INDIA DAILY

September 24, 2020 India 23-Sep 1-day 1-mo 3-mo Sensex 37,668 (0.2) (2.9) 8.0 Nifty 11,132 (0.2) (2.9) 8.0 Contents Global/Regional indices Dow Jones 26,763 (1.9) (5.5) 5.2 Daily Alerts Nasdaq Composite 10,633 (3.0) (6.6) 7.3 Company alerts FTSE 5,899 1.2 (3.4) (3.7) Hindalco Industries: Scrap spreads rebound, Novelis margins to follow Nikkei 23,161 (0.8) 0.8 2.8 Hang Seng 23,743 0.1 (7.1) (4.2)  Scrap spreads declined to three-year low in 1QFY21 amid lockdowns KOSPI 2,303 (1.3) (1.2) 6.5

 Scrap spreads recover as supply returns with easing of lockdowns Value traded – India

 Novelis margins to witness a strong sequential recovery after a dip in Cash (NSE+BSE) 603 636 627 13,82 Derivatives (NSE) 25,701 8,912 1QFY21 7  Well-placed for earnings upgrade and re-rating; maintain BUY with Fair Deri. open interest 4,169 3,638 3,357 Value of Rs285

Sector alerts Forex/money market Gas Utilities: Blue sky turning cloudy Change, basis points 23-Sep 1-day 1-mo 3-mo  Draft regulations allow third-party access at tariffs generating 12% post-tax Rs/US$ 73.7 7 (78) (202) RoCE 10yr govt bond, % 6.4 (1) 7 9

 Steps forward to provide open access and effectively encourage Net investment (US$ mn) competition 22-Sep MTD CYTD

 Competition plausible from OMCs and other gas utilities; direct access for FIIs (241) 532 5,339 state-transport buses MFs (53) (763) 2,436 Top movers

 Material medium-term risks to CGD profits partly reflecting in recent de- Change, %

rating of multiples Best performers 23-Sep 1-day 1-mo 3-mo

Transportation: Domestic air travel: thoughts on recovery HCLT IN Equity 814 (0.8) 15.4 45.5

WPRO IN Equity 315 0.8 15.5 44.3  Share gains from rail continue post Covid, boosting the case of recovery in INFO IN Equity 1,020 1.2 7.6 42.8 volumes TECHM IN Equity 793 (0.9) 9.8 41.4

 Profile of domestic air traveler comforts on recovery towards pre-Covid TTMT/A IN Equity 60 2.6 35.2 40.6

levels over time Worst performers  Pace of recovery a trickier call; progress seen on rapid testing technique YES IN Equity 13 (0.4) (11.1) (51.4) may not be as relevant BHIN IN Equity 167 (7.5) (16.3) (28.4) IHFL IN Equity 152 (1.8) (25.1) (27.1)  Indigo remains a reasonable bet in most scenarios of recovery HPCL IN Equity 177 (1.7) (16.2) (22.4)

BHARTI IN Equity 434 (7.9) (17.7) (22.2)

[email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. BUY Hindalco Industries (HNDL) Metals & Mining SEPTEMBER 23, 2020 UPDATE Scrap spreads rebound, Novelis margins to follow. Scrap spreads hit a three-year Sector view: Attractive low in 1QFY21 as lockdowns impacted availability, handling and scrap-processing plants in North America. Scrap spreads play a significant role in Novelis’ margins as scrap forms CMP (`): 165 60% of its raw material. With opening up of economies, scrap spreads have rebounded Fair Value (`): 285 to Jan 2020 levels and pent-up supply implies further upside. Recovery in auto volumes BSE-30: 37,668 and scrap spreads should elevate Novelis’ margins back to pre-Covid levels in 2HFY21.

Hindalco Industries Stock data Forecasts/valuations 2020 2021E 2022E 52-week range (Rs) (high,low) 221-85 EPS (Rs) 17.8 16.2 26.7 Mcap (bn) (Rs/US$) 372/5.1 EPS growth (%) (28.2) (8.9) 65.1 ADTV-3M (mn) (Rs/US$) 3,001/41 P/E (X) 9.3 10.2 6.2 Shareholding pattern (%) P/B (X) 0.6 0.6 0.5 Promoters 34.7 EV/EBITDA (X) 5.4 6.2 4.6 FIIs 24.5 RoE (%) 6.8 6.0 9.2 MFs/BFIs 15.5/12.5 Div. yield (%) 0.6 0.6 0.6 Price performance (%) 1M 3M 12M Sales (Rs bn) 1,180 1,264 1,427 Absolute (16) 4 (17) EBITDA (Rs bn) 143 138 173 Rel. to BSE-30 (14) (2) (14) Net profits (Rs bn) 39 36 59

Scrap spreads declined to three-year low in 1QFY21 amid lockdowns

Aluminum scrap generation and processing was severely hit in 1QFY21 amid bottlenecks in the recycling supply chain with (1) reduced inflow of used beverage cans/other scraps, (2) health concerns related to scrap handling and (3) suboptimal functioning of scrap yards. Lockdowns led to restocking of beverage cans and added to already robust demand. This in combination with 18% correction in aluminum price led to a 35% CYTD correction of scrap spreads to a three-year low of US$0.25/lb in May 2020.

Scrap spreads recover as supply returns with easing of lockdowns

Scrap spreads have now recovered back to US$0.4/lb or January 2020 level. The recovery is led by reopening of scrap deposit centers and higher aluminum prices. Many scrap deposit centers are now operating at 150% of usual run-rate and supply should further ease. UBC return rates are still below normal due to partial Covid-led restrictions. Recovery in industrial scrap generation should further elevate scrap spreads. In the medium to long term, we expect scrap to remain oversupplied in generating economies (America and Europe) due to China’s strategic restrictions on imports and keep scrap spreads robust.

Novelis margins to witness a strong sequential recovery after a dip in 1QFY21

Novelis forms ~75% of HNDL’s EBITDA and its earnings are a combination of conversions and scrap spreads. Margins in 1QFY21 corrected to US$327/ton versus US$450/ton in 4QFY20 and US$445/ton in FY2020. The correction was led by a sharp decline in auto volumes (-50% yoy) and scrap spreads. Its auto volumes have returned to pre-Covid level in the US and China whereas Europe is recovering gradually. With recovery in auto volumes and scrap spreads, we expect margins to recover to FY2020 levels in 2HFY21. We forecast margin of US$376/ton in FY2021 and US$444/ton in FY2022 versus a guidance of US$450- Sumangal Nevatia 470/ton.

Well-placed for earnings upgrade and re-rating; maintain BUY with Fair Value of Rs285 Prayatn Mahajan

HNDL, post the recent correction, is trading at 4.6X EV/EBITDA FY2022E, 23% discount to long-term average of 6X. Current price implies Novelis business available at 4.2X EV/EBITDA FY2022E (refer to Exhibit 10) assuming India business at spot spreads and 5X EV/EBITDA. We maintain BUY rating with Fair Value of Rs285/share. HNDL offers the most attractive risk-reward within our metals coverage. [email protected] Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Hindalco Industries Metals & Mining

Scrap spreads corrected sharply in April-May 2020 led by a combination of:

1. Lower scrap availability

. UBC (used beverage can) was not coming at usual run-rate in the circular supply chain. Redemptions in key deposit stations of North America were impacted by Covid-19 and scrap yards were increasingly reluctant to handle UBCs for health concerns amid the pandemic.

. New production industrial scrap generation slowed. Auto scrap generation was shut off.

. Many scrap yards are either closed or operating with reduced hours, limited retail ‘peddler’ scrap coming in ‘over the scale’.

2. Lower aluminum prices. In April 2020, aluminum all in price collapsed to US$1,426/ton, -18% CYTD 2020. Historically, during down-trending aluminum prices, scrap spreads have always narrowed. This was due to scrap supply being more insulated from the volatility in primary metal and dealers’ unwillingness to follow LME and Midwest prices down as fast. In 2017 and 2018, however, this behavior was not visible which in our view was an aberration due to sudden oversupply of scrap. Scrap availability increased in 2017-18 due to sharp reduction in Chinese scrap imports, big increases in auto scrap and the departure of Alcoa/Arconic from the scrap markets at Knoxville. This impacted the market’s inability to absorb the additional supply of scrap. However, now, we see scrap prices reverting to normal behaviour and spreads showing positive correlation to aluminum prices.

3. Strong demand of aluminum beverage can. Demand of aluminum beverage can has shown recession-proof traits during GFC and the same was visible in 1HCY20. Aluminum beverage cans’ high share in ‘off-premise’ sales drove demand during lockdowns. A few industry reports suggest that aluminum beverage can has gained 7-8 percentage point market share from other substrates (glass and plastic) in 1HFY21 due to ‘on premise’ shutdowns amid the pandemic.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Metals & Mining Hindalco Industries

Exhibit 1: Novelis’ earnings are combination of scrap spreads and conversion margins Novelis EBITDA break-up

Scrap Conversion Spreads Margin Novelis (~1/3rd (~2/3rd EBITDA earnings) earnings)

Source: Kotak Institutional Equities estimates

Exhibit 2: Novelis’s margins have a strong correlation with scrap spreads Novelis EBITDA/ton and scrap spreads,1QFY16-21, (US$/ton, US cents/lb)

Novelis EBITDA/ton (US$/ton) (LHS) Scrap Spreads (c/lb) (RHS) 500 60 450 50 400 350 40 300 250 30 200 20 150 100 10 50

- -

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20 4QFY20 1QFY21

Source: Company, Kotak Institutional Equities estimates

Exhibit 3: Scrap spreads have recovered to pre-Covid levels after a sharp drop in 1QFY21 UBC scrap spreads, 2QFY16 – 2QFY21 (US cents/lb)

Scrap Spreads (US c/lb) 55 50 45 40 35 30 25 20 15

10

2QFY16 3QFY16 1QFY17 3QFY17 1QFY18 3QFY18 4QFY18 1QFY19 2QFY19 4QFY19 2QFY20 4QFY20 1QFY21 2QFY21 2QFY17 4QFY17 2QFY18 3QFY19 1QFY20 3QFY20 4QFY16

Source: Bloomberg, Kotak Institutional Equities estimates

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Hindalco Industries Metals & Mining

Exhibit 4: Novelis’ share in auto is expected to increase with commissioning of new lines Product mix of Novelis in FY2020 and FY2024E

Product mix (2020) Product mix (2024) Aerospace, Speciality, 2% 15% Speciality, Auto, 19% 19% Auto, 24%

Can, 66% Can, 55%

Source: Company, Kotak Institutional Equities estimates

Exhibit 5: Novelis’ scrap usage is likely to increase further Recycled content at Novelis, FY2010-23E,(%)

Recycled Content 70% 65% 62% 63% 58% 60% 60% 60% 53% 55% 49% 50% 46% 43% 39% 40% 36% 33% 30%

20%

10%

0%

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021E FY2022E FY2023E

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 Metals & Mining Hindalco Industries

DECLINE IN CHINESE SCRAP IMPORTS IS STRUCTURAL China developed as a prime destination during 2005-12 for dumping aluminum scrap generated in various developed economies. However, due to environment hazards and to encourage domestic scrap generation, China started to impose various restrictions on scrap imports. These restrictions have been successful in curbing Chinese imports resulting in an oversupply of scrap in generating countries and brought scrap prices under pressure. Given the strategic relevance, we believe these restrictions are unlikely to reverse in the foreseeable future and on the contrary could only increase. The low scrap prices and higher scrap spreads in generating regions like America, Europe and Japan are likely to sustain.

Exhibit 6: US aluminum scrap exports to China have been declining due to stringent trade policies in China US scrap exports to China, FY2004-20E (mn tons)

US scrap exports to China (mn tons) 1.6 Green Fence 1.4

1.2 National Sw ord 1

0.8

0.6 Tariffs

0.4

0.2

0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 2019

2020E

Source: USGS, Bloomberg, Kotak Institutional Equities estimates

Exhibit 7: China imports of aluminum scrap have been declining since the last decade due to stringent trade policies China imports of aluminum scrap, FY2004-20 (mn tons)

China aluminum scrap imports 3.00 Green Fence National Sw ord 2.50

2.00 Tariffs

1.50

1.00

0.50

0.00

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 2019

2020E

Source: Bloomberg, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Hindalco Industries Metals & Mining

Background (2005-12)

Surging metal demand in China coupled with limited restrictions or safeguards on scrap quality encouraged Chinese importers to acquire all grades of post-consumer and industrial scrap. China became the prime destination of scrap and leading net scrap consuming market.

There was a wide disparity in scrap-processing costs in China and more developed markets (e.g. North America, Western Europe, Japan and South Korea). This encouraged the scrapyards and traders in developed markets to procure and sell scrap to China at highly favorable pricing versus the domestic market.

This arrangement benefited both scrap exporters in net producing markets and scrap importers in net consuming markets. As a result, an entire global trading industry and business model was formed to transport various grades of nonferrous scrap from net- producing markets to net-consuming markets like China.

However, gradually, the quality of the recyclables started to fall and a lot of the plastics, scrap metal and fiber that was entering China contained too much food, trash and other contaminants. The excess residue could not be recycled and Chinese manufacturers were getting stuck with a big expense to sort out and dispose of non- recyclables in Chinese landfills.

Also, China wanted to encourage domestic scrap generation and investments in collection-processing within China. For that, they had to discourage easy and cost- effective imports.

So, led by a combination of economic and environment reasons, China from 2013 starting introducing various restrictions on non-ferrous (mainly aluminum and copper) scrap imports.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Metals & Mining Hindalco Industries

Exhibit 8: The below table details the nature and timeline of various policies towards restricting scrap imports

Date Particulars Description The Chinese government, looking to protect its homeland manufacturers and mindful of the environmental impact, decided it would take action to improve the quality of the raw materials through the enhanced inspection of recyclables that were exported to China. The program, known as Feb-13 Operation Green Fence “Operation Green Fence,” was formally implemented in February 2013 and was billed as an aggressive inspection effort aimed at curtailing the amount of contaminated recyclables and waste that was being sent to China. In the first year of Operation Green Fence, almost 70 percent of all incoming containers loaded with recyclables were subjected to thorough inspections. Shippers had the most to lose, as anyone caught Progress on operation shipping substandard material could have their licenses revoked. Recyclers also were at risk as they could Feb-14 Green Fence face the financial burden of paying for the return of a container full of non-recyclable materials. In the U.S., the owners and managers of recycling centers quickly changed processes, added quality control stations and developed plans to upgrade recycling centers to improve the quality of recyclables.

Three years after the implementation of Operation Green Fence, most recyclers were producing a much higher quality material. Hundreds of millions of dollars had been invested in new and upgraded facilities. Impact of operation Feb-16 In doing so, the cost of collecting and processing recyclables had increased due to new equipment, Green Fence more labor and stringent quality control/quality assurance processes. These additional costs had been, passed along to municipalities and consumers who are paying more to get rid of their materials.

China enforced its new “National Sword” policy, which bans 24 types of solid waste, including various Jan-18 National Sword Policy plastics and unsorted mixed papers, and sets a much tougher standard for contamination levels. Aug-18 Trade war tarrifs China imposed 50% tariffs on aluminum scrap imports from the US Dec-18 Trade war tarrifs China imposed an additional 5% tariff on aluminum scrap imports Jan-19 New Resoultion China plans to cut imports of solid waste to zero by the end of 2020 China is restricting imports of further eight types of scrap metal from July 2019, including high-grade copper and aluminium scrap, known in China as ‘Category 6’. Category 6 aluminium scrap includes "Import Restriction twitch/zorba material, which makes up a vast majority of aluminium scrap that the US exports to China. Jul-19 List" and the new Companies that want to keep importing these items must apply for quotas from China’s environment Quota system ministry, demonstrating they have facilities to process the material in compliance with environmental protection standards. China annouced that it will move to new standards of scrap imports from July 2020. It placed the New Standards for Jan-20 minimum aluminium and aluminium alloy content at 100 percent for recycled aluminium ingot, 98 2HCY20 percent for aluminium castings, and 91 percent for aluminium blocks. Chinese scrap metal importers can apply for exemptions on tariffs of aluminum and copper scrap Tariff exemptions Mar-20 imports from the U.S. The policy is designed to help Chinese scrap metal consumers that have been amidst Covid-19 challenged by the slowdown in economic activity in that country related to the coronavirus pandemic. Latest quotas allow for Recent import quotas for scrap imports were higher and more generous as China intented to address Sep-20 higher quantities of domestic scrap shortage due to Covid-19 and efforts towarsd economic rebound scrap imports

Source: Kotak Institutional Equities estimates New scrap imports policy

China has introduced new standards for its imports of aluminium scrap effective from July 1, 2020. The new standards are set to replace the current quota policy in place since July 2019.

Under the new rules, three categories of scrap and secondary aluminum products have been identified, and will be allowed to be imported into China:

. Aluminum castings scrap with an aluminium content of over 98%

. Secondary ingot with 100% aluminium and aluminium alloy content

. Aluminum shredded scrap with a minimum metal content of 99.1% and an aluminum and aluminum alloy content of at least 91%

However, Chinese customs have not yet released key information regarding the specific HS codes for scrap shipments under the new policy. Once the new codes are

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Hindalco Industries Metals & Mining

issued, scrap that meets the specifications will be categorized as raw material and will be free of import restrictions. Until then, the current quota system will prevail.

These new measures are a further step towards its environmental campaign and plan to reduce imports of solid waste to zero by the end of 2020.

News reports are also speculating that all scrap with coating or painting will be banned as it could result in air pollution, which includes UBC. Historically China is not a big importer of direct UBC, nonetheless, a ban would add to UBC’s price pressure.

Impact of various scrap import restrictions

1) Decline in imports

China remained the largest import market for scrap; however, import volumes for aluminum scrap have been on a declining trend since 2011, led by

. Various restrictive policies

. The requirement for secondary feedstock like scrap began to fall as China’s smelting and refining capabilities grew.

. Rising wages gradually made the Chinese market an increasingly unattractive export market. Rising wages in China versus developed countries increased commercial processing costs.

2) New investments in China

In June 2020, Scholz Recycling and Weiqiao has announced to partner in developing a recycling plant in Shandong, China. Scholz Recycling GmbH and Shandong Weiqiao Pioneering Group have signed an MoU to develop a 0.2 mtpa recycling plant in Huimin, Shandong province China. The plant will produce secondary aluminum and process 50,000 end-of-life vehicles annually in an integrated recycling complex.

Scholz, a large European metal recycler was acquired by Chinese company Chiho Environmental Group in 2016. The acquisition was seen as a way of building intellectual property, in anticipation of rapid growth in scrap supply in China.

The MoU is a strong signal that Chinese policies towards scrap imports are achieving its objective to make Chinese companies focus on recycling.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Metals & Mining Hindalco Industries

Exhibit 9: We expect margins to recover but lower than management guidance Novelis EBITDA/ton assumptions, March fiscal year-ends, 2016-23E (US$/ton)

Novelis EBITDA (US$/ton) 476 500 460 450 444 450 418 381 376 400 354 350 327

300 253 250

200

2016

2017

2018

2019

2020

2021E

2023E

1QFY21

2022E - Base Case - Base 2022E 2022E - Guidance mid - Guidance 2022E

Source: Company, Kotak Institutional Equities estimates

Exhibit 10: Current market price implies 4.2X EV/EBITDA for Novelis Hindalco Industries valuation, scenario analysis (Rs/share, US$/ton, US$)

Guidance Spot Base Case Lower end Upper end Comments (Novelis - Base) (India-Spot) (India-Spot) India EBITDA Rs bn 45 50 50 50 Net Debt Rs bn 166 166 166 166 EV/EBITDA X 5.0 5.0 5.0 5.0 Equity Value Rs/share 26 38 38 38 Equity Value Rs bn 58 84 84 84

CMP Rs/share 160 160 160 160 Mcap Rs bn 356 356 356 356 Implied Novelis Equity Rs bn 299 272 272 272

Novelis Net Debt US$ bn 3.5 3.5 3.5 3.5 Implied EV US$ bn 7.4 7.1 7.1 7.1 Volume mn tons 3.8 3.8 4.0 4.0 EBITDA US$/ton 444 444 450 470 EBITDA US$ bn 1.70 1.70 1.80 1.88

Implied EV/EBITDA X 4.4 4.2 3.9 3.8

Fair Multiple X 6.5 6.5 6.5 6.5

Fair Value Rs/share 285 296 318 335

Source: Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Hindalco Industries Metals & Mining

Exhibit 11: Novelis trades at a discount to its peers Global non-ferrous company comparables

Price Year Mkt Cap. EV/EBITDA (X) PER (X) P/B (X) RoE (%) Currency Company (local) end (US$ bn) +1 year +2 year +1 year +2 year +1 year +2 year +1 year +2 year Novelis Comparables Arconic 19.5 US$ Dec 2.1 4.8 4.0 40.1 9.6 300 244 (2.4) 13.4 Constellium 8.0 US$ Dec 1.1 7.0 5.8 (18.3) 10.5 - - 20.8 375.2 Kaiser Aluminum 53.5 US$ Dec 0.8 7.6 6.3 18.8 11.3 1.2 1.2 6.5 12.8 UACJ Corporation 1,859.0 Jpy March 0.9 11.9 10.1 1,960.8 50.7 0.5 0.5 0.3 0.5 AMAG Group 26.6 Eur Dec 1.1 13.0 10.4 (501.1) 60.6 1.5 1.6 0.3 4.5 Aluminum Comparables Rusal 3.0 HKD Dec 5.9 17.6 12.7 7 4 0.8 0.7 9.7 15.4 Century Aluminum 7.7 US$ Dec 0.7 30.7 8.5 (9.4) (140.4) 0.8 0.8 (16.8) (9.5) Alcoa 12.1 US$ Dec 2.3 4.8 4.0 NA NA 0.7 0.7 (6.6) - China Hongqiao 4.7 HKD Dec 5.2 4.3 4.3 6.0 5.4 0.5 0.5 8.9 10.0 Chalco 1.7 HKD Dec 6.7 11.2 10.3 43 22 0.5 0.4 1.3 2.5 Hindalco 165 INR Mar 5.1 6.4 4.8 10.0 6.2 1.0 0.9 4.9 6.0 Granges 75.5 Sek Dec 0.6 8.2 5.6 20 9 1.2 1.1 6.5 12.5 Nanshan 2.4 Cny Dec 4.2 7.8 7.2 16.0 14.1 0.7 0.7 4.3 4.9

Source: Company, Kotak Institutional Equities estimates

Exhibit 12: Hindalco’s leverage remains high but is manageable with strong FCF generation

2018 2019E 2020 2021E 2022E 2023E Capex (Rs bn) India (15) (18) (25) (15) (25) (25) Novelis (15) (41) (42) (38) (30) (30) Consolidated (30) (60) (67) (53) (55) (55) FCF (Rs bn) India 23 20 (4) (12) 7 6 Novelis 23 29 27 25 45 68 Consolidated 46 49 23 12 52 74 FCF Yield (%) India 6% 6% -1% -3% 2% 2% Novelis 6% 8% 8% 7% 12% 19% Consolidated 13% 13% 6% 3% 14% 21% Net Debt (Rs bn) India 162 150 171 112 166 162 Novelis 231 241 223 368 266 198 Consolidated 393 391 394 481 432 360 EBITDA (Rs bn) India 62 62 44 39 44 47 Novelis 77 93 100 99 129 143 Consolidated 139 155 143 138 173 190 Net Debt/EBITDA (X) India 2.6 2.4 3.9 2.9 3.8 3.5 Novelis 3.0 2.6 2.2 3.7 2.1 1.4 Consolidated 2.8 2.5 2.8 3.5 2.5 1.9

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Metals & Mining Hindalco Industries

Exhibit 13: Hindalco Industries, key assumptions, March fiscal year-ends, 2016-23E (Rs mn)

2016 2017 2018 2019 2020 2021E 2022E 2023E India aluminum India aluminum volumes (000 tons) 1,139 1,266 1,281 1,300 1,290 1,238 1,276 1,276 LME aluminum prices (US$/ton) 1,594 1,689 2,042 2,050 1,750 1,675 1,700 1,725 Aluminum EBITDA (including Utkal) (Rs bn) 27 41 49 51 36 33 32 33 EBITDA/ton (Including Utkal) (US$/ton) 366 488 592 563 395 349 328 337 Implied production cost (US$/ton) 1,228 1,201 1,450 1,487 1,355 1,326 1,372 1,388 Copper India copper volumes (000 tons) 388 376 410 347 321 310 375 400 TCRC margin (cents/lb) 22 20 20 20 20 15 15 15 EBITDA (Rs bn) 15 15 15 17 12 7 13 15 EBITDA/ton (US$/ton) 578 577 582 692 517 313 452 497 Novelis Rolled product volumes (000 tons) 3,123 3,067 3,188 3,274 3,273 3,486 3,834 3,949 Adjusted EBITDA (US$ mn) 791 1,085 1,215 1,368 1,472 1,312 1,704 1,881 EBITDA/ton (US$/ton) 253 354 381 418 450 376 444 476 Adjusted EBITDA (Rs bn) 52 73 78 96 104 99 129 143 INR:US$ 65.4 67.1 64.5 70.1 70.9 75.5 76.0 76.0 Consolidated EBITDA (Rs bn) 88 124 139 155 143 138 173 190 Net Debt (Rs bn) 555 466 393 391 394 481 432 360 Net Debt/EBITDA 6.3 3.7 2.8 2.5 2.8 3.5 2.5 1.9

Source: Company, Kotak Institutional Equities estimates

Exhibit 14: Hindalco Industries, valuation, March 2022E basis (Rs mn)

Multiple Value (Rs mn) (X) (Rs mn) (Rs/share) Hindalco EBITDA 44,877 5.0 224,385 101 Novelis EBITDA 129,481 6.5 841,628 378 Total Enterprise Value 174,358 6.1 1,066,013 479 Add: Listed investments (@ 50% discount) 22,602 10 Less: Net debt (before divestment of Aleris assets) (516,796) (516,796) (232) Aleris divestment recovery 62,050 28 Arrived market capitalization 285 Fair value (Rs) 285

Source: Kotak Institutional Equities estimates

Exhibit 15: HNDL's EPS changes by 2.1% for 1% change in prices Exhibit 16: HNDL's FV changes by 1.5% for 1% change in prices EPS sensitivity of HNDL to aluminum prices, FY2022E (Rs) Fair Value sensitivity of HNDL to aluminum prices, FY2022E (Rs/share)

LME aluminum prices (US$/ton) Fair value (Rs/share) LME aluminum prices (US$/ton) 1,600 1,650 1,700 1,750 1,800 1,600 1,650 1,700 1,750 1,800 74.0 19.3 21.0 22.6 24.2 25.8 74.0 223 235 247 259 270 75.0 21.4 23.0 24.6 26.3 27.9 75.0 242 254 266 278 290 INR: USD INR: USD 76.0 23.4 25.1 26.7 28.4 30.0 76.0 260 272 285 297 309 rate rate 77.0 25.4 27.1 28.8 30.5 32.2 77.0 279 291 304 316 328 78.0 27.5 29.2 30.9 32.6 34.3 78.0 298 310 322 335 347

Source: Kotak Institutional Equities estimates Source: Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Hindalco Industries Metals & Mining

Exhibit 17: Hindalco Industries, non-commodity-based EBITDA is growing sharply with Aleris acquisition Divisional EBITDA for Hindalco, March fiscal year-ends (Rs mn)

2018 2019 2020 2021E 2022E 2023E EBITDA (Rs mn) Hindalco Novelis 74,525 93,053 92,008 99,049 129,481 142,918 Copper 15,387 16,830 11,760 7,322 12,882 15,110 Aluminum 48,906 51,329 36,093 32,649 31,775 32,678 Total 139,206 154,998 143,060 138,229 173,347 189,916

Commodity Based 35% 33% 25% 24% 18% 17% Non-Commodity Based 65% 67% 75% 76% 82% 83%

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Metals & Mining Hindalco Industries

Exhibit 18: Hindalco (consolidated), profit model, balance sheet and cash flow model, March fiscal year-ends, 2017-23E (Rs mn)

2017 2018 2019 2020 2021E 2022E 2023E Profit model (Rs mn) Net sales 1,001,838 1,151,828 1,305,423 1,180,440 1,263,645 1,426,773 1,494,437 EBITDA 124,474 139,206 154,998 143,060 138,229 173,347 189,916 Other income 11,110 11,046 11,271 11,860 12,828 12,650 12,582 Interest (57,424) (39,107) (37,780) (41,970) (41,349) (40,352) (36,588) Depreciation (44,688) (46,065) (47,662) (51,911) (59,429) (61,941) (64,584) Profit before tax 33,472 65,080 80,826 61,039 50,280 83,704 101,326 Extraordinaries (71) 17,742 - (1,800) - - - Taxes (18,399) (20,742) (25,880) (21,570) (14,343) (24,380) (29,687) Profit after tax 19,074 62,080 54,946 37,669 35,937 59,324 71,639 Reported net income 18,997 60,829 54,946 37,669 35,937 59,324 71,639 Adjusted net income 19,069 48,742 54,946 39,469 35,937 59,324 71,639 Fully diluted EPS (Rs) 8.6 21.9 24.8 17.8 16.2 26.7 32.3 Equity 460,588 548,517 575,010 583,170 616,443 673,102 742,077 Deferred tax liability 28,666 38,672 45,260 46,710 46,710 46,710 46,710 Total Borrowings 638,140 512,778 524,040 672,570 852,171 825,542 795,142 Current liabilities 337,614 293,867 297,990 283,390 311,575 338,837 350,145 Minority interest 62 86 90 100 100 100 100 Other Long Term Liabilites - 84,353 86,090 109,340 109,340 109,340 109,340 Total liabilities 1,465,069 1,478,273 1,528,480 1,695,280 1,936,338 1,993,631 2,043,514 Net fixed assets 675,518 638,866 641,850 660,670 785,381 793,840 799,657 Capital work in progress 18,139 20,629 40,971 77,210 17,820 2,820 (12,180) Goodwill 171,350 178,294 185,750 200,980 225,355 225,355 225,355 Investments 151,534 108,050 90,350 94,330 94,330 94,330 94,330 Cash 82,612 80,578 97,870 215,690 308,689 331,080 372,415 Other current assets 365,918 380,020 402,630 383,240 441,603 483,046 500,778 Deferred tax - 8,135 8,760 9,100 9,100 9,100 9,100 Other Non current assets - 63,701 60,299 54,060 54,060 54,060 54,060 Total assets 1,465,070 1,478,273 1,528,480 1,695,280 1,936,339 1,993,631 2,043,514 Net Debt 466,010 393,166 390,570 394,090 480,692 431,671 359,937 Free cash flow (Rs mn) Operating cash flow excl. working capital 67,720 88,235 125,070 102,010 95,365 121,265 136,222 Working capital changes 6,691 (12,716) (16,830) (11,780) (30,179) (14,180) (6,424) Capital expenditure (29,376) (29,557) (59,680) (67,070) (52,750) (55,400) (55,400) Free cash flow 45,034 45,962 48,560 23,160 12,437 51,685 74,398 P/E 19.1 7.5 6.6 9.2 10.1 6.1 5.1 P/B 0.8 0.8 0.8 0.8 0.8 0.8 0.8 EV/EBITDA 6.7 5.4 4.9 5.3 6.1 4.6 3.8 FCF Yield (%) 12.4 12.6 13.4 6.4 3.4 14.2 20.5 Net debt/equity (X) 1.0 0.7 0.7 0.7 0.8 0.6 0.5 Net debt/EBITDA (X) 3.7 2.8 2.5 2.8 3.5 2.5 1.9 RoAE (%) 4.4 9.7 9.8 6.8 6.0 9.2 10.1 RoACE (%) 5.9 6.8 7.6 6.1 4.8 5.9 6.3

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH ATTRACTIVE Gas Utilities India SEPTEMBER 24, 2020 UPDATE BSE-30: 37,668 Blue sky turning cloudy. PNGRB’s draft regulations for (1) determination of transportation rates for CGD and CNG and (2) declaration of CGD network as a common or contract carrier, set the stage to enable competition in CGD business, wherein margins have remain elevated for long due to regulatory oversight and generous policy support. We remain cautious on CGD stocks seeing material risks to profits in the medium term, while preferring GAIL and PLNG among gas utilities.

Draft regulations allow third-party access at tariffs generating 12% post-tax RoCE PNGRB has notified draft regulations for determination of transportation rate for CGD network and CNG segment, which will be effective for a geographical area post the end of exclusivity period from the purview of common or contract carrier. The draft regulations will require CGD entities to provide third-party access at regulated tariffs, which will be computed separately for CGD and CNG to yield post-tax RoCE of 12% on (1) net fixed assets, net of security deposit received from domestic customers for providing last mile connectivity, plus (2) normative working capital. The regulator has ingeniously put the onus of calculation of transportation rate on CGD entities, requiring them to compute it for each geographical area, based on lower of actual or normative data, disclose the calculations transparently on a public domain and review it annually for actual volumes for the given period—this will evade the typical disputes that arise whenever the regulator determines tariffs for any gas infrastructure.

Steps forward to provide open access and effectively encourage competition PNGRB has sought public comments on the draft regulations over the next 21 days, which will be followed by an open house discussion on October 16. Subsequently, these regulations will be notified in the official gazette post incorporation of any pertinent public/stakeholder feedback, as required. To make it effective, the regulator has to also notify regulations for declaring CGD network as common carrier or contract carrier; draft regulation was published in August 2019. In our view, PNGRB may also undertake a few steps to effectively encourage competition in the well-established CGD areas—(1) assure consistent availability of common carrier capacity on a transparent and non-discriminatory basis to the third-party players, perhaps with adequate penalties for non-availability and (2) ensure availability of low-priced domestic gas to the third-party players for CNG segment as per the government’s allocation priorities.

Competition plausible from OMCs and other gas utilities; direct access for state-transport buses (1) Downstream OMCs (BPCL, HPCL and IOCL) may prefer to market CNG directly through their network targeting larger share of profit pool instead of earning relatively lesser dealer commissions under the current scenario of selling CNG on behalf of the CGD operators. (2) State-transport bus fleets such as DTC and BEST may consider reducing fuel cost by directly sourcing gas for their fleet at outlets in their depots, through the network of IGL and MGL by paying regulated tariffs. (3) Private players such as Adani and Torrent may want to seek higher volume potential in established CGD areas instead of restricting themselves to lower volume potential of recently won licenses. (4) Gas marketers such as GAIL, GSPC and IOCL, may seek customers in industrial clusters for their growing LNG portfolio. Tarun Lakhotia

Material medium-term risks to CGD profits partly reflecting in recent de-rating of multiples Hemang Khanna We see material risks to profitability of extant players (IGL, MGL and Gujarat Gas) primarily in their CNG and industrial PNG segments, which are vulnerable to competition. Our preliminary calculations based on reported numbers for FY2020 suggest that EPS of the CGD companies would have been lower by 9-13% had 20% of volumes shifted on open access basis; the impact may have been more as open access provision for a minimum 20% of ‘capacity’ may enable competition to garner a higher percentage of actual volumes. We have used blended calculations given lack of disclosures on break-up of financials between segments/GAs. [email protected] Contact: +91 22 6218 6427

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

Exhibit 1: We compute 10-20% impact on profits of CGD entities, if they were to provide open access for 20-30% of volumes on regulated rates Potential impact of regulated transportation rates on CGD companies, March fiscal year-end, 2020 (Rs mn)

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

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

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

Source: Company, PNGRB, Kotak Institutional Equities estimates

Exhibit 2: IGL's gross margins on CNG and domestic PNG continue to rise Estimated gross margins on CNG and domestic PNG for IGL, April 2018 onwards (Rs/scm)

(Rs/scm) CNG Domestic PNG 18

17

16

15

14

13

12

Jul-20 Jul-18 Jul-19

Jan-20 Jan-19

Jun-18 Jun-19 Jun-20

Feb-19 Oct-19 Oct-18 Feb-20

Apr-20 Apr-18 Sep-18 Apr-19 Sep-19 Sep-20

Dec-18 Dec-19

Nov-18 Nov-19

Mar-19 Mar-20

Aug-18 Aug-19 Aug-20

May-18 May-19 May-20

Source: Company, Kotak Institutional Equities estimates

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Gas Utilities India

Exhibit 3: MGL's gross margins on CNG and domestic PNG continue to rise Estimated gross margins on CNG and domestic PNG for MGL, April 2018 onwards (Rs/scm)

(Rs/scm) CNG Domestic PNG 19

18

17

16

15

14

13

12

11

Jul-18 Jul-20 Jul-19

Jan-19 Jan-20

Jun-18 Jun-19 Jun-20

Oct-19 Feb-20 Oct-18 Feb-19

Apr-19 Sep-19 Sep-20 Apr-18 Sep-18 Apr-20

Dec-18 Dec-19

Nov-18 Nov-19

Mar-20 Mar-19

Aug-20 Aug-18 Aug-19

May-19 May-20 May-18

Source: Company, Kotak Institutional Equities estimates

Exhibit 4: Domestic gas price is estimated to decline to US$2/mn BTU in in the upcoming revision Calculation of domestic natural gas price, March year-ends, 1HFY19-1HFY22E (US$/mn BTU)

1HFY19 2HFY19 1HFY20 2HFY20 1HFY21 2HFY21E 1HFY22E Domestic gas price (US$/mn BTU) GCV basis 3.06 3.36 3.69 3.23 2.39 1.79 1.75 NCV basis 3.40 3.73 4.10 3.59 2.66 1.99 1.94

Gas prices (US$/mn BTU) Henry Hub (US) 3.0 2.9 3.1 3.0 2.6 2.1 2.1 Alberta Hub (Canada) 1.7 1.3 1.1 1.1 1.2 1.4 0.9 National Balancing Point (UK) 5.8 7.1 8.2 6.8 4.5 3.1 2.9 Domestic gas price in Russia 1.6 1.1 0.3 0.6 1.3 1.5 1.8 Weighted change (US$/mn BTU) Henry Hub (US) (0.0) 0.0 0.1 (0.0) (0.2) (0.2) 0.0 Alberta Hub (Canada) (0.0) (0.0) (0.0) (0.0) 0.0 0.0 (0.0) National Balancing Point (UK) 0.2 0.4 0.4 (0.5) (0.8) (0.5) (0.1) Domestic gas price in Russia (0.0) (0.1) (0.2) 0.0 0.1 0.0 0.0 Revision on GCV basis 0.2 0.3 0.3 (0.5) (0.8) (0.6) (0.0) Revision on NCV basis 0.2 0.3 0.4 (0.5) (0.9) (0.7) (0.0)

Source: Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 India Gas Utilities

Exhibit 5: IGL is trading at 24.8X forward EPS 12–month forward P/E for IGL, April 2010 onwards (X)

(X) 12-month forward consensus P/E for IGL (X) 35

30

25

20

15

10

5

-

Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Oct-18

Oct-19

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18 Apr-19 Apr-20

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 6: MGL is trading at 12.5X forward EPS 12–month forward P/E for MGL, June 2016 onwards (X)

(X) 12-month forward consensus P/E for MGL (X) 30

25

20

15

10

5

-

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Sep-16

Sep-17

Sep-18

Sep-19

Dec-16

Dec-17

Dec-18

Dec-19

Mar-17

Mar-18 Mar-19 Mar-20

Source: Bloomberg, Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Gas Utilities India

Exhibit 7: Gujarat Gas is trading at 20X forward EPS 12–month forward P/E for Gujarat Gas, September 2015 onwards (X)

(X) 12-month forward consensus P/E for GGL (X) 28

26

24

22

20

18

16

14

12

10

Feb-16

Feb-17

Feb-18

Feb-19

Feb-20

Nov-15

Nov-16

Nov-17

Nov-18

Nov-19

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

May-16

May-17

May-18 May-19 May-20

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 8: Valuation summary of Indian CGD companies, March fiscal year-ends, 2020-22E

KIE FV P/E (X) EV/EBITDA (X) rating (Rs) 2020 2021E 2022E 2020 2021E 2022E Indraprastha Gas SELL 380 24.4 28.4 19.7 17.9 20.3 14.3 Mahanagar Gas ADD 1,115 11.3 15.7 10.4 8.2 10.9 7.1 Gujarat Gas — — 23.0 24.8 18.6 13.3 13.8 10.9

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 ATTRACTIVE Transportation India SEPTEMBER 23, 2020 UPDATE BSE-30: 37,668

Domestic air travel: thoughts on recovery. After sharing our take on the trajectory of market share and spreads, we now share our take on the third key variable of recovery in volumes. We build in pre-Covid levels of volumes for the market by FY2023 and take comfort in (1) recent acceleration in share gains from rail, (2) modest share of corporate tie-ups in business travel, some part of which can become redundant and (3) dominant share of stickier VFR volumes in leisure travel. The pace of recovery in the near term is a trickier call and is best obviated through the play on the cash-rich outperformer in Indigo.

Share gains from rail continue post Covid, boosting the case of recovery in volumes

Air travel has accounted for majority share in growth for long-distance air-conditioned travel vs rail and the outperformance continues. For the recent two-week period, air travel is 32% of yoy levels versus 24% for air-conditioned rail travel. Put differently, current levels of air travel have increased to 1.8X long-distance air-conditioned rail travel versus 1.3X levels in FY2020. Beyond the near-term demand support, share gains from rail provide a long runway to grow.

Profile of domestic air traveler comforts on recovery towards pre-Covid levels over time

Corporate tie-ups account for minority share in business travel. Corporate tie-ups account for a minority 15%/30% share of overall/business travel for the market leader in Indigo. We consider this subset to be representative of travel within the services sector (financial, consultancy, other professional services), where some part of the travel can get substituted by online means of communication. The remainder part of business travel would revolve around a product offering and thus have limited scope of substituting for physical travel.

VFR travel and not tourism accounts for majority of leisure travel. Our assessment of the airport-wise traffic suggests that tourist and religious travel combined possibly accounts for 10%/20% of overall travel/leisure travel. Majority of the leisure travel comes on account of VFR or people visiting friends and relatives, which would likely normalize over time. The near-term test of recovery in VFR travel (and potentially of leisure travel) would be Diwali (happens in the first week of November).

Pace of recovery a trickier call; progress seen on rapid testing technique may not be as relevant

We note the recent approval of non-invasive and indigenous FELUDA test by DGCI. After, the Abbott test, this is the second one that scores high on accuracy, scalability and affordability. Such progress may not be very relevant for recovery in travel levels in the near term. Airlines would unlikely push the case for mandatory checking for domestic travel as they understand the impact it may have in deterring travel in the first place.

Indigo remains a reasonable bet in most scenarios of recovery

In Indigo, we see a protected play that covers up for near-term business pressures and still Aditya Mongia provides a play on a secular growth story of Indian air travel. Against the current 24%/32% yoy levels for AC rail/air travel, Indigo is currently operating at 40% levels. Such levels and current Teena Virmani load factors have reduced its loss run-rate and thus enhanced the ability of its current cash levels to last beyond March 2021; additional liquidity-boosting measures would help maintain positive free-cash position into 2HFY22. We envisage the loss-rate for Indigo to reduce to less than half by the time it reaches 60% of pre-Covid levels and Indigo to start earning profits from operations once it reaches 80% of pre-Covid volume levels.

[email protected] Contact: +91 22 6218 6427

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

Exhibit 1: Air travel has gained meaningfully versus rail travel in recent times Yoy comparison of air-conditioned passenger traffic levels in September 2020 month to date (%)

Sep 2020 (month to date) versus yoy levels 35 32 32

30 25 24 25 24

20

15

10

5

- 1AC 2AC 3AC Rail (long- Air travel distance and air- conditioned)

Source: : Indian Railways, Directorate General of Civil Aviation (DGCA), Kotak Institutional Equities

Exhibit 2: Air volumes have grown to become 1.8X rail travel recently Modal comparison of AC rail and air passenger travel in India, March fiscal year-ends, 2010-Sep 2020 (month to date)

Air (LHS, bn passenger kms) Rail (LHS, bn passenger kms) Air versus rail (RHS, X) 400 1.8 2.0 350 1.8 1.6 300 1.3 1.2 1.2 1.4

T housands 250 1.0 1.0 1.2 0.9 0.9 0.9 200 0.8 0.8 0.7 112 106 1.0 102 150 98 0.8 94 0.6 100 79 90 54 63 72 0.4 48 117 135 143 50 81 99 0.2 44 53 59 57 59 67

- -

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020 (month to date) (month September 2020 September

Source: Indian Railways, Directorate General of Civil Aviation (DGCA), Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 India Transportation

Exhibit 3: Corporate tie-ups account for a 15%/30% share of overall/business air travel for the market leader in Indigo, where the scope of substitution of physical travel by online means of communication would be higher Approximate split of traffic for the market leader in Indigo (%)

Approximate split of domestic air traffic Approximate split of domestic business traffic Through corporate tie-ups 30%

Leisure Business 50% 50%

Other business travel 70%

Source: Company, Kotak Institutional Equities

Exhibit 4: Metro-to-metro routes account for less than 30% of volumes, where the scope of substitution of physical travel by online means of communication would be higher Relative share and growth of domestic air passenger volumes split between metros and non-metros

Split of domestic passenger volumes (%) 100% 18 28 Between two metros 80%

60%

69 Between metro and non-metro 40% 65

20% Between two non-metros 7 12 0% 2020 Change over 2016-20

Notes: (a) We assume six metros in Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bengaluru

Source: DGCA, Kotak Institutional Equities estimates

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Transportation India

Exhibit 5: Tourism and religious travel accounts for 10%/20% of overall/leisure all travel; majority share of leisure travel likely comes from VFR travel Split of overall domestic airport traffic based on the key offering of the city for year ending March 2020 (%)

State capitals 15%

Business centres 9% Metro cities 62%

Tourist destinations 6%

Religious places 3%

Others 5%

Notes: (a) We assume six metros in Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bengaluru

Source: DGCA, Kotak Institutional Equities

Exhibit 6: The US and India solutions are approved by the relevant regulators Progress made in approving key rapid tests for Covid

Sensitivity/s pecitivity Sample Speed Scale (tests per hour (%) Cost Comment No comment on IATA criteria Saliva 60 minutes multiples of 00s 99/99 pricing Tests Scalability is a big concern as it involves a UK's DnaNudge test Nose swab <90 minutes <1 per box 94.4/100 NA box for testing Being tested in Delhi's Ram Manohar Israel breathylyser test Breath 30 seconds NA 100/84 NA Lohia hospital Does not require an instrument; Approved by FDA, US government has US's Abott test Nose swab <15 minutes ramping up production to 50 mn per 97.1/98.5 US$5 bought 150 mn tests month by October Recently approved by Drug Controller 45-60 US$6-7 (lower at India's FELUDA test Saliva NA 98/98 General of India (DGCI). Tata group to minutes commercial level) manufacture

Source: IATA, Industry reports, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 India Transportation

Exhibit 7: At 80% pre-Covid volume levels for Indigo/market, Indigo would generate cash Pro-forma loss metrics for Indigo versus Rs300 mn per day in June

Indigo's outperformance would mean KIE timelines Current 3QFY21 2HFY21 4QFY21 1QFY22 3QFY22 2QFY23 to requirement for market volumes Air volumes as share of pre-Covid levels versus 18% in June (%) would be 10-15% lower versus pre- Loss per day (Rs mn) 20 30 40 50 60 70 80 90 100 Covid levels 60 280 240 201 161 122 82 42 74 42 Load 65 276 234 193 152 110 69 27 53 19 factor Indigo's loss run-rate can reduce to 70 272 229 185 142 99 56 12 33 (4) less than half of June-20 levels at 50% versus 75 268 223 178 133 88 42 (3) 12 (26) pre-Covid volume levels 60% in 80 265 217 170 123 76 29 (18) (8) (49) June (%) 85 261 212 163 114 65 16 (33) (29) (72) Indigo would start earning cash at Quarters equivalent to Air volumes as share of pre-Covid levels versus 18% in June (%) reasonable load factors at 80% pre- end-Jun-20 free-cash (#) 20 30 40 50 60 70 80 90 100 Covid volume levels 60 3 3 4 5 7 10 20 11 20 Load 65 3 4 4 5 8 12 30 16 43 factor 70 3 4 4 6 8 15 68 25 At current 40% per-Covid volume versus 75 3 4 5 6 9 20 levels for Indigo, it has more than an 60% in year of free cash 80 3 4 5 7 11 28 NA June (%) 85 3 4 5 7 13 52

Notes: (a) We assume a contribution margin of Rs1.5/ASK for the above analysis (b) We assume benefits of 10% cut in employee count after June 2020 to adjust Rs300 mn/day loss run-rate seen in June 2020 (c ) We do not assume any liquidity-boosting measures beyond June-2020. If assumed, these would add 2-6 quarters of cash support to the above analysis (d) For levels beyond 80% of pre-covid demand, we assume lower contribution margin (Rs1.2 per ASK), higher fuel cost and employee cost.

Source: Company, Kotak Institutional Equities estimates

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Kotak Institutional Equities: Valuation summary of KIE Universe stocks 25 Fair O/S ADVT

Price (Rs) Value Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) 3mo Company Rating 23-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Automobiles & Components Amara Raja Batteries REDUCE 727 700 (4) 124 1.7 171 34 44 49 (10.9) 27.3 12.9 21 16.6 14.7 11.3 9.1 7.9 3.0 2.7 2.3 15.2 17.1 17.0 1.2 1.5 1.7 10.3 Apollo Tyres BUY 121 140 15 69 0.9 638 2.9 9.9 15.1 (64.7) 238.7 51.8 41.3 12.2 8.0 6.9 5.2 3.9 0.7 0.7 0.6 1.8 5.6 8.1 1.1 2.2 2.2 14.6 Ashok Leyland BUY 74 85 15 216 2.9 2,936 (0.4) 3.0 6.6 (134.0) 807.7 123.2 NM 24.8 11.1 32.7 11.4 6.4 3.0 2.8 2.4 NM 11.6 23 0.0 1.2 2.7 44 Bajaj Auto BUY 2,986 3,400 14 864 12 289 154 188 219 (12.6) 21.9 16.5 19.4 15.9 13.6 14.1 11.0 9.0 4.0 3.6 3.3 21 24 25 3.1 3.8 4.4 39 Balkrishna Industries SELL 1,349 1,150 (15) 261 3.5 193 48 58 71 (3.4) 21.7 21.0 28.1 23.1 19.1 15.9 13.1 10.8 4.7 4.2 3.7 17.6 19.3 21 1.6 1.8 2.0 14.2 Bharat Forge SELL 447 340 (24) 208 2.8 466 1 14 21 (87.3) 1,341.4 53.6 469.0 32.5 21.2 37.9 17.2 12.6 4.0 3.6 3.1 0.8 11.6 15.9 0.0 0.7 0.7 23 CEAT BUY 910 940 3 37 0.5 40 44 68 89 (30.5) 56.9 30.1 20.9 13.3 10.2 8.2 6.7 5.8 1.2 1.1 1.0 5.9 8.8 10.6 1.3 1.3 1.3 3.4 Eicher Motors REDUCE 2,076 1,920 (8) 567 7.7 272 59 82 106 (11.8) 39.2 28.7 35.1 25.2 19.6 26.3 18.7 13.9 5.9 4.9 4.1 18.0 21 23 0.6 0.6 0.6 73 Endurance Technologies REDUCE 1,060 875 (17) 149 2.0 141 29 46 57 (27.6) 59.6 22.1 36 22.8 18.7 14.9 10.6 8.7 4.5 3.8 3.3 12.2 16.8 17.5 0.4 0.7 0.9 1.6 Escorts BUY 1,214 1,300 7 108 2.2 101 55 74 88 1.4 34.2 17.8 21.9 16.3 13.9 12.7 9.1 7.3 2.5 2.2 1.9 11.2 13.4 13.9 0.7 0.9 1.1 42 Exide Industries REDUCE 157 155 (2) 134 1.8 850 7.8 9.1 9.9 (21.7) 16.5 9.0 20.2 17.3 15.9 10.8 9.4 8.7 2.0 1.9 1.7 10.2 11.2 11.4 2.2 2.2 2.2 9.2 Hero Motocorp REDUCE 2,957 2,700 (9) 591 8.0 200 141 169 202 (11.6) 20.2 19.2 21.0 17.5 14.7 12.9 10.4 8.5 3.9 3.6 3.3 19.2 21 23 3.1 3.4 4.1 63 Mahindra CIE Automotive SELL 139 95 (32) 53 0.7 378 1.6 7.5 11.3 (83.0) 366.5 49.9 86.6 18.6 12.4 13.6 7.5 5.5 1.1 1.1 1.0 1.3 5.9 8.2 ——— 0.5 Mahindra & Mahindra BUY 613 725 18 762 10.4 1,138 30 42 48 26.3 40.8 13.8 20.4 14.5 12.7 12.7 9.4 7.9 1.8 1.7 1.5 9.5 12.1 12.4 0.5 1.0 1.2 56 Maruti Suzuki SELL 6,501 4,500 (31) 1,964 26.7 302 140 225 284 (25.0) 60.2 26.6 46 29 23 27.3 16.3 12.2 3.8 3.5 3.1 8.5 12.6 14.4 0.7 0.9 1.1 117 Motherson Sumi Systems ADD 109 115 5 345 4.7 3,158 1.6 6.6 8.6 (55.6) 302.2 29.5 66.3 16.5 12.7 10.4 5.0 4.0 3.1 2.5 2.0 4.6 16.7 17.4 1.1 1.4 1.6 26 MRF SELL 57,212 58,500 2 243 3.3 4 2,159 2,896 3,578 (35.7) 34.2 23.5 26 19.8 16.0 9.7 7.7 6.2 1.9 1.7 1.5 7.2 9.0 10.1 0.1 0.1 0.2 13.8 Schaeffler India SELL 3,644 3,150 (14) 114 1.6 31 83 128 148 (29.7) 55.1 15.6 44 28 25 21.5 14.8 12.6 3.6 3.2 2.9 8.4 11.9 12.3 ——— 0.8 SKF REDUCE 1,462 1,550 6 72 1.0 49 43 58 72 (26.2) 33.6 25.3 34 25 20 24.6 17.7 13.8 4.9 4.2 3.6 14.5 16.7 17.9 7.4 0.7 0.8 1.3 Tata Motors SELL 131 90 (32) 473 5.9 3,829 (20.5) 4.2 12.6 1.0 120.3 202.2 NM 31.6 10.5 6.6 4.3 3.7 0.9 0.8 0.8 NM 2.7 7.7 ——— 127 Timken SELL 1,096 825 (25) 82 1.1 75 22 35 42 (34.2) 60.6 21.7 51 32 26 29.2 19.2 15.7 6.1 5.2 4.4 11.0 17.6 18.2 0.1 0.1 0.2 0.9 TVS Motor SELL 442 260 (41) 210 2.9 475 7.4 14.7 18.7 (43.1) 98.4 27.4 60 30 24 21.6 14.6 12.1 5.5 4.9 4.3 9.5 17.3 19.3 0.7 0.8 1.1 17.3 Varroc Engineering BUY 293 380 30 40 0.5 135 (14) 22 37 (7,416.5) 259.8 70.6 NM 13.5 7.9 10.0 5.3 3.7 1.4 1.3 1.1 NM 9.5 14.1 ——— 1.8 Automobiles & Components Cautious 7,684 104.8 (29.5) 151.7 33.1 53.3 21.2 15.9 12.9 8.5 6.9 2.7 2.5 2.2 5.0 11.6 13.8 1.2 1.4 1.6 698 Banks AU Small Finance Bank SELL 654 590 (10) 201 2.7 304 19.3 23.0 31.2 (13.1) 19.4 35.7 34 28 21 ——— 4.3 3.8 3.2 12.6 13.2 15.5 ——— 7.8 Axis Bank BUY 420 600 43 1,284 17.5 2,822 35.1 41 49 509.3 17.8 17.5 12 10.1 8.6 ——— 1.3 1.2 1.1 11.1 11.9 12.7 1.3 1.5 1.7 188 Bandhan Bank REDUCE 268 330 23 431 5.9 1,610 20.7 20.7 24.7 14.3 (0.3) 19.7 12.9 13.0 10.8 ——— 2.4 2.1 1.7 19.8 16.5 16.7 ——— 106 Bank of Baroda ADD 42 65 56 192 2.6 4,627 7.3 17.3 19 516.4 137.1 9.3 6 2.4 2.2 ——— 0.4 0.3 0.3 5.0 11.1 11.0 3.5 8.3 9.1 25 India Daily Summary Daily Summary India Canara Bank REDUCE 88 90 2 128 1.7 1,454 (5.0) 7.5 21.7 76.9 249.7 188.9 NM 11.7 4.1 ——— 0.4 0.4 0.4 NM 2.1 5.8 ——— 19.3 City Union Bank ADD 135 140 4 100 1.4 737 5.6 10.2 11.6 (13.8) 82.6 13.6 24 13.3 11.7 ——— 2.0 1.8 1.5 7.5 12.7 13.0 0.7 1.3 1.5 5.8 DCB Bank BUY 83 150 80 26 0.4 310 9.3 10.3 15.1 (14.7) 10.4 46.8 9.0 8.1 5.5 ——— 0.8 0.8 0.7 8.7 8.9 11.9 1.1 1.2 1.8 3.7 Equitas Holdings BUY 50 100 99 17 0.2 342 5.4 9.0 16.5 (10.4) 66.5 83.8 9.3 5.6 3.0 ——— 0.6 0.6 0.5 6.4 9.8 15.9 ——— 10.1 Federal Bank BUY 48 80 65 97 1.3 1,993 6.1 6.9 10.4 (21.2) 12.7 50.8 7.9 7.0 4.7 ——— 0.7 0.6 0.6 8.1 8.6 12.0 2.8 3.2 4.8 29 HDFC Bank ADD 1,047 1,200 15 5,763 78.4 5,483 49 54 64 2.9 10.3 18.6 21 19 16 ——— 3.0 2.7 2.4 14.9 14.6 15.5 0.9 1.0 1.2 216 ICICI Bank BUY 352 470 34 2,425 33.0 6,474 23.0 27 30 88.0 16.6 10.9 15 13.1 11.8 ——— 1.9 1.7 1.6 12.2 12.9 13.0 1.3 1.5 1.7 206 IndusInd Bank ADD 528 600 14 399 5.4 756 26 64 78 (59.2) 147.6 21.6 20 8.2 6.7 ——— 1.1 1.0 0.9 5.3 11.8 13.0 0.7 1.8 2.2 170 Karur Vysya Bank BUY 33 65 99 26 0.4 799 4.2 6 9 41.4 55.6 40.8 8 5.1 3.6 ——— 0.5 0.4 0.4 4.9 7.4 9.8 3.3 5.1 7.2 1.9 Punjab National Bank REDUCE 29 33 12 276 3.8 9,411 1 5 7 5.7 885.4 34.5 56 5.6 4.2 ——— 0.6 0.5 0.5 0.7 6.0 7.4 ——— 16.7 RBL Bank BUY 166 270 62 85 1.2 509 10.3 20 24 3.4 97.2 18.8 16 8.2 6.9 ——— 0.8 0.8 0.7 4.8 9.0 9.9 0.8 1.6 1.9 78 State Bank of India BUY 184 340 85 1,640 22.3 8,925 24 29 40 49.2 17.9 38.4 8 6.4 4.6 ——— 0.8 0.8 0.7 8.9 9.6 11.9 0.1 0.1 0.1 180 Ujjivan Financial Services BUY 206 490 138 25 0.3 121 33.6 44 - 24.9 31.6 (100.0) 6 4.6 - ——— 1.0 0.8 — 17.0 19.3 NM 2.0 2.9 0.0 14.3 Ujjivan Small Finance Bank ADD 32 39 21 56 0.8 1,728 2 2 3 (4.7) (2.9) 85.6 18 18.8 10.1 ——— 1.9 1.8 1.5 9.8 8.9 14.8 1.1 1.1 2.0 0.0 KOTAK INSTITUTIONAL INSTITUTIONAL KOTAK Union Bank REDUCE 25 25 (1) 161 2.2 6,407 (1) 0 4 86.0 135.5 901.5 NM 59.5 5.9 ——— 0.4 0.4 0.4 NM 0.5 4.7 (0.7) 0.3 2.5 2.3

YES Bank SELL 13 10 (24) 329 4.5 25,055 (1) (0) 0 89.7 84.7 190.1 NM NM 71.2 ——— 1.3 1.3 1.2 NM NM 1.4 0.0 0.0 0.0 39 -

Banks Attractive 13,662 185.9 97.2 36.7 27.2 17 12.2 9.6 1.3 1.2 1.1 7.6 9.5 11.0 0.8 1.1 1.3 1,318 2020 September 24,

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 23-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn)

Building Products Astral Poly Technik SELL 1,099 765 (30) 166 2.3 151 18.3 25 31 11.3 37.9 24.6 60 44 35 32.9 24.7 19.7 9.5 8.0 6.8 17.0 20.0 21 0.2 0.4 0.6 2.8 DailySummary Building Products Cautious 166 2.3 11.3 37.9 24.6 60 44 35 32.9 24.7 19.7 9.5 8.0 6.8 15.8 18.4 19.4 0.2 0.4 0.6 2.8 Capital goods ABB SELL 884 840 (5) 187 2.6 212 9 21 26 (50.0) 140.4 22.5 101 42 34 65.2 27.1 21.8 5.3 4.9 4.5 5.3 12.1 13.7 0.7 0.8 0.9 2.7 Ashoka Buildcon BUY 67 130 93 19 0.3 281 9.3 11.4 12.4 (32.8) 23.3 8.3 7.3 5.9 5.4 4.9 3.9 3.2 0.7 0.6 0.6 9.6 10.9 10.8 2.2 2.7 2.9 2.2 Bharat Electronics BUY 94 110 17 229 3.1 2,437 6.2 6.8 6.8 (16.5) 8.6 0.5 15.0 13.8 13.8 9.0 8.0 7.3 2.1 1.9 1.8 14.5 14.5 13.5 2.5 2.7 2.7 25 BHEL SELL 32 28 (11) 110 1.5 3,482 (2.2) 2.4 2.7 48.4 208.5 14.1 NM 13.3 11.6 (20.6) 5.6 4.8 0.4 0.4 0.4 NM 2.8 3.2 (3.1) 3.0 3.1 33 Carborundum Universal ADD 252 285 13 48 0.7 189 12.1 15.2 17.4 (15.9) 26.0 14.1 21 16.5 14.5 11.5 9.1 7.8 2.4 2.2 2.0 11.8 13.7 14.3 1.3 1.7 1.9 1.5 Cochin Shipyard BUY 312 530 70 41 0.6 132 38 46 38 (21.6) 21.8 (16.8) 8.2 6.7 8.1 3.9 4.0 4.2 1.0 0.9 0.9 12.9 14.3 11.0 3.8 4.1 4.5 2.8 Cummins India BUY 454 500 10 126 1.7 277 18 26 29 (28.8) 41.2 14.2 25 17.7 15.5 28.7 17.9 15.6 2.9 2.8 2.7 11.9 16.1 17.6 2.2 3.1 3.5 8.9

Dilip Buildcon BUY 347 545 57 48 0.6 137 27 46 65 (12.3) 73.2 40.4 13.0 7.5 5.4 5.4 4.0 3.3 1.2 1.0 0.9 9.6 14.7 17.5 0.1 0.3 0.3 2.4 -

IRB Infrastructure BUY 110 150 37 39 0.5 351 15 12 9 (26.7) (22.8) (21.0) 7.3 9.5 12.0 6.3 5.8 4.9 0.5 0.5 0.5 7.7 5.7 4.3 3.5 2.2 2.5 6.1 September 24, 2020 24, September Kalpataru Power Transmission BUY 240 470 96 37 0.5 153 25 39 44 (1.3) 57.4 11.8 9.6 6.1 5.4 4.2 3.7 3.1 1.0 0.9 0.8 10.9 15.4 15.1 1.4 1.9 2.2 1.8 KEC International BUY 306 360 18 79 1.1 257 24.5 30 34 11.6 24.3 12.6 12.5 10.0 8.9 7.3 6.0 5.3 2.4 2.0 1.6 21 21 20 0.9 1.1 1.2 2.0 L&T BUY 861 1,210 41 1,208 16.4 1,403 35 67 79 (44.9) 91.1 18.0 25 12.9 10.9 18.2 12.9 11.8 1.8 1.6 1.5 7.8 13.1 14.2 1.8 2.4 2.8 67

Sadbhav Engineering BUY 50 105 110 9 0.1 172 4.7 10.9 11.9 12.8 130.1 9.3 10.6 4.6 4.2 6.2 3.9 3.3 0.4 0.4 0.3 3.8 8.3 8.4 — — — 0.5 Siemens SELL 1,231 1,000 (19) 438 6.0 356 32 36 43 70.6 11.7 17.5 38 34 29 25.6 22.8 19.4 4.3 3.9 3.6 11.7 12.1 13.0 0.7 0.8 1.0 51 Thermax BUY 736 810 10 88 1.2 113 14 29 36 (24.9) 102.5 24.2 52 26 21 33.6 18.3 14.8 33.6 18.3 14.8 5.2 10.3 12.3 1.2 2.0 2.6 0.9 Capital goods Attractive 2,703 36.8 (27.4) 73.3 14.3 25 14.7 12.8 1.7 1.6 1.5 6.7 10.8 11.5 1.4 2.0 2.3 209 Commercial & Professional Services SIS BUY 368 395 7 54 0.7 149 14 19 23 (10.2) 36.2 26.3 27 19.9 15.7 12.2 10.3 8.8 3.5 3.0 2.5 13.6 16.1 17.4 0.2 0.3 0.3 0.7 TeamLease Services ADD 2,140 2,000 (7) 37 0.5 17 49 67 93 140.9 36.5 38.1 43 32 23 30.7 23.9 18.2 5.6 4.7 3.9 13.7 16.1 18.7 — — — 1.3 Commercial & Professional Services Attractive 91 1.2 10.1 36.3 29.8 32 23 17.9 15.8 13.0 10.8 4.1 3.5 2.9 12.8 15.0 16.3 0.1 0.2 0.2 2 Commodity Chemicals Asian Paints REDUCE 1,947 1,800 (8) 1,867 25.4 959 21.9 36.1 42.1 (19.4) 64.9 16.6 89 54 46 52.4 35.1 30.7 16.6 14.3 12.4 19.7 29 29 0.5 0.9 1.1 65

Berger Paints SELL 571 430 (25) 554 7.5 971 6.2 9.4 11.1 (8.5) 51.7 18.2 92 61 51 54.8 38.6 33.2 18.0 15.3 13.0 21 27 27 0.3 0.5 0.6 12.4

Kansai Nerolac ADD 477 485 2 257 3.5 539 8.1 12.6 14.7 (18.6) 55.3 17.4 59 38 32 36.9 24.9 21.6 6.4 5.8 5.4 11.2 16.0 17.6 0.6 0.9 1.1 2.1 Tata Chemicals ADD 294 330 12 75 1.0 255 23.1 35.2 39.3 (27.0) 52.2 11.9 12.7 8.3 7.5 4.8 3.7 3.2 0.6 0.5 0.5 4.5 6.6 7.1 2.8 4.2 4.7 11.7 Commodity Chemicals Neutral 2,753 37.5 (19.1) 59.6 16.2 74 46 40 39.0 27.3 24.0 8.7 7.9 7.1 11.8 17.0 17.9 0.5 0.9 1.1 92 Construction Materials ACC BUY 1,355 1,550 14 254 3.5 188 61.4 79.5 83.6 (15.1) 29.5 5.2 22 17.0 16.2 9.7 7.5 6.7 2.1 2.0 1.9 9.8 12.0 11.9 2.3 2.9 3.1 21 Ambuja Cements BUY 209 235 12 415 5.7 1,986 9.5 12.4 14.6 (10.2) 31.0 17.6 22 16.8 14.3 7.6 5.6 4.3 1.6 1.5 1.4 7.6 9.2 10.0 0.7 0.7 0.7 12.3 Dalmia Bharat BUY 750 1,075 43 140 1.9 192 18.4 38.5 60.6 31.9 109.3 57.3 41 19.5 12.4 7.2 5.5 4.4 1.3 1.2 1.1 3.3 6.6 9.6 — — — 1.6 Grasim Industries ADD 718 700 (3) 473 6.4 657 42.5 71.6 99.6 (19.3) 68.5 39.1 16.9 10.0 7.2 8.5 5.7 4.2 0.8 0.7 0.7 4.8 7.6 9.8 0.1 0.3 0.6 30 J K Cement ADD 1,501 1,550 3 116 1.6 77 52.2 96.1 115.6 (18.7) 84.0 20.2 29 15.6 13.0 12.2 8.2 6.9 3.5 2.9 2.4 12.6 20 20 0.7 0.7 0.7 2.0 JK Lakshmi Cement BUY 251 340 35 30 0.4 118 16.0 27.4 35.2 (32.0) 71.4 28.6 15.7 9.2 7.1 5.7 4.5 3.7 1.6 1.4 1.2 10.6 16.2 17.9 1.0 1.6 2.1 1.3 Orient Cement ADD 58 75 29 12 0.2 205 3.7 6.3 9.0 (12.9) 72.1 41.4 15.8 9.2 6.5 5.9 4.8 3.8 1.0 1.0 0.9 6.6 10.8 14.0 3.4 3.4 3.4 0.3 Shree Cement SELL 18,952 16,000 (16) 684 9.3 36 382.0 651.5 720.3 (12.2) 70.5 10.6 50 29 26 20.0 13.9 12.2 4.9 4.3 3.8 10.3 15.8 15.3 0.6 0.6 0.6 18.5 UltraTech Cement BUY 3,869 4,600 19 1,117 15.2 289 133.7 219.9 284.3 0.6 64.4 29.3 29 17.6 13.6 13.2 9.0 7.1 2.6 2.3 2.0 9.4 13.9 15.6 0.4 0.5 0.6 29 Construction Materials Attractive 3,241 44.1 (10.1) 59.6 26.8 27 16.8 13.2 10.8 7.5 6.0 1.9 1.7 1.5 7.1 10.3 11.6 0.6 0.7 0.8 117

Source: Company, Bloomberg, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH

26

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 23-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Consumer Durables & Apparel Crompton Greaves Consumer SELL 272 210 (23) 171 2.3 627 6.9 8.8 19.5 (12.8) 27.1 121.9 39 31 14.0 29 23 10 8.9 7.3 3.1 26 26 48 0.0 0.9 1.8 3.1 Havells India SELL 675 490 (27) 422 5.7 626 8.7 13.8 16.2 (26.1) 58.5 17.7 78 49 42 51 33 28 9.1 8.2 7.4 12.2 17.7 18.7 0.5 0.7 0.8 17.1 Page Industries REDUCE 19,375 18,250 (6) 216 2.9 11 240 407 474 (22.2) 70.0 16.3 81 48 41 50 32 27 23.4 18.9 15.7 31 44 42 0.7 1.2 1.5 13.6 Polycab ADD 827 875 6 123 1.7 149 40 53 58 (21.5) 30.7 10.5 20 15.7 14.2 14 11 9 2.8 2.5 2.1 14.7 16.8 16.2 0.7 0.9 1.0 3.9 TCNS Clothing Co. REDUCE 390 360 (8) 24 0.3 66 0 14 17 (99.8) 69,289.2 24.5 19,492 28 23 26 10 8.8 3.7 3.1 2.6 0.0 11.9 12.6 — — — 0.3 Vardhman Textiles ADD 741 720 (3) 43 0.6 57 25 90 104 (70.8) 260.6 16.1 30 8.3 7.1 11.4 5.4 4.6 0.7 0.6 0.6 2.3 8.0 8.7 1.7 2.7 3.4 0.4 Voltas SELL 666 530 (20) 221 3.0 331 12.9 19.7 22.8 (20.8) 52.8 16.1 52 34 29 47 28 24 4.8 4.4 4.0 9.6 13.5 14.2 0.5 0.8 0.9 19.7 Whirlpool SELL 2,053 1,700 (17) 260 3.5 127 30 49 61 (21.3) 67.1 24.4 70 42 33 47 29 23 9.3 8.4 7.6 14.1 21 24 0.4 1.0 1.5 2.1 Consumer Durables & Apparel Cautious 1,480 20.1 (28.7) 62.5 53 33 25 34 22 17 5.7 5.1 10.7 15.5 16.6 0.5 0.9 60 Consumer Staples Bajaj Consumer Care ADD 183 200 10 27 0.4 148 12.8 13.1 14.1 2.1 2.7 7.7 14.3 13.9 12.9 10.9 10.5 9.3 3.6 3.2 3.0 27 24 24 3.3 4.4 4.9 3.4 Britannia Industries ADD 3,625 4,150 14 873 11.9 240 81 86 100 36.7 6.3 16.6 45 42 36 34 32 27 16.4 13.0 10.5 39 34 32 0.8 0.9 1.1 40 Colgate-Palmolive (India) ADD 1,354 1,550 14 368 5.0 272 31 36 42 8.1 18.0 14.9 44 37 33 28.2 24.2 21.3 23.0 21.8 20.7 52 60 65 2.1 2.5 2.9 15.2 Dabur India REDUCE 486 415 (15) 859 11.7 1,767 9.5 11.0 12.3 10.2 15.3 11.9 51 44 40 41 35 31 12.0 10.9 9.9 24 26 26 1.2 1.4 1.6 23 Godrej Consumer Products ADD 679 750 10 694 9.4 1,022 15.4 18.5 21.2 11.8 20.3 14.6 44 37 32 30 25 22 7.7 7.0 6.3 18.6 19.9 21 1.1 1.4 1.7 13.0 Hindustan Unilever ADD 2,053 2,500 22 4,823 65.6 2,343 35 45 53 12.3 28.1 17.1 59 46 39 41 33 28 11.1 10.6 10.1 32 24 27 1.6 2.0 2.3 77 ITC BUY 173 260 51 2,123 28.9 12,308 10.5 12.3 13.6 (9.4) 17.9 9.8 16.5 14.0 12.7 11.6 9.6 8.6 3.2 3.1 3.0 18.9 22 24 5.2 6.1 6.7 83 Jyothy Laboratories ADD 144 160 11 53 0.7 367 5.5 6.0 6.9 17.5 9.1 13.5 26 24 21 17.8 16.4 14.6 4.0 3.8 3.6 16.1 16.6 17.7 2.4 2.8 3.1 1.7 Marico ADD 340 390 15 439 6.0 1,290 8.7 9.7 10.5 7.7 11.2 8.5 39 35 32 27 24 22 13.5 12.6 12.3 36 37 39 2.1 2.3 2.6 13.7 Nestle India REDUCE 15,363 16,000 4 1,481 20.2 96 227 270 317 10.9 19.1 17.4 68 57 49 45 39 34 60.3 48.2 39.1 100 94 89 1.1 1.3 1.6 32 Tata Consumer Products ADD 494 470 (5) 455 6.2 922 9.8 11.9 13.5 22.3 22.4 12.9 51 41 37 26 24 22 3.1 3.0 2.9 6.4 7.4 8.0 0.7 0.9 1.0 33 United Breweries ADD 963 1,120 16 255 3.5 264 4.9 20.3 26.3 (70.0) 318.8 29.5 199 47 37 56 24 20 7.1 6.2 5.5 3.6 14.1 16.0 0.1 0.6 0.9 10.8 United Spirits ADD 509 620 22 370 5.0 727 8.6 14.0 16.9 (25.0) 62.8 20.6 59 36 30 31 22 19 8.1 6.6 5.7 14.6 20 20 — — 1.0 22 Varun Beverages BUY 679 825 22 196 2.7 289 6.5 25.5 32.5 (60.0) 291.5 27.7 104 27 21 21 12 10 5.5 4.6 3.9 5.4 18.9 20 0.2 0.3 0.4 2.8 Consumer Staples Attractive 13,014 177.1 2.4 23.3 14.0 40 32 28 28 23 20 7.8 7.3 6.9 19.6 23 24 1.9 2.3 2.7 370 Diversified Financials Bajaj Finance REDUCE 3,244 2,800 (14) 1,955 26.6 600 74 131 173 (28) 77 32 44 25 18.8 — — — 5.4 4.5 3.7 13.0 19.8 22 0.2 0.4 0.5 397 Bajaj Finserv BUY 5,647 7,600 35 899 12.2 159 252 402 522 19 60 30 22 14.1 10.8 — — — 2.6 2.2 1.9 12.1 16.8 18.7 0.2 0.2 0.2 77

Cholamandalam BUY 230 300 30 188 2.6 820 13.9 20.2 24.6 8 45.0 22.0 16.5 11.4 9.3 — — — 2.3 1.9 1.6 13.1 16.7 17.5 0.7 1.0 1.2 32 Daily Summary India IIFL Wealth ADD 980 1,200 22 86 1.2 88 33.4 48.7 65.1 41 45.8 33.6 29 20 15.1 — — — 2.8 2.7 2.5 9.7 13.7 17.5 2.2 3.2 3.3 0.6 L&T Finance Holdings ADD 60 90 51 119 1.6 2,005 5 9 14 (44.2) 85 57.1 12.6 6.8 4.3 — — — 0.8 0.7 0.6 6.3 10.9 15.3 2.4 2.7 2.7 16.2 LIC Housing Finance ADD 278 375 35 140 1.9 505 44.0 71.5 83.5 (8) 62.6 16.7 6.3 3.9 3.3 — — — 0.9 0.7 0.6 11.6 16.8 17.1 2.7 4.3 5.0 22 Muthoot Finance REDUCE 1,046 1,100 5 420 5.7 401 77 87 102 2.4 13 16.8 13.6 12.0 10.3 — — — 3.0 2.5 2.1 24 23 22 1.5 1.7 1.9 53 Shriram City Union Finance BUY 909 1,300 43 60 0.8 66 101 177 192 (33.3) 75 8.3 9.0 5.1 4.7 — — — 0.8 0.7 0.6 8.9 14.1 13.6 1.4 2.9 3.2 1.0 Shriram Transport BUY 613 1,050 71 155 2.1 253 73.2 107.4 142.5 (34) 46.6 32.8 8.4 5.7 4.3 — — — 0.8 0.7 0.6 9.5 12.2 14.5 1.8 2.6 3.5 46 Diversified Financials Attractive 7,216 98.2 (22.7) 39.9 24.9 23 16.3 13.0 2.6 2.3 2.1 11.4 14.2 16.0 0.9 1.2 1.4 807

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL INSTITUTIONAL KOTAK

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September 24, 2020 24, September

EQUITIES RESEARCH EQUITIES

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 23-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn)

Electric Utilities Daily Summary DailySummary CESC BUY 651 820 26 86 1.2 133 108 124 135 10 14.8 8.3 6.0 5.2 4.8 4.7 4.2 3.7 0.6 0.6 0.5 11.0 11.4 11.3 1.9 2.0 2.3 3.5 JSW Energy BUY 57 65 14 94 1.3 1,640 4.8 5.3 5.6 (25) 12 4.7 12.0 10.8 10.3 5.8 5.0 4.5 0.8 0.7 0.7 6.5 6.8 6.6 0.0 — — 2.2 NHPC ADD 20 26 29 202 2.7 10,045 3.0 3.2 3.3 5.9 9 1.2 6.8 6.2 6.2 8.0 7.1 6.6 0.6 0.6 0.6 9.3 9.8 9.5 8.6 9.3 9.3 1.8 NTPC BUY 85 130 53 842 11.5 9,895 13.0 15.4 16.6 17.3 18.3 7.7 6.5 5.5 5.1 7.6 5.9 5.1 0.7 0.6 0.6 11.0 12.0 11.9 4.3 5.4 5.9 34 Power Grid BUY 164 220 34 857 11.7 5,232 22.0 25 28 6 16.1 8.9 7.5 6.4 5.9 6.3 5.6 5.1 1.2 1.1 1.0 17.2 18.3 18.1 6.5 7.5 8.2 25 Tata Power BUY 53 70 31 171 2.3 2,705 4.4 6.3 7.1 0 42 12.9 12.0 8.5 7.5 8.1 7.4 6.9 0.8 0.7 0.6 6.4 8.5 8.8 0.0 — — 25 Electric Utilities Attractive 2,253 30.7 9.1 17.1 7.8 7.3 6.2 5.8 0.8 0.8 0.7 11.4 12.3 12.3 4.9 5.8 6.2 93 Fertilizers & Agricultural Chemicals Bayer Cropscience SELL 5,997 3,400 (43) 270 3.7 45 134.2 149.9 166.0 3.8 11.7 10.8 45 40 36 32 28 25 8.8 7.5 6.4 21 20 19.2 0.4 0.5 0.6 3.0 Dhanuka Agritech SELL 766 650 (15) 36 0.5 48 37.0 40.8 45.8 24.4 10.4 12.2 20.7 18.8 16.7 15.4 13.6 11.9 4.3 3.7 3.3 23 21 21 1.2 1.6 2.1 1.7

Godrej Agrovet SELL 502 420 (16) 96 1.3 192 14.9 17.5 20.4 29.1 17.2 17 34 29 25 17 15 13 3.9 3.6 3.2 12.3 13.0 13.6 1.0 1.2 1.4 1.7 -

PI Industries SELL 1,896 1,600 (16) 288 3.9 152 45.6 57.8 69.2 38.0 27 20 42 33 27 28 22 18 9.0 7.3 6.0 24 25 24 0.4 0.5 0.7 7.7 September 24, 2020 24, September Rallis India SELL 286 265 (7) 56 0.8 195 11.3 14.8 18.0 25.0 30.9 21.4 25.3 19.3 15.9 17.0 13.3 10.8 3.5 3.1 2.7 14.7 17.0 17.9 1.0 1.1 1.2 4.9 UPL SELL 532 390 (27) 407 5.5 765 31.9 36.5 40.2 37.6 14.2 10.3 17 14.6 13.2 8.3 7.6 6.8 2.2 2.0 1.8 14.2 14.6 14.4 1.6 1.8 2.0 36 Fertilizers & Agricultural Chemicals Cautious 1,152 15.7 31.8 16.7 13.1 26 22 19.8 12.7 11.4 10.1 3.9 3.5 3.1 15.1 15.5 15.5 0.9 1.1 1.2 55 Gas Utilities GAIL (India) BUY 86 140 63 387 5.3 4,510 7.6 11.0 12.4 (42.1) 44.8 12.3 11.2 7.8 6.9 8.2 5.7 4.9 0.8 0.8 0.8 7.7 10.6 11.2 4.7 5.8 7.0 20 GSPL SELL 199 200 0 113 1.5 564 13.2 11.8 8.0 (23.1) (10.6) (32.2) 15.1 16.9 24.9 6.0 6.3 8.3 1.5 1.4 1.4 10.6 8.7 5.6 1.0 1.2 1.0 3.1 Indraprastha Gas SELL 407 380 (7) 285 3.9 700 14.4 20.7 23.1 (13.9) 44.1 11.5 28.4 19.7 17.7 19.7 13.8 12.2 4.9 4.2 3.7 18.6 23 22 0.7 1.1 1.5 24 Mahanagar Gas ADD 843 1,115 32 83 1.1 99 53.8 81.3 86.6 (27.9) 51.1 6.5 15.7 10.4 9.7 10.1 6.5 5.8 2.5 2.2 2.0 17.0 23 22 2.4 4.1 4.8 14.2 Petronet LNG BUY 216 300 39 323 4.4 1,500 18.3 21.7 24.1 3.6 18.6 11.4 11.8 9.9 8.9 6.4 5.5 5.0 2.8 2.6 2.5 24 27 29 6.4 8.1 9.6 14.8 Gas Utilities Attractive 1,191 16.2 (26.2) 31.8 8.9 14.1 10.7 9.8 8.7 6.6 6.0 1.6 1.5 1.4 11.5 14.1 14.4 3.7 4.8 5.7 76 Health Care Services Apollo Hospitals BUY 1,818 1,840 1 253 3.4 139 -18.1 32 60 (198) 277 86 NM 56.6 30.5 34.5 16.2 13.3 7.9 7.3 6.0 NM 13.4 21 (0.4) 0.7 1.3 26 Dr Lal Pathlabs SELL 1,814 1,300 (28) 151 2.1 83 26.7 37.2 42.9 (1.4) 39.2 15.5 68.0 48.8 42.3 42.4 29.7 26.4 12.7 10.8 9.1 20 24 23 0.4 0.6 0.7 4.1

HCG BUY 121 150 24 15 0.2 143 (8.7) (2.4) (1.7) 28 73 27 NM NM NM 12.5 6.9 5.9 1.8 1.9 1.9 NM NM NM — — — 0.3

Metropolis Healthcare SELL 1,737 1,300 (25) 88 1.2 51 30.0 39.7 44.6 (0.1) 32.5 12 58.0 43.8 39.0 35.0 27.3 23.9 14.1 11.7 9.8 26 29 27 0.5 0.7 0.8 4.6 Narayana Hrudayalaya BUY 330 345 5 67 0.9 204 -7.4 7.6 10.8 (227.9) 202 42 NM 43.5 30.5 61.6 14.6 11.9 6.8 5.9 5.0 NM 14.6 17.7 — — — 1.0 Health Care Services Attractive 643 8.8 (96) 3,576 42 1,555.3 42.3 29.8 24.1 14.1 12.0 6.2 5.6 4.8 0.4 13.2 16.2 0.0 0.5 0.8 37 Hotels & Restaurants Jubilant Foodworks ADD 2,316 2,500 8 306 4.2 133 13 34 44 (45) 163.1 30 178.9 68.0 52.2 40.9 26.1 21.5 25.4 19.3 15.4 14.7 32 33 0.2 0.5 0.6 29 Lemon Tree Hotels BUY 27 35 32 21 0.3 790 -1.2 0.6 1.0 (932) 147 77 NM 45.6 25.7 34.1 11.5 7.9 2.9 2.8 2.6 NM 6.2 10.6 — 1.0 1.5 1.1 Hotels & Restaurants Attractive 327 4.4 (76) 579 35 443.0 65.3 48.3 40.0 22.9 18.2 16.9 13.9 11.6 3.8 21 24 0.2 0.5 0.7 30 Insurance HDFC Life Insurance REDUCE 580 560 (3) 1,172 15.9 2,010 6.8 7.4 7.8 5.8 8.2 6.3 85 79 74 — — — 15.3 14.1 13.0 18.8 18.7 18.3 0.3 0.3 0.3 29 ICICI Lombard SELL 1,258 950 (24) 572 7.8 454 32.1 34.3 37.9 22 7 11 39 37 33 — — — 7.7 6.7 5.8 21 20 18.7 0.3 0.6 0.6 9.2 ICICI Prudential Life BUY 409 500 22 587 8.0 1,436 8.5 9.6 9.9 14 13.2 3.4 48 42 41 — — — 6.9 6.1 5.5 15.2 15.2 14.0 0.3 0.4 0.4 14.5 Max Financial Services NR 588 — — 159 2.2 343 9.5 26.7 16.0 (6) 180 (40) 62 22 37 — — — — — — 13.5 38 17.3 — 1.1 0.3 13.4 SBI Life Insurance BUY 833 1,050 26 833 11.3 1,001 15.5 16.6 17.7 8.9 7.4 6.5 54 50 47 — — — 9.0 7.8 6.9 18.0 16.7 15.5 — 0.3 0.3 16.1 Insurance Attractive 3,322 45.2 13.0 22.0 (0.6) 56.0 45.9 46 9.4 7.6 7.2 16.7 16.6 15.6 0.2 0.3 0.3 83

Source: Company, Bloomberg, Kotak Institutional Equities estimates

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH

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Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 23-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Internet Software & Services Info Edge SELL 3,389 2,800 (17) 436 5.9 128.3 26.7 43.1 52.8 (0.7) 61.3 22.4 126.8 78.6 64.2 117.0 71.7 56.7 9.5 8.7 7.9 9.8 11.6 12.9 0.2 0.3 0.4 20 Just Dial ADD 362 400 11 23 0.3 61.8 24.7 29.9 35.5 (41.1) 21.0 18.8 14.6 12.1 10.2 7.2 4.8 3.2 1.8 1.6 1.4 12.2 14.1 14.5 — — — 10.1 Internet Software & Services Cautious 459 6.2 (17.6) 48.9 21.5 92.7 62.2 51.2 84.7 56.1 45.6 7.9 7.2 6.5 8.6 11.6 12.6 0.2 0.3 0.4 30 IT Services HCL Technologies ADD 814 900 11 2,209 30.1 2,716 44.6 48.4 52.9 9.3 8.7 9.2 18.3 16.8 15.4 11.0 10.0 8.9 3.7 3.2 2.7 22 20 19.2 1.3 1.7 1.7 75 Hexaware Technologies REDUCE 468 375 (20) 141 1.9 302 23.3 24.6 26.4 9.7 5.8 7.3 20.1 19.0 17.7 13.3 11.8 10.6 4.4 3.9 3.4 23 22 21 1.7 2.1 2.6 8.0 Infosys BUY 1,020 1,115 9 4,344 59.1 4,259 40.5 45.2 50.9 4.0 11.7 12.5 25.2 22.5 20.0 16.8 15.0 13.3 6.1 5.6 5.1 25 26 27 2.5 2.9 3.4 153 L&T Infotech ADD 2,448 2,800 14 427 5.8 176 91.0 110.6 130.3 5 21.5 17.8 26.9 22.1 18.8 17.4 15.1 12.8 6.8 5.7 4.8 27 28 28 1.3 1.4 1.6 7.2 Mindtree REDUCE 1,298 980 (24) 214 2.9 165 54.9 62.5 67.0 43 14 7 23.6 20.8 19.4 14.2 12.5 11.7 5.7 4.8 4.1 26 25 23 1.3 1.4 1.5 18.6 Mphasis REDUCE 1,384 1,100 (21) 258 3.5 187 64.3 70.6 77.7 1 9.9 10.1 21.5 19.6 17.8 14.0 12.5 11.2 4.0 3.7 3.3 19.6 19.6 19.5 2.5 2.5 2.5 7.9 TCS REDUCE 2,467 2,320 (6) 9,259 126.0 3,752 83.6 94.1 102.5 (3) 12.5 8.9 29.5 26.2 24.1 20.9 18.8 17.0 10.0 9.3 8.6 35 37 37 2.7 3.1 3.3 132 Tech Mahindra BUY 793 845 7 691 9.4 880 40.8 51.3 61.0 (11.0) 25.7 18.9 19.4 15.5 13.0 10.9 8.5 7.0 2.9 2.6 2.3 15.7 17.9 19.0 1.9 2.2 2.4 55 Wipro ADD 315 285 (9) 1,799 24.5 5,703 17.0 18.2 19.8 2.4 7.1 8.6 18.5 17.3 15.9 11.4 10.4 9.3 2.8 2.6 2.4 16.2 15.7 15.9 0.6 2.7 2.9 61 IT Services Attractive 19,341 263.2 0.9 11.8 10.4 24.7 22.1 20.0 16.3 14.7 13.1 5.8 5.3 4.8 24 24 24 2.2 2.7 3.0 517 Media DB Corp. REDUCE 76 81 7 13 0.2 175 5.3 14.1 14.2 (66.5) 166.7 1.2 14.4 5.4 5.3 4.6 2.3 2.4 0.8 0.8 0.8 5.4 14.3 14.6 2.6 15.8 17.1 0.4 Jagran Prakashan REDUCE 37 37 1 10 0.1 281 3.9 7.3 8.4 (43.6) 87 NA 9.3 5.0 NA 1.9 1.2 NA 0.5 0.5 NA 5.7 10.3 11.5 5.5 13.7 13.7 0.4 PVR BUY 1,117 1,650 48 62 0.8 55 -70.7 55.6 71.5 (344) 179 29 NM 20.1 15.6 (36.8) 8.4 7.0 2.8 2.5 2.2 NM 13.1 14.9 (0.6) 0.5 0.6 38 Sun TV Network REDUCE 461 435 (6) 182 2.5 394 34.9 39.7 41.7 (2) 13.6 5.0 13.2 11.6 11.1 8.8 7.8 7.4 3.1 3.0 2.9 24 26 26 5.4 6.0 6.5 17.2 Zee Entertainment Enterprises ADD 192 250 30 184 2.5 960 11.5 17.3 19.1 2.9 50.8 10.4 16.7 11.1 10.0 10.0 6.7 5.6 1.8 1.6 1.5 11.4 15.7 15.5 1.8 2.1 2.3 94 Media Cautious 451 6.1 (25.8) 73.9 9.3 19.7 11.3 10.4 10.8 6.6 5.8 2.1 1.9 1.8 10.5 17.0 17.2 3.0 4.1 4.5 150 Metals & Mining Hindalco Industries BUY 165 285 72 372 5.1 2,220 16.2 26.7 32.3 (8.9) 65.1 21 10.2 6.2 5.1 6.2 4.6 3.9 0.6 0.5 0.5 6.0 9.2 10.1 0.6 0.6 0.6 41 Hindustan Zinc BUY 213 290 36 898 12.2 4,225 15.3 20.1 21.3 (5.0) 31.5 5.9 13.9 10.6 10.0 7.7 5.9 5.5 2.7 2.7 2.7 17.5 25 27 7.2 9.5 10.0 6.1 Jindal Steel and Power BUY 176 280 59 179 2.4 1,020 12.8 20.4 21.7 267 60 6 13.8 8.6 8.1 5.4 4.6 4.3 0.5 0.5 0.5 4.0 6.0 6.0 — — — 39 JSW Steel ADD 268 300 12 648 8.8 2,402 12.6 24.7 31.4 25.0 96 26.9 21.3 10.8 8.6 8.8 6.1 5.2 1.6 1.4 1.2 8.0 14.2 15.7 0.8 0.8 0.8 34 National Aluminium Co. SELL 32 26 (18) 59 0.8 1,866 0.9 1.4 2.4 19 64 64.8 36.2 22.0 13.4 5.9 6.1 5.5 0.6 0.6 0.6 1.6 2.6 4.3 0.0 2.3 3.7 8.0 NMDC REDUCE 80 110 37 246 3.3 3,062 13.5 11.1 12.3 (7.4) (18.4) 12 5.9 7.3 6.5 3.9 4.7 4.4 0.8 0.8 0.7 14.5 11.1 11.7 8.4 6.9 7.7 12.0

Tata Steel BUY 361 550 52 411 5.6 1,146 (0.6) 69.1 84.3 (102) 11,982 22 NM 5.2 4.3 8.5 5.1 4.7 0.6 0.5 0.5 NM 11.0 12.2 2.8 3.6 3.9 82 Daily Summary India Vedanta BUY 130 165 27 483 6.6 3,717 11.6 17.8 20.7 77 54 16.5 11.3 7.3 6.3 5.1 4.0 3.5 0.9 0.9 0.8 7.9 11.9 13.3 9.4 8.7 11.4 33 Metals & Mining Attractive 3,297 44.9 (2.4) 77.9 16.9 14.4 8.1 6.9 6.7 5.0 4.5 1.0 0.9 0.9 6.9 11.5 12.4 4.5 5.1 5.8 254

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL INSTITUTIONAL KOTAK

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September 24, 2020 24, September

EQUITIES RESEARCH EQUITIES

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 23-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn)

Oil, Gas & Consumable Fuels Daily Summary DailySummary BPCL BUY 388 480 24 841 11.4 1,967 35 37 39 229.9 6.0 5.8 11.2 10.5 10.0 8.7 8.3 7.6 2.1 1.9 1.7 19.5 18.8 18.2 4.5 4.7 5.0 68.0 Coal India BUY 121 195 61 746 10.2 6,163 20 18 18 (28) (8.4) 2.5 6.2 6.7 6.6 5.7 5.9 5.2 2.3 2.4 2.5 37.8 35.4 37.6 16.5 16.5 16.5 21.6 HPCL BUY 178 260 46 271 3.7 1,524 34 29 32 371.9 (13.2) 10.1 5.3 6.1 5.5 6.8 7.0 6.3 0.9 0.8 0.7 17.0 13.7 14.0 9.5 8.2 9.1 24.2 IOCL BUY 76 110 45 715 9.7 9,181 9.6 12.9 13.9 343.8 34.3 7.4 7.9 5.9 5.5 5.6 4.9 4.6 0.7 0.7 0.6 9.2 11.6 11.7 5.7 7.7 8.2 29.3 Oil India SELL 88 70 (20) 95 1.3 1,084 3 6 10 (85) 103.6 56.9 29.2 14.3 9.1 8.3 7.2 5.8 0.4 0.4 0.4 1.3 2.7 4.1 1.1 2.8 4.4 1.6 ONGC SELL 68 60 (11) 851 11.6 12,580 4 7 12 (74) 101.4 76.2 19.3 9.6 5.4 4.6 3.5 2.6 0.4 0.4 0.3 1.9 3.8 6.4 2.8 4.3 7.1 23.1 Reliance Industries ADD 2,231 2,150 (4) 13,222 179.9 5,926 67 93 110 (0.1) 40.0 18.2 33.5 23.9 20.2 15.7 10.7 10.5 2.6 2.4 2.3 8.3 10.8 12.1 0.3 0.3 0.3 621.1 Oil, Gas & Consumable Fuels Attractive 16,741 227.8 2.9 34.1 19.2 21.7 16.2 13.6 10.6 8.0 7.5 1.7 1.6 1.5 8.1 9.6 11.1 1.7 1.9 2.1 789 Pharmaceuticals Aurobindo Pharma REDUCE 780 790 1 457 6.2 586 55 59 62 12.9 8 4.7 14.3 13.3 12.7 8.6 7.6 6.8 2.3 2.0 1.8 16.3 15.3 14.2 1.0 1.1 1.4 50.4

Biocon SELL 424 225 (47) 509 6.9 1,202 8.2 10.1 11.6 32 23 15.8 52 42 36 23.3 18.9 16.6 6.3 5.6 5.0 12.1 13.3 13.8 0.7 0.8 1.0 35.2 -

Cipla BUY 767 840 10 618 8.4 806 28.2 33 45 47.3 16 38 27 23.3 16.9 15.0 12.9 9.5 3.5 3.1 2.7 12.7 13.3 16.0 0.7 0.8 1.1 88.4 September 24, 2020 24, September Dr Reddy's Laboratories SELL 5,108 3,700 (28) 849 11.6 166 157 203 231 21 29 13.5 32 25.1 22.1 18.4 14.1 12.4 4.8 4.1 3.6 14.8 16.4 16.1 0.5 0.6 0.6 120.3 Laurus Labs REDUCE 1,365 870 (36) 146 2.0 107 54.6 55.3 66 128.6 1 19 25 24.7 20.8 15.8 14.8 12.2 6.2 5.0 4.0 24.8 20.1 19.2 — — — 29.8 Lupin ADD 1,017 1,000 (2) 461 6.3 450 28 44 52 30.3 54 20 36 23 19.5 15.7 11.0 9.1 3.3 3.0 2.6 9.3 12.8 13.5 0.4 0.6 0.8 54.5 Sun Pharmaceuticals REDUCE 503 510 1 1,206 16.4 2,406 19.7 23.1 28 17.6 17 22 26 22 17.9 13.9 11.7 9.7 2.6 2.4 2.1 10.2 11.3 11.8 0.2 0.9 1.1 73.3 Torrent Pharmaceuticals REDUCE 2,660 2,450 (8) 450 6.1 169 72 89 105 25.3 24 18 37 30 25 18.7 15.9 14.0 8.0 6.8 5.8 21.7 22.8 22.8 0.9 1.2 1.4 28.3 Pharmaceuticals Attractive 4,697 63.9 24.9 20 19 28 23 19.5 15.1 12.5 10.5 3.6 3.2 2.8 12.8 13.7 14.3 0.5 0.8 1.0 480 Real Estate Brigade Enterprises BUY 166 235 41 34 0.5 204 6.8 15 17 6 114 15 24.5 11.4 9.9 10.3 5.3 4.8 1.4 1.3 1.2 6.0 12.0 12.6 1.5 1.5 1.5 0.9 DLF BUY 150 200 33 372 5.1 2,475 5.0 8.7 10.0 310 74 15 30 17.3 15.1 41.6 24.1 24.1 1.1 1.0 1.0 3.6 6.0 6.6 1.3 1.3 1.3 29.0 Embassy Office Parks REIT ADD 365 400 10 282 3.8 772 13.1 15.0 15.6 32 14 4 28 24 23 16.4 15.1 13.5 1.3 1.4 1.5 4.6 5.6 6.2 7.2 8.1 9.2 8.4 Godrej Properties SELL 864 690 (20) 218 3.0 252 11.9 15.4 31.6 10.5 29 105.9 73 56 27 81.7 141.2 46.6 4.3 4.0 3.5 6.0 7.3 13.5 — — — 8.2 Oberoi Realty ADD 412 450 9 150 2.0 364 22 28 34 14.1 28.8 21 19.0 14.8 12.3 14.9 12.5 9.1 1.6 1.5 1.3 8.8 10.3 11.3 0.5 0.5 0.5 2.4 Prestige Estates Projects ADD 246 275 12 99 1.3 401 6.6 10.2 18 (39.0) 54 81 37 24 13.3 8.0 6.8 5.6 1.8 1.7 1.5 4.9 7.2 11.9 0.6 0.6 0.6 2.8

Sobha BUY 235 400 70 22 0.3 95 32 40 59 9 24.7 45.9 7.3 5.8 4.0 4.3 4.0 3.4 0.8 0.8 0.6 12.1 13.6 17.4 3.0 3.0 3.0 1.4

Sunteck Realty BUY 259 300 16 38 0.5 140 8.8 18.1 20 23.5 105 9 29 14.3 13.1 22.6 12.6 11.8 1.2 1.1 1.0 4.2 8.1 8.1 0.4 0.4 0.4 3.1 Real Estate Attractive 1,215 16.5 101.9 45.1 26.0 29 20 15.9 16.8 13.4 11.2 1.4 1.4 1.3 4.9 6.9 8.3 2.3 2.5 2.8 56 Retailing Aditya Birla Fashion and Retail BUY 132 150 14 109 1.5 773 (4.1) 2.7 4.4 (92.4) 165.6 62.8 NM 49 30 16.9 8.6 7.5 6.7 5.4 4.8 NM 12.4 17.2 — — — 4.1 Avenue Supermarts SELL 2,055 1,530 (26) 1,331 18.1 648 19.2 38 47 (8.7) 95.8 24.3 107 55 44 70 37 29 10.8 9.0 7.5 10.6 18.0 18.6 — — — 23.3 Titan Company BUY 1,117 1,270 14 992 13.5 888 9.0 20 26 (46.8) 127.6 29.8 125 55 42 66 35 27 13.8 11.7 9.8 11.5 23.1 25.3 0.3 0.5 0.7 51.6 Retailing Attractive 2,432 33.1 (35.0) 159.4 28.9 141 55 42 59 31 25 11.6 9.6 8.0 8.2 17.7 19.0 0.1 0.2 0.3 79 Speciality Chemicals Castrol India BUY 111 165 48 110 1.5 989 5.1 8.9 9.7 (39.5) 75.0 9.1 22.0 12.6 11.5 14.2 8.4 7.6 8.0 7.8 7.7 36.5 63.0 67.5 4.5 7.6 8.5 2.2 Pidilite Industries REDUCE 1,421 1,400 (1) 722 9.8 508 18.3 28 34 (20.4) 54.9 18.3 77 50 42 53 35 30 14.4 12.4 10.6 19.7 26.7 27.0 0.5 0.7 0.8 19.5 S H Kelkar and Company BUY 81 105 30 11 0.2 141 5.3 6.5 7.3 14.4 23.4 11.8 15.2 12.3 11.0 8.0 6.4 5.9 1.3 1.2 1.1 8.8 10.1 10.8 1.2 2.2 3.1 1.6 SRF ADD 4,117 4,000 (3) 237 3.2 57 150 193 244 8.7 28.4 26.5 27.4 21.4 16.9 16.0 12.9 10.4 4.1 3.5 3.0 16.2 17.8 19.1 0.4 0.4 0.5 16.9 Speciality Chemicals Attractive 1,080 14.7 (17.1) 48.5 18.4 46 31 25.9 28.1 19.8 16.9 8.3 7.3 6.3 18.3 23.6 24.2 0.9 1.4 1.6 40

Source: Company, Bloomberg, Kotak Institutional Equities estimates

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH

30

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

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

Company Rating 23-Sep-20 (Rs) (%) (Rs bn) (US$ bn) (mn) 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E (US$ mn) Telecommunication Services Bharti Airtel BUY 434 710 64 2,367 32.2 5,456 4.8 13.8 24.8 90.2 90.2 90.2 90.2 31.3 17.5 6.9 5.6 4.6 3.9 3.7 3.2 3.8 12.1 19.5 1.4 1.4 1.4 161.5 Bharti Infratel ADD 167 215 29 309 4.2 1,850 16.3 17.5 18.7 (1.1) 7.4 6.9 10.2 9.5 8.9 4.0 3.8 3.5 2.3 2.3 2.2 22.2 23.7 25.2 9.6 10.2 10.8 34.1 Vodafone Idea RS 9 — — 264 3.6 28,735 (7.3) (6.3) (4.0) NM NM NM NM NM NM 10.0 8.1 6.2 -1.2 -0.6 (0.5) 251 57 25 — — — 80 Tata Communications BUY 806 975 21 230 3.1 285 29.9 37.3 45.8 26.9 24.5 22.9 26.9 21.6 17.6 7.6 6.5 5.6 NM 57.8 15.1 NM NM 136.3 0.5 0.7 0.9 2.0 Telecommunication Services Attractive 3,169 43.1 59.4 56.4 208.6 NM NM 46.3 7.4 6.1 5.0 6.2 8.4 8.5 NM NM 18.5 2.0 2.1 2.1 278 Transportation Adani Ports and SEZ BUY 325 400 23 660 9.0 2,032 18.7 21.9 23.8 (30.5) 16.9 8.9 17.3 14.8 13.6 12.5 10.7 9.3 2.3 2.0 1.8 14.0 14.5 14.0 1.0 1.0 1.0 19.8 Container Corp. SELL 377 370 (2) 230 3.1 609 7.6 13.3 17.1 (55.9) 74.9 28.3 49 28 22 22.7 14.8 12.0 2.2 2.2 2.1 4.6 7.8 9.7 1.1 1.9 2.5 15.6 Gateway Distriparks BUY 88 135 54 11 0.1 125 4.2 3.6 6.6 0.4 (15.1) 82.6 20.6 24.3 13.3 6.2 6.4 5.2 0.7 0.7 0.7 3.8 3.0 5.4 3.4 3.4 3.4 0.2 GMR Infrastructure BUY 21 28 29 129 1.8 6,036 (3.8) (0.9) (1.2) (26.7) 76.4 (38.0) NM NM NM 145.4 18.3 14.7 (2.7) (4.8) (4.0) 63.4 16.1 25.1 — — — 6.6 Gujarat Pipavav Port BUY 87 111 28 42 0.6 483 4.5 5.8 6.7 (24.9) 27.3 15.7 19.1 15.0 13.0 8.4 7.4 6.4 2.0 2.0 2.0 10.6 13.5 15.7 4.9 6.2 7.2 0.7 InterGlobe Aviation BUY 1,283 1,520 19 494 6.7 383 (202.0) 70.9 107.8 ####### 135.1 52.1 NM 18 11.9 NM 4.4 3.0 (67.2) 24.8 3.0 NM 433.4 102.0 — — — 44 Mahindra Logistics ADD 320 305 (5) 23 0.3 71 5.3 10.9 14.5 (40.8) 106.4 33.1 61 29 22 18.3 12.3 9.8 4.0 3.6 3.2 6.7 12.9 15.4 — — — 0.6 Transportation Attractive 1,588 21.6 (211.5) 242.2 24.6 NM 21 16.5 32.2 9.4 7.8 4.2 3.5 2.9 NM 16.8 17.8 0.7 0.9 1.0 88 KIE universe 115,367 1570.2 9.0 44.3 21.7 27 18.7 15.4 12.8 9.9 8.6 2.5 2.3 2.1 9.2 12.2 13.7 1.6 1.9 2.1

Notes: (a) We have used adjusted book values for banking companies. (b) 2021 means calendar year 2020, similarly for 2022 and 2023 for these particular companies. (c) Exchange rate (Rs/US$)= 73.49

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

KOTAK INSTITUTIONAL INSTITUTIONAL KOTAK

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September 24, 2020 24, September

EQUITIES RESEARCH EQUITIES

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Disclosures of of the following trategic transaction As of June 30, 2020 n a merger or s any, noare longer in effect for this stock , if, fair value , any, if for this stock,because is there notsufficient a

fair valuefair

.

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

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

SELL 1.5%

19.2% fair valuefair

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

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

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

are also on12 a Kotak SecuritiesKotak Research has suspended theinvestment and rating

The information is not meaningful and is therefore exc

Kotak SecuritiesKotak does not cover this company.

The investment and rating

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

Attractive, Neutral, Cautious. BUY 4.4% 45.3% We expect this stock to deliver

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

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

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

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