INDIA DAILY

September 30, 2015 India 29-Sep 1-day 1-mo 3-mo Sensex 25,779 0.6 (1.9) (7.2) Nifty 7,843 0.6 (1.6) (6.3) Contents Global/Regional indices Dow Jones 16,049 0.3 (2.9) (8.9) Special Reports Nasdaq Composite 4,517 (0.6) (5.4) (9.4) Strategy FTSE 5,909 (0.8) (5.4) (9.4) Strategy: No mamihlapinatapai please Nikkei 17,288 2.1 (8.5) (14.6) Hang Seng 20,557 (3.0) (5.1) (21.7) Daily Alerts KOSPI 1,924 (1.0) (0.7) (8.0) Change in Reco Value traded – India Cash (NSE+BSE) 235 196 207 Bharti Infratel: Turning positive; valuations reasonable after long Derivatives (NSE) 1,273 1,918 1,450 IRB Infrastructure: Value bet for now; growth play in the making Deri. open interest 1,714 1,861 1,636

Company alerts Forex/money market IDEA: Gearing up for the 4G battles ahead Change, basis points

PVR: Strong show to continue 29-Sep 1-day 1-mo 3-mo

Rs/US$ 66.0 (9) (53) 210

Economy alerts 10yr govt bond, % 7.8 (12) (18) (34) Economy: Persistence of monetary accommodation Net investment (US$ mn) 28-Sep MTD CYTD

FIIs (103) (727) 3,742

MFs 25 922 8,399

Top movers

Change, %

Best performers 29-Sep 1-day 1-mo 3-mo

IDBI IN Equity 81.5 3.0 33.8 34.3

BOB IN Equity 187.3 2.0 1.4 29.9

AL IN Equity 90.7 0.2 0.4 25.0

UNBK IN Equity 180.1 0.6 1.5 22.0

KKC IN Equity 1074.3 (1.9) (2.2) 19.8

Worst performers

VEDL IN Equity 86.2 (5.5) (12.6) (50.5)

HNDL IN Equity 68.2 (3.3) (14.8) (39.1)

TATA IN Equity 201.4 (3.8) (10.6) (33.9)

TTMT IN Equity 288.8 1.3 (15.1) (33.5)

JSP IN Equity 58.5 0.3 (13.4) (31.7)

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 SEPTEMBER 30, 2015 UPDATE BSE-30: 25,779

No mamihlapinatapai please. We see tariff rationalization as the only sustainable solution to fix the problems of the Indian power sector. Even the recent agreements between the central and three state governments for ‘24X7 Power for All’ concede the importance of tariff increases to achieve financial turnaround of the state-owned distribution entities. However, it remains to be seen if states will implement the required tariff increases. The nature of ‘solutions’ will have large implications for several stocks.

Market economics works everywhere; only real option for the power sector QUICK NUMBERS

The central and state governments seem to be finally getting over a state of ‘mamihlapinatapai’  `1/kWh average with a joint effort to fix the Indian power sector’s woes. However, it remains to be seen if state tariff increase governments can get over their historical mistrust of market economics despite overwhelming required for evidence of the failure of their ‘command-and-control’ economics. It is a travesty that citizens breakeven have to find ‘private’ solutions or are deprived of power given the failure of public utilities to economics provide basic services. Even worse, rich households that can afford expensive solutions such as power generation and storage units fare better versus poor households who have to do without  `300/ton decline in power. The failure largely reflects bad economic choices by the state governments. realization of Coal India will translate The consumer is perhaps ready to pay the ‘right’ price of power for 24X7 power into savings of `165 We believe that most Indian households will be happy to pay the ‘right’ price of power for bn for the power 24X7 power supply given the large positive impact of reliable power on their quality of life and sector livelihoods. India has ‘surplus’ generation capacity (see Exhibits 1-2) and power shortages (unmet demand) simply because the ‘clearing’ price between supply and demand is too low.  FY2015 NIM and It is clear that the large losses of the SEBs (see Exhibits 3-4) will not disappear without higher RoA of PFC/REC at tariffs. Any financial restructuring package for the SEBs without automatic and compulsory tariff 5% and 3% adjustments over a stipulated period will lead to continued bad economic behavior by the states.

Recent agreements between the central and state governments positive but not conclusive

The recent agreements (see Exhibits 5-6 for a summary) between the central and three state governments provide a comprehensive template for the government’s ‘24X7 Power for All’ initiative. We expect similar agreements with all states. The agreements cover (1) the medium- term (up to FY2019) operating targets for the states in terms of generation, transmission and distribution of power, (2) detailed plans to achieve the targets and (3) financial outcomes under various scenarios of tariffs, AT&C losses and other assumptions. However, the agreements do not (1) entail tariff increases or (2) provide for direct financial assistance to states that can alleviate the problems of the distribution sector.

The nature of ‘solutions’ for the power sector will have serious implications for stocks

We note that the nature of solutions adopted by the central and state governments in their quest for ‘24X7 Power for All’ will have far-reaching implications for several stocks. The governments can look at (1) power tariff increases for consumers, (2) lower input prices for distribution companies through lower price of domestic coal, (3) tax on coal, (4) financial incentives for renewables, (5) lower interest rates through state government guarantees or assumption of loans of SEBs and (6) fiscal support for the state-owned distribution sector.

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

Exhibit 1: Average PLF of coal-based power plants was around 65% in the past two years Sector-wise PLF of coal capacity, March fiscal year-ends, 2009-15 (%)

2009 2010 2011 2012 2013 2014 2015 95

90

85

80

75

70

65

60

55 Central State Private IPPs Private Utilities Overall

Source: CEA, Kotak Institutional Equities

Exhibit 2: Average PLF of gas-based power plants has declined to 20%, leaving huge unutilized capacity Sector-wise PLF of gas capacity, March fiscal year-ends, 2009-15 (%)

2009 2010 2011 2012 2013 2014 2015 80

70

60

50

40

30

20

10 Central State Private Overall

Source: CEA, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Strategy

Exhibit 3: Tariff increase is required to reduce the losses of SEBs Revenue gap on subsidy booked, received and aggregate basis, March fiscal year-ends, 2008-15E (Rs/kWh)

Revenue gap (aggregate) Revenue gap (subsidy booked) Revenue gap (subsidy received) 1.5

1.25 1.2 1.15 1.00 1.03 0.94 0.86 0.88 0.9 0.76 0.79 0.81 0.71 0.70 0.67 0.64 0.60 0.59 0.64 0.6 0.54 0.55 0.53

0.35 0.38 0.28 0.3 0.23

0.0 2008 2009 2010 2011 2012 2013 2014E 2015E

Source: PFC, Kotak Institutional Equities

Exhibit 4: Several SEBs made large losses up to FY2013; losses would have increased further since then State-wise losses of state distribution utilities (without subsidy), March fiscal year-ends, 2011-13 (Rs mn)

240,000 2011 2012 2013

190,000

140,000

90,000

40,000

(10,000)

Goa

Bihar

Delhi

Orissa

Kerala

Sikkim

Assam

Punjab

Tripura

Gujarat

Haryana

Manipur

Mizoram

Nagaland

Rajasthan

Karnataka

Jharkhand

NorthEast

Meghalaya

Tamil Nadu

Uttarakhand

West Bengal

Maharashtra

Chhattisgarh

Uttar Pradesh

Andhra Pradesh

Madhya Pradesh

HimachalPradesh Jammu& Kashmir Arunachal Pradesh

Source: PFC, Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 5: Joint agreements between central and state governments to meet the objective of ‘24X7 Power for All’ Operational targets broken down between generation transmission and distribution

Generation Transmission Transmission (MW) (ckm) (MVA) 2015 2019 2015 2019 2015 2019 Goa 498 568 910 1,175 3,129 4,442 Meghalaya 493 665 1,364 2,057 1,615 2,880 Uttarakhand 2,433 3,468 5,073 7,193 8,518 13,698

Distribution Distribution AT&C (ckm) (MVA) (%) 2015 2019 2015 2019 2015 2019 Goa 16,104 18,511 691 936 22 10 Meghalaya 32,099 42,230 981 1,698 35 25 Uttarakhand 94,969 110,029 3,203 4,403 20 14

Source: Ministry of Power, Kotak Institutional Equities

Exhibit 6: Large tariff increases for Goa and Meghalaya to become profitable by FY2019 Scenario analysis of net profits in FY2019, March fiscal year-ends, 2014 and 2019 (Rs mn)

Scenarios (2019) 2014 A B C D Net profit (Rs mn) Goa NA (4,630) 2,710 2,980 Meghalaya (2,260) (4,850) — 110 60 Uttarakhand 683 2,660 3,808 5,598 4,701 Tariff increase (%) Goa — 11-14 Meghalaya — 15 21 10 Uttarakhand — 2 4 3 T&D Goa Target Target Target Meghalaya Target Target Target Lower Uttarakhand Target Target Higher Target Investments under IPDS and DDUGJY with 30% equity Goa Yes Meghalaya Yes Uttarakhand Yes

Source: Ministry of Power, Kotak Institutional Equities

Implications for stocks—potentially negative for incumbents paradoxically We examine various solutions for the power sector and their implications for various stocks under our coverage. We would clarify that the set of solutions chosen by the central and state governments may be quite different and accordingly, the implications on the stocks would be different.

 BHEL. BHEL’s future earnings can be quite uncertain given large ambiguity around policy, technological and competitive issues. (1) On the policy front, India’s targeted energy mix and the enabling policy framework for achieving the target will be important for BHEL given its high share of revenues from sale of thermal generation units. (2) Technological advancement in other forms of energy, particularly renewables, will result in a larger share of incremental capacity generation for renewables (solar), which may put pressure on pricing of BTG equipment for thermal plants; solar power is already quite competitive with thermal power in India (see Exhibit 7 for the trend in solar power price in India). (3) Competitive pressure in BHEL’s core BTG business will intensify given excess domestic and global capacity. India alone has large excess capacity (see Exhibit 8) given total capacity of

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 India Strategy

30 GW per annum against likely incremental demand of 20 GW per annum in our base- case scenario.

Exhibit 7: Bid results since December 2013 show a downward trend for solar power tariff Maximum and minimum bid for solar power tariff (Rs/unit)

8 7.81

7.12 6.97 6.89 7

6.71 6.47 6.44 6.45 5.98 5.88 5.98 6 5.64

5 5.25 5.17 5.05 5.09

4 Madhya Pradesh, Chhattisgarh, 100 Karnataka, 500 Telangana, 500 Andhra Pradesh, Madhya Pradesh, Telangana, 2000 Punjab, 500 MW, 100 MW, Dec- MW, Apr-2014 MW, Aug-2014 MW, Aug-2014 500 MW, Oct- 300 MW, Jul- MW, Aug-2015 Sep-2015 2013 2014 2015

Source: BRIDGE TO INDIA, Kotak Institutional Equities

Exhibit 8: Power equipment manufacturing capacity may exceed the likely demand of about 18-20 GW per annum over the next few years Details of capacity additions by various players

Boiler capacity Turbine capacity Structure MW per annum MW per annum BHEL 20,000 20,000 L&T - Mitsubishi 51:49 4,000 4,000 JSW - Toshiba 25:75 — 3,000 Bharat Forge - Alstom 49:51 — 4,000 Doosan 100 3,000 — Thermax - B&W PCG 51:49 3,000 — Total supply 30,000 31,000

Source: Company, News flows, Kotak Institutional Equities

Exhibit 9 shows the FY2018E EPS of BHEL at various levels of sustainable orders inflows (6, 8 and 10 GW per annum). We note that India will require 20 GW of incremental annual capacity assuming 7% CAGR in power consumption over the next 5-10 years. Even assuming that the bulk of India’s future power requirement is met by coal-based thermal units, BHEL’s projected earnings and valuations leave little scope for positive surprises due to (1) potential pricing pressures and (2) likely higher share of other forms of power generation (solar).

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 9: BHEL's EPS comes to Rs14.4/share on order inflows of 8 GW per annum BHEL's FY2018E EPS of BHEL at various levels of sustainable orders inflows

Scenarios 6 GW 8 GW 10 GW Net sales (Rs mn) 332,772 371,873 410,974 EBITDA margin (%) 8.3 11.4 13.9 EPS (Rs/share) 10.2 14.4 18.6 RoE (%) 6.5 8.9 11.2 P/E (X) 19.4 13.7 10.6 P/B (X) 1.2 1.2 1.1 EV/EBITDA (X) 7.3 4.4 3.1

Source: Kotak Institutional Equities estimates

 Coal India. The Indian power sector has a surprisingly wide dispersion of returns across the value chain with (1) Coal India making very high RoIC, (2) regulated utilities making mid-teens regulated returns, (3) private sector generation companies making losses or modest RoIC at best and (4) state-owned distribution entities making huge losses despite similar regulations for all the entities in the value chain.

There are no pricing or regulatory controls on pricing of coal for Coal India although there is no market pricing of coal either in the case of Coal India. Coal India earns very high returns given relatively low recurring royalty payments and no upfront costs associated with its legacy reserves. Thus, any rationalization of Coal India’s realizations to benefit the downstream sector can result in huge loss in value for Coal India. We note that Coal India will still make decent RoEs (see Exhibit 10) at lower realizations but can ‘release’ about `100 bn annually to the downstream companies (see our July 1, 2015 report titled Shifting values for more details).

Also, any additional tax on coal in order to (1) price carbon emissions more appropriately from an environmental perspective or (2) incentivize other forms of energy generation, especially renewable power, will be a negative for coal stocks. In a recent speech at the UN Sustainable Development Summit, India’s PM mentioned ‘a tax on coal’ as part of India’s broader plans for sustainable economic development and the environment.

Exhibit 10: Coal India's EPS can halve if it earns around 19% RoE Scenario analysis of Coal India's EPS at various levels of blended realizations, March fiscal year-end, 2017

Scenarios Base I II III Realizations (Rs/ton) 1,515 1,400 1,300 1,200 EBITDA (Rs bn) 181 122 71 19 EPS (Rs/share) 27 20 14 9 RoE (%) 33.5 25.8 18.8 11.6

Source: Company, Kotak Institutional Equities estimates

 PFC/REC. We expect PFC/REC to be paradoxically negatively impacted by power sector reforms given their high exposure to state-owned entities (see Exhibit 11). (1) If state governments were to take over a part of the loans of their SEBs or provide state government guarantee on the borrowings of the SEBs, the high spreads and NIMs of PFC/REC (see Exhibit 12) will likely decline sharply from lower yields (about 200 bps) as the loans to state governments would naturally have much lower yields compared to loans to state-owned distribution entities given their quasi-sovereign nature and much higher credit rating. (2) If state governments were to raise power tariffs periodically to reduce the accumulated losses of SEBs, the loan book of PFC/REC to SEBs will decline

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 India Strategy

over a period of time unless they can make up for it through loans to the generation and transmission sectors.

In either case, private and PSU banks may also compete for loans to SEBs if they perceive an improvement in the financial health of the SEBs. This would also put pressure on yields, spreads and NIMs of PFC/REC.

Exhibit 11: PFC/REC have huge exposure to troubled SEBs and weak power generation assets in the case of PFC Break-up of total loans by segments and by borrowers, March fiscal year-ends, 2010-15 (%)

PFC REC 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Break-up of exposure Generation 83.9 84.6 82.5 79.0 76.6 73.1 35.7 42.3 44.6 43.6 44.0 42.5 Transmission/distribution 12.1 12.3 12.0 10.7 10.0 9.5 54.9 51.1 49.2 51.3 55.2 56.9 Others 4.0 3.0 5.5 10.3 13.5 17.4 9.4 6.5 6.2 5.2 0.8 0.6 Break-up by category of borrowers State 67.8 64.8 62.6 65.5 67.4 68.6 84.2 83.3 83.8 82.2 81.3 79.0 Central 18.8 20.4 19.0 15.3 10.8 8.2 9.3 7.2 5.6 4.8 4.5 3.5 Joint 8.2 8.0 7.1 6.8 6.6 6.4 — — — — — — Private 5.2 6.8 11.3 12.4 15.2 16.7 6.5 9.5 10.5 13.0 14.2 17.4

Source: Companies, Kotak Institutional Equities estimates

Exhibit 12: NIMs and RoAs of PFC and REC exceed those of the best banks and NBFCs in India NIM, RoA and RoE of key banks and NBFCs, March fiscal year-ends, 2009-15 (%)

NIM ROA ROE 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 Axis Bank 3.0 3.1 3.2 3.1 3.2 3.4 3.5 1.4 1.5 1.6 1.6 1.7 1.7 1.7 19 19 19 20 19 17 18 HDFC Bank 3.7 3.7 4.0 3.9 3.8 3.7 3.8 2.5 2.6 2.8 2.7 2.7 2.6 2.5 18 20 22 23 22 21 21 HDFC 4.9 4.3 4.4 4.5 4.6 4.4 4.3 1.4 1.5 1.6 1.7 1.8 1.9 1.9 17 16 17 19 20 21 19 ICICI Bank 2.4 2.4 2.6 2.7 3.0 3.2 3.3 1.0 1.1 1.3 1.4 1.6 1.7 1.8 8 8 10 11 13 14 15 IndusInd Bank 1.9 3.0 3.6 3.4 3.5 3.8 3.6 0.6 1.1 1.4 1.6 1.6 1.8 1.8 14 22 21 20 18 18 20 Kotak Mahindra Bank 5.7 6.0 5.4 4.5 4.5 4.5 4.5 1.0 1.7 1.9 1.9 1.8 1.8 1.9 7 14 15 15 16 14 14 LIC Housing Finance 3.0 2.7 3.1 2.5 2.2 2.3 2.3 2.0 1.9 2.1 1.5 1.4 1.5 1.3 26 24 26 19 17 19 18 PFC 4.0 4.1 3.9 3.8 4.2 4.8 4.8 3.2 3.1 2.8 2.5 2.9 3.0 2.8 14 19 18 17 20 21 20 REC 3.9 4.3 4.4 4.3 4.7 5.1 5.1 2.6 3.2 3.3 2.9 3.2 3.3 3.1 21 22 22 21 24 25 23

Source: Companies, Kotak Institutional Equities

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH ADD Bharti Infratel (BHIN) Telecom SEPTEMBER 30, 2015 CHANGE IN RECO. Coverage view: Cautious

Turning positive; valuations reasonable after long. We upgrade our rating on BHIN Price (`): 358 to ADD from SELL with a marginal upward revision in our target price to `395 (from Target price (`): 395 `375). Our upgrade is primarily driven by the recent sharp correction in the stock price, BSE-30: 25,779 which has brought down valuations to our comfort zone after a long time. Our views on the company’s fundamentals remain the same even as parts of the Street are now slamming the ‘Jio/data-upside euphoria’ they themselves ‘created’ a while back.

Company data and valuation summary Bharti Infratel Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 505-274 EPS (Rs) 10.5 13.6 16.7 Market Cap. (Rs bn) 678.2 EPS growth (%) 31.0 29.7 22.0 Shareholding pattern (%) P/E (X) 34.0 26.2 21.5 Promoters 71.7 Sales (Rs bn) 116.7 128.7 144.9 FIIs 24.3 Net profits (Rs bn) 19.9 26.0 31.9 MFs 0.1 EBITDA (Rs bn) 50.0 56.6 64.8 Price performance (%) 1M 3M 12M EV/EBITDA (X) 13.1 11.5 9.9 Absolute (8.5) (20.5) 19.9 ROE (%) 11.4 15.1 17.9 Rel. to BSE-30 (6.3) (14.8) 23.7 Div. Yield (%) 3.1 2.7 3.3

Upgrade BHIN from our long-held SELL rating to ADD

Sharp recent correction in the stock price drives an upgrade in our rating on BHIN to ADD from SELL. Stock correction has brought valuations back to our comfort zone; we note that we have always seen BHIN as a quality asset and a steady EBITDA compounding play. Rich valuations, driven by the over-the-top euphoria on R-Jio/data-led material EBITDA growth acceleration, were the primary reason for our hitherto cautious stance on the stock.

After the 30% correction from the recent peak, we now find valuations (9.9X FY2017E EV/EBITDA) reasonably attractive. Our SOTP-based (with individual DCFs for both BHIN standalone and Indus) March 2017E target price stands revised upwards to `395/share (from `375). Exhibit 1 depicts our SOTP workings. We note that we continue to ascribe a 20% holding company discount to the Indus portion of our SOTP; without the holdco discount, our fair value target would be `440/share.

Perplexing cycle of ‘euphoria creation’ to ‘euphoria demolition’

We are as perplexed now by a section of the Street now discovering chinks in the BHIN growth story as we were when the same section of the Street was forecasting BHIN’s EBITDA growth accelerating to mid-20s levels from low-to-mid-teens. We appreciate some of the recent concerns being raised (BSNL likely to hive off its tower portfolio, new-generation BTSs exerting pressure on per-tenant and per-tower rental yields, BHIN’s ‘low’ share of Jio tenancies, etc.) but do not see any of them (or all of them combined) as material enough to dent BHIN’s steady low-double-digit (medium-term) and high-single-digit (long-term) EBITDA growth trajectory.

We forecast 13% EBITDA CAGR over FY2015-18E; expected FY2017E dividend yield of 3.3%

Exhibit 2 depicts the minor changes to our FY2016-18E forecasts for the company. We build in a 13% EBITDA and 22% EPS CAGR for BHIN consolidated over FY2015-18E. Our estimated FY2017E dividend yield on the stock at CMP is 3.3% and there may be some upside risk to this number. Our EBITDA growth forecasts are based on reasonably conservative (in our view) tenancy, rental and margin assumptions. Exhibit 3 details our underlying assumptions.

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

Exhibit 1: Our SOTP-based target price for Bharti Infratel is Rs395/share

Rs mn Mar-2017E Bharti Infratel standalone EV (DCF-based) 310,036 Net debt/ (cash) (70,233) Equity value - A 380,269 Implied EV/tower (Rs mn) 8.0 Implied EV/EBITDA (X) 10.3 42% stake in Indus Indus EV (DCF-based) 1,128,590 Net debt/ (cash) 37,293 Equity value 1,091,297 Attributable equity value for BIL's 42% stake - B 458,345 Implied EV/tower - Indus (adjusted) (Rs mn) 9.3 Implied EV/EBITDA - Indus (adjusted) (X) 13.7 Overall valuation Total EV 689,242 Total EV (US$ mn) 11,299 Implied EV/EBITDA (X) 10.6 Total Equity value = A + B 746,945 Implied PE (X) 23.5 Total Equity value (US$ mn) 11,671 Fair value estimate (Rs/share) 393 Key assumptions BIL (standalone) WACC (%) 10.5 BIL (standalone) terminal growth (%) 4.0 Indus WACC (%) 9.5 Indus terminal growth (%) 4.0

Source: Kotak Institutional Equities estimates

Exhibit 2: Bharti Infratel – key changes to estimates, March fiscal year-ends, 2016-18E

Revised Earlier Change (%) 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E Consolidated financials Revenues (Rs mn) 128,749 144,906 159,506 128,304 143,793 157,630 0.3 0.8 1.2 Service revenues (Rs mn) 79,712 89,658 98,805 79,303 88,652 97,114 0.5 1.1 1.7 EBITDA (Rs mn) 56,594 64,775 72,304 56,236 63,887 70,803 0.6 1.4 2.1 EBITDA margin (%, on service revenues) 71.0 72.2 73.2 70.9 72.1 72.9 PAT (Rs mn) 25,959 31,838 36,513 25,737 31,261 35,539 0.9 1.8 2.7 EPS (Rs/share) 13.6 16.6 19.0 13.5 16.3 18.5 0.9 1.8 2.7 Capex (Rs mn) 21,470 21,669 21,008 21,470 21,669 21,008 — — — Operational metrics (standalone) # of towers 38,396 39,396 40,146 38,396 39,396 40,146 — — — Tenancy ratio (X) 2.23 2.38 2.50 2.22 2.36 2.48 0.3 0.5 0.8 Service rental/ tenant/ month (Rs) 37,015 37,160 37,541 36,647 36,603 36,792 1.0 1.5 2.0 Operational metrics (Indus) # of towers 118,442 120,942 122,942 118,442 120,942 122,942 — — — Tenancy ratio (X) 2.43 2.63 2.80 2.43 2.63 2.80 — — — Service rental/ tenant/ month (Rs) 32,177 32,544 33,024 32,177 32,383 32,698 — 0.5 1.0

Source: Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bharti Infratel Telecom

Exhibit 3: Key underlying assumptions of our model

2013 2014 2015E 2016E 2017E 2018E BIL standalone End-period tower base (#) 35,119 35,905 37,196 38,396 39,396 40,146 End-period tenants (#) 63,573 69,137 75,819 85,460 93,650 100,165 Tenancy (X) 1.810 1.926 2.038 2.226 2.377 2.495 Rental/tenant/month (Rs) 36,963 37,135 36,911 37,015 37,160 37,541 Capex/sales (%) 22.7 14.6 18.6 17.3 15.3 13.5 Dividend payout (%) 73.4 76.3 76.4 77.4 78.4 79.4 Indus towers End-period tower base (#) 111,819 113,008 115,942 118,442 120,942 122,942 End-period tenants (#) 221,511 233,488 253,513 287,805 318,492 344,184 Tenancy (X) 1.981 2.066 2.187 2.430 2.633 2.800 Rental/tenant/month (Rs) 31,523 31,682 31,907 32,177 32,544 33,024 Capex/sales (%) 18.1 13.0 17.2 16.1 14.7 12.9 Dividend payout (%) 106.7 34.0 180.7 85.0 85.0 85.0 Consolidated End-period tower base (#) 82,083 83,368 85,892 88,142 90,192 91,782 End-period tenants (#) 156,608 167,202 182,295 206,338 227,416 244,722 Tenancy (X) 1.908 2.006 2.122 2.341 2.521 2.666 Rental/tenant/month (Rs) 33,719 33,917 33,983 34,185 34,450 34,879

Source: Company, Kotak Institutional Equities estimates

Quick thoughts on some of the ‘fundamental’ concerns raised on BHIN recently

‘Low’ share of incremental tenancies from the top-3 incumbents

Anchor relationships in the Indian telecom tower industry are well-established. To that extent, the expectation of a high proportion of tenancy requirements of Bharti, Vodafone, and Idea coming to BHIN standalone and Indus is a valid one. However, it is important to appreciate that no towerco (including BHIN standalone and Indus) would get 100% of incremental tenancies of its anchor customers. It is also important to not see this ‘tenancy leakage’ as a pricing issue. It is a commercial issue, but a non-pricing one. Operators work on tight rollout timelines and if a competitor’s tower is available at a location where BHIN does not have one, it makes all sense for the anchor operator (Bharti, Vodafone, or Idea) to lease space on the competitor’s tower.

That said, we look at some hard numbers to test this ‘tenancy leakage’ hypothesis. Exhibit 4 looks at the ratio of combined incremental tenants for BHIN standalone + (100% of) Indus combined to the combined incremental 2G site rollouts done by Bharti, Vodafone, and Idea. For the past six quarters, this ratio has been between 70% and 136%. We note that this ratio can be >100% as BHIN standalone and Indus do serve other operators as well. Only in the Mar 2015 quarter was this ratio as low as 70%; this may have been driven by loss of Loop tenancies; Loop had to shut down its network in Mumbai after it failed to renew its extant 900 MHz spectrum in the Feb 2014 auctions. We have seen such loss of tenancies in the past on account of operators shutting down operations.

Share of business from the anchor customers will have quarterly volatility; however, our belief is that BHIN standalone and Indus combined continue to get 90%+ of incremental business of their anchor customers Bharti, Vodafone, and Idea.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Telecom Bharti Infratel

Exhibit 4: Tenancy flow-through from Bharti, Vodafone and Idea combined to BHIN and Indus

Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 EOP tenants BHIN standalone 64,345 65,391 66,871 69,137 70,544 72,597 74,331 75,819 77,292 Indus 223,078 225,252 229,760 233,488 237,562 242,079 248,611 253,513 256,960 Total 287,423 290,643 296,631 302,625 308,106 314,676 322,942 329,332 334,252 Incremental tenants (A) 2,339 3,220 5,988 5,994 5,481 6,570 8,266 6,390 4,920

EOP 2G cell sites Bharti 134,736 135,412 137,069 138,755 139,894 141,290 142,898 146,539 147,616 Idea 92,208 95,970 101,600 104,778 106,169 107,605 109,931 112,367 115,575 Vodafone 115,500 116,500 118,500 119,700 122,000 124,000 127,000 130,000 131,000 Total 342,444 347,882 357,169 363,233 368,063 372,895 379,829 388,906 394,191 Incremental 2G sites (B) 4,572 5,438 9,287 6,064 4,830 4,832 6,934 9,077 5,285

(A) as % of (B) 51.2 59.2 64.5 98.8 113.5 136.0 119.2 70.4 93.1

EOP: End-of-period

Jio impact, perhaps

Source: Company, Kotak Institutional Equities

‘Abysmal’ share of tenancies from R-Jio

This is a concern being raised by a few Street participants; the concern ironically stems from the earlier unwarranted optimism created on this aspect by the same participants. Needless to say, we are bemused.

It is a well-known fact that R-Jio has signed master service agreements for tenancies with most tower companies in India. What is also widely understood is that BHIN standalone and Indus have been the only tower operators who have not offered preferential pricing or commercial terms to R-Jio. To that extent, it is logical to assume that an R-Jio tenancy at a location where there are alternative options available to R-Jio would not come to a BHIN standalone or Indus. Now, phase-I of R-Jio’s network rollout is likely to be urban-centric and this is where the tower choices available to an R-Jio are the highest.

Any expectation that BHIN standalone and Indus would get a material share of R-Jio’s phase-I tenancies was a flawed expectation to begin with, in this backdrop. To now say that R-Jio tenancies for BHIN are tracking ‘below expectations’ and cut EBITDA estimates by mid- to-high double digits for a steady business like BHIN is more a reflection of flawed expectations than a reflection of BHIN’s lack of competitiveness, in our view. The strength of BHIN’s wide tower base will come to the fore, as far as R-Jio tenancies are concerned, as and when R-Jio expands into semi-urban and rural clusters. We see this as a steady medium-term opportunity and are not perturbed with BHIN’s ‘low’ share of R-Jio phase-I tenancies.

Lastly, we like the pricing integrity displayed by BHIN. It is tempting to win large incremental business at discounted pricing in a high-fixed-cost business. However, it is ethically poor if the same low pricing is not offered to the extant customers and bad business economics if offered. Such pricing integrity may cause some ‘loss of business’ in the short term but is an extremely comforting factor to us and should be to long-term investors.

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bharti Infratel Telecom

BSNL towers likely to be hived off

Recent news flow suggests that BSNL’s 65,000-strong tower portfolio may be hived off as a separate independent entity and there are concerns that this would mean sharp increase in competitive intensity in the industry. Assuming this event does happen and also assuming that the new independent entity is not plagued with ‘poor PSU execution’ issues, we still do not see this as a major cause of concern. The fact of the matter is that BSNL towers have been available to wireless operators and while the numbers are not large, BSNL does have external tenants on its tower.

BSNL’s FY2014 annual report (FY2015 AR not available yet) suggests passive infrastructure leasing revenues of `1.2 bn and this number grew by 50%+ yoy. Now, depending on whether this includes power pass-through costs or not, the average number of external tenants served in FY2014 was somewhere in the range of 2,000-4,000, per our computations. This number would have grown further in FY2015. Larger point is that BSNL towers have been available to external tenants and while hiving these towers into an independent towerco (if combined with improved quality of operations) will make BSNL towers a more credible alternative, the anchor relationship construct will continue to prevent ‘tenancy leakage’ from BHIN’s anchor customers except in situations which already see such leakage (as discussed earlier).

Pressure on yields from next-generation base station equipment

This is a fair concern if looked at only with the lens of the ‘yield pressure’ it can create by reducing rentals from extant customers. Ironically, we have heard of anecdotal incidences where a BHIN standalone or Indus have themselves requested one or more of their extant customers on a tower to replace their legacy equipment with next-gen equipment. Why would a BHIN standalone or Indus do that if it is bad economics? Because, it is not; at least, not in all cases. Next-gen equipment takes less space on the tower creating space for a new tenant. Now, there would be a lot of towers where BHIN would benefit from such incremental space to lease. Net math of yield pressure downside and additional space upside is tricky to assess. However, we clearly do not see this as a risk to ‘reasonable’ forecasts.

Flattish ex-energy margins: more than what meets the eye

That BHIN’s margins have been flat on an ex-energy basis is a fact; more importantly, they have been nearly flat for more than eight quarters now. We have been highlighting the flat ex-energy margin trends and increasing contribution of ‘energy spread’ to incremental EBITDA for a long time now. To that extent, the sudden concerns on flat ex-energy margin trajectory surprise us. We must and do admit that the flat ex-energy EBITDA margin trends have been belying the company-provided understanding of the business’ margin math – that of a direct positive correlation between tenancy and margins.

However, sometimes what appears prima-facie is not fully reflective of the true underlying. In this case, falling ‘revenue equalization’ contribution to ex-energy revenues explains a good deal of the surprisingly flat ex-energy margin trajectory. Revenue equalization is a common accounting practice in the tower industry where the rental escalation over the period of the contract is normalized and accounting rentals on a contract are booked as flat over the contract term. Now, revenue equalization number on a contract starts as a positive number and progressively moves down over the period of the contract (moving into the negative zone somewhere mid-way through the contract).

In case of BHIN standalone and Indus, there is a large pool of 10-15 year contracts with end- FY2008 as the base starting date. Some of these contracts are past the mid-way mark and the revenue equalization construct on these contracts is resulting in a qoq decline in revenue equalization portion of revenues. Exhibit 5 depicts the quarterly movement in ex-energy margins, unadjusted and adjusted for revenue equalization (as well as rent equalization on the costs side) – adjusted margins have indeed seen an upward trend as one would expect them to.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Telecom Bharti Infratel

Exhibit 5: Adjusted margins

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 Service revenue (Rs mn) 16,084 16,218 16,552 16,936 17,271 17,583 17,988 18,419 18,854 Service EBITDA (Rs mn) 10,317 10,517 10,826 10,484 11,200 11,442 11,771 12,156 12,401 Ex-energy margin (reported) 64.14 64.85 65.41 61.90 64.85 65.07 65.44 66.00 65.77 Revenue equalization (Rs mn) 861 600 619 606 632 407 341 261 223 Rent equalization (Rs mn) 100 114 66 27 48 56 67 81 67 Adjusted EBITDA (Rs mn) 9,556 10,031 10,273 9,905 10,616 11,091 11,497 11,976 12,245 Adjusted revenue (Rs mn) 15,223 15,618 15,933 16,330 16,639 17,176 17,647 18,158 18,631 Adjusted ex-energy margin (%) 62.77 64.23 64.48 60.66 63.80 64.57 65.15 65.95 65.72

Source: Company, Kotak Institutional Equities

Exhibit 6: Condensed financial statements, BIL consolidated, March fiscal year-ends, 2013-18E

2013 2014 2015E 2016E 2017E 2018E Key financials Income statement Gross revenues 102,720 108,267 116,683 128,749 144,906 159,506 Service revenues 62,012 65,896 71,261 79,712 89,658 98,805 Power and fuel reimbursements 37,976 42,390 45,450 49,037 55,248 60,701 EBITDA 38,302 44,001 50,041 56,594 64,775 72,304 EBIT 16,103 22,742 28,194 34,089 41,916 49,196 PBT 15,307 23,232 30,515 39,505 48,266 55,887 PAT 10,025 15,179 19,924 25,959 31,838 36,513 OPM (on gross,%) 37.3 40.6 42.9 44.0 44.7 45.3 OPM (on net,%) 61.8 66.8 70.2 71.0 72.2 73.2 EPS (Rs/share) 5.31 8.03 10.52 13.64 16.64 18.99 Balance sheet Total Equity 171,925 180,383 170,200 174,985 180,275 185,856 Borrowings 32,296 26,836 17,131 17,131 17,131 17,131 Other liabilities 72,709 79,137 84,216 89,616 96,935 103,380 Total equity and liabilities 276,930 286,356 271,547 281,732 294,341 306,367 Net fixed assets 164,962 154,732 150,381 149,345 148,155 146,054 Cash and equivalents 40,178 40,115 40,560 46,718 53,730 61,742 Other assets 71,790 91,509 80,606 85,669 92,456 98,570 Total assets 276,930 286,356 271,547 281,732 294,341 306,367 Cash flow statement Operating cash flow 35,973 38,554 39,895 43,386 48,879 53,261 Capex (18,148) (15,268) (18,144) (21,470) (21,669) (21,008) Free cash flow 17,825 23,286 21,751 21,917 27,210 32,253 Key operating metrics End-period tower base (#) 82,083 83,368 85,892 88,142 90,192 91,782 End-period tenants (#) 156,608 167,202 182,295 206,338 227,416 244,722 Tenancy (X) 1.91 2.01 2.12 2.34 2.52 2.67 Rental/tenant/month (Rs) 33,719 33,917 33,983 34,185 34,450 34,879 Revenue/tower/annum 769,636 796,561 842,030 916,057 1,005,508 1,085,930 EBITDA/tower/annum 475,369 531,891 591,292 650,385 726,452 794,671

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bharti Infratel Telecom

Exhibit 7: Condensed financial statements, BIL standalone, March fiscal year-ends, 2013-18E

2013 2014 2015E 2016E 2017E 2018E Key financials Income statement Gross revenues 44,601 49,993 53,889 59,210 66,171 72,331 Service revenues 27,441 29,569 32,103 35,819 39,934 43,656 Power and fuel reimbursements 17,160 20,424 21,786 23,391 26,237 28,675 EBITDA 17,720 20,769 23,940 26,841 30,223 33,299 EBIT 6,634 9,755 12,718 15,334 18,483 21,406 PBT 13,216 14,966 32,737 29,960 36,494 42,032 PAT 10,098 10,899 27,252 22,786 28,203 32,448 OPM (on gross,%) 39.7 41.5 44.4 45.3 45.7 46.0 OPM (on net,%) 64.1 68.2 70.3 71.0 71.7 72.2 EPS (Rs/share) 5.34 5.77 14.39 11.97 14.74 16.88 Balance sheet Total Equity 176,724 177,486 179,635 180,441 181,291 182,002 Borrowings ― ― ― ― ― ― Other liabilities 42,213 45,998 42,580 44,658 47,388 49,750 Total equity and liabilities 218,937 223,484 222,215 225,099 228,680 231,752 Net fixed assets 71,887 67,377 65,382 63,325 60,899 57,976 Cash and equivalents 37,793 70,983 68,201 70,730 73,579 76,790 Other assets 109,257 85,124 88,632 91,044 94,203 96,986 Total assets 218,937 223,484 222,215 225,099 228,680 231,752 Key operating metrics End-period tower base (#) 35,119 35,905 37,196 38,396 39,396 40,146 End-period tenants (#) 63,573 69,137 75,819 85,460 93,650 100,165 Tenancy (X) 1.81 1.93 2.04 2.23 2.38 2.50 Rental/tenant/month (Rs) 36,963 37,135 36,911 37,015 37,160 37,541 Revenue/tower/annum 803,943 832,648 878,319 947,691 1,026,688 1,097,689 EBITDA/tower/annum 519,146 584,845 654,984 710,163 777,009 837,277

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Telecom Bharti Infratel

Exhibit 8: Condensed financial statements, Indus Towers, March fiscal year-ends, 2013-18E

2013 2014 2015E 2016E 2017E 2018E Key financials Income statement Gross revenues 131,874 138,793 149,576 165,569 187,465 207,560 Service revenues 82,312 86,493 93,233 104,508 118,390 131,307 Power and fuel reimbursements 49,562 52,300 56,343 61,061 69,075 76,253 EBITDA 37,800 55,314 62,145 70,812 82,240 92,841 EBIT 21,443 30,921 36,848 44,655 55,792 66,165 PBT 13,752 24,919 33,774 41,560 53,081 63,856 PAT 9,038 15,429 21,617 26,391 33,707 40,549 OPM (on gross,%) 39.9 41.5 42.8 43.9 44.7 45.3 OPM (on net,%) 62.4 64.1 65.2 66.8 68.0 68.8 Balance sheet Total Equity 2,260 151,260 121,836 121,308 120,634 119,823 Borrowings 78,950 63,898 40,788 40,788 40,788 40,788 Other liabilities 89,821 88,690 99,790 107,701 118,625 128,347 Total equity and liabilities 171,031 303,848 262,414 269,797 280,047 288,958 Net fixed assets 123,805 208,502 202,821 203,365 204,419 204,489 Cash and equivalents 5,643 14,217 569 1,097 1,653 2,565 Other assets 41,583 81,129 59,024 65,335 73,975 81,905 Total assets 171,031 303,848 262,414 269,797 280,047 288,958 Key operating metrics End-period tower base (#) 111,819 113,008 115,942 118,442 120,942 122,942 End-period tenants (#) 221,511 233,488 253,513 287,805 318,492 344,184 Tenancy (X) 1.98 2.07 2.19 2.43 2.63 2.80 Rental/tenant/month (Rs) 31,523 31,682 31,907 32,177 32,544 33,024 Revenue/tower/annum 744,420 769,418 814,443 891,765 989,121 1,076,799 EBITDA/tower/annum 341,859 492,058 542,872 604,238 687,095 761,351

Source: Company, Kotak Institutional Equities estimates

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY IRB Infrastructure (IRB) Infrastructure SEPTEMBER 30, 2015 CHANGE IN RECO. Coverage view: Attractive

Value bet for now; growth play in the making. We upgrade IRB to BUY (from ADD) Price (`): 218 drawing comfort from (1) the CMP that implies a modest ₹75 bn of BOT value for ₹57 Target price (`): 280 bn of invested equity (₹35 bn more to be invested) and (2) improving quantum and BSE-30: 25,779 quality of the BOT opportunity from NHAI. We expect its exposure to routes that will be impacted by DFC to have limited value impact. Its strategy of not bidding for secondary market transactions, pegs its growth trajectory on the success of NHAI’s BOT story.

Company data and valuation summary IRB Infrastructure Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 290-197 EPS (Rs) 15.4 16.1 18.3 Market Cap. (Rs bn) 76.5 EPS growth (%) 18.2 4.5 13.2 Shareholding pattern (%) P/E (X) 14.1 13.5 11.9 Promoters 57.8 Sales (Rs bn) 38.5 46.5 61.3 FIIs 26.5 Net profits (Rs bn) 5.4 5.7 6.4 MFs 8.5 EBITDA (Rs bn) 22.1 27.0 34.9 Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.4 8.6 7.4 Absolute (8.7) (6.2) (7.1) ROE (%) 13.7 12.4 12.8 Rel. to BSE-30 (7.2) 2.1 (4.0) Div. Yield (%) 1.8 1.7 1.7

Opportunity—improving in quantum and quality; changes in the MCA add to comfort

Recent announcements by NHAI are positive for road BOT operators, especially for IRB. (1) NHAI has suggested near-term opportunity for BOT projects of 2,000 km (120 km average size), enough for IRB to grow business at its ~12% market-leading share. (2) NHAI is also planning award of the seven approved expressways (~1,800 km; all but one over 200 km in size). (3) Recent amendments to the MCA would add to the comfort of the lender and concessionaire. Limited risks from DFC-led traffic shift

IRB is exposed the most among peers to routes, which would get impacted by DFC-led shift of traffic to rail. We expect the same to have limited value impact. IRB’s key affected projects would be largely over by the time the DFC starts impacting traffic or have a traffic protection clause (see exhibit 5). On the contrary, such exposure may continue to support traffic for the interim period, as rail congestion for port traffic has done for key IRB projects since 2QFY15.

Most of the project-specific debt is guaranteed by the parent. This reduces impact on IRB of a fall-out of the recent default of L&T IDPL’s SPVs on IRB (de-rating of other non-recourse debt). Subsidiaries’ annual report adds value to our SoTP

The annual report of subsidiaries provides clarity to (1) the large base of investments (Rs57 bn) made into the BOT assets till now and (2) the large amount of internal loan given to the road SPVs. The former suggests limited value for such quantum of investments in the CMP. The latter adds meaningful value to our SoTP (revised to `280 from `265 primarily on this count). We note that the revised SoTP builds in our revised assumptions for inflation (4.5% from 5% earlier). Levered to the NHAI BOT story; opportunity to come from new states

In its annual report, IRB has stated its preference for bidding for new BOT projects as it is not finding value at the price quoted for secondary market transactions. This leverages IRB to the continuation of the BOT success story of NHAI. NHAI is cash-rich and can switch to EPC mode if it sees limited competitive interest from bidders for BOT projects. Also, new project wins from NHAI would likely continue to be from newer states rather than in Maharashtra and Gujarat.

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

Opportunity for BOT projects getting a Exhibit 1: NHAI is planning to award several BOT projects of reasonable project size boost from NHAI Details of the near-term BOT project tendering pipeline of NHAI Total Average size No. of projects Length project cost Length Total project cost Modes (#) (km) (Rs bn) (km) (Rs bn) Build-Operate-Transfer (BOT) 16 2,034 260 127 16 Hybrid Annuity Model 19 701 152 37 8 Total 35 2,735 412 78 12

Source: NHAI, Kotak Institutional Equities

Exhibit 2: NHAI is planning award of 1,800 km of expressway projects Details of the expressways for which the union government has given approval

Length Stretch (kms) National highways Delhi-Chandigarh 249 NH-1 and NH-22 Bangalore Chennai 334 NH-4 Delhi Jaipur 261 NH-8 Delhi Meerut 66 NH-8 Kolkata Dhanbad 277 NH-2 Delhi Agra 200 NH-2 Vadodara Mumbai 400 NA Total 1,787 Total award (Rs bn) 167

Source: NHAI, Kotak Institutional Equities

Exhibit 3: Key changes to the Model Concession Agreement for a BOT project

Clause Revised version Previous version Impact Would now start from year 4 with a Starting year 1 from COD Reduces developer cash Premium payments lower increase in the initial years with a 5% escalation flow mismatch Equity contribution by Cap revised to 40% of project cost or Allows higher equity Half of the revised limit authority 2X developer's equity support by authority If appointed date does not happen Will reduce the quantum Termination of projects No such clause within an year of agreement of stuck projects

Source: Industry reports, Kotak Institutional Equities

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH IRB Infrastructure Infrastructure

Limited risks from Exhibit 4: IRB has given guarantees to most of its SPV-level debt recent default by Details of IRB's guarantees against project-level debt of subsidiaries L&T’s SPVs and from 2014 2015 DFC Modern Road Makers 3,335 9,139 Aryan Toll Road 8 8 ATR Infrastructure 10 10 Ideal Road Builders 1,904 564 IDAA Infrastructure 5,057 4,583 IRB Jaipur Deoli Tollway 9,387 9,448 IRB Pathankot Amritsar Toll Road 9,625 9,680 IRB Talegaon Amravati Tollway 4,000 3,960 IRB Tumkur Chitradurga Tollway 10,867 9,281 IRB Kolhapur Integrated Road Development 2,832 2,810 IRB Ahmedabad Vadodara 18,350 28,603 IRB Surat Dahisar Tollway 12,400 11,349 IRB Sindhudurg Airport 1 1 Thane Ghodbunder Toll Road 1,377 1,288 M.V.R. Infrastructure & Tollways 2,196 2,168 Mhaiskar Infrastructure 7,837 6,154 IRB Westcoast Tollway 2,431 6,828 Solapur Yedeshi Tollway 97 2,876 Kaithal Tollway — 297 Yedeshi Aurangabad Tollway — 2,628 Total 91,716 111,676 Consolidated debt 110,841 125,762

Source: Company, Kotak Institutional Equities

Exhibit 5: Details of IRB’s road stretches on the NH-8 highway

Target traffic date Comment Concession period expires in Dec-23; part of the stretch would get impacted Mumbai Pune No such provision for about 3 years Surat Dahisar Jan-17 Concession period expires in Mar-21 (limited impact of target traffic clause) Surat Bharuch No such provision Concession period expires in Sep-21 Ahemdabad Vadodara Apr-21 Target traffic clause should protect against the traffic risk from DFC

Notes: (a) NH-8 is the key route, which would be impacted post commissioning of the DFC.

Source: NHAI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Infrastructure IRB Infrastructure

IRB has created a

large portfolio of assets, which is likely undervalued at CMP

Exhibit 6: Build-up of IRB's asset portfolio, March fiscal year-ends, 2009-15

BOT portfolio

New road awards (LHS, km) Cumulative kms (RHS, km) New additions (LHS, Rs bn)) Net block of BOT assets (RHS, Rs bn) 600 2,500 30 160 2,211 144 500 140 2,000 25 26 480 120 23 400 20 21 1,500 100 18 300 315 15 80 1,000 15 258 60 200 237 10 750 196 9 40 500 100 5 31 114 98 20

- - 0 0 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015

Consolidated financials

Capital employed (LHS, Rs bn) Net debt to equity (RHS, X) RoE 180 3.0 20

160 169 19 19 2.5 16 140 2.5 17 17 146 120 2.0 120 12 13 100 12 99 1.5 80 10 1.2 8 60 71 1.0

40 50 4 42 0.5 20

0 0.0 0 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015

Source: Company, Kotak Institutional Equities

In the exhibit ahead, we list the Rs57 bn investments into the BOT SPVs made by various entities of IRB. We also note that the market capitalization of IRB is broadly reflective of value of these BOT investments as the value of construction business cancels the net debt taken to fund these equity investments in BOT projects. This implies that the market is valuing these (dated) investments at ~1.4X. We value these investments on a DCF basis at Rs97 bn or close to 1.8X on an implied basis. Note that the above analysis attributes zero value to the Rs35 bn of pending equity investments of the company.

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH IRB Infrastructure Infrastructure

Exhibit 7: IRB has invested about Rs54 bn through its holding company and construction subsidiary and Rs57 bn in all in its BOT projects Details of investments into BOT projects, March fiscal year-ends (Rs mn)

end-FY2014 equity investments end-FY2015 equity investments Holding Construction Holding Construction company subsidiary Others Combined company subsidiary Others Combined Thane-Bhiwandi bypass 611 — 611 611 — 611 Mumbai-Pune Expressway 778 — 273 1,051 778 — 273 1,051 Pune-Sholapur 451 — 451 451 — 451 Pune-Nashik 519 — 519 519 — 519 Ahmednagar-Karmala-Tembhurni 80 — 70 150 80 — 70 150 Bridge over Patalganga River-Kharpada 80 — 20 100 80 — 20 100 Thane-Ghodbunder 222 — 78 300 222 — 78 300 Bharuch-Surat 872 — 1,109 1,981 872 — 1,109 1,981 Integrated Road Development in Kolhapur 1,336 176 168 1,680 1,336 176 168 1,680 Surat-Dahisar 5,323 — 5,323 5,323 — 5,323 Pathankot-Amritsar 3,553 391 3,944 3,553 391 3,944 Talegaon-Amravati 1,458 513 1,970 1,458 513 1,970 Jaipur-Deoli 3,900 1,370 5,270 3,900 1,370 5,270 Panji-Goa 1,485 165 1,649 1,485 165 1,649 Tumkur-Chitradurg 2,943 109 3,052 3,002 109 3,111 Ahmedabad-Vadodara Expressway 6,321 828 1,101 8,250 10,791 1,207 1,101 13,099 Goa/Karnataka border-Kundapur 440 1,361 1,801 1,271 1,785 3,057 Salem-Omallur-Namakkal 802 — 802 802 — 802 Solapur Yedeshi 13 — 13 1,965 — 1,965 Yedeshi Aurangabad — — — 4,365 — 4,365 Kaithal — — — 1,644 — 1,644 Real estate subsidiary 586 2,852 302 3,740 586 2,852 302 3,740 Subtotal - Investment in road projects 31,771 7,764 3,121 42,656 45,091 8,568 3,121 56,780

Implied analysis at CMP Market capitailization 76167 Less last three year FY2017E construction EBITDA (30,678) Add standalone+ MRM net debt 28,746 Adjusted market cap for BOT projects 74,235

Source: Company, Kotak Institutional Equities

Exhibit 8: IRB has equity commitment amounting to Rs27 bn (Rs35bn including Agra Etawah) Pending equity commitments of IRB (share capital and subordinated debt) into its subsidiaries as of end-March 2015 (Rs mn)

Project Amount IRB Ahmedabad Vadodara Super Express Tollway 2,701 IRB Westcoast Tollway 3,911 Solapur Yedeshi Tollway 1,965 IRB Sindhudurg Airport 3,500 Yedeshi Aurangabad Tollway 4,265 Kaithal Tollway 4,916 Mhaiskar Infrastructure 5,450 Total 26,708

Notes: (a) The above details are as of end-FY2015 and do not include commitment for the Agra Etawah project.

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Infrastructure IRB Infrastructure

Exhibit 9: IRB would likely be able to cover up for equity commitments apart from a shortfall in FY2016E Equity requirement for BOT projects in IRB's portfolio, March fiscal year-ends, 2016-25E (Rs mn)

2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Total FCF from construction 2,327 4,464 8,465 15,256 FCF-operational 829 2,174 7,995 6,567 9,606 8,967 10,057 7,263 17,250 760 71,468 4 BOT projects 54 109 4,210 — — — — — — — 4,373 Kharpada Bridge (218) — — — — — — — — — (218) Nagar-Karmala-Tembhurni 0 987 — — — — — — — — 987 Pune - Solapur (19) 5 (56) 1,510 — — — — — — 1,439 Pune - Nashik 45 80 (6) 91 105 207 1,963 — — — 2,485 Mumbai - Pune 976 350 2,551 4,589 4,557 6,557 7,252 7,613 16,639 — 51,085 Thane - Ghodbunder (121) 118 162 208 383 503 — — — — 1,252 Bharuch - Surat 57 (11) 315 579 434 2,766 854 — — — 4,994 Surat-Dahisar (173) 299 820 (475) 3,845 (1,331) — — — — 2,986 Jaipur - Tonk - Deoli 258 237 (2) 66 281 265 (14) 286 1,217 1,429 4,024 Talegaon - Amravati (29) — — — — — — (469) (469) (469) (1,435) Tumkur-Chitradurg — — — — — — 1 (167) (137) (200) (503) FCF-Under construction (11,149) (6,504) (6,457) (1,761) 656 409 75 (116) 4,179 4,913 (15,755) Kolhapur urban (1,359) (125) (80) (50) 78 367 730 993 1,081 990 2,624 Amritsar - Pathankot (238) (110) (346) (284) 340 24 (154) 133 940 1,165 1,470 Ahmedabad-Vadodara (2,714) (275) (—) (—) (—) (—) — — — (—) (2,988) Goa/ Kar Border to Kundapur (3,082) (873) 408 71 85 276 459 (581) 865 963 (1,409) Solapur-Yedeshi (670) (696) (535) 61 126 108 112 154 233 261 (845) Yedeshi-Aurangabad (1,556) (1,509) (2,310) (30) 42 99 338 (376) 915 1,020 (3,367) Rajasthan Kaithal (2,221) (2,056) (889) 159 201 225 405 131 737 826 (2,483) Agra Etawah (795) (860) (2,706) (1,687) (215) (690) (1,815) (571) (591) (313) (10,242) Net cash surplus/(deficit) (7,993) 134 10,003 4,806 10,262 9,376 10,132 7,147 21,429 5,673 70,969

Source: Company, Kotak Institutional Equities

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH IRB Infrastructure Infrastructure

Exhibit 10: Consolidated financials of IRB Infrastructure Developers, March fiscal year-ends, 2008-18E (Rs mn)

2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Income statement Total operating income 7,266 9,919 17,049 24,381 31,330 36,872 37,319 38,475 46,515 61,253 70,945 Construction 3,631 5,497 9,728 16,234 22,002 25,988 25,364 20,029 22,932 32,987 38,074 Toll collection BOT 3,635 4,422 7,321 8,147 9,328 10,884 11,955 18,356 23,583 28,266 32,870 Total operating costs (3,444) (5,839) (9,443) (13,442) (17,637) (20,540) (19,782) (16,358) (19,471) (26,351) (30,621) Construction expenses (2,892) (4,988) (8,454) (12,349) (16,131) (19,126) (18,189) (13,871) (15,823) (22,761) (26,271) BOT expenses (552) (851) (989) (1,093) (1,506) (1,414) (1,593) (2,487) (3,648) (3,590) (4,349) EBITDA 4,119 4,079 7,605 10,939 13,694 16,333 17,537 22,117 27,044 34,902 40,324 Other income 520 296 490 645 1,252 1,301 1,214 1,130 1,227 1,608 1,994 Financial charges (1,958) (1,377) (2,494) (3,572) (5,464) (6,153) (7,561) (9,312) (11,614) (15,008) (16,205) Depreciation (1,016) (1,144) (1,819) (2,254) (2,970) (4,415) (4,770) (7,071) (9,570) (11,407) (14,760) Pre-tax profit 1,666 1,855 3,782 5,759 6,512 7,066 6,419 6,865 7,086 10,095 11,353 Taxation (400) (378) (133) (1,117) (1,501) (1,530) (1,823) (1,441) (1,412) (3,672) (3,710) Adjusted PAT 1,266 1,477 3,649 4,641 5,011 5,536 4,596 5,424 5,674 6,423 7,643 EPS (Rs) 3.4 4.4 10.4 13.6 15.1 16.7 13.8 15.4 16.1 18.3 21.7 Balance sheet Share holder's funds 16,191 17,467 20,399 24,326 28,566 32,556 35,607 43,609 47,707 52,554 58,621 Minority interest 281 599 779 896 1,123 1,092 356 351 299 217 132 Loan funds 20,213 24,859 29,152 46,255 70,722 87,761 110,841 125,762 167,948 185,684 204,797 Total sources of funds 36,711 43,106 50,597 71,709 100,670 121,667 146,947 385,391 427,917 449,359 473,416 Net block 27,737 34,707 43,477 58,707 79,995 104,248 130,411 365,991 413,149 442,500 462,521 Investments 1,985 1,108 451 551 139 620 145 88 88 88 88 Cash & bank balances 5,222 4,147 5,102 12,000 18,208 14,710 15,012 15,798 11,166 3,257 7,293 Net current assets (ecl. cash) 1,768 3,135 1,559 443 2,328 2,089 1,379 3,515 3,515 3,515 3,515 Total application of funds 36,711 43,106 50,597 71,709 100,670 121,667 146,947 385,391 427,917 449,359 473,416 Key ratios (%) EBITDA margin 56.7 41.1 44.6 44.9 43.7 44.3 47.0 57.5 58.1 57.0 56.8 PAT margin 17.4 14.9 21.4 19.0 16.0 15.0 12.3 14.1 12.2 10.5 10.8 Net debt: Equity (X) 0.9 1.2 1.2 1.4 1.8 2.2 2.7 2.5 3.3 3.5 3.4 RoE 11.5 8.7 18.3 20.2 18.9 18.2 13.5 13.7 12.4 12.8 13.7 RoCE 7.9 6.4 12.5 12.1 10.7 9.3 7.5 4.8 3.7 3.6 4.0 Yoy growth (%) Revenues 38.4 36.5 71.9 43.0 28.5 17.7 1.2 3.1 20.9 31.7 15.8 EBITDA 47.0 (1.0) 86.4 43.8 25.2 19.3 7.4 26.1 22.3 29.1 15.5 PAT 237.3 28.5 137.0 30.4 10.8 11.1 (17.5) 18.2 4.5 13.2 19.0

Notes: (a) Financials do not build in benefit of monetization of an investment trust.

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 Infrastructure IRB Infrastructure

Exhibit 11: We value IRB at Rs285/share based on SOTP

Value of Value Stake IRB's stake Per share (Rs mn) (%) (Rs mn) (Rs) Comment BOT FCFE 97,549 — 97,103 276 FCFE 4 BOT projects 3,646 100.0 3,646 10 Mar-17 FCFE Kharpada Bridge (200) 100.0 (200) (1) Mar-17 FCFE Nagar - Karmala - Tembhurni 825 100.0 825 2 Mar-17 FCFE Pune - Solapur 1,133 100.0 1,133 3 Mar-17 FCFE Pune - Nashik 1,493 100.0 1,493 4 Mar-17 FCFE Mumbai - Pune 29,726 100.0 29,726 85 Mar-17 FCFE Thane - Ghodbunder 893 100.0 893 3 Mar-17 FCFE Bharuch - Surat 3,337 100.0 3,337 9 Mar-17 FCFE Surat-Dahisar 2,653 100.0 2,653 8 Mar-17 FCFE Amritsar to Pathankot 2,805 100.0 2,805 8 Mar-17 FCFE Jaipur - Tonk - Deoli 9,865 100.0 9,865 28 Mar-17 FCFE Talegaon to Amravati 4,099 100.0 4,099 12 Mar-17 FCFE Tumkur-Chitradurg 7,722 100.0 7,722 22 Mar-17 FCFE Ahmedabad Vadodara 2,214 100.0 2,214 6 Mar-17 FCFE Omallur-Salem-Namakkal 1,714 74.0 1,268 4 Mar-17 FCFE Solapur-Yedeshi 2,253 100.0 2,253 6 Mar-17 FCFE Yedeshi-Aurangabad 4,827 100.0 4,827 14 Mar-17 FCFE Goa-Kundapur 4,543 100.0 4,543 13 Mar-17 FCFE Rajasthan Kaithal 3,832 100.0 3,832 11 Mar-17 FCFE Agra Etawah 886 100.0 886 3 Mar-17 FCFE Kolhapur urban road project 4,194 100.0 4,194 12 Mar-17 FCFE Panaji to Goa Karnataka Border 1,650 100.0 1,650 5 1X investment Real Estate 3,438 100.0 3,438 10 1X investment Net cash (28,746) 100 (28,746) (82) Balance at end-FY2015 Construction 30,678 100 30,678 87 3XMar-17E EBITDA Grand total 99,481 — 99,035 282 SOTP

Source: Company, Kotak Institutional Equities estimates

Takeaways for outlook from the annual report

 Construction revenues of `20 bn. IRB’s consolidated construction business is accounted for in two key subsidiaries, the holding company (IRB Infrastructure) and Modern road builders. The latter then books revenues for Tumkur-Chittradurga directly and Sindhudurga Airport project and its other revenues are a reflection of those booked in the former. For new projects, revenues are typically getting booked in the standalone entity. We note the Solapur-Yedeshi and Yedeshi-Aurangabad had no revenue contribution in the FY2015 for either of these subsidiaries.

 Partial tolling at the Pathankot project. Among the three projects that have recently started tolling, Pathankot-Amritsar project has received provisional tolling certificate and is yet to start tolling at full rate.

 IRB may not go for inorganic growth. The company highlighted a substantial gap between the expectation of the seller and the potential buyer of the projects, resulting in no acquisitions for the company despite it being on the look-out. Going forward, IRB would focus on new projects to be awarded by NHAI rather than the acquisition of road assets.

 Competitive intensity expected to increase from low of FY2015. During the year FY2015, IRB highlighted competition had diminished to a larger extent. IRB believes that the competitive intensity may increase in FY2016.

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH IRB Infrastructure Infrastructure

 Cost of debt. The company’s average cost of debt remains at 11.25% per annum. Further, IRB has availed ECB facility for its Jaipur-Deoli, Tumkur-Chittradurga, Pathankot- Amritsar and Ahmedabad-Vadodara projects, which will help it reduce the interest rate burden.

 Margin outlook. IRB’s extensive experience, its industry standing and bulk purchases have helped it plan and procure raw materials at competitive rates. Moreover, it procures stone aggregates from its self-operated leased mines, which ensures quality and lowers the cost, as compared to bought-out aggregates.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 BUY IDEA (IDEA) Telecom SEPTEMBER 30, 2015 UPDATE Coverage view: Cautious

Gearing up for the 4G battles ahead. In an unexpected, out-of-turn investor/analyst Price (`): 140 call, Idea management communicated at length the company’s 4G rollout strategy and Target price (`): 220 circle-wise mobile BB (3G/4G) positioning. Even as the impact of R-Jio launch on the BSE-30: 25,779 market context remains tough to forecast, we remain confident of Idea’s ability to hold its own even in a ‘with R-Jio’ market – in terms of its spectrum footprint as well as on the company’s ability to respond to the evolving market context effectively. BUY stays.

Company data and valuation summary IDEA Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 204-137 EPS (Rs) 8.8 9.1 6.3 Market Cap. (Rs bn) 502.8 EPS growth (%) 48.6 3.6 (31.0) Shareholding pattern (%) P/E (X) 15.9 15.3 22.2 Promoters 42.3 Sales (Rs bn) 315.7 363.3 415.8 FIIs 24.4 Net profits (Rs bn) 31.7 32.8 22.6 MFs 1.9 EBITDA (Rs bn) 107.9 133.3 155.8 Price performance (%) 1M 3M 12M EV/EBITDA (X) 8.6 7.0 6.0 Absolute (9.3) (17.9) (14.5) ROE (%) 16.0 13.4 8.5 Rel. to BSE-30 (7.1) (12.0) (11.8) Div. Yield (%) 0.5 0.7 1.1

The nub of the event – Idea lays out key contours of its 4G (LTE) rollout strategy

Calling the impending 4G network launch (expected in early CY2016) as a path-breaking juncture in the history of the company, Idea CEO laid out in detail the company’s initial 4G rollout plans while also spending considerable time on addressing some of the oft-stated concerns on Idea’s 4G spectrum footprint. We had published our views on most of these aspects in our recent note ‘FY2015 AR analysis: crisis to crisis, strength to strength’ and hence would limit this note to incremental inputs from the call. Key takeaways from the call –

 Idea has embarked on massive expansion of its mobile broadband (MBB; 3G and 4G) network footprint beginning July 2015 and is looking to rollout a combined 30-35K 3G and 4G cell sites over the next nine months to take its end-FY2016 3G/4G combined cell site footprint to around 60-65K. We note that this number would be close to the combined 3G/4G cell site footprint of Bharti at end-1QFY16. This expansion would enhance its MBB population coverage to around 450 mn from the current 275 mn (excluding 3G ICR). The company did admit that it is around six months behind where it would ideally like to be on LTE rollout but intends to make up for lost time aggressively.

 Idea owns 4G spectrum in the 1800 MHz band in 10 circles and it intends to roll out 4G LTE services in 750 cities and towns across these 10 circles in the first phase of rollout to be complete by end-1HCY16.

 The company belabored the point that all of its incremental site rollouts are using single RAN (radio access network) technology; single RAN technology allows use of the same network equipment for supporting more than one technology on the same spectrum band. We are increasingly looking at scenarios where spectrum in the same band (different chunks of course) will be used for different technologies. The company intends to use the legacy equipment replaced on such sites for 2G GSM network expansion in rural markets.

 One of the key focus areas of the rollout plan is to significantly enhance data capacity at both the access (cell site) level as well as backhaul level through denser fiber rollout.

 Idea indicated that it had 42 mn smartphones on its network as at end-June 2015 of which only around 16 mn were using 3G data services. Around 1.7 mn of these smartphones were LTE handsets and only a minor proportion of these support VoLTE.

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

 The company spent a considerable amount of time on discussing its 3G and LTE spectrum footprint positioning, especially relative to key competitors (Bharti, Vodafone and R-Jio). As mentioned earlier, we had published our thoughts on this aspect in detail in our recent note ‘FY2015 AR analysis: crisis to crisis, strength to strength’. Exhibits 1 and 2 present the company’s way of looking at its 3G and LTE spectrum footprint. This view is broadly in line with our opinion that Idea is reasonably well positioned in its key circles from a spectrum standpoint; there are a few important gaps and we expect Idea to fill those through spectrum trading or auction route.

Exhibit 1: Idea’s spectrum profile post auctions

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27 Telecom IDEA

Exhibit 2: Competitive landscape in 4G

Source: Company, Kotak Institutional Equities

 Idea also indicated that it is working on building a ‘digital services/content’ portfolio of its own and is also working with several startups to offer services like location-based services, mobile advertising and carrier billing. It intends to launch its payment bank sometime in 2HFY17E.

 Interestingly, Idea spoke about an accelerated shift in pricing paradigm in the industry at least for the high-end customers. A move towards bundled pricing of voice, data and other services is sure on the cards with the key target KPI for such offers being ARPU as opposed to realized rates per minute (on voice) or per MB (on data). We see this as one of the key areas to monitor over the next year or two as this is where we expect the most aggressive dogfight for market share post R-Jio launch. The company does not expect the current per-minute pricing paradigm on voice to go away anytime soon though; a large chunk of customers continues to be low-end; by volumes, Idea’s largest selling recharge denomination is still the `10 recharge.

 The company reiterated its bullish growth stance on both voice and data revenues for the industry and expects to keep improving its market positioning in both the segments. It also reiterated its view on the directional ARPU trend for the market – up.

 Rather surprisingly, Idea indicated that it sees no immediate spectrum sharing or trading opportunities in the market; we agree on the sharing front but not completely on the trading front.

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH IDEA Telecom

Exhibit 3: Idea's high-speed spectrum portfolio is strong barring gaps in a few key circles

Idea spectrum (MHz) Competitor 3G/ LTE spectrum positioning % of RMS Cumulative revenue LTE - Circle revenues (%) contribution (%) 2G 3G 800/1800 Bharti Vodafone R-jio Maharashtra 14.7 33.3 14.7 8.0 10.0 5.0 3G (2100) 3G (2100) 4G (1800) M.P. 10.8 41.2 25.4 9.4 5.0 5.0 3G (900), 4G (1800) NA 4G (800/1800) Kerala 9.9 41.6 35.4 6.0 5.0 10.0 4G (1800) 3G (2100), 4G (1800) 4G (1800) A.P. 9.6 24.3 44.9 6.0 5.0 5.0 3G (900/2100), 4G (1800) NA 4G (1800) UP (West) 7.4 31.8 52.3 7.2 5.0 — 3G (2100) 3G (2100) NA Gujarat 7.0 22.9 59.3 6.6 5.0 — 3G (2100) 3G (900/2100) 4G (1800) Delhi 5.3 12.3 64.6 8.6 5.0 — 3G (2100), 4G (1800) 3G (2100), 4G (1800) 4G (1800) Punjab 5.1 25.7 69.7 8.6 5.0 5.0 3G (900), 4G (1800) NA NA UP (East) 4.9 14.3 74.5 6.2 5.0 — 3G (2100) 3G (900/2100) 4G (800/1800) Karnataka 4.5 11.1 79.1 6.0 — 5.0 3G (900/2100), 4G (1800) 3G (2100), 4G (1800) 4G (1800) Bihar 3.8 13.6 82.9 5.7 — — 3G (2100) NA 4G (800) Rajasthan 3.7 13.5 86.6 6.2 — — 3G (2100), 4G (1800) 3G (2100) 4G (1800) Mumbai 3.6 10.5 90.2 6.4 — — 3G (900/2100), 4G (1800) 3G (900/2100), 4G (1800) 4G (800/1800) Haryana 3.1 27.6 93.3 7.0 5.0 5.0 3G (2100) 3G (900/2100) 4G (800/1800) Tamilnadu 2.3 5.1 95.6 6.4 — 5.0 3G (2100), 4G (1800) 3G (2100) 4G (1800) West bengal 1.5 8.8 97.1 6.3 — — 3G (2100) 3G (2100) 4G (1800) Kolkata 0.9 7.0 98.0 5.0 5.0 — 3G (900) 3G (2100), 4G (1800) 4G (1800) Orissa 0.5 5.1 98.5 5.0 — 5.0 3G (2100), 4G (1800) 3G (900) 4G (800/1800) H.P. 0.5 12.8 99.0 9.2 5.0 — 3G (900/2100), 4G (1800) NA 4G (800/1800) Assam 0.4 4.2 99.4 5.0 — — 3G (900/2100) 3G (2100) 4G (800/1800) J&K 0.4 6.3 99.8 5.0 5.0 — 3G (2100) NA 4G (800/1800) North east 0.2 4.4 100.0 6.0 — 5.0 3G (900/2100), 4G (1800) 3G (2100) 4G (800/1800)

Note: Gaps in important circles 1) We have not considered 2300Mhz in this analysis Gaps in other circles

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 Telecom IDEA

Exhibit 4: Idea Cellular's condensed financial statements, March fiscal year-ends, 2013-18E

2013 2014 2015 2016E 2017E 2018E Profit model (Rs mn) Revenue 224,575 265,187 315,709 363,314 415,786 468,791 EBITDA 60,044 83,335 107,934 133,292 155,788 178,015 EBIT 25,266 38,141 54,898 66,255 69,425 81,775 Net interest income / (expense) (9,495) (7,700) (5,822) (15,747) (34,596) (36,054) Tax (5,664) (10,764) (17,397) (17,678) (12,190) (16,002) Recurring Net profit 10,107 19,676 31,679 32,830 22,639 29,718 Fully diluted EPS 3.05 5.93 8.81 9.13 6.29 8.26 Balance sheet (Rs mn) Cash 11,709 4,036 130,804 21,974 14,053 39,865 Other current assets 51,660 51,324 67,061 79,837 91,876 105,145 Fixed assets 225,091 332,827 548,661 562,761 334,919 326,346 Other long term assets 75,320 77,387 142,261 169,258 424,723 432,467 Short tem debt 22,391 25,065 — — — — Other current liabilities 69,110 75,823 86,769 103,300 118,876 136,045 Long term debt 118,047 181,284 552,711 452,711 452,711 452,711 Other long term liabilities 11,180 18,133 19,015 19,015 19,015 19,015 Shareholders funds (incl. minorities) 143,053 165,270 230,292 258,805 274,968 296,051 Net (debt)/ cash (128,729) (202,313) (421,907) (430,737) (438,658) (412,846) Free cash flow (Rs mn) EBITDA 60,044 83,335 107,934 133,292 155,788 178,015 Change in working capital 92 7,049 (4,790) 3,755 3,538 3,900 Cash tax (paid) (3,864) (10,764) (17,397) (17,678) (12,190) (16,002) Capex on PP&E and intangibles (49,131) (68,421) (347,675) (108,135) (113,985) (95,411) Miscellaneous items 5,664 13,489 13,679 — — — Free cash flow 12,804 24,688 (248,250) 11,234 33,151 70,501 Ratios (%) Sales growth 14.9 18.1 19.1 15.1 14.4 12.7 EBITDA growth 17.9 38.8 29.5 23.5 16.9 14.3 EPS growth 39.6 94.4 48.6 3.6 (31.0) 31.3 FCF growth NM 92.8 (1,105.5) (104.5) 195.1 112.7 EBITDA margin 26.7 31.4 34.2 36.7 37.5 38.0 Net margin 4.5 7.4 10.0 9.0 5.4 6.3 RoAE 7.4 12.8 16.0 13.4 8.5 10.4 ROAE (excl. cash and int. income) 7.1 11.9 16.9 15.2 8.1 10.1 RoACE 6.9 8.9 10.9 9.5 9.6 11.1 ROACE (excl. cash and int. income) 6.9 8.9 11.1 10.0 9.7 11.3 Net debt/EBITDA (X) 2.1 2.4 3.9 3.2 2.8 2.3 Net debt/equity (X) 0.9 1.2 1.8 1.7 1.6 1.4 Total debt/capital (X) 1.0 1.2 2.4 1.7 1.6 1.5

Source: Company, Kotak Institutional Equities estimates

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH IDEA Telecom

Exhibit 5: Profit and loss statement, consolidated, March fiscal year-ends, 2011-15 (Rs mn)

2011 2012 2013 2014 2015 Revenues 155,034 195,412 224,575 265,187 315,709 Costs Employee expenses (8,055) (9,499) (11,225) (13,121) (15,299) Network opex and IT outsourcing (40,131) (48,608) (55,361) (64,990) (72,207) License and spectrum fees (17,729) (23,232) (24,753) (29,238) (35,352) Roaming and access charges (24,755) (32,799) (40,145) (41,616) (47,314) Sales and marketing expenses (19,743) (24,150) (25,188) (24,674) (28,743) Admin and other expenses (6,714) (6,200) (7,860) (8,214) (8,860) Total costs (117,127) (144,488) (164,531) (181,852) (207,775) EBITDA 37,907 50,923 60,044 83,335 107,934 Depreciation (21,453) (24,357) (29,829) (37,938) (45,410) Amortization (2,521) (5,456) (4,949) (7,256) (7,626) Total D&A (23,973) (29,813) (34,778) (45,194) (53,036) EBIT 13,934 21,110 25,266 38,141 54,898 Net interest costs (3,965) (10,559) (9,495) (7,700) (5,822) PBT 9,969 10,551 15,771 30,441 49,076 Provision for taxes (982) (3,323) (5,664) (10,764) (17,397) PAT 8,987 7,228 10,107 19,676 31,679 EPS 2.72 2.18 3.05 5.93 8.81 # of shares outstanding (mn) 3,303 3,309 3,314 3,320 3,598

Growth yoy (%) Revenues 26.0 14.9 18.1 19.1 Total costs 23.4 13.9 10.5 14.3 EBITDA 34.3 17.9 38.8 29.5 EBIT 51.5 19.7 51.0 43.9 PBT 5.8 49.5 93.0 61.2 PAT (19.6) 39.8 94.7 61.0

ETR (%) 9.8 31.5 35.9 35.4 35.4 Cash tax rate (%) 15.9 17.1 17.4 17.9 29.6 EBITDA margin (%) 24.5 26.1 26.7 31.4 34.2 EBIT margin (%) 9.0 10.8 11.3 14.4 17.4

As % of revenues Employee expenses 5.2 4.9 5.0 4.9 4.8 Network opex and IT outsourcing 25.9 24.9 24.7 24.5 22.9 License and spectrum fees 11.4 11.9 11.0 11.0 11.2 Roaming and access charges 16.0 16.8 17.9 15.7 15.0 Subscriber acquisition and servicing expenses 12.7 12.4 11.2 9.3 9.1 Admin and other expenses 4.3 3.2 3.5 3.1 2.8 Total costs 75.5 73.9 73.3 68.6 65.8 EBITDA 24.5 26.1 26.7 31.4 34.2 D&A 15.5 15.3 15.5 17.0 16.8 EBIT 9.0 10.8 11.3 14.4 17.4

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Telecom IDEA

Exhibit 6: Balance sheet, consolidated, March fiscal year-ends, 2011-15 (Rs mn)

2011 2012 2013 2014 2015 Liabilities and shareholder's equity Shareholder's funds Share capital 33,033 33,088 33,143 33,196 35,978 Share premium 85,351 85,697 89,612 89,915 124,552 Oustanding ESOP 478 349 214 164 431 General reserve — — 503 4,432 3,676 P&L balance 3,950 11,179 19,469 37,305 65,293 Debenture redemption reserve — — 93 238 342 Business restructuring reserve 169 169 — — — Total reserves and surplus 89,947 97,394 109,890 132,054 194,295 Total shareholder's funds 122,980 130,483 143,034 165,250 230,273 Book value per share 37.23 39.43 43.16 49.78 64.00 CCPS 19 19 19 19 19 Borrowings Long-term 90,412 95,222 104,733 93,866 72,490 Re-denominated 62,008 41,237 42,352 31,698 23,841 FC-denominated 28,404 53,985 62,381 62,168 48,649 Short-term 30,293 38,150 22,391 25,065 102,559 Re-denominated 24,151 31,704 18,136 25,065 102,559 FC-denominated 6,142 6,447 4,254 — — Deferred spectrum liabilities — — 13,314 87,418 93,542 Total 120,705 133,372 140,438 206,349 268,591 Re-denominated 86,159 72,940 73,803 144,182 219,941 FC-denominated 34,546 60,432 66,635 62,168 48,649 Deferred tax liabilty 3,099 6,273 11,180 18,133 19,015 Other long-term liabilities 6,058 7,946 9,229 9,633 Long-term provisions 1,920 3,142 4,986 5,735 Total borrowings and long-term liabilities 123,804 147,623 162,706 238,697 302,974 Total equity, borrowings, and long-term liabilities 246,804 278,125 305,759 403,967 533,267

Assets Fixed assets Gross block 265,320 314,492 350,418 395,492 429,561 Accumulated depreciation 89,322 113,187 141,471 176,860 216,425 Net block 175,998 201,305 208,947 218,632 213,136 Intagible assets Gross block 71,656 96,425 115,631 116,704 188,646 Accumulated amortization 22,805 27,853 33,039 39,378 46,446 Net block 48,851 68,572 82,592 77,326 142,200 CWIP 36,467 6,799 8,811 114,194 51,405 Total fixed assets 261,316 276,675 300,350 410,153 406,741 Long-term loans and advances 22,563 30,479 28,971 42,752 Other long term assets 1,448 458 Goodwill on consolidation 61 61 61 61 61 Total long-term assets 261,377 299,299 330,890 440,633 450,013

Current assets Investments 10,200 976 10,280 2,155 115,267 Inventories 659 926 726 683 710 Receivables 4,789 8,227 9,601 8,006 9,789 Cash and bank balances 4,577 1,521 1,429 1,881 15,537 Short-term loans and advances 19,756 15,386 10,845 12,182 12,290 Other current assets 776 18 9 35 1,062 Total current assets 40,758 27,053 32,890 24,942 154,656 Current assets w/o cash and equivalents 25,980 24,556 21,181 20,905 23,851

Current liabilities Creditors 37,682 21,840 26,871 27,880 30,974 Short-term provisions 1,777 73 1,248 1,877 3,021 Other current liabilities 15,873 26,313 29,902 31,851 37,406 Total current liabilities 55,331 48,227 58,021 61,608 71,402 Net working capital (29,351) (23,671) (36,840) (40,702) (47,551)

Total assets 246,804 278,125 305,759 403,967 533,267

Source: Company, Kotak Institutional Equities

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH BUY PVR (PVRL) Media SEPTEMBER 30, 2015 UPDATE Coverage view: Neutral

Strong show to continue. A solid 1HFY16E and a strong movie line-up for the festive Price (`): 802 season point to (1) peak occupancy and margins, (2) sustainable cash generation (ex- Target price (`): 900 acquisition) and (3) sharp improvement in return ratios, for PVR this fiscal. The recent BSE-30: 25,779 performance confirms strong latent demand for good content. As FY2016E seems to be in the bag and somewhat in the stock price, we look beyond. The Hindi movie slate for FY2017 appears equally encouraging to us. The growth traction on advertisement revenues and F&B spends will likely continue. Maintain BUY with TP of `900.

Company data and valuation summary PVR Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 885-572 EPS (Rs) 3.6 25.8 34.1 Market Cap. (Rs bn) 37.9 EPS growth (%) (72.0) 618.2 32.1 Shareholding pattern (%) P/E (X) 226.4 31.5 23.9 Promoters 29.5 Sales (Rs bn) 14.8 18.7 23.2 FIIs 21.9 Net profits (Rs bn) 0.1 1.2 1.6 MFs 8.9 EBITDA (Rs bn) 2.1 3.4 4.1 Price performance (%) 1M 3M 12M EV/EBITDA (X) 22.0 13.6 11.1 Absolute 5.3 24.2 18.2 ROE (%) 3.7 18.9 17.0 Rel. to BSE-30 4.8 33.2 22.2 Div. Yield (%) 0.1 0.3 0.4

Eyeing another blockbuster quarter

PVR will report another solid quarter led by blockbuster movies Bajrangi Bhaijaan and Bahubali and supported by Welcome Back, Brothers and Drishyam. We estimate (1) 18% yoy growth in footfalls to 18.5 mn, (2) about 5% and 15% yoy growth in average ticket price and F&B spends per head and (3) about 29% growth in ad revenues. EBITDA margins would expand more than 500 bps yoy (versus 14.7% in 2QFY15) but will drop slightly from peak margins (23.1%) of 1Q. This is partly due to higher film hire costs (distributor share is higher for movies exceeding a threshold collection in the first week). We note that PVR’s 1HFY16E EBITDA would exceed that of full-year FY2015.

FY2016E in the bag, Bollywood’s movie pipeline for FY2017 looks good

FY2016 has been an exceptionally good year so far: (1) big budget/megastar movies have delivered, (2) smaller movies have chipped in, (3) contribution of regional and English movies has improved to about 50% in 1HFY16 from 37-38% in FY2015 and (4) a solid movie pipeline builds up for the festive season (Exhibit 1). The box office performance is a reflection of strong latent demand for good content. In our view, Bollywood’s movie slate for FY2017 is as good as FY2016 (Exhibit 2). While box office performance cannot be extrapolated, it does augur well for PVR and the multiplex industry. The line-up of English movies is also encouraging even as expecting FY2016-like line-up from Hollywood would be a tall ask.

Strong EBITDA and earnings growth over FY2015-17E, maintain BUY

We estimate 41% CAGR in PVR’s EBITDA (35% on organic basis) over FY2015-17E, building in DT acquisition from 4QFY16E. RoAE/RoACE would improve to 18.6%/13.6% in FY2016E from 3.2%/7.9% in FY2015. The company will start sustainable cash generation (ex-acquisition) that would improve in the coming years, as growth in operating cash flow exceeds capex growth.

PVR, India’s largest multiplex chain, exhibits leadership on all fronts—premium locational presence and branding, organic expansion, monetization of footfalls (F&B/ad revenues) and profitability. It is well-positioned to participate in the strong multi-year growth of multiplexes supported by demographics, rising income levels, propensity for movies and huge supply of content. We maintain BUY rating with TP of `900, valuing it at 12X FY2017E EV/EBITDA.

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

Exhibit 1: Strong box office collections in 2QFY16 led by Bajrangi Bhaijaan and Bahubali Net box office collections (NBOC) of promising movies, March fiscal year-ends

FY2014 FY2015 FY2016 Movie NBOC (Rs mn) Movie NBOC (Rs mn) Movie NBOC (Rs mn) Yeh Jawaani hai Deewani 1,830 Holiday - A Soldier is Never Off Duty 1,100 Tanu Weds Manu Returns 1,510 Aashique 2 780 2 States 1,020 ABCD 2 1,042 Raanjhnaa 589 Ek Villan 989 Fast And Furious 7 979 Shootout At Wadala 540 Humshakals 557 Gabbar Is Back 788 Iron Man 3 480 The Amazing Spider-Man 2 510 Piku 778 Hits Fast & Furious 6 420 Heropanti 507 Jaurassic World 767 Mein Tera Hero 506 Dil Dhadakne Do 763 The Amazing Spider-Man 2 510 The Avengers: Age of Ultron 731 X-Men: Days of Future Past 420 1Q Total 4,639 Total 6,119 Total 7,357 Fukrey 340 Bhoothnath Returns 355 Hamari Adhuri Kahani 323 Ghanchakkar 310 Revolver Rani Detective Byomkesh Bakshy! 251 Yamla Pagla Deewana 2 270 Bombay Velvet 221 Go Goa Gone 260 Flops Ek Thi Dayaan 250 Nautanki Saala 215 Chashme Baddoor 420 Total 2,065 Total 355 Total 795 Chennai Express 2,185 Kick 2,140 Bajrangi Bhaijaan 3,168 Bhaag Milkha Bhaag 1,089 Singham Returns 1,397 Bahubali (a) 2,604 Grand Masti 938 Humpty Sharma ki Dulhania 752 Welcome Back 902 Satyagraha 620 Entertainment 628 Brothers 788 Hits Once upon a time in Mumbai Again 556 Mary Kom 559 Drishyam 751 Phantom 500 Mission Impossible : Rogue Nation 480 2Q Total 5,389 Total 5,476 Total 8,212 Suddh Desi Romance 452 Mardaani 350 Terminator Genisys (3D / Imax 3D) 234 Madras Café 418 Finding Fanny 276 Hero 293 Phata Poster Nikla Hero 365 Daawat-e-Ishq 248 Katti Batti 181 Flops Lootera 230 Khoobsurat 248 The Fantastic Four (Imax) 63

Total 1,465 Total 1,122 Total 770 Dhoom 3 2,613 PK 3,243 Singh Is Bling (Akshay Kumar) Krrish 3 1,987 Happy New Year 1,884 Jazbaa (Aishwarya Rai, Irrfan Khan) Goliyon Ki Raas-leela Ram-Leela 1,056 Bang Bang 1,449 Shaandaar (Alia Bhatt, Shahid Kapoor) R Rajkumar 661 Action Jackson 576 Spectre (Imax) Hits Besharam 540 Haider 501 Prem Ratan Dhan Payo (Salman Khan) 3Q Boss 524 Tamasha (Ranbir Kapoor, Deepika) Wazir (Farhan Akhtar, Amitabh Bachchan) Total 7,381 Total 7,652 Dilwale (SRK, Kaajol) Bullet Raja 363 The Shaukeens Bajirao Mastaani (Deepika, Ranveer Singh) Flops Singh Saab The Great 267 Star Wars : The Force Awakens (3D / Imax 3D) Total 629 Total - Gunday 729 Baby 788 Airlift (Akshay Kumar) Jai Ho 1,081 MSG: The Messenger 672 Rocky Handsome (John Abraham, Shruti Hasan) Hits Queen 564 Fitoor (Aditya Roy Kapoor, Katrina Kaif)

Total 2,373 Total 1,460 4Q Shaadi ke Side effects 374 Roy 406 Yaariyan 369 Tevar 372 Haasi to Faasi 352 Badlapur Don't Miss The Beginning 356 Flops Highway 288 NH 10 293 Ragani Mms 2 459 Total 1,841 Total 1,425

Notes:

(a) Bahubali: Hindi version NBOC of Rs1.1 bn; Telugu + Tamil versions estimated at ~Rs1.5 bn+ as per media articles.

Source: Industry data, Kotak Institutional Equities

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH PVR Media

Exhibit 2: Pipeline of Bollywood and Hollywood films in FY2017 is encouraging Pipeline of key Hindi and English movies, March fiscal year-end, 2016E

Rel. Date Movie Distributor Director Cast Bollywood- key titles 15-Apr-16 Fan Yashraj Films Maneesh Sharma Shahrukh Khan 29-Apr-16 Housefull 3 Eros International Sajid Nadiadwala Abhishek Bachchan, Riteish Deshmukh 13-May-16 Azhar Balaji Motion Pictures Emraan Hashmi 3-Jun-16 Jagga Jasoos Disney Anurag Basu Ranbir Kapoor, Katrina Kaif, Govinda 3-Jun-16 Ae Dil Hain Mushkil Fox Star Studios Karan Johar Aishwarya Rai, Ranbir Kapoor, Fawad Khan, Katrina Kaif 3-Jul-16 Raees Excel Entertainment Rahul Dholakia Shahrukh Khan 3-Jul-16 Sultan Yashraj Films Ali Abbas Zafar Salman Khan 12-Aug-16 Mohenjo Daro Disney Ashutosh Gowarikar Hrithik Roshan 12-Aug-16 Rustom Esselvision Tinu Suresh Desai Akshay Kumar 31-Oct-16 Shhuddhi Dharma Karan Malhotra Varun Dhawan, Alia Bhatt 22-Oct-16 Shivaay Eros International Ajay Devgn Ajay Devgn 23-Dec-16 Dharma - Ayan - Ranbir Fox Star Studios Ayaan Mukerji Ranbir Kapoor, Alia Bhatt 23-Dec-16 Dangal Disney Nitesh Tiwari Aamir Khan TBD Untitled Rumi Jaffrey Paresh Rawal, Anupam Kher, Akshay Kumar, Nargis Fakhri TBD Baadshaho Ajay Devgn Ajay Devgn TBD Reema Kagti-Saif-Kangana Excel Entertainment Reema Kagti Saif Ali Khan, Kangana Ranaut TBD Rowdy Rathore Sequel Sanjay Leela Bhansali Akshay Kumar, Kareena Kapoor, Kriti Sanon TBD Farzi Eros International Raj Nidimoru Shahid Kapoor TBD Aankhen 2 Anees Bazmee Amitabh Bachchan, Deepika Padukone, Irrfan Khan TBD Dogaa Anurag Kashyap TBD M.S. Dhoni - The Untold Biopic Fox Star Studios Neeraj Pandey Sushant Singh Rajput, Alia Bhatt TBD Neerja Fox Star Studios Ram Madhvani Sonam Kapoor TBD Akira Fox Star Studios A R Murugadoss Sonakshi Sinha, Anurag Kashyap Hollywood- key titles 1-Apr-16 Kungfu Panda 3 (3D) Fox Star Studios Jennifer Yuh Jack Black, Dustin Hoffman, David Cross 8-Apr-16 Clifford The Big Dog Universal Pictures 8-Apr-16 Michelle Darnell Universal Pictures 8-Apr-16 Keeping Up With The Joneses Fox Star Studios 15-Apr-16 The Jungle Book (3D / Imax 3D) Disney 22-Apr-16 The Hunstman Universal Pictures 29-Apr-16 Eddie The Eagle Fox Star Studios 6-May-16 Captain America : Civil War (3D / Imax 3D) Disney Chris Evans, Robert Downey Jr., Scarlett Johansson 20-May-16 X-Men : Apocalypse (3D) Fox Star Studios 27-May-16 Alice In Wonderland 2 (3D / Imax 3D) Disney 17-Jun-16 Finding Dory (3D / Imax 3D) Disney 24-Jun-16 The Mummy Universal Pictures 24-Jun-16 Independence Day 2 (3D) Fox Star Studios 1-Jul-16 Tarzan Adventure Warner Bros. 15-Jul-16 Untitled The Next Bourne Chapter Universal Pictures 15-Jul-16 Ice Age 5 (3D) Fox Star Studios 12-Aug-16 Spectral Universal Pictures 16-Dec-16 Rogue One (3D / Imax 3D) Disney 30-Dec-16 The Greatest Showman On Earth Fox Star Studios 13-Jan-17 Boss Baby (3D) Fox Star Studios 3-Mar-17 Wolverine 2 (3D) Fox Star Studios

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35 Media PVR

Exhibit 3: Condensed consolidated financials for PVR, March fiscal year-ends, 2012-18E (Rs mn)

2012 2013 2014 2015 2016E 2017E 2018E Profit model Revenues 5,177 8,064 13,475 14,813 18,723 23,247 27,377 EBITDA 761 1,169 2,117 2,050 3,391 4,091 4,872 Other income 123 91 113 46 75 100 125 Depreciation (365) (560) (944) (1,168) (1,363) (1,598) (1,803) Interest expense (185) (368) (795) (783) (858) (862) (792) Pretax profits 310 319 523 124 1,244 1,731 2,402 Tax (57) 124 (19) (8) (62) (138) (480) PAT before minority interest 253 443 504 116 1,182 1,592 1,921 Minority interest 1 2 57 11 5 (5) (10) PAT 254 445 561 128 1,187 1,587 1,911 Diluted EPS (Rs) 9.5 14.9 13.7 3.1 25.5 34.1 41.1 Balance sheet Total equity 2,791 6,427 3,993 4,092 8,640 10,041 11,728 Deferred taxation liability 106 (10) 4 11 11 11 11 Total borrowings 2,035 6,566 6,134 7,475 8,875 8,375 7,875 Minority interest 139 854 771 383 378 383 393 Current liabilities 986 1,939 2,600 2,304 2,768 3,459 3,930 Total liabilities and equity 6,126 15,852 13,533 14,288 20,695 22,292 23,960 Cash and cash equivalents 211 732 495 261 510 773 1,043 Other current assets 2,038 3,229 3,763 4,605 5,239 6,019 6,902 Tangible fixed assets 2,621 5,710 6,990 7,076 8,555 9,059 9,519 Goodwill and Intangibles 374 4,712 1,466 1,525 5,570 5,620 5,675 CWIP 876 1,453 806 806 806 806 806 Total assets 6,126 15,852 13,533 14,289 20,695 22,292 23,960 Cash flow Operating cash flow, excl. w-capital 679 1,429 2,003 2,021 3,329 3,952 4,391 Working capital changes (193) (239) 128 (1,138) (170) (90) (412) Capital expenditure (1,160) (7,704) (1,273) (1,684) (6,887) (2,151) (2,318) Other income (90) 37 80 44 75 100 125 Interest expense (net) (207) (430) (812) (783) (858) (862) (792) Free cash flow (971) (6,907) 127 (1,540) (4,512) 949 994 Key ratios and assumptions Footfalls (mn) 24.7 37.2 59.9 59.1 70.5 81.4 90.1 Average ticket price (ATP) (Rs) 156 163 168 178 187 200 210 Screens (#) 166 360 421 464 553 628 693 EBITDA margin (%) 14.7 14.5 15.7 13.8 18.1 17.6 17.8 Net debt/equity (X) 0.7 0.9 1.4 1.8 1.0 0.8 0.6 RoAE (%) 8.2 9.7 10.8 3.2 18.6 17.0 17.6 RoACE (%) 7.0 10.0 10.3 7.9 13.6 13.2 13.6

Source: Company, Kotak Institutional Equities estimates

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH INDIA Economy Monetary Policy SEPTEMBER 30, 2015 UPDATE BSE-30: 25,779

Persistence of monetary accommodation. A positive surprise on the magnitude of rate cuts, coupled with benign growth and inflation outlook, signals continued monetary accommodation ahead. However, with RBI having frontloaded the rate cuts, we do not see further easing in FY2016. We had expected cumulative rate cuts of 50 bps in remainder of FY2016. That being said, we see scope for further easing as we move into FY2017, backed by (1) persistent domestic growth slack, (2) comfortable inflation dynamics and (3) weak global growth.

RBI surprises with a 50 bps cut QUICK NUMBERS RBI surprised the markets by delivering a higher-than-expected rate cut of 50 bps on Tuesday. While we were expecting a 25 bps cut in the policy, the overall quantum of rate cut is in line  Repo rate cut by 50 with our expectations of additional 50 bps cut for the remaining part of FY2016. RBI chose to bps ‘frontload’ policy cuts, given that most of the conditions that were laid out in August policy have been met, namely (1) abating of inflationary pressures, (2) the full monsoon outturn,  Ceiling on SLR which despite being weak has not impacted food inflation materially, and (3) Fed policy securities under HTM decision, which delayed the rate hike on EM growth concerns. However, the remaining policy brought down to condition of greater transmission of the frontloaded past actions needs further monitoring, 21.5% with effect given the rate cut transmission so far has only been a fraction of the 75 bps rate cuts in CY2015. from January 2016 Growth slack a clear concern  No more rate cuts in The policy tone was dovish, with clear worries emerging out of the weak growth momentum. FY2016, but stance RBI highlighted that even as there has been modest pick-up in domestic growth in 1HFY16, remains underlying economic activity has remained weak owing to (1) weakening global demand accommodative weighing on exports and hence domestic industrial growth, (2) rainfall deficiency and (3) lack of durable signs of pick-up in the private investment cycle. Furthermore, investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow. RBI marked down its FY2016 GDP forecast to 7.4%. On the other hand, inflation is likely to remain comfortable on account of (1) proactive food price management, (2) weak domestic demand and (3) weak outlook for global commodities. RBI has revised down its January 2016 CPI projection to 5.8% (Kotak: ~5.5%). Rate cuts done for now, but policy stance to remain accommodative

With RBI having chosen to frontload the rate cuts, we do not see further easing in FY2016. However, we see continued accommodative stance as we move into FY2017, with policymakers focusing on removing the impediments for rate cut transmission by banks. RBI has also argued in its policy outlook that “still-low industrial capacity utilisation indicates more domestic demand is needed to substitute for weakening global demand in order that the domestic investment cycle picks up”. This, in conjunction with expectations of credible fiscal consolidation and continued structural policy reforms, implies that the “monetary policy has to be accommodative to the extent possible, given its inflation goals”. Bonds to trade with a positive bias in 2HFY16

A positive surprise on the quantum of the rate cuts and dovish stance, coupled with announcement of the medium-term framework for FPI limits in bonds (see next page for details), have provided massive boost to the bond market. The benchmark 10-year yield has fallen sharply by ~16 bps to 7.57% post the policy. We expect bonds to remain supported, with the benchmark 10-year yield seen drifting lower in the 7.40%-7.50% range by the end of FY2016.

For Private Circulation Only. India Economy

Other key regulatory announcements

Apart from the policy decision, RBI has also announced some regulatory changes, continuing with its objective of liberalization and deepening of the capital markets. Some of the key changes are as follows.

Debt market policies

 RBI has decided to bring down the ceiling on SLR securities under HTM from 22% to 21.50% with effect from the fortnight beginning January 9, 2016. Thereafter, both SLR and the HTM ceiling will be brought down by 0.25% every quarter until March 31, 2017.

 RBI has laid out the medium-term framework for FPI limits in debt securities.

. The limits for FPI investment in debt securities will henceforth be announced in INR terms. For central government securities, the limits will be increased in phased manner to 5% of the outstanding stock by March 2018. In aggregate terms, this is expected to open up room for additional investments of `1,200 bn in the limit for central government securities by March 2018 over and above the existing limit of `1,535 bn.

. There will be a separate limit for investment by FPIs in the State Development Loans (SDLs), to be increased in phases to reach 2% of the outstanding stock by March 2018. This would amount to an additional limit of about `500 bn by March 2018.

. Increase in limits will be announced every half year in March and September and released every quarter. However, existing requirement of investments being made in G-Secs (including SDLs) with a minimum residual maturity of three years will continue to apply.

. Limits for the residual period of FY2016 would be increased in two tranches from October 12, 2015 and January 1, 2016. Each tranche will entail an increase in limit of `130 bn for G-Sec composed of `75 bn for long-term investors and `55 bn for others; For SDL, the increase in limit will be of `35 bn open to all FPI investors.

 Indian companies have been permitted to issue rupee-denominated bonds with a minimum maturity of five years at overseas locations within the ceiling of foreign investment permitted in corporate debt (US$51 bn at present). There shall be no restriction on the end use of funds except a small negative list.

 RBI has proposed to permit the SCBs to take short positions in the When issued (WI) market for both new and reissued securities, subject to limits and other conditions in place from time to time; also, it has allowed regulated entities other than banks and primary dealers (PDs) to take long positions in the WI market.

 Short selling by a primary member (PM) to its gilt account holder in the OTC market. This would help in increasing the depth of the market.

38 KOTAK ECONOMIC RESEARCH Economy India

FX market policies

 RBI has allowed standalone PDs to deal in currency futures contracts traded on the recognized exchanges, subject to adherence to certain risk-control measures and without diluting their existing obligations in the G-Sec market.

 Exchange traded currency futures and options will be introduced in three cross-currency pairs, viz. EUR-USD, GBP-USD and USD-JPY (from current pairs of USD-INR, EUR-INR, GBP-INR and JPY-INR).

 The limit for resident entities for hedging their foreign exchange exposure in the OTC market has been increased from US$250,000 to US$1 mn without the production of any underlying documents.

Banking sector policies

 To improve ‘affordability of low-cost housing’ for economically weaker sections and low income groups and giving a fillip to ‘Housing for All’, RBI has proposed to reduce the risk weights (currently at 50%) applicable to lower value but well-collateralized individual housing loans.

 For ensuring convergence of the current Indian accounting standards (IND AS) with International Financial Reporting Standards (IFRS), RBI has recommended to the ministry a roadmap for the implementation of IND AS by banks and NBFCs from 2018-19 onwards.

KOTAK ECONOMIC RESEARCH 39 India Daily Summary - September 30, 2015 4.2 4.2 2.1 2.1 3.1 3.1 7.2 7.2 2.3 2.3 9.4 9.4 0.7 0.7 1.5 1.5 1.0 1.0 9.2 9.2 0.7 0.7 0.2 0.2 5.1 5.1 8.1 8.1 8.3 6.2 6.2 7.9 7.9 5.6 5.6 0.6 0.6 0.8 0.8 5.5 5.5 0.9 0.9 0.8 0.8 6.6 6.6 0.6 0.6 0.9 0.9 24.7 17.1 13.1 22.9 13.8 17.0 16.7 17.6 26.3 16.1 52.4 63.3 13.9 16.1 15.3 16.4 25.0 20.8 28.9 56.4 64.0 48.6 65.5 241.5 529.8 (US$mn)

ADVT-3mo

21.2 14.1 22.8 19.3 25.5 31.6 19.7 23.2 32.9 42.9 14.5 17.6 16.6 24.5 35.5 20.8 27.3 17.9 15.0 13.6 10.9 9.4 16.8 15.1 12.6 16.6 14.8 22.7 19.3 14.6 6.9 18.5 15.1 12.6 15.7 12.7 20.0 11.3 16.0 12.2 8.1 16.2 15.8 18.4 11.3 15.3 15.8 23.7 12.5 14.9 18.6 RoE(%) 14.4 12.6 25.0 21.0 13.6 24.7 22.1 18.1 33.1 21.1 21.2 35.7 42.8 14.8 13.2 16.6 22.3 32.4 22.6 23.2 18.0 15.7 10.8 8.4 7.3 16.7 14.7 12.4 15.9 13.6 24.7 18.0 14.3 6.3 19.3 16.4 13.2 15.2 12.3 19.4 10.1 13.9 11.6 7.5 14.0 18.9 23.3 9.4 14.6 14.6 21.6 11.4 11.8 18.2 21.8 12.8 22.9 5.4 31.1 22.7 26.9 41.7 14.0 16.8 16.6 30.9 14.9 17.8 9.2 6.3 8.8 17.9 16.7 16.7 13.7 21.2 18.2 15.5 8.7 12.3 18.8 10.7 15.5 8.5 8.8 14.3 20.0 23.1 3.7 14.1 10.6 10.1 21.3 26.9 24.9 23.3 16.7 10.5 20.1 19.0 13.9 15.8

1.4 1.9 0.6 1.3 1.9 2.7 0.4 0.9 0.2 3.9 1.6 1.4 1.1 1.6 0.6 0.3 1.3 0.8 3.0 7.2 4.4 1.0 1.5 1.7 2.5 1.9 1.1 2.6 0.5 0.0 0.6 4.0 3.6 0.9 1.7 2.0 2.1 4.2 1.9 4.4 4.2 4.8 8.7 0.8 1.2 1.6 5.1 1.6 ——— ——— ——— Dividendyield (%) 1.2 1.7 0.5 1.3 1.1 2.4 0.4 0.7 0.2 3.3 1.6 1.2 0.8 1.2 0.6 0.2 1.1 0.8 2.2 5.1 3.1 0.8 1.3 1.4 2.1 1.8 0.9 2.3 0.9 0.0 0.5 3.8 3.1 0.9 1.4 1.0 1.6 3.6 1.4 3.5 4.4 5.2 6.7 0.6 1.0 1.5 3.7 1.4 1.0 1.4 0.4 1.1 0.5 2.3 0.4 0.4 0.3 2.6 2.1

1.2 0.5 0.9 0.6 0.1 0.9 0.8 1.8 3.6 3.7 0.7 1.2

2.6 1.9 1.2 0.8 1.9 1.9 1.6 0.4 2.3 2.9 1.1 1.2 1.0 1.8 2.4 1.4 3.6 4.0 4.1 2.5 0.6 1.1 1.5 3.3 1.2 2.8 1.5 7.1 1.3 3.8 4.3 1.9 4.4 5.0 2.7 3.2 2.8 4.2 6.0 1.0 2.0 1.7 0.9 0.3 0.4 2.4 1.6 2.0 1.1 1.1 5.2 3.2 1.6 1.1 1.6 2.9 0.6 1.0 1.3 2.1 0.8 1.9 0.5 2.8 1.0 0.7 0.8 0.2 2.1 1.8 3.0 1.2 0.5 2.0 9.9 9.6

Price/BV (X) Price/BV 2.7 1.3 1.4 1.3 2.3 1.3 1.2 2.3 4.1 1.3 2.7 2.3 4.7 1.4 1.9 2.5 1.0 0.3 3.8 2.0 2.5 6.2 3.9 1.9 5.1 0.7 1.8 2.9 1.0 0.3 2.6 0.5 0.6 0.9 0.6 3.3 1.7 8.5 1.5 4.5 5.1 2.3 5.2 13.5 6.0 2.9 3.8 3.2 5.0 7.5 1.3 12.2 2.3 2.0 1.0 0.3 0.4 2.8 1.8 2.2 1.2 1.3 5.6 3.7 1.8 1.2 1.9 3.2 0.7 1.2 1.5 2.5 0.9 2.1 0.6 3.2 1.2 0.8 0.9 0.3 2.4 2.0 3.8 1.3 0.5 2.3 4.2 10.2 1.8 5.0 6.1 2.9 6.2 18.8 7.1 3.2 4.3 3.6 6.0 9.3 1.7 15.0 7.1 18.5 4.9 10.2 12.0 6.2 11.8 19.6 9.5 11.4 10.1 12.9 11.6 6.8 2.9 24.8 EV/EBITDA (X) EV/EBITDA ——— ——— ——— ——— ——— ——— ——— ——— —————— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ——— ———————————— —————— ——— —————— ——— ——— ——— 8.4 20.9 4.9 14.4 13.6 7.2 14.8 25.3 11.3 12.3 13.9 14.4 14.4 9.1 3.3 36.4 5.0 3.5

9.6

24.2 27.7 15.7 8.1 42.1 13.8 14.2 17.1 10.7 62.4

15.8

22.0

21.1

9.4 7.2 5.4 6.8 2.7 4.2 6.4 8.2 5.0 6.9 7.4 6.8 4.8 4.4 2.3 4.8 3.6 13.1 10.9 33.9 16.2 14.8 10.7 20.6 34.8 12.7 19.3 19.6 18.1 18.6 18.7 11.9 12.4 15.5 11.1 17.2 21.9 17.9 11.5 17.5 9.8 20.6 11.5 10.4 12.4 36.8 14.7 11.8 14.0 9.7 11.4 39.3 PER (X) PER

15.9 12.7 37.5 26.2 7.5 16.8 12.2 26.8 44.0 15.1 20.6 30.5 20.3 24.4 25.6 6.5 13.8 14.2

3.8 5.9 19.2 13.0 19.7 7.8 9.9 22.8 21.0 12.9 21.5 11.2 24.9 5.3 8.0 13.4 12.5 9.9 15.8 48.5 8.6 5.5 4.1 3.0 4.6 17.5 14.6 19.3 11.8 5.0 13.5 4.7 4.1 6.9 5.0 (7.4) (4.7) 13.4 12.3 31.2 47.7 21.4 21.2 23.1 14.7 23.1 37.7 21.3 16.2 13.5 26.4 15.2 38.1 15.2 19.4 62.0 40.0 20.8 30.5 19.2 15.0 42.1 99.9 8.4 20.7 13.7 27.9 76.8 18.3 23.7 34.2 23.0 38.1 31.9 6.9 107.1 58.0 16.3 16.2 12.2 5.4 5.0 21.0 13.8 21.0 4.5 11.0 30.1 26.1 13.1 13.0 13.0 27.8 8.8 11.7 13.2 15.0 9.7 15.7 48.7 9.6 8.2 5.0 8.0 5.0 20.5 16.9 25.9 13.8 6.4 15.4 4.2 4.2 30.1 7.1 7.1 19.3 9.2 9.2 24.1 6.3 6.3 16.4 6.4 6.4 15.0 1.5 1.5 12.3 0.4 0.4 31.9 (1.7) (2.1) (0.8) 12.2 21.2 14.3 41.4 32.3 24.2 47.4 11.3 74.5 15.1 13.5 18.1 29.3 16.1 11.5 67.3 19.7 49.4 10.3 34.6 10.8 20.9 16.9 56.0 (39.8) 281.2

10.8

18.9

55.4

36.8

14.8

40.2

17.7

20.9

14.9 16.4 20.6 33.0 27.8 27.3

40.0 18.0 EPSgrowth(%) - 12.2 2.7 4.4 9.4 1.6 8.2 7.6 3.5 4.8 7.0 (2.1) (2.8) (0.4) (5.4) (4.8) (6.2) (3.9) 12.2 33.4 17.3 22.3 12.3 10.3 18.7 14.8 15.3 15.2 20.3 53.0 20.5 15.6 20.5 54.0 26.5 10.0 55.9 (39.5) 20.8 18.2

12.7 23.0 12.6

24.5

84.7

(16.4)

(41.9)

169.0 16.9 15.8

27.5 14.2

150.7

12.1

(19.9)

(27.3)

12.1

19.7

(10.1)

(57.0)

43.0

100.4 (19.5) (10.6) (56.4)

130.8

30.0 25.5 5.6 62.5 43.6 7.9 13.0 69.1 12.5 53.3 42.2 27.4 50.9 66.6 41.9 8.2 8.3 33.4 7.9 55.6 59.6 23.3 7.9 19.2 45.7 18.4 64.6 5.7 43.3 11.4 18.7 13.9 23.9 28.4 59.6 118.2 58.2 47.5 79.0 27.7 24.9 50.0 64.7 EPS(Rs) 7.3 0.9 3.5 7.4 8.4 9.1 7.0 7.2 5.9 6.5 5.0 4.9 8.6 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 41.7 27.1 24.3 55.1 33.5

61.6

44.7 117.5 173.5 36.7 19.8 36.3 47.6 33.7

27.6

53.4 50.6 20.8 6.5 16.8 37.8 17.5 56.3

35.9 14.6 10.5 18.8 24.7 64.4 99.0 44.6 49.8 64.2 20.1 20.5 35.7 India Daily Summary 54.8 - September 30, 2015 227.1 27 227.1 396.3 500.8 19 66 48.9 63.6 84.7 171 24.1 237 32.1 323 7.4 122 38.2 223 55.5 310 236 418 597 581 564 987 300 509 21.6 109.0 134.1 152.0 127.2 154.2 183.3 850 6.4 569 54.3 122.9 191.6 251.4 106.3 121.5 139.5 56.9 666 25.7 30.9 6.6 6.8 47.6 14.4 33.9 10.5 505 30.0 14.8 8.8 10.5 16.9 53.3 16.6 14.9 28.0 48.0 O/S shares

31.0

15.3

40.4 40.8 20.5 10.7

16.5

45.2

17.5

744 126 983 97 885 606

Mkt cap. Mkt 92,744 1,405 44,793 679 485 54,122 820 (Rsmn) (US$mn) (mn) 82,349 1,248 91,624 1,388 40,362 612 282 58,411 20,126 305 64,483 977 397 64,892 93,018 1,410 155 62,645 949 291 39,970 49,079 54,555 827 274,324 4,157 159 114,341 1,733 473,381 7,173 414,103 6,275 2,218 110,731 1,678 1,713 227,225 3,443 212,419 3,219 173,400 2,628 258,121 3,911 2,846 465,122 7,048 200 776,179 11,762 941,833 14,272 3,395 221,409 3,355 1,593 112,386 1,703 1,750 136,517 2,069 266 114,504 1,735 636 309,212 4,686 651,264 9,869 289 208,735 3,163 129,540 1,963 129,195 1,958 145,079 2,198 515 131,669 1,995 308,790 4,679 1,323 557,106 8,442 250,458260,640 3,795 3,950 1,855 300,309 4,551 1,319 6,169,974 93,498 1,562,248 23,674 5,798 1,199,480 18,177 2,371 1,830,268 27,735 7,566 1,919,696 29,091 1,575 13,758,687 208,496

3.2 8.4 6.8 8.0 1,414,429 21,434 302

2,681,372 40,633 2,507

(0.2) (0.9)

22.2

12.1

19.3 13.0 28.8

(42.1)

83 95 80 310 220 320 730 110 225 125 320 120 320 420 310 170 620 600 860 price Upside Target (38.9) 37.2 4.7

25.1

(1.6) 21.7

(5.8) 81.8

22.9

1.5 13.6 37.9 12.8 20.6 5.3 32.7 27.8 15.9

45.0 47.6 20.0

35.3 34.0 22.5 16.6 38.2 41.2 11.5 54.3 14.8 32.6 40.7 50.0

8.5 28.2 (5.6) 16.4 91 91 92 65 65 85

233 142 232 133 242 182 182 250 671 671 840 152 152 150

187 187 190 282 138 282 190 647 647 150 215 285 139 205 941 941 1,020 448

511 511 570 162 162 250 135 264 350 155 228 200 387 387

739 897 255 255 289 289 525 269 269 390 188 188 450 450 525 936 936 1,050 180 180 505 1,070 620 1,724 1,724 1,720 1,217 1,217 1,410 2,251 2,750 2,329 3,000 1,735 1,720 1,015 1,015 1,250 1,250 1,290 4,682 4,682 5,000 6,811 6,811 7,700 1,065 1,150 17,441 10,100 Price (Rs) Price

BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY SELL ADD ADD SELL ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD ADD Rating 29-Sep-15 (Rs) (%) REDUCE REDUCE REDUCE Attractive Company Automobiles AmaraRaja Batteries ApolloTyres AshokLeyland Bajaj Auto Bajaj BalkrishnaIndustries BharatForge EicherMotors ExideIndustries HeroMotocorp MahindraAutomotive CIE BUY Mahindra& Mahindra MarutiSuzuki MothersonSystems Sumi SELL TataMotors WABCO India WABCO Automobiles Banks/FinancialInstitutions BankAxis Bajaj Finserv Bajaj Bankof Baroda Bankof India CanaraBank Cholamandalam City Union City Bank DCBBank DewanHousing Finance FederalBank HDFC HDFCBank ICICI Bank ICICI IDFC IIFL Holdings IIFL IndusIndBank J&KBank KarurVysya Bank L&TFinance Holdings LIC Housing LIC Finance MagmaFincorp Mahindra& Mahindra Financial BUY MaxIndia MuthootFinance PunjabNational Bank RuralElectrification Corp. ShriramUnion City Finance REDUCE OrientalBank of Commerce PFC ADD ShriramTransport SKSMicrofinance StateBank of India UnionBank YESBank Banks/FinancialInstitutions Attractive Source: Company, Bloomberg, Kotak Institutional Equities estimates Equities Institutional Kotak Bloomberg, Company, Source: Kotak Institutional Equities: Valuation summary of KIE Universe stocksValuation of KIEKotak Universe summary Equities: Institutional

KOTAK INSTITUTIONAL EQUITIES RESEARCH 40

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

41 Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo

Company Rating 29-Sep-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn) Cement ACC SELL 1,325 1,450 9.4 248,763 3,770 188 45.7 49.9 82.7 (2.3) 9.2 65.7 29.0 26.5 16.0 18.6 15.6 8.4 3.0 2.9 2.6 1.8 1.8 1.8 10.7 11.2 17.0 6.7 Ambuja Cements SELL 203 210 3.4 315,035 4,774 1,550 8.5 6.6 9.9 28.0 (22.4) 49.9 23.8 30.7 20.5 15.6 17.9 11.9 2.9 3.0 2.8 1.5 2.1 2.1 12.7 9.6 14.0 9.1 Dalmia Bharat BUY 645 782 21.2 52,375 794 81 1.1 30.3 69.9 208.9 2,580.8 130.8 571.2 21.3 9.2 24.3 7.8 5.2 1.7 1.6 1.4 0.3 0.3 0.3 0.3 7.7 15.9 0.4 Grasim Industries ADD 3,441 4,350 26.4 316,104 4,790 92 190.8 235.7 331.4 (10.0) 23.5 40.6 18.0 14.6 10.4 8.3 5.8 3.8 1.4 1.3 1.1 1.1 1.1 1.1 7.8 9.0 11.6 3.5 India Cements REDUCE 77 90 16.4 23,745 360 307 (0.1) 4.8 8.8 97.2 4,539.1 83.5 NM 16.2 8.8 7.5 7.1 5.6 0.7 0.6 0.6 - 2.8 2.8 (0.1) 4.2 7.2 4.3 J K Cement BUY 650 730 12.3 45,441 689 70 18.1 12.1 49.9 63.9 (33.3) 313.8 36.0 53.9 13.0 17.0 12.2 7.4 2.8 2.7 2.3 0.6 0.8 0.8 7.5 5.1 19.2 0.3 JK Lakshmi Cement BUY 366 400 9.2 43,120 653 118 14.8 14.4 27.6 54.6 (2.5) 91.7 24.8 25.5 13.3 16.3 11.3 7.5 3.2 2.9 2.4 0.5 0.5 0.5 13.1 12.0 19.9 0.7 Orient Cement BUY 157 200 27.4 32,164 487 205 9.5 10.6 18.2 92.8 11.4 71.6 16.5 14.8 8.6 14.5 10.8 6.1 3.3 2.8 2.2 1.1 1.3 1.3 21.6 20.5 28.5 0.2 Shree Cement SELL 11,080 7,768 (29.9) 385,996 5,849 35 132.5 247.1 402.7 (40.2) 86.4 63.0 83.6 44.8 27.5 29.1 19.6 13.0 7.3 6.4 5.2 0.2 0.2 0.2 9.2 15.2 20.9 2.0 UltraTech Cement SELL 2,710 2,500 (7.8) 743,777 11,271 274 73.5 78.7 129.4 (6.0) 7.1 64.5 36.9 34.5 20.9 19.7 17.0 11.4 3.9 3.5 3.0 0.3 0.3 0.3 11.2 10.7 15.5 14.0 Cement Cautious 2,206,521 33,437 (0.4) 15.9 61.9 31.9 27.6 17.0 15.7 12.3 8.1 2.9 2.7 2.4 0.8 0.9 0.9 9.0 9.7 13.9 41.4 Consumer products Asian Paints REDUCE 805 800 (0.6) 771,962 11,698 959 14.8 19.8 22.9 15.8 33.7 15.5 54.3 40.6 35.1 34.1 25.8 22.3 16.3 13.5 11.3 0.8 1.0 1.2 32.4 36.4 35.1 17.1 Bajaj Corp. BUY 439 510 16.2 64,760 981 148 14.9 18.4 21.0 23.7 23.8 14.0 29.5 23.8 20.9 25.9 20.4 16.8 13.3 11.7 10.2 2.6 2.0 2.7 43.6 52.1 52.2 1.0 Britannia Industries ADD 2,971 3,500 17.8 356,424 5,401 120 45.2 72.5 93.4 37.1 60.3 28.8 65.7 41.0 31.8 40.7 27.0 20.7 28.6 20.3 14.6 0.5 0.8 1.0 53.0 57.9 53.3 11.4 Colgate-Palmolive (India) REDUCE 942 1,000 6.2 256,142 3,882 272 20.6 23.0 27.9 13.9 12.1 21.3 45.8 40.9 33.7 30.8 26.4 21.3 33.3 28.2 23.4 1.3 1.6 1.9 81.6 74.7 75.9 8.0 Dabur India ADD 275 315 14.6 482,686 7,315 1,757 6.0 7.7 8.9 15.0 29.5 15.0 46.0 35.5 30.9 36.9 29.0 25.1 14.4 11.5 9.5 0.7 0.9 1.1 34.9 36.1 33.7 6.6 GlaxoSmithKline Consumer REDUCE 5,996 6,300 5.1 252,161 3,821 42 138.8 164.0 186.1 (13.5) 18.2 13.5 43.2 36.6 32.2 31.4 25.7 21.8 11.9 10.2 8.8 0.9 1.1 1.3 29.7 30.1 29.2 1.1 Godrej Consumer Products ADD 1,177 1,400 19.0 400,637 6,071 340 26.3 34.5 42.2 17.7 31.2 22.4 44.8 34.1 27.9 30.6 23.8 19.6 9.3 7.8 6.5 0.5 0.6 0.7 22.1 24.8 25.4 4.9 Hindustan Unilever REDUCE 784 825 5.2 1,697,219 25,719 2,164 17.4 20.3 23.1 5.8 16.9 13.7 45.1 38.6 33.9 32.2 26.8 23.1 45.6 40.1 35.2 1.9 1.9 2.2 107.5 110.6 110.6 21.1 ITC ADD 320 360 12.4 2,571,689 38,971 8,132 11.5 12.8 14.5 7.4 11.4 13.6 27.9 25.1 22.1 18.1 16.5 14.3 8.5 7.6 6.8 1.9 2.2 2.5 28.4 28.6 29.4 31.7 Jubilant Foodworks SELL 1,591 1,400 (12.0) 104,443 1,583 66 16.9 24.5 35.3 10.0 45.0 44.4 94.3 65.1 45.1 40.5 29.2 21.3 16.3 13.5 10.8 0.2 0.2 0.3 18.6 22.7 26.7 6.7 Jyothy Laboratories NR 306 - (100.0) 55,421 840 181 5.8 8.3 10.4 47.0 45.1 24.9 53.2 36.6 29.4 31.0 23.0 19.2 7.1 6.4 6.5 1.3 1.3 1.3 19.6 23.7 27.1 0.9 Manpasand Beverages BUY 405 500 23.5 20,272 307 50 8.0 11.1 16.8 46.1 38.6 52.3 50.8 36.7 24.1 33.4 17.3 13.0 10.6 3.3 3.0 0.3 0.4 0.6 20.9 13.8 13.0 - Marico REDUCE 396 440 11.0 255,744 3,875 645 8.9 11.5 13.3 21.2 29.6 15.1 44.5 34.3 29.8 29.4 22.7 19.9 14.0 11.3 9.2 0.6 1.0 1.1 36.1 36.5 34.1 2.9 Nestle India REDUCE 6,180 5,800 (6.1) 595,811 9,029 96 122.1 121.3 157.1 6.7 (0.7) 29.5 50.6 50.9 39.3 28.6 28.9 22.6 21.0 19.8 17.1 1.0 1.0 1.5 47.9 42.6 49.1 8.3 Page Industries SELL 13,091 10,000 (23.6) 146,011 2,213 11 175.7 232.2 294.9 27.5 32.1 27.0 74.5 56.4 44.4 46.3 35.7 28.1 37.7 27.3 19.3 0.6 0.6 0.6 58.0 56.2 51.0 4.0 Pidilite Industries REDUCE 556 530 (4.7) 285,194 4,322 513 10.1 13.7 16.0 13.4 35.6 16.7 55.1 40.7 34.8 36.6 26.2 22.7 12.6 10.5 8.8 0.5 0.7 0.9 24.5 28.1 27.4 3.2 Speciality Restaurants REDUCE 156 155 (0.5) 7,316 111 47 2.0 3.0 4.8 (50.0) 47.8 60.2 77.4 52.4 32.7 22.2 15.7 11.1 2.4 2.3 2.1 0.6 0.6 0.8 3.1 4.4 6.7 0.1 Tata Global Beverages BUY 127 150 18.5 79,837 1,210 631 5.4 6.2 7.3 (1.0) 14.8 16.8 23.3 20.3 17.4 11.3 11.1 9.6 1.5 1.4 1.3 1.8 2.0 2.4 6.0 7.0 7.9 4.1

Titan Company REDUCE 321 320 (0.4) 285,157 4,321 888 9.3 9.6 11.4 10.1 3.2 19.1 34.6 33.5 28.1 24.7 22.9 19.3 9.2 7.8 6.6 0.7 0.8 1.0 29.4 25.3 25.4 6.3 Daily Summary India United Breweries SELL 853 700 (17.9) 225,524 3,418 264 8.4 12.3 15.9 (1.6) 45.8 29.5 101.3 69.5 53.7 41.2 32.0 26.6 12.4 10.8 9.3 0.1 0.2 0.3 12.6 16.6 18.6 3.2 United Spirits BUY 3,150 4,000 27.0 457,775 6,937 145 (11.7) 40.4 84.8 (30.6) 445.0 110.0 NM 78.0 37.2 82.4 35.7 21.5 50.7 22.5 12.1 0.1 0.3 0.5 (8.6) 40.0 42.3 10.1 Consumer products Cautious 9,372,185 142,024 9.3 21.9 19.0 42.0 34.4 28.9 27.3 22.9 19.1 13.0 11.2 9.6 1.3 1.4 1.7 31.0 32.4 33.1 152.8 Energy Aban Offshore RS 230 — — 13,439 204 58 89.5 87.2 80.4 6.7 (2.5) (7.8) 2.6 2.6 2.9 6.4 6.0 6.1 0.2 0.2 0.2 3.7 2.5 2.6 11.0 8.9 7.8 8.8 BPCL ADD 848 950 12.1 613,031 9,290 723 70.3 82.4 80.5 25.2 17.1 (2.3) 12.1 10.3 10.5 7.8 6.6 6.5 2.7 2.3 2.0 2.7 2.7 2.7 24.3 24.4 20.5 25.2 Cairn India RS 145 — — 272,041 4,122 1,875 34.9 20.5 20.8 (46.5) (41.1) 1.1 4.2 7.1 7.0 2.6 3.8 2.9 0.5 0.4 0.4 6.3 4.8 4.8 11.2 6.4 6.3 6.4 Castrol India SELL 435 430 (1.2) 215,282 3,262 495 9.6 12.8 13.9 (3.8) 33.5 8.5 45.4 34.0 31.3 29.4 22.3 20.5 43.3 40.8 38.3 1.7 2.4 2.5 76.0 123.7 126.2 2.5 GAIL (India) BUY 291 400 37.5 369,000 5,592 1,268 26.1 20.2 25.9 (20.0) (22.6) 28.0 11.1 14.4 11.2 9.2 9.7 7.7 1.3 1.2 1.1 2.1 2.1 2.6 11.8 8.6 10.3 7.2 GSPL ADD 116 145 25.2 65,235 989 563 6.5 8.1 9.5 (13.4) 26.0 17.1 18.0 14.2 12.2 8.0 7.0 6.0 1.8 1.7 1.5 1.0 1.7 2.6 10.5 12.1 13.0 1.6 HPCL REDUCE 766 870 13.6 259,236 3,928 339 80.6 90.5 88.6 57.7 12.3 (2.1) 9.5 8.5 8.6 7.8 6.1 6.0 1.6 1.4 1.3 3.2 3.6 3.5 17.6 18.1 15.9 25.6 IOCL ADD 395 450 14.0 958,191 14,520 2,428 17.2 44.5 44.7 (29.0) 159.0 0.3 23.0 8.9 8.8 12.2 5.7 5.1 1.4 1.3 1.2 1.7 3.7 3.8 6.2 15.1 13.7 19.3 ONGC BUY 226 320 41.3 1,936,963 29,352 8,556 21.8 28.4 32.3 (29.6) 30.0 13.8 10.4 8.0 7.0 4.1 3.5 3.1 1.1 1.0 0.9 4.2 4.6 5.5 10.5 12.9 13.7 17.8 Oil India BUY 427 550 28.7 256,805 3,892 601 41.8 51.4 55.4 (15.8) 23.2 7.7 10.2 8.3 7.7 6.7 5.0 4.6 1.2 1.1 1.1 4.7 4.7 5.1 12.1 14.2 14.2 2.7

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Petronet LNG ADD 178 220 23.9 133,163 2,018 750 9.7 10.5 13.5 2.6 7.5 28.8 18.2 17.0 13.2 11.4 10.7 8.7 2.3 2.1 1.9 1.1 1.7 2.3 16.5 14.3 15.3 2.0

Reliance Industries ADD 841 1,080 28.5 2,472,478 37,467 3,236 70.2 75.5 84.6 3.2 7.6 12.0 12.0 11.1 9.9 10.5 9.3 7.1 1.3 1.1 1.0 1.1 1.2 1.5 11.0 10.8 11.0 54.7 -

Energy Attractive 7,564,865 114,636 (16.8) 18.4 9.1 11.1 9.4 8.6 7.1 5.9 5.1 1.2 1.1 1.0 2.6 3.0 3.4 10.8 11.8 11.9 174.0 2015 30, September

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 29-Sep-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn) Industrials ABB SELL 1,045 750 (28.3) 221,540 3,357 212 10.8 15.7 24.0 29.2 45.6 52.9 96.9 66.6 43.5 40.1 30.3 23.2 7.9 7.3 6.4 0.4 0.4 0.4 8.3 11.3 15.6 1.2 BHEL SELL 197 220 11.6 482,667 7,314 2,448 5.8 8.3 14.4 (59.0) 42.9 74.4 34.0 23.8 13.7 15.5 11.3 5.5 1.4 1.4 1.3 0.6 0.9 1.6 4.2 5.8 9.6 15.8 Crompton Greaves ADD 170 200 17.4 106,798 1,618 627 2.9 2.4 8.1 (24.7) (17.6) 234.1 58.0 70.4 21.1 19.8 20.1 12.5 2.8 2.7 2.5 0.5 0.4 0.6 4.9 3.9 12.3 8.4 Cummins India REDUCE 1,074 875 (18.6) 297,796 4,513 277 27.1 27.7 35.0 25.1 2.4 26.2 39.7 38.8 30.7 39.8 34.4 26.4 10.3 9.3 8.2 1.3 1.3 1.6 27.5 25.2 28.4 4.4 Kalpataru Power Transmission ADD 249 290 16.7 38,135 578 153 7.9 9.2 13.7 (1.0) 17.2 48.8 31.5 26.9 18.1 10.1 8.3 7.2 1.7 1.6 1.5 0.6 0.6 0.6 5.6 6.2 8.7 0.5 KEC International ADD 139 160 14.9 35,787 542 257 6.3 7.7 13.1 89.4 22.8 70.9 22.2 18.1 10.6 10.9 7.9 6.0 2.7 2.4 2.0 0.6 0.8 1.4 12.8 14.0 20.6 3.0 L&T ADD 1,446 1,820 25.8 1,345,970 20,396 930 35.1 48.8 70.2 (28.2) 39.1 43.8 41.2 29.6 20.6 22.0 18.3 14.6 3.7 3.5 3.1 1.1 1.2 1.3 9.3 12.2 16.0 52.2

Siemens SELL 1,284 750 (41.6) 457,365 6,931 356 17.5 19.4 24.2 182.1 11.0 25.0 73.5 66.2 53.0 43.3 39.0 31.7 9.4 8.6 7.8 0.8 0.5 0.6 13.5 13.6 15.5 7.8 Thermax REDUCE 863 850 (1.5) 102,826 1,558 119 21.8 29.0 31.5 5.4 33.1 8.6 39.7 29.8 27.4 22.8 18.7 17.1 4.8 4.3 3.9 0.8 0.9 0.9 12.4 15.2 14.9 0.8 Voltas ADD 256 315 23.0 84,723 1,284 331 10.2 10.7 13.5 51.1 4.7 26.2 25.0 23.9 19.0 20.3 20.1 15.1 4.0 3.6 3.2 0.9 1.0 1.3 17.2 15.9 17.9 10.3 Industrials Cautious 3,173,606 48,092 (26.0) 30.0 49.6 43.2 33.2 22.2 22.7 18.9 14.1 3.4 3.2 2.9 0.9 0.9 1.1 8.0 9.7 13.2 104.3

Infrastructure -

Adani Port and SEZ ADD 297 340 14.3 615,901 9,333 2,084 11.1 14.4 18.8 33.0 30.0 30.1 26.8 20.6 15.8 20.1 14.7 11.6 5.8 4.6 3.7 0.4 0.6 0.7 23.7 24.9 25.8 23.3 September 30, 2015 30, September Ashoka Buildcon BUY 166 210 26.5 31,067 471 188 5.1 2.4 3.9 (16.4) (53.4) 63.1 32.4 69.4 42.5 13.6 10.4 8.7 2.3 1.7 1.6 0.9 0.9 1.2 6.2 2.8 3.9 0.5 Container Corporation ADD 1,387 1,520 9.6 270,439 4,098 195 53.7 49.3 60.8 6.4 (8.2) 23.2 25.8 28.1 22.8 18.9 18.4 14.5 3.5 3.3 3.0 1.0 0.9 1.1 14.3 12.1 13.6 6.1 Gujarat Pipavav Port ADD 180 195 8.5 86,874 1,316 483 7.5 8.3 10.2 150.4 10.8 23.2 24.1 21.7 17.6 20.7 17.4 14.2 4.9 3.9 3.3 — — 1.2 22.6 20.0 20.5 2.7

IRB Infrastructure BUY 225 280 24.3 79,182 1,200 351 15.4 16.1 18.3 18.2 4.5 13.2 14.6 14.0 12.3 8.6 8.7 7.5 1.8 1.7 1.5 1.7 1.7 1.7 13.7 12.4 12.8 7.2 Sadbhav Engineering BUY 285 345 20.9 48,930 741 172 7.1 8.5 14.4 22.8 20.3 69.2 40.3 33.5 19.8 19.8 16.7 12.0 3.6 3.3 2.9 — — — 9.7 10.3 15.6 1.1 Infrastructure Attractive 1,132,392 17,160 26.9 15.0 27.8 25.4 22.1 17.3 16.6 13.5 10.8 4.2 3.5 3.0 0.6 0.7 0.9 16.4 16.0 17.5 40.9 Internet Info Edge BUY 800 970 21.3 96,493 1,462 120 2.0 7.3 10.8 (75.6) 262.3 48.2 399.1 110.2 74.3 389.0 499.9 86.3 6.8 6.9 7.0 0.1 0.3 0.5 2.3 6.2 9.4 1.2 Just Dial BUY 962 1,400 45.5 67,846 1,028 71 19.7 21.1 39.6 14.6 7.2 87.2 48.8 45.5 24.3 35.3 31.1 15.1 10.1 8.9 7.3 0.7 0.8 1.4 23.0 20.8 33.3 9.9 Internet Attractive 164,339 2,490 (22.5) 45.3 73.3 100.8 69.4 40.0 75.4 70.4 30.0 7.9 7.6 7.1 0.3 0.5 0.9 7.8 11.0 17.8 11.1 Media DB Corp. ADD 316 375 18.7 58,048 880 184 17.2 20.5 24.6 3.2 18.7 19.9 18.3 15.4 12.9 10.1 8.6 7.2 4.5 4.0 3.5 2.5 3.1 4.0 26.0 27.4 29.2 0.3 DishTV BUY 110 125 13.3 117,551 1,781 1,066 0.0 2.1 3.7 102.0 7,043.7 76.4 NM 52.4 29.7 17.2 11.7 9.7 7.1 7.1 7.1 — — — 0.2 13.5 23.8 11.1 Jagran Prakashan ADD 141 145 2.7 46,176 700 317 8.0 9.4 10.9 6.6 17.5 16.2 17.7 15.0 12.9 9.9 8.1 7.2 4.0 3.7 3.3 2.8 3.5 4.2 24.2 25.2 26.8 0.5

PVR BUY 802 900 12.2 37,350 566 47 3.6 25.8 34.1 (72.0) 618.2 32.1 223.1 31.1 23.5 21.7 13.4 11.0 9.1 4.3 3.7 0.1 0.3 0.4 3.7 18.9 17.0 5.4

Sun TV Network ADD 358 365 2.0 141,063 2,138 394 19.9 22.8 26.2 4.9 14.5 14.8 18.0 15.7 13.7 11.4 9.9 8.4 4.2 3.9 3.6 3.1 3.7 4.3 24.4 25.7 27.1 15.8 Zee Entertainment Enterprises BUY 391 420 7.4 375,631 5,692 961 8.7 9.3 12.7 (5.7) 8.0 36.3 45.2 41.8 30.7 28.7 25.8 19.1 6.8 6.2 5.5 1.0 1.2 1.4 16.2 15.4 18.9 12.5 Media Neutral 775,819 11,757 6.8 27.7 28.2 35.2 27.6 21.5 17.5 14.2 11.6 5.8 5.2 4.7 1.2 1.5 1.8 16.5 18.8 21.9 45.7 Metals & Mining Coal India ADD 315 410 30.0 1,992,181 30,189 6,316 21.7 24.8 26.6 (9.1) 14.0 7.3 14.5 12.7 11.9 8.5 7.2 6.7 4.6 4.0 3.5 6.6 3.9 4.2 31.1 33.7 31.5 31.3 Hindalco Industries REDUCE 68 80 17.3 140,832 2,134 2,065 10.0 0.5 7.6 (19.8) (94.6) 1,293.5 6.8 125.4 9.0 7.9 8.6 6.5 0.4 0.4 0.4 1.5 1.5 1.5 5.2 0.3 4.0 10.5 Hindustan Zinc BUY 135 210 55.8 569,362 8,628 4,225 19.4 18.6 19.8 17.6 (4.1) 6.8 7.0 7.3 6.8 3.5 3.0 2.1 1.3 1.2 1.0 3.3 3.3 3.3 20.3 17.0 16.1 2.0 Jindal Steel and Power RS 59 - - 53,522 811 915 6.9 2.4 4.8 (66.8) (64.6) 97.6 8.4 23.9 12.1 9.1 7.6 6.7 0.3 0.3 0.3 - 3.2 3.2 2.9 1.1 2.1 11.4 JSW Steel ADD 840 1,025 22.0 203,083 3,077 242 75.6 1.2 134.6 14.3 (98.4) 11,120.0 11.1 700.1 6.2 6.0 8.3 4.7 0.9 0.9 0.8 1.4 1.4 1.4 8.1 0.1 13.5 12.5 National Aluminium Co. SELL 35 34 (2.6) 89,946 1,363 2,577 4.7 2.4 2.6 81.3 (49.2) 6.4 7.3 14.5 13.6 2.0 4.8 4.1 0.7 0.7 0.7 5.0 5.0 2.9 9.8 4.8 5.1 1.0 NMDC SELL 91 93 1.9 361,979 5,485 3,965 16.5 10.3 10.3 3.3 (37.8) 0.4 5.5 8.9 8.9 2.3 4.6 5.0 1.1 1.1 1.1 9.4 9.4 9.4 21.0 12.6 12.6 3.6 Tata Steel REDUCE 201 230 14.2 195,603 2,964 971 0.0 0.7 22.6 (99.9) 1,986.2 3,238.9 NM 297.7 8.9 7.4 7.5 5.7 0.6 0.6 0.6 4.0 4.0 4.0 0.0 0.2 6.8 29.3 Vedanta BUY 86 180 108.8 255,557 3,873 3,717 17.1 18.2 19.8 0.8 6.7 8.5 5.1 4.7 4.4 4.4 5.0 4.1 0.6 0.5 0.4 4.8 3.8 3.8 8.0 11.3 10.7 15.0 Metals & Mining Cautious 3,862,063 58,525 (10.3) (9.9) 26.4 9.8 10.9 8.6 6.1 6.5 5.2 1.3 1.2 1.1 5.5 4.2 4.3 13.1 11.0 12.8 116.7 Pharmaceutical Biocon SELL 437 375 (14.1) 87,350 1,324 200 24.8 22.2 24.6 40.5 (10.4) 10.8 17.6 19.6 17.7 13.1 12.5 10.5 2.5 2.0 1.9 1.6 1.8 2.0 15.2 11.5 10.9 4.7

India Daily Summary Daily Summary India Cipla BUY 637 790 24.1 511,176 7,746 805 14.7 24.6 30.0 (15.2) 67.9 21.7 43.4 25.9 21.2 24.0 16.0 13.5 4.7 4.1 3.6 0.5 0.8 1.0 11.2 16.9 17.9 21.3 Dr Reddy's Laboratories REDUCE 4,081 3,250 (20.4) 695,954 10,546 170 135.6 158.8 161.0 7.8 17.1 1.4 30.1 25.7 25.4 19.6 16.6 15.6 6.2 5.2 4.4 0.5 0.6 0.6 22.8 21.9 18.7 24.1 Lupin REDUCE 2,015 1,700 (15.6) 907,028 13,745 450 53.4 57.0 72.4 30.9 6.7 27.1 37.7 35.4 27.8 24.5 23.4 18.1 10.2 8.2 6.5 0.2 0.4 0.5 30.2 25.7 26.1 37.5 Sun Pharmaceuticals SELL 848 790 (6.9) 2,041,260 30,933 2,406 19.9 26.0 36.3 (27.9) 30.5 39.6 42.6 32.6 23.4 25.5 22.0 16.8 7.7 6.4 5.2 0.5 0.7 1.1 21.3 21.5 24.7 56.8 Pharmaceuticals Cautious 4,242,768 64,294 (2.3) 24.8 26.5 38.0 30.4 24.1 23.5 19.9 16.2 7.0 5.8 4.8 0.4 0.6 0.9 18.3 19.1 20.1 144.5

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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September 30, 2015 September 30,

42

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

43 Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo

Company Rating 29-Sep-15 (Rs) (%) (Rs mn) (US$ mn) (mn) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E (US$ mn) Real Estate DLF BUY 135 170 26.3 239,980 3,637 1,799 2.8 3.1 3.5 (22.8) 11.7 11.0 48.1 43.0 38.8 13.8 14.7 12.3 0.8 0.8 0.8 2.2 1.5 1.5 1.7 1.9 2.1 20.9 Godrej Properties REDUCE 306 245 (19.9) 61,051 925 199 9.6 10.1 13.2 19.1 5.1 30.9 32.0 30.4 23.2 33.8 22.0 15.0 3.3 3.1 2.8 0.7 0.8 0.8 10.5 10.5 12.6 1.5 Oberoi Realty BUY 256 345 34.7 86,905 1,317 339 8.8 20.8 21.8 (6.2) 135.9 4.7 29.0 12.3 11.7 19.1 7.6 6.5 1.9 1.6 1.4 0.8 0.8 0.8 6.4 13.8 12.5 1.1 Prestige Estates Projects BUY 209 260 24.7 78,188 1,185 375 8.9 12.1 14.4 (1.3) 36.0 19.5 23.5 17.3 14.5 11.2 9.3 7.2 2.0 1.9 1.7 0.8 0.7 0.7 9.8 11.3 12.2 1.3 Sobha BUY 273 545 99.6 26,781 406 98 24.3 24.9 32.6 (2.7) 2.7 30.8 11.3 11.0 8.4 7.3 6.8 5.7 1.1 1.0 0.9 2.6 2.6 2.6 10.1 9.7 11.8 1.1 Sunteck Realty BUY 220 420 90.9 13,853 210 60 11.4 25.6 82.9 (54.9) 124.9 224.1 19.4 8.6 2.7 17.5 7.8 2.0 0.9 0.8 0.6 0.1 0.9 1— 6.5 10.0 26.8 0.2 Real Estate Attractive 506,758 7,679 (11.3) 43.3 28.6 31.3 21.8 17.0 14.1 11.9 9.1 1.2 1.1 1.1 1.2 1.2 1.2 3.7 5.1 6.3 26.1 Technology HCL Technologies REDUCE 954 900 (5.6) 1,341,104 20,323 1,414 51.3 56.0 62.4 13.6 9.2 11.5 18.6 17.0 15.3 14.2 12.3 10.4 5.6 4.4 3.6 1.4 1.7 1.9 32.4 28.9 26.1 21.4 Hexaware Technologies SELL 241 230 (4.5) 72,603 1,100 302 10.8 13.5 16.4 (14.4) 25.0 21.3 22.3 17.8 14.7 14.2 12.1 9.9 5.6 5.2 4.7 3.9 3.4 4.1 26.2 30.3 33.6 5.5 Infosys ADD 1,122 1,260 12.3 2,576,827 39,049 2,286 53.9 56.5 68.0 13.5 4.7 20.4 20.8 19.9 16.5 15.3 13.5 11.0 5.1 4.5 3.9 2.0 2.0 2.4 25.9 23.9 25.2 68.6 Mindtree REDUCE 1,516 1,350 (11.0) 127,100 1,926 84 63.7 71.1 84.5 18.7 11.6 18.8 23.8 21.3 17.9 16.6 14.6 11.7 6.3 5.3 4.4 1.1 1.3 1.5 29.4 27.0 26.8 4.5 Mphasis REDUCE 405 390 (3.8) 85,171 1,291 210 32.3 35.7 38.8 119.3 10.6 8.8 12.6 11.4 10.4 7.3 6.6 5.6 1.6 1.5 1.4 3.9 4.4 4.8 12.8 13.3 13.7 1.5 TCS ADD 2,588 2,800 8.2 5,069,678 76,825 1,959 100.3 122.5 142.9 2.8 22.1 16.7 25.8 21.1 18.1 19.7 15.1 12.7 8.8 7.2 6.0 3.1 1.9 2.2 34.8 37.6 36.3 44.9 Tech Mahindra ADD 570 630 10.4 548,792 8,316 865 30.1 33.3 42.0 (6.1) 10.7 26.2 19.0 17.1 13.6 12.7 12.0 9.2 4.0 3.4 2.8 1.1 1.1 1.1 24.3 21.5 22.7 21.9 Wipro REDUCE 588 600 2.0 1,453,000 22,018 2,467 35.1 37.4 41.3 10.8 6.5 10.4 16.8 15.7 14.3 11.6 10.4 9.0 3.6 3.1 2.8 2.0 2.4 2.7 23.0 21.1 20.6 12.2 Technology Attractive 11,274,274 170,847 8.4 12.8 16.3 21.7 19.2 16.5 15.9 13.4 11.2 5.8 4.9 4.2 2.4 1.9 2.2 26.8 25.7 25.5 180.6 Telecom Bharti Airtel ADD 323 460 42.6 1,289,761 19,545 3,997 15.1 13.7 17.5 122.0 (9.5) 27.9 21.4 23.6 18.5 6.6 5.9 5.0 2.1 2.0 1.9 1.2 0.9 1.4 9.9 8.7 10.6 24.0 Bharti Infratel ADD 358 395 10.5 678,248 10,278 1,903 10.5 13.6 16.7 31.0 29.7 22.0 34.0 26.2 21.5 13.1 11.5 9.9 4.0 3.9 3.8 3.1 2.7 3.3 11.4 15.1 17.9 13.6 IDEA BUY 140 220 57.5 502,831 7,620 3,598 8.8 9.1 6.3 48.6 3.6 (31.0) 15.9 15.3 22.2 8.6 7.0 6.0 2.2 1.9 1.8 0.5 0.7 1.1 16.0 13.4 8.5 10.0 Reliance Communications SELL 64 50 (21.8) 159,170 2,412 2,488 2.9 3.7 4.9 (11.7) 30.5 32.2 22.3 17.1 12.9 7.0 7.1 6.4 0.5 0.5 0.5 — — — 2.4 2.8 3.6 11.0 Tata Communications ADD 401 475 18.6 114,143 1,730 285 3.7 2.9 7.7 202.6 (23.4) 168.8 107.2 139.9 52.1 7.6 6.9 6.3 34.9 27.1 17.3 1.1 1.4 1.6 18.8 21.8 40.5 4.2 Telecom Cautious 2,744,153 41,584 74.1 2.8 12.4 22.8 22.2 19.8 7.6 6.8 5.9 2.0 1.9 1.8 1.4 1.2 1.7 8.9 8.7 9.3 62.8 Utilities Adani Power SELL 25 31 26.5 71,928 1,090 2,872 (4.5) (5.5) 0.0 (340.8) (23.9) 100.9 (5.5) (4.4) 496.7 10.0 9.9 7.9 1.2 1.7 1.7 — — — (20.9) (32.2) 0.3 4.4 CESC REDUCE 517 600 16.0 68,559 1,039 133 15.0 41.8 54.3 (62.0) 179.2 30.0 34.6 12.4 9.5 10.5 6.4 5.8 0.9 0.8 0.8 1.5 1.1 1.2 2.5 6.7 8.3 3.4 JSW Energy ADD 88 84 (4.5) 144,243 2,186 1,640 8.4 10.3 12.9 22.2 21.6 25.4 10.4 8.6 6.8 6.3 6.3 5.0 1.9 1.6 1.3 — — — 19.6 20.1 20.6 3.4 NHPC REDUCE 17 22 32.9 183,220 2,776 11,071 2.3 2.2 2.2 45.6 (5.2) (0.2) 7.1 7.5 7.5 5.9 5.7 5.8 0.6 0.6 0.5 4.8 3.6 3.6 8.7 7.7 7.3 1.2 NTPC BUY 121 150 23.6 1,000,587 15,163 8,245 10.1 11.0 13.2 (21.0) 8.7 19.7 12.0 11.0 9.2 11.2 11.0 8.8 1.2 1.1 1.1 3.1 2.7 3.3 10.0 10.7 11.9 8.6

Power Grid BUY 128 175 36.3 671,475 10,175 5,232 9.6 12.3 15.6 11.3 28.3 26.7 13.4 10.4 8.2 10.6 8.7 7.4 1.8 1.6 1.4 2.3 2.9 3.7 13.8 16.0 18.2 3.5 India Daily Summary Daily Summary India Reliance Power SELL 43 43 1.1 119,358 1,809 2,805 3.7 4.9 5.7 (0.1) 33.9 17.0 11.6 8.7 7.4 16.4 9.8 7.7 0.6 0.5 0.5 — — — 5.1 6.5 7.1 3.6 Tata Power ADD 66 80 21.1 178,641 2,707 2,800 0.5 3.3 4.6 (75.9) 544.8 38.9 128.1 19.9 14.3 8.5 6.9 6.2 1.3 1.2 1.2 1.8 1.8 1.8 1.1 6.4 8.4 3.6 Utilities Attractive 2,438,009 36,945 (11.7) 20.1 30.1 14.0 11.7 9.0 10.0 8.8 7.4 1.2 1.1 1.0 2.4 2.4 2.8 8.4 9.5 11.3 31.6 Others Astral Poly Technik BUY 424 455 7.3 50,187 761 118 6.4 9.8 14.1 (8.7) 53.0 44.0 66.1 43.2 30.0 31.1 21.1 15.6 8.1 6.9 5.8 0.1 0.2 0.4 16.2 17.3 21.0 0.8 Carborundum Universal ADD 161 200 24.2 30,318 459 188 5.2 8.6 11.7 6.5 64.9 37.0 31.0 18.8 13.7 12.3 9.4 7.2 2.5 2.3 2.0 1.2 1.1 1.5 8.4 12.7 15.6 0.1 Dhanuka Agritech BUY 431 690 60.1 21,561 327 50 21.7 23.0 29.9 16.4 6.1 30.2 19.9 18.7 14.4 15.6 13.9 10.4 5.2 4.3 3.5 1.1 1.2 1.5 29.1 25.2 27.0 0.2 Godrej Industries ADD 343 425 23.8 115,362 1,748 336 12.0 16.8 21.0 21.6 39.8 25.1 28.7 20.5 16.4 33.3 17.5 12.7 3.6 3.1 2.6 0.5 0.5 0.5 13.5 16.2 17.4 2.3 Havells India REDUCE 251 270 7.7 156,522 2,372 624 7.7 8.4 10.4 (6.9) 8.8 24.0 32.6 30.0 24.2 17.8 17.1 14.0 8.6 7.5 6.5 1.2 1.3 1.6 27.5 26.7 28.7 3.6 Jaiprakash Associates RS 11 — — 27,000 409 2,432 (9.3) 0.2 0.8 (66.6) 102.4 247.0 (1.2) 49.8 14.3 10.4 9.2 8.8 0.3 0.3 0.3 0.0 0.0 0.0 (22.0) 0.5 1.9 5.6 Kaveri Seed BUY 426 620 45.5 29,435 446 69 43.8 43.0 58.7 44.3 (1.9) 36.6 9.7 9.9 7.3 8.5 7.9 5.4 3.9 3.1 2.4 1.8 2.5 4.1 47.5 34.5 37.0 6.1 PI Industries ADD 631 750 18.8 86,214 1,306 136 16.6 21.8 28.6 20.0 31.7 31.2 38.1 28.9 22.1 23.4 18.4 14.5 9.6 7.5 5.8 0.4 0.5 0.7 28.3 29.0 29.8 2.2 Rallis India ADD 219 245 11.8 42,628 646 194 8.1 9.3 12.3 3.5 15.0 32.7 27.1 23.6 17.8 15.8 13.7 10.6 5.2 4.6 3.9 1.1 1.4 1.5 20.5 20.8 23.8 1.1 Tata Chemicals ADD 370 510 37.8 94,311 1,429 255 28.9 39.5 45.6 89.5 36.9 15.3 12.8 9.4 8.1 7.2 5.8 5.0 1.7 1.5 1.3 3.4 3.4 3.4 13.2 16.9 17.2 5.5

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK UPL ADD 441 550 24.6 189,143 2,866 429 26.9 31.5 35.7 10.4 17.1 13.4 16.4 14.0 12.4 9.0 8.3 7.2 3.2 2.7 2.3 1.1 1.1 1.2 20.7 21.1 20.2 15.3

Whirlpool ADD 650 790 21.5 82,467 1,250 127 16.6 19.9 23.7 71.3 20.0 19.1 39.2 32.7 27.4 23.3 19.2 16.3 9.0 7.1 5.9 - - 0.7 25.4 24.2 23.4 0.9 -

Others 925,146 14,019 (14.4) 190.7 24.2 54.8 18.8 15.2 12.0 10.1 9.0 2.9 2.6 2.3 1.1 1.1 1.4 5.2 13.7 15.2 43.7 September 30, 2015 30, September KIE universe 70,311,561 1,065,483 (0.7) 15.8 19.3 19.0 16.4 13.7 11.3 9.9 8.3 2.6 2.3 2.1 1.8 1.8 2.0 13.5 14.1 15.1 KIE universe (ex-energy) 62,746,696 950,847 3.8 15.3 21.6 20.8 18.0 14.8 12.5 11.1 9.2 3.0 2.7 2.4 1.7 1.6 1.9 14.3 14.7 16.0

Notes: (a) We have used adjusted book values for banking companies. (b) 2015 means calendar year 2014, similarly for 2016 and 2017 for these particular companies. (c) Exchange rate (Rs/US$)= 65.99 Source: Company, Bloomberg, Kotak Institutional Equities estimates

Disclosures a sufficient of of the following r r or strategic transaction n a merge f any,f no longer are in effect for this stock Asof June 30, 2015

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 30/06/2015 Kotak InstitutionalEquities Investment Research had investmentratings on 166 equity securities. next 12 months.

SELL 0.6% 16.9%

+5% returns over the next 12 months.

- 2.4% 5 19.3% - REDUCE and target price, any, if have been suspended temporarily. Suchsuspension is in compliance with applicable regulation(s) 15% returns over the 5% returns over the next months.12 The information is not available for display is not or applicable. - -

month horizon basis. -

Kotak SecuritiesKotak has suspended coverage of this company. ADD

37.3% 1.8% Kotak SecuritiesKotak Research has suspended theinvestment and rating price target, if any,for this stock,because there is not

The information is not meaningful and is therefore excluded. .

Kotak SecuritiesKotak does not cover this company.

The investment rating

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

Attractive, Neutral, Cautious. BUY 3.6% 26.5% iew. We expect this stock to deliver

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

0% 20% 10% 70% 60% 50% 40% 30% Source:Kotak Institutional Equities Kotak Institutional Equities Research Equities KotakInstitutional coverage universe Distributionof ratings/investment banking relationships NM = NM Meaningful.Not CS = Coverage Suspended. = NC Covered.Not = RatingRS Suspended fundamental basis for determining an investment rating or target. The previous investment and rating price target,i and shouldnot be relied upon. = NA AvailableNot or Applicable.Not designations: ratings/identifiers Other NR = Rated.Not and/or Kotak Securities policies in circumstances when Securities Kotak or its affiliates is acting in an advisory capacity i involving this company and in certain other circumstances. REDUCE. SELL. Our target prices are also on a 12 definitions Other Coverage v Ratings other and definitions/identifiers ratings of Definitions BUY. ADD. 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 50 Main Street, Ste. 890 Bandra Kurla Complex, Bandra (E) 155-157 Minories Westchester Financial Centre Mumbai 400 051, India London EC3N 1LS White Plains, New York 10606 Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1-914-997-6120

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