 419 435 4 21 0.3 49 20 24 28 (22.1) 21 17 21 17.4 14.8 15 11.8 9.6 2.9 2.6 2.3 14.7 15.8 16.4 1.0 1.2 1.4 0.1

Godrej Agrovet ADD 492 540 10 94 1.4 189 11.4 16 20 (1.0) 38 26 43 31 25 21 16 13 4.9 4.3 3.7 12.2 14.6 15.9 0.4 0.5 0.6 0.8 -

Kaveri Seed SELL 458 515 12 29 0.4 66 34 34 37 7.3 0.1 8.3 13.3 13.3 12.3 10.0 9.3 8.1 3.2 2.8 2.4 26 22 21 1.7 2.2 2.2 10.9 March2019 25, PI Industries BUY 1,022 970 (5) 141 2.0 138 30 39 46 13.9 27 19 34 27 22 24 19 16 6.2 5.2 4.4 20.0 21 21 0.4 0.6 0.7 1.7 Rallis India ADD 160 195 22 31 0.5 195 8.8 10.5 11.1 1.7 20 5.4 18.3 15.2 14.4 12 10.0 9.0 2.4 2.2 2.1 13.8 15.4 15.0 2.3 2.5 2.7 0.8 UPL ADD 935 775 (17) 476 6.9 507 45 55 62 6.0 21 12.9 21 17.1 15.1 12 10.8 9.5 4.4 3.6 3.1 23 23 22 0.9 1.2 1.3 23

Fertilizers & Agricultural Chemicals Attractive 941 13.6 5.5 21 14.5 25 21 18.0 15 13 11.3 4.7 4.0 3.4 18.8 19.4 18.9 0.8 1.0 1.1 37 Gas Utilities GAIL (India) BUY 349 455 30 788 11.4 2,255 29 33 34 40 13.8 5.9 12.2 10.7 10.1 7.8 6.8 6.4 1.8 1.6 1.5 15.3 16.0 15.5 3.1 3.3 3.6 23 GSPL SELL 178 170 (4) 100 1.5 564 15 14.3 13.6 31 (7.6) (4.6) 11.5 12.4 13.1 4.8 4.8 4.6 1.7 1.6 1.4 16.1 13.2 11.4 1.3 1.2 1.1 1.4 SELL 305 250 (18) 213 3.1 700 11.9 13.7 15 16 14.7 11.3 26 22 20 16 14 12 5.3 4.6 4.1 22 22 22 0.9 1.2 1.6 9.6 ADD 969 950 (2) 96 1.4 99 57 62 64 19 7.6 4.2 16.9 15.7 15.1 9.9 9.0 8.4 4.0 3.6 3.3 25 24 23 2.3 2.9 3.3 4.8 Petronet LNG BUY 242 270 12 363 5.3 1,500 15 18 20 11.2 15 11.8 15.7 13.6 12.1 10.4 8.8 7.8 3.4 3.1 2.9 23 24 24 3.2 3.7 4.5 10.4 Gas Utilities Attractive 1,559 22.6 29 12.4 6.8 14.2 12.6 11.8 8.8 7.7 7.1 2.3 2.1 1.9 16.5 16.9 16.5 2.7 2.9 3.4 49 Health Care Services ADD 1,151 1,275 11 160 2.3 139 23 30 37 177 30 21 49 38 31 18 16 14 4.6 4.2 3.9 9.6 11.7 12.9 0.5 0.7 0.8 16.0 Aster DM Healthcare BUY 159 240 51 80 1.2 505 6.1 8.3 11.9 120 37 44 26 19.2 13.3 12 9.9 7.9 2.6 2.3 2.0 10.3 12.7 16.1 — — — 0.1 Dr Lal Pathlabs SELL 1,082 945 (13) 90 1.3 83 24 28 33 17 15 18 45 39 33 28 24 20 9.6 8.1 6.8 23 22 22 0.4 0.5 0.6 1.4 HCG BUY 199 260 31 17 0.3 85 (2.5) 0.9 3.4 (261) 137 263 NM 214 59 18 15 12 3.4 3.4 3.2 NM 1.6 5.6 — — — 0.2 Narayana Hrudayalaya BUY 218 265 22 45 0.6 204 1.9 4.5 7.5 (25) 139 64 115 48 29 19 15 11.8 4.1 3.8 3.4 3.7 8.3 12.2 — — — 0.2 Health Care Services Attractive 393 5.7 72 38 34 46 33 25 17 15 12 4.3 3.9 3.5 9.3 11.7 13.8 0.3 0.4 0.5 17.9 Hotels & Restaurants Coffee Day Enterprises NR 287 — — 61 0.9 211 7.6 10.1 12.5 127 34 24 38 28 23 12 10.7 9.8 2.4 2.2 0.0 6.5 8.1 9.2 — — — 1.3 Jubilant Foodworks BUY 1,430 1,450 1 189 2.7 132 24 32 42 67 33 30 59 44 34 30 23 18 14 11 8.5 28 28 28 0.1 0.2 0.3 50 Lemon Tree Hotels ADD 80 86 7 63 0.9 786 0.5 1.2 2.0 162 157 68 170 66 39 41 24 18 7.4 6.7 6.2 4.5 10.6 16.3 — — 1.2 0.9 Hotels & Restaurants Attractive 313 4.5 88 42 33 60 42 32 23 18 15 6.6 5.8 5.0 11.0 13.6 15.7 0.1 0.1 0.4 52 Insurance HDFC Life Insurance ADD 364 435 20 733 10.6 2,007 6.5 8.1 9.8 18 24 21 56 45 37 — — — 14 12 11 26 29 31 0.4 0.6 0.7 9.5 ICICI Lombard SELL 1,001 720 (28) 455 6.6 454 26 32 36 35 24 15 39 32 27 — — — 8.4 7.1 5.9 23 24 23 0.6 0.7 0.8 4.2 ICICI Prudential Life BUY 329 480 46 473 6.9 1,436 8.9 10.3 12.3 (21) 16 20 37 32 27 — — — 6.2 5.4 4.6 18.1 18.1 18.7 0.5 0.5 0.6 9.7 Max Financial Services BUY 450 530 18 121 1.8 268 6.3 6.4 6.5 37 1.8 1.8 72 70 69 — — — 8.3 8.0 7.8 0.5 0.5 0.5 3.9 SBI Life Insurance BUY 616 790 28 616 8.9 1,000 12.7 14.3 16 10.8 12.4 12.1 48 43 38 — — — 8.1 7.0 6.1 18.0 17.5 17.0 0.3 0.4 0.4 16.4 Insurance Attractive 2,397 34.8 6.8 18 17 46 39 33 8.6 7.5 6.5 18.6 19.1 19.4 0.3 0.4 0.4 44 Source: Company, Bloomberg, Kotak Institutional Equities estimates

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH

22

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 22-Mar-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn) Internet Software & Services ADD 1,909 1,720 (10) 233 3.4 121.6 24 32 39 6.8 35 20 79 59 49 63 45 37 8.8 8.0 7.2 12.3 14.2 15.4 0.4 0.4 0.5 6.9 Just Dial SELL 627 625 (0) 41 0.6 67.4 30 32 34 39 7.7 7.2 21 19.7 18.3 13 11.0 9.9 4.4 3.7 3.1 20 20 18.3 0.5 0.5 0.5 23 Internet Software & Services Attractive 274 4.0 16 24 16 57 46 39 43 33 29 7.7 6.8 6.0 13.6 14.9 15.3 0.4 0.4 0.5 30 IT Services HCL Technologies ADD 1,025 1,140 11 1,390 20.2 1,409 73 78 82 17 6.7 6.3 14.1 13.2 12.4 9.3 8.2 7.4 3.2 2.7 2.4 25 22 21 0.8 3.0 3.2 27 Hexaware Technologies REDUCE 338 345 2 100 1.5 302 19 21 25 17 10.9 16 17.5 15.8 13.6 13 10.7 9.0 4.3 3.7 3.3 27 25 26 2.5 2.5 3.0 6.3 ADD 743 760 2 3,247 47.1 4,350 36 40 44 11.2 10.6 10.9 21 18.7 16.9 14 13 11.5 4.8 4.4 4.0 24 24 25 3.5 3.0 3.2 88 L&T Infotech ADD 1,662 2,000 20 288 4.2 175 86 96 112 35 11.9 16 19.4 17.3 14.9 14 12 10.1 6.1 4.9 4.0 35 31 30 1.4 1.6 1.8 4.2 ADD 939 1,000 6 154 2.2 165 45 52 61 31 14.1 17 21 18.1 15.5 13 11.3 9.5 4.8 4.1 3.5 25 24 24 1.4 1.7 1.9 25 REDUCE 976 900 (8) 182 2.6 193 56 63 65 29 11.1 3.7 17.3 15.6 15.0 13 10.7 10.0 3.6 3.2 2.9 20 22 20 2.0 2.6 3.1 4.6 TCS REDUCE 2,006 1,825 (9) 7,526 109.2 3,829 83 91 100 23 10.3 9.6 24 22 20 18 16 14 7.4 7.0 6.6 33 33 34 1.7 3.2 3.5 89 ADD 790 875 11 697 10.1 891 49 56 64 13.8 16 14.5 16.3 14.0 12.3 9.7 8.1 6.8 3.2 2.7 2.3 21 21 20 1.2 1.3 1.4 37 REDUCE 261 265 2 1,572 22.8 6,009 15 18 20 19 19 9.2 17.2 14.5 13.3 11.3 9.4 8.7 2.7 2.5 2.4 17.0 17.8 18.3 0.6 3.8 4.2 32 IT Services Cautious 15,156 219.9 16 10.8 9.9 20 18.4 16.7 14 13 11.4 4.9 4.5 4.1 24 24 24 1.8 3.0 3.3 314 Media DB Corp. ADD 187 220 18 33 0.5 184 16 21 24 (10.5) 31 18 11.9 9.0 7.7 6.1 4.6 3.9 1.8 1.7 1.6 14.9 19.5 21 2.1 5.3 6.7 0.3 DishTV ADD 37 30 (19) 68 1.0 1,925 0.2 1.4 2.4 145 593 71 185 27 15.5 4.0 3.3 2.6 13 10.0 7.0 7.9 43 53 — — — 11.2 Jagran Prakashan REDUCE 111 110 (1) 33 0.5 311 8.9 11.1 13.0 (8.1) 25 17 12.6 10.1 8.6 5.3 4.4 3.7 1.8 1.8 1.7 13.4 17.6 20 4.5 8.1 8.1 0.3 PVR RS 1,615 NA - 76 1.1 47 37 51 65 38 37 28 43 32 25 16 12 10.5 6.3 5.4 4.5 15.5 18.3 19.8 0.2 0.3 0.4 9.7 Sun TV Network REDUCE 596 600 1 235 3.4 394 38 39 42 31 2.7 7.4 15.8 15.3 14.3 10.4 9.9 9.1 4.4 3.9 3.5 30 27 26 2.5 2.9 3.4 21 Zee Entertainment Enterprises ADD 435 490 13 418 6.1 960 17 20 22 14.7 15 11.9 25 22 19.6 15 13 11.6 4.9 4.3 3.8 20 21 20 1.0 1.3 1.6 72 Media Attractive 862 12.5 20 19 16 22 18.6 16.1 9.9 8.7 7.7 4.4 3.9 3.5 20 21 22 1.5 2.0 2.3 114 Metals & Mining BUY 209 275 32 469 6.8 2,229 27 27 29 24 (1.3) 7.8 7.7 7.8 7.2 5.1 4.9 4.4 0.8 0.7 0.6 10.5 9.5 9.3 0.6 0.6 0.6 24 REDUCE 275 235 (14) 1,160 16.8 4,225 20 20 21 (6.0) (0.1) 7.3 13.8 13.8 12.9 8.5 7.9 7.1 3.4 3.1 2.8 24 23 23 7.3 3.6 3.9 2.9 REDUCE 167 145 (13) 161 2.3 968 4.4 4.4 13.2 152 (0.1) 198 38 38 12.6 6.8 6.9 5.9 0.5 0.5 0.5 1.5 1.4 4.1 — — — 26 JSW Steel REDUCE 286 265 (7) 691 10.0 2,406 31 19 23 17 (38) 16 9.1 14.7 12.7 6.2 8.2 7.4 2.1 1.9 1.7 25 13.5 14.0 1.2 1.2 1.2 29 National Aluminium Co. BUY 54 78 45 101 1.5 1,933 9.7 6.7 7.0 236 (31.3) 4.4 5.5 8.0 7.7 2.5 3.5 3.4 1.0 1.0 1.0 17.3 11.9 12.5 11.1 11.1 11.1 11.1 NMDC REDUCE 107 110 3 339 4.9 3,164 13.5 9.4 10.1 15 (31) 7.6 7.9 11.4 10.6 4.7 6.9 6.3 1.3 1.2 0.0 16.8 11.0 11.4 5.1 5.1 5.1 7.1 ADD 518 535 3 589 8.5 1,205 87 68 81 29 (21.7) 19 6.0 7.6 6.4 5.6 6.5 6.3 0.9 0.9 0.8 16.7 12.1 13.4 1.9 1.9 1.9 60

Vedanta BUY 174 275 58 646 9.4 3,717 18 29 30 (14.7) 59 2.8 9.4 5.9 5.8 5.6 4.4 4.1 1.0 1.0 0.9 10.9 16.9 16.4 9.8 9.8 9.8 35 India Daily Summary Daily Summary India Metals & Mining Attractive 4,155 60.3 15 (6.7) 11.3 9.1 9.7 8.7 5.9 6.0 5.6 1.3 1.2 1.1 14.1 12.4 12.8 4.8 3.8 3.8 32 Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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March 25, March2019 25,

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 22-Mar-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn) Oil, Gas & Consumable Fuels BPCL SELL 379 275 (27) 822 11.9 1,967 30 33 35 (25) 10.6 6.5 12.6 11.4 10.7 9.2 8.4 7.8 2.0 1.8 1.7 16.5 16.8 16.4 3.2 3.5 3.7 24 Coal India BUY 232 290 25 1,440 20.9 6,207 26 27 28 128 5.7 1.0 9.0 8.5 8.4 6.4 5.8 5.4 5.6 5.9 6.1 64 67 71 8.6 10.8 10.8 27 HPCL SELL 268 185 (31) 409 5.9 1,524 31 27 29 (26) (12.3) 7.3 8.7 9.9 9.2 7.6 8.8 8.7 1.6 1.4 1.3 18.8 15.1 15.0 4.7 4.1 4.4 22 IOCL SELL 157 120 (24) 1,525 22.1 9,479 16 15 17 (22) (4.4) 8.7 9.8 10.2 9.4 5.7 5.9 5.6 1.3 1.2 1.1 13.4 12.0 12.2 4.1 3.9 4.3 31 BUY 172 235 37 195 2.8 1,135 29 30 31 17.7 4.8 0.8 5.9 5.6 5.6 4.4 4.1 4.0 0.7 0.6 0.6 11.5 11.4 11.0 7.6 8.0 8.0 4.3 ONGC BUY 152 215 41 1,955 28.4 3,752 24 26 26 40 5.3 0.5 6.3 5.9 5.9 3.4 3.1 2.9 0.8 0.7 0.7 13.3 13.0 12.2 5.3 5.6 5.6 28 SELL 1,342 1,070 (20) 7,943 115.2 5,922 67 78 89 13.0 17 14.2 20 17.1 15.0 13 10.9 9.1 2.4 2.1 1.9 11.8 12.3 12.5 0.5 0.5 0.5 173 Oil, Gas & Consumable Fuels Attractive 14,289 207.3 15.0 7.7 7.2 12.3 11.4 10.7 7.8 7.1 6.5 1.8 1.6 1.5 14.3 14.2 13.9 2.7 2.9 3.0 309

Pharmaceuticals ry ry ADD 768 785 2 450 6.5 584 41 61 64 (1.5) 48 5.4 18.7 12.6 12.0 13 8.8 8.1 3.3 2.6 2.2 18.9 21 18.5 0.7 0.8 1.0 27

Biocon SELL 617 370 (40) 370 5.4 601 11.6 16 19 88 42 14.9 53 37 33 28 20 17 5.8 5.2 4.7 11.7 14.7 14.3 0.7 0.9 1.1 14.5 -

Cipla BUY 527 600 14 424 6.2 805 19 25 32 6.1 34 28 28 21 16.6 15 12 9.6 2.7 2.5 2.2 9.9 12.1 13.2 0.7 1.0 1.3 15.7 March2019 25, Dr Reddy's Laboratories REDUCE 2,751 2,450 (11) 457 6.6 166 115 132 165 95 14.2 25 24 21 16.7 15 10.5 8.2 3.2 2.8 2.5 14.2 13.6 14.8 0.6 0.7 0.9 39 Laurus Labs BUY 385 400 4 41 0.6 106 11.0 20 27 (30.6) 80 35 35 19.4 14.4 14 9.3 7.6 2.6 2.3 2.0 7.6 12.4 13.7 — — — 1.5 Lupin REDUCE 744 820 10 336 4.9 450 24 33 46 (38) 40 40 31 22 16.0 14 10.6 8.0 2.3 2.2 1.9 7.6 10.0 12.1 0.3 0.7 0.9 23

Sun Pharmaceuticals ADD 473 475 0 1,135 16.5 2,406 18 22 27 16 23 23 27 22 17.7 14 11.0 9.0 2.8 2.5 2.2 10.7 12.0 12.5 0.5 0.9 1.1 70 ADD 1,870 1,950 4 316 4.6 169 48 60 79 20 24 32 39 31 24 16 14 12 6.2 5.6 4.8 16.0 17.7 20 1.1 1.3 1.4 6.0 Pharmaceuticals Neutral 3,531 51.2 11.6 31 22 28 21 17.4 15 11.3 9.4 3.1 2.8 2.5 11.4 13.2 14.2 0.6 0.9 1.1 196 Real Estate Brigade Enterprises BUY 248 290 17 34 0.5 136 21 26 32 85 25 25 12.1 9.7 7.7 9.3 7.6 5.8 1.3 1.2 1.0 11.6 13.0 14.4 1.0 1.0 1.0 0.7 DLF ADD 196 200 2 350 5.1 1,784 7.0 8.2 8.7 (71) 17.4 5.2 28 24 23 23 25 27 1.1 1.1 1.1 3.8 4.7 4.8 1.0 1.0 1.0 19.4

Godrej Properties SELL 846 400 (53) 194 2.8 216 7.1 23 24 (35) 231 4.2 119 36 35 197 32 32 5.7 4.9 4.3 5.8 14.6 13.3 — — — 3.1

Oberoi Realty BUY 517 470 (9) 188 2.7 340 47 35 56 273 (26) 60 10.9 14.8 9.2 12 15 6.5 2.0 1.8 1.5 22 12.8 17.7 0.4 0.4 0.4 3.4 Prestige Estates Projects ADD 269 270 0 101 1.5 375 10.6 12.9 20 7 22 58 25 21 13.3 12 11.5 8.8 2.5 2.3 2.0 9.0 11.3 15.8 0.6 0.6 0.6 2.0 Sobha REDUCE 461 495 7 44 0.6 95 26 33 39 14.8 24 18 17.5 14.1 12.0 12 10.1 9.3 2.0 1.8 1.6 10.1 13.5 14.3 1.5 1.5 1.5 1.4 Sunteck Realty REDUCE 471 360 (24) 69 1.0 140 17 20 36 14.2 13.0 84 27 24 13.0 23 19 9.5 2.3 2.1 1.8 8.9 9.3 15.1 0.2 0.2 0.2 1.9 Real Estate Neutral 979 14.2 (30) 9.8 32 23 21 16.1 18 17 13 1.8 1.7 1.5 7.7 7.9 9.5 0.6 0.6 0.6 32 Retailing Aditya Birla Fashion and Retail BUY 225 235 4 174 2.5 773 2.1 3.2 5.2 35 54 63 109 71 43 31 24 19 14 12 9.2 13.6 17.9 24 — — — 3.6 Avenue Supermarts SELL 1,504 915 (39) 938 13.6 624 15 20 26 25 32 29 97 74 57 56 42 33 17 14 11 18.7 20 21 — — — 0.0 REDUCE 1,105 900 (19) 981 14.2 888 17 21 25 33 26 18 65 52 44 43 35 28 16 13 11 27 28 27 0.4 0.5 0.6 38 Retailing Cautious 2,093 30.4 30 30 26 79 61 49 46 36 29 16 13 11 20 22 22 0.2 0.2 0.3 41 Speciality Chemicals SELL 161 145 (10) 159 2.3 989 7.2 7.8 8.4 4.2 9.0 7.9 22 21 19.1 14 13 11.7 14 12 11 65 62 60 3.1 3.3 3.6 3.9 REDUCE 1,185 1,025 (14) 602 8.7 508 18 23 28 (2.8) 31 20 66 51 42 42 34 28 15 13 11 24 27 28 0.6 0.7 0.8 10.8 S H Kelkar and Company BUY 158 210 33 23 0.3 145 6.3 8.3 9.8 (14.6) 32 18 25 18.9 16.1 17 13 11.3 2.5 2.3 2.1 10.3 12.5 13.5 1.1 1.3 1.7 0.6 SRF BUY 2,455 2,300 (6) 141 2.0 57 102 127 144 27 24 13.2 24 19.3 17.1 13 11.3 10.0 3.5 3.0 2.6 15.4 16.7 16.4 0.5 0.6 0.7 14.4 Speciality Chemicals Neutral 925 13.4 5.2 23 14.7 40 33 29 24 20 18 9.1 7.9 6.8 23 24 24 1.0 1.1 1.3 30 Source: Company, Bloomberg, Kotak Institutional Equities estimates

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH

24

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 22-Mar-19 (Rs) (%) (Rs bn) (US$ bn) (mn) 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E (US$ mn) Telecommunication Services ADD 332 380 15 1,325 19.2 3,997 (10.0) (11.0) (5.4) NM NM NM NM NM NM 9.7 8.7 7.2 2.1 2.4 2.6 NM NM NM 1.8 1.8 1.8 35 Bharti Infratel REDUCE 316 275 (13) 585 8.5 1,850 14.0 13.3 14.9 1.7 (5.2) 12.6 23 24 21 8.8 9.2 8.4 3.6 3.6 3.5 15.5 14.9 16.6 3.6 3.5 3.9 41 NR 32 — — 281 4.1 4,359 (10.7) (2.4) (6.9) NM NM NM NM NM NM 33 11.6 10.2 0.4 0.6 0.7 NM NM NM — — — 12.5 Tata Communications ADD 598 580 (3) 170 2.5 285 (4.2) 3.0 5.2 NM 172 72 NM 199 116 10.9 9.8 9.1 NM NM 1,318 NM NM NM 1.1 1.3 1.3 4.5 Telecommunication Services Cautious 2,362 34.3 NM 10.8 25 NM NM NM 12 9.5 8.2 1.6 1.5 1.6 NM NM NM 1.9 1.9 2.0 93 Transportation Adani Ports and SEZ BUY 360 390 8 745 10.8 2,071 21 23 29 16 7.2 27 16.8 15.7 12.4 13 11.0 9.7 3.1 2.6 2.2 19.5 18.1 19.5 0.4 0.5 0.4 26 Container Corp. SELL 513 460 (10) 312 4.5 609 14.9 17 20 2.0 17 16 35 30 25 20 17 14 3.1 2.9 2.8 9.3 10.2 11.2 1.4 1.7 1.6 9.1 Gateway Distriparks BUY 129 180 40 14 0.2 109 6.4 3.7 6.2 (16.0) (42) 68 20 35 21 22 8.9 7.6 1.3 2.4 2.1 6.6 4.8 10.8 — 2.3 2.3 0.3 Gujarat Pipavav Port BUY 99 126 27 48 0.7 483 4.6 5.6 6.6 12.2 21 19 21 17.8 14.9 11.0 9.3 7.8 2.3 2.3 2.2 11.0 13.0 15.2 4.0 4.7 5.6 0.6 InterGlobe Aviation ADD 1,427 1,550 9 548 8.0 383 (6) 66 96 (110) 1,212 47 NM 22 14.8 NM 13 8.2 8.0 5.9 4.4 NM 31 34 — 0.2 0.7 21 Mahindra Logistics REDUCE 494 470 (5) 35 0.5 71 12.0 16 21 22 33 33 41 31 23 23 17 13 7.2 6.0 5.0 18.7 21 23 — — — 0.3 Transportation Attractive 1,703 24.7 (25) 59 31 31 19.5 14.8 20 12 9.7 3.8 3.3 2.8 12.3 17.0 18.9 0.5 0.7 0.9 57 KIE universe 111,902 1623.1 16 30 17 23 18.1 15.5 11.4 10.1 8.9 2.8 2.5 2.3 11.9 14.0 14.7 1.4 1.7 1.9 KIE universe (ex-Oil, Gas & Consumable Fuels) 97,613 1415.8 16 37 19 27 19.8 16.6 13 11.2 9.8 3.1 2.7 2.5 11.3 13.9 14.9 1.2 1.5 1.8

Notes: (a) We have used adjusted book values for banking companies. (b) 2019 means calendar year 2018, similarly for 2020 and 2021 for these particular companies. (c) Exchange rate (Rs/US$)= 68.94

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

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March 25, March2019 25,

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 India Daily Summary - March 25, 2019 of of the following or strategic transaction

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Attractive, Neutral, Cautious. BUY 1.5% 29.1% view. 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

Fair Value estimates 0% 10% 50% 40% 30% 20% 70% 60% Source: Kotak Institutional Equities Kotak Institutional Equities Research coverage universe coverage Research Equities Institutional Kotak Distribution of ratings/investment banking relationships NM = NM Meaningful.Not CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. fundamental basis for determining an investment rating or and shouldnot be relied upon. = NA AvailableNot or Applicable.Not Coverage designations: ratings/identifiers Other NR = Rated.Not 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. REDUCE. SELL. Our definitions Other Ratings other and definitions/identifiers ratings of Definitions BUY. ADD.

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

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