Mr. Ranga Iyer, Former MD Wyeth Pg 38. DISCUSSION: Dr

1ST - 28TH Feb 2015 . Vol 2 Issue 2 . For Private Circulation Only

pg 32. Attack of the Clones!!

pg 35. INTERVIEW: Mr. Ranga Iyer, Former MD Wyeth pg 38. DISCUSSION: Dr. Goel, Chief Secretary, Agri Maharashtra

GROUND VIEW - PREVIOUS ISSUES

VOL 2 . ISSUE 2 . 1ST - 28TH FEB 2015

Vineet Bhatnagar- Managing Director and CEO

EDITORIAL BOARD: Naveen Kulkarni, Manish Agarwalla, Kinshuk Bharti Tiwari

COVER & MAGAZINE DESIGN Chaitanya Modak, www.inhousedesign.co.in

FOR EDITORIAL QUERIES: PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400 013

RESEARCH Automobiles Dhawal Doshi, Priya Ranjan 1st Jan 2015 Issue 1 16th Dec 2014 Issue 12 Banking, NBFCs Manish Agarwalla, Pradeep Agrawal, Paresh Jain Consumer, Media, Telecom Naveen Kulkarni, Jubil Jain, Manoj Behera Cement Vaibhav Agarwal Economics Anjali Verma Engineering, Capital Goods Ankur Sharma, Hrishikesh Bhagat Infrastructure & IT Services Vibhor Singhal, Deepan Kapadia Metals Dhawal Doshi, Ankit Gor Mid-caps Vikram Suryavanshi 15th Nov 2014 Issue 11 1st Oct 2014 Issue 10 Oil & Gas, Agri Inputs Gauri Anand, Deepak Pareek Pharmaceuticals Surya Patra, Mehul Sheth Retail, Real Estate Abhishek Ranganathan Technicals Subodh Gupta Production Manager Ganesh Deorukhkar Sr. Manager – Equities Support Rosie Ferns SALES & DISTRIBUTION Kinshuk Tiwari, Ashvin Patil, Shubhangi Agrawal, Kishor Binwal, Sidharth Agrawal, Bhavin Shah, Varun Kumar, Narayan Mulchandani CORPORATE COMMUNICATIONS Zarine Damania 1st Sep 2014 Issue 9 16th Aug 2014 Issue 8 [email protected]

2 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 3 LETTER FROM THE CONTENTS MANAGING DIRECTOR

The Indian food services industry has undergone a remarkable transformation in the last 10 years and it is one of the fastest growing industries. Rising affluence of the middle class, changing lifestyles and increased global exposure have contributed to the rapid growth of the industry. Most of the global food service majors have established their presence in India and are looking 4. COVER STORY: to scale up their operations. Well beaten, ready to rise Competition has clearly intensified and the last 2 years Ground View assesses the strength and weak- have been particularly harsh marked by persistent high nesses of global and Indian food services food inflation and decline in same store sales. This how- brands ever has not deterred the global majors from investing and they have continued to remain very aggressive by opening new stores or launching new brands hoping for a turnaround.

With moderating inflation, decline in crude prices and a likely pick up in consumption growth, good times for the food services industry are round the corner. Our cover story on the Indian food services industry penned by analysts Naveen Kulkarni and Jubil Jain explores the strengths and weaknesses of major global brands & their 32. Attack of the Clones!! recipe for success.

Decline in crude prices is a boon to customers but the 35. INTERVIEW: FMCG industry sees significant rise in competitive activ- Mr. Ranga Iyer ity. Categories sensitive to market share like Detergents Healthcare Consultant, Formar are hit particularly hard in a deflationary scenario. Our MD of Wyeth short essay on the imminent revival of the small scale detergents industry assesses the impact on detergent majors and the strategy of largest FMCG Company, Hindustan Unilever.

Also read in this issue freewheeling discussions with Mr. 38. DISCUSSION: Dr. Sudhir Goel Ranga Iyer, former managing director of Wyeth as he Chief Additional Secretary, Agriculture, Maharashtra highlights the emerging trends in the Indian Pharmaceu- tical industry and with Mr. Sudhir Goel, Chief Additional Secretary, Agriculture, Maharashtra as he shares his 40. Indian Economy – Trend indicators views on farm economics and progress on GM crops. 42. ICC Cricket World Cup 2015 Schedule

Best Wishes 44. PhillipCapital Coverage Universe: Vineet Valuation Summary

2 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 3 Dinner rush at various QSRs

4 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 5 COVER STORY

In January, one more global fast food chain, the Florida-headquartered Burger King, set up shop in Mumbai, having entered India late last year. That means more choice for consumers and more competition for suppliers. Over the past few years organized players added more than 2,000 restaurants and the industry has built up huge capacity and is looking forward to achhe din (good times). The organised restaurant industry, one of the fastest growing in India, has captured the imagination of global companies, investors and industrialists. The industry is expected to continue its rapid growth with increasing economic prosperity. “Competition helps to grow the market and the entry of more players indicates the market potential,” says Mr. Ravi Gupta, CFO of Jubilant Foodworks.

However, not every enterprise may flourish, as the organized restaurant industry is marked by fast changing consumer preferences and one of the highest mortality rates. Some business models and formats will grow faster than others but some will languish, eating into the pockets of investors and promoters. “Well beaten, ready to rise”, is an in-depth study of the nuances of the Indian restaurant business. It aims to clarify the strengths and weaknesses in emerging business models.

pg. 6 Entrée The rise and rise of the food services industry ______pg.8 First course All you want to eat from the West ______pg.24 Second course Home food is best ______pg.29 Dessert Good times round the corner ______

BY NAVEEN KULKARNI & JUBIL JAIN

4 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 5 ENTRÉE The rise and rise of the food services industry

ver the past few years the food and China with respect to the number of outlets services industry, especially in the of the top five fast-food chains shows the poten- organized sector, has grown rapidly tial of Indian markets. mainly due to a surge in the middle According to an Indian retail and FMCG manage- Oand upper class populations and the number of ment consultancy, Technopak, the Indian food double-income couples. The industry growth is services industry is a US$48 bn industry, 70% unexpected to continue, in keeping with the growth organized and 30% organized. Technopak expects of the Indian economy. A comparison of India the market to grow to US$78 bn by 2018, a CAGR of 10%, with the organized sector accounting Outlet counts: India vs China for 39% of the market. The organized market is expected to post 16% CAGR and the unorganized market is expected to post 7.3% CAGR.

New categories have emerged and each category has a well established international and domestic chain competing fiercely for the consumer’s share of wallet. The Quick Service Restaurant (QSR) and Casual Dining Restaurant (CDR) segments account for over 70% of the share of the organized market. The organised Food Services market is expected to post 18% CAGR over the next few years but the growth could be even higher as more chains enter and discover innovative ways to fulfill customer needs.

Indian QSR market

6 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 7 QSR formats

Categories Prominent restaurant chains Frozen dessert (including ice-cream and yoghurt) Haagen Dazs, Naturals, McDonalds, Swirl, Yogurt Bay Cafés Café Coffee Day, Starbucks, Barista, Tea Leaf & Coffee Bean, Costa Coffee, Mad Over Donuts QSR (quick service restaurants) KFC, McDonalds, Subway, Faasos, Box8, Dunkin Donuts & more, Dominos, Pizza Hut, Taco Bell CDR/FDR or Casual/fine dining restaurants Mainland China, Sigree Global Grill, Barbeque Nation, Spaghetti Kitchen, Moshe’s, Nando’s Chicken PBCL (pubs, bars, clubs, lounges) Jugheads, Pop Tate’s, Hoppipola

Size of chain fast foods market

Mr. Amit Jatia, Vice Chairman of Westlife De- a CAGR of 11-14%. India has significant headroom velopment Limited, franchisee of McDonald’s, available when compared globally. India’s QSR on Indian QSR industry. segment is only ~16% of the overall IEO market whereas the corresponding proportion is higher in “The vast Indian middle-class is pressurized by countries like China (24%), Hong Kong (21%) and professional commitments, daily commutes, and Singapore (19%). Moreover, the branded compo- domestic chores which has resulted in increasing nent of India’s QSR market is a mere 1% aggre- frequency of eating out across urban India. How- gating around 1800 odd stores, which pales in ever, the average frequency of about 8-9 times a comparison to a demographically similar country month in metros like Mumbai is just half of some like China with 7000 units shared between just two ASEAN benchmarks of 17-18 times a month. Ris- international QSR brands.” ing number of Indians are becoming increasingly particular about food hygiene. So even as India’s Informal Eating Out (IEO) market is projected to grow at 11% during 2014, reaching ~USD 107 billion, its QSR component, where we are present, is expected to grow the fastest to ~USD 17 billion at

6 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 7 FIRST COURSE

All you want to eat from the West

f gluttony is a sin then Indian gastronomes crucial to achieve scalability. Despite the entry of several new are probably among the biggest transgres- players, the advantage lies with older players and their ability sors. Indian gastronomes have been partying to build a scalable proposition. non-stop over the past few years, celebrating Ieither the launch of a brand, restaurant or category almost every week. The success of fast-food brands like Domino’s pizza, McDonald’s burgers and Yum! Brands’ fare has brought in a slew of players not just in the quick service restaurant (QSR) space but also in the fine dining category. Major global brands like Starbucks, Dunkin Do- nuts, Costa Coffee, Burger King and others have forayed in the QSR category and Michelin Star restaurants like Yauatcha have opened outlets in India, giving foodies a wide choice of culinary de- lights and experiences. The following table lists the global details of various fast-food companies that operate in India.

These global brands are compelling success stories and have proven business models. Besides, they are global majors, committing serious capital and are willing to tide over tough times. However, a brand’s success in one country need not necessarily spell its success elsewhere—each country is a different market, with different consumer preferences and unique habits. Consequently, the learning curve for brands is generally lengthy and

Top global food chains

Revenue M. cap. Outlets Products (USDmn) (USDmn) Yum! Brands 13,084 31,770 40,000+ Pizzas, burgers, Mexican fast food Domino’s pizza 1,802 5,590 10,000+ Pizzas McDonalds 28,105 90,340 35,000+ Burgers Starbucks 16,447 60,520 21,000+ Coffee

8 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 9 New cooks on the The King is here!! block

“We will have burgers that no one in India has ever had before,” says Rajeev Varman, CEO of Burger Western fast food (WFF) is the fastest growing King’s India operations. Burger King is an iconic category of the QSR segment in India. Two large global brand and its association with burgers is as segments of WFF industry are burgers and pizzas. In strong as that of McDonald. The initial reaction to the US, the burger market is estimated to be twice Burger King seems to be enthusiastic. Delectable the size of the pizza market, which is the next largest menus, a value-for-money proposition, colourful brand imagery and innovative marketing strategy have characterized Burger King’s entry in India. The Indian organised QSR market (Rs bn) first outlet opened in Saket, New Delhi on Novem- ber 9, 2014, and according to the company 1,200 people pre-ordered its signature Whopper burger on e-bay

Burger King is a late entrant in the QSR space but it had been contemplating an Indian entry for quite some time. The delay is attributed to it not being able to find the right franchise partner in India. Part- nering Sameer Sain’s Everstone Capital, which has significant experience in the QSR space, Burger King

category. Given its role as the quintessential American meal, burgers have also proved to be the most portable concept globally, with an estimated global market size of over $135 bn. However in India, the markets for burgers and pizzas are roughly equal in size of Rs 30 bn each. This might well indicate an under-penetrated burger market with great potential—we may get a better idea as the market evolves. Still, the two categories have attracted many new players who continue to invest in them.

Burger King restaurant

8 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 9 Review of Burger King on online food review website Zomato

finally entered India. Scaling up a restaurant business requires a robust supply chain and back-end support but product acceptability comes first and it is the foremost ingredient for success. Reviews on Zomato are encouraging with particular emphasis on the size of its Whopper burger and value-for-money proposition.

The burger market is hungry for more and the addition of new player will only grow the market. Pre-ordering burgers on e-bay is indicative of the potential of the market. Burger King seems to have started off Dunkin Donuts & More, Khar, Mumbai on the right note but scaling up of the business will require acumen and improvement in market condi- tions would be helpful

Dunk the donuts and try the burgers

Dunkin Donuts is one of the most successful beverages and confectionary companies in the world. It competes with Starbucks and has 11,000+ outlets against Starbucks’ 21,000-plus outlets The flagship product of Dunkin Donuts & More - Naughty Lucy Burger

10 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 11 The variety of Donuts is large mainstay offering over the long term will be burgers and not beverages and donuts.

“We want to be known for our burgers” says Mr Ravi Gupta.

Baked burgers a half-baked proposition

Dunkin’s burgers are baked and can be considered premium to those of KFC and McDonald because of their size and ingredients. Pricing is higher but the offering is not very clear. Indians have developed a habit of eating burgers with French fries and colas. Dunkin serves cola but does not have the numerous combination offers of McDonald or KFC and it does not serve French fries but offers hash browns. “We do not have a fryer in the kitchen and our burgers are much healthier than the KFCs of the world” says the restaurant manager of a leading Dunkin outlet. Baked products are healthier than fried products but few consumers know about the healthier offering because Dunkin has not advertised the proposition. “People generally do not sacrifice taste for health in India, it just doesn’t work” says Saugata Gupta, CEO of Marico. Indians love fried foods and will continue to throng to KFC and McDonald for their fried burgers. This value proposition, even though seemingly superior, is half baked. Consumer eating habits are difficult to change and adaptation is generally the worldwide. However, the Indian story is turning out right strategy. Interestingly, Dunkin’s donuts have to be very different. “We want to be known for our not been widely appreciated and many prefer Mad burgers” says Mr Ravi Gupta. Dunkin entered India Over Donuts. This further confounds the proposi- in 2012 with a master franchise agreement with tion as the perceived flagship products, donuts and Jubilant Foodworks. The donut-eating culture can, coffee, have limited appeal but the ancillary offering at best, be described as nascent and positioning on (burgers) is great. a wider product offering, which can ride on the elab- The following table shows the difference in pricing of orate supply chain of Dominos seems like a winning various products from fast-food chains strategy for Jubilant Foodworks. However, Dunkin’s branding and product positioning is confusing as the

Comparison of burger prices across top chains

Chain Entry price Price of a premium burger McDonalds Rs25 for veg./Rs 40 for non-veg. Rs127 for veg./Rs 137 for non-veg. KFC Rs29 for veg. /Rs 40 for non-veg. Rs65 for veg./Rs79 for non-veg. Burger King Rs35 for veg./ Rs49 for non-veg. Rs109 for veg./Rs169 for non-veg. Dunkin Donuts Rs65 for veg./Rs89 for non-veg. Rs145 for veg./Rs195 for non-veg.

10 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 11 No Duck soup

Jubilant Foodworks has ambitious plans for its Dunkin franchise. Jubilant will open 70 Dunkin outlets over the next three years, taking the total count years since inception—by 2018, with 120 stores. to 120 outlets. Dunkin is not profitable as the busi- Profitability is likely to be protracted for the chain ness is in the nascent stage but achieving long-term and will be margin dilutive for Jubilant Foodworks profitability depends on driving the core values of over the long term as Dunkin’s profitability is unlikely the brand and evolving according to local consumer to match the store economics of Dominos. needs. The learning curve involved is still significant as Dunkin will have to move out of its comfort zone of beverages and confectionery to dining options. Competition in the category is very high and contin- Starbucks—bucking the ues to intensify. However, Jubilant has developed a robust supply-chain model, owing to the success of trend? Dominos, which will help the company to compete with the best. “We have a loyal customer base of people who have Mr. Ajay Kaul, CEO of Jubilant foodworks says, frequented Starbucks in other countries,” says the “Dunkin is at a different level of evolution compared store manager of an outlet in a swanky south Mum- to Dominos for us and it is not fair to compare the bai mall. Starbucks is not just an iconic brand but it is store sales growth of Dunkin and Dominos.” Dunkin’s also a cult brand. A darling of the investor communi- loss for fiscal year ending March 2015 will be about ty, Starbucks is the most successful QSR chain after Rs300 mn for its fifty outlets and the management McDonalds in terms of shareholder value creation guidance indicates a breakeven time frame of six and profitability. Its success is attributed to the geni-

12 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 13 us of its founder Howard Shultz. Its track record of product innovation, creating new store formats and creating new market trends is unparalleled. Starbucks entered India in 2012 through a 50:50 joint venture agreement with Tata Global Beverages. Since the first outlet in Mumbai opened in October 2012, the venture has expanded rapidly, to 61 outlets, in just two years. Starbucks has captured the imagination of people in India and they rate the products and outlet ambience highly.

It operates in the premium range with pricing at about a 50% premium to the largest home- grown network, Café Coffee Day. However, premium comes at a price. Most of the stores are in premium locations and presently the store formats are rather large—2,500 square feet. The operating timings for the stores are longer than most QSRs. This means steep operating costs. The biggest challenge for Starbucks will be scaling up its premium proposition. Initial launch can be funded by equity but scaling up a restaurant business has to be achieved by ploughing back cash flows of profitable outlets.

12 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 13 Economics of selling beverages global category that has captured the imagination of people around the world for their innovative brand- “Selling beverages is not very profitable,” says Mr. ing and quality of fresh food. Ravi Gupta, as India, unlike the US and other developed markets, does not have a ‘morning market’. Starbucks’ store size and ambitious plans mean it will Mr Vishal Gupta, CFO of Costa Coffee, says it is have to offer more and better dining options. It will common for people in the US and other developed consider opening smaller, 1,000 square foot stores in markets to take their “daily fix of caffeine” as early small cities; however, in small cities footfalls are low- as six in the morning. “We are very focused on site er than in metro cities. To manage profitability and selection and our motto is the experience to cus- scale up its offering Starbucks will have to introduce tomers,” he says. In the beverage business the value kiosks as well. Its menu, though sumptuous, will proposition is not just the beverage but the experi- evolve to adapt to the Indian palate. Starbucks is an ence and ambience for customers, which make the evolving model with initial focus on product off-take catchment area critical. and establishing brand saliency. However, achieving profitability and scale are the two biggest challenges for Starbucks, which are not very easy to overcome “Selling beverages is not very profitable,” says Mr. in the short term. Nonetheless, it has started off on a Ravi Gupta, CFO of Jubilant Foodworks promising note—profitability, even though protracted, will be achieved over the long term and a pick- up in the Indian economy will help.

Costa Coffee a leading UK-based beverage chain, with 2,800 outlets globally, entered India nine years ago and has 120 outlets in India. It will add 15-20 outlets every year for next few years. It has about 25 Old Scotch and old outlets at various airports, which are very profitable because airports have longer working hours with a wine—the smoothest! significant morning market, as early as five in the morning. On an aggregate basis, Costa is profitable; Players who entered the Indian market in the 1990s and this has been achieved by focusing on careful enjoy the advantage of consumer understanding site selection. It even bucked the trend of a decline across India. They have well established brands in same-store sales growth in a slowing economic and their site selection and store openings are the environment due to its consistent product quality smoothest. They have also developed significant and adept site selection. Costa’s stores usually meas- online tools, which help them drive efficiency and ure 800-1,000 square feet; besides it has kiosks. As scale. The big boys of the QSR business are Dom- a rule of thumb, in the beverage business, which inos Pizza, McDonalds, KFC and Pizza Hut. The is split 70:30 between beverages and foods, large smallest of the global brands, Dominos, is the best stores with revenue of Rs35,000 a day and kiosks with revenue of about Rs15,000 a day are profitable. The top five QSR chains in India Customers hungry for more Chain Stores Cuisine Moshe’s, an up-market indigenous brand, competes Café Coffee Day 1,530 Coffee with the likes of Costa and Starbucks. Its kiosks gen- Dominos 830 Pizza erate revenue of Rs15,000 a day but the larger stores Subway 476 Sandwiches generate on average about Rs50,000 a day in malls. Pizza Hut 367 Pizza Moshe’s operates in the fast casual dining space and KFC 361 Burgers prides itself on its quality of food and its wide range McDonalds 350 Burgers of beverages. Fast casual dining is an upcoming

14 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 15 established and most profitable QSR brand in India mainly due to its visionary franchise, Jubilant Food- Share of revenue for Dominos works. Format Six years ago Now Dining 35% 50% Delivery 65% 50% Dominos—still hot and fresh Average number of covers in an outlet

City Covers

Dominos has 844 outlets and adds about 150 outlets Mumbai 16-20 each year. It has the most differentiated positioning Delhi 25-30 in the market as it operates in the home-delivery Bangalore 30-35 segment as well as the restaurant category. Reve- Tier-2 & tier-3 cities 50-60 nues are split 50:50 between home delivery (takeaway included) and dine-in. This ratio is slowly titling Interestingly, even in an up-market mall like High in favour of dine-in as Dominos penetrates tier-2 Street Phoenix in Lower Parel, Mumbai, where cus- and tier-3 cities, which do not have a home-delivery tomers have several options, Dominos clocks high market. Dominos is the most profitable QSR business model in India in terms of profit margins and payback period. The turnaround time for achieving Latest addition to offering of Dominos - Regular Cheese Burst Pizza store profitability is also the quickest and it has consistently innovated to keep consumers engaged.

14 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 15 footfalls, which is indicative of the strength of the brand. “Overall competitive activity has increased,” Historical SSSG profile says Mr Ravi Gupta. “Pizza Hut has major expansion plans and wants to reach to 500 outlets by the end Same store Yum India Yum China McDonald Jubilant sales growth India of CY2015. The opening of a competing store in the same catchment area is not good in the short term MQFY13 -3.0% -20.0% 7.2% 7.7% but in the long term it helps to expand the market— JQFY14 7.0% -20.0% 0.5% 6.3% one brand alone cannot expand the market. When a SQFY14 -1.0% -11.0% -5.5% 6.6% customer sees more brands, he or she gets excited, DQFY14 -4.0% -4.0% -9.8% -2.6% trials increase, lifestyles change. This helps to make MQFY14 -1.0% 9.0% -10.5% -3.4% the customer go out more often, which leads to JQFY15 -2.0% 15.0% -9.0% -2.4% expansion of market”. SQFY15 -4.0% -14.0% -7.9% -5.3%

Although Dominos’ same-store sales growth has declined due to the economic slowdown, other mature formats have seen a sharper decline. Revenue per store (Rs mn)

Dominos is still the best QSR business model in India FY2014 Restaurants Revenue (mn) Revenue per store and it can double the number of its outlets in India Westlife 184 7,403 40.2 by 2020 without impacting its profitability. Dominos Dominos 700 16,977 24.3 will be one of the biggest beneficiaries of economic Dunkins 26 255 9.8 revival and it will see a sharp growth in profitability Yum India 191 6540 34.2 and margins, driven by operating leverage. (company owned)

McDonalds—India is still lovin’ it but the global experience is waning

McDonald entered India in 1996 through two master n McDelivery. The company’s delivery model was franchise agreements, Hardcastle Restaurants, launched in 2004 to cater to the home delivery licensed to operate in West and South India and market in metro cities. The model competes with Connaught Plaza Restaurants for North and East Dominos for the consumer’s share of wallet in the India. It opened its first restaurant in Bandra, Mum- home-delivery space. McDonald has consistently bai and currently has 350 outlets and with annual invested in online capabilities to aggressively system sales of about Rs14 bn. McDonald’s has most build this model.

successfully adapted its menu to the Indian palate n McCafe. McCafe is a brand extension launched and delivers products and experience that straddle in 2013 to capitalise on the fast growing trend of the consumer pyramid. beverages and coffee consumption. The product This has been the strength of the brand globally as it pricing is competitive and similar to that of Café attracts people from all classes. McDonald’s revenue Coffee Day’s. This is a store-in-store format and per store is Rs40 mn, the highest in India among it plans to open 300 McCafe stores over the next established QSR chains. McDonald has consistently five years. A McCafe requires investment ofRs3 innovated in India with its menu and has added mn and it rides on the infrastructure of a Mc- major brand extensions. Donald’s outlet, which supposedly quickens the

16 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 17 pay-back period. penetration.

n Dessert kiosks. Another extension to compete n 24 X 7. McDonald’s also started 24 X 7 outlets in with an upcoming trend of ice-cream parlours. key locations like airports and railway stations to The per capita consumption of ice cream in India cater to the burgeoning market. is significantly lower than similar developing McDonald’s strategy has been to compete in as economies like Indonesia, which leaves scope for many categories as possible like breakfast, bev-

16 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 17 inos. The base effect and the economic slowdown are main reasons, but a cursory look at McDonald’s global business outlook is not very encouraging. Whether the impact of a changing global strategy will dent the India business is debatable but there is little doubt that McDonald’s faces an arduous task of revamping its global strategy.

A lot on one’s plate

Recently McDonald’s made significant changes in its top management with CEO Don Thomson announc- ing his retirement from March 1, to be succeeded by Steve Easterbrook, senior executive vice presi- dent and chief brand officer. McDonald’s has been losing market share to fast casual dining outlets like Chipotle, Shake Shack, Nandos and even to Burger King. Even though McDonald’s per store revenue is almost twice that of Burger King in the US, the consistent decline in SSSG is alarming. In the recently announced results for 2014 on January 23, the behemoth reported a decline in comparable sales (SSS) of 2% in constant currency terms, reflecting negative guest traffic in all major segments. Burger King reported a SSSG of 3.6% in America in Q3 2014 against McDonald’s decline of 3.3% by focusing on a simpler menu and effective market communication. Some experts say McDonald’s should stop replicating its competitors and stick to the basics but McDonald’s is experimenting with enhanced customization to compete more effectively with fresh competition. McDonald’s is rolling “Create Your Taste” burgers, where customers can choose their buns with a choice of 20 premium ingredients in up erage, dining and confectionery—all with a val- to 2,000 outlets in the US. It is also experimenting ue-for-money proposition. Globally the company op- with a simple menu in some parts of the US. Mr. erates on a franchise model, earning royalty income, Thompson admits that reviving the company will but increasing product lines helps revenue growth. take time. Forging the right strategy for such large Consequently, the company has one of the highest scale business for growth in the wake of slowing revenues per store. However, a franchisee must global economic growth and fast changing consum- buy new equipment, increase inventory, train staff er trends is a time staking proposition and may not and make other such investments, which increases have quick-fix solutions in the near term. the payback period and shrinks return ratios. Even though McDonald’s has made significant additions to its product line through brand extensions and product introductions, including premium burgers, the decline in same-store sales growth has been alarming—higher than both Yum! Brands and Dom-

18 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 19 Sizzling—fast casual dining

Shake Shack, a fast casual dining restaurant chain, is food for healthier offerings and also customers trading the new darling of investors. Shake Shack listed on down from fine dining for quicker and cheaper but NYSE on January 30 and the share price more than equally healthy food offerings. According to market-re- doubled from the initial offer price of US$21 per share search firm Mintel, the American fast-casual chain to a high of US$52. The current market capitalization of outlets grew by 10.5% in 2014 against fast-food chains, Shake Shack, US$1.65 bn with 63 restaurants, is equiv- which grew by a mere 6.1%. Some of the emerging alent to India’s Jubilant Foodworks with 888 outlets. players in the fast chain industry include Shake Shack, Shake Shack is a play on the fast emerging category of Nando’s Chicken Restaurants and Chipotle Mexican fast casual dining, which has captured the imagination Grill. of consumers and investors. Shake Shack is an upcoming global fast casual chain, In developed economies the penetration of top fast headquartered in New York, which serves premium food chains has reached saturation level—there is a quality hamburgers, salads, hot dogs and other Ameri- definite shift of consumer inclinations away from fast can meals. The USP of the chain is its product offering, food chains to fast casual chains. Fast casual restaurants which comprises 100% all-natural, hormone-free and offer limited table service compared to fine dining antibiotic-free beef, chicken and dairy products and restaurants but provide higher quality food with fewer potato fries free of artificial trans fat. Apart from a very processed or frozen ingredients than fast-food restau- healthy food offering, Shake Shack offers a localised rants. As fast casual restaurants occupy the sweet spot menu and distinctive interiors for each outlet, which between the two saturated categories of fast food and makes a customer feel a distinctive personal touch fine dining, they attract customers trading up from fast compared to the standardized services of fast-food

18 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 19 chains. Its average store performance of US$4 mn is $19.5 mn to $82.5 mn, a 62% CAGR and net income more than twice that of McDonald’s average store perfor- grew from $0.2 mn to $5.4 mn. mance in the US. Its popularity is such that in the summer With most of the burger-restaurant segment comprising at its original location, the wait in line for service can quick-service restaurants, fast casual chains like Shake stretch to over an hour, especially on weekends, when Shack are well placed to take market share, as there is a the weather is pleasant. A webcam on the restaurant’s high probability that consumers will continue to trade up web page shows the current line in real time. to higher quality offerings given an increasing consumer During the three fiscal years ended December 25, 2013, focus on responsible sourcing, ingredients and prepara- Shake Shack grew from seven Shacks in two states to 40 tion. Additionally, consumers will continue to move away Shacks in six states, Washington, D.C. and eight coun- from the added-time commitment and cost of traditional tries, representing a 79% CAGR. Total revenue grew from casual dining.

Nando’s Chicken

The restaurant was founded in 1987 in the Johan- is health. The chain considers not just flavour and taste nesburg mining suburb of Rosettenville when Portu- as important but also the health aspect of the supply gal-born audio engineer Fernando Duarte took his chain. It sources chickens locally and makes sure they entrepreneur friend Robert Brozin to a Portuguese are delivered fresh, never frozen. The chicken is then takeaway outlet, Chickenland, for a meal. After trying marinated for 24 hours, in a marinade that contains no the chicken—cooked in peri peri, a chilli sauce that preservatives, colourants or artificial flavours. Before originated in Mozambique—they bought the restaurant cooking them, the chickens are trimmed of excess fat for about 80,000 South African Rand (equivalent to and then flame-grilled, which further reduces the fat about £25,000 at the time). They renamed the restau- content. rant Nando’s, after Duarte. Two years later, the restau- The strategic shift of preference from fast food to rant had four outlets—three in Johannesburg and one healthier fast casual food is not restricted to developed in Portugal. By 2013, Nando’s had about 1,000 branch- markets. Even in the under-penetrated market of India, es in 35 countries. It has three outlets in India and is fast casual chains like Nando’s Chicken, California Pizza highly rated on food-review websites. Kitchen and Moshe’s have set up a niche for themselves The USP of the chain, besides the special spices it uses, and their market continues to expand.

20 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 21 Moshes—India’s answer to Shake Shack

Moshes was started was started by Chef Moshe Shek, an entrepreneur and visionary. It received seed funding from venture capital fund New Silk Route and has expanded to 14 outlets in Mumbai and Pune. The chain prides itself on its quality of food based on freshness and natural ingredients. Moshe’s positioning seems similar to Shake Shack’s and it is among the fast growing chains in India in the fast casual dining category.

Hut and KFC. Pizza Hut competes with Dominos in the home delivery and fast casual dining space. YUM (my) brands The high store expansion strategy of KFC and Pizza Hut seems to be successful—KFC is considered a substitute for McDonald’s and its unique products have found wide acceptance in India. Similarly, Pizza Yum is the most aggressive western fast-food chain Hut has found success as a pizza dine-in and delivery in India. It has ambitious plans for its restaurants in option. The new venture, Taco Bell, looks promising India—it has scaled up its two major brands, Pizza and may offer fresh legs for growth. Hut and KFC. It also launched Taco Bell recently and the initial response was encouraging. Its brands have been successful in China and it has been seeking to replicate the success story in India.

Yum’s store expansion has accelerated over the past few years and it has stepped up expansion of Pizza

Outlet count of chains owned by Yum! brands

KFC 361 Pizza Hut 367 Taco Bell 7 Total 735

20 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 21 22 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 23 22 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 23 SECOND COURSE

Home food is best

or a long time, the market was dom- Indian chains have evoked a lot of interest in Ven- inated by international chains like ture funds. The table below captures the funding McDonald’s, KFC and Dominos. A few details for some top domestic chains. Indian chains, like Café Coffee Day and FBarista, competed successfully against the global players. But over the past few years several Indian chains are not only competing successfully against global chains but also expanding Speciality Restaurants— rapidly. Some of these chains are Box8, Faasos, Maarosh, Jumbo King and Goli. Kolkata… and more

Global players have been active and aggressive but Indian players have been no less—they have Anjan Chatterjee a passionate foodie with a successfully launched restaurant chains in the QSR background in advertising and branding started and fine dining spaces. They compete aggressive- Speciality Restaurants in 1992 with “Only Fish” ly across categories and many firms have attracted restaurant serving foods containing the nostal- private equity and venture-capital funding. The gic flavours of Kolkata, in Mumbai. The 40 by 40 most interesting home grown restaurant chains are square foot crowded dining place drew gourmets Café Coffee Day, Barista, Speciality Restaurants and food critics alike with the unique flavours of and Faasos. Kolkata. Mr. Chatterjee quickly realized the dearth

Funding details of top Indian QSR chains

Chain Founder Head quar- Stores Cuisine Year funded Funding Investors ters Faasos Jaydeep Bar- Pune 75 currently, Wraps 2004 US$10 mn Sequoia man/Kallol will reach Banerjee about 150 by 2016 Box8 Anshul Gup- Mumbai 16 Indian & 2013 Undisclosed Mu Sigma’s ta/Amit Raj Mexican Dhiraj Rajaram, Indian Angels Network Maroosh Ketan Kadam Mumbai 14 currently, Lebanese fare March 2014 43% stake Ronnie will have 50 acquired for Screwvala outlets by Rs500 mn 2015 and 300-400 by 2018 Barista Coffee Amit Judge New Delhi 198 currently, Coffee & December 100% stake Carnation 750 by 2019 sandwiches 2014 for Rs1 bn Hospitality

24 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 25 Mainland China, Saki Naka Speciality restaurants - formats & outlet counts

Format Count Cities Mainland China 53 25 cities in India and one in Dhaka, Bangladesh Oh! Calcutta 9 Mumbai, Kolkata, Delhi, Pune, Bengaluru, Hyderabad and one in Dhaka, Bangladesh Sigree/ Sigree – Global Grill 14 Pune, Chennai, Kolkata Mumbai, Hyderabad and Bengaluru Haka 2 Kolkata Machaan 4 Kolkata, Guwahati, Nashik, Surat & Howrah space, which is growing briskly, especially in the Flame & Grill 4 Hyderabad, Nashik, Aurangabad specialty-cuisine segment. and Kolkata Others 7 Kolkata Today the company has 112 outlets in various Sweet Bengal Confectionary 17 Mumbai formats, The flagship brand is Mainland China, with 53 outlets. The Other brands, Oh! Calcutta, Sigree Sum 110 Global Grill, Café Mezzuna, Sweet Bengal and other of specialty cuisines and started two brands, Oh! brands are significantly smaller than the flagship Calcutta and Mainland China, in 1994. Mainland brand but some are gaining ground. The chain plans China and Oh! Calcutta operate in the fine dining to go global soon, expanding to the Middle East, Africa, the UK and elsewhere.

24 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 25 Sigree Global Grill, Powai resulting in protracted breakeven time-frames and slower payback.

Cutting the fat

It’s no secret that in the restaurant business oper- ational efficiency is the single most critical aspect for maintaining long-term profitability. Speciality is making the required changes to its supply chain and business model to reduce costs per store to enhance long-term profitability. It has reduced the kitchen area from an average of 2,000 square feet to 800 square feet by making key changes like procurement of desserts from a centralized commissary, renting cheaper godowns in for res- Oh Calcutta, Tardeo, Mumbai taurants in up-market areas for food storage and focusing on efficiency based on footfalls. These factors result in significant savings on rentals and energy costs.

Biggest leverage on achhe din

Operating leverage for Speciality is quite high for volume improvement. During stressed times, business tends to be strong only on weekends while on weekdays, especially lunch hours, it is dull. In delivery-based models, staff costs can be man- aged by juggling between temporary and perma- nent staff, based on dull and peak periods as the skill involved in delivery is limited. But fine dining restaurants must maintain their staff count as table service is a critical element of the service. This bloats the cost structure Fine dining not so fine for the moment for fine dining but also offers the biggest opportunity when Speciality restaurants had a successful IPO in 2012 corporate activity recovers—lunch hours pick up and both but the stock performance over the years has not volume and average ticket size rise. In 2007-08, the average been inspiring due to the economic slowdown and daily cover-turns for Mainland China were 1.7-1.8, which high inflation, which severely dented its profitability. has now dropped its dropped to 1.4-1.5; margins hovered Speciality operates mainly in the fine dining space, at 30% and now have dropped to below 20%. Although the which has some unique factors differentiating it from peak is quite far away, improved cover-turns will lead to huge QSR space. Fine dining is marked by customization, operating leverage. emphasis on table service and frequent changes to the menu. Inventory includes alcoholic beverages “The improvement in corporate activity over the next few and a wide variety of ingredients. Economic cycles quarters will lead to a revival of fine dining. Southern impact fine dining more than the QSR category markets like Bangalore have started performing better because of higher operating leverage and lower but most are still significantly below their peak operating volumes. Huge fixed costs are incurred in the fine dining format for rent, air conditioning, manpower, performance”. Says Mr. Rajesh Mohta, CFO - Speciality replenishment of quality food even in slack times,

26 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 27 gory (CDR) and not necessarily in the QSR space. Eighty percent of its revenues are generated from Faasos—really fast! takeaways and delivery. Delivery time is about 24 minutes, which is quicker than most fast-food chains. With this interesting proposition, it has bucked the market trend of slowdown in same-store sales with Faasos is a fledgling Indian QSR chain that serves growth of 28% and 35% in Q2FY15 and Q3FY15 wraps and rolls with an Indian twist. It also serves rice respectively. It has set an ambitious target of same- and other snacks. Faasos (Fanatic Activism Against store sales growth of 50% in FY2016 and plans to Substandard Occidental S**t) was founded in 2003 become profitable over the next six months. The by Jaydeep Barman, an IIM Lucknow alumnus, and chain generates per store revenue of Rs9 mn a year. Kallol Banerjee, inspired by kathi rolls served in Kolkata. Today Faasos has 85 outlets in six metros in India and plans to grow aggressively, by the end of 2015, to 150 outlets.

Faasos’ proposition is taste with value for money. Interestingly, Faasos competes in the meal replacement casual dining cate-

“The improvement in corporate activity over the next few quarters will lead to a revival of fine dining. Southern markets like Bangalore have started performing better but most are still significantly below their peak operating performance”. Says Mr. Rajesh Mohta, CFO - Speciality

26 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 27 Faasos has an amazingly quick breakeven of one month and a payback period of only 12-15 months, significantly lower than McDonald’s and Dominos. It is consistently investing in social media and has developed mobile applications for ordering. It is in IT systems for supply chain, which will make the business model leaner. Faasos’ management has the mindset of global restaurant chains and have secured funding from Sequoia, a venture capital and private-equity investor. Faasos is a promising company poised for long-term growth.

Mad Over Donuts

Mad Over Donuts (MOD) was started by Indian-or- igin entrepreneur, Lokesh Bharwani, in Singapore. Mr. Bharwani realized that though Donuts are very popular in the US & are consumed as breakfast or as anytime snacks, this category is almost non-existent in India. Due to the huge opportunity available in India, Mr. Bharwani shifted base to India and opened the first MOD outlet in India in 2008. Today MOD has 50 outlets in India, out of which 23 are in Mum- bai. It serves donuts and coffee.

Reviews of MOD are consistently positive and many prefer MOD to Dunkin Donuts. MOD store locations are strategic and the company generates average revenue of Rs30,000 a day. MOD competes aggressively with Dunkin and the recently launched international chain, Krispy Kreme. MOD is another Indian chain with a promising future.

28 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 29 DESSERT

Good times round the corner

he economic slowdown has hit the Indian restaurant industry hard, with the Consumer Inflation past one year being especially harsh. Even though the industry has grown, Tstore profitability has been severely dented. Relentless food inflation, rising rentals and labour costs have impacted store-level profitability. This however, has not had a significant impact on store-opening rates, which have accelerated for some companies like Jubilant Foodworks.

The profitability of major players has been impacted severely by the downturn but it can largely be surmised that the worst is over. One of the greatest windfalls at the start of CY2015 is the simultaneous fall of inflation, crude oil prices and interest rates. The increased disposable income due to such a scenario will highly benefit the food services industry. Crude (USD/barrel)

The decline in crude oil prices is a major factor that will boost disposable income. The turnaround of same-store sales depends on the rise in disposable income and growth in real income. A pick-up in industrial and economic activity will be a big boost to the rise in real income as wages will rise and may not necessarily be accompanied by a rise in inflation. A major reason for the stagnation of fine dining over the past few quarters has been the fall in corporate activity leading to a slack business on week days. Mr. Rajesh Mohta, CFO

Consumer confidence is seeing a revival of Speciality Restaurants, believes, “The improve- Consumer Con- Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 ment in corporate activity over the next few quar- fidence Index ters will lead to a revival of fine dining. Southern Current Situation 90.7 99.9 100.4 105 105.5 markets like Bangalore have started performing Index better but most are still significantly below their Future Expecta- 100.3 114.9 122.9 123.2 122.2 peak operating performance”. tion Index

28 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 29 and smaller players sometimes see disproportionate Increase in corporate activity gains. Dunkin, however, needs to improve its brand communication. Dunkin’s turnaround is likely to be DQ 13 MQ 14 JQ 14 SQ 14 protracted and the management guidance indicates CII Business Confidence Index 54.9 49.9 53.7 57.4 a six-year breakeven period. Source: CII website

Jubilant Foodworks and Dominos Brandy and cigars

The lead economic indicators are turning in favour of discretionary consumption. Eating out and ordering will start picking up over the next two quarters. The base is favorable for most chains as they were impacted by a double-dip in same-store sales. Margins have largely bottomed out and an uptick in margins is expected in the forthcoming quarters. The restaurant industry is in a unique position to benefit from pick-up in consumption, leading to revenue traction. This along with a decline in inflation will help to manage the cost structure better. The benefits are expected to translate into significant improvement in margins but the improvement is likely to be protracted.

All discretionary categories will benefit with the uptick in consumption but categories with pent-up demand are generally the first to benefit—these primarily include consumer durables. After consumer durables, small ticket consumer discretionary categories including personal-care products, savories and confectionery benefit. The eating-out industry generally benefits a little later in the cycle as there is no pent-up demand and allocation takes place with a lag after a rise in disposable income. However, some categories see faster pick-up than others. QSR generally sees a faster pick-up in consumption than fine dining. Besides, the best entrenched brands generally rise earlier in the cycle. Westlife Development and McDonald’s: McDon- ald’s in India has experienced a double dip in same- In chronological order, our brand picks among listed store sales growth due to the slowdown in economic plays are as follows: growth. McDonald’s margin compression has also been quite severe. But with an improvement in same store sales, McDonald’s may see significant improve- Jubilant Foodworks and Dominos: With 844 ment in margins. McDonald’s has also added new restaurants and adding more than 150 outlets a product lines and brand extensions, which are yet to year, Dominos is the best established QSR brand in deliver to their potential. All these factors indicate India. Its unique positioning and disproportionate that McDonald’s may be a significant beneficiary of market share will help to attract a significant share of the uptick in the economic cycle. However, major incremental growth. Good times benefit all players

30 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 31 changes in global strategy may entail significant investment for franchises, which is a significant risk. Speciality Restaurants

Westlife Development and McDonalds’s

Speciality Restaurants: Although later in the cycle, Speciality may see the biggest delta as it not only benefits from consumer spending but also from pick- Starbucks: With 61 stores and mega store sizes, up in corporate activity. Fine dining has huge latent breakeven will be a challenge. The company is capacity, which will start getting used with a pick-up unlikely to break even before 150 stores or at least in consumer activity. With a pick-up in corporate three years. However, Starbucks has established activity not just capacity utilisation improves but itself as a quality beverage brand. It will have to spending per cover also picks up. Speciality will see enhance its offerings to engage more customers the most significant improvement in margins over and take a higher share of their wallets. This is a the next three years due to operating leverage. time-consuming process. The medium term will be financially challenging but the company holds out promise.

30 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 31 Low commodity prices and low inflation spell The Indian market has numerous “copy-cat” prod- good times for many, but large detergent mul- ucts of leading consumer brands, which claim to tinationals such as Hindustan Unilever and P&G be as good as the established brands. Makers of are not necessarily celebrating. That’s because such products offer retailers higher margins, and the “copy-cats” are busy. Ground View takes a a value-for-money proposition to price-conscious look at the clones at work… (though not necessarily quality-conscious) customers. “Copy-cat” products abound in categories “My motto is to help customer save money. On such as detergents, which are not ingested. Trials every kilo of loose Ariel a customer saves Rs90. He of such “copy-cats” increase when there is a sig- saves Rs40 on loose Rin and Rs30 on loose Wheel. nificant difference in retail prices of branded and The customer saves money and keeps returning unbranded products. This generally happens when to my outlet because he thinks I understand his input costs are low. The primary ingredient for needs better,” says Mr. Irfan Khan, proprietor of detergents is LAB, which is a derivative of crude. a kirana (grocery) store in Lower Parel, downtown LAB prices have dipped by over 40% through the Mumbai. Mr. Khan refers to unpacked products as past five months. “loose”, which has become colloquial in Mumbai. “See, these products are not made by Unilever or P&G but they are of equally good quality and On every kilo of loose Ariel a customer saves Rs90. He saves much cheaper,” he says. “To convince a customer about the quality, we sell them as loose Surf and Rs40 on loose Rin and Rs30 on loose Wheel. says Mr. Irfan loose Rin. Unsatisfied customers even return the Khan, proprietor of a kirana (grocery) store in Lower Parel products and collect a refund.”

Loose Wheel Loose Rin Loose Ariel

32 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 33 Price of LAB in Rs/kg (primary ingredient in detergents) This time it’s a bit different

In the industrial towns of Ulhasnagar and Amber- nath, near Mumbai, many large manufacturers make LAB, the primary raw material for detergents. Conse- quently, many small-scale detergent makers operate in that area. These manufacturers cater mainly to the Maharashtra market, which comprises about 10% of India’s detergent market of about Rs150 bn.

But the market dynamics have changed significantly over the past few years. “Rising labour costs and volatile commodity costs have resulted in many small-scale companies shutting down,” says Mr. Ramesh Saini, a soap wholesaler and manufacturer in Ulhasnagar. Mr. Saini also makes cakes of washing soap. “I used to manufacture such cakes of soap every day a few years ago but now there is hardly Low crude prices—a double-edged sword any demand—I manufacture only once a week. The Low crude prices are like a double-edged sword market has is largely ruled by branded products that can increase gross margins across categories now,” he says. The detergents market has changed but a reactive approach to market can devastate significantly over the past few years with consumers the market share of sensitive categories. Detergent turning increasingly brand conscious. Even con- is one such category, marked by low gross margins sumers who buy clones are aware of the benefits of about 30% and profitability is highly sensitive to of branded products and buy clones only as near market share. substitutes to brands.

On every kilo of loose Ariel a customer saves Rs90. He saves Large companies have high overhead costs, manage Mr. Ram Kadam, a resident of Diva in Thane, who Rs40 on loose Rin and Rs30 on loose Wheel. says Mr. Irfan large inventories and adhere to government norms but they have the advantage of established brands, Khan, proprietor of a kirana (grocery) store in Lower Parel significant buying efficiencies and scale, which help them to manage the inflationary cycle very well. On the other hand, small detergent manufacturers have limited overhead costs, work on a cash basis and have limited inventory. However, they have problems of working capital, scale and low brand awareness, which force them out of business during periods of high inflation.

During periods of low input costs, smaller players become very active as working capital needs decline and gross margins increase. They impact the market share of large players during such periods. During the last deflationary cycle of 2009-10, Hindustan Unilever reacted to market pretty late and had to pay heavily to regain the lost market share. This impacted the conglomerate’s profitability over the ensuing two years.

32 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 33 buys unpacked detergent powder in Lower Parel, refers to the products as “loose Rin”. He knows that he is not buying the real thing but is conscious of the benefits of branded products and buys this product only from a trusted Lower Parel outlet in spite of his residence being 30 kms away. “I have been using these detergent powders for a long time and I am very happy with the quality,” he says. “They are cheaper than branded products and offer good value. I used to live in Lower Parel and since I am very happy with the quality of the product I have not switched to other products from other shops.”

A more consolidated market The detergent market today is far more consolidated than it was a few years ago. The market for cakes of soap, made from vegetable oil, has declined by 90% in regions close (Despite low competitive intensity at present, a few recently launched un- to urban centers. Labour costs and other overheads have branded products like Keten, Jaya and Arly have hit the markets in Mumbai increased significantly for all players and achieving profitabili- and Nashik districts.) ty without scale and reach has become difficult, especially for small players. HUL cut prices of its premium brand, Rin, more than that on This however does not mean the market will not be compet- its mass-market brand, Wheel. HUL does not make much itive in future. It only means that increased competition will money from Wheel but it’s a scale play that helps to straddle be protracted. Big players cannot afford to take the market the consumer pyramid and offer distribution reach, which is for granted and assume supernormal profits will be served up not possible with a pure premium portfolio, constrained by on a platter. Large players will have to think long-term and market size. use the opportunity to focus on offering value to consumers. HUL cut prices by about 10% last month, which includes a combination of price cuts and higher grammage, mainly in Let us upgrade the premium segment (Rin). This has shrunk the gap between “Nirma cannot cut prices, the product is sold at rock bottom the products of HUL and others, and is expected to drive prices—there is no scope to cut prices,” says a Nirma dis- HUL’s volumes in the premium segment. Interestingly, in the tributor in Ghoti, a small town near Nashik, where, like many same segment, Tide has not cut prices. other towns, consumers are getting more and more inclined to buy only branded products. “HUL is the only player to cut Hindustan Unilever’s long-term focus prices and the product quality is very good,” he says as he Nirma and other branded players have not yet become ac- cuts and weighs a cake of soap for a customer. Interestingly, tive and hence HUL, having acted proactively, is expected to gain market share in the detergents segment. Nevertheless, it is likely that with lower crude oil prices, local players will return and other domestic players will cut prices—the market is bound to become more competitive. However, as consumers upgrade to branded and superior products, they would not want to down-trade quickly. The tendency of consumers is to up-trade and brands offer revenue stickiness, which is most important in a category like detergents. HUL’s aggressive strategy will help it to gain market share and offer long-term revenue visibility. The short-term sacrifice of margins and profitability will go a long way in convincing consumers about HUL’s value focus.

34 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 35 Remedy for growth Mr. Ranga Iyer, Healthcare Consultant, Former MD of Wyeth

The domestic pharmaceutical industry is set to clock 12- 15% growth each year over the next 4-5 years. Oncology drugs, vaccines, immunology and nephrology are true specialty plays for long-term value growth.

BY SURYA PATRA

34 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 35 Mr. Ranga Iyer, former managing director of Wyeth, The government’s motive behind the introduction of a new talked with Ground View about the emerging trends in healthcare policy is to strengthen India’s healthcare infrastruc- the Indian pharmaceutical industry and policy changes ture and provide affordable healthcare to all. I believe this affecting it. is a stimulant for the domestic pharmaceutical and hospital sectors in India.

However, it is unfortunate to have restrictive clinical-trial pol- How do you see domestic policy changes impacting the icies for Indian pharmaceutical companies as they will not be Indian pharmaceutical industry in the near future? able to leverage the Indian cost advantage and naïve patient Before commenting on policy changes, I want to draw your population in grabbing a share of the huge global clinical-tri- attention to the fact that the Indian pharmaceutical industry al opportunity. has not yet reached a level at which it can address all India’s healthcare needs. On the other hand, a large portion of the Indian population needs primary/secondary healthcare. India’s pro-generic approach and loose patent protection Against a backdrop of such large unmet needs, the Indian have restricted the presence of MNCs in India though pharmaceutical policy framework is not very strict. In my they continue to be leaders in certain segments. How view, the government is trying to draw a balance between do you see the MNC business shaping up in India in the prevailing huge unmet healthcare needs, affordability and medium term? What would support its growth? survival of the industry. Compare the current form of drug The share of patented products in the domestic market is pricing control order (DPCO) with older ones—you will find just 2-3% and the share of patented products in the MNC that only 20-25% of drugs are under price control, and that portfolio is 10-15%. The fact of the matter is, MNCs are not too, market-based pricing. This is a significant, positive shift in India for patented drugs; rather they want to establish from the initial DPCO, which controlled the prices of 80% of their market presence in the region of 1.21 billion people drugs, and that too, on cost-based pricing. So, I don’t think and to participate in the steady 12-15% annual growth of the the current pricing policy would be a growth hindrance to the domestic formulations market. While patented drug launches domestic pharmaceutical sector. I believe Indian formulations are long-term growth drivers, branded generics are the main- are well set to deliver steady annual growth of 12-15% over stay for MNCs and that will continue to drive healthy growth the next 4-5 years. for MNCs in the foreseeable future. Besides, their strategic inorganic moves would consolidate their position in future.

How do you read the stance of the Indian government on drug pricing, restrictions on clinical trials, anticipated Steady economic progress, rising affordability and stimulus to domestic API manufacturers and the likely increasing awareness of healthcare maintained steady introduction of a healthcare policy? growth for the Indian pharmaceutical market in the past. India lost out in API manufacturing a long time ago, as gov- Where do you see the domestic formulations market ernment policies in the past did not help the industry. In fact, headed and what factors will drive it? the government’s API cost-based formulation pricing policy, Favourable macro-economic factors such as like steady eco- benchmarking Chinese API costs in fixing formulation pricing, nomic progress, increasing per capita income, rising aware- almost killed the domestic API industry. However, export ness of healthcare, improved life expectancy (from 62 years opportunities in advanced markets supported the industry. to 69 years in the last decade), will drive steady growth of the The positive change on the API front is that the government domestic formulations market. While rising incomes open up has moved away from a cost- based formulation pricing huge business scope for the wellness segment, increased life policy to a market-based pricing policy and APIs are com- expectancy opens up large business scope in the geriatric pletely de-controlled. Additionally, the anticipated API policy segment. Similarly, drug launches will support the growth of will strengthen the domestic pharmaceutical industry through the domestic market. The introduction of new optional vac- greater backward integration. I believe this will promote cines such as pneumococcal, typhoid, hepatitis, flu and HPV healthy competition in domestic APIs and substitute Chinese vaccines (compared with only the rotavirus vaccine in the imports to a large extent and offer huge scope for business. past) has significantly expanded the vaccines market.

36 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 37 Generic exports to the US have been the strongest How do you see the vaccine market in India and its support for profitable growth of Indian pharma; but growth over next few years? What would drive growth? enhanced regulatory scrutiny and delayed drug approvals The Indian vaccine market is worth about Rs15 billion and have become concern areas. What is the future of Indian has been clocking steady double-digit growth annually. pharmaceuticals in the US? Although the awareness of vaccines in India has recently im- As far as regulatory scrutiny is concerned, I don’t think it’s an proved, vaccines in India are in the nascent stage. I believe a intentional crackdown by the US FDA on Indian pharmaceuti- change in perception from “cure” to “prevention” of disease cal companies. Until recently, the FDA could not inspect most and introduction of new optional vaccines will drive rapid of India’s manufacturing plants as it did not have the resourc- growth for the vaccine market in India. For the moment, es or manpower. New legislation, GDUFA, strengthened the government-sponsored vaccines dominate drugs in this FDA financially. Incidentally, India is the leading supplier of space. Going ahead, the launch of new optional vaccines like generics to the US, supplying about 40% and 10% of the US’ pneumococcal, typhoid, hepatitis, flu and HPV vaccines will API and generics requirements, respectively. drive rapid growth in the segment.

The sudden increase in inspections of plants and simultaneous negative observations has certainly bothered the Indian Sometimes uncertainty regarding emerging markets ne- pharmaceutical industry, but going ahead, I believe the gates their relatively high growth potential. What is your Indian pharmaceutical industry will retain its dominance in US assessment of these markets? generics, led by its proven chemistry skills, the largest basket of generic (DMFs and ANDAs) fillings and cost advantage. Emerging markets like Latin America, Africa, Southeast Asia and East Europe are characterised by huge unmet healthcare needs, similar to those in India. Hence, there is sustainable Complex generics, specialty products and biosimilars are long-term growth visibility in these markets. However, the key believed to be the future of the pharmaceutical industry. question is, who gets that growth and where. These are mar- Where do you place the Indian pharmaceutical industry kets of branded formulations with steady growth but limited in these opportunities and which Indian peers have the entry barriers. Hence, competition with global innovators, capability to capitalize on the opportunities? global generic players and local peers is always stiff in these markets. So, only a differential strategy and product basket Biosimilars are certainly the future of global pharmaceuticals, can ensure market share and growth. but success by an individual player would be subject to the successful completion of the required clinical trials. This re- quirement of clinical trials for biosimilar-drug approval poses What is the outlook for the Indian pharmaceutical indus- a key challenge to Indian players. However, alliances by Indi- try and which are its preferred long-term players? an players with global players with larger financial/technical capability, like Merck-Dr Reddy and Mylan-Biocon, may take According to me, the Indian pharmaceutical industry, led by India’s biosimilar prospects forward. key macro-economic factors, is well set to deliver steady annual growth of 12-15% over the next 4-5 years. I see signifi- Complex generic and specialty drugs are the buzzwords of cant consolidation in the industry in the near to medium term the industry at the moment but I believe oncology drugs, as numerous MNCs are trying to establish their presence in vaccines, immunology and nephrology drugs are specialty India and competition is intensifying. On the export front, products in the true sense. Players with capability in these India’s dominant dossier filing across the world and cost ad- segments would have steady long-term growth. On the other vantage would ensure healthy near-term export growth. But hand, segments like women’s healthcare, paediatric drugs, the specialty products or new drugs from innovative research vaccines for paediatrics/geriatrics, wellness drugs and derma will drive value growth for the Indian pharmaceutical industry products are preferred plays of the moment in terms of sus- in the medium term. tained profitability.

36 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 37 Dr. SUDHIR GOEL, a Chief Additional Secretary, Agriculture, Maharashtra on private sector participation as critical to alleviating farm distress

Maharashtra’s farmers in Vidarbha continue to wallow in distress—farmer suicides continue unabated. Dr Sud- hir Goel, IAS, 1982 cadre, is Chief Additional Secretary, Agriculture, Maharashtra, who has been doing a lot of relief work with farmers in the region and elsewhere. Born in June 1955, Dr Goel has varied experience in a gamut of government departments including energy, urban development and agriculture. Dr Goel shared with Ground View his perceptions on farmer distress, farm economics, cotton seed price hikes and progress in research on genetically modified (GM) food crops.

BY GAURI ANAND

Every other day we read about farmer suicides. in availability and prices for consumers. Having said How severe is farm distress? that, only 35% of farmer suicides have been authen- ticated to be due to farm distress. Farmers in India are distressed mainly because they are not organized. About 83% of the land holdings Is organized retail a structural solution to this in India are marginal or small—out of about 120 mn problem? farmers, some 100 mn are small or marginal (with The fragmented agricultural marketing value chain less than five hectares of land holdings), and they are and the large number of intermediaries is leading unorganized. Almost 35% of the tractors sold in to wastage, low returns for producers and higher Maharashtra are confiscated by banks and rela- prices for consumers. Organized retail (though only tively small and marginal farmers are at the mer- 3% of the retail market) is doubling its share every cy of the monsoons and middlemen. Wastage of three years or so and is likely to play an increasingly perishables like fruits and vegetables is an estimated important role in influencing the nature of agricultur- 18-40%, which hurts producers and consumers. al markets in the coming decade. A game changer This leads to low returns for growers and volatility on the horizon is the proposed national food security

38 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 39 legislation, which will require the sourcing of huge Aren’t low agricultural productivity and poor volumes of food from domestic producers. Tra- farm mechanization other issues? ditional production and supply arrangements are Indian yields are low but productivity has im- unlikely to prove adequate in meeting challenges proved immensely over the past decade. Among posed by these two major developments. Ma- other things, the use of hybrid varieties, better harashtra has issued 160 licences (the highest in irrigation, balanced nutrient application and the India) that enable companies to directly procure right mix of pesticide sprays have brought about from farmer groups, bypassing middlemen. The this improvement. Farmers must be empowered to pace of farmer engagements is improving, but it use high-end equipment, which is missing today. is not encouraging. A Tata Chemicals-Rallis India The government has approved only genetically joint venture has immense opportunity on offer in modified (GM) cotton crops, which has led to branded retailing of pulses, much like Amul (Amul about a 30% jump in cotton yields. Maharashtra earned revenues of Rs180 bn in FY14—a six-year has very recently cleared field trials of five GM CAGR of 23%). About a 59% increase in milk-pro- crops—brinjal, maize, rice, chickpea and cotton. curement price led to 46% growth in our milk But it is the prerogative of the central government procurement, driving growth. Dr Goel is spear- to approve or disapprove of the use of GM crops, heading many Private-Public engagements and based on trial results. states about 51 corporate groups have partnered in such initiatives the names include Rallis, HUL, Jain Irrigation, ADM Foods, Nuziveedu and Kaveri Finally, what are your thoughts on revision in Seeds (among others). cotton seed prices?

Hybrid seed prices in India are market-deter- What about farm economics—is availability of mined and there are no controls. As for BT cotton labour a cause for concern? – Maharashtra, AP (undivided) and Gujarat have introduced a Seed Act to control and approve The implementation of NREGA (National Ru- the upper limit for BT cotton seed retail prices. ral Employment Guarantee Scheme—a central Given the increase in production costs (primarily government scheme that guarantees 100-day labour) and handling charges, the seed industry is employment in a year to every household) un- demanding a revision in cotton seed prices (last doubtedly has led to a shortage of agricultural revised in FY11) and a view on this is overdue. labour and about 15% CAGR in the wage bill over Maharashtra, being a seed consuming state and FY08-14. Agriculture GDP is heavily weighted in not a producing state, is not incentivized to raise favour of high-value produce (horticulture, animal cotton-seed prices. However, if higher seed prices husbandry, dairy, poultry and fish products)—as are approved in Gujarat or Andhra Pradesh the much as 75% of the value of agricultural GDP is supply of hybrid seeds to Maharashtra may be in- contributed by such produce mainly because they terrupted, thus there exists an indirect compulsion are not as labour intensive as other produce. Thus to raise prices—this is what we infer. a creative and collaborative effort can result in unleashing the immense potential that Indian agriculture can offer and farm input suppliers can play a role here. The benefit of higher MSP is negated by a rise in input costs—consequently, farm profits have not advanced over the past four consecutive years.

38 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 39 Indian Economy – Trend Indicators

Monthly Economic Indicators

Growth Rates (%) Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 IIP 0.1 1.1 -2.0 -0.5 3.7 5.6 4.3 0.9 0.5 2.8 -4.2 3.8 1.7 - PMI 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 51.0 51.6 53.3 54.5 52.9 Core sector 4.0 1.6 4.5 2.5 4.2 2.3 7.3 2.7 5.8 1.9 6.3 6.7 2.4 - WPI 6.4 5.1 5.0 6.0 5.5 6.2 5.7 5.4 3.9 2.4 1.7 0.0 0.1 - CPI 9.9 8.8 8.0 8.3 8.6 8.3 7.5 8.0 7.7 6.5 5.5 4.4 5.0 - Money Supply 14.9 14.5 14.5 13.5 13.9 13.2 12.2 12.7 13.0 12.7 12.0 11.4 10.2 11.5 Deposit 15.8 15.7 15.9 14.6 15.1 13.8 12.2 12.7 13.2 13.0 12.4 11.7 10.2 11.5 Credit 14.5 14.7 14.4 14.3 14.1 12.8 13.1 13.1 10.6 9.4 10.8 10.7 10.6 10.4 Exports 3.7 3.8 -3.7 -3.2 5.3 12.4 10.2 7.3 2.4 2.7 -5.0 7.3 -3.8 - Imports -15.0 -18.1 -17.1 -2.1 -15.0 -11.4 8.3 4.3 2.1 26.0 3.6 26.8 -4.8 - Trade deficit(USD Bn) -10.2 -9.9 -8.1 -10.5 -10.1 -11.2 -11.8 -12.2 -10.8 -14.2 -13.4 -16.9 -9.4 - Net FDI (USD Bn) 1.9 0.4 -0.1 2.1 2.0 4.8 2.4 3.6 2.5 2.9 2.8 1.9 - - FII (USD Bn) 2.9 2.6 1.5 5.4 -0.1 7.7 4.8 5.4 2.1 2.4 1.7 4.8 - - ECB (USD Bn) 4.6 1.8 4.3 3.6 3.2 1.5 1.9 3.7 0.5 3.2 2.8 3.5 - - NRI Deposits (USD Bn) 1.0 0.7 0.7 2.5 1.4 1.1 0.0 2.3 2.5 -0.8 -0.8 -0.8 -0.8 -0.8 Dollar-Rupee 61.9 62.1 62.2 61.0 60.4 59.3 60.2 60.1 60.9 61.8 61.4 62.0 63.0 61.9 FOREX Reserves (USD Bn) 295.7 292.2 294.4 303.7 309.9 312.4 315.8 320.6 318.6 314.2 315.9 316.3 319.7 327.9

Quarterly Economic Indicators

Balance of Payment (USD Bn) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Exports 72.6 74.2 84.8 73.9 81.2 79.8 83.7 81.7 85.3 Imports 120.4 132.6 130.4 124.4 114.5 112.9 114.3 116.4 123.8 Trade deficit (47.8) (58.4) (45.6) (50.5) (33.3) (33.2) (30.7) (34.6) (38.6) Net Invisibles 26.7 26.6 27.5 28.7 28.1 29.1 29.3 26.8 28.5 CAD (21.1) (31.8) (18.2) (21.8) (5.2) (4.1) (1.3) (7.9) (10.1) CAD (% of GDP) 5.1 6.5 3.5 4.9 1.2 0.8 0.3 1.7 2.1 Capital Account 20.7 31.5 20.5 20.6 (4.8) 23.8 9.2 19.8 18.7 BoP (0.2) 0.8 2.7 (0.3) (10.4) 19.1 7.1 11.2 6.9

GDP and its Components (YoY, %) OLD NEW OLD NEW OLD NEW OLD NEW NEW Q2FY14 Q2FY14 Q3FY14 Q3FY14 Q1FY15 Q1FY15 Q2FY15 Q2FY15 Q3FY15 Agriculture & allied activities 5 3.6 3.7 3.8 3.8 3.5 3.2 2 -0.4 Industry 1.8 4.2 -0.9 5.5 4 6.5 1.2 5.5 4.6 Mining & Quarrying 0 4.5 -1.2 4.2 2.1 5.1 1.9 2.4 2.9 Manufacturing 1.3 3.8 -1.5 5.9 3.5 6.3 0.1 5.6 4.2 Electricity, Gas & Water Supply 7.8 6.5 5 3.9 10.2 10.1 8.7 8.7 10.1 Services 6.1 9.7 6.4 8.3 6.6 8.1 6.8 9.8 11.7 Construction 4.4 3.5 0.6 3.8 4.8 5.1 4.6 7.2 1.7 Trade, Hotel, Transport and Communications 3.6 11.9 2.9 12.4 2.8 9.4 3.8 8.7 7.2 Finance, Insurance, Real Estate & Business Services 12.1 11.9 14.1 5.7 10.4 11.9 9.5 13.8 15.9 Community, Social & Personal Services 3.6 6.9 5.7 9.1 9.1 1.9 9.6 6 20 GDP at FC 5.2 7.5 4.6 6.6 5.7 7 5.3 7.8 7.5

40 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 41 Annual Economic Indicators and Forecasts

Indicators Units FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14E FY15E Real GDP growth % 9.5 9.6 9.3 6.7 8.6 8.9 6.7 4.5 4.7 5.5 Agriculture % 5.1 4.2 5.8 0.1 0.8 8.6 5 1.4 4.7 2.0 Industry % 8.5 12.9 9.2 4.1 10.2 8.3 6.7 0.9 (0.1) 3.0 Services % 11.1 10.1 10.3 9.4 10 9.2 7.1 6.2 6.0 6.9 Real GDP Rs Bn 32,531 35,644 38,966 41,587 45,161 49,185 52,475 54,821 57,418 60,576 Real GDP US$ Bn 733 787 967 908 953 1,079 1,096 1,008 950 993 Nominal GDP Rs Bn 36,925 42,937 49,864 56,301 64,778 77,841 90,097 101,133 113,551 125,424 Nominal GDP US$ Bn 832 948 1,237 1,229 1,367 1,707 1,881 1,859 1,878 2,056 Population Mn 1,106 1,122 1,138 1,154 1,170 1,186 1,202 1,219 1,236 1,254 Per Capita Income US$ 753 845 1,087 1,065 1,168 1,439 1,565 1,525 1,519 1,640 WPI (Average) % 4.5 6.6 4.7 8.1 3.8 9.6 8.7 7.4 6.0 3.0 CPI (Average) % 4.2 6.8 6.4 9 12.4 10.4 8.3 10.2 9.5 6.6 Money Supply % 15.5 20 22.1 20.5 19.2 16.2 15.8 13.6 13.5 12.0 CRR % 5 6 7.5 5 5.75 6 4.75 4.0 4.0 4.0 Repo rate % 6.5 7.5 7.75 5 5 6.75 8.5 7.5 8.0 8.0 Reverse repo rate % 5.5 6 6 3.5 3.5 5.75 7.5 6.5 7.0 7.0 Bank Deposit growth % 24 23.8 22.4 19.9 17.2 15.9 13.5 14.4 14.6 15.0 Bank Credit growth % 37 28.1 22.3 17.5 16.9 21.5 17.0 15.0 14.3 16.0 Centre Fiscal Deficit Rs Bn 1,464 1,426 1,437 3,370 4,140 3,736 5,160 5,209 5,245 5,136 Centre Fiscal Deficit % of GDP 4 3.3 2.9 6 6.4 4.8 5.7 5.2 4.8 4.1 Gross Central Govt Borrowings Rs Bn 1,310 1,460 1,681 2,730 4,510 4,370 5,098 5,580 5,639 5,970 Net Central Govt Borrowings Rs Bn 954 1,104 1,318 2,336 3,984 3,254 4,362 4,674 4,689 4,573 State Fiscal Deficit % of GDP 2.4 1.8 1.5 2.4 2.9 2.1 2.3 2.2 2.2 2.5 Consolidted Fiscal Deficit % of GDP 6.4 5.1 4.4 8.4 9.3 6.9 8.1 7.4 7.0 6.6 Exports US$ Bn 105.2 128.9 166.2 189.0 182.4 251.1 309.8 306.6 318.6 328.2 YoY Growth % 23.4 22.6 28.9 13.7 -3.5 37.6 23.4 -1.0 3.9 3.0 Imports US$ Bn 157.1 190.7 257.6 308.5 300.6 381.1 499.5 502.2 466.2 473.0 YoY Growth % 32.1 21.4 35.1 19.7 -2.5 26.7 31.1 0.5 -7.2 1.5 Trade Balance US$ Bn -51.9 -61.8 -91.5 -119.5 -118.2 -129.9 -189.8 -195.6 -147.6 -144.8 Net Invisibles US$ Bn 42.0 52.2 75.7 91.6 80.0 84.6 111.6 107.5 115.2 113.8 Current Account Deficit US$ Bn -9.9 -9.6 -15.7 -27.9 -38.2 -45.3 -78.2 -88.2 -32.4 -31.1 CAD (% of GDP) % -1.2 -1.0 -1.3 -2.3 -2.8 -2.6 -4.2 -4.7 -1.7 -1.5 Capital Account Balance US$ Bn 25.5 45.2 106.6 7.8 51.6 62.0 67.8 89.3 48.8 59.5 Dollar-Rupee (Average) 44.4 45.3 40.3 45.8 47.4 45.6 47.9 54.4 60.5 60.0

Source: RBI, CSO, CGA, Ministry of Agriculture, Ministry of commerce, Bloomberg, PhillipCapital India Research

40 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 41 ICC Circket World Cup 2015 Schedule

Date Match Details GMT IST Venue City Feb 14 - Sat New Zealand vs Sri Lanka, 1st Match, Pool A 22:00 3:30 AM Hagley Oval Christchurch Feb-13 (Feb 14) Feb 14 - Sat Australia vs England, 2nd Match, Pool A 3:30 9:00 AM Melbourne Cricket Ground Melbourne Feb 15 - Sun South Africa vs Zimbabwe, 3rd Match, Pool B 1:00 6:30 AM Seddon Park Hamilton Feb 15 - Sun India vs Pakistan, 4th Match, Pool B 3:30 9:00 AM Adelaide Oval Adelaide Feb 16 - Mon Ireland vs West Indies, 5th Match, Pool B 22:00 3:30 AM Saxton Oval Nelson Feb-15 (Feb 16) Feb 17 - Tue New Zealand vs Scotland, 6th Match, Pool A 22:00 3:30 AM University Oval Dunedin Feb-16 (Feb 17) Feb 18 - Wed Bangladesh vs Afghanistan, 7th Match, Pool A 3:30 9:00 AM Manuka Oval Canberra Feb 19 - Thu United Arab Emirates vs Zimbabwe, 8th Match, Pool B 22:00 3:30 AM Saxton Oval Nelson Feb-18 (Feb 19) Feb 20 - Fri New Zealand vs England, 9th Match, Pool A 1:00 6:30 AM Westpac Stadium Wellington Feb 21 - Sat Pakistan vs West Indies, 10th Match, Pool B 22:00 3:30 AM Hagley Oval Christchurch Feb-20 (Feb 21) Feb 21 - Sat Australia vs Bangladesh, 11th Match, Pool A 3:30 9:00 AM The Gabba Brisbane Feb 22 - Sun Afghanistan vs Sri Lanka, 12th Match, Pool A 22:00 3:30 AM University Oval Dunedin Feb-21 (Feb 22) Feb 22 - Sun India vs South Africa, 13th Match, Pool B 3:30 9:00 AM Melbourne Cricket Ground Melbourne Feb 23 - Mon England vs Scotland, 14th Match, Pool A 22:00 3:30 AM Hagley Oval Christchurch Feb-22 (Feb 23) Feb 24 - Tue West Indies vs Zimbabwe, 15th Match, Pool B 3:30 9:00 AM Manuka Oval Canberra Feb 25 - Wed Ireland vs United Arab Emirates, 16th Match, Pool B 3:30 9:00 AM The Gabba Brisbane Feb 26 - Thu Afghanistan vs Scotland, 17th Match, Pool A 22:00 3:30 AM University Oval Dunedin Feb-25 (Feb 26) Feb 26 - Thu Bangladesh vs Sri Lanka, 18th Match, Pool A 3:30 9:00 AM Melbourne Cricket Ground Melbourne Feb 27 - Fri South Africa vs West Indies, 19th Match, Pool B 3:30 9:00 AM Sydney Cricket Ground Sydney Feb 28 - Sat New Zealand vs Australia, 20th Match, Pool A 1:00 6:30 AM Eden Park Auckland Feb 28 - Sat India vs United Arab Emirates, 21st Match, Pool B 6:30 12:00 PM W.A.C.A. Ground Perth Mar 01 - Sun England vs Sri Lanka, 22nd Match, Pool A 22:00 3:30 AM Westpac Stadium Wellington Feb-28 (Mar 1) Mar 01 - Sun Pakistan vs Zimbabwe, 23rd Match, Pool B 3:30 9:00 AM The Gabba Brisbane Mar 03 - Tue Ireland vs South Africa, 24th Match, Pool B 3:30 9:00 AM Manuka Oval Canberra Mar 04 - Wed Pakistan vs United Arab Emirates, 25th Match, Pool B 1:00 6:30 AM McLean Park Napier Mar 04 - Wed Australia vs Afghanistan, 26th Match, Pool A 6:30 12:00 PM W.A.C.A. Ground Perth Mar 05 - Thu Bangladesh vs Scotland, 27th Match, Pool A 22:00 3:30 AM Saxton Oval Nelson

42 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 43 Date Match Details GMT IST Venue City Mar-04 (Mar 5) Mar 06 - Fri India vs West Indies, 28th Match, Pool B 6:30 12:00 PM W.A.C.A. Ground Perth Mar 07 - Sat Pakistan vs South Africa, 29th Match, Pool B 1:00 6:30 AM Eden Park Auckland Mar 07 - Sat Ireland vs Zimbabwe, 30th Match, Pool B 3:30 9:00 AM Bellerive Oval Hobart Mar 08 - Sun New Zealand vs Afghanistan, 31st Match, Pool A 22:00 3:30 AM McLean Park Napier Mar-07 (Mar 8) Mar 08 - Sun Australia vs Sri Lanka, 32nd Match, Pool A 3:30 9:00 AM Sydney Cricket Ground Sydney Mar 09 - Mon England vs Bangladesh, 33rd Match, Pool A 3:30 9:00 AM Adelaide Oval Adelaide Mar 10 - Tue India vs Ireland, 34th Match, Pool B 1:00 6:30 AM Seddon Park Hamilton Mar 11 - Wed Sri Lanka vs Scotland, 35th Match, Pool A 3:30 9:00 AM Bellerive Oval Hobart Mar 12 - Thu South Africa vs United Arab Emirates, 36th Match, Pool B 1:00 6:30 AM Westpac Stadium Wellington Mar 13 - Fri New Zealand vs Bangladesh, 37th Match, Pool A 1:00 6:30 AM Seddon Park Hamilton Mar 13 - Fri Afghanistan vs England, 38th Match, Pool A 3:30 9:00 AM Sydney Cricket Ground Sydney Mar 14 - Sat India vs Zimbabwe, 39th Match, Pool B 1:00 6:30 AM Eden Park Auckland Mar 14 - Sat Australia vs Scotland, 40th Match, Pool A 3:30 9:00 AM Bellerive Oval Hobart Mar 15 - Sun West Indies vs United Arab Emirates, 41st Match, Pool B 22:00 3:30 AM McLean Park Napier Mar-14 (Mar 15) Mar 15 - Sun Ireland vs Pakistan, 42nd Match, Pool B 3:30 9:00 AM Adelaide Oval Adelaide Mar 18 - Wed TBC vs TBC, 1st Quarter-Final (A1 v B4) 3:30 9:00 AM Sydney Cricket Ground Sydney Mar 19 - Thu TBC vs TBC, 2nd Quarter-Final (A2 v B3) 3:30 9:00 AM Melbourne Cricket Ground Melbourne Mar 20 - Fri TBC vs TBC, 3rd Quarter-Final (A3 v B2) 3:30 9:00 AM Adelaide Oval Adelaide Mar 21 - Sat TBC vs TBC, 4th Quarter-Final (A4 v B1) 1:00 6:30 AM Westpac Stadium Wellington Mar 24 - Tue TBC vs TBC, 1st Semi-Final 1:00 6:30 AM Eden Park Auckland Mar 26 - Thu TBC vs TBC, 2nd Semi-Final 3:30 9:00 AM Sydney Cricket Ground Sydney Mar 29 - Sun TBC vs TBC, Final 3:30 9:00 AM Melbourne Cricket Ground Melbourne

42 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 43 5.5 7.4 7.1 6.3 5.9 8.8 31.9 13.6 20.8 13.9 49.7 13.9 13.1 15.7 17.7 12.2 20.6 16.3 10.3 18.1 11.3 14.0 12.6 10.9 18.9 FY16E 2.9 9.1 9.6 6.2 3.7 9.3 8.7 5.2 7.2 6.7 4.0 8.3 6.1 ROCE (%) 31.2 19.1 45.6 17.4 17.9 15.0 15.9 14.6 12.2 12.2 12.6 11.4 FY15E 5.5 8.6 7.8 5.6 30.9 16.7 25.9 21.3 43.7 11.5 17.8 14.2 22.9 19.7 18.2 23.0 19.8 14.8 18.3 13.4 13.5 12.0 15.9 19.6 13.6 FY16E 7.2 1.8 9.2 6.6 9.0 9.5 2.0 6.8 -0.6 ROE (%) 30.8 10.9 25.8 14.4 41.3 11.8 27.1 20.7 10.9 15.9 20.6 15.0 14.1 12.1 11.7 12.1 FY15E 6.3 8.9 8.2 3.9 6.2 7.4 5.8 6.4 8.8 12.8 10.4 13.7 11.1 16.4 13.0 35.0 11.4 13.7 10.6 19.3 10.0 12.1 15.4 21.9 14.5 Note: For banks, EBITDA is pre-provision profit is pre-provision EBITDA banks, Note: For FY16E 9.6 9.2 4.3 6.8 7.6 8.5 14.6 20.7 17.5 13.6 14.3 25.3 20.6 56.1 12.8 15.8 15.7 28.0 14.2 16.8 22.3 36.7 10.6 23.3 13.2 EV/EBITDA (x) EV/EBITDA FY15E 5.3 1.2 2.1 6.3 2.7 6.8 1.9 3.2 3.7 8.6 2.0 3.1 1.8 3.7 8.1 1.8 2.4 3.8 3.3 2.7 2.5 0.8 1.4 5.8 2.4 FY16E P/B (x) 6.1 2.4 7.9 3.2 8.7 2.2 3.3 4.4 9.4 2.6 3.6 1.9 4.5 9.3 2.2 2.6 4.5 3.4 2.9 2.7 0.8 1.5 7.1 2.7 1.3 FY15E 8.7 9.9 8.6 17.1 12.8 24.2 12.7 15.6 16.7 37.1 20.8 60.6 15.5 23.5 20.5 35.2 16.0 20.8 24.4 19.8 20.9 14.0 29.5 17.8 21.8 FY16E P/E (x) 9.5 19.6 22.6 30.6 22.1 21.0 30.1 37.3 17.4 29.4 41.6 58.2 11.5 29.1 29.8 24.3 23.9 28.1 39.2 13.1 58.8 39.8 180.8 102.9 -212.2 FY15E 9.5 -0.1 15.1 76.3 26.6 73.8 34.0 80.7 79.0 69.7 12.5 25.0 65.5 16.3 82.4 42.9 20.7 34.0 52.1 99.1 387.8 103.1 180.3 123.9 -1072 FY16E 1.9 2.1 2.3 4.7 6.1 8.6 26.4 86.2 15.5 41.8 36.9 90.2 42.4 28.4 55.7 66.2 -33.3 -36.2 -17.3 126.1 -2177 116.0 -258.5 -119.3 -216.7 FY15E EPS Growth (%) EPS Growth 5.1 1.7 6.9 45.0 42.1 30.9 68.1 20.8 11.8 76.1 11.0 14.0 23.0 10.1 10.9 61.8 11.8 37.1 39.9 21.8 131.4 182.0 147.1 169.0 372.7 FY16E 2.8 0.3 9.5 5.4 8.5 5.5 9.1 8.8 2.5 EPS (Rs) -2.2 35.5 23.9 17.8 82.1 62.2 12.3 67.6 19.8 61.8 24.4 17.8 114.2 135.8 118.3 187.1 FY15E 991 2,395 3,634 1,167 4,796 4,413 3,585 3,593 6,346 3,687 2,113 2,788 1,770 FY16E 38,022 10,480 36,353 40,329 28,926 46,709 11,601 51,043 11,606 23,402 12,982 217,254 646 983 754 651 PAT (Rs mn) PAT (182) 8,276 1,359 2,091 2,600 1,766 2,171 9,973 3,478 3,054 6,519 1,245 FY15E 33,039 27,120 22,527 23,140 41,516 35,730 11,618 17,461 198,363 4,866 6,265 3,418 7,744 8,003 6,812 2,467 9,125 1,899 8,375 8,320 FY16E 49,995 19,028 50,782 12,869 71,085 35,453 64,529 20,858 10,645 82,518 17,793 48,661 25,895 518,206 3,536 4,318 3,233 8,486 4,833 5,628 4,648 7,406 1,507 7,517 1,496 5,775 4,263 FY15E EBIDTA (Rs mn) EBIDTA 44,029 15,181 39,735 43,533 30,716 57,702 18,561 62,677 12,548 34,912 16,433 458,838 FY16E 82,898 25,843 31,587 19,752 87,931 66,781 52,894 15,402 63,538 10,960 82,787 48,120 41,090 245,399 337,606 141,303 342,205 310,095 514,518 154,503 164,940 599,650 126,698 259,711 3,187,697 FY15E 69,665 22,057 22,994 21,685 78,352 57,404 42,364 16,684 57,302 10,689 66,203 37,380 29,515 Net Sales (Rs mn) 218,524 291,252 120,014 255,418 303,048 440,389 137,896 145,148 501,306 114,803 224,563 2,715,440 8,538 Rs mn 30,641 46,150 19,432 72,773 72,980 29,551 49,563 38,585 Mkt Cap 649,065 253,280 568,520 177,725 839,870 267,481 679,209 732,734 126,461 115,472 101,282 282,454 383,562 383,291 1,760,063 1,064,001 Rs 86 62 96 539 392 590 278 225 494 227 162 217 248 320 709 475 CMP 2243 1088 2847 3061 1262 1180 3522 1504 11002 Automobiles Sector Automobiles Cement Cement Automobiles Cement Automobiles Cement Automobiles Cap Goods Cap Cap Goods Cap Automobiles Automobiles Cap Goods Cap Automobiles Cap Goods Cap Automobiles Cap Goods Cap Cement Cement Cement Cement Cement Cement Cement Name of company Bajaj Auto Bharat Forge Bharat OCL India OCL JK Lakshmi Cement Lakshmi JK Hero MotoCorp Hero Alstom T&D Ashok Leyland Ultratech Cement Ultratech Tata Motors Tata ABB India BHEL Mah & Mahindra CIE Mahindra Alstom T&D Apollo Tyres Crompton Greaves Crompton Maruti Suzuki Engineers India Bharat Forge Bharat Hero MotoCorp Hero India Cement Mangalam Cement Shree Cement Shree JK Cement JK Dalmia Bharat Ltd Dalmia Bharat Valuation Summary PhillipCapital India Coverage Universe: Valuation

44 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 45 9.1 8.9 0.7 0.7 0.6 9.8 0.7 2.0 6.4 8.3 10.2 16.8 11.6 12.7 10.2 11.6 24.5 14.3 21.2 20.7 40.2 25.8 20.5 16.7 #N/A FY16E 7.3 1.7 0.5 0.8 6.3 0.5 0.7 0.4 8.7 2.0 1.8 0.2 6.3 7.6 ROCE (%) 18.3 10.9 11.3 23.0 13.1 21.8 17.1 45.6 25.5 19.0 16.9 FY15E 9.0 7.1 10.8 11.4 15.8 15.2 15.1 14.5 15.2 11.0 14.1 26.8 15.5 16.4 12.5 21.2 20.8 15.0 13.5 19.8 12.8 35.5 25.7 20.1 20.5 FY16E 4.9 1.9 9.4 8.1 8.2 4.6 ROE (%) 17.1 15.0 13.2 15.0 12.3 25.7 13.5 15.1 11.0 22.2 21.3 14.6 14.3 15.3 12.2 39.7 26.6 19.2 19.8 FY15E 6.6 9.4 3.3 0.1 5.8 8.2 7.0 7.7 21.9 18.4 48.8 28.3 13.3 25.6 14.9 16.2 12.5 Note: For banks, EBITDA is pre-provision profit is pre-provision EBITDA banks, Note: For FY16E 8.7 3.7 0.3 6.7 8.1 8.5 NM NM NM NM NM NM NM NM 13.7 21.5 22.9 73.3 36.5 16.4 30.4 11.3 19.0 19.6 15.6 EV/EBITDA (x) EV/EBITDA FY15E 1.5 1.2 3.9 0.7 3.7 1.5 0.1 8.4 0.2 7.6 0.7 3.8 0.4 5.7 0.3 1.4 0.4 8.5 1.0 2.6 1.8 5.6 6.1 4.6 2.7 FY16E P/B (x) 1.7 1.3 4.4 0.8 4.2 1.6 0.2 8.9 0.2 8.6 0.7 4.3 0.4 6.2 0.4 1.6 0.5 9.5 1.1 3.0 2.0 7.8 7.8 5.3 3.0 FY15E 4.8 1.0 1.3 4.5 4.3 1.7 6.7 3.1 7.4 14.0 10.4 24.7 24.7 10.6 76.0 28.3 23.0 45.7 13.3 14.3 15.8 23.8 22.7 13.3 127.2 FY16E P/E (x) 5.4 1.1 1.6 5.6 4.9 2.0 7.5 3.5 7.8 33.9 25.6 31.5 17.5 33.6 28.7 56.3 20.0 16.2 19.7 29.3 27.5 15.6 68.1 109.4 219.1 FY15E 3.5 4.6 13.0 27.9 64.8 14.0 44.0 26.0 18.7 24.8 24.8 14.2 23.2 17.7 13.1 13.0 72.2 49.9 13.5 24.8 23.3 21.0 17.2 141.4 554.2 FY16E 0.9 5.8 -8.3 -7.0 -4.1 94.2 22.2 23.8 24.3 45.8 12.4 51.2 21.4 10.7 14.3 41.6 10.9 85.9 45.1 24.0 12.7 -23.3 -17.7 127.1 -127.8 FY15E EPS Growth (%) EPS Growth 6.1 8.1 8.5 27.5 29.6 68.3 23.7 14.4 66.2 31.9 96.2 67.9 57.9 24.5 39.6 20.9 32.4 55.1 21.2 10.0 31.3 24.1 146.8 258.9 109.7 FY16E 2.5 7.7 4.9 8.3 3.7 EPS (Rs) 26.6 26.2 53.4 14.4 10.0 52.5 26.9 77.1 54.4 50.7 19.9 35.1 97.1 14.0 28.6 44.2 17.2 26.7 128.9 220.1 FY15E 1,573 1,851 2,610 5,113 8,854 1,807 9,698 2,915 3,333 6,091 8,259 3,775 2,880 1,943 1,016 FY16E 63,860 13,946 63,241 42,565 44,363 97,857 11,896 13,401 130,451 127,239 652 155 PAT (Rs mn) PAT 1,789 2,309 8,461 3,551 7,458 1,447 8,493 2,366 3,185 6,907 4,064 7,279 3,026 2,337 1,606 FY15E 49,713 55,498 33,779 35,541 86,469 11,436 105,584 112,400 6,256 1,919 5,176 7,470 8,747 2,942 5,232 8,584 3,765 4,133 3,468 3,416 FY16E 86,290 51,285 45,612 73,446 11,464 23,368 25,008 165,825 150,800 125,350 274,392 117,871 225,987 4,874 1,987 4,882 5,146 6,780 2,398 4,475 8,550 8,690 3,079 3,480 2,844 2,578 FY15E EBIDTA (Rs mn) EBIDTA 70,154 43,329 40,283 64,783 21,651 23,263 142,328 128,191 108,973 223,085 108,469 194,794 FY16E 85,623 24,566 33,995 51,285 51,080 29,765 45,612 57,479 82,642 73,446 14,472 22,901 22,226 57,372 759,174 103,269 165,825 150,800 125,350 274,392 522,143 225,987 113,491 181,959 133,058 FY15E 83,263 21,626 32,744 43,329 43,808 25,833 40,283 54,550 87,436 64,783 12,398 18,928 19,074 53,769 Net Sales (Rs mn) 618,899 104,483 142,328 128,191 108,973 223,085 472,943 194,794 104,014 175,301 120,533 Rs mn 22,071 45,809 12,463 10,567 12,463 51,090 42,293 87,337 24,845 81,169 59,798 68,787 44,174 10,567 Mkt Cap 388,634 250,325 197,972 160,277 133,110 197,972 117,838 178,771 1,563,811 1,944,993 2,605,632 Rs 86 87 60 681 141 251 141 903 429 250 429 264 336 279 463 868 504 227 417 251 CMP 1684 1091 1562 1117 1077 Cap Goods Cap Sector Cap Goods Cap Agri Inputs Cap Goods Cap Financials Cap Goods Cap Financials Financials Cap Goods Cap Financials Cap Goods Cap Financials Cap Goods Cap Financials Cap Goods Cap Financials Agri Inputs Financials Agri Inputs Agri Inputs Agri Inputs Agri Inputs Agri Inputs Agri Inputs Agri Inputs Name of company KEC International Alstom India Deepak Fertilisers Larsen & Toubro Andhra Bank Andhra Siemens Bank of Baroda Bank of India Cummins India Canara Bank Canara Alstom India Corporation bank Corporation Thermax HDFC Bank Voltas ICICI Bank Chambal Fertilisers IOB - Fertil Coromandel isers Ltd Tata Chemicals Ltd Tata Kaveri Seeds Kaveri PI Industries Rallis India Rallis United Phosphorus Zuari Agrochemicals Zuari Valuation Summary PhillipCapital India Coverage Universe: Valuation

44 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 45 1.7 0.3 0.8 0.8 0.7 0.7 7.9 0.7 1.3 1.9 1.7 24.3 32.9 98.3 28.8 35.8 35.8 42.2 39.5 81.7 25.5 20.5 16.8 #N/A FY16E 0.7 0.7 0.7 0.6 1.8 0.7 1.5 1.8 1.8 2.7 1.4 ROCE (%) 26.5 30.8 85.1 28.4 11.6 32.6 37.6 44.5 32.1 98.4 24.4 18.5 15.7 FY15E 8.1 13.1 28.2 14.1 43.2 12.0 95.3 13.9 15.0 27.8 12.8 13.1 33.8 18.7 35.0 20.1 45.1 16.6 45.5 67.7 17.8 30.7 19.7 18.6 FY16E ROE (%) 12.0 31.3 11.8 43.3 10.8 85.1 12.9 14.6 28.0 11.0 11.4 15.8 31.2 17.9 37.2 18.6 50.4 15.7 40.0 81.8 17.1 30.9 18.2 19.0 FY15E 20.0 27.8 24.0 33.5 33.1 23.2 31.6 24.0 21.7 26.0 19.9 26.0 26.4 Note: For banks, EBITDA is pre-provision profit is pre-provision EBITDA banks, Note: For profit is pre-provision EBITDA banks, Note: For FY16E NM NM NM NM NM NM NM NM NM NM NM NM 21.7 32.0 30.8 37.5 29.6 31.8 38.0 28.6 28.1 32.5 25.7 35.3 30.2 EV/EBITDA (x) EV/EBITDA FY15E 0.7 8.5 0.0 0.1 0.5 0.4 0.7 5.3 2.8 0.5 3.8 1.8 6.2 9.5 2.1 7.4 21.1 34.1 10.0 12.9 13.1 16.0 10.8 26.8 11.0 FY16E P/B (x) 0.7 9.7 0.0 0.1 0.6 0.4 0.7 5.2 3.2 0.6 4.5 2.1 7.3 2.4 8.4 24.1 38.6 11.1 15.6 16.6 21.4 11.9 40.3 12.2 13.6 FY15E 5.2 0.3 0.9 3.9 2.7 5.4 3.1 30.3 48.8 35.8 35.9 65.5 23.0 38.1 37.5 20.4 35.5 11.6 23.8 37.7 39.6 31.1 12.6 55.7 39.8 FY16E P/E (x) 6.4 0.4 1.1 4.9 3.0 6.8 3.7 31.0 55.8 45.4 39.5 45.7 24.1 49.9 44.8 26.0 42.4 14.1 29.8 45.4 49.2 39.5 15.1 75.0 44.4 FY15E 2.3 4.6 22.7 33.8 14.4 21.0 26.8 25.1 13.0 10.1 27.1 31.0 21.9 19.4 27.3 19.5 21.6 25.3 20.4 24.3 27.2 20.4 34.6 11.5 -30.2 FY16E 7.2 7.8 5.6 7.9 5.6 5.0 -0.9 37.7 28.1 21.0 15.8 29.9 14.3 14.0 23.8 27.0 19.0 13.8 24.4 32.6 10.0 23.3 19.4 -20.6 -16.7 FY15E EPS Growth (%) EPS Growth 7.8 64.2 12.2 51.8 43.7 36.1 10.2 21.3 38.4 24.5 42.4 52.4 74.5 18.5 33.1 22.9 11.5 33.1 25.7 27.1 158.3 141.2 278.0 155.9 109.7 FY16E 7.5 9.0 EPS (Rs) 52.3 11.9 40.9 35.0 97.1 28.4 14.7 16.3 31.5 20.5 33.3 43.9 61.3 14.8 27.5 18.5 27.5 19.1 24.3 118.3 123.4 229.6 141.6 FY15E 249 7,051 6,558 2,201 5,565 6,280 2,732 7,391 2,573 1,682 9,219 FY16E 20,159 97,245 57,308 13,612 29,990 16,789 20,423 91,076 22,293 16,900 16,734 49,582 215,427 127,239 357 PAT (Rs mn) PAT 5,560 5,955 2,103 4,660 5,254 2,180 5,811 2,073 1,250 8,268 FY15E 16,435 42,818 11,897 23,974 13,209 15,594 74,366 17,511 13,900 13,904 39,897 95,074 171,548 112,400 485 6,359 6,142 6,359 9,077 2,875 3,293 3,569 FY16E 66,543 23,742 10,353 61,513 32,434 42,860 37,845 25,655 73,403 11,265 14,225 215,209 865,840 105,663 225,987 160,944 143,734 549 8,126 5,646 5,274 5,368 7,641 2,244 8,925 2,093 2,634 FY15E EBIDTA (Rs mn) EBIDTA 57,669 20,793 93,265 51,425 24,297 34,512 32,264 21,216 59,496 12,604 185,043 758,227 194,794 134,633 133,284 8,004 6,142 9,360 5,994 FY16E 66,543 45,305 45,365 61,513 26,460 42,860 90,163 48,540 26,824 65,519 27,052 95,148 215,209 114,198 865,840 105,663 225,987 165,575 160,944 342,266 394,265 7,725 5,274 8,016 4,249 FY15E 57,669 39,824 93,265 40,596 51,425 22,599 34,512 78,459 41,418 22,074 57,987 20,621 83,317 Net Sales (Rs mn) 185,043 101,041 758,227 194,794 142,786 134,633 306,824 359,851 Rs mn 62,138 74,497 16,331 83,952 33,041 65,062 52,523 93,896 Mkt Cap 663,938 252,165 311,380 235,334 122,960 777,526 208,572 457,439 223,140 457,439 229,807 366,896 1,944,993 2,171,035 1,963,776 1,964,539 2,949,162 Rs 50 336 248 172 291 193 670 181 811 117 919 865 865 441 908 356 417 369 CMP 6886 1854 5596 1861 1249 1432 1078 Financials Sector Financials FMCG Financials FMCG Financials FMCG Financials Financials FMCG Financials FMCG Financials FMCG Financials FMCG Financials FMCG Financials FMCG FMCG Financials FMCG FMCG FMCG Name of company Oriental Bank PNB Nestle SBI Colgate Union Bank Glaxo Smithkline Glaxo Consumer HDFC Indian Bank Agro Tech Foods Tech Agro Develop Credit Bank Develop Credit Asian Paints AXIS Bank Emami Indusind Bank Britannia Shriram Transport Fi Transport Shriram Bajaj Corp LIC Housing Finance Hindustan Unilever Marico Industries SKS Micro Finance SKS Micro Jubilant Foodworks Godrej Consumer Godrej ITC Valuation Summary PhillipCapital India Coverage Universe: Valuation

46 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 47 9.3 1.4 0.0 1.9 3.4 5.8 8.6 21.2 24.8 25.2 27.5 13.4 22.4 11.2 24.9 13.2 15.5 13.5 13.9 29.2 22.3 40.0 14.0 20.2 19.5 FY16E 7.7 2.5 0.0 4.6 4.9 8.9 7.6 -0.6 ROCE (%) 21.8 22.1 24.3 26.2 12.7 19.8 10.3 23.9 11.7 16.1 11.9 11.7 31.1 23.1 37.6 19.9 15.4 FY15E 8.4 9.2 9.4 8.8 6.6 20.8 23.2 23.6 32.0 13.6 20.3 10.4 24.3 13.5 18.8 16.4 22.9 28.0 21.0 37.6 20.1 22.2 -23.4 -39.5 -120.2 FY16E 2.3 4.2 8.6 6.0 6.8 8.1 ROE (%) 21.3 18.8 21.4 32.0 12.8 16.4 14.3 23.6 11.8 19.4 14.9 19.4 30.6 21.4 39.1 20.5 19.7 -23.1 -27.6 FY15E 8.2 4.9 9.2 9.8 7.9 7.6 6.6 8.1 6.3 2.9 8.5 7.5 12.7 12.0 26.4 17.8 19.8 10.3 14.7 10.1 12.8 12.7 15.5 13.4 662.0 Note: For banks, EBITDA is pre-provision profit is pre-provision EBITDA banks, Note: For FY16E 5.7 8.8 8.1 9.1 8.0 3.9 14.0 15.3 34.0 10.9 13.8 16.5 26.5 19.1 10.4 12.1 19.4 12.0 14.9 14.6 18.1 10.5 16.1 10.6 1,009 EV/EBITDA (x) EV/EBITDA FY15E 3.3 0.1 4.3 1.1 1.3 1.6 1.2 6.6 1.0 1.4 1.7 4.1 1.7 2.9 1.9 4.8 0.7 4.6 3.9 0.8 7.2 4.0 2.4 11.0 -53.6 FY16E P/B (x) 0.1 5.3 1.2 1.5 1.7 0.9 7.3 0.8 1.6 2.0 4.6 1.9 3.3 2.2 6.1 0.7 5.6 4.5 0.9 9.1 4.7 3.1 3.9 13.5 -24.3 FY15E 0.4 9.8 7.5 -5.0 -2.4 18.4 34.3 13.6 17.0 32.6 15.0 16.2 17.0 13.0 15.3 12.3 21.0 16.4 18.7 12.5 19.2 44.6 19.9 11.0 16.1 FY16E P/E (x) 0.6 -4.1 -2.8 25.0 42.2 54.1 11.4 40.1 44.4 18.0 14.1 19.6 16.9 17.0 16.8 31.5 11.9 18.4 21.0 13.0 23.2 23.1 15.5 18.2 -299.7 FY15E 4.0 62.3 35.8 23.1 16.5 36.3 14.4 20.3 15.2 29.5 11.3 37.1 50.1 58.4 12.1 12.1 20.4 15.9 41.6 13.1 -17.8 -12.9 298.0 135.1 -772.1 FY16E 8.4 0.1 5.0 3.2 5.3 6.4 6.6 -8.1 22.0 48.3 54.0 30.7 18.9 12.1 12.9 17.0 10.7 -19.7 -16.5 -50.1 -12.8 -82.5 118.8 472.7 -159.8 FY15E EPS Growth (%) EPS Growth 7.8 5.2 8.1 9.0 8.7 8.3 9.2 1.7 -3.6 -4.1 44.7 35.8 11.1 15.7 23.8 29.5 43.6 14.9 84.6 19.3 39.6 156.4 120.1 117.0 132.6 FY16E 6.3 1.3 3.4 8.1 7.4 7.8 5.2 9.9 8.9 EPS (Rs) -4.4 -3.6 -0.3 27.5 30.7 18.1 20.6 22.8 31.8 72.9 13.6 35.1 115.2 107.2 104.4 110.2 FY15E 467 830 2,169 2,917 1,272 2,086 5,228 9,365 2,693 1,406 1,270 1,353 1,857 3,382 3,611 FY16E 37,113 13,570 10,620 30,778 84,834 97,857 (6,494) 133,755 259,801 (15,716) 288 733 541 640 799 PAT (Rs mn) PAT (276) 1,861 7,792 1,733 6,000 8,130 2,420 1,026 1,301 2,918 2,548 FY15E 27,153 11,024 20,510 75,672 86,469 (5,677) 119,365 215,768 (19,130) 707 3,748 7,239 7,730 3,754 1,562 5,782 3,297 6,124 6,203 9,469 4,845 5,661 FY16E 56,031 17,456 17,239 25,769 23,741 28,686 14,448 51,032 107,040 166,926 321,537 117,871 463 3,383 5,594 4,766 3,094 1,359 4,672 2,600 5,243 5,351 8,311 4,076 4,080 FY15E EBIDTA (Rs mn) EBIDTA 42,897 13,729 12,854 29,120 13,025 22,847 12,643 39,868 93,108 148,838 275,950 108,469 5,333 FY16E 89,813 25,962 85,164 29,228 55,231 82,008 37,271 25,868 51,579 27,117 10,080 21,775 18,840 27,804 73,626 23,573 32,757 21,957 35,702 287,791 429,792 614,565 522,143 1,128,032 4,122 8,765 FY15E 79,258 23,801 72,178 20,526 47,118 96,015 22,926 23,630 40,345 24,378 18,054 15,072 22,938 59,259 17,950 28,883 19,057 30,389 Net Sales (Rs mn) 222,451 374,283 540,838 959,420 472,943 Rs mn 10,554 21,367 39,666 21,760 78,502 15,713 31,281 84,504 10,819 43,267 17,241 51,864 20,591 82,837 67,280 41,470 Mkt Cap 690,346 468,637 346,290 159,190 645,235 1,385,312 2,519,289 4,998,478 1,573,411 Rs 16 71 18 10 62 78 267 350 137 361 134 254 404 385 132 535 312 116 212 637 CMP 2876 1972 2194 2552 1682 FMCG Sector IT Services IT FMCG IT Services IT Infrastructure Infrastructure Media Infrastructure Infrastructure Media Infrastructure Media Infrastructure Media Infrastructure Media Infrastructure IT Services IT Media IT Services IT IT Services IT Media IT Services IT IT Services IT IT Services IT Name of company Industries Apcotex Tech Mahindra Tech Dabur NIIT Technologies NIIT NCC Ashoka Buildcon Ashoka Zee Entertainment Zee GMR Infrastructure GVK Power GVK HT Media HT IRB Infrastructure Sun TV Sun TV Network KNR Construction Jagran Prakashan Jagran Tech Mahindra Tech Hathway Cable Adani Ports & SEZ Adani Ports HCL Technologies HCL Den Networks Infosys TCS Dish TV Persistent Systems Persistent KPIT Technologies KPIT Wipro Valuation Summary PhillipCapital India Coverage Universe: Valuation

46 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 47 5.6 5.4 9.7 6.1 4.6 8.9 5.5 5.5 4.9 7.2 0.0 2.9 7.3 20.8 30.1 15.1 20.7 14.9 11.4 15.2 11.2 11.4 16.1 10.6 12.1 FY16E 4.4 4.0 7.9 3.7 3.6 7.0 1.8 8.1 5.1 4.5 7.6 2.0 9.9 ROCE (%) 20.0 28.6 17.9 20.1 14.1 10.2 12.4 10.2 10.5 10.6 17.4 10.3 FY15E 8.1 4.6 8.1 8.9 6.6 1.1 8.1 4.0 7.8 23.7 10.4 26.9 15.2 10.9 14.0 20.5 20.1 17.6 13.5 16.1 15.1 14.8 21.5 12.7 16.5 FY16E 7.1 0.3 8.5 7.4 3.8 9.4 9.9 6.6 0.7 7.8 9.1 2.8 ROE (%) 23.7 26.6 17.8 19.9 20.9 11.0 14.8 13.3 12.7 14.2 23.5 12.6 13.7 FY15E 6.6 7.4 3.6 5.2 9.0 6.3 4.9 7.4 6.2 7.0 6.5 4.6 8.6 4.3 8.3 5.6 6.7 6.8 6.5 4.6 23.8 13.9 17.2 14.7 16.3 Note: For banks, EBITDA is pre-provision profit is pre-provision EBITDA banks, Note: For FY16E 8.4 9.5 5.2 6.1 7.6 6.6 8.9 6.4 8.2 5.1 5.0 9.7 4.1 8.5 7.5 7.6 6.2 28.3 17.7 11.2 20.7 10.6 17.1 14.6 26.1 EV/EBITDA (x) EV/EBITDA FY15E 0.7 1.1 4.6 0.9 7.2 1.5 2.2 0.8 0.9 5.7 2.6 0.6 2.6 0.7 1.0 0.7 1.8 1.4 2.2 0.4 0.7 1.6 2.7 1.7 1.3 FY16E P/B (x) 0.7 1.2 5.7 1.0 9.3 1.7 2.4 0.9 1.0 6.5 3.2 0.6 2.6 0.7 1.0 0.8 2.0 1.6 2.5 0.4 0.8 1.8 3.1 1.8 1.4 FY15E 8.1 8.8 6.4 6.3 9.8 9.2 8.7 9.3 9.3 7.8 23.4 26.9 10.0 20.6 10.1 27.7 12.9 14.4 94.7 13.2 14.7 10.8 13.4 13.0 19.5 FY16E P/E (x) 9.6 6.1 5.9 10.1 11.5 35.2 33.2 22.6 11.0 32.7 15.4 27.3 10.3 10.2 21.8 10.7 18.7 13.5 12.6 14.3 14.7 10.5 23.8 339.4 142.6 FY15E 4.3 6.9 -4.3 -2.6 24.0 31.0 30.8 61.2 71.9 18.0 19.4 89.3 50.7 11.3 64.4 23.0 27.2 45.7 16.6 12.6 33.6 22.0 -35.9 124.5 1349.8 FY16E 7.1 3.5 3.5 4.1 -0.4 -7.4 17.5 57.2 29.6 10.3 14.2 32.3 73.9 79.1 34.8 25.2 10.7 22.7 -55.0 -80.2 -79.7 -33.3 133.4 385.3 -7991.6 FY15E EPS Growth (%) EPS Growth 5.5 9.0 7.5 1.8 1.9 5.9 9.3 18.1 27.9 17.4 19.3 37.7 23.2 74.9 27.3 22.7 21.0 40.8 12.5 26.6 39.1 34.4 69.0 11.2 153.3 FY16E 4.2 7.6 7.2 1.2 1.3 9.8 0.4 8.2 9.1 EPS (Rs) 14.6 21.3 18.2 12.0 16.8 89.2 23.9 62.7 14.4 20.4 12.8 33.2 41.5 33.6 32.2 51.6 FY15E 2,214 1,278 5,597 1,809 3,951 3,054 6,897 4,921 9,376 2,534 4,821 5,220 3,868 FY16E 37,460 14,243 73,548 36,596 37,065 21,248 30,980 67,245 49,877 49,652 41,487 349,213 793 175 PAT (Rs mn) PAT 1,692 4,743 1,514 2,087 2,026 4,195 3,377 7,370 4,511 4,635 3,170 FY15E 30,210 10,872 76,870 16,299 21,561 21,824 29,691 60,412 77,831 42,599 31,042 283,839 4,487 3,799 8,509 3,825 6,324 8,977 6,498 FY16E 18,791 74,010 80,086 11,953 88,906 33,706 11,393 19,334 78,972 12,081 83,922 10,713 64,994 136,737 178,033 120,717 268,146 737,005 3,523 3,102 7,208 3,257 8,306 6,710 3,968 9,995 8,507 9,679 5,482 FY15E EBIDTA (Rs mn) EBIDTA 13,883 70,934 96,607 79,500 67,261 28,781 16,633 72,358 48,860 110,379 145,185 247,170 647,898 105,538 FY16E 82,179 27,529 22,534 60,247 27,923 21,476 92,069 20,827 38,626 44,181 12,100 54,368 146,625 549,473 322,139 583,837 838,259 356,191 140,063 123,265 639,835 124,824 1,104,517 1,507,831 1,922,269 FY15E 75,887 22,437 19,576 53,030 24,308 17,219 77,251 12,710 32,505 38,394 10,975 45,885 Net Sales (Rs mn) 986,350 140,019 516,417 262,821 520,796 722,586 444,035 161,395 105,209 585,034 104,850 1,454,734 1,793,789 Rs mn 59,570 26,349 23,294 56,999 91,298 45,625 55,409 64,701 67,961 Mkt Cap 305,204 124,867 736,262 368,528 155,466 236,489 133,805 305,006 301,769 616,062 137,963 463,084 537,898 324,674 151,240 3,044,899 Rs 48 74 17 148 750 174 399 379 249 978 146 965 393 169 208 278 356 184 247 139 424 462 121 540 218 CMP Metals Sector Metals Other Metals Other Metals Other Metals Metals Other Real Estate Real Metals Real Estate Real Metals Real Estate Real Oil & Gas Real Estate Real Oil & Gas Oil & Gas Retail Oil & Gas Oil & Gas Oil & Gas Oil & Gas FMCG Name of company Hindalco Inds NALCO NALCO Kajaria Ceramics Kajaria Hindustan Zinc HSIL Ltd HSIL Tata Steel Tata Havells Ltd JSW Steel JSW Jindal Steel & Power Jindal Steel Greenply Industries Greenply Phoenix Mills SAIL DLF Sesa Sterlite Oberoi Realty Oberoi ONGC Unitech Ltd Petronet LNG Petronet Cairn India Cairn Future Retail Future GAIL Indraprastha Gas Indraprastha Gujarat State State Gujarat Petronet Oil India Berger Paints Berger Valuation Summary PhillipCapital India Coverage Universe: Valuation

48 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 49 5.2 8.5 9.7 8.5 8.6 4.2 9.5 6.4 6.2 0.0 17.0 17.3 34.7 23.8 21.6 29.2 13.2 16.4 26.6 12.5 18.7 13.9 FY16E 2.2 7.4 4.8 6.2 6.8 3.8 7.7 6.5 5.1 0.0 ROCE (%) 14.2 14.7 36.1 28.2 23.5 26.5 12.1 12.7 26.3 10.7 16.2 13.6 FY15E 5.5 4.8 23.4 17.8 10.2 47.9 21.1 23.0 30.5 13.4 12.1 11.8 14.2 11.2 12.4 11.7 35.6 26.9 14.1 24.9 24.9 19.6 FY16E 7.7 5.5 8.4 9.8 8.8 3.4 9.6 9.0 -0.5 ROE (%) 22.2 17.2 26.3 26.1 26.2 30.0 12.3 28.2 30.1 12.4 24.2 25.0 20.2 FY15E 7.9 9.5 9.3 5.7 5.6 5.8 5.1 4.9 9.5 11.0 18.5 10.0 19.3 20.4 24.5 15.5 20.5 11.9 11.4 15.3 14.8 12.2 Note: For banks, EBITDA is pre-provision profit is pre-provision EBITDA banks, Note: For FY16E 9.7 7.8 6.8 6.9 7.3 5.7 14.3 25.2 12.6 18.7 19.0 23.2 30.5 19.1 38.7 12.8 14.2 13.7 12.7 19.7 18.3 14.7 EV/EBITDA (x) EV/EBITDA FY15E 4.1 7.7 2.9 1.8 6.1 7.2 6.5 9.2 3.1 3.6 2.0 1.7 1.8 0.5 3.6 1.5 4.6 2.3 5.5 5.0 3.7 10.4 FY16E P/B (x) 8.2 3.4 2.0 7.9 8.5 8.1 3.4 4.1 2.0 1.9 2.1 0.5 3.8 1.7 6.2 2.6 7.0 6.1 4.5 5.3 11.7 13.1 FY15E 16.1 18.0 24.7 34.0 28.2 33.7 23.2 29.9 16.6 11.9 16.0 10.6 29.5 13.0 29.3 17.1 16.5 22.3 20.1 18.8 17.6 139.2 FY16E P/E (x) 19.8 26.6 30.0 32.4 30.9 43.4 28.0 74.2 23.5 19.4 23.9 15.6 40.0 19.4 46.5 20.5 20.7 29.0 24.4 22.4 23.8 -1568.8 FY15E 9.5 -4.5 22.6 48.0 21.4 28.6 20.5 41.5 62.4 49.5 47.7 35.5 48.9 58.8 19.7 25.1 30.0 21.1 19.0 35.2 148.5 -1226.9 FY16E 8.8 -3.4 -6.3 28.8 60.8 19.8 16.2 42.4 16.5 27.8 17.4 31.0 20.2 17.0 -66.2 -24.3 -14.6 -21.1 -15.8 173.9 124.0 607.7 FY15E EPS Growth (%) EPS Growth 3.4 4.0 5.0 6.9 39.1 29.5 64.0 40.1 33.9 12.4 58.8 49.7 22.8 12.7 11.8 13.9 67.2 25.3 65.7 80.6 42.2 163.7 FY16E 9.6 2.8 3.1 4.6 9.4 7.9 8.7 EPS (Rs) -0.3 31.9 19.9 52.8 42.0 31.0 48.8 20.0 15.2 56.1 20.3 50.5 66.6 31.2 137.6 FY15E 286 702 599 4,897 1,808 2,575 1,654 3,957 5,068 FY16E 28,717 70,178 10,977 11,472 91,053 14,143 24,039 42,435 19,561 13,449 10,684 27,851 11,454 665 496 369 (25) PAT (Rs mn) PAT 3,995 1,222 2,697 8,537 9,518 9,575 2,491 4,053 8,824 8,469 FY15E 23,656 64,104 60,907 17,738 28,507 16,340 10,342 23,405 2,508 8,670 6,065 4,157 2,305 1,142 1,563 8,424 FY16E 71,767 91,908 14,703 15,253 82,810 56,858 36,349 31,569 20,610 14,458 43,869 19,268 396,398 132,541 843 1,852 6,768 4,941 4,319 1,248 1,112 6,629 FY15E EBIDTA (Rs mn) EBIDTA 37,455 82,505 11,879 12,523 77,495 49,148 32,762 26,794 16,251 11,789 37,141 15,241 331,922 105,389 FY16E 48,970 36,958 61,572 26,993 66,447 28,583 12,387 16,110 81,288 34,752 95,368 37,359 84,488 153,439 202,537 148,517 234,448 378,548 230,387 139,069 182,030 1,095,852 FY15E 42,690 32,054 54,292 28,413 55,511 23,442 10,379 13,174 73,300 29,834 82,178 31,607 70,874 Net Sales (Rs mn) 130,808 182,853 123,741 966,595 222,437 314,451 213,551 122,910 156,713 7,143 Rs mn 39,860 79,645 32,523 87,428 49,364 11,668 83,840 Mkt Cap 711,068 370,251 266,520 180,202 709,900 554,032 115,867 335,522 299,598 215,202 524,062 201,334 1,982,254 1,452,655 Rs 66 59 72 478 631 530 957 417 363 375 154 407 419 742 CMP 1583 1360 1367 1485 1150 1463 1621 3077 Retail Sector Pharma Retail Pharma Retail Pharma Retail Logistics Retail Sugar Telecom Steel Telecom Telecom Telecom Telecom Pharma Pharma Pharma Pharma Pharma Pharma Name of company Shoppers Stop Ipca Laboratories Raymond Ltd Raymond Lupin Bata India Sun Pharma Titan Company Titan Concor Trent Praj Inds. Praj Bharti Airtel Pennar Inds. Pennar Reliance Comm Reliance Bharti Infratel Idea Cellular Idea Tata Communication Tata Aurobindo Pharma Aurobindo Biocon Cadila Healthcare Cadila Divi's Laboratories Dr Reddy's Labs. Dr Reddy's Glenmark Pharma Valuation Summary PhillipCapital India Coverage Universe: Valuation

48 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 49 50 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 51 Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its affiliates may hold PhillipCapital (India) Pvt. Ltd. has three independent equity research either long or short positions in such securities. PhillipCapital (India) groups: Institutional Equities, Institutional Equity Derivatives and Pvt. Ltd does not hold more than 1% of the shares of the company(ies) Private Client Group. This report has been prepared by Institutional covered in this report. Equities Group. 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50 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW 51 52 GROUND VIEW 1 - 28 Feb 2015 1 - 28 Feb 2015 GROUND VIEW PB