Mahanagar Gas We Request for Your Valuable Vote and Support Bloomberg Ticker MAHGL in Oil & Gas | India Market Cap

Institutional Equity Research CMP (Rs) 1,017 Upside/(Downside) (%) (6) Mahanagar Gas We request for your valuable vote and support Bloomberg Ticker MAHGL IN Oil & Gas | India Market Cap. (Rs bn) 100 Free Float 68 SELL Company Update | 21 August 2020 Shares O/S (Mn) 98.8 2 Year Target Price: Rs.957

No Respite in Sight

Key Setbacks:  Sharply lower volume CAGR (4.4%) vs. the industry (14%) over FY15-20  Sustaining volume CAGR in excess of 3% over FY20-23E seems challenging Click Image for Video Presentation   New geographical area (Raigad) will take more than 6 years to touch peak volume  Increased competitive intensity following likely roll-out of Open Access Policy (OAP)

1. Total sales volume of Mahanagar Gas (MAHGL) is expected to clock only 3% CAGR Research Analyst: over FY20-23E on the back of (1) very little space to more vehicle addition in Mumbai Yogesh Patil owing to the highest vehicular density (1,900/km); (2) no new geographical area to aid Contact : (022) 3303 4632/9763153797 volume growth story; and (3) no allocation for adding CNG buses in 2020-21 budget of Email : [email protected] Municipal Corporation of Greater Mumbai (MCGM). 2. The company had earlier guided that sales volume from Raigad geographical area to Research Associate: touch 0.6mmscmd in FY23E. To achieve this target, MAHGL should have set up ~100 Pratik Oza CNG stations, while it set up only 15 CNG stations so far and is expected to add 5-10 Contact : (022) 3303 4000 / 9960358990 CNG stations annually over the next 3 years. We believe these new stations will add Email : [email protected] only 50,000kg/day to MAHGL’s CNG sales volume by FY23E, which is <2% of expected total sales volume of 3.2mmscmd. 3. The Petroleum & Natural Gas Regulatory Board (PNGRB) is likely to finalize rules for new players in the geographical areas, where marketing exclusivity has ended. New players are expected to enter into the high-margin CNG segment compared to PNG industrial. Share price (%) 1 mth 3 mth 12 mth CNG sales volume accounts for 73% of MAHGL’s total sales volume. Moreover, MAHGL Absolute performance -2.5 8.6 24.4 owns only 6% of the total 256 CNG stations (71% owned by the OMCs). MAHGL has Relative to Nifty -7.2 -18.9 22.6 a portfolio of 3 geographical areas, and its marketing exclusivity has already ended in all. We believe the entry of new players can dent volume growth and margin of Shareholding Pattern (%) Mar-20 Jun-20 the incumbents in FY23. As per our calculation, 5% volume loss and ~Rs1/scm margin contraction could impact MAHGL’s EPS by 16% in FY23E. Promoter 32.5 32.5 Public 67.5 67.5 Investment Decision Matrix (IDM) – Please refer to section “Investment Decision Matric (IDM)” on page 4 for details. As highlighted in IDM, the key risks are: Open Access Policy (regulatory risk),Competition from New Player, earnings growth, and management guidance. 1 Year Stock Price Performance COVID-19 Impact: Daily sales volume is yet to recover fully, which touched 65% of the normal level in Aug’20. We expect MAHGL’s CNG sales volume to touch the normal level by 4QFY21. 1,300 1,200

Outlook & Valuation 1,100

We downwardly revise our EBITDA and PAT estimate by 34%/1% and 40%/9% for FY21E and 1,000

FY22E, respectively to factor in the impact of COVID-19 in FY21 and envisaging a conservative 900

scenario for FY22. It would be rather a challenge for MAHGL to sustain volume CAGR in the 800

excess of 3% over FY20-23E. Further, as the company has not won any new geographical area, 700

we do not envisage any incremental volume growth, while a fall in CNG conversion run rate 600 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 ------

and the highest vehicular density in Mumbai will lead to a mere 3% CNG volume CAGR in FY20- - Jul Oct Sep Sep Dec Dec Nov Jun - Jun - Jan Feb Feb Apr Apr Aug Mar Aug FY23E. We expect MAHGL’s earnings to clock 2% CAGR over FY20-23E. Further, we expect its May RoCE/RoE to fall from 24%/24% in FY19 to 22%/21% in FY23E, as it is unlikely to sustain consistent Note: * CMP as on 20 August 2020 growth in EBITDA and PAT over the next 3 years (FY21-FY23E). We maintain SELL on MAHGL with a revised DCF-based 2-year Target Price of Rs957 (from Rs 1,045 earlier). Change of Estimates Financial Summary (% change) FY21E FY22E Y/E Mar (Rs.mn) FY19 FY20 FY21E FY22E FY23E Total Income -32% -13% Net Sales 27,911 29,721 21,088 29,264 32,140 EBITDA -34% -1% EBITDA 8,855 10,528 7,578 11,744 12,275 PAT 5,464 7,935 4,992 7,988 8,341 PBT -40% -8% EPS (Rs) 55 80 51 81 84 PAT -40% -9% P/E 18.4 12.7 19.9 12.4 11.9 EV/EBITDA 10.4 8.5 11.6 7.4 6.9

We have made changes to our Recommendation and Target Price. Please refer to Page no. 11 at the end of the report. 1 Our Thesis

f Increased Competitive Intensity after Roll-out of Open Access Policy - The PNGRB is likely to finalize rules for new players in the geographical areas, where marketing exclusivity has ended. New players are expected to enter into high-margin CNG segment compared to PNG industrial. CNG sales volume accounts for 73% of MAHGL’s total sales volume. Moreover, MAHGL owns only 6% of total 256 CNG stations (71% owned by the OMCs). MAHGL has portfolio of 3 geographical areas, and its marketing exclusivity has already ended in all. We believe entry of new players can dent volume growth and margin of the incumbents in FY23. As per our Key Sectoral Theme calculation, 5% volume loss and ~Rs1/scm margin contraction could impact MAHGL’s EPS by 16% in FY23E.

f Margin Expansion to Partially Support Earnings Growth - The prices of APM gas are likely to be revised downward to ~US$2/mmbtu in 2HFY21 (from the current level of US$2.39/mmbtu). APM gas accounts for ~87% of MAHGL’s total gas sales portfolio. Thus, US$1/mmbtu drop in APM gas price will increase MAHGL’s gross margin and EBITDA/scm (with partial passing on of lower APM gas prices) by Rs 0.70/scm. We expect MAHGL to earn EBITDA/scm of Rs10.5/Rs10.4 in FY22E/FY23E on lower gas prices, which will partially support its earnings.

f Sustaining >3% Volume CAGR over FY20-23 Seems Challenging : MAHGL’s CNG volume clocked <4% CAGR over FY15-FY20 despite favourable environment marked by (1) CNG vehicle addition run rate of 5.5k/ month; (2) 53%/39% average saving on CNG-fueled vehicles compared to petrol/diesel-fueled vehicles; and (3) addition of 76 new CNG stations over last 5 years, which has eased infrastructure bottleneck. Going forward, we expect MAHGL’s sales volume to clock only 3% CAGR on the back of: (1) very little likelihood of meaningful vehicle addition in Mumbai owing to the highest vehicular density (1,900/km); (2) no new geographic area to aid volume growth story; (3) no allocation for adding CNG buses in the 2020-21 budget of MCGM (except for 1,241 new diesel buses on wet lease); and (4) multiple issues being faced by Navi Key Investment Mumbai based industrial houses with few industries are migrating to other region. Thus, we expect total Themes volume to decline by 27% in FY21E and will grow by 40%/5% in FY22E/23E.

f Valuation: It would be a challenge for MAHGL to sustain volume CAGR in the excess of 3% over FY20-23E. Further, as the company has not won any new geographical area, we do not envisage any incremental volume growth, while fall in CNG conversion run rate and the highest vehicular density in Mumbai will lead to a mere 3% CNG volume CAGR in FY20-FY23E. We expect MAHGL’s earnings to clock 2% CAGR over FY20-23E. Further, we expect its RoCE/RoE to fall from 24%/24% in FY19 to 22%/21% in FY23E, as it is unlikely to sustain consistent growth in EBITDA and PAT over the next 3 years (FY21-FY23E). We maintain SELL on MAHGL with a revised DCF-based 2 year Target Price of Rs957 (from Rs 1,045 earlier).

Key Risks f Compulsory conversion of polluting vehicles to CNG. f Ban on fuel oil and pet-coke use in Mumbai and other geographical areas.

2 EPS & Target Price

100 1,200 957 80 911 917 1,000 80.3 80.9 84.4 627 800 60 548 573 452 600 55.3 40 48.4 50.5 39.8 400 20 200 0 - FY17 (-3) FY18 (-2) FY19 (-1) FY20 FY21E FY22E FY23E (Base (Year 1) (Year 2) (Year 3) Year)

EPS (Rs) Target Price (Rs)

Source: Company, RSec Research

Price Sensitivity Analysis EPS (Rs) Growth (%) FWD P/E 9.3 11.3 13.3 15.3 17.3 FY17 (-3) 39.8 24.6 372 452 531 611 690 FY18 (-2) 48.4 21.5 20.3 452 548 645 742 839 FY19 (-1) 55.3 14.3 17.7 516 627 738 848 959 FY20 (Base Year) 80.3 45.2 12.2 750 911 1,071 1,232 1,393 FY21E (Year 1) 50.5 -37.1 19.4 472 573 674 775 876 FY22E (Year 2) 80.9 60.0 12.1 755 917 1,078 1,240 1,402 FY23E (Year 3) 84.4 4.4 11.6 788 957 1,126 1,295 1,464 Soure: RSec Research

DCF valuation for MAHGL (Cost of capital 10% and terminal growth rate 2%) FY22 FY23 Rs mn (per sh) Rs mn (per sh) NPV - Continuing Business 53,813 545 57,641 584 NPV - Terminal Value 35,870 363 36,912 374 NPV (Total) = Target Price 908 957 CMP 1,017 1,017 Downside -11% -6% Recommendation SELL SELL Source: Company, RSec Research

3 Investment Decision Matrix (IDM)

Key Criteria Score Risk Comments

On a number of occasions, the company failed to achieve the target as guided by the management. For example, the management guided for Management Quality 3 High total volume growth of 6% YoY in FY20, while the company reported volume de-growth.

Promoter's Holding Pledge 7 Low No pledging of shares by the promoter as of June 30, 2020. There is no stake sale plan from the government’s side as well.

Out of 7 Board of Directors, 4 members are independent directors and none of them was ever disqualified. Independent directors include ex-IAS/ Board of Directors Profile 5 Medium IRS officers, CAs/MBAs from IIMA, and the University of Hull (the UK). MAHGL is promoted by GAIL (Maharatna Company) with a 32.5% stake, while other notable stakeholders include: the Maharashtra Government with a 10% stake. Therefore, we don’t envisage any major risk. Based on new geographical areas won by the city gas distribution (CGD) players in the 9th & 10th bidding rounds, the industry is likely to post Industry Growth 7 Low earnings CAGR of 7% over the next 5 years. CGD is a regulated business; the Petroleum & Natural Gas Regulatory Board (PNGRB) is planning to finalize the draft Open Access Policy (OAP) Regulatory Environment / Risk 1 High allowing the new players to enter into CGD business in the incumbent’s area. Marketing exclusivity for Mumbai, Thane & Raigad geographic area has ended. Competition is set to increase with the entry of new players Entry Barriers / Competition 1 High following likely roll-out of OAP. MAHGL has 3 geographic areas and planning to expand operations in Raigad geographic area, which albeit will take much more time to New Business/Client Potential 5 Medium meaningfully contribute to the volume. MAHGL operates across CNG and PNG segments. CNG caters to transportation while, PNG is further bifurcated into PNG Domestic (household use), Business Diversification 6 Low PNG commercial (small and big commercial establishments), and PNG Industrials (industries as an alternative fuel).

Market Share Potential 5 Medium MAHGL enjoys a 10% market share. We expect its total sales volume to clock 3% CAGR over the next 3 years.

Margin Expansion Potential 6 Low EBITDA/scm will improve on account of lower APM prices and lower spot LNG price.

Earning Growth 4 High MAHGL’s EPS CAGR is below industry growth; EPS is expected to clock 2% CAGR over FY20-23E compared to 26% CAGR over FY17-FY20.

Balance Sheet Strength 6 Low Strong balance sheet with a current investment of Rs11.2bn and net cash of Rs2.3bn as of FY20.

Debt Profile 6 Low As of FY20, the company had net cash of Rs2.3bn. We expect the company to remain in net cash till FY23E.

FCF Generation/NWC 5 Medium FCF generation is seen at Rs 100mn over FY20-23E.

Dividend Policy 6 Low We expect the company to pay an average dividend of 3%.

Total Score Out of 150 73

Average Score (%) 49% High

For < 5 Red High Risk For 5 Blue Medium Risk For > 5 Green Low Risk

4 1QFY21 Results Highlights & Management Interaction Takeaways

What We Saw – Quarterly Result – Key Highlights: 1. Revenue declined by 65% YoY and 62%QoQ to Rs2.6bn in 1QFY21 (6% and 24% lower than ours/consensus estimates) due to 62% YoY and 60% QoQ decline in sales volume. 2. The company posted a total sales volume of 1.1mmscmd vs. 3mmscmd last year. Except for the PNG household, all other segments reported a sharp decline in volume. PNG household volume increased by 7% YoY and 2% QoQ. Daily total sales volume picked up in June 20 to around 50% of the normal level recorded before lockdown. 3. EBITDA declined by 71% YoY and 67% QoQ to Rs0.8bn (10%/31% lower than ours/consensus estimates). 4. Despite the improvement in gross margin per unit due to lower cost of gas, EBITDA/unit reduced to Rs7.9 in 1QFY21 from Rs10.3 in 1QFY20 owing to a higher operating expense (67% YoY and 44% QoQ). 5. Net profit declined by 73% YoY and QoQ to Rs0.45bn (14%/ 36% lower than ours/consensus estimates). What We Heard – Conference Call - Key Takeaways: 1. COVID-19 Impact: Daily sales volume is yet to recover fully, which touched 65% of the normal level in Aug’20. We expect MAHGL’s CNG sales volume to touch the normal level by 4QFY21. Notably, the civic bodies of Mira-Bhayandar, Thane, Navi Mumbai, Kalyan-Dombivli, Panvel, and Raigad were under strict lockdown, which impacted construction work. 2. Capex: While Capex is seen ~Rs 5.5-6bn for FY21, it depends on getting necessary permissions from several statutory authorities. Out of total capex, ~Rs 1.2bn is for Raigad, while the rest is for Mumbai/adjoining areas. The management ruled out any borrowing to fund capex, as the company has ~Rs 10bn in cash & cash equivalents as of 30th July,20. 3. Operational CNG Stations: CNG trading commissions remain in the range of Rs3.5-4/kg. Higher commissions are paid in the main city and its adjoining areas. 4. BEST Buses: Out of CNG 500 buses to be inducted, ~350 have been inducted till now, while the rest will hit road mostly by next month. Also, BEST plans to add another 800-1,000 CNG bottles in their depots. Though the depots are identified timelines are finalized for the same, on account of COVID-19. As of now, the total number of buses running on CNG is 2,350. The total daily volume consumed by these buses stands at ~ 1 lakh kg. 5. Penetration of CNG: As of now, the penetration level of CNG is ~30-35%. 6. Discount: The company offers a small discount to the tune of

8. Light Commercial Vehicle (LCV): As diesel is banned for the LCVs in Delhi and not in Mumbai, sales volume is not comparable. In Mumbai, the vehicles less than 8 years old are allowed to run on diesel post which such vehicle they have to be converted to CNG. The said rule applies to all the commercial vehicles operating in Mumbai.

9. Realization: Industrial realization stood at ~Rs23/scm in 1QFY21 vs. Rs28/scm in 4QFY20, while commercial, realization stood at ~Rs28/scm in1QFY21 vs. Rs36 in Q4FY20.

5 Rationale for Sell Recommendation

Our SELL Recommendation is based on the following premises:  Sustaining >3% Volume CAGR over FY20-23 Seems Challenging  Raigad Geographical Area to Take >6 years to Touch Peak Volume  Increased Competitive Intensity after Roll-out of Open Access Policy  Margin Expansion to Partially Support Earnings Growth

I. Sustaining >3% Volume CAGR over FY20-23 Seems Challenging MAHGL’s CNG volume clocked <4% CAGR over FY15-FY20 despite favourable environment marked by (1) CNG vehicle addition run rate of 5.5k/month; (2) 53%/39% average saving on CNG-fueled vehicles compared to petrol/diesel-fueled vehicles; and (3) addition of 76 new CNG stations over last 5 years, which has eased infrastructure bottleneck. Going forward, we expect MAHGL’s sales volume to clock only 3% CAGR on the back of (1) very little likelihood of meaningful vehicle addition in Mumbai owing to the highest vehicular density (1,900/km); (2) no new geographic area to aid volume growth story; (3) no allocation for adding CNG buses in the 2020-21 budget of MCGM (except for 1,241 new diesel buses on wet-lease); and (4) multiple issues being faced by Navi Mumbai based industrial houses with few industries are migrating to other regions. Thus, we expect the total volume to decline by 27% in FY21E and will grow by 40%/5% in FY22E/23E.

Exhibit 1: CNG volume CAGR over FY15-FY20 was <4% and we Exhibit 2: Mumbai Vehicle density 5 times higher than Delhi expect total volume CAGR of 3% over FY20-23E

1,400 mmscm 2,000 Vehicle Density /km 1,800 1,200 1,600 1,000 1,400 800 1,200

600 1,000 800 400 600 200 400 - 200 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E - 2015-16 2016-17 2017-18 2018-19 2019-20 PNG CNG Mumbai Delhi Source: Company, RSec Research Source: Company, RSec Research

II. Raigad Geographical Area to Take >6 years to Touch Peak Volume MAHGL started developing Raigad geographical area since 2015 and commenced selling gas in 1HFY17. During the last 4 years, the company has added only 15 CNG stations and witnessed daily CNG sales volume of 38,000kg and added only ~25,000 new PNG households. However, during the 1QFY17 earnings conference call, the management guided that sales volume from this geographical area to touch 0.6mmscmd in FY23E. To achieve this target, MAHGL should have set up ~100 CNG stations, while it set up only 15 CNG stations so far and is expected to add 5-10 CNG stations annually over the next 3 years. We believe these new stations will add only 50,000kg/day to MAHGL’s CNG sales volume by FY23E, which is <2% of expected total sales volume of 3.2mmscmd.

6 Exhibit 3: Raigad GA details; selling CNG @ 38,000kg/day which is far below than potential of 0.5mmscmd. Long time to reach peak.

40,000 16 15 35,000 14 14 13 13 30,000 12

25,000 10 10

20,000 8 7 15,000 6

10,000 4

5,000 2

- 0 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

PNG Connections (No.) CNG volume (kg/day) CNG Station (No.)

Source: Company, RSec Research

III. Increased Competitive Intensity after Roll-out of Open Access Policy The PNGRB is likely to finalize rules for new players in the geographical areas, where marketing exclusivity has ended. New players are expected to enter into the high-margin CNG segment compared to PNG industrial. CNG sales volume accounts for 73% of MAHGL’s total sales volume. Moreover, MAHGL owns only 6% of the total 256 CNG stations (71% owned by the OMCs). MAHGL has a portfolio of 3 geographical areas, and its marketing exclusivity has already ended in all. We believe the entry of new players can dent volume growth and margin of the incumbents in FY23. As per our calculation, 5% volume loss and ~Rs1/scm margin contraction could impact MAHGL’s EPS by 16% in FY23E.

Exhibit 4: Scenario analysis, New player entry can dent on volume and margin (EBITDA) Volume fall 2.5% Volume fall 5% Base Case EBITDA/scm = 9.5 EBITDA/scm = 9.5 FY23E FY23E % change vs. base case FY23E % change vs. base case Volume 3.2 3.1 -2.5% 3.1 -5.4% EBITDA/scm 10.4 9.5 -8.4% 9.5 -9.3% EBITDA (Rs mn) 12,275 10,960 -10.7% 10,529 -14.2% EPS (Rs/sh) 84.4 74.1 -12.2% 70.8 -16.2% Source: Company, RSec Research

IV. Margin Expansion to Partially Support Earnings Growth The prices of APM gas are likely to be revised downward to ~US$2/mmbtu in 2HFY21 (from the current level of US$2.39/mmbtu). APM gas accounts for ~87% of MAHGL’s total gas sales portfolio. Thus, US$1/mmbtu drop in APM gas price will increase MAHGL’s gross margin and EBITDA/scm (with partial passing on of lower APM gas prices) by Rs 0.70/scm. We expect MAHGL to earn EBITDA/scm of Rs10.5/Rs10.4 in FY22E/FY23E on lower gas prices, which will partially support its earnings.

7 Outlook & Valuation

We downwardly revise our EBITDA and PAT estimate by 34%/1% 40%/9% for FY21E and FY22E, respectively to factor the impact of COVID-19 in FY21 and envisaging a conservative scenario for FY22. The stock has rallied 35% since Mar’20 low, which has already factored in higher EBITDA/scm for the next 2 years. It would be rather a challenge for MAHGL to sustain volume CAGR in the excess of 3% over FY20-23E. Further, as the company has not won any new geographical area, we do not envisage any incremental volume growth, while a fall in CNG conversion run rate and the highest vehicular density in Mumbai will lead to a mere 3% CNG volume CAGR over FY20-FY23E. We expect MAHGL’s earnings to clock 2% CAGR, over FY20-23E. Further, we expect MAHGL’s RoCE/RoE to fall from 24%/24% in FY19 to 22%/21% in FY23E, as it is unlikely to sustain consistent growth in EBITDA and PAT over the next 3 years (FY21- FY23E). We maintain SELL on MAHGL with a revised DCF-based 2-year Target Price of Rs957 (from Rs1,045 earlier).

Exhibit 5: DCF valuation for MAHGL (Cost of capital 10% and terminal growth rate 2%) FY22 FY23 Rs mn (per sh) Rs mn (per sh) NPV - Continuing Business 53,813 545 57,641 584 NPV - Terminal Value 35,870 363 36,912 374 NPV (Total) = Target Price 908 957 CMP 1,017 1,017 Downside -11% -6% Recommendation SELL SELL Source: Company, RSec Research

Exhibit 6: 1 Year Forward P/E Valuation Exhibit 7: 1 Year Forward EV/EBITDA valuation

20.0 14.0 13.0 18.0 12.0 16.0 11.0 14.0 10.0 9.0 12.0 8.0 10.0 7.0 8.0 6.0 19 19 18 19 19 19 18 19 19 19 18 19 19 19 18 19 20 20 20 20 20 20 20 20 ------Jul Jul Jul Jul Jan Jan Sep Sep Nov Nov Jan Sep Sep Nov Nov Jan Mar May Mar May Mar May Mar May

BEst P/E Ratio 1 Yr Forward Average +1STD EV -1STD EV BEST EV to BEST EBITDA 1 Yr FWD Average +1STD EV -1STD EV

Source: Company, RSec Research Source: Company, RSec Research

Exhibit 8: MAHGL’s ROCE & ROE to show steady decline Exhibit 9: FCF to fall on account of steady OCF and increase in dividend payout & capex

35% (Rs bn) 15.0

30% 10.0

25% 5.0

20% 0.0

15% -5.0

10% -10.0 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

ROCE ROE Operating cash flow Capex Dividend paid FCF

Source: Company, RSec Research Source: Company, RSec Research

8 Financial Information

Profit & Loss Statement Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E Total Operating Income 27,911 29,721 21,088 29,264 32,140 Growth (%) 14% 6% -29% 39% 10% Cost of natural gas and traded items 13,992 13,795 8,893 11,799 14,147 Other expenses 5,065 5,398 4,616 5,720 5,718 Total expenses 19,056 19,193 13,510 17,519 19,864 EBITDA 8,855 10,528 7,578 11,744 12,275 EBITDA/scm 8.2 9.7 9.5 10.5 10.4 Other income 777 990 991 1091 1259 Finance costs 3 65 25 0 0 Depreciation 1259 1617 1874 2161 2388 PBT 8,369 9,835 6,671 10,674 11,147 Total Tax Expense 2,905 1,900 1,679 2,687 2,806 PAT 5,464 7,935 4,992 7,988 8,341 PAT/scm 5.1 7.3 6.2 7.2 7.1 EPS (Rs) 55.3 80.3 50.5 80.9 84.4 DPS (Rs) 20.0 35.0 22.0 35.2 36.8 Shares outstanding (mn) 98.8 98.8 98.8 98.8 98.8

Balance Sheet Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E Share capital 988 988 988 988 988 Reserves and surplus 23,001 28,539 31,356 35,863 40,570 Share holders fund 23,989 29,527 32,344 36,851 41,558 Other non current liabilities 2,210 2,286 2,286 2,286 2,286 Total Non current liabilities 2,210 2,286 2,286 2,286 2,286 Trade payable 1,524 1,318 849 1,127 1,351 Security deposits 5,179 5,818 5,818 5,818 5,818 Other current liabilities 1,508 2,337 2,203 2,330 2,374 Total current liabilities 8,212 9,472 8,870 9,274 9,543 Total Liabilities 34,410 41,285 43,500 48,412 53,387 Net Fixed Asset 21,331 25,357 27,983 31,323 33,935 Other non current asset 1,321 871 871 871 871 Total Non current asset 22,652 26,228 28,854 32,194 34,806 Current investments 6,540 11,215 11,215 11,215 11,215 Inventories 191 186 120 159 190 Trade Receivables 995 684 486 674 740 Cash and bank balances 2,988 2,295 2,148 3,493 5,759 Other current asset 1,044 677 677 677 677 Total current asset 11,759 15,057 14,646 16,218 18,581 Total Assets 34,410 41,285 43,500 48,412 53,387

9 Cash Flow Statement Y/E Mar (Rs mn) FY19 FY20 FY21E FY22E FY23E PBT 8,369 9,835 6,671 10,674 11,147 Depreciation 1,259 1,617 1,874 2,161 2,388 Others -495 -620 -966 -1,091 -1,259 CF from operating activities Before Wc 9,134 10,833 7,578 11,744 12,275 Changes in inventories 49 10 66 -39 -32 Change in receivable -115 294 199 -188 -66 Change in payable 432 -207 -468 278 224 Change in other current liabilities 748 635 -134 127 45 others -695 642 - - - Net CF from operating activities after WC 9,552 12,206 7,241 11,921 12,447 income taxes paid -2,708 -2,380 -1,679 -2,687 -2,806 Net Cash flow from operating activities 6,844 9,826 5,562 9,234 9,641 Cash flow from investing activities -4,383 -7,522 -3,509 -4,409 -3,741 Cash flow from financing activities -2,346 -2,416 -2,200 -3,480 -3,634 Net change in cash 115 -112 -146 1,345 2,265 Opening balance 150 265 154 7 1,352 Closing balance 265 154 7 1,352 3,618

Key Ratios Y/E Mar FY19 FY20 FY21E FY22E FY23E Valuation Ratio (x) P/E 18.4 12.7 19.9 12.4 11.9 P/CEPS 16.0 10.9 15.5 10.3 9.8 P/BV 4.2 3.4 3.1 2.7 2.4 Dividend yield (%) 2% 3% 2% 4% 4% EV/EBITDA 10.4 8.5 11.6 7.4 6.9 BVPS 243 299 327 373 421 Per Share Data (Rs) EPS 55.3 80.3 50.5 80.9 84.4 Cash EPS 63.6 93.5 64.7 97.2 102.5 DPS 20.0 35.0 22.0 35.2 36.8 Returns (%) RoCE 23.6% 29.3% 17.1% 23.8% 22.1% RoE 24.3% 29.7% 16.1% 23.1% 21.3%

10 Change in Ratings

We have now only BUY and SELL Recommendation and have discontinued HOLD Recommendation. We now have 2 Year Target Price and have discontinued with 1 year Target Price.

For < 5 Red High Risk For 5 Blue Medium Risk For > 5 Green Low Risk

Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India’s leading retail broking houses. Reliance Capital is amongst India’s leading and most valuable financial services companies in the private sector. Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth management services, distribution of financial products, private equity, asset reconstruction, proprietary investments and other activities in financial services. The list of associates of RSL is available on the website www.reliancecapital.co.in. RSL is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014 General Disclaimers: This Research Report (hereinafter called ‘Report’) is prepared and distributed by RSL for information purposes only. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of purchase or sale of any security, derivatives or any other security through RSL nor any solicitation or offering of any investment /trading opportunity on behalf of the issuer(s) of the respective security(ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by RSL to be reliable. RSL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are fair and reasonable, none of the directors, employees, affiliates or representatives of RSL shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report. Risks: Trading and investment in securities are subject to market risks. There are no assurances or guarantees that the objectives of any of trading / investment in securities will be achieved. The trades/ investments referred to herein may not be suitable to all categories of traders/investors. The names of securities mentioned herein do not in any manner indicate their prospects or returns. The value of securities referred to herein may be adversely affected by the performance or otherwise of the respective issuer companies, changes in the market conditions, micro and macro factors and forces affecting capital markets like interest rate risk, credit risk, liquidity risk and reinvestment risk. Derivative products may also be affected by various risks including but not limited to counter party risk, market risk, valuation risk, liquidity risk and other risks. Besides the price of the underlying asset, volatility, tenor and interest rates may affect the pricing of derivatives. Disclaimers in respect of jurisdiction: The possession, circulation and/or distribution of this Report may be restricted or regulated in certain jurisdictions by appropriate laws. No action has been or will be taken by RSL in any jurisdiction (other than India), where any action for such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in compliance with all applicable laws and regulations of such country or jurisdiction. RSL requires such recipient to inform himself about and to observe any restrictions at his own expense, without any liability to RSL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India. Disclosure of Interest: The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the securities and their respective issuers. None of RSL, research analysts, or their relatives had any known direct /indirect material conflict of interest including any long/short position(s) in any specific security on which views/opinions have been made in this Report, during its preparation. RSL’s Associates may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report. RSL, its Associates, the research analysts, or their relatives might have financial interest in the issuer company(ies) of the said securities. RSL or its Associates may have received a compensation from the said issuer company(ies) in last 12 months for the brokerage or non brokerage services.RSL, its Associates, the research analysts or their relatives have not received any compensation or other benefits directly or indirectly from the said issuer company(ies) or any third party in last 12 months in any respect whatsoever for preparation of this report. The research analysts has served as an officer, director or employee of the said issuer company(ies)?: No RSL, its Associates, the research analysts or their relatives holds ownership of 1% or more, in respect of the said issuer company(ies).?: No Copyright: The copyright in this Report belongs exclusively to RSL. This Report shall only be read by those persons to whom it has been delivered. No reprinting, reproduction, copying, distribution of this Report in any manner whatsoever, in whole or in part, is permitted without the prior express written consent of RSL. RSL’s activities were neither suspended nor have defaulted with any stock exchange with whom RSL is registered. Further, there does not exist any material adverse order/judgments/strictures assessed by any regulatory, government or public authority or agency or any law enforcing agency in last three years. Further, there does not exist any material enquiry of whatsoever nature instituted or pending against RSL as on the date of this Report. Important These disclaimers, risks and other disclosures must be read in conjunction with the information / opinions / views of which they form part of. RSL CIN: U65990MH2005PLC154052. SEBI registration no. ( Stock Brokers: NSE - INB / INF / INE 231234833; BSE - INB / INF / INE 011234839, Depository Participants: CDSL IN-DP-257-2016 IN-DP- NSDL-363-2013, Research Analyst: INH000002384); AMFI ARN No.29889.