Sharekhan Special August 31, 2021

Index Q1FY2022 Results Review Automobiles • Capital Goods • Consumer Discretionary • Consumer Goods • Infrastructure/Cement/Logistics/Building Material • IT • Oil & Gas • Pharmaceuticals • Agri Inputs and Speciality Chemical • Miscellaneous •

Visit us at www.sharekhan.com

For Private Circulation only Q1FY2022 Results Review In-line quarter, healthy outlook Results Review Results

Summary: Š After ending FY2021 on a strong note, Q1FY2022 earnings of broader indices showed a promising start (Nifty/ Sensex companies’ PAT rose 100%/66% y-o-y) in the new fiscal with strong growth momentum on low base. Š Management commentaries on earnings outlook remained positive, on improving economic activity post second COVID-19 wave and anticipation of strong demand revival. Š Demand recovery and ramp-up of vaccinations look encouraging. We expect economic activity to increase in the upcoming festive season. Š Nifty trades at 23x and 20x EPS based on FY2022E/FY2023E EPS, at a premium to mean average. Valuation gap between large and mid-caps has shrunk, we advise investors to focus on stocks with strong earnings growth potential with reasonable valuation. Š High-conviction investment ideas: o Large-caps: Infosys, ICICI Bank, M&M, L&T, UltraTech, SBI, HDFC Ltd, Godrej Consumer Products, Divis Labs and Titan. o Mid-caps: NAM India, BEL, Gland Pharma, Dalmia Bharat, Laurus Labs, Max Financial Services, LTI. o Small-caps: TCI Express, Kirloskar Oil, Suprajit Engineering, Repco Home Finance, PNC Infratech, Mahindra Lifespaces, Birlasoft.

After ending FY2021 on a strong note, Q1FY2022 corporate earnings of broader indices showed a promising start with continued strong growth momentum on the low base of Q1FY2021, though it was along the expected lines. Unlike the last two quarters, Q1FY22 saw divergence in growth across sectors due to the impact of the second wave of COVID-19, contraction in margins in some sectors due to higher commodity prices and supply-side challenges, while strong growth momentum in certain sectors was led by higher adoption of technology and rising commodity prices. Corporate earnings of both Nifty and Sensex companies grew by 100% y-o-y and 66% y-o-y respectively, while on a q-o-q basis it declined 6.6% and 5% respectively. Metals, oil & gas, cement, specialty chemicals and pharmaceuticals reported strong performance in Q1FY2022, while sectors such as autos, NBFCs, capital goods reported weak performance. Most management commentaries on earnings outlook remained positive given improving economic activity post second COVID-19 wave and an anticipation of strong revival in demand. Further, there were no major miss in earnings estimate of the sectors that have higher weightage in broader indices. Effectively, earnings estimates for the Nifty and Sensex were marginally revised upward for FY2022E/FY2023E in the earnings season after modest cut in estimates prior to the results season. Within the Sharekhan coverage universe, Q1FY2022 earnings performance was broadly in line with our estimates on the operational front given a lower impact of the second wave of COVID-19 as compared to the first wave of COVID-19. Notably, earnings upgrades were limited to sectors such as metals, oil & gas, cement and infrastructure during the quarter. On the flipside, the automobiles, capital goods, NBFC sectors missed estimates. IT companies continued to report strong growth on the back of higher adoption of digital transformation and rising offshoring by large customers, while the earnings recovery for auto companies was halted owing to impact on demand and supply issues. Earnings growth of banks moderated owing to higher credit costs and fresh slippages in retail segments, while metal and oil & gas companies reported strong earnings growth aided by strong price realisations. Margins of companies remained under pressure owing to increase in input costs, wage revision and increase in discretionary expenses. Outlook Outlook improves, but uncertainty persists: Smart recovery after the deleterious impact of the second wave of COVID-19, a sharp drop in the COVID-19 cases, stability in industrial indicators and ramping up of vaccination coverage look encouraging. We expect economic activity to further improve during the upcoming festive season. Further, a broad-based pick-up in core exports (ex- gems & jewellery and petroleum products), improving GST collections, government’s pro-growth policies and the RBI’s accommodative policy for driving growth and a revival in private capex over the medium term would drive strong growth in net profits across the sectors in FY2022E and FY2023E. However, rising commodity prices, cost inflation, patchy monsoons, higher crude oil prices and a potential increase in interest rate pose risks for earnings. Valuation Strong earnings visibility, but time to focus on quality with reasonable valuation: Nifty earnings would deliver a 28% CAGR over FY2021-2023E and importantly, BSE 500 earnings expected to clock a 31% CAGR over the same period, which reflect broad-based earnings recovery over the next two years. The Nifty is trading at 23x and 20x EPS based on FY2022/ FY2023E, at a premium to long-term average led by strong earnings growth trajectory and global equity re-rating. The market has shown maturity to digest earlier-than-anticipated tapering off talks by the US Federal Reserve, however volatility may intensify after recent outperformance. Further, valuation gap between large caps and midcaps has shrunk, so investors should focus on companies with quality earnings compounders with a reasonable valuation. High Conviction Investment Ideas Š Large-caps: Infosys, ICICI Bank, M&M, L&T, UltraTech, SBI, HDFC Ltd, Godrej Consumer Products, Divis Labs and Titan. Š Mid-caps: NAM India, BEL, Gland Pharma, Dalmia Bharat, Laurus Labs, Max Financial Services, LTI. Š Small-caps: TCI Express, Kirloskar Oil, Suprajit Engineering, Repco Home Finance, PNC Infratech, Mahindra Lifespaces, Birlasoft. August 31, 2021 2 Results Review Results

Sector wise Q1FY2022 review snapshot Automobile Sector view: Positive Š Automotive companies witnessed tough Q1FY2022 due to COVID-19 induced lockdown restrictions. Revenue was broadly in line with expectations, but margins were severely impacted due to negative operating leverage and increased raw-material prices. Š Companies having exposure to exports performed better as compared to companies having high domestic exposure. Š We remain positive on automobile demand despite weak Q1FY2022. We expect strong uptick in automobile volumes across segments post normalisation of the economy, led by pent-up demand from rural, semi-urban, and urban demand along with favourable macro outlook. Preferred picks: M&M, Bosch, Sundram Fasteners, Suprajit Engineering, Gabriel India, Greaves Cotton and Apollo Tyres. Agri Inputs & Specialty Chemicals Sector view: Positive Š Agri-input companies witnessed soft Q1 on account of margin pressure owing to elevated export freight cost, though gross margins remained stable as a large portion of the raw material price rise was passed on to end-customers. Š Fertiliser companies reported strong numbers due to improved DAP margins on the back of sharp hike in fertiliser subsidy on DAP and inventory gains despite a decline in total phosphatic fertiliser sales volumes. Š Specialty chemical companies saw contraction in margins due to high logistic cost and RM cost. Strong export demand offset weakness in domestic market given second wave of Covid-19. Preferred picks: Coromandel International, PI Industries, SRF, Atul Limited, Sumitomo Chemical India and Aarti Industries. BFSI Sector view: Private Banks - Positive; PSU Banks – Neutral, NBFCs - Positive Š Banks saw high slippages in Q1, especially in retail, agriculture or MSME due to the second wave of Covid-19. NII growth was weak and NIMs were under pressure due to sluggish disbursement and muted loan growth. Š Second wave of covid-19 also impacted asset quality of NBFCs and led to loan degrowth. Performance of home finance remained resilient as Govt.’s efforts for affordable housing bode well for the sector. Š Life Insurance sector saw revenue momentum on the back of resurgence of ULIP demand. Margins impacted due to higher claims. Preferred Picks: ICICI Bank, Axis Bank, HDFC Bank, SBI, HDFC Ltd, LIC Housing, NAM India, HDFC Life, ICICI Lombard Capital Goods Sector view: Positive Š In Q1FY2022, many companies in the capital goods sector reported strong y-o-y performance, although on a favourable base. However, margin was impacted due to increased raw-material prices, decline in availability of manpower, and logistical issues. Š In the consumer durables segment, the sector saw decent top-line growth in Q1, the same was largely led by low base with cyclical exposure adding to better earnings comfort versus pure consumer segments. Š In the capital goods segment, margins were steady on a y-o-y basis but witnessed a decline on a sustainable basis, given higher overhead expenses and commodity headwinds. In terms of end markets, exports witnessed better pick in demand momentum as compared to the domestic market, albeit some challenges from the logistics side. Preferred Picks: L&T, ISGEC Heavy Engineering, Carborundum Universal, Cummins India, Polycab India, Dixon Technologies and KEI Industries. Cement/Infra/Building Materials/Logistics Sector view: Positive Š For Q1FY2022, the cement sector’s net earnings outperformance was driven by better realisation and lower opex. We expect demand and realisations to improve from Q3FY2022. Š Infrastructure players, barring Sadbhav Engineering, reported better-than-expected execution. Order tendering and execution to pick up from Q3FY2022. Š Logistics companies benefit from low base and OPM expansion. Building materials remained mixed bag with visible input cost pressures. Preferred picks: Cement - UltraTech, Dalmia Cement, JK Lakshmi Cement. Construction: KNR Construction, PNC Infratech. Others: Hi-Tech Pipes, Century Plyboards, Greenlam Industries, and Greenpanel Industries.

August 31, 2021 3 Results Review Results

Consumer Discretionary Sector view: Positive Š Branded apparel and footwear companies saw revenues drop by 60% and 40% respectively, q-o-q, affected by store closures amid the second wave of COVID-19. However, a strong recovery in June was the silver lining. EBIDTA losses were lower as compared to Q1FY2021. Š Textile companies clocked strong numbers y-o-y led by strong export demand for apparels/home textiles in the US and Europe. Margins were boosted by reinstating of RoSCTL benefits. Š Fewer COVID-19 cases, rapid vaccinations and upcoming festivals would result in an early recovery and sales are expected to reach to 100% by end of Q2FY2022. Recovery in sales and cost-saving initiatives would help profitability improve q-o-q. Preferred picks: Titan, Trent, Jubilant Foodworks, ABFRL, Himatsingka Seide and KPR Mill Consumer Goods Sector view: Positive Š April-May was affected by disruption caused by second wave of COVID-19. However, impact was much lower as compared to the first wave due to an agile supply chain & distribution management. Recovery was faster from June 21. Š Raw material inflation hit gross margins of most companies in our coverage. However, better operating leverage y-o-y resulted in stable OPM for most companies. Š Rapid and broad-based demand recovery across categories will help companies post better numbers in coming quarters. Further fall in raw material prices would boost OPM in H2FY2022. Preferred picks: Asian Paints, Indigo Paints, HUL, GCPL, Marico and Tata Consumer Products IT Services Sector view: Positive Š Q1FY22 remained one of the best quarters for Tier-I IT companies’ in terms of aggregate revenue growth. Yet, mid- tier players clocked better revenue growth. Š EBIT margins of most companies declined q-o-q due to wage revisions, strong hiring and rising discretionary expenses. Attrition rate too rose amid strong demand environment. Š Strong demand is led by higher adoption of digital transformation, increase in offshoring and higher spend on core transformation. Managements expect to offset some margin headwinds by strong growth, higher offshoring and pricing benefits. Preferred Picks: Infosys, HCL Tech, Tech Mahindra, L&T Infotech, Mastek, Persistent Systems and BirlaSoft Oil & Gas Sector view: Positive Š In Q1FY22, earnings of CGD companies (ex-IGL) remained resilient as decline in volumes was largely negated by margin expansion led by low gas cost. GGAS posted a 36% q-o-q rise in PAT despite steep fall in volumes. Š OMCs’ earnings disappointed with weak GRMs, while IOCL fared well on all fronts; upstream PSUs witnessed improvement in operating profit on higher crude oil prices, but PAT declined q-o-q on lower dividend income Š We maintain our constructive view on CGD players given strong volume led earnings growth visibility, high RoE and robust FCF generation. BPCL’s privatisation could re-rate OMCs and create long-term value for investors. Preferred Picks: Reliance Industries, Gujarat Gas, Mahanagar Gas, IGL and GSPL Pharmaceuticals Sector view: Positive Š Q1FY2022 was a healthy quarter for pharmaceutical companies under the Sharekhan coverage universe with topline and earnings growing in double digits, driven by a strong performance in the domestic markets while higher price erosion impacted the US business. Š Management commentaries from the select companies suggests that heightened price erosion in the US markets is expected to stay and would be a key point to watch out for. Š Improving growth prospects in regulated markets, increasing preference for specialty / complex generics and injectables, revival in the IPM which is expected to stage a double-digit growth in FY22, and emerging opportunities in the API space would be key growth drivers. Preferred Picks: Large Caps: Divi’s Labs, Cipla, Sun Pharma; Mid-Caps: Gland Pharma, Laurus Labs, Abbott India

August 31, 2021 4 Results Review Results

Q1FY2022 results performance for Nifty and Sensex: In-line with expectations

Š Q1FY2022 revenue of Nifty grew at 44% y-o-y, led by metal, oil & gas, Infra, Cement, FMCG, pharma and IT. Sensex revenue growth of 36% y-o-y was lower given lower weightage of metals and oil & gas. Š Q1FY2022 net profits of both Nifty and Sensex companies grew by 100% y-o-y and 66% y-o-y, in-line with our estimates, led by low base in Q1FY2021 and sharp rise in profits of commodity and cyclical companies.

Q1: Nifty revenue growth (% y-o-y) by sector

98 99 86 75

54 44 42 38 22 25 17 15 7 IT BFSI Auto Nifty Metal FMCG Pharma Telecom Oil & gas & Oil Consumer Material Discretionary Capital Goods Capital Infrastructure Cement/Building

Source: Bloomberg; Sharekhan Research

Q1: Nifty EBITDA growth (% y-o-y) by sector

683

199 96 93 73 58 40 26 23 9 31 0 IT BFSI Auto Nifty Metal FMCG Pharma Telecom Oil & gas & Oil Material Capital Goods Capital Infrastructure Cement/Building

Source: Bloomberg; Sharekhan Research

Q1: Nifty earnings growth (% y-o-y) by sector

878.3

202.5 102.9 77.1 100.1 48.5 25.5 17.4 29.8 IT BFSI Infra Nifty O&G FMCG Pharma Cement Cap. Goods

Source: Bloomberg; Sharekhan Research August 31, 2021 5 Results Review Results

Q1: Actual sector-wise percentage contribution to Nifty’s earnings growth

1.7 1.4 1.0 0.7 0.5 100.1 2.2 2.0 1.8 3.2 2.8 7.5 3.3 Š Q1FY2022 earnings growth of Nifty was 7.9 11.1 strong at 100% y-o-y, largely in line with 13.3 estimates. 39.9 Š Earnings growth in Nifty companies was driven by a sharp improvement in earnings of cyclicals like metal and oil & gas. Metals, oil & gas & IT accounted for 61% of incremental PAT.

IT Š JSW Steel, Hindalco, IOCL, ONGC, BFSI Auto Nifty Reliance Industries, Tech Mahindra and Metal FMCG Power Energy Pharma Cement

Telecom Cipla beat estimates. chemcial Oil & Gas & Oil - Diversified Cons. Disc. Cons. Cap. Goods Infrastructure Agro

Source: Bloomberg; Sharekhan Research

Q1: Sensex earnings growth remained in-line

80 66 70 60 50 41 40 30 % 20 8 10 2 0 -10 -20 -30 -21 20 21 20 20 21 - - - Jun - Jun - Sep Dec Mar

Source: Bloomberg; Sharekhan Research

Q1: Nifty earnings growth in-line

120 112 100.1 100 80 60

% 40 27 21 20 0 -20 -40 -25 20 21 20 20 21 - - - Jun - Jun - Sep Dec Mar

Source: Bloomberg; Sharekhan Research

August 31, 2021 6 Results Review Results

Q1: 46% of Nifty companies reported beat in revenues

Š Sectors that outperformed on revenue fronts are Pharma, FMCG, metals and IT. However, autos were impacted by lockdowns. Š 46% of total companies in Nifty beat our estimates on revenue front, while 18% reported in-line performance.

Source: Bloomberg; Sharekhan Research

Q1: Mixed bag as sectors like metals, oil & gas, cement outperform while autos disappoint

Š Sectors that outperformed on EBITDA fronts are metals, oil & gas, cement. However, sectors like autos witnessed pressure on EBITDA. Š 30% of total companies in Nifty beat our estimates on EBITDA front, while 22% reported in-line performance

Source: Bloomberg; Sharekhan Research Q1: Strong nifty earnings growth on low base

100%

80%

60% Š Metals, oil & gas, pharma, IT and cement sectors outperformed on PAT. 40% Š 42% of total companies in Nifty beat our estimates on the net profit front, while 8% 20% reported in-line performance

0% Cap Pharma FMCG Power Telecom Cement BFSI Energy Diversifi Cons Agro- IT (5) Metal (3) Auto (6) O&G (3) Goods Infra (1) (4) (6) (2) (1) (2) (11) (1) ed (1) Discr chem (1) (1) Inline 0% 20% 0% 0% 17% 0% 0% 0% 0% 18% 0% 0% 0% 0% 0% 0% Below 50% 40% 50% 33% 67% 100% 33% 100% 0% 64% 0% 0% 100% 100% 0% 0% Above 50% 40% 50% 67% 17% 0% 67% 0% 100% 18% 100% 100% 0% 0% 100% 100%

Source: Bloomberg; Sharekhan Research

42% of Nifty companies beat PAT estimates 44% of SK universe cos beat PAT estimates

100% 100%

80% 80%

60% 60%

40% 40%

20% 20%

0% 0% Revenues EBITDAM PAT Revenues EBITDAM PAT Inline 18% 14% 8% Inline 13% 14% 9% Below 36% 58% 50% Below 37% 52% 47% Above 46% 28% 42% Above 51% 34% 44%

Source: Bloomberg; Sharekhan Research Source: Company; Sharekhan Research August 31, 2021 7 Results Review Results

Key highlights of Sharekhan universe (188 companies) earnings performance Š Q1FY22 highlights: Sales/EBITDA/net profit grew 44%/35%/68% y-o-y for Sharekhan Universe of companies in Q1FY22. Š 51% of companies in the Sharekhan universe reported beat in revenues while 44% of companies reported earnings beat. Š Metal companies reported strong earnings growth led by robust pricing that offset the sequential volume decline due to lockdowns. Q1FY22 was one of best quarters for metals in terms of margins and earnings. Š Upstream oil & gas PSUs witnessed considerable improvement in operating performance led by sharp recovery in international oil prices. Š Private banks witnessed slippages from the retail segment, but the impact was less severe on asset quality when compared to Q1FY2021 (first wave of COVID-19). Š IT services companies continue to report q-o-q revenue growth and healthy deal pipeline. Management of companies indicated strong demand environment on the back of higher spends on digital initiatives. Š Auto sector witnessed sequential volume declined due to lockdowns. However, start of festive season bodes well for pick-up in demand while price hikes to cushion margin.

Q1: 51% of Sharekhan universe exceeded our revenue estimates

120% 100% Š Within the Sharekhan universe, 80% sectors that outperformed 60% on the revenue fronts are IT, 40% FMCG, cement, construction, 20% logistics, agro-chemical and 0% speciality chemical sectors. Oil & Bldg Constr Cap Cons Agro Sp Pharma FMCG Metal Auto Power Teleco BFSI Energy Media Diversif Logistic IT (15) Gas Mater. uction Goods Discre Chem Chem Š About 51% of companies of (19) (14) (4) (24) (4) m (1) (25) (1) (2) ied (2) s (4) (11) (13) (3) (21) (12) (5) (5) Sharekhan universe beat our Inline 0% 40% 14% 25% 8% 25% 18% 0% 15% 0% 12% 0% 0% 0% 14% 8% 25% 0% 0% estimates on revenue front, while 13% reported in-line Below 53% 7% 14% 50% 46% 25% 64% 0% 38% 0% 36% 0% 100% 50% 43% 33% 0% 40% 40% performance. Above 47% 53% 71% 25% 46% 50% 18% 100% 46% 100% 52% 100% 0% 50% 43% 58% 75% 60% 60%

Above Below Inline

Source: Bloomberg; Sharekhan Research

Q1: 41% of Sharekhan universe exceeded our EBITDA estimates led by metals and oil & gas

120% 100% Š Sectors in Sharekhan universe 80% that outperformed on EBITDA 60% fronts are metals, oil & gas, telecom, construction, logistics 40% and speciality chemicals 20% Š 52% of total companies in 0% Oil & Bldg Constr Cap Cons Agro Sp Sharekhan universe beat our Pharm FMCG Metal Auto Power Teleco BFSI Energy Media Diversif Logistic IT (15) Gas Mater. uction Goods Discre Chem Chem a (19) (14) (4) (24) (4) m (1) (25) (1) (2) ied (2) s (4) estimates on EBITDA front, (11) (13) (3) (21) (12) (5) (5) while 14% reported in-line Inline 16% 27% 14% 0% 8% 0% 9% 0% 8% 0% 20% 100% 0% 50% 0% 8% 0% 20% 0% performance Below 42% 47% 29% 25% 67% 100% 27% 0% 62% 0% 48% 0% 100% 0% 57% 25% 25% 60% 60% Above 42% 27% 57% 75% 25% 0% 64% 100% 31% 100% 32% 0% 0% 50% 43% 67% 75% 20% 40%

Above Below Inline

Source: Bloomberg; Sharekhan Research

August 31, 2021 8 Results Review Results

Q1: 41% of Sharekhan universe exceeded our PAT estimates

120% 100% Š Sectors that outperformed 80% on the net profit front were IT, 60% FMCG, metals, oil & gas and 40% logistics. 20% Š 41% companies in Sharekhan 0% universe beat our estimates Oil & Bldg Constr Cap Cons Agro Sp Pharm FMCG Metal Auto Power Teleco BFSI Energy Media Diversif Logistic on net profit front, while 9% IT (15) Gas Mater. uction Goods Discre Chem Chem a (19) (14) (4) (24) (4) m (1) (25) (1) (2) ied (2) s (4) reported in-line performance. (11) (13) (3) (21) (12) (5) (5) Inline 11% 20% 21% 0% 8% 0% 0% 0% 8% 33% 16% 0% 0% 0% 0% 0% 0% 0% 0% Below 47% 27% 29% 25% 58% 75% 27% 100% 54% 0% 64% 0% 100% 0% 67% 25% 25% 60% 60% Above 42% 53% 50% 75% 33% 25% 73% 0% 38% 67% 20% 100% 0% 100% 33% 75% 75% 40% 40%

Above Below Inline

Source: Bloomberg; Sharekhan Research

Nifty earnings revision Trend Nifty’s 1 year forward P/E band

115 31.0

28.0 110 25.0

105 22.0

19.0 100 16.0 95 13.0

90 10.0 16 17 18 19 20 21 16 17 18 19 20 17 18 19 20 21 17 18 19 20 21 16 16 17 17 18 18 19 19 20 20 21 ------Jun-21 Oct-20 Apr-21 Feb-21 Dec-20 Aug-20 Aug-21 Jun - Jun - Jun - Jun - Jun - Jun - Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Feb Feb Feb Feb Feb Dec Dec Dec Dec Dec Aug Aug Aug Aug Aug Aug

FY22E FY23E +1 sd PER Avg PER -1 sd Source: Bloomberg; Sharekhan Research Source: Bloomberg; Sharekhan Research

Sensex earnings revision trend Sensex’ 1 year forward P/E band

115 31.0

28.0 110 25.0

105 22.0

100 19.0

16.0 95 13.0

90 10.0 17 18 19 20 21 16 17 16 18 17 19 18 20 19 21 20 16 17 18 19 20 21 16 17 18 19 20 17 18 19 20 21 ------Jun-21 Oct-20 Apr-21 Feb-21 Dec-20 Aug-21 Aug-20 Jun - Jun - Jun - Jun - Jun - Jun - Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Feb Feb Feb Feb Feb Dec Dec Dec Dec Dec Aug Aug Aug Aug Aug Aug FY22E FY23E +1 sd PER Avg PER -1 sd Source: Bloomberg; Sharekhan Research Source: Bloomberg; Sharekhan Research

August 31, 2021 9 Results Review Results

BSE 500 earnings revision trend BSE 500’s 1 year forward P/E band

27.0

24.0

21.0

18.0

15.0

12.0

9.0

6.0 16 17 18 19 20 21 16 17 18 19 20 17 18 19 20 21 17 18 19 20 21 16 17 16 18 17 19 18 20 19 21 20 ------Jun - Jun - Jun - Jun - Jun - Jun - Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Feb Feb Feb Feb Feb Dec Dec Dec Dec Dec Aug Aug Aug Aug Aug Aug

+1 sd PER Avg PER -1 sd

Source: Bloomberg; Sharekhan Research Source: Bloomberg; Sharekhan Research

Nifty’s 1 year forward P/B band Sensex’ 1 year forward P/B band

4.0 4.0

3.5 3.5

3.0 3.0

2.5 2.5

2.0 2.0

1.5 1.5

1.0 1.0 17 18 19 20 21 16 17 16 18 17 19 18 20 19 21 20 16 17 18 19 20 21 16 17 18 19 20 17 18 19 20 21 ------16 17 18 19 20 21 16 17 18 19 20 17 18 19 20 21 17 18 19 20 21 16 17 16 18 17 19 18 20 19 21 20 ------Jun - Jun - Jun - Jun - Jun - Jun - Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Feb Feb Feb Feb Feb Dec Dec Dec Dec Dec Aug Aug Aug Aug Aug Aug Jun - Jun - Jun - Jun - Jun - Jun - Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Feb Feb Feb Feb Feb Dec Dec Dec Dec Dec Aug Aug Aug Aug Aug Aug +1 sd BPS Avg BPS -1 sd +1 sd PER Avg PER -1 sd Source: Bloomberg; Sharekhan Research Source: Bloomberg; Sharekhan Research

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 10 Automobiles Poised to ride over disruptions Sector Update

Automotive companies witnessed a tough Q1FY2022 due to COVID-induced Q1FY2022 Results Review lockdown restrictions. Revenue was broadly in-line expectations, but margin was severely impacted by negative operating leverage and increased raw-material Sector: Automobiles prices. Sharekhan universe of auto companies witnessed a revenue decline of 22.4% q-o-q, hampered by lockdown restrictions, partially mitigated by continued exports Sector View: Positive momentum. The industry was also impacted by shortage of semi-conductors, precious metals, and containers unavailability, which all-together impacted EBITDA margin sequentially. Cumulative EBITDA margin of Sharekhan universe of auto companies Our coverage universe saw a decline of ~240 bps q-o-q to 9.4%, led by negative operating leverage and increased raw-material prices. Companies continued to shift towards digitalisation, CMP PT* Companies Reco. controlling of administrative costs, focus on core business, and expansion of (Rs) (Rs) business through product innovations during Q1FY2022. Auto ancillary companies Alicon Castalloy 779 Buy 1,056 outperformed automobile companies, led by strong momentum in exports in the Limited # automobile sector. However, most companies gave strong outlook going forward, Amara Raja 676 Buy 1,146 with demand expected to improve from Q2FY2022. Moreover, rural sentiments are Batteries expected to remain strong because of strong kharif production in the previous years. Apollo Tyres 207 Buy 290 Companies having a strong distribution network in rural and semi-urban areas will benefit. Tractor companies continued to perform well, both in terms of volume growth Ashok Leyland 119 Buy 151 and margin sustainability. We believe automobile original equipment manufacturers Bajaj Auto 3,690 Buy 4,800 (OEMs) and suppliers are well prepared to deal with the third wave or any new variant of COVID-19 by managing the inventory and operations optimally. Moreover, the Balkrishna 2,277 Hold 2,507 government-led vaccination drive has taken centre stage after rapid spike of COVID Industries infections in wave-2. The faster rollout of vaccinations will augur well for economic Bosch 13,840 Buy 18,156 recovery. As far as demand is concerned, we expect pent-up demand will continue to drive growth for the automobile sector from Q2FY2022. However, semi-conductor Escorts 1,340 Positive 1,460 shortage remains a key concern in the near term. Automobile companies expect Exide Industries $ 160 Buy 229 semi-conductor supply issues to gradually improve from H2FY2022. OEMs and auto ancillary companies dependent on exports will be better positioned to drive volumes Gabriel India 138 Buy 173 during the current scenario. We remain positive on the automobile sector and expect GNA Axles 669 Buy 751 a strong rebound in FY2022E. Greaves Cotton 132 Buy 194 Outlook Retain Positive view on automobile in the medium term: We continue to remain positive Hero Motocorp 2,685 Buy 4,030 on the sector despite near-term challenges of COVID-19 related disruptions and chips Lumax Auto 142 Buy 207 shortage. The passenger vehicle (PV) segment, both for two-wheelers (2W) and four- Technologies# wheelers (4W), is expected to remain strong amid COVID-19, as a preference for personal M&M @ $ 773 Buy 1,000 transport. Rural demand is expected to recover strongly in southern and western India, given timely arrival of the monsoon season, higher reservoir levels, and higher Maruti Suzuki 6,716 Buy 8,587 kharif sowing last year. Tractor sales are likely to pick up, ahead of kharif sowing. We Mayur Uniquoters 476 Buy 670 expect sequential improvement in M&CV sales to continue, driven by expected rise in e-commerce, agriculture, infrastructure, and mining activities. We expect the strongest Ramkrishna 918 Buy 940 recovery in the CV segment in FY2022 and FY2023, driven by improved economic Forgings activities, low interest rate regime, and better financing availability. We expect M&HCVs Schaeffler India 7,087 Buy 8,000 to outpace other automobile segments in FY2022 and FY2023, followed by growth in the tractor, PV, and 2W segments. The bus and three-wheeler (3W) segments are expected to Sundram 781 Buy 994 improve gradually, as corporate office and educational institutions get opened. We retain Fasteners # our Positive view on the sector. Suprajit 325 Buy 401 Engineering # Valuation Tata Motors # 284 Buy 430 In the OEM space, we prefer rural-centric companies with a strong balance sheet. In the 2W space, we prefer Hero MotoCorp because of positive sentiments in rural and TVS Motors $ 520 Buy 688 semi-urban areas. In the PV space, we like Maruti Suzuki and expect it to maintain its VST Tillers and 2,608 Positive 3,246 dominant market share and robust export growth. In the tractor segment, we like M&M, Tractors Limited given its leadership position in the tractor segment and its continued strong performance in other segments such as LCV and UVs. In the auto-ancillary space, we like Bosch TVS Motors $ 572 Buy 688 (due to its extensive network and brand equity), Sundram Fasteners (beneficiary of Source: Company data, Sharekhan estimates strong growth traction in CV, PV, 2Ws, and tractor and its strategy to de-risk business @ MM & MVML; # Consolidated; $ core business from cyclicality), Suprajit Engineering (on account of increased share of business valuation; UR: Under Review with existing clients and new client additions), Ramkrishna Forgings (beneficiary of CMP as on August 25, 2021 CV upcycle in India, North America, and Europe), Gabriel India (due to its leadership position and brand recall in the suspension components segment and focus on the Price chart e-mobility space), Greaves Cotton (beneficiary of e-2W adoption and focus on non- 150.0 automotive segment), and Apollo Tyres (strong brand recall in India and Europe and 125.0 focus on profitable growth). 100.0 Key risks: 75.0 50.0 Supply constraint of semi-conductors remains the key risk in the near term. Any 25.0 significant delay in recovery from COVID-19 infection or vaccination rollout could slow - down demand. 21 20 21 21 20 20 20 21 20 21 20 20 20 21 20 20 21 20 21 20 20 19 ------Q1FY2022 Leaders: Schaeffler India, Sundram Fasteners, Ramkrishna Forgings, and Jul Jul Jan Jan Jan Jun - Jun - Oct Apr Apr Feb Sep Dec Dec Aug Aug Nov Mar Mar Mar May May Balkrishna industries. Nifty 50 Nifty Auto Source: NSE India, Sharekhan Research Q1FY2022 Laggards: Tata Motors, Ashok Leyland, and Bosch. Preferred Picks: Hero MotoCorp, Maruti Suzuki, M&M, Bosch, Sundram Fasteners, Suprajit Engineering, Ramkrishna Forgings, Gabriel India, Greaves Cotton, and Apollo Tyres.

August 25,31, 2021 2021 11 Results Review Results

Q1FY2022 results snapshots Sales (Rs cr) EBIDTA margins (%) PAT (Rs cr) Company Q4 Q4 YoY QoQ Q4 Q4 YoY QoQ Q4 Q4 YoY QoQ FY21 FY20 % % FY21 FY20 bps bps FY21 FY20 % % Alicon Castalloy 211 53 297.8 (34.7) 8.1 (45.5) NA (693) (4) (44) NA (116.6) Limited # Amara Raja Batteries 1,886 1,151 63.8 (10.3) 13.2 13.2 1 (180) 124 63 97.7 (34.6) Apollo Tyres # 4,584 2,873 59.5 (8.8) 12.4 8.3 411 (384) 128 (135) NA (55.5) Ashok Leyland 2,951 651 353.4 (57.8) (4.7) (51.2) NA NA (282) (389) NA NA Bajaj Auto 7,386 3,079 139.9 (14.1) 15.2 13.3 189 (256) 1,061 528 101.0 (20.3) Balkrishna Industries 1,828 942 94.1 4.7 28.9 25.9 300 (216) 346 122 184.2 (7.0) Bosch 2,444 992 146.4 (24.0) 12.5 (10.3) NA (670) 260 (121) NA (46.0) Escorts 1,671 1,062 57.4 (24.4) 14.0 11.3 269 (164) 185 92 101.0 (31.7) Exide Industries 2,486 1,548 60.7 (15.4) 10.5 9.6 89 (354) 125 44 185.4 (48.6) Gabriel India 454 123 269.2 (21.9) 5.5 (13.9) NA (297) 12 (24) NA (56.7) GNA Axles 329 81 304.5 6.1 16.6 6.9 961 96 29 (7) NA 6.7 Greaves Cotton 229 156 46.7 (56.0) (7.4) (17.1) NA NA (28) (31) NA (306.8) Hero MotoCorp 5,487 2,972 84.7 (36.8) 9.4 3.6 575 (456) 365 61 496.1 (57.8) Lumax Auto 260 71 267.0 (32.9) 6.1 (17.6) NA (493) 3 (12) NA (83.8) Technologies # M&M @ # 11,763 5,589 110.4 (11.8) 13.9 10.3 362 (82) 934 39 NA (6.8) Maruti Suzuki 17,771 4,107 332.7 (26.0) 4.6 (21.0) NA (366) 441 (249) NA (62.2) Mayur Uniquoters 118 39 203.7 (33.8) 14.9 (3.6) NA (1,448) 14 0 NA (59.6) Ramkrishna Forgings 413 116 256.4 (20.3) 23.1 (1.3) NA 229 25 (26) NA (31.0) Schaeffler India 1,233 439 180.9 (6.4) 16.8 (4.5) NA 62 128 (42) NA (8.2) Sundram Fasteners 1,112 373 198.1 (12.6) 18.0 4.1 1,396 (58) 120 (27) NA (14.4) Suprajit Engineering # 362 177 103.8 (29.5) 13.6 (2.7) NA (231) 27 (15) NA (53.0) Tata Motors # 66,406 61,467 8.0 (25.1) 7.9 4.9 304 (646) (4,308) (3,590) NA NA TVS Motors 3,934 1,432 174.8 (26.1) 7.0 (3.4) NA (311) 83 (139) NA (71.2) AUTO UNIVERSE 156,306 99,764 56.7 (22.1) 9.4 2.9 652 (415) 655 (4,487) NA (95.5) AUTO UNIVERSE - excl 89,899 38,297 134.7 (19.8) 10.6 (0.2) NA (240) 4,964 (897) NA (43.3) Tata Motors Source: Company, Sharekhan estimates; @ MM & MVML; # Consolidated

August 31, 2021 12 Results Review Results

Valuations (As on August 25, 2021) Price CMP EPS (Rs) P/E (x) Company Reco Target* (Rs) (Rs) FY21 FY22E FY23E FY21 FY22E FY23E Alicon Castalloy Limited # 779 Buy 1,056 (1.4) 31.2 53.8 NA 25.0 14.5 Amara Raja Batteries 676 Buy 1,146 36.3 43.8 50.5 18.6 15.4 13.4 Apollo Tyres 207 Buy 290 11.6 18.3 24.0 17.9 11.3 8.6 Ashok Leyland 119 Buy 151 (0.7) 2.9 7.0 NA 40.4 17.0 Bajaj Auto 3,690 Buy 4,800 157.5 189.5 218.5 23.4 19.5 16.9 Balkrishna Industries 2,277 Hold 2,507 59.8 75.4 87.4 38.1 30.2 26.0 Bosch 13,840 Buy 18,156 415.7 482.1 585.7 33.3 28.7 23.6 Escorts 1,340 Positive 1,460 86.4 87.0 96.8 14.9 14.8 13.3 Exide Industries $ 160 Buy 229 8.9 12.7 14.1 14.1 9.9 11.3 Gabriel India 138 Buy 173 3.8 7.0 8.9 36.4 19.7 15.6 GNA Axles 669 Buy 751 32.9 47.5 57.8 20.3 14.1 11.6 Greaves Cotton 132 Buy 194 2.5 5.4 8.1 53.1 24.7 16.3 Hero Motocorp 2,685 Buy 4,030 145.8 191.0 212.1 18.4 14.1 12.7 Lumax Auto Technologies# 142 Buy 207 6.8 9.7 11.9 20.8 14.7 12.0 M&M @ $ 773 Buy 1,000 32.6 44.3 51.0 16.8 12.4 10.8 Maruti Suzuki 6,716 Buy 8,587 140.0 223.2 286.2 48.0 30.1 23.5 Mayur Uniquoters 476 Buy 670 19.6 24.2 29.4 24.2 19.7 16.2 Ramkrishna Forgings 918 Buy 940 8.8 32.0 52.9 104.3 28.7 17.4 Schaeffler India 7,087 Buy 8,000 93.1 161.3 203.2 76.1 43.9 34.9 Sundram Fasteners # 781 Buy 994 17.2 21.0 3.0 45.4 37.2 260.3 Suprajit Engineering # 325 Buy 401 9.6 13.4 16.5 33.9 24.3 19.8 Tata Motors # 284 Buy 430 (3.6) 19.5 33.0 NA 14.5 8.6 TVS Motors $ 520 Buy 688 12.9 20.7 25.2 36.5 22.7 18.6 VST Tillers and Tractors 2,608 Positive 3,246 120.7 133.0 162.3 21.2 19.2 15.8 Limited Source: Company data, Sharekhan estimates @ MM & MVML; # Consolidated; $ core business valuation; UR Under Review;

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 13 Capital Goods Demand recovery to aid growth, companies prepare for

upcoming festive season Sector Update

In Q1FY2022, many companies in the capital goods sector reported strong y-o-y Q1FY2022 Results Review performance, although on a favourable base. However, margin was impacted due Sector: Capital goods to increased raw-material prices, decline in availability of manpower, and logistical issues. Amber, Cummins India, and Dixon reported strong numbers as against Bharat Sector View: Positive Electronics Limited (BEL), Honeywell, and ISGEC. Larsen and Toubro (L&T) reported marginally lower-than-expected revenue in Q1FY2022, while operating profit margin (OPM) broadly remained in-line with estimates. In the consumer durables segment, Our Coverage Universe prices of key commodities such as copper, aluminum, plastics, and ocean freight rates continued to remain at elevated levels. This is likely to result in gross margin contraction CMP Reco./ PT Companies for companies as price increases are difficult to pass on in the current environment. While (Rs) View (Rs) the sector saw decent top-line growth in Q1, the same was largely led by low base with Amber cyclical exposure adding to better earnings comfort versus pure consumer segments. 2,760 Buy 3,716 Technologies With pent-up demand largely gone, consumer demand and pricing ahead of the upcoming Bharat festive season remain a key factor for brand strategy and FY2022E estimates. In the 175 Buy 210 Electronics capital goods segment, margins were steady on a y-o-y basis but witnessed a decline on a sustainable basis, given higher overhead expenses and commodity headwinds. In Blue Star 800 Buy 1,200 terms of end markets, exports witnessed better pick in demand momentum as compared Carborundum 730 Buy 854 to the domestic market, albeit some challenges from the logistics side. Moving ahead, Universal we see a broad-based capex/infra recovery in domestic/global markets, which reflect a Cummins India* 976 Buy 1,252 richer mix going ahead. While the overall central government capex growth during April Dixon 2021-June 2021 stood at 26% y-o-y, key ministries, housing, roads and railways reported 3,902 Buy 5,309 Technologies growth of ~3x, 2x, and 26%, respectively. Clearly, these sectors, along with defense, are in the focus for the government. Inventory with dealers is higher than normal, but if Finolex Cables* 452 Buy 623 current trends persist, than current inventory will be liquidated as early as end of August Honeywell or latest by the first week of October. Dealers are experiencing uptick in festive season Automation 38,157 Buy 52,407 demand starting with Onam in August and expect the festive season to give a boost to India sales. Dealers are in the process of pre‐ordering inventory for the festive season before JMC Projects 93 Hold 132 any further price increase comes into effect. Hence, demand momentum is expected to KEC improve as COVID-19 impact decreases and opening up of the economy will facilitate 379 Buy 505 International improved business environment. KEI Industries* 715 Buy 909 Outlook Kalpataru Business momentum gradually picking up: COVID-19 second wave outbreak and 394 Buy 586 Power* the partial shutdown led to partial stoppage of work at most factories, forcing brakes L&T 1,581 Buy 1,900 on demand, and execution. Activities at most project sites are near normal levels now, while the migrant workforce situation is near normal and supply chain, raw-material Polycab India 1,828 Buy 2,375 procurement, etc. have been addressed to a large extent. Hence, we expect normalcy Ratnamani 2,053 Buy 2,500 in project execution. For project-based companies, management commentaries indicate Metals some revival in ordering as tendering pipeline remains healthy in sectors such as railways, Thermax 1,363 Buy 1,720 defence, and oil and gas, as government-led infrastructure spending and Aatmanirbhar Triveni Turbines 126 Buy 156 Bharat initiatives get further push. Order book remains strong providing healthy visibility, despite weak order intake over the trailing four quarters, which was compensated by lower V-Guard* 235 Buy 311 execution. Managements across consumer durable/electrical companies highlighted that Va Tech Wabag 314 Buy 435 companies observed demand picking up as lockdown is gradually easing up. Inventory Soft Coverage levels have been near normal levels despite peak summer season. With price hikes ISGEC Heavy undertaken in March and expected in April 2022, any softness in volume sales will now be 655 Positive 31% Engineering adequately compensated. Hence, demand momentum is expected to improve as we enter the peak season for consumer durable and electrical companies. Kirloskar Oil 211 Positive 23% Engines Valuations Source: Company, Sharekhan Research Prefer companies with abilities to strive during turbulent times: We have seen the UR - Under rerview; *Standalone financials execution and ordering pipeline and demand environment improving along with improving CMP as on August 23, 2021 business environment q-o-q, which remains encouraging. We expect companies with diversified businesses, a higher service revenue, and product basket catering to operating expenditure spends to see pick-up quickly as businesses are returning to normalcy. Hence, Price chart we prefer companies with a strong diversified order book, execution capabilities, and a healthy balance sheet for project-based companies. In the consumer durables segment, 180 we prefer companies with strong cash flows, diversified across geographies, and better 155 working capital management, which are better prepared to revive their earnings growth 130 trajectory quickly. Hence, among project-based companies, we prefer L&T, ISGEC Heavy 105 Engineering, Honeywell Automation India, Carborundum Universal, Cummins India, KEC, 80 and Kirloskar Oil Engines; while in the consumer durables space, we prefer Polycab India, 21 20 20 21 Dixon Technologies, V-Guard, Amber Enterprises, and KEI Industries. - - - - Apr Dec Aug Aug Key Risks

Sensex BSE Capital Goods 1) Weak domestic macroeconomic environment leading to weak project tendering; and 2) higher commodity prices affecting OPM. Leaders in Q1FY2022: Cummins India, Carborundum Universal, V-Guard, and Polycab Laggards in Q1FY2022: Ratnamani Metals and Honeywell Automation Preferred Picks: L&T, ISGEC Heavy Engineering, Honeywell Automation India, Carborundum Universal, Cummins India, KEC, Kirloskar Oil Engines; while in the consumer durables space, we prefer Polycab India, Dixon Technologies, V-Guard, Amber Enterprises, and KEI Industries.

August 31, 2021 14 Results Review Results

Q1FY2022 result snapshot Revenue (Rs. cr) OPM (%) Net profit (Rs. cr) Coverage Q1 Q1 y-o-y q-o-q Q1 Q1 y-o-y q-o-q Q1 Q1 y-o-y q-o-q FY22 FY21 (%) (%) FY22 FY21 (%) (%) FY22 FY21 (%) (%) Amber Technologies 708 259 173% -56% 6.0% - - -300 11 -24 - -86% Bharat Electronics 1,649 1,676 -2% -76% 4.0% 9.0% -500 -2500 13 48 -73% -99% Blue Star 1,052 626 68% -35% 4.0% 0.2% 380 -200 13 -20 - -81% Carborundum Universal 712 450 58% -6% 17.0% 10.0% 700 -400 78 19 311% -30% Cummins India* 1,184 498 138% -5% 12.6% 0.6% - -80 104 53 96% -44% Dixon Technologies 1,867 517 261% -12% 2.6% 3.3% -70 -120 18 2 - -59% Finolex Cables* 675 377 79% -27% 10.4% 9.2% 120 -390 55 35 57% -43% Honeywell Automation India 683 736 -7% 2% 17.0% 17.4% -40 -200 92 98 -7% -12% JMC Projects 1,124 470 139% -16.6% 7.2% 5.9% 130 -286 16 -22 - -73.0% KEC International 2,540 2,207 15% -42% 6.0% 9.0% -300 -200 46 71 -35% -76% KEI Industries* 1,018 745 37% -18% 11.0% 10.0% 100 15 67 39 72% -22% Kalpataru Power* 1,586 2,337 -32% 9% 10.2% 10.4% -20 -50 76 130 -42% 10% L&T 29,335 21,260 38% -39% 10.8% 7.6% 320 -250 1,174 120 - -66% Polycab India 1,881 977 93% -38% 7.0% 6.0% 100 -700 75 8 - -73% Ratnamani Metals 526 581 -9% -24.4% 16.1% 13.1% 300 -671 50.4 49.7 1% -53.9% Thermax 1,052 665 58% -33% 6.0% - - -300 42 -15 - -60% Triveni Turbines 184 165 12% 3% 19.4% 23.4% -400 560 28 27 4% 22% V-Guard* 561 406 38% -34% 8.0% 2.0% 600 -500 24.6 3.6 - -64% Va Tech Wabag 658 431 53% -34% 5.0% 6.7% -170 -260 15 5 200% -66% Soft Coverage ISGEC Heavy 1,128 1,071 5% -30% 4.3% 8.6% -430 -320 14 42 -67% -80% Engineering Kirloskar Oil Engines 647 320 102% -29% 7.6% - - -520 24 -11 - -67% Total 50,770 36,774 38% -38% 9.2% 8.5% 69 -365 2,036 658 210% -69% Total (excl. L&T and BEL) 19,786 13,838 43% -27% 9.3% 8.5% 85 -259 849 490 73% -55% Source: Company, Sharekhan Research, *Standalone financials

Valuations (As on August 23, 2021) CMP Price Target Reco/ EPS (Rs) P/E (x) Company (Rs) (Rs) View FY21 FY22E FY23E FY21 FY22E FY23E Amber Technologies 2,760 3,716 Buy 24.2 36.6 55.7 121.0 80.0 52.6 Bharat Electronics 175 210 Buy 8.6 9.0 10.2 17.6 16.9 14.8 Blue Star 800 1,200 Buy 10.4 21.0 28.4 81.8 40.5 30.0 Carborundum Universal 730 854 Buy 15.8 18.8 23.3 44.9 37.7 30.4 Cummins India* 976 1,252 Buy 22.3 23.2 28.6 43.7 42.0 34.1 Dixon Technologies 3,902 5,309 Buy 27.2 54.8 83.3 165.8 82.3 54.2 Finolex Cables* 452 623 Buy 18.5 21.8 25.4 25.7 21.8 18.7 Honeywell Automation India 38,157 52,407 Buy 520.0 563.0 794.0 79.0 73.0 52.0 JMC Projects 93 132 Hold 4.2 6.9 11.2 22.6 13.7 8.5 KEC International 379 505 Buy 21.5 23.8 26.6 19.5 17.6 15.7 KEI Industries* 715 909 Buy 30.0 37.0 46.0 24.7 20.1 16.4 Kalpataru Power* 394 586 Buy 40.6 36.3 43.9 9.4 10.5 8.7 L&T 1,581 1,900 Buy 82.6 66.2 84.3 17.1 21.4 16.8 Polycab India 1,828 2,375 Buy 58.8 63.5 75.1 32.5 30.1 25.4 Ratnamani Metals 2,053 2,500 Buy 59.1 68.6 89.3 35.5 30.6 23.5 Thermax 1,363 1,720 Buy 20.7 24.5 30.5 65.7 55.4 44.5 Triveni Turbines 126 156 Buy 3.2 4.0 4.5 40.7 32.0 28.4 V-Guard* 235 311 Buy 4.6 5.4 6.2 56.8 49.1 42.6 Va Tech Wabag 314 435 Buy 16.1 21.5 29.0 22.1 16.6 12.3 Soft Coverage ISGEC Heavy Engineering 655 31% Positive 34.4 29.7 40.3 14.5 23.9 17.7 Kirloskar Oil Engines 211 23% Positive 12.3 10.8 13.3 17.1 19.5 15.8 Source: Company, Sharekhan Research, *Standalone financials, UR – Under review

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 15 Consumer Discretionary COVID wave-2 pauses revival; recovery to pick pace from Q2 Sector Update

Consumer discretionary companies were impacted by the second wave of COVID-19 in Q1FY22 Q1FY2022 Results Review as retail sales fell by 49% and 79%, respectively, in April and May. However, with cases falling, lockdown restrictions easing and vaccinations rising rapidly, the sector saw a month-on-month Sector: Consumer Discretionary recovery since June 2021. Branded apparel, retail and footwear companies witnessed a decline in sales in April and May due to store closures amid localised lockdowns during the second Sector View: Positive wave of COIVD-19. Recovery in demand was reported since June with reduction in cases and gradual opening up of the economy. Branded Apparel companies such as Trent, Shoppers Stop Limited (SSL), and Aditya Birla Fashion & Retail (ABFRL) witnessed a sequential dip of 55-70% whereas revenues of footwear companies like Bata and Relaxo Footwear declined by ~35- 55% q-o-q. In the jewelry segment, Titan registered a 75% y-o-y revenue growth on low base of Q1FY2021. The profitability of the retail and footwear companies was impacted by higher input prices and lower operating leverage but losses were lower as compared to Q1FY2021 Our coverage universe due to benefits from various cost-saving initiatives adopted by the companies and sales were higher than Q1FY2021. Textile companies such as Himatsingka Seide, Welspun India, Arvind CMP Reco./ PT Companies and KPR Mills reported strong y-o-y growth owing to strong orders from regions such as the US (Rs) View (Rs) and Europe due to pent-up demand for garment apparel and home textiles with the gradual opening up of economies in most of these regions. A sequential dip of ~10% on an average in Aditya Birla Fashion 202 Buy 275 revenues of textile companies was on account of closure of manufacturing facilities in Tamil and Retail Nadu for 30-40 days and supply disruption impacting the production. Textile companies’ gross Shoppers Stop 244 Posi- 328 margins contracted due to higher cotton and other raw material prices but overall profitability tive was higher as the government extended the RoSCTL scheme till March 2024 and kept rates unchanged, leading to higher margins. In the hospitality & QSR space, player such as Jubilant Trent 948 Buy 1,125 Foodworks Limited’s (JFL) revenue more than doubled on y-o-y basis with business standing Titan Company 1823 Buy 2,025 at 90-99% of pre-COVID levels despite restrictions on dine-in and limited store operating hours whereas hotel player, Indian Hotel Company Limited (IHCL), reported domestic/international Bata India 1723 Buy 1,905 recovery to 45%/36% of pre-COVID levels in June and with gradual opening up of the economy, strong demand recovery is expected in Q2. Better operating leverage and cost-saving initiatives Relaxo Footwear 1159 Buy 1,350 undertaken by companies led to significant y-o-y improvement in profitability. In the media and Jubilant Foodworks 3812 Buy 4,707 entertainment space, performance of both Inox Leisure and Zee entertainment was subdued due to slower-than-expected recovery in the demand. Overall, revenues for Sharekhan’s Indian Hotels 140 Buy 182 universe of consumer discretionary companies grew by 91% in Q1FY2022 on a low base of Company Q1FY2021 affected by nationalised lockdown due to COVID-19. OPM for our universe stood at Wonderla Holidays 232 Buy 270 8.8% in Q1FY2022 as against operating losses reported in Q1FY2021. Arvind 91 Buy 122 Outlook Himatsingka Seide 243 Posi- 345 Recovery to pick up in Q2, upcoming festivals to boost demand: According to the Retail Association tive of India, retail sales recovered to 72% of pre-pandemic levels in July. QSRs’ sales recovered to 97% of pre-pandemic levels (July-2019). Apparel sales recovered to 63%, consumer durables to KPR Mill 1719 Buy 2,360 72% of pre-pandemic levels. Recovery has been much faster and stronger compared to recovery SP Apparels 292 Posi- 399 after the first wave as pent-up demand and the ongoing vaccination drive have resulted in higher tive footfalls at the retails. This will result in better demand for footwear and apparel. With the festive season round the corner, retail sales are expected to recover to 100% by Q3FY2022. This will also Welspun India 125 Buy 170 be supported by the higher sales on digital platforms. QSRs will see faster recovery compared to Inox Leisure 306 Buy 400 apparel players as higher traction to delivery model along with gradual opening of dining would improve sales in the coming months. Tier-2/3 towns are also likely to report strong recovery due Zee Entertainment 171 Buy 275 to expectation of good monsoon resulting in better agricultural output and institutional surveys Source: Sharekhan Research also suggest that sentiments around the need to get vaccinated are significantly improving in the CMP as on August 27, 2021 rural market. Thus, we expect a strong recovery in the performance by Q4FY2022. We expect revenue of most companies to recover to FY2020 levels by FY2023. Better operating leverage benefits, cost-saving initiatives, and a better revenue mix will enable companies to post consistent improvement in profitability in the coming years. Valuation and preferred picks We prefer companies with a pan-India presence, strong brand recognition and a stable balance sheet. Thus, we like Trent and ABFRL, which are likely to see faster recovery post normalisation of the pandemic. ABFRL will benefit from strong traction to new launches, increased contribution Price chart from private labels, market share gains from unorganised players and increased contribution from online sales while aggressive store expansions and leveraging on digital presence will aid growth 18000.0 7000.0 for Trent. Strong brand recognition in the jewellery space, balance sheet strength, and good return 16000.0 6000.0 ratios make Titan one of the better plays in the retail space. We like KPR Mill and Himatsingka 14000.0 Seide in the textiles space. KPR Mill is expected to perform well due to an increase in garmenting 5000.0 capacity, improving sales of high-value products in the yarn/fabrics division and improving growth 12000.0 prospects in export markets coupled with value addition by sugar business. Himatsingka Seide 4000.0 10000.0 is leveraging upon its experience in US and a vertically integrated business model to strengthen 8000.0 3000.0 its presence in Europe and the Middle East, this along with capacity expansion will boost the 20 21 21 20 21 21 20 ------company’s performance in the medium term. In the QSR space, we like Jubilant FoodWorks as it is Jun - Oct Apr Feb Dec Aug Aug expected to gain from a shift towards organised players, frequent ordering, better penetration of Nifty 50 Nifty consumption delivery model in tier 2/3 towns, and widening of customer base. Key risk Any emergence of third wave would put a break on recovery momentum and would act as a key risk to our earnings estimates. Leaders in Q1FY2022 : Himatsingka Seide, Jubilant Foodworks and Trent. Laggards in Q1FY2022: Shoppers Stop. Preferred Picks: Titan, ABFRL, KPR Mill, Himatsingka, Jubilant Foodworks, Trent and SP Apparels.

August 31, 2021 16 Results Review Results

Q1FY2022 result snapshot Net sales Operating profit Adjusted PAT Companies Q1 Q1 Q1 Q1 Q1 Q1 y-o-y (%) y-o-y (%) y-o-y (%) FY22 FY21 FY22 FY21 FY22 FY21 Branded Apparel, Retail & Footwear Aditya Birla Fashion and Retail 774.0 320.0 141.9 -161.8 -351.3 -53.9 -335.2 -559.2 -40.1 Shoppers Stop 201.1 53.9 272.9 -62.8 -102.4 -38.7 -102.7 -115.2 -10.8 Trent 327.3 96.3 239.8 -31.8 -119.1 -73.3 -83.8 -139.5 -39.9 Titan Company 3473.0 1979.0 75.5 137.0 -253.0 - 18.0 -297.0 - Bata India 267.0 134.8 98.1 -34.0 -86.1 -60.5 -71.3 -101.1 -29.5 Relaxo Footwear 497.1 363.6 36.7 66.2 57.0 16.0 31.0 24.2 27.8 Hospitality & QSR Jubilant Foodworks 879.0 380.3 131.1 211.5 24.1 - 66.7 -72.6 - Indian Hotels Company 344.6 143.6 139.9 -148.8 -266.0 -44.1 -290.4 -335.8 -13.5 Wonderla Holidays 4.4 0.0 - -10.1 -11.9 -14.7 -13.3 -14.5 -8.7 Textile Arvind 1439.4 599.3 140.2 104.1 -28.9 - -7.6 -97.4 -92.3 Himatsingka Seide 815.4 179.4 - 158.7 -84.6 - 57.7 -139.8 - KPR Mill 903.7 540.7 67.1 224.7 120.1 87.1 168.1 60.3 178.7 SP Apparels 133.1 61.2 117.3 28.1 6.7 - 11.6 -5.8 - Welspun India 2214.5 1201.8 84.3 447.1 223.9 99.7 222.9 53.7 - Media & Entertainment Inox Leisure 22.3 0.3 - -29.0 33.4 - -122.3 -73.7 66.0 Zee Entertainment 1775.0 1312.0 35.3 344.0 219.9 56.5 227.2 142.6 59.3 Grand total 14070.9 7366.1 91.0 1243.0 -618.3 - -223.4 -1670.7 -86.6 Source: Company, Sharekhan Research

Valuations (As on August 27, 2021) EV/EBIDTA (x) PE (x) Price CMP Companies Reco. Target (Rs) FY21 FY22E FY23E FY21 FY22E FY23E (Rs) Branded Apparel, Retail & Footwear Aditya Birla Fashion and Retail 202.3 41.2 25.5 17.2 - - 99.5 Buy 275 Shoppers Stop 244 16.9 9.9 5.9 - - 35.3 Positive 328 Trent 948 86.5 52.2 36.3 - - 111.6 Buy 1125 Titan Company 1,823 94.5 57.0 41.7 165.7 92.5 64.9 Buy 2,025 Bata India 1,723 86.6 32.7 20.9 - 103.1 48.8 Buy 1,905 Relaxo Footwear 1,159 58.0 51.4 41.6 94.4 86.9 67.4 Buy 1,350 Hospitality & QSR Jubilant Foodworks 3,812 67.0 45.6 35.0 215.4 98.5 68.4 Buy 4,707 Indian Hotels Company 140 - 47.8 23.7 - - 74.6 Buy 182 Wonderla Holidays 232 -43.0 119.1 13.7 - - 39.5 Buy 270 Textile Arvind 91 8.6 6.7 5.3 - 33.6 12.8 Buy 122 Himatsingka Seide 243 15.9 7.8 5.7 - 12.9 7.7 Positive 345 KPR Mill 1,719 14.7 11.8 9.5 23.0 17.9 14.8 Buy 2,360 SP Apparels 292 8.9 5.6 4.1 17.4 9.2 6.6 Positive 399 Welspun India 125 11.1 9.1 6.9 22.8 17.8 12.4 Buy 170 Media & Entertainment Inox Leisure 306 68.9 9.7 4.0 - - 19.7 Buy 400 Zee Entertainment 171 8.8 6.3 4.9 12.0 11.4 9.2 Buy 275 Source: Company, Sharekhan Estimates

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 17 Consumer Goods Resilient Q1; input cost stress to ease by H2 Sector Update

An agile supply chain and distribution management and availability of Q1FY2022 Results Review products on retail shelves helped most consumer goods companies post resilient numbers in Q1FY2022 as compared to Q1FY2021 when the first wave of Sector: Consumer Goods COVID-19 hit hard. Fewer operational hours or store closures during weekends Sector View: Positive in some states affected performance during April-May 2021. However, the recovery was broad-based and rapid across categories in June. Hence, most of the companies under our coverage have posted sequential dip in revenues in Q1FY2022. Urban demand was more resilient as compared to rural demand during the quarter. All key categories (except for out-of-home consumption) posted a good show as compared to Q1FY2021 due to better consumer sentiments and better availability of products. Revenue growth y-o-y was in strong double digits due to the low base of Q1FY2021. The Sharekhan universe Our coverage universe of FMCG companies registered a revenue growth of 25.6% in Q1FY2022 with all companies (excluding Britannia Industries and Bajaj Consumer Care) Companies CMP Reco. PT (Rs) registering strong double-digit growth. Two-year CAGR of most companies (Rs) has been at mid-to-high single digits. Britannia Industries’ revenue growth Asian Paints 3,039 Buy 3,550 was affected by the high base of a 25% growth in revenues in Q1FY2021. Bajaj Consumer 250 Buy 355 However, two-year revenue growth CAGR stood at ~13%. Higher input prices Care put significant pressure on profitability and most companies saw a dip of 50- Britannia 3,841 Buy 4,200 800 bps in gross margins. Though Britannia undertook calibrated price hikes, Industries it was not enough to cover the entire raw material inflation. However better Colgate- 1,660 Buy 1,950 operating leverage y-o-y led to OPM remaining almost stable y-o-y. Overall, Palmolive (India) OPM for the Sharekhan universe of consumer goods companies stood at 23.3% and reported PAT growth stood at ~19%. Dabur India 599 Buy 725 Emami 588 Buy 680 Outlook Globus Spirits 905 Buy 1,009 Rapid demand recovery eyed in June-July; input pressure to ease in H2FY2022 Godrej Consumer 1,044 Buy 1,115 – After the disruption created by the second wave of COVID-19 in April-May, Products companies witnessed faster recovery in the performance in month of June-July,21. Hindustan 2,645 Buy 2,790 The recovery was broad-based across categories with discretionary categories Unilever such as personal care, hair oil and shampoos witnessing good demand in the domestic market. The rural market is gaining momentum and with monsoon ITC 206 Buy 265 expected to be normal, rural growth is expected to be stronger than the urban Jyothy Labs 159 Buy 203 growth in the quarters ahead. Further with corporates opening up with full capacity Marico 512 Buy 625 and improving mobility would improve the demand for out-of-home categories Nestle India 19,861 Buy 22,395 such as colour cosmetics, beverages & juices, deodorants and hair colour, etc. Tata Consumer 836 Buy 875 Thus, we expect consumer goods companies to post better sales volumes in the Products quarters ahead. Raw material inflation had a substantial impact on gross margins Zydus Wellness 2,211 Buy 2,505 in Q1FY2022. Prices of some of key inputs (including palm oil, copra and raw tea) have witnessed correction from its high and likely to correct further in the coming Source: Sharekhan Research CMP as on August 25, 2021 months. A correction in input prices and calibrated price hikes would help the companies to post better OPM in H2FY2022. Improving revenue mix and better operational efficiencies remain key margin drivers in the medium term. Valuation and preferred picks The consumer goods sector recovered faster as compared to some other sectors in the pandemic environment. Among large caps, we continue to prefer HUL and Price chart Asian Paints as both companies are market leaders in key categories, have strong 17000 7000 distribution reach to cater to improving demand, and sturdy balance sheet to lead 16000 6500 15000 6000 its innovation strategy. A change in leadership and strong growth prospects in 14000 5500 5000 domestic and international markets make GCPL a good pick in the FMCG space. 13000 4500 12000 4000 We also like Marico because of its strong product profile and receding raw- 11000 3500 10000 3000 material headwinds, providing strong earnings growth visibility in the near term. With consistent double-digit revenue growth, steady margin improvement, and stable working capital management, TCPL expects return ratios to consistently improve in the coming years. In the mid-cap space, we have recently initiated 24/08/2020 24/09/2020 24/10/2020 24/11/2020 24/12/2020 24/01/2021 24/02/2021 24/03/2021 24/04/2021 24/05/2021 24/06/2021 24/07/2021 24/08/2021 Nifty 50 Nifty consumption coverage on Indigo Paints, which is expected to post strong double digit revenue and PAT growth on back of its differentiated product portfolio and unique Source: Sharekhan Research; BSE website distribution expansion model. Key Risks Any sustained disruption caused by spike in COVID-19 cases, increased competition in some of the high penetrated categories and sustained spike in key input prices would act as key risks to performance of consumer goods companies. Leaders for Q1FY2022: Asian Paints, Britannia Industries, ITC, Dabur India and Globus Spirits Laggards for Q1FY2022: Marico, Tata Consumer Products and Jyothy Laboratories Preferred Picks: Asian Paints, Indigo Paints, Hindustan Unilever, Godrej Consumer Products, Marico and Tata Consumer Products

August 31, 2021 18 Results Review Results

Q1FY2022 result snapshot Rs. cr Net sales OPM (%) BPS Adjusted PAT Companies Q1FY22 Q1FY21 y-o-y (%) Q1FY22 Q1FY21 (y-o-y) Q1FY22 Q1FY21 y-o-y (%) Asian Paints 5,585.4 2,922.7 91.1 16.4 16.6 -21 576.8 233.9 146.6 Bajaj Consumer Care 215.3 196.1 9.8 24.3 29.0 -471 48.9 54.2 -9.8 Britannia Industries 3,403.5 3,420.7 -0.5 16.3 21.0 -469 386.8 542.7 -28.7 Colgate-Palmolive (India) 1,166.0 1,040.6 12.0 30.5 29.6 87 233.2 198.2 17.7 Dabur India 2,611.5 1,980.0 31.9 21.1 21.0 10 438.4 341.3 28.4 Emami 661.0 481.3 37.3 25.7 25.5 13 123.8 85.1 45.5 Globus Spirits 370.6 230.1 61.0 26.5 17.1 941 55.7 18.7 198.4 Godrej Consumer Products 2,894.5 2,327.3 24.4 21.1 20.3 80 426.6 305.4 39.7 Hindustan Unilever 11,915.0 10,560.0 12.8 23.9 25.2 -131 2,080.2 1,907.1 9.1 ITC 12,959.2 9,501.8 36.4 30.8 27.9 295 3,013.5 2,342.8 28.6 Jyothy Labs 525.4 432.9 21.4 12.0 17.7 -561 40.2 50.0 -19.6 Marico 2,525.0 1,925.0 31.2 19.0 24.3 -521 365.0 336.8 8.4 Nestle India** 3,462.4 3,041.5 13.8 24.5 24.6 -9 538.6 486.6 10.7 Tata Consumer Products* 3,008.5 2,713.9 10.9 13.3 17.8 -451 243.6 342.3 -28.9 Zydus Wellness 597.6 537.4 11.2 23.5 22.8 73 131.0 89.2 46.8 Grand Total 51,900.6 41,311.1 25.6 23.3 23.8 -51 8,702.2 7,334.1 18.7 * Tata Consumer Q1FY2022 includes consolidation of the foods business of Tata Chemicals **Values for Nestle India are for Q2CY2021 and Q2CY2020

Valuations (As on August 25, 2021) CMP EPS (Rs) PE (x) Price Companies Reco. (Rs) FY21 FY22E FY23E FY21 FY22E FY23E target (Rs.) Asian Paints 3,039 33.4 41.0 48.6 91.0 74.1 62.5 Buy 3,550 Bajaj Consumer Care 250 15.2 15.6 18.2 16.4 16.0 13.7 Buy 355 Britannia Industries 3,841 76.8 78.4 93.5 50.0 49.0 41.1 Buy 4,200 Colgate-Palmolive (India) 1,660 38.1 39.2 42.7 43.6 42.3 38.9 Buy 1,950 Dabur India 599 9.6 11.2 13.9 62.4 53.5 43.1 Buy 725 Emami 588 15.1 16.8 21.1 38.9 35.0 27.8 Buy 680 Globus Spirits 905 48.9 70.7 93.9 18.5 12.8 9.6 Buy 1,009 Godrej Consumer Products 1,044 17.3 20.0 23.7 60.3 52.2 44.1 Buy 1,115 Hindustan Unilever 2,645 34.6 40.8 49.4 76.4 64.8 53.5 Buy 2,790 ITC 206 10.7 11.6 13.9 19.3 17.8 14.8 Buy 265 Jyothy Labs 159 5.7 6.5 8.1 27.9 24.5 19.6 Buy 203 Marico 512 9.2 10.7 12.7 55.7 47.9 40.3 Buy 625 Nestle India 19,861 216.0 260.6 303.8 92.0 76.2 65.4 Buy 22,395 Tata Consumer Products 836 10.3 11.8 14.6 81.1 70.8 57.2 Buy 875 Zydus Wellness 2,211 39.4 51.7 65.7 56.1 42.8 33.6 Buy 2,505 Source: Company, Sharekhan estimates # TCPL earnings estimates are including the financials of consumer business of Tata Chemicals

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 19 Infrastructure/Cement/Logistics/Building Material Cement/Infra/Logistics outperform; Building material mixed bag Sector Update

For Q1FY2022, the cement sector (ex-Grasim) reported 48.7% y-o-y growth (down Q1FY2022 Results Review 15.3% q-o-q) in net revenue, led by 42.5% y-o-y rise (down 20.2% q-o-q) in volumes and 4.7% y-o-y (up 5.9% q-o-q) growth in realisation. The cement sector’s revenue largely Sector: Infra/Cement/ Logistics / remained in-line, as marginally lower-than-expected volumes were compensated by Building material better-than-expected realisations. Further, the cement sector’s profitability beats estimates, with weighted average EBITDA/tonne rising by 6.2% y-o-y (up 13.5% q-o-q) Sector View: Positive to Rs. 1,413 (versus our expectation of Rs. 1,351/tonne). Better-than-expected EBITDA/ tonne was driven by lower cost of goods sold (average raw-material costs per tonne dipped 33% y-o-y and 24% q-o-q to Rs. 604) on account of inventory built-up. Other costs per tonne viz. power and fuel costs (up 37% y-o-y, up 22.5% q-o-q), freight costs (up 10% y-o-y, up 2% q-o-q), and other expenses (up 15% y-o-y, up 9% q-o-q) continued to be on Our coverage universe an uptrend as per expectations. Overall, the cement coverage universe reported 5% and Companies CMP Reco. PT 15% beat on operating profit (up 51% y-o-y, down 9% q-o-q) and net profit (up 78% y-o-y, (Rs) (Rs) down 9% q-o-q), respectively. All cement companies reported better-than-expected net Cement earnings, barring The Ramco Cements and Dalmia Bharat. The infrastructure sector reported 52.6% y-o-y rise in revenue (down 24.1% q-o-q), as all companies barring Shree Cement 26581 Buy 31610 Sadbhav Engineering Limited (SEL) reported better-than-expected execution despite the Ultratech Cement 7307 Buy 8800 quarter getting affected by COVID-19 led challenges. Sadbhav Engineering continued to be affected by liquidity constraints and delays in receipt of appointed dates for EPC Grasim Industries 1440 Buy 1780 projects. On the OPM front, KNR and PNC reported broadly in-line OPM, while Ashoka The Ramco 969 Buy 1310 Buildcon reported better-than-expected OPM. Our infra universe (ex-SEL) reported Cement operating profit growth of 57% y-o-y and net profit growth of 2.7x y-o-y, led by higher JK Lakshmi execution, lower depreciation (down 10% y-o-y), and lower interest expense (down 19% 701 Hold 780 y-o-y). In logistics, revenue grew by 83% y-o-y on account of low base as Q1FY2021 had Cement severely affected the sector. Pick-up in revenue helped better absorption of fixed costs, Dalmia Bharat 2042 Buy 2410 leading to a 447 bps y-o-y rise in OPM. Strong operational performance led to net profit of Infrastructure Rs. 118 crore versus net loss of Rs. 24 crore in Q1FY2021. Gateway Distriparks, Mahindra logistics, and TCI reported strong beat on net earnings. Building material performance Sadbhav 48 Hold 68 was mixed bag. Led by low base of last year, the building material sector reported 98% Engineering y-o-y growth in revenue, over 700 bps y-o-y expansion in OPM and net profit of Rs. 741 KNR 307 Buy 350 crore versus Rs. 12 crore in Q1FY2021. Greenpanel and APL Apollo outperformed on net Constructions earnings, led by higher-than-expected OPM, while Pidilite’s net earnings were driven by higher-than-expected revenue. Other building material companies reported lower- Ashoka Buildcon 98 Buy 125 than-expected OPM, led by rising input costs, leading to negative beat on net earnings. PNC Infratech 302 Buy 386 Overall, during Q1FY2022, we saw strong outperformance in cement, infra (ex-SEL), and Building Materials logistics (ex-TCI Express), while building materials was a mixed bag. Century 394 Buy 505 Outlook Plyboards Seasonal impact to be felt in Q2FY2022, while long-term outlook stays positive: The Greenlam 1362 Buy 1605 cement sector is expected to feel the impact on operational profitability in Q2FY2022 Industries where volumes remain weak, cement prices tread lower q-o-q, while input costs remain firm. However, the sector is expected to see cement prices to rise from September, while Greenpanel 246 Buy 335 demand picks up post the monsoon season containing overall input costs and improving Industries profitability. The infrastructure sector may see seasonal impact on execution although Pidilite Industries 2226 Buy 2525 order book tendering and execution is expected to gather pace from Q3FY2022. We APL Apollo Tubes 1622 Buy 2075 expect the logistics sector to benefit from pick-up in demand expected from August 2021 with the onset of the festive season. The building materials space is slated to benefit from Hitech pipes 571 Positive 689 demand pick-up in the housing sector, led by low interest rate regime and central/state Supreme 2030 Buy 2553 government’s push towards the housing sector. However, the sector is expected to face Industries input cost-led tailwinds in the near term for which they would have to pass on to end- consumers. Kajaria Ceramics 1166 Buy 1202 Astral 1971 Hold 2404 Valuation Selective preference in each sector: We stay Positive on the cement space, as we see Logistics favourable demand and pricing environment from Q3FY2022. We prefer UltraTech, Dalmia Gateway 258 Buy 347 Bharat, Shree Cement, Grasim Industries, and The Ramco Cements. In the infrastructure Distrparks space, we prefer companies having a strong order backlog, timely execution capabilities, Gati 138 Positive 204 and strengthened balance sheets such as KNR Construction, PNC Infratech, and Ashoka Buildcon. In the logistics segment, we prefer companies with asset-light business models Mahindra 730 Buy UR such as Mahindra Logistics, Transport Corporation of India, TCI Express, and quality Logistics assets heavy model like Gateway Distriparks. In the building materials space, we prefer TCI Express 1414 Buy 1913 companies having strong cash-generation capabilities and maintaining their leadership position in the sub-segments. We prefer Century Plyboards, Supreme Industries, Hi-Tech TCI 415 Buy 541 Pipes, Greenlam Industries, Greenpanel Industries, and Kajaria Ceramics. Source: Company, Sharekhan Research, UR : Under Review Key Risks CMP as on August 26, 2021 Macroeconomic weakness would lead to lowering of estimates and valuation multiples of companies. Price chart Leaders in Q1FY2022 – UltraTech, Shree Cement, Grasim Industries, JK Lakshmi Cement, 60000 6500 India Cements, Mangalam Cement, KNR Constructions, Ashoka Buildcon, PNC Infratech, 55000 6000 5500 Gateway Distriparks, Transport Corporation of India, Greenpanel Industries, Pidilite 50000 5000 Industries, and APL Apollo Tubes 45000 4500 4000 40000 3500 Laggards in Q1FY2022 – The Ramco Cements, Dalmia Bharat, Sadbhav Engineering, 35000 3000 2500 TCI Express, Century Plyboard, Greenlam Industries, Kajaria Ceramics, Astral Poly, and 30000 2000 25000 1500 Supreme Industries 20 21 21 21 20 21 20 21 20 20 21 21 ------Preferred Picks – UltraTech, Shree Cements, The Ramco Cements, JK Lakshmi Cement, KNR Jul Jan Jun - Oct Apr Sep Feb Dec Aug Nov Mar May 27 -

27 - Construction, PNC Infratech, Gateway Distriparks, TCI Express, Transport Corporation of 27 - 27 - 27 - 27 - 27 - 27 - 27 - 27 - 27 - 27 - BSE Sensex S&P BSE Basic Materials India, Hi-Tech Pipes, Century Plyboards, Greenlam Industries, and Greenpanel Industries.

August 31, 2021 20 Results Review Results

Q1FY2022 result snapshot Sales (Rs. cr) OPM (%) Adj. PAT (Rs. cr) Particulars Q1 Q1 y-o-y q-o-q Q1 Q1 y-o-y q-o-q Q1 Q1 y-o-y q-o-q FY22 FY21 (%) (%) FY22 FY21 (bps) bps FY22 FY21 (%) (%) Cement Sector Coverage 23738 14810 60.3% -16.5% 26.1% 23.3% 286 156 3335 1402 137.8% -12.8% Shree Cement 3449 2332 47.9% -12.8% 29.4% 30.0% -65 -49 662 371 78.5% -13.8% UltraTech 11477 7374 55.6% -17.8% 27.6% 26.5% 112 249 1681 914 84.0% -5.4% Grasim 3763 1336 181.7% -14.4% 19.7% -16.9% - 122 482 -225 - -4.3% The Ramco Cements 1229 1042 17.9% -24.6% 29.6% 25.0% 467 209 169 110 54.2% -21.2% Dalmia Bharat 2589 1901 36.2% -17.7% 27.0% 32.4% -531 278 223 189 18.0% -43.7% JK Lakshmi Cement 1232 825 49.2% -6.8% 17.5% 17.4% 17 -272 119 44 167.2% -29.1% Soft coverage 8634 5761 49.9% -11.7% 24.1% 22.9% 113 244 1372 752 82.5% 3.2% ACC 3885 2601 49.4% -9.5% 22.5% 20.2% 235 249 572 268 113.4% 2.6% Ambuja 3371 2177 54.9% -6.9% 28.5% 27.3% 112 149 723 453 59.5% 8.8% India Cements 1022 757 35.1% -29.5% 15.8% 20.6% -473 201 37 17 120.6% -47.8% Mangalam Cement 355 226 57.1% -13.5% 23.2% 20.5% 262 408 40 14 189.5% 9.7% Grand total 32372 20570 57.4% -15.2% 25.6% 23.2% 240 176 4707 2154 118.5% -8.7% Total (ex-Grasim) 28610 19235 48.7% -15.3% 26.4% 26.0% 40 184 4226 2380 77.6% -9.2% Construction Sadbhav Engineering 263 230 14.4 -38.3 9.2 8.5 73 -689 -17 -27 - - KNR Constructions 740 479 54.4 -20.9 19.4 19.7 -31 -10 73 40 83.5 -5.2 Ashoka Buildcon 1,283 761 68.5 -26.1 30.9 32.5 -154 328 80 -28 - -43.7 PNC Infratech 1,251 905 38.2 -23.9 14.0 13.2 79 -11 93 60 55.2 -27.9 Total 3,274 2,146 52.6 -24.1 21.9 21.5 36 113 247 72 242.5 -29.3 Logistics Gateway Distriparks 330 253 30.4 -5.9 27.1 27.7 -60 -15 44 12 275.4 -5.1 Gati Limited 290 158 83.8 -27.0 0.0 -17.2 - -195 -6 -24 - - Mahindra Logistics 873 410 112.8 -10.3 5.2 -0.5 - 41 9 -16 - -39.0 TCI Express 223 89 151.2 -20.3 14.4 2.3 1210 -504 24 1 - -44.2 Transport Corp of 696 406 71.6 -22.0 10.9 7.5 333 95 47 4 - -30.3 India Total 2,412 1,316 83.3 -16.7 10.0 5.6 447 -6 118 -24 -600.6 -35.4 Building materials Century Plyboards* 449 201 123.7 -39.2 13.5 -1.1 - -344 34 -10 - -58.7 Greenlam Industries 336 160 109.6 -19.1 11.4 4.9 646 -478 17 -8 - -59.8 Greenpanel 308 90 242.0 -20.7 22.2 -9.2 - -272 30 -36 - -47.3 Industries Pidilite Industries 1,937 878 120.6 -13.4 17.9 7.6 1039 -267 215 15 - -30.5 APL Apollo Tubes 2,534 1,110 128.4 -2.0 10.0 6.4 364 207 147 17 - 23.6 Hi-Tech Pipes 383 152 152.4 -2.1 5.6 6.0 -44 64 9 1 - 36.4 Supreme Industries 1,342 1,054 27.3 -35.6 16.5 11.1 543 -791 171 41 - -62.0 Kajaria Ceramics 562 278 102.4 -41.0 14.3 -2.7 - -573 43 -27 - -66.1 Astral Poly Technik 700 404 73.3 -37.9 18.5 13.4 504 -409 74 20 - -57.7 Total 8,552 4,326 97.7 -21.7 14.3 7.1 718 -338 741 12 - -45.9 Source: Company, Sharekhan Research * Consolidated financials

August 31, 2021 21 Results Review Results

Valuation (As on August 26, 2021) Price EV/EBITDA (x) P/E (x) Company Reco target CMP (Rs) (Rs) FY22E FY23E FY24E FY22E FY23E FY24E Cement Shree Cement Buy 31610 26581 21.1 17.1 14.3 41.6 33.4 28.5 UltraTech Cement* Buy 8800 7307 15.5 13.7 11.2 30.2 26.5 22.0 Grasim Industries* Buy 1780 1440 32.4 25.1 21.8 81.8 60.5 52.7 The Ramco Cement Buy 1310 969 15.0 13.4 12.0 24.2 21.2 19.3 Dalmia Bharat Buy 2410 2042 14.1 12.7 10.6 42.5 39.1 30.4 JK Lakshmi Cement Hold 780 701 8.7 7.7 6.9 17.7 16.2 15.3 Soft coverage India Cements Not Rated 159 9.7 8.4 7.7 28.4 20.3 18.0 Mangalam Cement Not Rated 448 6.9 5.5 4.2 14.9 11.6 9.3 Infrastructure Sadbhav Engineering* Hold 68 48 7.4 6.0 5.0 30.7 13.8 8.0 KNR Constructions Buy 350 307 13.0 11.2 9.6 22.2 19.1 16.1 Ashoka Buildcon Buy 125 98 3.2 1.8 1.0 11.3 8.2 6.1 PNC Infratech Buy 386 302 9.6 8.1 7.3 17.9 14.4 12.7 Logistics Gateway Distriparks Buy 347 258 10.4 8.4 6.4 22.4 15.8 11.2 Gati Limited Positive 204 138 17.5 12.7 9.6 58.2 25.2 15.5 Mahindra Logistics Buy UR 730 24.9 18.9 14.9 87.8 56.2 42.3 TCI Express Buy 1913 1414 27.8 22.4 18.4 38.7 31.4 25.9 Transport Corp of India Buy 541 415 9.9 8.7 7.6 15.8 14.4 12.5 Building Materials Century Plyboards Buy 505 394 22.0 18.1 14.5 34.4 28.2 22.8 Greenlam Industries Buy 1605 1362 16.6 14.6 12.9 29.9 24.9 20.8 Greenpanel Industries Buy 335 246 11.2 9.1 8.0 20.7 14.7 12.5 Pidilite Industries Buy 2525 2226 55.1 44.6 37.9 84.3 67.4 56.9 APL Apollo Tubes Buy 2075 1622 20.9 16.2 12.6 36.2 27.9 22.0 Hi-Tech Pipes Positive 689 571 8.2 6.5 5.3 11.8 8.5 6.8 Supreme Industries Buy 2553 2030 21.8 18.2 15.6 30.1 24.8 20.9 Kajaria Ceramics Buy 1202 1166 33.2 25.7 20.3 56.8 41.1 30.4 Astral Limited Hold 2404 1971 51.9 42.8 34.4 81.7 66.3 51.6 Source: Company, Sharekhan Research * Standalone financials

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 22 IT Eyeing bright days post strong Q1 Sector Update

Tier-I IT services companies (except TCS and HCL Technologies) reported strong sequential Q1FY2022 Results Review revenue growth in Q1FY2022 despite a resurgence in COVID-19 cases in India, led by strong broad-based growth across verticals and major developed geographies, and higher Sector: IT Services spending digital transformation initiatives. Further, recovery of impacted verticals such as manufacturing, travel and hospitality supported the growth momentum of Indian IT services Sector View: Positive companies. Aggregate USD revenues of top five IT companies grew by 4.3% q-o-q/20.4%y-o-y in Q1FY2022, which is one the best growth performance of IT services companies. On y-o-y front, all top five IT service companies reported strong double-digit USD revenue growth. Wipro, Tech Mahindra (Tech M) and Infosys reported better-than-expected revenue growth, while TCS and HCL Technologies posted numbers that were in line with our estimates. Wipro led the tier-I pack with a constant currency (CC) growth of 12% q-o-q, followed by Infosys (4.8% q-o-q), Tech Our coverage universe M (3.9% q-o-q), TCS (2.4% q-o-q) and HCL Tech (0.7% q-o-q). Mid-tier IT services companies CMP Reco./ PT continued to outperform tier-I companies in Q1FY2022. For mid-tier IT companies, the revenue Companies (Rs) View (Rs) growth was broad-based, which was led by Persistent Systems (9.2% q-o-q). EBIT margin of all companies (barring L&T Tech, Persistent Systems and Mastek) shrunk by 80-550 bps Birlasoft 405 Buy 500 q-o-q due to wage revisions, visa costs, strong hiring, higher subcontractor costs, geographic expansion and increasing discretionary expenses. A higher attrition rate for key skills remained Expleo 1,071 Positive 1,453 industry-wide phenomenon owing to higher demand and shortage of digital skills. Wipro, Tata Solutions Elxsi and L&T Infotech saw EBIT margins fall sharply q-o-q, while LTTS, Mastek and Persistent HCL Tech 1,168 Buy 1,400 Systems saw margins improve. Client additions remained strong across the board. Deal TCVs moderated due to a lack of any mega deal wins, but remained healthy. Infosys, LTTS and Tech Infosys 1,727 Buy 1,820 Mahindra raised their growth outlook for FY2022 amid strong demand and a strong start to the fiscal, while Wipro provided in-line revenue growth guidance. Intellect Design 659 Buy 900 Outlook L&T Infotech 5,131 Buy 5,750 Strong tech spending environment to drive growth: Demand environment remains strong and L&T Tech 3,855 Buy 4,460 is led by - (1) acceleration in the digital transformation program including cloud and business transformation, which leads to availability of digital deals of all sizes, (2) greater focus on higher Mastek 2,584 Buy 2,950 outsourcing by global clients and an increase in offshoring after the pandemic, (3) rising spends Persistent 3,214 Buy 3,600 on core transformation. Large digitisation deals and growth in core markets such as Europe are expected to drive growth in the next 2-3 years. Cloud and advanced analytics remain the prime Tata Elxsi 4,860 Buy 5,000 focus areas among enterprises. It is estimated that 60-70% of workloads would be shifted to TCS 3,671 Buy 3,750 public cloud in the next 3-4 years from 15-20% currently. Enterprises are rapidly adopting digital and cloud technologies to re-imagine cost structures, increase business resilience and agility, Tech M 1,449 Buy 1,665 building new business models, catching up with digitally mature and cloud-native competitors, Wipro 629 Buy 670 and personalising experiences for customers and employees. Further, BFS companies (largest revenue contributor to revenue of Indian IT companies) across US and Europe have accelerated CMP as on August 26, 2021 their investments on digital and cloud technologies to enhance customer experience on online channels. Both digital leaders and laggards are stepping up investments on digital transformation initiatives and innovations as the former wants to extend the lead, while the latter wants to catch up. Strong hiring also indicates the underlying strong demand environment and expectations of Price chart continued momentum of strong deal wins. However, margins could be impacted in the medium 200 term by supply-side challenges, discretionary cost normalisation, unsustainable utilisation rates and measures to retain talent. We believe most companies are well-equipped to offset some those 170 margin headwinds from levers such as strong revenue growth, higher offshore mix, employee 140 pyramid rationalization and pricing benefits. We maintain a Positive stance on the sector as Indian IT industry is well poised to maintain its growth momentum because of strong deal momentum, 110 broad-based traction across industries and strong partnerships with hyperscalers. 80 Valuations Strong broad-based demand tailwinds: With a strong start to FY22, healthy deal wins, robust Apr 21 Dec 20 Aug 20 Aug 21 deal pipeline and broad-based traction across industries, most Indian IT companies have raised Nifty IT Nifty their growth outlook for FY2022E. Effectively, the CNX IT index has moved up ~25% in the last one year and significantly outperformed the Nifty by 18% in the same period. Stock prices of many IT companies have been trading higher than their 5-year peak multiples and some even at their life-time high multiples as well, given strong growth visibility for Indian IT companies as digital is becoming mainstream across all verticals and improving free-cash-flow (FCF). We have a Buy rating for all the stocks under our coverage. We prefer companies with industry-leading revenue growth, a long runway for growth, strong business model, high return ratios, a rise in payouts and reasonable valuations. Infosys remains a top pick in the large-cap space as it is well-positioned to report another year of strong revenue growth in FY2022E among lead tier-I companies, followed by HCL Technologies (recovery in ERD vertical and reasonable valuation) and Tech M (5G opportunity and sustainable margin profile). Key risks 1) Rupee appreciation vis-à-vis US Dollar would affect earnings estimates for FY2022E/FY2023E/ FY2024E and stock performance, 2) weaker macros including a potential for slower GDP growth in the USand Europe,3) delay in pipeline conversion and (4) supply-side issues. Q1FY2022 Leaders: Wipro, Persistent Systems, Tata Elxsi, Mastek, Infosys, L&T Infotech, LTTS and Tech Mahindra Preferred picks Large-cap: Pecking order: Infosys, HCL Tech, Tech Mahindra, TCS, Wipro Mid-cap: Pecking order: L&T Infotech, Birlasoft, Intellect Design, Mastek, Persistent Systems, L&T Tech, Tata Elxsi and Expleo Solutions

August 31, 2021 23 Results Review Results

Sharekhan IT universe: Q1FY2022 results EBITDA Net Revenue q-o-q y-o-y EBITDA q-o-q y-o-y q-o-q y-o-y Company name margin profit (Rs. cr) (%) (%) (Rs cr) (BPS) (BPS) (%) (%) (%) (Rs cr) Birlasoft 945.3 4.7 3.4 151.1 16.0 -90.0 363.0 113.6 14.8 101.7 Expleo Solutions 88.0 11.0 16.1 14.6 16.6 -752.4 -897.3 12.8 16.7 -10.2 HCL Technologies 20,068.0 2.2 12.5 4,908.0 24.5 -149.3 -113.6 3,214.0 8.5 10.0 Infosys 27,896.0 6.0 17.9 7,432.0 26.6 -99.3 104.9 5,195.0 2.3 22.7 Intellect Design 408.3 3.5 18.1 100.2 24.5 -41.2 489.3 73.7 -8.6 73.1 L&T Infotech 3,462.5 5.9 17.4 647.8 18.7 -317.6 -136.4 496.8 1.7 19.3 L&T Tech 1,518.4 5.4 17.3 317.7 20.9 57.6 502.0 216.2 11.2 84.3 Mastek Limited 516.5 6.9 33.8 112.8 21.8 -8.7 419.2 69.3 14.4 71.4 Persistent Systems 1,229.9 10.5 24.1 201.5 16.4 -53.1 161.4 151.2 9.8 68.0 Tata Elxsi 558.3 7.7 39.4 150.0 26.9 -554.0 371.5 113.4 -1.5 64.6 TCS 45,411.0 3.9 18.5 12,664.0 27.9 -140.2 172.8 9,008.0 -2.6 28.5 Tech Mahindra 10,197.6 4.8 12.0 1,876.4 18.4 -162.2 411.9 1,353.2 31.3 39.2 Wipro 18,368.4 12.5 22.2 4,311.0 23.5 -173.1 145.8 3,232.1 8.7 35.2 Source: Company, Sharekhan Research

Our View on the coverage universe (As on August 26, 2021) PT CMP EPS (Rs) P/E (x) Particulars Reco (Rs) (Rs) FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E Birlasoft Buy 500 405 11.3 16.0 18.8 21.7 35.9 25.3 21.6 18.6 Expleo Solution Positive 1,453 1,071 49.2 51.6 63.5 77.7 21.8 20.8 16.9 13.8 HCL Technologies Buy 1,400 1,168 47.9 50.8 58.2 65.2 24.4 23.0 20.1 17.9 Infosys Buy 1,820 1,727 45.6 52.8 61.5 68.6 37.9 32.7 28.1 25.2 Intellect Design Buy 900 659 19.6 22.2 28.3 36.6 33.7 29.6 23.3 18.0 L&T Infotech Buy 5,750 5,131 110.3 129.0 154.0 179.3 46.5 39.8 33.3 28.6 L&T Tech Buy 4,460 3,855 62.9 89.6 111.7 127.3 61.3 43.0 34.5 30.3 Mastek Buy 2,950 2,584 81.9 93.8 107.8 127.6 31.5 27.5 24.0 20.2 Persistent Systems Buy 3,600 3,214 59.0 84.9 115.1 129.9 54.5 37.8 27.9 24.7 Tata Elxsi Buy 5,000 4,860 59.1 81.2 98.7 116.9 82.2 59.8 49.2 41.6 TCS Buy 3,750 3,671 89.3 107.1 121.5 135.2 41.1 34.3 30.2 27.2 Tech Mahindra* Buy 1,665 1,449 51.2 65.0 72.4 82.1 28.3 22.3 20.0 17.7 Wipro Buy 670 629 19.1 22.9 25.8 28.5 32.9 27.4 24.4 22.1 Source: Company, Sharekhan Research; *EPS of Tech Mahindra excludes treasury shares

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 24 Oil & Gas Good show by CGDs & gas utilities Sector Update

The second wave of COVID-19 impacted CGD companies’ gas sales volume (fall of Q1FY2022 Results Review 17.1%/17.5%/22.1% q-o-q for MGL/Gujarat Gas/IGL) in Q1FY2022, but EBITDA margin Sector: Oil & Gas (excluding that of IGL) surprised positively and increased sharply by 15%/56% q-o-q to Rs. 13.9/Rs. 7.9 per scm for MGL/GGAS, supported by lower gas cost and largely negated the Sector View: Positive impact of volume decline. In fact, GGAS earnings grew strongly by 36% q-o-q and that of MGL was down only 4% q-o-q and was above our as well as consensus estimates. Earnings of oil marketing companies (OMCs) declined q-o-q given weak refining margins, a decline in refining throughput and marketing sales volumes and forex losses. IOCL fared well among OMCs with better refining margins (IOCL GRMs of $6.6/bbl versus HPCL’s GRM of $3.3/bbl and BPCL GRM of $4.1/bbl), lower-than-expected impact on volumes (IOCL refinery throughput/marketing sales volume declined of 5%/9.6% q-o-q was much lower compared decline for HPCL and BPCL) and benefit of sustained high petrochemical margins. Gas utilities like GAIL, Petronet LNG and GSPL performed well and reported better-than-expected earnings given limited Our Coverage Universe impact on volumes because of lockdowns and better margins (especially GAIL benefited from Companies CMP Reco. PT high LPG prices). Upstream PSUs reported sharp recovery in operating profit y-o-y and q-o-q, (Rs) (Rs) supported by a sharp increase of 13%/12% q-o-q in net oil realisations for ONGC/Oil India to $66/67 per barrel but PAT declined q-o-q due to lower dividend income. CGD companies RIL 2,172 Buy 2,400 witnessed a sharp volume recovery with gas sales volumes reverting to pre-COVID levels Oil India 164 Hold 185 in July’21. Thus, we maintain our constructive stance on CGD players given strong volume Petronet LNG 224 Buy 285 led earnings growth visibility, high RoEs, debt free status and robust FCF generation. CGDs Mahanagar Gas 1,131 Buy 1,450 high margins to sustain given pricing power (ability to pass on potential 50-60% increase in domestic gas price for H2FY2022) supported by favourable economics of CNG versus petrol. IOCL 106 Buy 125 However, elevated spot LNG price of $16/mmBtu would impact margin of GGAS in Q2FY2022. BPCL 463 Buy 520 Core earnings of OMCs are expected to improve with a cyclical recovery in refining margins HPCL 254 Buy 340 and structurally better marketing margin over FY2022-FY2023. The earnings trajectory of GAIL (India) 145 Buy 196 upstream PSUs expected to improve in the coming quarters supported by a sharp rally in oil price to ~$70/bbl and potential hike of 50-60% in domestic gas price for H2FY2022. We GSPL 372 Buy 410 prefer Reliance Industries (RIL), Gujarat Gas, Mahanagar Gas (MGL), Indraprastha Gas (IGL), Gujarat Gas 726 Buy 890 and Gujarat State Petronet Limited (GSPL) in the oil & gas space. Indraprastha Gas 530 Buy 650 Outlook Ltd Structural gas consumption theme provides massive volume opportunity for CGDs; higher Source: Sharekhan Research crude oil/gas prices bode well for upstream PSUs and BPCL privatisation a key catalyst for CMP as on August 18, 2021 OMCs: Volume recovery for CGD companies has been much faster as the impact of second wave of COVID-19 was much lower compared to the severe demand impact seen in the first wave as government took proactive approach to ease lockdowns norms. A recovery in gas sales volume to pre-COVID-19 in July’21 gives us confidence of strong volume growth for CGD space in FY2022 despite volume impact in Q1FY2022. In our view, the secular gas consumption theme would gain further momentum and drive sustained long-term volume growth for CGD players in the coming years. Our optimism on volume growth stems from: 1) the government’s thrust to increase the share of gas in India’s overall energy mix to 15% by 2030 (from just 6% currently), 2) a crackdown on polluting cities (the NGT has identified over 100 cities in India to reduce pollution) and 3) most importantly; potential inclusion of natural gas under the GST regime (could be a game changer and kick-start the next growth phase for gas consumption in India). High margins for CGD players are sustainable as they hold monopolies with their respective GAs along with pricing power (recently hiked price for CNG/Domestic PNG). OMCs have a decent earnings outlook and BPCL’s privatisation could lead to a strong re-rating for OMCs and create long-term value for investors. Earnings outlook for upstream PSUs’ have improved given a rise in crude oil prices ~$70/bbl mark and expectation of a steep hike in domestic gas Price chart price. Having said that, reforms in domestic gas pricing are crucial for improvement in earnings quality of ONGC and Oil India. Among gas utilities, GAIL is well placed to benefit from higher 160 crude linked commodity prices (HDPE, LPG and spot LNG price) and strong gas demand outlook. 140 Valuations 120 We believe that the street would start appreciating CGDs high volume growth potential, 100 sustained high margin/RoE and strong FCF generation and thus high valuation is justified and 80 likely to sustain as the green fuel wave could further boost the gas consumption theme. All three 20 20 21 21 20 21 21 ------CGD companies are our preferred picks, with the pecking order being – G-GAS, MGL, and IGL. Jun Oct Apr Feb Dec Aug Aug We prefer RIL among downstream players as the potential materialisation of a likely minority stake sale in the oil-to-chemical (O2C) business and a cyclical GRM recovery could be key BSE Oil & Gas Sensex near-term catalysts and further value unlocking in the digital and retail businesses would add to Source: Sharekhan Research; BSE website shareholders’ returns over the coming years. We prefer GSPL among gas utilities, as it is direct play on rising gas demand (exposure to gas transmission and CGD business) and is available at attractive valuations. Key Risks 1) Lower-than-expected gas sales volume amid COVID-19 led demand slowdown. 2) A delay in the development of new GAs and a sharp rise in domestic and imported gas prices. Favourable policies for electric vehicles (although adoption of EVs has been slow in India) could affect the growth outlook for CGD companies. Leaders for Q1FY2022: Gujarat Gas, MGL, GAIL, GSPL, Petronet LNG and Oil India. Laggards for Q1FY2022: BPCL and HPCL. Preferred Picks: RIL, GGAS, MGL, IGL and GSPL.

August 31, 2021 25 Results Review Results

Q1FY2022 results review (Standalone financials) Sales (Rs cr) OPM (%) PAT (Rs cr) Company Q1 Q1 QoQ Q1 Q1 QoQ Q1 Q1 QoQ YoY (%) YoY (%) YoY (%) FY22 FY21 (%) FY22 FY21 (%) FY22 FY21 (%) RIL# 1,39,949 88,253 58.6 -6.4 16.7 19.1 -242 144 12,273 8,267 48.5 3.2 Oil India 3,007 1,744 72.4 16.6 41.0 11.3 2970 2454 508 -155 NA -44.6 Petronet LNG 8,598 4,884 76.1 13.5 12.3 18.6 -637 -214 675 571 18.3 0.1 Mahanagar Gas Ltd 615 262 135.1 -14.2 49.4 30.6 1883 534 204 45 351.0 -4.1 IOCL 1,18,671 62,397 90.2 -4.1 9.4 8.8 54 -154 5,941 1,911 210.9 -32.3 BPCL 70,921 38,785 82.9 -7.8 4.6 10.1 -551 -199 1551 2,076 -25.3 -60.5 HPCL 72,166 37,498 92.5 -3.2 4.0 11.0 -698 -181.8 1795 2,814 -36.2 -40.5 GAIL 17,384 12,087 43.8 11.8 13.9 5.2 872 -263 1,530 256 498.8 -19.8 ONGC 23,022 13,011 76.9 8.6 52.8 45.4 738 501 4,335 497 772.9 -9.0 GSPL 527 463 13.8 13.4 71.0 75.0 -401 -300 233 201 16.0 12.2 Gujarat Gas 3,011 1,083 178.0 -12.2 24.0 17.2 686 785 476 59 711.7 36.1 Indraprastha Gas 1,257 639 96.9 -18.9 30.3 13.1 1722 -142 244 32 667.2 -26.2 Ltd Source: Company, Sharekhan Research; # Consolidated financials

Valuations (As on August 18, 2021) EPS (Rs) PE(x) Price CMP CAGR over Company Reco Target (Rs) FY21-23E (%) FY21 FY22E FY23E FY21 FY22E FY23E (Rs) RIL 2,172 73.5 86.2 109.1 21.9 29.6 25.2 19.9 Buy 2,400 Oil India# 164 12.7 23.8 26.7 44.9 12.9 6.9 6.1 Hold 185 Petronet LNG# 224 19.6 21.5 23.7 10.1 11.4 10.4 9.4 Buy 285 Mahanagar Gas Ltd# 1,131 62.7 81.8 93.1 21.8 18.0 13.8 12.1 Buy 1,450 IOCL# 106 18.5 25.0 21.7 8.3 5.7 4.3 4.9 Buy 125 BPCL# 463 67.2 32.1 34.4 -28.4 6.9 14.4 13.5 Buy 520 HPCL# 254 75.2 53.8 62.2 -9.0 3.4 4.7 4.1 Buy 340 GAIL (India)# 145 11.0 17.8 19.8 34.1 13.2 8.2 7.3 Buy 196 GSPL 372 16.5 19.6 22.1 15.9 22.6 19.0 6.6 Buy 410 Gujarat Gas 726 18.6 22.9 28.6 24.0 39.1 31.7 25.4 Buy 890 Indraprastha Gas Ltd# 530 14.4 19.9 22.7 25.6 36.9 26.6 23.4 Buy 650 Source: Sharekhan estimates; # Standalone financials; Note: RIL’s FY2022E—FY2023E EPS has been adjusted for enhanced equity base to factor rights issue

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 26 Pharmaceuticals Healthy Q1, price erosion in US dents sentiments Sector Update

Q1FY2022 was a healthy quarter for pharmaceutical companies under the Sharekhan Q1FY2022 Results Review coverage universe with topline and earnings growing in double digits. Growth was Sector: Pharmaceuticals driven by strong performance of the domestic business led by robust sales of COVID- led products and low base of the corresponding quarter in the previous year. The Sector View: Positive acute therapies segment reported an impressive performance with chronic therapies also staging a double-digit growth. India focused companies such as Cipla staged a strong 27% y-o-y growth in India sales. Also Gland Pharma’s India sales grew by 76.8% y-o-y due to ramped up supplies of COVID-19 drugs Remdesivir and Enoxaparin. On the Our coverage universe other hand, performance in the US markets for most of the companies was impacted CMP PT by a steep price erosion in US markets due to heightened competitive pressures. The Companies Reco. (Rs) (Rs) management commentaries from the select companies suggested that the heightened price erosion in the US markets is expected to stay in the near term and would be a Aurobindo 688 Buy 915 key point to watch out for. Companies such as Aurobindo, Dr Reddy’s and Strides Cadila 548 Buy 720 Pharma Sciences were impacted due to the heightened price erosion while Sun pharma Cipla 917 Buy 1,150 reported a strong 31% y-o-y growth in US sales due to pick up in the specialty portfolio. Divis 4,847 Buy ,620 Aurobindo (adjusted for Natrol) reported a 1.5% y-o-y decline in US sales while Strides Ipca Labs 2,500 Buy 2,560 reported a strong 19.3% y-o-y dip in US sales. Simultaneously the API players – Divis, Laurus, Granules and Solara active Pharma also reported a double digit revenue growth Lupin 940 Buy 1,400 of 13.3%, 31.2%, 15.5% and 16.4% y-o-y respectively. The universe’s operating margins Sun Pharma 771 Buy 900 were flat on a y-o-y basis at 25%. Companies such as IPCA laboratories reported a steep Torrent Pharma 3,055 Buy 3,400 1166 bps y-o-y to 26.6% as Q1FY21 had the impact of Covid led demand for HCQS which Biocon 349 Buy 470 commanded way higher margins, while a double-digit price erosion led to an operating Granules 334 Buy 475 loss for Strides pharma Sciences. Select companies such as Biocon and Divis reported higher depreciation charge, while Gland pharma’s other income almost doubled on a Laurus Labs 677 Buy 800 y-o-y basis. Consequently, the universe’s earnings clocked a double digit growth of 10% Sanofi India 8,901 Buy 9,600 y-o-y for the quarter. Abbott India 18,900 Buy 20,300 Outlook Strides Pharma 585 Hold 770 Growth Levers Intact: Indian pharmaceutical companies are better-placed to harness sciences opportunities and post healthy growth going ahead. Indian companies are among the most Shilpa Medicare 567 Book out - competitive globally and hold a sizeable market share in most of the developed as well as Solara Active 1,661 Buy 2,100 other markets. Indian pharmaceutical companies have developed strong capabilities over Pharma the years, which are depicted in their inherent strength. Moreover, other factors such as - 1) Dr Reddys 4,584 Buy 5,900 improving growth prospects in key regulated markets including US, increasing preference Laboratories for specialty / complex generics and injectables 2) revival in the IPM which is expected to Gland Pharma 3,794 Buy 4,400 stage a double-digit growth in FY22, and 3) emerging opportunities in the API space would Caplin Point 738 Positive 1,054 be key growth drivers. This would be complemented by strong capabilities developed Laboratories by Indian companies (leading to a shift towards complex molecules and biosimilars) and commissioning of expanded capacities by some players over the medium term. The area Source: Sharekhan Research CMP as on August 24, 2021 of Vaccines could also open up sizeable growth opportunities for Indian pharmaceutical companies. Collectively, this points towards a strong growth potential going ahead, which would place pharmaceutical companies in a higher earnings growth trajectory as compared to slow earnings growth in the past. Valuation Sector View - Positive: Considering a long-term horizon from April 2015 to March 2019 the healthcare index has underperformed benchmark indices, with the Nifty Pharma index Price chart reporting a negative return of ~11%. However, over the past one and half year, the healthcare index has bucked the trend, outperforming benchmark indices, yielding a sturdy 69% return 200 as compared to a ~39% return clocked by the benchmarks. The strong outperformance is 170 expected to continue going ahead as well and we see this extending to a multi-year bull 140 run. The Indian pharma companies are amongst the most competitive ones globally and 110 over the years have developed and demonstrated strong capabilities, which have laid the 80 footing for a sturdy growth ahead. Multiple factors including improving growth prospects 50 in exports and Indian markets, expected rise in product approvals from the regulators and 20 20 21 20 21 20 20 21 20 21 ------focus on specialty / complex products in addition to emerging opportunities in the API and Jun Jun Oct Apr Apr Feb Feb Dec Aug Aug vaccines space would be key growth drivers. Better growth prospects in the domestic Nifty 50 Nifty Pharma markets could benefit India-focused MNC companies. Collectively, these point to strong growth potential, which would gradually unfold going ahead. Also in the near term evolving trends for US pricing environment, India sales (ex-Covid) and resolution of USFDA scrutiny would be a key point to watch for. We have a Positive view on the sector. Key Risks Adverse regulatory changes, delay in plant inspections and currency volatility could over weigh on the financial performance of the companies in the sector. Our Preferred Picks: Large Caps: Cadila, Lupin, Dr Reddy’s, Sun Pharma, Biocon, IPCA Labs Mid Caps: Gland Pharma, Laurus Labs, Solara Active Pharma Sciences, Abbott India Outperformers in Q1FY2022: Cipla, Laurus Labs, Gland Pharma, Caplin Point Laboratories Underperformers in Q1FY2022: Shilpa Medicare, Strides Pharma Sciences, Aurobindo

August 31, 2021 27 Results Review Results

Q1FY2022 results snapshot Net sales (Rs cr) OPM (%) Adj. PAT (Rs. cr) Particulars Q1 Q1 YoY QoQ Q1 Q1 YoY QoQ Q1 Q1 YoY QoQ FY22 FY21 (%) (%) FY22 FY21 (BPS) (BPS) FY22 FY21 (%) (%) Large Caps Aurobindo 5,702.0 5,925.0 -3.8 -5.0 21.2 21.2 -1.1 -2.8 770.0 783.0 -1.7 -3.8 Cadila 4,025.0 3,515.0 14.5 9.0 23.2 22.5 68.8 136.8 565.0 439.0 28.7 -22.1 Cipla 5,503.6 4,346.2 26.6 19.5 24.4 24.1 30.3 715.9 838.0 577.9 45.0 102.7 Divis 1,960.6 1,730.5 13.3 9.6 43.5 40.5 300.2 340.3 557.1 492.1 13.2 11.0 IPCA 1,565.8 1,534.0 2.1 40.5 26.6 38.3 -1,166.6 606.5 306.7 444.8 -31.0 90.3 Lupin 4,270.0 3,528.0 21.0 12.9 21.7 14.3 737.8 301.9 505.3 124.9 304.6 12.1 Sun Pharma 9,718.7 7,585.0 28.1 14.0 28.2 23.3 494.0 404.5 1,995.0 1,898.0 5.1 26.4 Torrent Pharma 2,134.0 2,056.0 3.8 10.2 31.7 32.1 -42.5 167.8 330.0 321.0 2.8 1.9 Biocon 1,761.0 1,694.0 4.0 -4.4 22.1 24.4 -229.0 -162.2 84.0 148.0 -43.2 3.7 Dr Reddy's Lab 4,945.1 4,426.5 11.7 3.7 18.6 25.3 -676.2 -355.0 573.4 594.6 -3.6 2.9 Mid Caps Granules 849.8 735.6 15.5 6.3 23.7 25.0 -125.6 -157.1 120.2 111.5 7.9 -5.8 Laurus Labs 1,278.5 974.3 31.2 -9.4 30.9 28.6 236.3 -251.7 241.6 171.8 40.6 -18.6 Abbott India 1,217.8 1,064.3 14.4 11.2 21.8 21.9 -15.3 301.8 195.8 180.4 8.5 28.4 Sanofi India* 789.1 710.5 11.1 8.8 31.3 24.9 637.4 519.4 171.7 135.2 27.0 17.7 Strides Pharma 688.4 781.8 -11.9 -24.2 -8.0 19.3 - - -122.1 53.0 - - Science Shilpa Medicare 237.4 222.9 6.5 14.1 13.4 29.5 -1,604.1 84.5 1.6 25.5 -93.8 -79.7 Solara Active 405.6 348.4 16.4 -8.7 22.5 24.1 -151.5 22.7 50.7 42.3 19.9 -10.4 Pharma Gland Pharma 1,153.9 884.2 30.5 30.0 37.8 46.7 -885.3 89.7 350.7 313.1 12.0 34.7 Caplin point 300.4 240.1 25.1 7.8 30.8 29.8 100.2 7.6 70.9 54.6 29.9 5.3 Laboratories Grand Total 48506.7 42302.2 14.7 8.2 25.0 24.8 13.7 170.6 7605.6 6910.6 10.1 12.6 Source: Company, Sharekhan Research; * Q2CY21 result estimates

Valuations (As on August 24, 2021) Reco / EPS (Rs.) P/E (X) Particulars CMP (Rs.) PT (Rs.) View FY21 FY22E FY23E FY21 FY22E FY23E Large Caps Aurobindo 688.0 Buy 915 42.2 61.4 70.3 16.3 11.2 9.8 Cadila 548.0 Buy 720 22.4 22.3 27.4 24.5 24.6 20.0 Cipla 917.0 Buy 1150 29.8 38.4 47.7 30.8 23.9 19.2 Divis 4847.0 Buy 5620 74.8 96.4 126.7 64.8 50.3 38.3 Lupin 940.0 Buy 1400 26.8 36.7 50.0 35.1 25.6 18.8 Sun Pharma 771.0 Buy 900 28.3 29.4 34.2 27.2 26.2 22.5 Torrent Pharma 3055.0 Buy 3400 73.6 82.6 105.5 41.5 37.0 29.0 Biocon 349.0 Buy 470 4.8 9.5 15.4 73.1 36.7 22.7 Dr Reddys Laboratories 4584.0 Buy 5900 117.6 165.9 217.1 39.0 27.6 21.1 Ipca Labs 2500.0 Buy 2560 90.5 89.4 102.4 27.6 28.0 24.4 Mid Caps Granules 334.0 Buy 475 22.2 23.9 31.6 15.0 14.0 10.6 Laurus Labs 677.0 Buy 800 18.5 23.9 30.6 36.6 28.3 22.1 Sanofi India 8901.0 Buy 9600 225.8 267.4 294.8 39.4 33.3 30.2 Abbott India 18900.0 Buy 20300 325.1 378.9 432.9 58.1 49.9 43.7 Strides Pharma sciences 585.0 Hold 770 21.5 6.7 37.7 27.2 87.3 15.5 Shilpa Medicare 567.0 Book out - 10.7 15.4 21.7 53.2 36.8 26.2 Solara Active Pharma 1661.0 Buy 2100 62.4 74.5 98.8 26.6 22.3 16.8 Gland Pharma 3794.0 Buy 4400 80.3 123.6 127.7 47.2 30.7 29.7 Caplin point Laboratories 738.0 Positive 1054 33.2 40.4 51.3 22.2 18.3 14.4 Source: Company, Sharekhan Research

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. August 31, 2021 28 Agri Inputs and Speciality Chemical Mixed Q1; decent revenue growth but margin under pressure Sector Update

Agri input companies under our coverage witnessed pressure on margin owing to elevated export Q1FY2022 Results Review freight cost although a large portion of the raw material price rise was passed on to the end customers which helped to sustain gross margin. However, fertiliser companies like Coromandel Sector: Agri Inputs and Speciality International saw improvement in margins as sharp hike in fertiliser subsidy on DAP offset rise Chemicals in phosphatic price. Revenue growth of our coverage universe was decent at 11.1% y-o-y led by strong export performance although domestic revenues were impact due to delayed and erratic Sector View: Positive monsoon. Coromandel International and Sumitomo Chemical India reported better-than-expected earnings growth in Q1FY22. Companies in the speciality chemical space, also witnessed sharp contraction in margins (down 125 bps q-o-q) due to high logistic and RM cost although revenue growth of 18.8% q-o-q was slightly better-than-expected as strong export demand offset weakness in domestic demand due to second wave of COVID-19. SRF (strong performance by technical textile and packaging segments) and Aarti Industries (discretionary demand recovered to pre-COVID-19 levels) surprised positively with sharp beat in revenue growth and margin performance. The agri- input and specialty chemical sectors would witness near term volatility in margins given elevated export freight costs. However, structural drivers like favourable agronomics (expectation of good monsoons, rising water levels and high crop prices), supportive government policies (consistent hike in MSPs for key crops) and shift towards branded products are well-placed to aid sustained growth and market share gains for large agri-input players. Rising domestic demand, contract Our coverage universe manufacturing opportunities and import substitution are likely to present a massive revenue CMP opportunity for the specialty chemicals space. High double-digit earnings growth outlook supported Companies Reco. PT (Rs) (Rs) high capex intensity and favourable government policies would support premium valuation of quality companies in the sector. Preferred Picks - Coromandel International, PI Industries, SRF, Agri Inputs Atul Limited, Sumitomo Chemical India and Aarti Industries. Coromandel 796 Buy 1,070 Agri inputs: Strong growth in overseas business (PI Industries’ CSM business witnessed a 31.4% y-o-y International revenue growth and Insecticide India’s exports grew by 179.4% y-o-y ) and sound growth in domestic market (UPL domestic revenue up 26.7% y-o-y) has led to a 11.1% y-o-y growth in overall revenue, Insecticides (India) 692 Buy 900 which is however, marginally lower than our estimate of 12.8% due to delayed monsoon in domestic PI Industries 3,089 Buy 3,900 market and unfavorable weather condition in some of the export markets. In the fertiliser space, UPL 720 Buy 930 Coromandel International reported strong numbers due to improved DAP margins despite a decline in total phosphatic fertiliser (DAP + complex fertiliser) sales volumes by 6.2% y-o-y to 7.8 lakh tonnes. Sumitomo Chemical 397 Buy 500 Overall, margins were weak due to higher freight cost. The RM cost was mostly passed on to final India customers which protected the gross margins of most of the companies in this space. Coromandel International saw stable margins on the back of sharp hike in fertiliser subsidy on DAP, inventory Speciality Chemicals gains, and benefit of backward integration. Overall, agri-input companies under our coverage Aarti Industries 911 Buy 1,155 reported earnings growth of 22.6% y-o-y supported by decent revenue growth and higher realisations Atul Limited 9,034 Buy 10,600 due to a better product mix. Speciality chemicals: Specialty chemical companies in our coverage universe witnessed a mixed SRF 8,970 Buy 10,600 quarter with better-than-expected revenue growth in companies such as SRF, Aarti Industries and Sudarshan Chemical 572 Buy 780 Vinati Organics due to strong demand and weak performance by companies such as Sudarshan Vinati Organics 1,766 Buy 2,350 Chemical and Atul Limited as second wave of Covid-19 impacted domestic demand. Also, a sharp jump in input costs and higher freight cost led to miss in OPM for most companies in this space. Source: Sharekhan Research The highlighting factor was recovery in demand for majority of products to pre-COVID levels in the CMP as on August 23, 2021 specialty chemicals. Management commentary was also positive and most companies maintained their double-digit revenue growth guidance and high capex plan for the specialty chemical business. However, for companies like Sudarshan Chemicals, margin pressure will stay in the upcoming quarters due to rise in input cost. Overall, specialty chemical companies under our coverage reported 18.8%/10.6% q-o-q revenue/PAT growth with outperformance by SRF and Aarti Industries. Outlook According to data released by Ministry of Agriculture, monsoon was 8% lower between June 1 and August 20 which has led to 1.55% lower sowing area in the ongoing kharif season. With expectation of pick-up in monsoon and higher MSPs leading to better crop prices, sowing is likely to increase. This would help domestic agro-chemical companies to report strong growth (monsoons during August to September 2021 will be crucial for earnings of domestic focused agri-input players) and favourable sourcing policies of global companies (China plus One factor) would drive market share gains in the exports segment. The above factors and the vast opportunity from products going off-patent are Price chart expected to drive strong growth for the Indian agrochemical industry. Hence, we expect high double- 170 digit earnings growth for agri-input companies over the next couple of years. We remain bullish on medium to long-term growth prospects for the Indian specialty chemical sector (expect a 9% CAGR 140 over 2019-2025 and reach $304 billion by 2025), given a massive revenue opportunity both from the perspective of import substitution (India’s total specialty chemical imports is estimated at $56 billion), 110 potential increase in exports given the China Plus One strategy by global customers, and favourable 80 government policies (such as tax incentives and production-linked incentive scheme similar to that of the pharmaceutical sector). 50 Valuation 21 20 20 21 21 20 21 21 20 21 20 21 21 21 ------Conducive government policies, product innovation, a massive export opportunity (CRAMS) would Jul Jan Jun Oct Apr Sep Feb Dec Aug Aug Nov Mar May May help the sector witness sustained, high double-digit growth over the next 2-3 years. Structural BSE MidCap Index Sensex revenue growth drivers (higher domestic demand, rising exports and import substitution) and potential Source: BSE; Sharekhan Research for margin expansion (rise in share of high-margin value-added products) would help sustain high valuations of quality companies (like PI Industries, Sumitomo Chemical India and SRF) in the sector. Moreover, capacity expansion and inorganic growth would further aid to earnings growth in the coming years. Hence, we stay positive on the sector. Key Risks Lower-than-expected sowing for kharif Season and higher raw material prices could impact earnings of agri-input companies. Higher raw material cost for speciality chemical might affect margins if they are not able to pass it on to customers. Lower demand offtake for products as a result of a slowdown in economic activity for specialty chemicals may also affect earnings. Leaders for Q1FY22: Coromandel International, Sumitomo Chemical India, SRF and Aarti Industries. Laggards for Q1FY22: Sudarshan Chemical and Vinati Organics Preferred Picks: Coromandel International, PI Industries, SRF, Atul Limited, Sumitomo Chemical India and Aarti Industries.

August 31, 2021 29 Results Review Results

Q1FY2022 result snapshot Sales (Rs cr) OPM (%) PAT (Rs cr) Companies Q1 Q1 YoY QoQ Q1 Q1 YoY QoQ Q1 Q1 YoY QoQ FY22 FY21 (%) (%) FY22 FY21 (bps) (bps) FY22 FY21 (%) (%) Agri Inputs Coromandel International 3,664 3,213 14.0 28.3 13.2 12.8 34 405 338 251 34.8 116.7 Insecticides (India) 468 410 14.3 83.2 11.3 12.0 -68 11 35 34 1.7 62.7 PI Industries 1,194 1,060 12.6 -0.3 20.8 21.6 -77 185 187 146 28.7 4.1 UPL 8,515 7,833 8.7 -33.5 21.9 21.8 12 -62 694 599 15.9 -42.6 Sumitomo Chemical India 782 648 20.7 46.4 19.2 18.3 83 580 106 79 33.2 95.5 Agri Inputs Total 14,623 13,164 11.1 3.6 19.1 19.1 4 -205 1,360 1,109 22.6 -12.4 Speciality Chemicals Aarti Industries 1,317 937 40.5 8.9 23.8 19.4 442 231 176 127 39.2 32.0 Atul Limited 1,080 661 63.5 -3.2 21.9 24.0 -216 -93 160 119 35.3 -7.6 SRF Limited 2,699 1,545 74.7 3.5 24.6 24.1 51 29 388 186 108.7 4.2 Sudarshan Chemicals 474 352 34.5 -17.8 13.4 14.1 -69 -171 28 15 86.5 -51.6 Vinati Organics* 386 232 66.8 38.1 26.3 42.0 -1569 -916 81 72 11.9 14.2 Speciality Chemicals Total 5,957 3,727 59.8 18.8 23.2 23.1 9 -125 833 518 60.8 10.6 Source: Company; Sharekhan Research, * Standalone

Valuation (As on August 23, 2021) EPS (Rs.) CAGR over P/E (x) CMP PT Companies FY21-23E Reco. (Rs) (Rs) FY21 FY22E FY23E (%) FY21 FY22E FY23E Agri Inputs Coromandel International 796 45.3 53.6 60.4 15.5 17.6 14.9 13.2 Buy 1,070 Insecticides (India) 692 52.5 69.5 88.8 30.0 13.2 10.0 7.8 Buy 900 PI Industries 3,089 48.0 57.3 74.5 24.6 64.4 53.9 41.5 Buy 3,900 UPL 720 40.6 54.4 63.0 24.5 17.7 13.2 11.4 Buy 930 Sumitomo Chemical India 397 6.9 8.3 10.0 20.0 57.4 47.9 39.8 Buy 500 Speciality Chemicals Aarti Industries 911 14.4 20.3 27.6 38.3 63.1 44.9 33.0 Buy 1,155 Atul Limited 9,034 221.5 267.1 300.9 16.6 40.8 33.8 30.0 Buy 10,600 SRF 8,970 198.8 238.7 295.3 21.9 45.1 37.6 30.4 Buy 10,600 Sudarshan Chemicals 572 20.4 22.9 30.3 21.8 28.1 24.9 18.9 Buy 780 Vinati Organics* 1,766 26.2 37.5 48.6 36.2 67.4 47.1 36.3 Buy 2,350 Source: Company; Sharekhan Research, * Standalone

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 30 Results Review Results

Miscellaneous

Q1FY2022 result snapshot Company Net sales (Rs Cr) OPM (%) Adjusted PAT (Rs Cr) Q1 Q1 YoY QoQ Q1 Q1 YoY QoQ Q1 Q1 YoY QoQ FY22 FY21 (%) (%) FY22 FY21 BPS BPS FY22 FY21 (%) (%) Affle (India) 152 90 69.8 7.7 23.0 25.0 -204 (139) 30 19 57.3 11.4 Bharti Airtel 26,854 23,290 15.3 4.3 48.3 42.6 576 44 266 (544) - (16.5) CESC 1,931 1,585 21.8 14.4 16.1 14.4 172 (226) 138 134 3.0 (48.9) Coal India 25,282 18,487 36.8 (5.3) 19.2 16.5 266 (474) 3,170 2,080 52.4 (30.9) Info Edge 320 280 14.1 10.2 31.2 37.3 -614 1,290 101 83 21.3 44.4 JSW Steel 28,902 11,782 145.3 7.3 35.5 11.4 2417 421 5,900 -561 NA 38.0 MOIL Ltd 293 152 92.6 (34.8) 28.6 31.7 -314 (607) 62 46 33.7 (46.7) NMDC 6,512 1,938 236.1 (4.9) 64.1 38.9 2525 221 3,186 531 500.0 12.4 SAIL 20,643 9,068 127.7 (11.3) 31.8 (4.4) NA 43 3,897 -1,226 NA (12.5) NTPC 26,039 23,453 11.0 (2.0) 28.6 33.0 -445 407 3,146 3,273 -3.9 (17.9) Power Grid Corp 9,777 8,989 8.8 (1.7) 87.7 87.6 4.8 (30) 3,273 2,866 14.2 (6.9) Tata Power 9,968 6,453 54.5 (1.6) 23.3 26.8 -351 905 391 207 89.3 (0.5) Polyplex Corp 1,440 1,160 24.2 11.3 22.3 26.9 -461 190 136 117 16.3 24.2 Quess Corp 2,987 2,410 24 -0.6 4.92 5.38 -46 -30 44.61 31.09 43.5 -47 Triveni Engineering 1111.5 1223.8 -9.2 -6.4 13.5 12.7 74 -37 92.3 83.7 10.2 10.3 Balrampur Chini Mills 1,140 1,430 (20.3) 11.9 11.8 15.2 (343) - 72 133 (45.9) - Castrol India# 890 491 81.3 (21.9) 22.2 19.4 278 (767) 140 65 114.1 (42.5) Phillip Carbon Black 1,004 360 179.2 15.8 16.3 10.7 560 (516) 104 2 NA (18.1) Mahindra Lifespace 148 14 - 164.7 - - - - (14) (21) - - Developers* *Operating loss during Q1FY2022, Q1FY2021 #Q2CY2021 results

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 31, 2021 31 Know more about our products and services

For Private Circulation only

Disclaimer: This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This Document may contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This Document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusions from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. The analyst certifies that the analyst has not dealt or traded directly or indirectly in securities of the company and that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. The analyst and SHAREKHAN further certifies that neither he or his relatives or Sharekhan associates has any direct or indirect financial interest nor have actual or beneficial ownership of 1% or more in the securities of the company at the end of the month immediately preceding the date of publication of the research report nor have any material conflict of interest nor has served as officer, director or employee or engaged in market making activity of the company. Further, the analyst has also not been a part of the team which has managed or co-managed the public offerings of the company and no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Sharekhan Limited or its associates or analysts have not received any compensation for investment banking, merchant banking, brokerage services or any compensation or other benefits from the subject company or from third party in the past twelve months in connection with the research report. Either, SHAREKHAN or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind.

Compliance Officer: Mr. Joby John Meledan; Tel: 022-61150000; email id: [email protected]; For any queries or grievances kindly email [email protected] or contact: [email protected]

Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX - Commodity: INZ000171337; DP: NSDL/CDSL-IN-DP-365-2018; PMS: INP000005786; Mutual Fund: ARN 20669; Research Analyst: INH000006183;

Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and the T&C on www.sharekhan.com; Investment in securities market are subject to market risks, read all the related documents carefully before investing.