INDIA DAILY

February 26, 2020 India 25-Feb 1-day 1-mo 3-mo Sensex 40,281 (0.2) (3.2) (1.3) Nifty 11,798 (0.3) (3.7) (2.0) Contents Global/Regional indices Dow Jones 27,081 (3.1) (6.6) (3.7) Special Reports Nasdaq Composite 8,966 (2.8) (3.7) 3.7 Strategy FTSE 7,018 (1.9) (7.5) (5.2) Strategy: The curious and not-so-curious case of consumer stocks Nikkei 22,338 (1.2) (6.2) (4.4) Hang Seng 26,893 0.3 (3.8) (0.1)  All consumer companies are equal… KOSPI 2,073 (1.5) (7.7) (2.3)  …but some consumer companies are more equal than others Value traded – India

 Distribution moats - some have moats that may persist for a long time Cash (NSE+BSE) 387 413 250 11,02 Derivatives (NSE) 14,207 9,719  Brand moats - some have brands, others have ‘standard’ products 3 masquerading as brands Deri. open interest 3,963 3,756 3,589 Daily Alerts Company alerts Forex/money market Change, basis points

Tech Mahindra: Acquisitions pick up pace 25-Feb 1-day 1-mo 3-mo  TM announces latest acquisition - Zen3 Infosolutions for US$64 mn Rs/US$ 71.9 (1) 43 44 10yr govt bond, % 6.7 3 (30) (28)  Acquisition and integration strategy is fairly logical Net investment (US$ mn)

 Pace of acquisitions has increased 24-Feb MTD CYTD Petronet LNG: Prudent progress FIIs (242) 1,998 3,370 MFs 23 153 (222)

 Key takeaways - Dahej utilization to remain high, ramp-up in Kochi soon, Top movers RasGas renegotiation Change, %  Limited progress on Tellurian deal pending due diligence; Sri Lanka project Best performers 25-Feb 1-day 1-mo 3-mo may start in FY2021 DMART IN Equity 2,332 (2.4) 19.7 30.5 Sector alerts IHFL IN Equity 325 (1.9) 0.7 25.3 BHARTI IN Equity 535 1.0 2.1 23.8 Banks: Retail loans: Growth still struggling TGBL IN Equity 369 (0.0) (4.1) 23.2  Customer inquiries continue to moderate; flattening demand for higher APHS IN Equity 1,790 (0.2) 7.3 22.8 ticket loans Worst performers YES IN Equity 35 0.6 (17.9) (44.3)  Disbursement growth down to zero; sharp decline for NBFCs, stable BHEL IN Equity 34 0.0 (24.7) (36.6) performance by banks HPCL IN Equity 211 (2.4) (13.8) (27.1)

 Steep increase in below prime originations in personal loans and auto loans; ONGC IN Equity 98 (0.5) (17.6) (25.1)

led by NBFCs IIB IN Equity 1,154 (1.4) (12.3) (23.9)  Delinquency levels remain stable overall; deterioration in 2-W and auto loans

 In a bit of conundrum: growth slows and asset quality still holds up well

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. INDIA Strategy Market FEBRUARY 25, 2020 UPDATE BSE-30: 40,281

The curious and not-so-curious case of consumer stocks. The sharp difference in the price performance of consumer stocks over the past two years after years of similar performance looks like a curious phenomenon. However, the difference in performance may not be that curious after all. It could reflect the market’s better understanding of the differences in the business models of the companies and growing comfort or concerns about the relative strengths and weaknesses of their business models.

All consumer companies are equal… QUICK NUMBERS

Consumer stocks performed similarly over March 2009-March 2018 in terms of (1) strong price  Consumer stocks performance (see Exhibit 1), (2) increase in their gross and EBITDA margins over FY2014-18 (see delivered 16-58% Exhibit 2) and (3) re-rating of multiples (see Exhibit 3). We believe two underlying factors drove CAGR over March the performance: (1) decline in global bond yields (see Exhibit 4) and (2) high earnings growth 2009-March 2018 expectations; the market perhaps assumed that companies will be able to grow revenues and earnings in the range of 10-15% for a very long time through a combination of volume (low  Consumer stocks penetration of products) and price/mix-led realization growth (decent pricing power). delivered -36% to +49% CAGR over …but some consumer companies are more equal than others March 2018-current Stock prices of a few companies have risen further over the past two years too (March 2018 to current) while stock prices of several others have declined or stagnated (see Exhibit 5) leading to  Consumer stock wide divergence in multiples of consumer stocks (see Exhibit 6). A few of them have multiple range at disappointed on earnings but we believe there may be longer-term issues around the strengths 12-70X one-year of various business models (longevity of business models and cash flows) that may have forward EPS currently contributed to the diverse performance. In our view, the two biggest business moats of versus 25-63X at end- consumer companies are brands and distribution and they reinforce each other. March 2018

Distribution moats—some have moats that may persist for a long time

In our view, certain consumer businesses such as (1) jewelry, (2) liquor and (3) paints may have the strongest distribution moats. These businesses are unlikely to face any meaningful threat from e-commerce or organized retailing companies as distribution of these products would continue to be through the traditional model (general trade) in the case of jewelry and paints or highly regulated in the case of liquor. These businesses have the added advantage of lower threat from private label brands (of e-commerce or organized retailing companies); customers are unlikely to buy jewelry items or paints through this route.

Sanjeev Prasad Brand moats—some have brands, others have ‘standard’ products masquerading as brands

We believe certain consumer businesses such as beauty products (with high brand association for users) may be in a better position to withstand the inevitable competition from (1) private Sunita Baldawa label brands of modern retailing companies (physical and/or digital) and (2) products launched through the e-commerce route, which can leapfrog the traditional distribution channel. On the other hand, products with low brand association for users may face more competition from Anindya Bhowmik new products. Also, ‘standardization’ of products (a powerful disruption theme) may lead to several ‘brands’ being reduced to commodities over time with lower pricing power and profitability.

[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

Changes to recommended mid-cap. model portfolio

We remove TGBL from the mid-cap. portfolio noting the stock’s strong performance over the past two months. Exhibit 7 is our mid-cap. portfolio.

Exhibit 8 is our unchanged large-cap. portfolio.

Exhibit 1: Most consumer stocks gave very high returns over March 2009-March 2018 Performance of consumer stocks, March 2009 to March 2018 (%)

70 FY2009-18 CAGR (%) 58 60

50 42 40 41 41 40 38 36 34 34 34 31 30 30 27 23 21 20 18 18 19 20 16 18

10

- ITC JYL PIDI SKB JUBI BRIT PAG NEST KNPL TGBL UBBL APNT CLGT GCPL TTAN UNSP BRGR HUVR MRCO DABUR BAJAJCON

Notes: (a) We have calculated returns for Bajaj Consumer and Jubilant Foodworks from the latest available period.

Source: Bloomberg, Kotak Institutional Equities

Exhibit 2: Gross and EBITDA margins of consumer companies increased over FY2014-18 Gross and EBITDA margins of consumer companies, March fiscal year-ends, 2014-22E (%)

Gross margin (%) EBITDA margin (%) 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Asian Paints 42.3 43.8 43.6 44.7 42.9 41.4 42.8 42.5 42.6 15.7 15.8 19.4 19.8 19.6 18.2 20.6 21.0 21.3 Bajaj Consumer Care 60.0 61.7 62.7 66.2 67.5 67.0 66.9 66.9 66.3 27.7 29.0 34.2 33.1 30.6 29.9 27.6 25.9 26.2 Berger Paints 37.2 39.3 41.5 43.1 41.7 39.0 41.2 41.7 42.1 11.6 12.2 15.3 15.8 15.6 14.5 17.0 17.7 18.2 Britannia Industries 39.7 40.3 40.3 38.3 38.4 40.6 40.7 41.0 40.9 9.1 11.0 14.5 14.1 15.1 15.7 16.1 16.3 16.6 Colgate-Palmolive (India) 60.8 63.1 61.8 62.9 64.4 65.1 65.2 65.4 65.5 18.6 20.6 24.3 23.7 26.6 27.7 27.4 28.5 28.9 Dabur India 52.1 52.5 51.1 50.1 50.4 49.5 50.1 50.3 50.5 16.3 16.8 19.3 19.6 20.9 20.4 21.6 22.0 22.6 GlaxoSmithKline Consumer 64.3 65.2 67.5 67.5 66.8 70.0 70.1 70.1 70.2 17.9 16.9 20.3 20.9 20.5 23.9 26.0 26.1 26.3 Godrej Consumer Products 53.2 53.6 54.1 55.4 56.6 55.8 57.3 57.6 58.0 15.1 16.5 19.4 20.5 21.0 20.5 22.3 22.7 23.3 Hindustan Unilever 48.8 49.2 50.7 50.8 53.0 53.0 53.9 54.0 54.1 16.0 16.6 18.3 19.0 21.1 22.6 25.6 26.4 27.1 ITC 60.4 59.8 63.2 60.1 61.1 61.5 62.1 62.3 62.3 37.0 36.9 37.5 36.4 38.3 38.5 39.1 39.0 39.2 Jubilant Foodworks 73.9 74.8 76.2 75.6 74.6 75.1 75.0 75.2 75.2 14.4 12.2 10.8 9.3 14.6 16.8 23.2 24.2 25.3 Jyothy Laboratories 47.5 48.5 47.5 46.9 47.7 46.5 47.3 47.4 47.5 11.9 12.4 15.0 15.3 15.4 15.5 16.4 16.2 16.4 Kansai Nerolac 31.0 31.8 37.2 41.4 39.5 36.2 38.1 38.4 38.8 11.7 12.8 15.5 18.3 17.2 14.3 16.0 16.7 17.2 Marico 48.8 45.6 49.0 52.2 47.0 45.2 48.7 48.0 48.3 16.0 15.2 17.5 19.6 18.0 17.5 19.9 19.8 20.4 Nestle India 54.5 53.9 57.3 57.2 56.5 59.1 57.5 58.2 58.3 21.9 20.9 19.6 21.7 21.7 23.7 22.9 23.5 23.8 Page Industries 53.1 53.7 61.8 59.5 57.4 58.0 56.2 56.8 57.0 21.5 20.7 20.9 19.4 21.2 21.6 19.8 20.7 21.1 Pidilite Industries 44.9 44.9 51.8 53.0 52.5 49.3 53.0 52.8 52.5 15.7 15.9 21.9 22.4 22.1 19.3 22.1 22.6 23.0 Tata Global Beverages 52.5 52.0 45.4 47.5 45.7 44.7 45.2 45.4 45.4 9.7 9.7 9.9 11.7 12.3 10.8 12.5 13.2 13.6 Titan Company 26.3 26.5 27.5 28.3 27.5 27.2 27.7 28.2 28.4 9.6 9.6 8.3 8.7 10.2 10.8 11.5 12.1 12.5 United Breweries 59.0 59.6 56.1 53.9 53.2 53.6 51.9 53.0 53.2 14.1 13.3 14.3 13.6 16.1 17.6 13.9 16.1 16.7 United Spirits 40.8 40.8 41.3 42.9 47.5 48.8 45.6 46.6 47.0 10.0 7.4 10.7 11.4 12.5 14.3 17.3 18.1 18.6

Source: Companies, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Strategy

Exhibit 3: Consumer stocks saw sharp re-rating over March 2011-March 2018 12-m forward PE multiple of consumer stocks in KIE universe, March fiscal year-ends, 2011-20

12-m forward PE multiple (X) Company 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15 31-Mar-16 31-Mar-17 31-Mar-18 31-Mar-19 Current Asian Paints 26 30 35 37 39 40 49 46 49 54 Bajaj Consumer Care NA NA 16 15 24 20 22 26 18 12 Berger Paints 15 17 25 26 36 36 46 43 48 67 Britannia Industries 24 29 23 22 36 31 37 47 51 45 Colgate-Palmolive (India) 23 29 28 33 40 34 38 37 39 38 Dabur India 25 24 26 29 34 31 35 37 40 46 GlaxoSmithKline Consumer 30 31 35 29 37 31 30 33 31 29 Godrej Consumer Products 21 22 30 31 31 35 37 44 38 35 Hindustan Unilever 25 29 28 32 41 40 41 49 50 57 ITC 23 25 29 28 25 24 29 26 27 16 Jubilant Foodworks 37 49 38 39 58 53 53 60 49 49 Jyothy Laboratories 16 15 23 23 31 29 33 33 29 20 Kansai Nerolac 22 19 24 23 31 35 40 44 42 43 Marico 25 26 28 24 33 35 42 42 39 35 Nestle India 40 42 39 36 42 46 63 48 55 70 Page Industries 24 26 26 35 61 45 47 63 52 51 Pidilite Industries 21 21 27 26 39 35 37 42 53 56 Tata Global Beverages 17 17 17 21 21 21 19 25 23 36 Titan Company 30 29 25 27 34 31 39 60 54 54 United Breweries 49 57 54 69 74 55 55 53 47 50 United Spirits 22 14 29 56 58 68 46 56 42 43

Source: Bloomberg, FactSet, Companies, Kotak Institutional Equities estimates

Exhibit 4: Global bond yields have seen steady decline; negative in most Trend in 10-year benchmark yields across major DMs (%)

France Germany Japan Switzerland UK US 5

4

3

2

1

0

(1)

Feb-08

Feb-09

Feb-10

Feb-11

Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Feb-17

Feb-18

Feb-19 Feb-20

(2)

Source: Bloomberg, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 5: Wide divergence in stock performance of consumer staple stocks over the past two years Performance of consumer stocks, March 2018 to current (%)

60 FY2018-current CAGR (%) 49 50 42 40 28 29 30 30 24 26 26 19 14 16 14 20 10 6 10 0 - (10) (0) (3) (8) (20) (11) (18) (30) (40) (36)

(50)

JYL

ITC

PIDI

SKB

JUBI

BRIT

PAG

NEST

KNPL

TGBL

UBBL

APNT

CLGT

GCPL

TTAN

UNSP

BRGR

HUVR

MRCO DABUR

BAJAJCON

Source: Bloomberg, Kotak Institutional Equities

Exhibit 6: A few consumer stocks have seen further re-rating over the past two years while a few others have seen a sharp de-rating in multiples 12-m forward PE multiple of consumer stocks in KIE universe, March fiscal year-ends, 2011-20

12-m forward PE multiple (X) Company 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15 31-Mar-16 31-Mar-17 31-Mar-18 31-Mar-19 Current Asian Paints 26 30 35 37 39 40 49 46 49 54 Bajaj Consumer Care NA NA 16 15 24 20 22 26 18 12 Berger Paints 15 17 25 26 36 36 46 43 48 67 Britannia Industries 24 29 23 22 36 31 37 47 51 45 Colgate-Palmolive (India) 23 29 28 33 40 34 38 37 39 38 Dabur India 25 24 26 29 34 31 35 37 40 46 GlaxoSmithKline Consumer 30 31 35 29 37 31 30 33 31 29 Godrej Consumer Products 21 22 30 31 31 35 37 44 38 35 Hindustan Unilever 25 29 28 32 41 40 41 49 50 57 ITC 23 25 29 28 25 24 29 26 27 16 Jubilant Foodworks 37 49 38 39 58 53 53 60 49 49 Jyothy Laboratories 16 15 23 23 31 29 33 33 29 20 Kansai Nerolac 22 19 24 23 31 35 40 44 42 43 Marico 25 26 28 24 33 35 42 42 39 35 Nestle India 40 42 39 36 42 46 63 48 55 70 Page Industries 24 26 26 35 61 45 47 63 52 51 Pidilite Industries 21 21 27 26 39 35 37 42 53 56 Tata Global Beverages 17 17 17 21 21 21 19 25 23 36 Titan Company 30 29 25 27 34 31 39 60 54 54 United Breweries 49 57 54 69 74 55 55 53 47 50 United Spirits 22 14 29 56 58 68 46 56 42 43

Source: Bloomberg, FactSet, Companies, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 India Strategy

Exhibit 7: We recommend mid-cap. stocks in banks, diversified financials and electric utilities KIE mid-cap. model portfolio

Fair Price Value Upside Mkt cap. EPS (Rs) PER (X) PBR (X) RoE (%) Company Sector Rating (Rs) (Rs) (%) (Rs bn) (US$ mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E CESC Electric Utilities BUY 683 820 20 91 1,260 84 101 114 8 7 6 0.7 0.6 0.6 9 10 10 Escorts Automobiles & Components BUY 830 1,080 30 74 1,416 54 63 75 16 13 11 2.2 1.9 1.7 14 14 15 Equitas Holdings Banks BUY 114 160 40 39 543 8 11 14 14 11 8 1.4 1.2 1.1 10 11 14 Federal Bank Banks BUY 86 120 39 172 2,396 8 10 13 10 9 7 1.3 1.2 1.0 12 13 15 Jubilant Foodworks Hotels & Restaurants ADD 1,841 1,900 3 243 3,381 27 38 52 68 48 35 19.6 14.8 11.2 28 35 36 Kalpataru Power Transmission Capital Goods BUY 355 591 66 55 764 34 38 46 10 9 8 1.5 1.3 1.2 16 15 16 Max Financial Services Insurance ADD 590 550 (7) 159 2,214 7 10 14 86 60 41 — — — 14 18 23 Narayana Hrudayalaya Health Care Services BUY 329 410 25 67 935 7 9 11 49 37 29 5.5 4.8 4.1 12 14 15 Petronet LNG Gas Utilities BUY 264 325 23 396 5,508 18 21 23 15 13 11 3.5 3.2 2.9 25 26 26 Prestige Estates Projects Real Estate ADD 341 410 20 136 1,900 15 16 16 22 22 21 2.5 2.3 2.1 12 11 10 Shriram City Union Finance Diversified Financials BUY 1,380 1,975 43 91 1,268 171 191 214 8 7 6 1.3 1.2 1.0 16 16 16 SRF Speciality Chemicals ADD 4,118 3,900 (5) 237 3,294 144 174 207 29 24 20 4.8 4.0 3.4 18 18 19 Shriram Transport Diversified Financials BUY 1,321 1,525 15 300 4,172 134 136 162 10 10 8 1.7 1.5 1.3 18 16 16 Tata Power Electric Utilities BUY 52 72 39 140 1,946 4 5 7 14 10 7 0.8 0.7 0.7 6 8 10 Thermax Capital Goods BUY 959 1,140 19 114 1,591 26 39 47 36 25 20 3.4 3.1 2.8 10 13 14

Source: Companies, Kotak Institutional Equities estimates

Exhibit 8: We recommend large-cap. stocks in banks, diversified financials and IT services KIE large-cap. model portfolio

Price (Rs) KIE weight Price (Rs) KIE weight Company 25-Feb-20 (%) 25-Feb-20 (%) Banks IT Services Axis Bank 729 3.8 HCL Technologies 582 2.2 HDFC Bank 1,200 9.1 Infosys 798 8.9 ICICI Bank 531 9.9 L&T Infotech 1,998 2.1 State Bank of India 327 7.1 Tech Mahindra 822 2.1 Banks 30.0 IT Services 15.2 Capital Goods Metals & Mining L&T 1,242 3.1 Hindalco Industries 174 2.0 Capital Goods 3.1 Tata Steel 421 2.4 Consumer Staples Metals & Mining 4.4 Colgate-Palmolive (India) 1,345 2.0 Oil, Gas & Consumable Fuels Hindustan Unilever 2,234 2.6 Reliance Industries 1,416 9.5 United Breweries 1,236 1.6 Oil, Gas & Consumable Fuels 9.5 United Spirits 703 2.2 Pharmaceuticals Consumer Staples 8.4 Cipla 426 1.8 Diversified Financials Pharmaceuticals 1.8 Bajaj Finserv 9,525 2.1 Real Estate HDFC 2,304 9.1 DLF 217 2.2 Diversified Financials 11.2 Real Estate 2.2 Electric Utilities Retailing Power Grid 186 2.0 Titan Company 1,260 2.0 Electric Utilities 2.0 Retailing 2.0 Gas Utilities Telecommunication Services GAIL (India) 114 1.9 Bharti Airtel 535 2.7 Gas Utilities 1.9 Telecommunication Services 2.7 Insurance Transportation ICICI Prudential Life 481 2.1 Interglobe Aviation 1,377 1.7 SBI Life Insurance 901 2.0 Transportation 1.7 Insurance 4.1 BSE-30 40,281 100

Source: Companies, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Tech Mahindra (TECHM) IT Services FEBRUARY 25, 2020 UPDATE Sector view: Cautious

Acquisitions pick up pace. Tech Mahindra’s appetite for acquisitions has increased CMP (`): 822 with the announcement of six transactions in FY2020. While the philosophy of Fair Value (`): 890 acquisitions, viz. capability-based, small in size and largely in next-gen areas, is well- BSE-30: 40,281 appreciated, we keep a close eye on the increasing frequency of transactions. TM’s multiple re-rating in the past 24 months has been based partly on improved capital allocation. The total outlay on acquisitions in FY2020E is ~US$240 mn, or 37% of OCF.

Tech Mahindra Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 847-607 EPS (Rs) 47.8 54.4 62.6 Mcap (bn) (Rs/US$) 717/10 EPS growth (%) 0.1 13.9 15.0 ADTV-3M (mn) (Rs/US$) 1,564/22 P/E (X) 17.2 15.1 13.1 Shareholding pattern (%) P/B (X) 3.2 2.8 2.5 Promoters 35.9 EV/EBITDA (X) 10.8 8.7 7.4 FIIs 39.8 RoE (%) 19.5 19.7 20.1 MFs/BFIs 8.6/4.2 Div. yield (%) 2.0 2.2 2.5 Price performance (%) 1M 3M 12M Sales (Rs bn) 374 422 469 Absolute 4 8 (1) EBITDA (Rs bn) 60 73 83 Rel. to BSE-30 8 9 (11) Net profits (Rs bn) 42 48 55

TM announces latest acquisition—Zen3 Infosolutions for US$64 mn

TM’s latest acquisition of Zen3 Infosolutions brings on board two features—(1) capability in Azure and enterprise software product engineering and (2) a rich client base (Exhibit 3). Key financials of Zen3—revenue rate of US$50 mn on annualization of 1HCY19 revenues and EBIT margin of ~10%. Purchase consideration is US$64 mn split between U$42 mn upfront and US$22 mn through earn-outs. This is TM’s sixth acquisition in this fiscal year. Other key acquisitions this year were—Mad*Pow, BORN Group and Cerium Systems. Mad*Pow, BORN Group and Zen3 Infosolutions are US-based and provide capabilities in digital competencies. Mad*Pow and BORN Group provide capabilities in the experience layer. Together with Bio Agency, they provide a comprehensive suite of offerings in customer experience across geographies and different buyer groups in C-Suite. Acquisition and integration strategy is fairly logical

TM’s acquisition philosophy has a couple of threads—(1) acquisition for competencies, especially in next-gen areas or expansion in verticals/geos, and (2) manageable in size and inexpensive ones. This is borne out in the size (US$2 mn-US$95 mn range for acquisitions in FY2020) and nature of acquisition (largely digital skills). Processes involved in integration and driving synergies are also logical—(1) TM allows acquired entities to operate under own brand with a fair degree of independence with scope for cost synergies, (2) TM has increased focus on creating and selling integrated solutions combining both in-house offerings and acquired competencies, and (3) incentives based on synergy benefits align managerial interests with that of TM. While it is too early to comment on the success of recent acquisitions, results from past acquisitions are encouraging. For example, TM won a multi-year IT infra outsourcing deal with a large healthcare provider leveraging HCI’s capabilities and TM’s service offerings. Kawaljeet Saluja Pace of acquisitions has increased

Even with a fairly logical acquisition strategy, not all of them have worked. We are fine with the Sathishkumar S acquisition philosophy but keep a close eye on the pace of acquisitions. One of the important elements of re-rating of TM was improved discipline on cash utilization. Acquisitions done in FY2020 will entail an outflow (including earn-out) of US$240 mn, or 37% of OCF. We remain constructive on TM due to a combination of growth acceleration, 5G opportunity and relatively inexpensive valuations.

[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. IT Services Tech Mahindra

A quick word on Zen3 Infosolutions

Zen3 Infosolutions provides expertise in AI enablement services, Al speech solutions, cloud engineering (Azure), software product engineering and DevOps. Software product engineering and Azure business constitute majority of revenues. The company has 1,300 employees with considerably large offshore presence in India, with offices in Hyderabad, Visakhapatnam and Bangalore. We estimate revenue per employee at ~US$45k/annum, which is quite low. The company has demonstrated strong growth with revenues of US$21.2 mn, US$28.4 mn, US$38 mn and US$50 mn (on annualization of 1HCY19 revenues) in CY2016, CY2017, CY2018 and CY2019, respectively.

Exhibit 1: TM's acquisitions in recent years have been in areas of platforms, IP and digital competencies with decrease in acquisition size TM's list of acquisitions, 2012-20 YTD

Deal size Revenue run Deal structure (US$ mn) Target Acquired in (US$ mn) rate (US$ mn) Upfront Earn-outs Earn-outs Comments vCustomer Mar-12 27.0 10.0 21.0 6.0 After 9 months 100% acquisition Hutchison Global Services Sep-12 87.1 160.0 87.1 — NA 100% acquisition Comviva Sep-12 48.1 70.0 23.1 25.0 Over 5 years 51% stake acquired Complex IT Feb-13 23.0 45.0 6.5 16.5 After 18 months 51% stake acquired Mahindra Engg Services Nov-13 115.1 45.0 115.1 — NA 100% acquisition LCC Nov-14 240.0 430.0 240.0 — NA 100% acquisition SOFGEN Jan-15 ~30.0 45.0 20.0 10.0 Over 2 years 100% acquisition Pininfarina Dec-15 EUR81 mn EUR80 mn EUR25.3 mn — NA 76% through 60:40 JV (TM:M&M) Target Group May-16 GBP112 mn GBP51 mn GBP89 mn GBP23 mn Over 4 years 100% acquisition The Bio Agency Jun-16 GBP40 mn GBP12.5 mn GBP22 mn GBP18 mn Over 3 years 100% acquisition HCI Group Mar-17 110.0 130.0 89.5 20.5 Over 3 years 84.7% acquisition IP deal Sep-17 140.0 NA 35.0 105.0 Over 12 quarters 100% acquisition Comviva IT Dec-17 51.4 100.0 NA NA NA Additional 32.1% acquired Altiostar Networks Jan-18 15.0 NA 15.0 — NA 17.5% stake acquired Inter-informatics Aug-18 EUR5.4 mn 10.7 EUR5.4 mn — NA 100% acquisition Dynacommerce Feb-19 EUR16 mn EUR9.1 mn EUR16 mn — NA 100% acquisition K-vision Mar-19 1.5 4.8 1.5 — NA 100% acquisition Infotek & Vitaran Apr-19 INR130 mn INR419.6 mn INR130 mn — NA 18.1% stake in both companies Objectwise Consulting Jun-19 CAD2.75 mn CAD13.6 mn CAD2.75 mn — NA 100% acquisition Mad*Pow Jul-19 25.3 14.7 16.4 8.9 Over 3 years 65% stake acquired; balance over 3 years BORN Group Oct-19 95.0 50.0 70.0 25.0 Over 1 quarter 100% acquisition Cerium Systems Jan-20 INR 3500 mn INR 1060 mn INR 2450 mn INR 1050 mn NA 70% acquired; balance over 2 years Zen3 Infosolutions Feb-20 64.0 50.0 42.0 22.0 Over 3 years 100% acquisition

Source: Company, media reports, Kotak Institutional Equities

Exhibit 2: Zen3 Infosolutions, BORN Group and Mad*Pow will drive growth in digital services in the enterprise vertical TM: List of digital acquisitions in past six months

Date Target Country Capability-type Business Description 25-Feb-20 Zen3 Infosoluions US Cloud, data, AI Provider of Al enablement services, AI Speech solutions, cloud and DevOps services 31-Jan-20 Cerium Systems India Engineering services Integrated circuit and embedded software design service provider 5-Nov-19 BORN Group US Design, commerce Creative design, content production and commerce solutions company 30-Jul-19 Mad*Pow US CX, design Provider of design, marketing and commerce services

Source: Company, Kotak Institutional Equities

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tech Mahindra IT Services

Exhibit 3: Quality scalable client base of acquired entities offers cross-sell opportunities to TM Indicative list clients of Zen3 Infosolutions, BORN Group and Mad*Pow

Zen3 Infosolutions BORN Group Mad*Pow Apple Sotheby's Aetna Microsoft Red Bull Cigna Amazon Tata Humana Disney Google State Street Adobe M&S Walmart IBM Harper Collins Vanguard JPM Pernod Ricard GE Healthcare Oracle TAGHeuer McKesson Paccar Argos CVS Qualcomm BJC Healthcare KPMG Liberty Mutual PwC John Hancock EY Home Credit Deloitte DBS

Source: Companies

Exhibit 4: Digital revenues have grown at an elevated pace and contribute 41% to revenues

Digital revenues (US$ mn, LHS) Digital as a % of revenues (RHS) 600 45.0 41.0 550 39.0 40.0 500 36.0 34.1 450 33.0 35.0 400 31.0 555 350 28.0 502 30.0 449 416 432 300 378 343 25.0 250

200 20.0

Jun-18

Jun-19

Sep-18

Sep-19

Dec-18 Dec-19 Mar-19

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 IT Services Tech Mahindra

Exhibit 5: TM's operating metrics

Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Revenues (US$ mn) 1,209 1,244 1,224 1,218 1,261 1,268 1,247 1,287 1,353 Revenues (Rs mn) 77,760 80,545 82,763 86,299 89,437 88,923 86,530 90,699 96,546 Exchange rate (Rs mn) 64.3 64.7 67.6 70.8 70.9 70.2 69.4 70.5 71.4 Revenues by geography (%) Americas 46.9 47.4 48.2 47.0 47.4 46.4 47.6 48.5 48.4 Europe 29.8 29.6 30.0 29.6 28.9 28.6 27.6 26.7 27.0 RoW 23.3 23.0 21.9 23.4 23.7 24.9 24.8 24.9 24.6 Revenue by verticals (%) . Telecom 42.8 41.6 39.6 41.5 41.1 42.7 42.0 41.1 42.6 Manufacturing 19.1 19.3 20.1 20.1 20.5 20.2 19.4 18.0 17.3 Tech, Media & Entertainment 6.5 7.3 7.2 7.3 7.0 7.5 7.6 8.1 7.6 BFSI 13.3 13.0 13.6 13.5 13.4 13.1 12.8 13.0 13.2 Retail, transport, logistics 7.1 6.2 6.1 6.5 6.7 6.4 6.2 7.0 7.2 Others 11.3 12.6 13.4 11.2 11.3 10.2 11.9 12.8 12.2 Revenue by location (IT services) Onsite 65.8 67.0 66.6 64.5 65.5 65.2 65.3 65.4 65.3 Offshore 34.2 33.0 33.4 35.5 34.5 34.8 34.7 34.6 34.7 Manpower details Software 73,460 72,437 72,462 72,534 71,785 71,477 74,093 72,597 73,079 BPO 35,496 34,190 34,700 39,407 43,439 43,081 45,000 52,193 51,096 Sales and support 6,285 6,180 6,390 6,450 6,618 6,524 6,680 6,732 6,664 Total 115,241 112,807 113,552 118,391 121,842 121,082 125,773 131,522 130,839 IT attrition (LTM) 17.0 18.0 19.0 20.0 21.0 21.0 21.0 21.0 20.0 Utilization rate (%) IT utilization 83.0 84.0 81.0 81.0 82.0 82.0 80.0 82.0 84.0 IT utilization (ex-trainees) 83.0 84.0 84.0 83.0 83.0 82.0 82.0 83.0 85.0 Client metrics No of active clients 903 913 926 930 935 938 941 946 964 Repeat business (%) 93 88 99 97 95 89 98 95 91 Client buckets >US$1 mn 389 392 396 407 416 425 429 437 446 >US$5 mn 154 156 154 157 157 156 160 155 164 >US$10 mn 83 85 86 86 88 83 81 80 83 >US$20 mn 40 44 47 45 46 50 49 49 50 >US$50 mn 16 16 16 17 18 20 21 22 22 Client contribution (%) Top 5 clients 23.2 23.2 21.9 23.3 22.6 22.8 21.4 21.6 22.3 Top 10 clients 33.2 32.7 32.5 32.7 31.6 32.0 30.7 31.5 31.0 Top 20 clients 45.0 45.7 46.2 45.6 44.0 45.1 43.6 43.6 42.1 Receivables (DSO) - including unbilled 105 102 108 112 107 102 110 114 112 Currency-wise billing (%) USD 47.4 49.4 49.3 48.0 47.7 47.8 48.3 50.2 50.0 GBP 11.4 12.1 11.6 11.2 11.1 12.3 11.5 11.2 11.8 Euro 11.9 11.7 11.4 11.4 11.0 10.2 9.9 9.5 9.4 AUD 4.9 4.6 4.8 4.9 5.1 4.8 5.3 4.6 4.5 Others 24.5 22.2 22.9 24.5 25.1 26.9 25.0 24.7 24.3

Source: Company, Kotak Institutional Equities

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tech Mahindra IT Services

Exhibit 6: Consolidated financials for Tech Mahindra, March fiscal year-ends, 2015-22E (Rs mn)

2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model Revenues 224,779 264,942 291,408 307,730 347,421 373,849 422,311 469,247 EBITDA 41,144 43,337 41,843 47,170 63,368 60,221 72,709 82,701 Interest (expense)/income (297) (871) (1,286) (1,624) (1,332) (1,854) (1,854) (1,854) Depreciation (6,079) (7,620) (9,781) (10,849) (11,292) (14,024) (14,934) (16,212) Other income 1,006 5,322 7,775 14,092 5,342 9,870 8,360 9,769 Pretax profits 35,774 40,168 38,551 48,789 56,086 54,213 64,281 74,404 Tax (9,472) (8,600) (10,021) (10,925) (12,544) (12,469) (16,713) (19,717) Minority Interest (310) (387) (402) 136 (568) 272 306 350 Profit after tax (recurring) 25,992 31,181 28,128 38,000 42,974 42,016 47,874 55,037 Exceptional items 286 — — — — — — — Net profit 26,278 31,181 28,128 38,000 42,974 42,016 47,874 55,037 Recurring EPS (Rs) ex-treasury shares 30.1 35.8 32.1 42.6 47.7 47.8 54.4 62.6 Balance sheet Total equity 122,489 143,677 164,372 188,428 202,844 228,010 256,884 290,809 Total borrowings 7,000 10,022 13,662 22,598 19,632 19,632 19,632 19,632 Minority interest 1,601 2,020 4,641 5,091 4,777 4,505 4,200 3,850 Current liabilities 50,546 61,505 54,120 64,280 85,766 72,928 76,400 79,763 Other liabilities (incl suspense account) 22,528 29,635 15,436 15,701 13,098 19,392 19,392 19,392 Total liabilities and equity 198,481 235,070 260,665 304,372 334,469 352,819 384,859 421,797 Cash 19,425 22,337 21,083 24,722 30,916 33,800 37,025 41,139 Other current assets (19,119) (22,043) (14,624) (18,700) (25,379) (27,842) (30,294) (33,661) Fixed assets 75,955 85,619 97,244 123,164 118,748 130,177 131,499 131,309 Investments (incl treasury shares) 6,593 7,467 6,037 14,857 10,283 10,283 10,283 10,283 Other assets 28,727 34,412 20,147 26,061 32,316 34,311 37,969 41,512 Total assets 198,481 235,070 260,665 304,372 334,469 352,819 384,859 421,797 Cash flows Operating CF, excl. working capital 32,585 36,924 31,048 34,718 51,471 47,710 55,996 62,984 Working capital changes (8,498) (4,792) 5,438 (7,832) (10,574) (12,082) (13,221) (14,789) Capital expenditure (11,397) (8,789) (7,682) (7,902) (7,793) (8,614) (11,825) (11,731) Acquisitions (13,760) (249) (13,795) (10,621) (1,350) (4,900) — — Other income 2,168 951 1,172 10,450 1,797 9,870 8,360 9,769 Free cash flow 1,098 24,045 16,181 18,813 33,551 31,984 39,311 46,233 Ratios (%) EBITDA margin 18.3 16.4 14.4 15.3 18.2 16.1 17.2 17.6 EBIT margin 15.6 13.5 11.0 11.8 15.0 12.4 13.7 14.2 Debt/equity 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 RoAE 24.3 23.4 18.3 21.5 22.0 19.5 19.7 20.1 Key assumptions Revenues (US$ mn) 3,663 4,038 4,351 4,771 4,971 5,281 5,825 6,341 Revenue growth (US$ terms) (%) 18.2 10.2 7.8 9.6 4.2 6.2 10.3 8.9 INR/USD rate 61.4 65.6 67.0 64.5 69.9 70.8 72.5 74.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 BUY Petronet LNG (PLNG) Gas Utilities FEBRUARY 26, 2020 UPDATE Sector view: Attractive

Prudent progress. Our recent interaction with the PLNG management provided comfort CMP (`): 264 on (1) sustained high utilization of Dahej terminal notwithstanding rising competition, Fair Value (`): 325 (2) ramp-up in off-take from Kochi terminal, (3) possibility of further renegotiation on BSE-30: 40,281 RasGas contract and (4) prudence on proposed investments. We reiterate BUY given (1) robust 13% CAGR in earnings over the next 3-5 years, (2) inexpensive valuation at 11.4X FY2022E EPS and (3) high FCF yield of 7-8%.

Petronet LNG Stock data Forecasts/valuations 2020E 2021E 2022E 52-week range (Rs) (high,low) 293-211 EPS (Rs) 17.9 20.8 23.1 Mcap (bn) (Rs/US$) 396/5.6 EPS growth (%) 19.4 16.0 11.1 ADTV-3M (mn) (Rs/US$) 611/9 P/E (X) 14.7 12.7 11.4 Shareholding pattern (%) P/B (X) 3.5 3.2 2.9 Promoters 50.0 EV/EBITDA (X) 8.5 7.3 6.5 FIIs 28.6 RoE (%) 25.2 26.2 26.4 MFs/BFIs 9.1/0.2 Div. yield (%) 3.7 4.7 5.7 Price performance (%) 1M 3M 12M Sales (Rs bn) 355 390 417 Absolute (5) (0) 23 EBITDA (Rs bn) 44 49 52 Rel. to BSE-30 (2) 1 11 Net profits (Rs bn) 27 31 35

Key takeaways—Dahej utilization to remain high, ramp-up in Kochi soon, RasGas renegotiation  Dahej utilization is expected to sustain at higher levels in the medium term despite rising competition from upcoming new terminals given its (1) cost leadership in terms of brownfield expansion cost as well as recurring operating costs, (2) lower re-gasification tariffs versus new terminals, which are offering tolling capacity at ~10-20% premium, (3) superior overall pipeline connectivity and (4) long-term contracts and service flexibility.  New terminals have their own set of challenges such as (1) limited pipeline capacity or connectivity, (2) lack of volume-backed contracts and (3) commissioning delays. The recently- commissioned Mundra terminal may operate up to 20-30% utilization over the next few years amid a lack of adequate capacity in the off-take pipeline. Swan’s Jafrabad terminal has been delayed by at least six months from its earlier deadline of April 2020 due to significant damage to its under-construction breakwater during a cyclone last monsoon.  Kochi terminal is expected to ramp up to 30-35% utilization by end-FY2021, driven by incremental off-take from FACT, MRPL, OMPL, MCF and other customers in the region post imminent commissioning of the pipeline connecting Mangalore. Kochi is expected to turn PAT-positive at around 30% utilization even after the recent reduction in tariffs.  Renegotiation of pricing for RasGas contract has been initiated by PLNG and its off- takers amid subdued spot LNG prices. In our view, further renegotiation may entail an extension of the contract period beyond CY2028, which may enhance visibility of volumes at Dahej in the long run; pervious renegotiation led to an increase in committed volumes.  Dahej expansion to a capacity of 19.5 mtpa, including construction of two storage tanks, third jetty and re-gasification equipment, remains on track to complete by end-FY2024. Limited progress on Tellurian deal pending due diligence; Sri Lanka project may start in FY2021

 There has been no progress on the proposed deal with Tellurian pending conclusion of Tarun Lakhotia due diligence by PLNG, nor is there any update on the recent India-US diplomatic dialogue.  We expect PLNG to maintain its prudence on the proposal, noting (1) Total is the only equity partner so far with modest commitment of 1 mtpa out of 16 mtpa available for sale as Hemang Khanna equity and 27.6 mtpa of overall project capacity and (2) Tellurian’s stressed financials amid insufficient liquidity to service its debt obligation due in May 2020, as per its SEC filing.  Proposal for FSRU in Sri Lanka is in advanced stages with negotiations expected to be finalized in the near term, construction may begin during FY2021. PLNG will invest ~US$165 mn for 47.5% stake in FSRU with a capacity of ~3 mtpa catering primarily to the domestic power sector, which is currently dependent on high-priced diesel as a fuel. [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. Petronet LNG Gas Utilities

Exhibit 1: Long-term LNG prices remain competitive with fuel oil, while spot LNG prices remain low Comparative price of LNG contracts, spot LNG and fuel oil in calorific equivalent terms, January 2018 onwards (US$/mn BTU)

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

14

12

10

8

6

4

2

0

Jul-18

Jul-19

Jan-18

Jan-19

Jan-20

Jun-18

Jun-19

Feb-18

Oct-18

Feb-19

Oct-19

Feb-20

Apr-18

Sep-18

Apr-19

Sep-19

Dec-18

Dec-19

Nov-18

Nov-19

Mar-18

Mar-19

Aug-18

Aug-19 May-18 May-19

Source: Reuters, Kotak Institutional Equities estimates

Exhibit 2: LNG supply has increased to 84 mcm/d in 9MFY20 from 77 mcm/d in FY2019 Sector-wise consumption of imported LNG, March fiscal year-ends, 2014-20YTD (mcm/d)

(mcm/d) Fertilizers Power CGD Industrial/others 90

80

70 35 60 35 34 34 50 28 40 13 25 11 26 11 30 16 18 8 11 15 6 8 7 7 8 7 20 8 6 9 8 3 7 2 24 25 10 7 5 18 21 21 13 15 8 8 9 - FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 9MFY20

Source: PPAC, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Gas Utilities Petronet LNG

Exhibit 3: PLNG stock is trading at 12.7X forward EPS 12-month forward P/E valuation of PLNG, April 2013 onwards (X)

(X) 20

18

16

14

12

10

8

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Oct-18

Oct-19

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17 Apr-18 Apr-19

Source: Kotak Institutional Equities estimates

Exhibit 4: We expect a gradual ramp-up in volumes driven by increase in utilization of Kochi post pipeline commissioning Key assumptions for Petronet LNG, March fiscal year-ends, 2014-22E

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Volume assumptions (mn tons) Contract LNG volumes 7.4 6.8 5.4 8.3 9.5 9.1 8.7 8.8 8.8 Spot LNG volumes 1.3 1.5 1.8 1.0 0.5 0.5 0.7 1.1 1.5 Tolling volumes 1.1 2.1 4.2 5.1 6.6 7.1 9.0 9.6 10.0 Total volumes 9.7 10.3 11.4 14.3 16.6 16.6 18.4 19.4 20.3 Dahej 9.6 10.2 11.1 14.0 16.0 16.1 17.6 18.0 18.4 Kochi 0.1 0.1 0.3 0.3 0.6 0.5 0.8 1.4 1.9 Total volumes 9.7 10.3 11.4 14.3 16.6 16.6 18.4 19.4 20.3 Price assumptions (US$/mn BTU) LNG purchase price (FOB) 12.3 13.3 9.4 6.0 7.3 9.5 8.5 8.7 8.7 Landed cost (incl. import tariff) 13.4 14.5 10.3 6.7 8.0 10.1 9.1 9.3 9.3 Re-gasification charges for Dahej 0.62 0.64 0.63 0.64 0.70 0.68 0.71 0.73 0.75 Re-gasification charges for Dahej (Rs/mn BTU) 37.2 39.1 41.0 43.1 45.2 47.5 49.9 52.4 55.0 Tolling contract charges for Dahej 0.61 0.66 0.64 0.66 0.68 0.70 Tolling contract charges for Dahej (Rs/mn BTU) 41.0 42.5 44.7 46.9 49.2 51.7 Re-gasification charges for Kochi 1.04 1.08 1.06 1.08 1.47 1.42 1.12 1.15 1.02 Re-gasification charges for Kochi (Rs/mn BTU) 62.8 65.9 69.2 72.7 94.8 99.6 79.1 83.1 74.8 Blended sales price 14.0 15.1 10.9 7.4 8.8 10.8 9.8 10.1 10.1 Other assumptions Exchange rate (Rs/US$) 60.5 61.1 65.5 67.1 64.5 69.9 70.6 72.1 73.5

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Petronet LNG Gas Utilities

Exhibit 5: We value PLNG stock at Rs325 using DCF methodology Calculation of equity value using discounted cash flow analysis (Rs mn)

2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Volumes (mn tons) Dahej 17.6 18.0 18.4 18.8 19.1 19.5 19.8 20.2 20.6 21.0 Kochi 0.8 1.4 1.9 2.4 2.9 3.3 3.5 3.7 3.9 4.1 Total 18.4 19.4 20.3 21.2 22.0 22.7 23.3 23.9 24.5 25.1 DCF valuation EBITDA 43,740 48,511 52,354 57,700 63,275 69,054 74,727 80,793 87,275 94,202 Adjusted tax expense (9,136) (10,658) (11,852) (13,162) (14,548) (16,045) (17,522) (19,096) (20,779) (22,580) Change in working capital 1,110 (836) (748) (878) (849) (885) (862) (900) (940) (982) Operating cash flow 35,715 37,017 39,755 43,660 47,878 52,124 56,343 60,797 65,556 70,639 Capital expenditure (3,461) (4,471) (4,980) (5,990) (2,280) (2,326) (2,372) (2,419) (2,468) (7,652) Free cash flow 32,253 32,547 34,775 37,670 45,598 49,799 53,971 58,377 63,088 62,987 Discounted cash flow-now 31,932 28,642 27,203 26,193 28,174 27,351 26,349 25,333 24,328 21,590 Discounted cash flow-1 year forward 32,223 30,603 29,467 31,706 30,770 29,642 28,500 27,377 24,289 Discounted cash flow-2 year forward 34,429 33,151 35,669 34,627 33,348 32,062 30,800 27,334

Now +1-year +2-years Discount rate (%) 12.5% 12.5% 12.5% Total PV of free cash flow 267,095 286,167 307,298 Terminal value assumption Growth in perpetuity 0.0% 0.0% 0.0% Sensitivity of 12-month fair value to WACC and perpetual growth FCF in 2029E 62,987 62,987 62,987 Perpetual growth (%) Exit FCF multiple (X) 8.0 8.0 8.0 325 -2.0% -1.0% 0.0% 1.0% 2.0% Exit EV/EBITDA multiple (X) 5.3 5.3 5.3 11.5% 330 341 353 368 385 Terminal value 503,894 503,894 503,894 12.0% 318 327 338 351 367 PV of terminal value 172,720 172,720 172,720 12.5% 307 315 325 336 350 Total company value 439,815 458,887 480,017 13.0% 296 304 312 323 335 WACC(%) 13.5% 286 293 301 310 321 Net debt 17,888 453 (18,135) Equity value 421,927 458,434 498,152 Shares outstanding (mn) 1,500 1,500 1,500 Equity value of regasification business (Rs) 281 306 332 Equity value of 26% stake in Dahej Port (Rs) 8 9 11 Fair value of PLNG, including dividends (Rs) 290 325 365

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Gas Utilities Petronet LNG

Exhibit 6: Profit model, balance sheet, cash model, March fiscal year-ends, 2014-22E (Rs mn)

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E Profit model (Rs mn) Net sales 377,476 395,010 271,334 246,160 305,986 383,954 354,785 390,090 417,425 EBITDA 14,984 14,390 15,863 26,823 33,194 34,425 43,740 48,511 52,354 Other income 838 1,548 1,733 2,566 3,174 4,503 3,936 4,574 5,409 Interest (2,196) (2,935) (2,388) (2,097) (1,630) (989) (3,819) (3,023) (2,669) Depreciation (3,081) (3,154) (3,216) (3,691) (4,117) (4,112) (7,809) (8,000) (8,038) Pretax profits 10,545 9,849 11,992 23,602 30,621 33,826 36,047 42,062 47,055 Extraordinary items — 1,436 724 — (70) (1,490) 3,039 — — Current tax (1,806) (720) (1,904) (5,129) (6,593) (7,895) (9,165) (11,066) (12,584) Deferred tax (1,620) (1,740) (955) (1,416) (3,180) (2,887) 225 234 229 Adjusted net profits 7,119 7,389 9,133 17,057 20,826 22,547 26,924 31,230 34,700 Earnings per share (Rs) 4.7 4.9 6.1 11.4 13.9 15.0 17.9 20.8 23.1

Balance sheet (Rs mn) Total equity 49,861 56,886 66,140 80,939 97,205 100,661 112,984 125,476 137,621 Deferred taxation liability 5,530 7,270 5,886 7,302 10,482 13,360 9,375 9,141 8,912 Total borrowings 35,669 35,541 40,146 36,038 27,367 18,195 10,984 9,773 8,061 Currrent liabilities 28,066 11,538 12,090 14,013 21,484 18,632 18,331 19,568 20,515 Total liabilities and equity 119,127 111,236 124,261 138,291 156,537 150,848 151,674 163,958 175,109 Cash and equivalents 12,327 3,621 21,829 3,273 8,625 29,603 36,189 49,929 62,444 Current assets 34,450 29,820 17,922 20,951 24,191 31,220 29,808 31,880 33,576 Total fixed assets 71,450 76,895 83,610 84,716 82,499 80,133 75,784 72,255 69,197 Investments 900 900 900 29,351 41,222 9,893 9,893 9,893 9,893 Total assets 119,127 111,236 124,261 138,291 156,537 150,848 151,674 163,958 175,109

Free cash flow (Rs mn) Operating cash flow, excl. working capital 11,341 10,291 12,015 21,851 25,228 25,175 30,035 34,421 37,101 Working capital (3,527) (4,451) 19,340 (3,273) 2,947 (4,907) 1,110 (836) (748) Capital expenditure (8,761) (8,279) (9,714) (5,442) (1,753) (1,628) (3,461) (4,471) (4,980) Free cash flow (946) (2,438) 21,641 13,137 26,422 18,640 27,685 29,115 31,373 Investments 116 1,105 993 (26,444) (11,027) 867 — — — Other income 617 520 245 199 3 1 3,936 4,574 5,409

Ratios (%) Debt/equity 64 55 56 41 25 16 9 7 6 Net debt/equity 42 50 25 37 17 (10) (21) (30) (37) RoAE 13.7 14.8 14.5 21.3 21.2 19.4 25.5 24.3 24.7 RoACE 17.8 10.8 11.9 20.3 22.7 23.5 30.7 36.4 42.8 Adjusted CROCI 13.2 10.9 16.7 20.8 25.5 23.3 31.9 34.5 36.3

Source: Company, Kotak Institutional Equities estimates

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH ATTRACTIVE Banks India FEBRUARY 26, 2020 UPDATE BSE-30: 40,281

Retail loans: Growth still struggling. Our latest discussion with TransUnion CIBIL suggests that the retail credit growth has continued to slow down but importantly, asset quality indicators are stable for now. The weakness can largely be attributed to NBFCs, with a steep decline in disbursements and ticket sizes. Banks continue to show stable trends. Vintage delinquencies have improved across products suggesting tightening in underwriting standards except for auto and 2 wheelers.

Customer inquiries continue to moderate; flattening demand for higher ticket loans

Demand for consumer loans, measured in terms of number of inquiries remains fairly strong at QUICK NUMBERS ~35% yoy; although moderated from ~45% CAGR over the last three years. Inquiries are however skewed towards unsecured products and lower ticket loans including personal loans  Customer inquiries (up ~65% yoy) and credit cards (up ~45% yoy), while inquiries for home loans and LAP have up ~35% yoy been flat yoy. Growing share of inquiries (~38% in 2QFY20) has been coming from the younger age groups (18-30 years) while inquiries from below-prime consumers have increased  Disbursements flat marginally to ~35% (up ~200 bps yoy). Approval rate remains stable at ~45%. yoy; Steep fall for NBFCs Disbursement growth down to zero; sharp decline for NBFCs, stable performance by banks  Steep increase in Disbursements have slowed significantly (flat yoy in 2QFY20) driven by (1) negative growth in below prime home loans (down 8% yoy) and LAP (down ~18% yoy) (2) increasing share of lower ticket loans origination for (unsecured and used vehicle loans) (3) decreasing in ticket sizes in these products. The NBFCs downward trend in disbursement growth (from ~40% growth in 2QFY18 to flat yoy in 2QFY20) has coincided with the rise of fintech (lower value loans like payday loans etc.) and also NBFCs slowing down. Disbursements by PSU banks (up ~9% yoy) and private banks (up ~12% yoy) have been stable.

Steep increase in below prime originations in personal loans and auto loans; led by NBFCs

The overall break-up of origination volumes by consumer risk tiers has remained stable. There has been a significant increase in the share of below prime originations in personal loans (~800 bps increase to 34% in three years) and auto loans (~400 bps increase). NBFCs have seen a significant increase in below prime originations, while the same has been broadly stable for both PSU and private banks. Share of new-to-credit originations has declined across segments. M B Mahesh, CFA Delinquency levels remain stable overall; deterioration in 2-W and auto loans

Overall delinquency levels remained broadly stable (30dpd at 3% and 90dpd at 6% over the Nischint Chawathe last three years). Two-wheeler loans have witnessed an 80 bps increase yoy, with a predominant deterioration in metros. On a six-month vintage delinquency level (30+ DPD), an indicator of origination quality of the newer book, the ratios have improved across most Dipanjan Ghosh product segments except 2-W loans (flat) and auto loans (yoy deterioration), the latter likely led by increasing share of used-vehicle loans.

Venkat Madasu In a bit of conundrum: growth slows and asset quality still holds up well

Data sets (including the various cuts) continue to point towards unchanged asset quality trends, which makes us hold off turning negative despite loan growth slowing down - usually a key Ashlesh Sonje early warning indicator as the last leg of high growth period usually involves lenders taking lot more risk. With a largely unchanged NPL ratio, which is pleasantly surprising, we retain our positive view on ICICI Bank and SBI as there is additional safety of comfort coming from improvement in corporate asset quality as well.

[email protected] Contact: +91 22 6218 6427

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

Issue #1: Demand versus supply argument: large tickets loans is a demand issue

An interesting discussion with the management was whether the growth slowdown that one is witnessing today is (a) demand related (fewer borrowers) or (b) a supply driven problem (fewer lenders). This is hard to prove statistically, though a measurement of demand can be ascertained from enquiries made by customers.

Demand measurement has a few challenges which include: (a) there are multiple credit information bureaus and hence a check could be done through any one of them rather than only through CIBIL. (b) Marginal customers, who may have otherwise taken the effort to search in a benign lending environment, may have opted out of the search process as there is more information that the probability of success is lower. (c) Bank officers or channel partners may have been given a new set of guidelines on the loan application process that has tightened underwriting standards, leading to fewer hits for the bureau.

Supply could be measured by some combination of approval rates. Note that the market players are not working in a fully interoperable space. To expand this argument, there are customer preferences for each bank. The absence or operating at a sub-optimal level by NBFC does not imply that the market would be fully taken by banks.

 Housing and LAP is a demand related issue. The research team at CIBIL felt that the housing and LAP portfolio has seen a material drop in enquiries. That space so far has not easily been taken by banks despite them having lowered their threshold ticket size and steadily converging with NBFCs. Housing loans demand decline is a function of the underlying real estate market as well as a probable unwillingness by borrowers to take a longer duration liability. The management is also of the opinion that the younger generation is probably lot more comfortable in delaying a purchase decision. Intuitively, one could further argue that real estate prices have been flat or declining and hence, the need to take a purchase decision has probably been pushed back as well. Negative experiences by borrowers who have taken under construction property have probably accentuated this as well. LAP is a quasi-business loan product. A weak economic environment is probably constraining growth in this product. It is also quite possible that the ability to put forth more security is becoming a challenge.

 Unsecured loans have plenty of scope for improvement from a supply perspective. At the other extreme, the enquiries are still quite healthy for unsecured loans (personal loans and credit cards). Financiers’ willingness to lend is still firm but would do well to go further.

 Business loans demand still quite comfortable. Even as the LAP related query has slowed, we are intrigued by the robust demand for business loans as the underlying business that drives the demand for funds is broadly similar.

 Auto loan seeing fresh demand from used car segment. The pick-up in credit in auto loan enquiries and the ability to meet the request despite a sharp fall in new passenger car sales is mostly explained by funding for used vehicle segment. This is not a new segment as lenders have had this product more than a decade ago, we see this getting greater attention, especially in an environment of slower growth.

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Banks India

Issue #2: The growth and the asset quality argument

The other challenge that we saw in the discussion with the management was the lack of perceptible deterioration in asset quality despite every indication suggesting that a rise is an expected outcome. A flattening ratio across most product segment suggests that the ability for financial institutions to step up lending is quite high, if confidence improves.

The three major arguments in favor of an increase in delinquencies are: (a) Loan growth has slowed (b) economic environment has weakened in the past year and (c) fewer lenders leading to better selection while weaker borrowers would find it hard to refinance. The loan growth slowdown is usually a good early warning indicator as lenders would have tightened underwriting standards as the vintage curves would have reflected some stress as lenders would have loosened underwriting standards, especially in customer segments. The second argument in favor of a higher delinquency is that the economic slowdown is visible. Financial institutions have indeed long argued that job losses in the system have not been high to reflect this stress, we nevertheless have to point that financial institutions lend to both salaried and non-salaried segments. The pain should have been far higher at least in the non-salaried segment which should have moved the delinquency or vintage curves higher. Finally, if the number of lenders has declined, the pain should have reflected as marginal borrowers would find it lot more challenging to refinance or get access to credit.

We would have to go back to the first question that the lack of asset quality issues, if it continues to remain at this level, it would probably point to (a) better underwriting by banks and (b) borrowers leverage levels are still at fairly acceptable levels and have been lot more prudent in taking fresh or higher credit. If this argument holds, then one should expect a meaningful recovery in secured loan products as the economic conditions improve or product specific concerns are addressed.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Kotak Institutional Equities: Valuation summary of KIE Universe stocks India

Fair O/S ADVT

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo Company Rating 25-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn)

Automobiles & Components Daily Summary Amara Raja Batteries ADD 713 780 9 122 1.7 171 40 44 50 39.9 11.8 13.3 18 16.1 14.2 10.4 9.0 7.8 3.2 2.8 2.5 18.9 18.6 18.5 1.4 1.6 1.8 7.1 Apollo Tyres ADD 154 180 17 88 1.2 572 10.2 10.3 14.9 (29.0) 1.3 44.4 15.2 15.0 10.4 7.4 6.8 5.3 0.8 0.8 0.8 5.7 5.6 7.7 1.9 1.9 1.9 6.3 Ashok Leyland BUY 81 100 24 237 3.3 2,936 2.1 2.3 6.4 (69.8) 9.4 178.5 38.4 35.1 12.6 17.8 15.2 7.5 2.7 2.6 2.3 7.3 7.6 19.2 0.8 0.9 2.4 21 Bajaj Auto REDUCE 2,947 3,150 7 853 12 289 178 183 214 16.4 2.6 16.9 16.5 16.1 13.8 12.4 11.6 9.3 3.5 3.1 2.8 22 20 21 2.4 2.5 2.9 19.2 Balkrishna Industries SELL 1,212 1,030 (15) 234 3.3 193 50 53 59 25.6 6.0 11.4 24.3 22.9 20.6 16.1 13.3 11.4 4.5 4.1 3.7 19.6 18.7 18.7 1.7 1.8 2.0 12.9 Bharat Forge SELL 465 365 (21) 216 3.0 466 13 16 22 (41.6) 21.6 40.4 35.9 29.5 21.0 18.3 16.1 12.7 3.8 3.5 3.1 10.9 12.4 15.8 1.2 1.3 1.3 10.2 CEAT REDUCE 1,018 960 (6) 41 0.6 40 59 63 81 (4.9) 8.1 28.8 17.4 16.1 12.5 9.2 8.5 7.2 1.4 1.3 1.2 8.3 8.4 10.0 1.2 1.2 1.2 1.9 Eicher Motors SELL 17,532 18,700 7 479 6.7 27 775 740 999 (5.0) (4.6) 35.0 22.6 23.7 17.6 17.5 17.0 13.0 5.4 4.6 3.8 27 21 24 0.2 —— 44 Endurance Technologies SELL 993 960 (3) 140 1.9 141 44 52 62 20.8 18.5 19.6 23 19.2 16.0 11.4 9.4 7.8 4.5 3.8 3.2 20.0 19.8 20.0 0.7 0.9 1.3 0.4 Escorts BUY 830 1,080 30 74 1.4 89 54 63 75 (1.6) 16.9 19.7 15.5 13.3 11.1 10.6 8.9 7.1 2.2 1.9 1.7 13.9 14.4 15.1 1.0 1.1 1.4 30

Exide Industries SELL 174 180 4 148 2.1 850 10.3 10.2 10.9 14.1 (0.7) 6.7 16.8 17.0 15.9 9.8 9.1 8.2 2.3 2.1 2.0 14.1 13.0 12.9 2.0 2.3 2.3 6.2 -

Hero Motocorp REDUCE 2,184 2,550 17 436 6.1 200 167 156 191 (1.5) (6.7) 22.5 13.1 14.0 11.4 8.2 8.5 6.6 3.0 2.8 2.6 24 21 23 4.2 4.6 5.2 29 February 26, 2020 Mahindra CIE Automotive ADD 145 170 17 55 0.8 378 11.9 13.5 15.9 (18.2) 14.0 17.8 12.2 10.7 9.1 6.7 5.7 4.7 1.2 1.0 0.9 10.0 10.3 10.9 ——— 0.9 Mahindra & Mahindra BUY 509 815 60 633 8.8 1,138 39 39 45 (18.0) 0.7 15.2 13.0 13.0 11.2 8.6 8.5 7.3 1.5 1.4 1.2 12.0 11.0 11.6 1.5 1.5 1.8 26 Maruti Suzuki SELL 6,415 5,800 (10) 1,938 27.0 302 203 234 296 (18.2) 14.9 27.0 32 27 22 17.8 14.4 10.7 3.8 3.5 3.1 12.7 13.3 15.3 0.8 0.9 1.2 82

Motherson Sumi Systems SELL 117 105 (10) 369 5.1 3,158 4.2 5.9 7.0 (16.9) 38.3 18.9 27.5 19.9 16.7 8.7 6.4 5.4 3.1 2.6 2.2 11.7 14.2 14.4 1.1 1.3 1.5 17.5 MRF SELL 69,133 62,000 (10) 293 4.1 4 2,523 2,915 3,674 (5.4) 15.5 26.0 27 23.7 18.8 11.3 10.4 8.3 2.5 2.2 2.0 9.4 9.9 11.2 0.1 0.1 0.1 6.9 Schaeffler India SELL 4,546 3,900 (14) 142 2.0 31 118 134 171 (18.3) 14.0 27.3 39 34 27 21.1 19.2 15.2 4.8 4.2 3.7 13.0 13.3 14.8 ——— 0.5 SKF REDUCE 1,950 1,950 (0) 96 1.3 49 66 79 95 0.5 20.4 19.4 30 25 21 21.2 17.5 14.1 4.9 4.3 3.7 16.7 17.4 17.8 0.6 0.7 0.9 0.5 Tata Motors BUY 150 215 43 539 6.9 3,598 (3.4) 7.7 18.1 36.3 325.1 134.5 NM 19.4 8.3 4.3 3.3 2.8 0.9 0.8 0.8 NM 4.5 9.7 ——— 104 Timken SELL 1,087 825 (24) 82 1.1 75 29 34 40 45.6 17.0 18.9 38 32 27 22.3 18.9 15.7 5.3 4.6 3.9 15.0 15.2 15.5 0.1 0.1 0.1 0.7 TVS Motor SELL 436 350 (20) 207 2.9 475 14.4 13.8 21.8 1.8 (3.8) 58.0 30 32 20 15.3 15.0 10.9 5.5 4.9 4.3 19.1 16.4 23 1.0 0.9 1.5 11.1 Varroc Engineering BUY 396 540 36 53 0.7 135 15 29 46 (54.0) 88.2 58.7 25.8 13.7 8.7 7.2 5.5 4.0 1.6 1.5 1.3 6.4 10.9 15.0 ——— 0.4 Automobiles & Components Neutral 7,475 103.8 (10.0) 21.6 34.9 24.7 20.3 15.1 9.6 8.0 6.4 2.6 2.3 2.1 10.4 11.5 13.9 1.2 1.3 1.5 438

Banks AU Small Finance Bank SELL 1,158 625 (46) 352 4.9 302 24.4 28.5 36.2 86.7 17.0 27.0 48 41 32 ——— 7.9 6.6 5.5 19.0 17.1 18.2 0.0 —— 9.1 Axis Bank REDUCE 729 740 2 2,055 28.6 2,806 17.5 49 62 (3.9) 183.2 25.1 42 14.7 11.8 ——— 2.7 2.3 2.0 6.4 15.1 16.6 0.2 1.0 1.3 87 Bandhan Bank REDUCE 404 540 34 650 9.0 1,610 20.3 25.4 31.2 24.0 25.2 23.0 19.9 15.9 12.9 ——— 4.1 3.3 2.6 23.9 23 22 0.0 0.0 0.0 18.1 Bank of Baroda ADD 80 105 31 370 5.1 4,582 0.8 23.4 27 (50.0) 2,763.0 13.9 98 3.4 3.0 ——— 0.8 0.7 0.6 0.7 15.5 15.6 0.2 5.8 6.7 31 City Union Bank ADD 219 240 9 161 2.2 735 10.0 11.8 13.5 8.1 17.3 14.3 22 18.6 16.3 ——— 3.3 2.9 2.5 14.4 15.0 15.2 0.8 1.0 1.1 2.6 DCB Bank BUY 162 230 42 50 0.7 310 12.8 16.9 22.2 22.1 32.0 30.8 12.6 9.6 7.3 ——— 1.6 1.4 1.2 13.0 15.2 17.2 0.8 1.0 1.3 2.0 Equitas Holdings BUY 114 160 40 39 0.5 342 8.0 10.5 14.5 26.0 32.1 37.5 14.3 10.8 7.9 ——— 1.4 1.2 1.1 9.9 11.2 13.6 ——— 7.9 Federal Bank BUY 86 120 39 172 2.4 1,985 8.4 9.9 12.6 33.6 18.8 26.3 10.3 8.7 6.9 ——— 1.3 1.2 1.0 12.0 12.9 14.7 2.2 2.6 3.2 12.6 HDFC Bank ADD 1,200 1,350 12 6,576 91.5 5,447 48 56 67 24.9 16.6 18.5 25 21 18 ——— 3.9 3.4 3.0 16.5 16.9 17.5 0.8 0.9 1.1 109 ICICI Bank BUY 531 615 16 3,436 47.8 6,447 18.4 32 38 287.4 73.1 18.8 29 16.7 14.1 ——— 3.2 2.7 2.4 10.5 16.4 17.1 0.7 1.2 1.4 154 IndusInd Bank ADD 1,154 1,600 39 800 11.1 712 73 104 121 34.0 42.3 15.4 16 11.0 9.6 ——— 2.3 1.9 1.6 16.6 18.1 17.9 0.9 1.2 1.4 102 Karur Vysya Bank BUY 45 80 77 36 0.5 799 3.4 7 13 27.2 104.1 95.1 13 6.6 3.4 ——— 0.7 0.6 0.5 4.1 8.0 14.5 1.9 3.9 7.7 0.6 Punjab National Bank NR 50 —— 336 4.7 4,604 2 6 10 110.2 149.0 80.1 23 9.1 5.0 ——— 1.0 0.8 0.6 2.4 7.0 10.2 0.0 0.0 0.0 15.9 RBL Bank BUY 309 375 21 157 2.2 509 9.5 32 41 (53.3) 233.4 30.0 33 9.8 7.5 ——— 1.6 1.4 1.2 5.3 14.0 16.0 0.4 1.4 1.8 56 State Bank of India BUY 327 420 29 2,917 40.6 8,925 24 45 55 2,356.7 87.9 23.3 14 7.3 5.9 ——— 1.6 1.3 1.1 9.2 15.2 16.0 0.1 0.1 0.1 170 Ujjivan Financial Services BUY 375 490 31 46 0.6 121 26.9 34 44 117.0 24.9 31.6 14 11.2 8.5 ——— 2.1 1.8 1.5 15.7 17.0 19.3 0.8 1.1 1.6 12.9 Ujjivan Small Finance Bank SELL 51 45 (12) 88 1.2 1,714 2 3 3 48.2 33.3 26.9 25 18.7 14.8 ——— 3.1 2.8 2.4 15.1 14.9 16.7 0.8 1.1 1.4 0.0 Union Bank RS 42 —— 144 2.0 3,423 0 11 15 101.2 5,126.7 36.8 206 3.9 2.9 ——— 0.6 0.5 0.4 0.2 13.2 13.2 0.0 3.8 5.2 6.4 YES Bank SELL 35 40 14 90 1.2 2,546 (11.6) (4) 10 (255.6) 64.2 351.6 NM NM 3.4 ——— 0.5 0.6 0.5 NM NM 10.2 0.0 0.0 0.0 144 Banks Attractive 18,644 259.4 171.9 91.0 27.0 24 12.3 9.7 2.0 1.6 1.4 8.3 13.0 14.5 0.5 0.9 1.1 966

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 25-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Building Products Astral Poly Technik SELL 1,183 765 (35) 178 2.5 151 19.4 22 27 48.5 14.7 19.4 61 53 44 35.9 30.6 25.4 11.5 9.5 7.9 21 19.6 19.4 0.1 0.1 0.1 2.6 Building Products Cautious 178 2.5 49.5 14.7 19.4 61 53 44 35.9 30.6 25.4 11.5 9.5 7.9 18.8 17.9 17.8 0.1 0.1 0.1 2.6 Capital goods ABB SELL 1,200 900 (25) 254 3.5 212 18 20 25 46.3 12.6 27.3 68 61 48 44.9 39.2 31.2 7.2 6.7 6.2 9.9 11.5 13.5 0.4 0.5 0.6 1.2 Ashoka Buildcon BUY 94 155 66 26 0.4 281 12.9 11.9 13.2 8.6 (7.9) 11.2 7.3 7.9 7.1 6.2 5.7 5.0 1.0 0.9 0.9 15.3 12.6 12.7 2.2 2.0 2.2 1.2 Bharat Electronics BUY 83 113 37 201 2.8 2,437 6.2 7.5 7.0 (20.2) 20.9 (6.9) 13.4 11.0 11.9 7.9 6.8 6.5 2.0 1.9 1.7 15.7 17.6 15.2 3.3 4.0 3.7 14.4 BHEL REDUCE 34 41 20 118 1.6 3,482 2.6 2.5 3.7 (25.0) (6.2) 51.0 12.9 13.8 9.1 4.8 4.4 3.4 0.4 0.4 0.4 2.9 2.7 4.0 3.8 3.2 4.4 10.4 Carborundum Universal ADD 343 345 0 65 0.9 189 13.7 16.3 19.0 4.7 19.2 16.1 25 21 18.1 15.4 12.5 10.6 3.4 3.1 2.8 14.4 15.6 16.3 1.2 1.4 1.7 0.4 Cochin Shipyard BUY 345 615 78 45 0.6 132 48 56 50 30.6 17.6 (10.8) 7.2 6.1 6.9 1.0 1.5 2.9 1.2 1.1 1.0 17.7 18.3 14.6 3.5 4.1 3.9 1.5 Cummins India REDUCE 536 590 10 148 2.1 277 27 29 32 1.0 8.1 11.7 20 18.6 16.7 19.8 17.6 15.6 3.4 3.2 3.0 17.4 17.7 18.7 2.5 2.8 3.1 7.2 Dilip Buildcon BUY 337 580 72 46 0.6 137 36 41 51 (35.6) 14.8 24.9 9.4 8.2 6.6 4.9 4.5 3.4 1.3 1.1 0.9 14.2 14.2 15.2 0.2 0.2 0.3 1.6 IRB Infrastructure BUY 98 145 48 34 0.5 351 25 17 14 2.1 (29.8) (17.7) 4.0 5.6 6.9 6.9 7.3 7.1 0.5 0.5 0.4 13.0 8.3 6.4 2.8 2.6 2.0 3.1 Kalpataru Power Transmission BUY 360 591 64 56 0.8 153 34 38 46 12.8 10.5 22.5 10.5 9.5 7.8 5.1 4.2 3.4 1.5 1.4 1.2 15.7 15.2 16.2 1.0 1.1 1.4 0.7 KEC International BUY 342 400 17 88 1.2 257 24.6 28 33 30.2 14.4 17.9 13.9 12.1 10.3 7.9 6.8 5.9 2.9 2.4 2.0 23 22 21 0.8 0.9 1.0 1.6 L&T BUY 1,242 1,550 25 1,743 24.3 1,403 70 68 86 13.8 (3.0) 27.6 17.8 18.3 14.4 17.6 15.0 12.9 2.9 2.4 2.2 16.9 14.3 16.0 0.9 3.2 2.2 65 Sadbhav Engineering BUY 78 137 75 13 0.2 172 7.2 11.7 13.6 (33.4) 61.1 16.3 10.8 6.7 5.8 6.7 4.2 3.6 0.6 0.6 0.5 5.9 9.0 9.6 ——— 0.5 Siemens SELL 1,383 1,200 (13) 492 6.9 356 35 40 46 14.1 15.2 13.9 40 34 30 27.8 24.4 21.2 5.0 4.6 4.1 13.1 13.8 14.3 0.7 0.8 0.9 12.7 Thermax BUY 960 1,140 19 114 1.6 113 26 39 47 (28.5) 48.4 20.8 36 25 20 22.7 19.4 16.2 22.7 19.4 16.2 9.5 13.1 14.3 0.8 1.0 1.1 1.2 Capital goods Neutral 3,446 47.9 4.1 3.0 19.5 18.4 17.8 14.9 2.3 2.0 1.9 12.4 11.4 12.6 1.2 2.4 2.0 966 Commercial & Professional Services SIS REDUCE 592 870 47 87 1.2 75 37 41 48 27.5 11.9 16.0 16.1 14.4 12.4 17.4 14.9 12.8 3.0 2.5 2.1 19.9 18.8 18.5 0.6 0.6 0.7 0.4 TeamLease Services SELL 2,406 2,300 (4) 41 0.6 17 68 89 112 18.6 29.8 26.9 35 27 21 30.8 23.2 17.6 6.3 5.1 4.1 19.5 21 21 ——— 1.0 Commercial & Professional Services Cautious 128 1.8 24.7 17.3 19.6 33 28 23 20.1 16.7 14.0 5.9 5.0 4.1 18.2 17.8 17.8 0.2 0.2 0.2 1.4 Commodity Chemicals Asian Paints REDUCE 1,826 1,825 (0) 1,752 24.4 959 28.9 34.2 40.5 28.5 18.2 18.3 63 53 45 40.1 34.9 30.1 16.4 14.6 13.1 27 29 31 0.8 0.9 1.2 32 Berger Paints SELL 569 430 (24) 553 7.7 971 7.5 8.6 10.2 46.6 14.6 19.1 76 66 56 49.0 41.8 35.4 19.2 16.6 14.2 27 27 28 0.5 0.6 0.7 13.8 Kansai Nerolac REDUCE 505 530 5 272 3.8 539 10.6 11.8 14.0 22.1 11.8 18.6 48 43 36 32.3 27.8 23.5 7.2 6.6 6.0 15.9 16.2 17.4 0.7 0.8 1.0 1.8 Tata Chemicals ADD 750 775 3 191 2.7 255 33.0 37.1 40.5 (23.1) 12.4 9.3 23 20 18.5 9.3 8.4 7.6 1.5 1.4 1.3 6.7 7.1 7.4 1.2 1.4 1.5 9.3 Commodity Chemicals Neutral 2,767 38.5 16.6 15.9 17.0 56 49 42 33.0 28.9 25.1 9.2 8.4 7.7 16.3 17.3 18.4 0.7 0.9 1.1 57 Construction Materials ACC REDUCE 1,401 1,550 11 263 3.7 188 67.0 73.9 77.7 25.9 10.3 5.1 21 19.0 18.0 9.0 8.6 8.1 2.3 2.2 2.0 11.4 11.7 11.6 1.0 2.6 2.8 15.0 India Daily Summary Daily Summary India Ambuja Cements REDUCE 212 205 (3) 420 5.8 1,986 9.2 11.0 11.9 29.3 19.4 8.3 23 19.3 17.8 7.1 6.3 5.3 1.7 1.6 1.5 7.8 8.7 8.7 0.7 0.7 0.7 9.5 Dalmia Bharat ADD 816 1,050 29 157 2.2 192 17.2 22.8 35.2 8.5 32.4 54.5 47 36 23 8.4 7.4 6.0 1.4 1.4 1.3 3.1 3.9 5.8 ——— 1.6 Grasim Industries ADD 720 865 20 474 6.6 657 74.4 77.5 90.0 18.9 4.2 16.2 9.7 9.3 8.0 5.3 4.3 3.6 0.8 0.7 0.7 8.4 8.1 8.8 1.0 1.0 1.0 21 J K Cement ADD 1,441 1,500 4 111 1.5 77 84.2 100.8 131.2 146.7 19.8 30.1 17.1 14.3 11.0 11.0 8.9 7.5 3.4 2.8 2.3 22 22 23 0.7 0.7 0.7 1.7 JK Lakshmi Cement REDUCE 323 325 1 38 0.5 118 19.2 23.9 28.4 374.8 24.2 19.2 16.8 13.6 11.4 6.7 5.9 5.3 2.3 2.0 1.7 14.3 15.6 16.1 0.6 0.6 0.6 1.0 Orient Cement ADD 81 90 11 17 0.2 205 4.7 6.2 6.8 102.0 32.0 9.8 17.3 13.1 11.9 7.2 6.1 5.2 1.5 1.4 1.3 8.9 11.1 11.4 2.5 2.5 2.5 0.2 Shree Cement SELL 23,572 16,200 (31) 850 11.8 36 450.4 613.5 755.4 39.3 36.2 23.1 52 38 31 22.2 18.1 15.3 6.5 5.7 5.0 14.3 15.8 17.0 0.5 0.5 0.5 9.4 UltraTech Cement SELL 4,344 3,800 (13) 1,254 17.4 289 140.9 169.5 201.7 54.1 20.3 18.9 31 26 22 13.5 12.0 10.5 3.4 3.0 2.6 11.4 12.3 13.0 0.3 0.3 0.3 32 Construction Materials Cautious 3,585 49.9 38.3 16.2 17.6 24 21 17.5 9.3 7.9 6.8 2.2 2.0 1.8 9.2 9.8 10.4 0.5 0.7 0.7 92

Source: Company, Bloomberg, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL INSTITUTIONAL KOTAK -

February February 26, 2020 EQUITIES RESEARCH EQUITIES

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21

Kotak Institutional Equities: Valuation summary of KIE Universe stocks 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 25-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn)

Consumer Durables & Apparel Crompton Greaves Consumer SELL 287 210 (27) 180 2.5 627 7.1 8.4 9.5 19.1 18.3 13.6 40 34 30 25 22 19 12.7 10.1 8.1 35 33 30 0.9 0.9 0.0 6.4 DailySummary Havells India SELL 644 520 (19) 403 5.6 625 13.2 17.1 20.4 4.8 29.4 19.8 49 38 31 31 24 20 8.6 7.6 6.6 18.5 21 22 0.7 0.9 1.1 15.3 Page Industries REDUCE 22,686 22,000 (3) 253 3.5 11 363 449 539 2.9 23.6 20.0 62 51 42 41 35 29 28.2 22.5 18.3 48 50 48 0.7 0.9 1.2 11.1 Polycab BUY 1,112 700 (37) 165 2.3 149 37 44 49 9.0 19.1 11.3 30 25 23 17 15 13 4.5 3.9 3.4 16.6 16.3 15.7 0.3 0.4 0.4 5.0 TCNS Clothing Co. ADD 563 770 37 35 0.5 65 9 12 16 (54.3) 31.7 26.0 60 45 36 14 12 9.6 5.2 4.6 4.0 9.2 10.7 11.9 1.5 2.1 2.2 0.2 Vardhman Textiles ADD 1,089 1,000 (8) 63 0.9 56 92 120 130 (28.9) 30.0 8.5 11.8 9.1 8.4 8.0 6.3 5.6 1.0 1.0 0.9 9.0 11.0 11.0 2.8 2.8 2.8 0.2 Voltas SELL 704 500 (29) 233 3.2 331 16.9 20.7 24.2 7.8 22.3 16.7 42 34 29 31 27 23 5.1 4.6 4.1 13.0 14.3 14.9 0.5 0.6 0.7 12.5 Whirlpool SELL 2,237 1,260 (44) 284 3.9 127 38 44 52 17.9 16.8 18.6 59 51 43 36 31 27 11.3 9.9 8.8 21 21 22 0.3 0.6 0.9 3.5 Consumer Durables & Apparel Cautious 1,615 22.5 0.6 23.6 42 34 29 25 21 18 6.6 5.9 15.8 17.2 17.6 0.7 0.9 54 Consumer Staples Bajaj Consumer Care BUY 193 280 45 28 0.4 148 15.3 15.8 17.7 1.6 3.3 12.1 12.6 12.2 10.9 10.0 9.6 8.5 5.5 4.9 4.3 46 42 42 5.2 5.7 6.2 0.6

Britannia Industries REDUCE 3,034 2,900 (4) 729 10.1 240 59 68 79 22.7 14.3 16.2 51 45 39 38 34 29 16.1 13.1 10.7 32 32 30 0.7 0.9 1.1 16.0 -

Colgate-Palmolive (India) ADD 1,345 1,600 19 366 5.1 272 30 36 41 12.5 18.5 14.6 45 38 33 28.2 24.2 21.3 24.9 24.5 24.0 56 65 74 1.9 2.2 2.5 13.4 February 2020 26, Dabur India REDUCE 500 440 (12) 884 12.3 1,766 9.5 11.0 12.0 16.8 15.5 9.7 53 46 42 44 38 33 13.8 12.3 11.1 28 28 28 0.9 1.1 1.3 13.4 GlaxoSmithKline Consumer RS 9,623 — — 405 5.6 42 299 335 378 28 12.0 12.9 32 29 25 27 24 21 8.5 7.3 6.3 28 27 27 1.2 1.4 1.5 2.6 Godrej Consumer Products REDUCE 616 720 17 629 8.8 1,022 15.4 17.7 20.6 6.2 15.3 16.2 40 35 30 27 24 20 7.4 6.7 6.0 20.0 20 21 1.0 1.2 1.4 11.3

Hindustan Unilever REDUCE 2,234 1,900 (15) 4,835 67.3 2,160 34 40 47 19.8 18.4 16.5 66 56 48 46 39 34 53.2 43.1 34.6 87 85 80 1.1 1.2 1.3 44 ITC BUY 202 300 49 2,481 34.5 12,300 11.9 12.6 13.9 17.0 5.9 10.1 17.0 16.0 14.6 11.7 11.1 9.9 3.9 3.6 3.4 21 22 23 3.2 4.4 4.9 45 Jyothy Laboratories ADD 132 170 29 48 0.7 367 5.8 6.5 7.4 4.7 11.9 13.0 22 20 17.8 15.7 14.2 12.5 3.5 3.3 3.1 15.8 16.7 17.8 2.7 3.0 3.4 1.0 Marico ADD 306 365 19 395 5.5 1,290 8.2 8.8 10.0 13.5 7.1 13.7 37 35 31 26 24 21 12.3 11.7 11.1 34 34 37 1.8 2.0 2.3 10.5 Nestle India SELL 16,381 14,000 (15) 1,579 22.0 96 204 238 278 22.6 16.6 16.6 80 69 59 55 48 42 81.7 66.4 54.7 70 107 102 2.1 1.2 1.4 18.2 Tata Global Beverages ADD 369 400 8 233 3.2 631 8.8 10.3 11.5 25.1 18.2 11.1 42 36 32 24 21 19 3.0 2.9 2.8 7.4 8.3 8.8 0.8 0.9 1.2 29 United Breweries ADD 1,240 1,430 15 328 4.6 264 17.9 25.5 32.6 (15.8) 42.2 27.8 69 49 38 35 26 22 9.2 7.8 6.6 14.0 17.4 18.9 0.2 0.3 0.4 7.9 United Spirits REDUCE 703 670 (5) 511 7.1 727 13.7 16.7 20.7 44.8 22.5 23.6 51 42 34 32 27 23 13.1 8.7 6.3 28 25 21 0.3 0.4 0.4 19.9 Varun Beverages ADD 810 900 11 234 3.3 289 16.2 24.8 33.5 51.9 52.4 35.3 50 33 24 18 14 12 7.0 5.7 4.7 17.6 19.3 21 0.1 0.2 0.2 2.5 Consumer Staples Cautious 13,686 190.4 18.1 12.8 14.0 40 35 31 28 25 22 11.0 9.9 8.8 28 28 29 1.5 1.8 2.0 235 Diversified Financials Bajaj Finance REDUCE 4,826 3,850 (20) 2,904 40.4 599 101 135 163 46 33 21 48 36 30 — — — 8.6 7.1 5.9 23 22 22 0.2 0.3 0.3 82 Bajaj Finserv ADD 9,525 10,200 7 1,516 21.1 159 304 394 475 50 30 21 31 24 20 — — — 4.5 3.8 3.3 16.8 17.1 17.5 0.1 0.1 0.1 30 Cholamandalam ADD 325 340 5 264 3.7 782 17.9 22.0 25.8 18 23.0 17.4 18.2 14.8 12.6 — — — 3.5 2.9 2.4 21 21 21 0.6 0.7 0.9 8.0 HDFC BUY 2,303 2,680 16 3,982 55.4 1,721 107 72 85 88.2 (33) 17.4 21 32 27 — — — 4.5 4.2 3.8 22 13.7 14.8 1.7 1.2 1.4 107 IIFL Wealth REDUCE 1,549 1,200 (23) 135 1.9 85 34.7 45.6 66.8 (23) 31.4 46.5 45 34 23 — — — 4.5 4.3 4.2 10.1 13.0 18.4 1.7 1.9 2.8 0.5 L&T Finance Holdings REDUCE 117 115 (1) 233 3.2 1,999 9 13 16 (15.7) 35 27.8 12.4 9.2 7.2 — — — 1.5 1.4 1.2 13.2 15.7 17.4 1.1 1.2 1.4 18.4 LIC Housing Finance ADD 351 475 35 177 2.5 505 53.2 72.1 83.1 16 35.6 15.2 6.6 4.9 4.2 — — — 1.1 1.0 0.8 15.4 18.2 18.1 2.5 3.4 3.9 29 Mahindra & Mahindra Financial ADD 371 405 9 229 3.2 615 24.5 32.5 40.6 (3) 32.5 24.8 15.1 11.4 9.2 — — — 2.1 1.9 1.7 13.2 15.8 17.5 1.7 2.2 2.8 11.2 Muthoot Finance ADD 944 860 (9) 379 5.3 401 72 74 84 46.4 3 13.0 13.1 12.7 11.2 — — — 3.2 2.7 2.3 27 23 22 1.8 1.9 2.1 21 PNB Housing Finance NR 393 — — 66 0.9 169 66.9 77.6 88.6 (6) 16.0 14.2 5.9 5.1 4.4 — — — 0.8 0.7 0.6 14.1 14.6 14.8 1.9 2.2 2.5 6.7 Shriram City Union Finance BUY 1,390 1,975 42 92 1.3 66 171 191 214 14.0 12 12.0 8.1 7.3 6.5 — — — 1.3 1.2 1.0 16.4 15.9 15.6 1.6 1.7 2.0 0.2 Shriram Transport BUY 1,323 1,525 15 300 4.2 227 134.4 136.2 162.2 19 1.3 19.1 9.8 9.7 8.2 — — — 1.7 1.5 1.3 17.8 15.7 16.4 1.4 1.5 1.8 21 Diversified Financials Neutral 10,277 143.0 45.4 0.9 19.1 23 23 19.0 3.0 2.7 2.4 13.0 11.7 12.4 1.0 0.9 1.0 335

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 25-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Electric Utilities CESC BUY 684 820 20 91 1.3 133 84 101 114 (7) 19.9 12.3 8.1 6.8 6.0 6.0 5.4 4.9 0.7 0.6 0.6 8.9 9.9 10.3 1.7 1.8 1.9 3.1 JSW Energy ADD 61 75 22 101 1.4 1,640 6.4 5.7 5.2 53 (10) (8.5) 9.6 10.7 11.7 5.1 4.4 3.6 0.8 0.7 0.7 8.5 7.0 6.0 — — — 0.8 NHPC ADD 22 27 22 221 3.1 10,045 3.4 3.4 3.7 34.3 2 6.8 6.5 6.4 6.0 5.9 6.3 5.8 0.7 0.7 0.6 10.8 10.5 10.6 7.7 6.9 7.5 3.3 NTPC BUY 110 160 45 1,089 15.2 9,895 12.3 14.3 15.5 9.4 16.8 7.9 9.0 7.7 7.1 9.4 8.1 6.5 0.9 0.9 0.8 10.9 11.8 11.7 3.3 3.9 4.2 19.9 Power Grid BUY 186 235 26 974 13.5 5,232 20.2 23 25 6 13.5 11.1 9.2 8.1 7.3 7.1 6.6 6.2 1.5 1.3 1.2 17.0 17.4 17.5 3.8 4.3 4.8 32 Tata Power BUY 52 72 39 140 1.9 2,705 3.6 5.4 7.2 72 48 33.4 14.2 9.6 7.2 7.5 7.2 6.6 0.8 0.7 0.7 5.7 7.9 9.7 — — — 6.3 Electric Utilities Attractive 2,616 36.4 12.2 14.0 9.8 8.9 7.8 7.1 1.0 0.9 0.9 11.4 12.0 12.1 3.5 3.9 4.2 65 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 4,500 3,000 (33) 202 2.8 45 103.8 119.4 138.3 32.3 15.1 15.8 43 38 33 32 27 23 8.0 6.9 6.0 19.6 19.7 19.7 0.5 0.5 0.6 1.0 Dhanuka Agritech SELL 496 470 (5) 24 0.3 48 28.0 30.3 33.4 18.1 8.5 10.1 17.7 16.3 14.8 14.0 12.3 10.8 3.2 2.7 2.4 19.1 17.9 17.1 1.1 1.2 1.3 0.4 Godrej Agrovet SELL 527 470 (11) 101 1.4 192 11.8 16.4 19.9 2.9 39.2 21 45 32 26 24 18 15 4.5 4.0 3.6 10.5 13.3 14.3 0.6 0.8 0.9 1.2 PI Industries SELL 1,542 1,280 (17) 213 3.0 138 37.2 46.1 56.1 25.3 24 22 41 33 27 28 23 19 7.9 6.6 5.6 21 22 22 0.4 0.5 0.7 3.4 Rallis India ADD 230 230 0 45 0.6 195 10.9 12.5 14.4 29.4 14.8 14.8 21.1 18.3 16.0 14.6 12.4 10.6 3.1 2.8 2.5 15.6 16.0 16.4 1.2 1.3 1.4 1.8 UPL SELL 566 510 (10) 433 6.0 765 28.6 40.1 45.8 51.3 40.2 14.1 20 14.1 12.4 9.6 8.0 7.0 2.7 2.4 2.1 14.2 17.8 17.9 1.4 2.0 2.3 25 Fertilizers & Agricultural Chemicals Attractive 1,017 14.2 39.0 32.2 15.6 27 21 17.8 13.4 11.2 9.8 3.9 3.5 3.0 14.5 16.8 17.0 0.9 1.2 1.4 33 Gas Utilities GAIL (India) BUY 114 175 54 514 7.2 4,510 12.2 13.9 14.9 (12.4) 13.5 7.3 9.3 8.2 7.7 6.7 6.1 5.6 1.1 1.1 1.0 12.3 13.3 13.5 6.5 6.6 7.0 20 GSPL SELL 236 225 (5) 133 1.9 564 17.0 14.2 13.1 20.4 (16.1) (7.9) 13.9 16.6 18.0 6.5 7.3 7.5 2.0 1.8 1.7 15.4 11.5 9.7 1.1 0.9 1.1 1.9 Indraprastha Gas SELL 454 365 (20) 318 4.4 700 17.3 19.7 22.1 43.7 13.8 12.2 26.2 23.1 20.6 19.6 16.7 14.5 6.4 5.4 4.6 27 25 24 0.9 1.0 1.3 17.1 Mahanagar Gas ADD 1,100 1,300 18 109 1.5 99 76.8 84.0 89.4 36.7 9.4 6.5 14.3 13.1 12.3 9.3 8.1 7.3 3.8 3.3 2.9 29 27 25 3.0 3.4 4.1 14.1 Petronet LNG BUY 264 325 23 396 5.5 1,500 17.9 20.8 23.1 19.4 16.0 11.1 14.7 12.7 11.4 8.5 7.3 6.5 3.5 3.2 2.9 25 26 26 3.7 4.7 5.7 8.5 Gas Utilities Attractive 1,469 20.4 3.7 11.3 7.8 13.2 11.9 11.0 8.5 7.7 7.0 2.1 1.9 1.8 15.6 16.0 15.9 3.8 4.1 4.7 62 Health Care Services Apollo Hospitals ADD 1,790 1,840 3 249 3.5 139 28.5 38 52 68 33 38 62.8 47.4 34.3 17.1 16.9 14.7 7.0 6.4 5.8 11.5 14.1 17.7 0.6 0.8 1.2 17.7 Aster DM Healthcare NR 166 — — 84 1.2 505 6.9 8.8 10.6 4 27.5 21 24.2 19.0 15.7 8.7 7.4 6.5 3.1 2.7 2.3 13.3 15.0 15.8 — — — 0.9 Dr Lal Pathlabs SELL 1,650 1,080 (35) 137 1.9 83 31.5 36.6 42.1 31.9 16.2 15.2 52.4 45.1 39.2 34.5 29.6 25.4 12.2 10.3 8.7 25 25 24 0.6 0.7 0.8 2.8 HCG BUY 112 190 69 10 0.1 85 (8.0) (5.4) (5.2) (130) 33 3 NM NM NM 9.2 7.8 6.9 1.9 2.1 2.3 NM NM NM — — — 0.1 Metropolis Healthcare SELL 1,814 1,130 (38) 91 1.3 50 32.2 37.2 42.9 34.6 15.4 15 56.3 48.8 42.3 35.5 30.2 26.6 17.6 14.2 11.7 35 32 30 0.5 0.6 0.7 1.1 Narayana Hrudayalaya BUY 330 410 24 67 0.9 204 6.7 8.8 11.2 131.2 31 27 49.3 37.5 29.6 17.1 14.6 12.3 5.5 4.8 4.1 11.9 13.7 15.1 — — — 2.0 Health Care Services Attractive 639 8.9 35 29 26 51.7 40.1 31.8 16.9 15.2 13.3 6.6 5.9 5.2 12.8 14.7 16.3 0.4 0.6 0.7 25

Hotels & Restaurants India Daily Summary Daily Summary India Jubilant Foodworks ADD 1,841 1,900 3 243 3.4 132 27 38 52 12 42.1 36 68.4 48.2 35.5 24.9 19.9 16.0 19.6 14.8 11.2 28 35 36 0.3 0.5 0.9 22 Lemon Tree Hotels BUY 59 70 19 46 0.6 789 0.8 1.7 2.1 13 121 24 77.7 35.2 28.3 20.3 13.9 10.6 5.0 4.6 4.2 6.6 13.5 15.4 — 0.9 1.3 0.8 Hotels & Restaurants Attractive 289 4.0 12 54 34 69.6 45.2 33.8 23.8 18.2 14.5 13.3 10.8 8.8 19.1 24 26 0.3 0.6 0.9 23 Insurance HDFC Life Insurance ADD 570 590 4 1,150 16.0 2,009 7.2 8.4 9.8 12.6 17.9 16.1 79.5 67.5 58 — — — 18.3 16.5 14.8 24 26 27 0.3 0.4 0.4 22 ICICI Lombard SELL 1,287 825 (36) 585 8.1 454 26.8 33.4 38.9 16 25 16 48.0 38.5 33 — — — 9.4 8.0 6.7 21 22 22 0.5 0.6 0.7 9.0 ICICI Prudential Life BUY 481 580 21 691 9.6 1,436 8.2 9.0 10.3 4 9.0 15.3 58.5 53.6 46 — — — 8.8 7.8 6.9 16.1 15.5 15.7 0.3 0.3 0.4 19.4 Max Financial Services ADD 590 550 (7) 159 2.2 417 6.9 9.9 14.4 275 44 45 85.9 59.6 41 — — — — — — 13.7 17.9 23 0.4 0.6 0.9 21 SBI Life Insurance ADD 901 1,010 12 901 12.5 1,000 13.7 16.1 17.7 3.5 17.5 9.4 65.6 55.9 51 — — — 10.5 9.0 7.9 17.1 17.4 16.5 0.2 0.3 0.3 24 Insurance Attractive 3,485 48.5 13.5 18.8 16.2 63.4 53.4 46 11.2 9.8 8.6 17.7 18.4 18.7 0.2 0.3 0.3 96 Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL INSTITUTIONAL KOTAK

-

February February 2020 26,

EQUITIES RESEARCH EQUITIES

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23

Kotak Institutional Equities: Valuation summary of KIE Universe stocks 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 25-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn)

Internet Software & Services Daily Summary DailySummary Info Edge SELL 2,650 2,470 (7) 325 4.5 122.0 31.0 39.7 48.7 20.0 28.0 22.7 85.5 66.8 54.4 72.7 54.8 44.2 12.3 10.9 9.5 15.3 17.3 18.7 0.3 0.4 0.5 15.6 Just Dial REDUCE 492 570 16 32 0.4 64.8 40.0 40.9 42.4 25.4 2.2 3.5 12.3 12.0 11.6 6.3 5.1 4.1 2.6 2.2 1.9 23 19.7 17.4 0.8 0.8 0.9 18.3 Internet Software & Services Attractive 357 5.0 22.1 17.5 15.9 55.9 47.6 41.1 47.0 38.2 32.7 9.2 8.0 7.0 16.5 16.9 17.1 0.4 0.4 0.5 34 IT Services HCL Technologies ADD 582 650 12 1,581 22.0 2,702 39.9 43.5 48.0 9.0 8.9 10.4 14.6 13.4 12.1 9.2 8.2 7.2 3.2 2.8 2.4 24 22 21 2.7 2.8 2.8 28 Hexaware Technologies REDUCE 365 390 7 109 1.5 302 21.2 24.4 26.5 9.9 15.2 8.6 17.2 14.9 13.8 12.5 10.8 9.3 4.0 3.5 3.1 25 25 24 2.3 3.3 3.3 2.4 Infosys ADD 798 865 8 3,400 47.3 4,256 38.7 42.5 47.3 9.3 9.9 11.3 20.6 18.8 16.9 14.4 12.6 11.3 5.4 5.0 4.7 26 28 29 2.8 3.3 3.8 76 L&T Infotech ADD 1,998 2,060 3 348 4.8 175 84.5 102.1 120.6 (2) 20.8 18.2 23.6 19.6 16.6 16.2 13.3 11.2 6.1 5.1 4.3 28 29 28 1.5 1.7 1.9 4.3 Mindtree REDUCE 1,050 830 (21) 173 2.4 165 38.5 55.6 63.9 (16) 44 15 27.3 18.9 16.4 15.2 11.3 9.6 5.2 4.4 3.8 19.1 25 25 2.9 1.6 1.8 12.2 Mphasis REDUCE 884 960 9 165 2.3 186 60.2 65.6 70.7 7 8.9 7.8 14.7 13.5 12.5 9.0 8.1 7.3 2.9 2.7 2.5 20 21 21 3.4 4.5 5.1 2.8 TCS REDUCE 2,156 2,020 (6) 8,091 112.6 3,752 87.1 95.1 104.3 5 9.2 9.6 24.7 22.7 20.7 17.9 15.9 14.3 8.4 7.8 7.2 35 36 36 2.8 2.9 3.1 98

Tech Mahindra ADD 822 890 8 716 10.0 880 47.8 54.4 62.6 0.1 13.9 15.0 17.2 15.1 13.1 10.8 8.7 7.4 3.2 2.8 2.5 19.5 19.7 20 2.0 2.2 2.5 22 -

Wipro REDUCE 244 265 9 1,395 19.4 5,827 17.2 18.9 20.7 14.8 10.2 9.4 14.2 12.9 11.8 8.8 7.5 6.7 2.6 2.2 2.0 17.9 18.0 17.4 0.6 0.8 3.5 10.7 February 2020 26, IT Services Cautious 15,976 222.3 4.7 10.0 10.6 20.5 18.6 16.8 14.0 12.3 11.0 5.3 4.7 4.3 26 25 25 2.5 2.7 3.2 256 Media

DB Corp. REDUCE 118 135 15 21 0.3 175 18.0 18.7 18.6 14.6 4.1 (0.5) 6.5 6.3 6.3 3.4 3.1 3.1 1.1 1.1 1.1 16.9 17.4 17.4 10.6 12.8 14.5 0.2 Jagran Prakashan REDUCE 70 60 (14) 21 0.3 296 8.7 9.9 10.7 (0.9) 14 NA 8.1 7.1 NA 3.4 3.2 NA 1.1 1.1 NA 13.7 15.4 16.7 12.8 12.8 12.8 0.6 PVR REDUCE 2,034 1,850 (9) 104 1.5 51 43.0 59.8 69.1 (0) 39 15 47.3 34.0 29.4 16.2 13.9 12.0 5.4 4.7 4.1 13.9 14.8 15.0 0.2 0.3 0.3 10.3 Sun TV Network REDUCE 467 525 12 184 2.6 394 37.8 41.4 43.8 4 9.5 5.7 12.4 11.3 10.7 8.7 7.8 7.2 3.1 2.8 2.6 26 26 25 4.3 4.8 5.2 15.6 Zee Entertainment Enterprises ADD 252 340 35 242 3.4 960 17.2 18.4 21.0 4.4 6.9 13.7 14.6 13.7 12.0 9.3 8.5 7.4 2.5 2.2 2.0 17.8 17.3 17.6 1.8 2.2 2.2 79 Media Attractive 572 8.0 4.9 9.9 9.4 14.5 13.2 12.1 8.9 8.1 7.3 2.7 2.5 2.2 18.4 18.6 18.6 3.0 3.5 3.7 105 Metals & Mining Hindalco Industries BUY 174 250 43 392 5.5 2,224 22.1 24.9 28.1 (10.5) 12.6 13 7.9 7.0 6.2 5.1 4.7 4.0 0.6 0.6 0.5 8.2 8.6 8.9 0.7 0.7 0.7 24 Hindustan Zinc REDUCE 178 210 18 750 10.4 4,225 16.4 16.9 18.4 (13.1) 3.3 9.0 10.9 10.5 9.6 6.5 6.4 5.9 2.4 2.7 3.0 22 24 29 11.3 11.3 11.3 1.6

Jindal Steel and Power BUY 179 240 34 183 2.5 1,016 2.7 33.2 23.2 259 1,112 (30) 65.4 5.4 7.7 6.9 4.3 4.5 0.6 0.5 0.5 0.9 9.8 6.3 — — — 53

JSW Steel ADD 263 290 10 635 8.8 2,402 8.7 21.6 28.8 (72.8) 150 32.9 30.3 12.1 9.1 9.6 6.8 5.6 1.7 1.5 1.3 5.8 13.3 15.7 1.6 1.6 1.6 30 National Aluminium Co. SELL 37 35 (5) 68 1.0 1,866 0.6 2.3 2.2 (92) 254 (3.0) 56.9 16.1 16.6 8.5 5.5 7.2 0.7 0.7 0.7 1.2 4.1 4.0 3.3 6.2 6.0 5.9 NMDC ADD 101 135 33 310 4.3 3,062 16.9 17.3 15.7 14.6 2.4 (9) 6.0 5.9 6.5 4.1 4.1 4.5 1.1 1.0 1.0 19.2 18.3 15.5 8.3 8.5 7.8 14.1 Tata Steel BUY 421 560 33 478 6.7 1,146 9.8 65.0 91.4 (89) 562 41 42.9 6.5 4.6 7.5 5.4 4.3 0.7 0.6 0.6 1.6 10.3 12.9 2.4 2.4 2.4 95 Vedanta BUY 133 175 32 493 6.9 3,717 10.4 17.7 20.1 (32) 71 13.5 12.8 7.5 6.6 5.9 5.0 4.6 0.8 0.8 0.8 6.2 10.7 12.3 13.6 13.6 13.6 29 Metals & Mining Attractive 3,310 46.0 (43.2) 69.7 13.6 13.5 8.0 7.0 6.6 5.3 4.8 1.0 0.9 0.9 7.3 11.7 12.5 6.1 6.3 6.2 47 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 25-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn) Oil, Gas & Consumable Fuels BPCL SELL 457 460 1 991 13.8 1,967 23 34 36 (35.6) 45.0 4.9 19.6 13.5 12.9 11.7 9.6 9.1 2.3 2.1 2.0 12.2 16.5 16.0 3.1 3.9 4.0 44.1 Coal India BUY 175 280 60 1,079 15.0 6,163 28 30 28 0 6.6 (8.4) 6.2 5.8 6.3 5.3 4.4 4.5 3.3 2.7 2.4 58.7 51.4 40.8 8.6 11.4 11.4 26.3 HPCL SELL 211 225 7 322 4.5 1,524 23 26 26 (43.2) 16.9 0.2 9.4 8.0 8.0 8.8 8.8 8.8 1.1 1.0 0.9 11.8 12.9 12.0 4.3 5.0 5.0 14.2 IOCL ADD 110 130 18 1,040 14.5 9,181 9.5 15.2 15.5 (46.9) 59.7 2.0 11.6 7.2 7.1 5.8 5.0 4.8 0.9 0.9 0.8 7.9 12.1 11.8 4.6 6.9 7.0 26.0 Oil India BUY 118 180 53 128 1.8 1,084 22 23 25 (28) 5.2 8.6 5.4 5.1 4.7 2.6 2.7 2.4 0.4 0.4 0.4 8.4 8.4 8.7 7.5 7.9 8.5 3.8 ONGC BUY 98 140 44 1,227 17.1 12,580 18 18 20 (23) (1.8) 10.7 5.4 5.5 5.0 2.9 2.8 2.5 0.5 0.5 0.4 9.4 8.8 9.1 7.7 7.9 8.2 23.7 Reliance Industries BUY 1,416 1,850 31 8,395 116.8 5,927 76 93 107 14.9 22.8 15.4 18.7 15.2 13.2 12.2 9.4 7.8 2.0 1.8 1.6 11.0 12.2 12.6 0.5 0.5 0.5 186.4 Oil, Gas & Consumable Fuels Attractive 13,181 183.4 (12.8) 18.2 8.2 12.6 10.7 9.9 7.8 6.6 5.9 1.4 1.3 1.2 11.4 12.3 12.2 2.5 3.0 3.1 324.5 Pharmaceuticals Aurobindo Pharma ADD 504 540 7 295 4.1 584 47 53 56 15.3 14 4.6 10.8 9.5 9.0 6.8 6.0 5.6 1.8 1.6 1.4 16.8 16.4 15.0 1.2 1.5 1.8 30.6 Biocon SELL 304 200 (34) 365 5.1 1,202 7.5 9.0 10.1 24 20 12.1 41 34 30 19.9 15.1 13.3 4.6 4.2 3.8 12.3 12.3 12.5 0.9 1.0 1.2 18.0 Cipla BUY 426 570 34 343 4.8 806 21.1 26 33 11.0 22 27 20 16.5 13.0 10.3 9.1 7.1 2.1 1.9 1.7 10.6 11.4 13.0 1.0 1.3 1.6 15.8 Dr Reddy's Laboratories REDUCE 3,087 2,800 (9) 513 7.1 166 110 139 185 11 26 32.6 28 22.2 16.7 12.5 11.8 9.1 3.3 3.0 2.6 12.0 13.4 15.5 0.7 0.8 1.1 28.6 Laurus Labs BUY 431 500 16 46 0.6 107 23.5 34.0 37 114.8 44 8 18 12.7 11.8 10.4 7.8 6.9 2.5 2.1 1.8 14.9 16.7 15.3 — — — 1.1 Lupin ADD 669 840 26 303 4.2 450 19 34 48 (9.6) 79 42 35 20 13.9 11.8 8.7 6.5 2.2 2.0 1.8 6.2 10.2 12.9 0.7 0.8 1.1 16.0 Sun Pharmaceuticals ADD 389 480 23 933 13.0 2,406 19.1 23.2 25 18.3 22 8 20 17 15.5 11.3 8.8 7.5 2.1 1.9 1.7 10.6 11.1 11.4 1.0 1.2 1.3 30.7 Torrent Pharmaceuticals ADD 2,209 2,250 2 374 5.2 169 55 69 86 113.0 25 26 40 32 26 18.1 15.3 13.1 7.1 6.2 5.4 17.7 19.4 20.9 1.1 1.1 1.2 8.7 Pharmaceuticals Neutral 3,172 44.1 18.3 25 18 23 18 15.7 11.7 9.6 8.1 2.6 2.3 2.1 11.3 12.6 13.2 0.9 1.1 1.3 149.7 Real Estate Brigade Enterprises BUY 232 280 21 47 0.7 204 8.3 10 18 (29) 17 82 27.8 23.8 13.1 14.4 9.9 6.3 2.1 2.0 1.7 7.7 8.5 14.1 1.1 1.1 1.1 0.5 DLF ADD 217 260 20 537 7.5 2,475 4.5 8.2 11.8 (24) 81 43 48 26.4 18.4 44.6 36.1 25.3 1.5 1.4 1.3 3.2 5.5 7.5 0.9 0.9 0.9 32.9 Embassy Office Parks REIT ADD 435 450 4 335 4.7 772 11.9 15.5 18.2 151 30 18 37 28 24 20.4 16.8 14.9 1.5 1.6 1.7 4.1 5.6 6.9 5.4 6.8 7.9 2.0 Godrej Properties SELL 1,100 735 (33) 277 3.9 252 11.3 10.6 19.3 2.4 (7) 82.6 97 104 57 95.0 140.3 63.7 5.7 5.4 4.9 7.8 5.3 9.1 — — — 3.9 Oberoi Realty ADD 520 575 11 189 2.6 364 22 34 38 (4.0) 55.5 12 24.1 15.5 13.8 21.9 13.1 11.0 2.2 1.9 1.7 9.4 13.1 13.1 0.4 0.4 0.4 2.4 Prestige Estates Projects ADD 341 410 20 136 1.9 378 15.4 15.7 16 76.8 2 3 22 22 21.1 9.0 8.5 7.9 2.5 2.3 2.1 12.4 11.2 10.5 0.5 0.4 0.4 2.8 Sobha ADD 323 515 59 31 0.4 95 33 34 40 6 3.9 15.6 9.8 9.4 8.1 5.4 4.8 4.9 1.2 1.1 1.0 13.3 12.6 13.2 2.2 2.2 2.2 1.4 Sunteck Realty REDUCE 369 400 8 54 0.8 140 12.5 35.6 34 (22.7) 184 (6) 29 10.4 11.0 21.4 7.1 7.5 1.7 1.5 1.3 6.0 15.4 12.7 0.3 0.3 0.3 1.0 Real Estate Neutral 1,607 22.4 13.4 45.9 26.2 37 25 20.1 21.0 16.7 14.0 1.9 1.8 1.7 5.1 7.2 8.7 1.6 1.9 2.1 47.0 Retailing Aditya Birla Fashion and Retail BUY 267 230 (14) 207 2.9 773 1.8 2.8 4.6 (57.5) 58.0 65.7 151 96 58 17.2 14.9 13.0 13.2 11.6 9.7 9.1 12.9 18.2 — — — 2.5

Avenue Supermarts SELL 2,332 1,400 (40) 1,510 21.0 626 22.0 28 36 52.1 25.9 29.8 106 84 65 69 53 41 20.6 16.6 13.2 21.7 21.9 22.7 — — — 32.6 Daily Summary India Titan Company ADD 1,260 1,475 17 1,119 15.6 888 18.1 24 30 7.4 30.7 26.8 70 53 42 43 34 28 15.9 13.3 11.0 24.5 27.1 28.6 0.5 0.6 0.8 36.5 Retailing Cautious 2,836 39.5 14.7 30.0 30.2 91 70 54 47 37 30 18.1 14.9 12.1 19.9 21.3 22.6 0.2 0.3 0.3 71.6 Speciality Chemicals Castrol India BUY 154 180 17 152 2.1 989 8.4 9.4 10.1 16.8 12.0 8.2 18.4 16.4 15.2 12.4 11.1 10.2 11.1 9.8 8.8 65.3 63.5 60.9 3.6 4.9 5.4 4.2 Pidilite Industries REDUCE 1,556 1,425 (8) 791 11.0 508 24.8 28 33 40.1 14.0 17.2 63 55 47 46 40 35 16.1 13.7 11.7 27.9 26.9 26.9 0.5 0.6 0.7 12.5 S H Kelkar and Company BUY 111 140 27 16 0.2 141 5.1 7.1 8.1 (16.0) 37.8 15.0 21.5 15.6 13.6 11.6 9.5 8.3 1.9 1.8 1.7 8.7 11.9 12.9 1.8 2.5 3.2 0.1 SRF ADD 4,120 3,900 (5) 237 3.3 57 144 174 207 28.6 21.2 18.8 28.7 23.7 19.9 17.4 14.2 11.9 4.8 4.0 3.4 18.1 18.4 18.6 0.3 0.4 0.5 13.5 Speciality Chemicals Neutral 1,195 16.6 27.7 16.0 15.1 40 34 30.0 26.6 22.8 19.7 9.9 8.5 7.3 24.8 24.7 24.4 0.9 1.1 1.3 30.3 Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL INSTITUTIONAL KOTAK

-

February February 2020 26,

EQUITIES RESEARCH EQUITIES

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25

Kotak Institutional Equities: Valuation summary of KIE Universe stocks 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 25-Feb-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (US$ mn)

Telecommunication Services

Bharti Airtel BUY 535 600 12 2,920 40.6 5,455 (5.5) 6.0 13.5 NM NM NM NM 88.9 39.8 11.0 8.2 6.8 3.6 3.7 3.5 NM 4.1 9.0 0.7 1.1 1.1 119.8 DailySummary Bharti Infratel REDUCE 216 230 6 400 5.6 1,850 15.3 15.7 17.8 16.9 2.4 13.1 14.1 13.8 12.2 6.9 6.4 5.8 2.6 2.6 2.5 19.0 18.8 20.9 4.5 5.6 6.3 39.8 Vodafone Idea RS 4 — — 114 1.6 28,736 (22.3) (4.0) (6.2) NM NM NM NM NM NM 19.2 9.4 8.7 0.5 1.0 (1.8) NM NM NM — — — 31 Tata Communications ADD 385 500 30 110 1.5 285 11.0 14.0 17.9 34.9 26.5 28.0 34.9 27.6 21.6 6.5 6.0 5.4 208.9 24.9 11.7 NM 162 74.1 1.9 1.9 1.9 1.3 Telecommunication Services Cautious 3,543 49.3 NM 65.3 47.2 NM NM NM 11.4 8.2 7.1 3.0 3.3 3.8 NM NM NM 1.1 1.6 1.6 192.2 Transportation Adani Ports and SEZ BUY 358 475 33 728 10.1 2,032 24.6 24.8 28.2 23.1 0.8 13.8 14.6 14.5 12.7 12.1 10.4 9.1 2.8 2.5 2.1 19.9 18.2 17.9 4.4 1.2 1.4 21.5 Container Corp. SELL 542 515 (5) 330 4.6 609 16.6 20.6 26.7 1.9 23.6 29.7 33 26 20 18.1 15.4 11.7 3.1 3.0 2.8 9.7 11.5 14.1 0.5 1.6 2.1 8.1 Gateway Distriparks BUY 123 162 32 13 0.2 109 3.9 6.0 9.2 (42.8) 55.9 51.7 31.8 20.4 13.4 7.4 6.1 5.0 0.8 0.8 0.8 2.9 4.1 6.0 2.4 2.4 2.4 0.4 GMR Infrastructure BUY 26 30 17 154 2.1 6,036 (2.8) (0.9) (0.4) (13.2) 66.4 55.1 NM NM NM 15.8 12.9 14.7 (6.1) (15.5) (12.3) 101.5 36.4 22.7 — — — 6.1 Gujarat Pipavav Port BUY 76 118 55 37 0.5 483 6.2 5.7 7.2 44.9 (8.2) 26.7 12.3 13.4 10.6 6.9 6.1 5.3 1.8 1.8 1.8 14.7 13.4 16.9 7.1 6.6 8.3 0.5

InterGlobe Aviation REDUCE 1,377 1,535 11 530 7.4 383 70.0 97.8 115.1 1,615.5 39.8 17.7 20 14 12.0 4.9 3.6 2.9 5.4 4.0 3.1 32.1 32.8 29.4 — 0.7 0.8 27 -

Mahindra Logistics ADD 408 415 2 29 0.4 71 10.5 15.4 18.6 (16.4) 47.0 20.7 39 26 22 17.4 13.0 10.8 5.3 4.6 3.9 14.3 18.5 19.2 — — — 0.3 February 2020 26, Transportation Attractive 1,822 25.3 81.5 32.3 22.7 25 19 15.1 10.1 8.2 7.2 3.8 3.2 2.8 15.5 17.2 18.2 2.1 1.1 1.4 64 KIE universe 118,889 1653.7 7.2 35.4 18.6 24 17.9 15.1 11.5 9.7 8.5 2.7 2.4 2.1 11.0 13.3 14.2 1.6 1.8 2.0

Notes: (a) We have used adjusted book values for banking companies. (b) 2020 means calendar year 2019, similarly for 2021 and 2022 for these particular companies. (c) Exchange rate (Rs/US$)= 71.88

Source: Company, Bloomberg, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH

26

Disclosures

of of the following trategic transaction n a merger or s any, noare longer in effect for this stock , if, Asof December 2019 31, fair value KOTAK INSTITUTIONAL EQUITIES RESEARCH , any, if for this stock,because is there notsufficient a

fair valuefair

.

luded

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 follows:expect this = Buy We stock to deliver more than 15% returns theover next months; 12 Add = expectWe this stock to deliver5-15% 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 31/12/2019 Kotak InstitutionalEquities Investment Research had investmentratings on 202 equity securities.

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

fair valuefair

SELL 1.0% 22.3%

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

- 1.5% 20.3% month horizon basis. 5 REDUCE - - 15% returns over the next 12 5% returns over the next months.12 The information is not available fo - -

ake into account short Kotak SecuritiesKotak has suspended coverage of this company. ADD 2.5% 27.7%

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

The information is not meaningful and is therefore exc

Kotak SecuritiesKotak does not cover this company.

The investment and rating

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

Attractive, Neutral, Cautious. BUY 2.5% 29.7% We expect this stock to deliver

We this expect stock to deliver5 We expect this to stock deliver < We expect this to stock deliver more than 15% returns over the next months.12

Fair Value estimates 0% 40% 30% 20% 10% 70% 60% 50% Source:Kotak Institutional Equities Kotak Institutional Equities Research Equities KotakInstitutional coverage universe Distributionof ratings/investment banking relationships fundamental basis for determining an investment rating or and shouldnot be relied upon. = NA AvailableNot or Applicable.Not = NM Meaningful.Not 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. CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended. Other definitions Other Coverage view. designations: ratings/identifiers Other ADD. REDUCE. SELL. Our Our Ratings System notdoes t strictly be in accordance with the Rating System all at times. Ratings other and definitions/identifiers ratings of Definitions BUY.

27 Disclosures

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

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