Musandam Power Company SAOG (Under Transformation)

IPO Note- ‘Yield Power’

United Securities LLC 29 October, 2019 Musandam Power Company – IPO Note

SUBSCRIBE TO MUSANDAM POWER IPO, TP RO 0.309 is +19% from lower price band Valuation at LP band of RO 0.260 We recommend investors to “SUBSCRIBE” for the IPO of Musandam Power Company (MPC) and expect Phase I Market Cap (RO mn) 18.3 investors to place their bids according to their respective risk appetite. Our 12-Month Fair Value Target Price of RO Enterprise Value (RO mn) 88.9 0.309/Share is based on a blended DDM/Relative valuation, and offers upside potential of 19% from the lower price band. P/E (x) 9.0 At the fair value, the stock offers dividend yield of 8.9% dividend yield, which is slightly below that of the sector average, P/B (x) 2.0 but the premium reflects the superior earnings quality of MPC despite the current subdued market scenario. We expect EV/EBITDA (x) 10.3 MPC IPO to warrant a price range of RO 0.279-0.309, which is in line with the current valuations of IPPs at 2019 Dividend Yield between of 7.0% to 12.6%. Our guidance to investors is to focus on the high dividend yield in the near term, and Dividend Yield (%) 11% target for a continuous dividend income throughout the term of the PPA, even though it is likely to be volatile beyond Offer & Subscription info 2026E. The offer price range of RO 0.260 to RO 0.325 sets the company’s dividend yield range between 8.5% to 10.6%, Paid up capital (RO mn) 7.039 which is attractive at the lower end of the price band. However, we feel the pricing at the upper band as expensive at an Shares on offer (mn) 28.156 implied EV/MW of RO 741 for a RE plant that has run for more than 2 years now. Phase I Book Building - 14.08 mn shares Application size: Minimum 200,100 and in Key investment arguments: multiples of 100 upto maximum 2,815,600 1) Stable revenue and cash flow oriented business model shares 2) Strategic asset in Musandam Governorate increases the chances of PPA extension Phase II Fixed price offer 3) High short term dividend yield, which is expected to continue until 2023 Application size: Minimum 1,000 shares 4) Extendable term loan facility with no cash sweep and balloon loan repayment ensures continuity in dividend and in multiples of 100 upto maximum distributions throughout the PPA 200,000 shares 5) Deleveraging efficiency driving debt-equity levels lower Subscription Calendar Musandam Power Company, with its contracted power capacity of 120.7 MW is the only gas fired IPO in Musandam Governorate. Phase I Offer Open 3-Nov It accounts for ca.59% of total capacity of all power generators in the governorate. It's contracted revenue model with OPWP till January 2032 leads to long term revenue and earnings visibility offering 12 years of PPA life. The EBITDA of MPC is expected to Phase I Offer Close 7-Nov grow at a sustainable CAGR of 0.3% during 2019-31E to RO 8.5 million assuming an efficient technical availability of the plant. Offer Price Announcement 12-Nov The company offers stable dividends through 2023, and the same is likely to continue over the remaining PPA term after Phase II Offer Open TBA accommodating for tax payments. It has reasonable payout levels of 70% through 2023E and has the capability to maintain a Phase II Offer Close TBA moderate payout ratio until the expiry of the PPA. Even though the EPS forecast provides enough cushion for higher payouts, we Major shareholders estimate steady deleveraging coupled with higher finance costs to restrict FCFE growth during the second half of the PPA period. Pre-issue We expect payouts to recover only after full repayment of term loans facility by 2036. A strategic asset for the region: In the absence of an alternative gas based generator and lack of commercially viable OOFDC (69.9%), LGI (30%), OETCL (1%) alternatives, MPC may be considered as an asset of strategic importance for the region. Given the strategic importance of MPC to Musandam and relatively smaller size of the market, single buyer approach by OPWP may be a suitable power procurement Post issue option to be applied in the Musandam Governorate. Thus, we attribute a relatively higher probability of OPWP extending the PPA with MPC after its expiry. Additionally, the capacity of existing plants and firm new builds in Musandam may not be sufficient to OOFDC (42%), LGI (18%), Public (40%) cover demand in the Governorate, resulting in potential operating opportunity for MPC beyond the PPA Risk to rating: The company has witnessed an increasing level of working capital requirement during 1H19, which is unusual in the contracted business model. The management is confident about recovering the amounts from its customer during the course United Securities LLC of the year. Prolonged delays in receivable recovery could lead to working capital squeeze, potentially impacting2 dividend 29 October, 2019 distributions in the future.

Musandam Power Company – IPO Note

Bear-Base-Bull Scenarios

Valuation Matrices BBB -Bull-Base-Bear case approach to valuation Valuation @ RO 0.260/Share 2018 2019 2020 2021 2022 2023 We have modeled our key assumptions based on the PPA and the revenue P/E (x) 4.9 9.0 7.2 6.8 6.9 8.0 forecasts provided by the company in its IPO Prospectus. Our assumptions P/B (x) 1.6 2.0 1.9 1.8 1.7 1.6 beyond the PPA term shows a marked difference from what is provided in the Dividend yield (%) 0.0% 10.6% 10.6% 10.6% 10.6% 10.6% Core prospectus. The capital structure is expected to be fully deleveraged only by FCFE yield (%) 11.0% -10.8% 8.4% 9.7% 8.6% 8.4% Forecasting 2036. We assume the company to refinance the balloon portion of debt FCF Yield (%) 11% 43% 45% 46% 44% 44% Assumptions EV/EBITDA (x) 9.8 10.3 9.9 9.4 9.1 8.7 ahead of its repayment due date. Our dividend assumptions are based on EV/MW (RO) 676 702 675 645 619 596 cash availability with the company. We assume a finite plant life of 40 years, PV of dividend (RO) 0.027 0.026 0.023 0.021 0.019 hence no terminal growth rate is assumed for the cash flows. Valuation @ RO 0.325/Share Our Bear case derive a valuation of RO 0.278 implying a 6.9% upside from P/E (x) 6.1 11.2 9.0 8.5 8.7 10.0 the lower price band. The Bear case assumes OPWP offering PPA extension P/B (x) 2.0 2.5 2.4 2.2 2.1 2.0 Dividend yield (%) 0.0% 8.5% 8.5% 8.5% 8.5% 8.5% at 20% discount to MPC's 2031 EBITDA, and we further assumed tha the FCFE yield (%) 8.8% -8.7% 6.7% 7.7% 6.9% 6.7% Bear Case: DDM EBITDA will grow at a CAGR of 0.3% through the remaining life of the plant. FCF Yield (%) 9% 34% 36% 37% 35% 36% Value per share We have based our 2032 EBITDA assumption on the basis of the discounts EV/EBITDA (x) 10.4 10.9 10.4 10.0 9.7 9.3 @ 0.278 which are experienced by Al Kamil Power for its PPA extension. We also EV/MW (RO) 714 741 713 684 657 634 assumed MPC fully deleveraging by 2036, and assumed maintenance capex PV of dividend (RO) 0.027 0.026 0.023 0.021 0.019 spending post PPA period. We assumed a definte plant life of 40 years and Relative valuation table expect the plant to be decommissioned by 2056E. D/E EV/MW EV/EBITD P/E P/B Div Yield Company Our Base Case valuation of RO 0.325 implies 25% upside from the lower end (x) (RO) A (x) (x) (x) (%) Al Kamil power 0.0 129 7.1 8.5 1.0 12.7% of the offer price, and rests at the higher price band. The Base case assumes Sembcorp Salalah (IWPP) 1.7 667 7.1 7.8 1.1 8.9% Base Case: DDM EBITDA CAGR of 0.4% beyond the PPA term. We have modeled such that Dhofar Generating 3.6 269 13.1 44.8 1.0 9.5% Value per share the plant refinances its balloon portion for 5 years beyond the original PPA Al Batinah Power 1.6 251 6.6 4.8 0.5 10.0% @ 0.325 term and assumed maintenance capex spending as the plant become old Al Suwadi Power 1.6 266 6.5 4.9 0.5 10.1% and on marginal reduction of its efficiency, which extends throughout the post Phoenix Power 1.9 217 8.6 8.2 0.7 7.0% PPA period. Our Bull Case valuation of RO 0.372 implies 14.4% upside from the the Average 1.8 274 7.9 7.5 0.7 9.0% upper price band and 43% from the lower price band. We have based our Median 1.7 259 7.1 8.0 0.8 9.7% Bull Case: DDM growth rate assumption on the IPA power modelling for MPC during the Post- Value per share PPA period. The Bull case assumes EBITDA CAGR of 2% beyond the PPA MPC @ RO 0.260/Share 7.5 702 10.4 9.0 2.0 10.6% @ 0.372 MPC @ RO 0.325/Share 7.5 741 10.9 11.2 2.5 8.5% term, Additionally, we have assumed regular maintenance capex spending from 2031E restricting high FCFE generation from the plant.

United Securities LLC 3 29 October, 2019 Musandam Power Company – IPO Note

MPC Financial Statements and Ratios Income statement 2017 2018 2019E 2020E 2021E 2022E 2023E RATIOS 2017 2018 2019E 2020E 2021E 2022E 2023E Revenue 9,292 16,496 23,227 27,136 28,725 29,235 29,870 Market cap @ RO 0.260/Share 18,301 18,301 18,301 18,301 18,301 18,301 18,301 Cost of revenue 5,807 9,609 16,407 20,297 21,862 22,390 22,968 Market cap @ RO 0.325/Share 22,877 22,877 22,877 22,877 22,877 22,877 22,877 EV @ RO 0.260/Share 76,317 81,147 84,286 80,946 77,446 74,259 71,478 Gross profit 3,485 6,887 6,820 6,839 6,863 6,845 6,902 EV @ RO 0.325/Share 80,893 85,723 88,862 85,522 82,022 78,835 76,054 SG&A expenses 323 599 688 706 723 743 760 EPS (RO) 0.010 0.053 0.029 0.036 0.038 0.037 0.033 EBITDA 4,823 8,275 8,188 8,195 8,196 8,159 8,199 BVPS (RO) 0.107 0.160 0.128 0.136 0.147 0.157 0.162 Operating profit 3,162 6,288 6,132 6,133 6,140 6,102 6,142 DPS (RO) 0.000 0.000 0.028 0.028 0.028 0.028 0.028 FCFE/Share (RO) 0.061 0.029 (0.028) 0.022 0.025 0.022 0.022 Other income 0 1,750 43 30 15 0 0 Return ratios Finance charges 1,877 3,303 3,448 3,173 2,997 2,998 3,442 ROE(%) 9.2% 33.0% 22.7% 26.5% 26.0% 23.9% 20.2% Profit before tax 1,285 4,735 2,727 2,990 3,158 3,104 2,700 ROA (%) 0.7% 4.2% 2.5% 3.2% 3.5% 3.5% 3.2% Taxation 588 1,014 685 450 475 467 406 ROCE (%) 0.9% 4.4% 2.7% 3.5% 3.8% 3.9% 3.5% Margins Profit after tax 697 3,721 2,042 2,540 2,683 2,637 2,294 GPM (%) 38% 42% 29% 25% 24% 23% 23% Balance Sheet 2017 2018 2019E 2020E 2021E 2022E 2023E EBITDA margin (%) 52% 50% 35% 30% 29% 28% 27% PPE 83,507 75,706 73,866 71,870 69,879 67,889 65,898 EBIT margin (%) 34% 38% 26% 23% 21% 21% 21% EBT margin (%) 14% 29% 12% 11% 11% 11% 9% Total non current assets 83,507 76,172 74,360 72,124 69,879 67,889 65,898 NPM (%) 8% 23% 9% 9% 9% 9% 8% Inventories 1,580 3,386 3,386 3,386 3,386 3,386 3,386 Leverage Trade & other receivables 4,299 2,548 2,794 2,958 3,023 3,044 3,069 Net debt/EBITDA 13.4 8.0 8.1 7.6 7.2 6.9 6.5 Cash & equivalents 5,046 7,056 1,346 1,143 958 580 168 Net debt/EBIT 20.4 10.5 10.8 10.2 9.6 9.2 8.7 EBITDA/Finance cost 2.6 2.5 2.4 2.6 2.7 2.7 2.4 Total current assets 10,925 12,990 7,526 7,487 7,367 7,010 6,623 EBITDA-capex/Finance cost 14.2 2.3 2.4 2.6 2.7 2.7 2.4 Total assets 94,432 89,162 81,886 79,611 77,246 74,899 72,521 Debt/Assets 0.7 0.8 0.8 0.8 0.8 0.8 0.7 Non current portion 60,513 66,495 62,989 59,319 55,762 52,575 49,180 Debt/Equity 9.2 6.5 7.5 6.7 5.8 5.1 4.7 Debt/Capital 9.9 10.4 9.6 9.1 8.5 8.0 7.6 Deferred tax liability 588 1,602 2,287 2,737 3,212 3,679 4,085 Liquidity Asset retirement obligation 3,979 152 168 185 203 222 243 Cash ratio (x) 0.2 0.7 0.2 0.1 0.1 0.1 0.0 Total non current liabilities 65,086 68,255 65,444 62,241 59,177 56,476 53,508 Current ratio (x) 0.5 1.3 1.0 1.0 1.0 0.9 0.9 Quick ratio (x) 0.4 1.0 0.6 0.5 0.5 0.5 0.4 Shareholder loans 6,539 3,067 0 0 0 0 0 CFO/Current liabilities (x) 0.3 0.1 1.1 1.1 1.1 1.1 1.1 Trade & other payables 12,333 3,090 3,064 3,260 3,368 3,427 3,464 Dividend payout ratio (%) 0% 0% 212% 77% 72% 74% 85% Current portion of loans 2,549 3,407 3,569 3,731 3,618 3,248 3,457 Valuation @ RO 0.260/Share Working capital loan 0 0 773 738 723 715 708 P/E (x) 26.3 4.9 9.0 7.2 6.8 6.9 8.0 P/B (x) 2.4 1.6 2.0 1.9 1.8 1.7 1.6 Total current liabilities 21,789 9,629 7,446 7,779 7,739 7,400 7,639 Dividend yield (%) 0.0% 0.0% 10.6% 10.6% 10.6% 10.6% 10.6% Share capital 7,039 7,039 7,039 7,039 7,039 7,039 7,039 FCFE yield (%) 23.6% 11.0% -10.8% 8.4% 9.7% 8.6% 8.4% Legal reserve 70 442 647 902 1,172 1,437 1,667 FCF Yield (%) -85% 11% 43% 45% 46% 44% 44% EV/EBITDA (x) 15.8 9.8 10.3 9.9 9.4 9.1 8.7 Retained earnings 448 3,797 1,310 1,651 2,120 2,548 2,668 EV/MW (RO) 636 676 702 675 645 619 596 Total equity 7,557 11,278 8,996 9,592 10,331 11,024 11,374 PV of dividend (RO) 0.026 0.025 0.022 0.020 0.018 Total liabilities 86,875 77,884 72,890 70,020 66,916 63,876 61,147 Valuation @ RO 0.325/Share Total liabilities and equity 94,432 89,162 81,886 79,612 77,247 74,900 72,521 P/E (x) 32.8 6.1 11.2 9.0 8.5 8.7 10.0 P/B (x) 3.0 2.0 2.5 2.4 2.2 2.1 2.0 Cash Flow snapshot 2017 2018 2019E 2020E 2021E 2022E 2023E Dividend yield (%) 0.0% 0.0% 8.5% 8.5% 8.5% 8.5% 8.5% Net cash from operating activities 6,223 1,365 7,843 8,195 8,424 8,110 8,144 FCFE yield (%) 18.9% 8.8% -8.7% 6.7% 7.7% 6.9% 6.7% Cash used in investment activities (21,833) 647 0 0 0 0 0 FCF Yield (%) -68% 9% 34% 36% 37% 35% 36% EV/EBITDA (x) 16.8 10.4 10.9 10.4 10.0 9.7 9.3 Net cash from financing activities 16,468 3,466 (13,373) (8,641) (8,611) (8,491) (8,564) EV/MW (RO) 674 714 741 713 684 657 634 Change in cash 858 5,478 (5,530) (446) (187) (381) (420) PV of dividend (RO) 0.026 0.025 0.022 0.020 0.018

United Securities LLC 4 29 October, 2019 Musandam Power Company – IPO Note

The only IPP in Musandam Power System; surplus demand met by diesel generators

The Musandam Governorate is located in the northern-most region of the Sultanate of Oman, and extends into the Strait of Hormuz. The Musandam Governorate is an exclave of Oman, separated from the rest of the country by the UAE. It has an estimated population of 45,155, which is expected to grow steadily over the coming years.

The power demand growth in Musandam is driven by tourism, economic, and commercial activities. According to OPWP, peak energy demand in Musandam is expected to grow from 83 MW in 2018 to 128 MW in 2025.

In addition to the IPP owned by Musandam Power Company, Musandam has diesel fired generators with combined installed capacity of about 83 MW. Musandam IPP commenced operation in 2017, and is operated by a consortium led by Oman Oil Company under a PPA with OPWP. The IPP is providing contracted power capacity of 123 MW using reciprocating engines fueled primarily by natural gas.

The MPC provides sufficient capacity to secure various demand scenarios up to 2023. For the year 2025, the RAECO diesel generator will continue to be available to provide additional capacity to cover any remaining capacity requirements during peak demand periods. OPWP plans no further IPPs in Musandam at least until 2025.

United Securities LLC 5 29 October, 2019 Musandam Power Company – IPO Note

A strategic asset for Musandam; MPC has relatively high probability of a PPA extension Post PPA options: (i) PPA extension or (ii) merchant market: The Management of MPC expects that the plant will operate well beyond the term of the PPA, and the plant will be well-placed to meet the forecast long-term demand for power in Musandam Governorate. After the expiry of the term of the PPA, the PPA will either be extended or, if the power market in Oman is liberalized during this period as planned for the Main Interconnected System, the power produced by MPC may be sold into a merchant market.

MPC is the only gas based IPP in Musandam: The Plant with contracted capacity of c. 120.7 MW is the only gas based IPP servicing the electricity demand of the Musandam Power System. Unlike other IPPs in Oman, the Plant was awarded on closed procurement basis to Oman Oil Company SAOC and LGI. In addition to the IPP owned by MPC, Musandam has diesel fired generators with combined installed capacity of about 83 MW. MPC provides sufficient capacity to secure various demand scenarios up to 2023. For the year 2025, the RAECO diesel generator will continue to be available to provide additional capacity to cover any remaining capacity requirements during peak demand periods. OPWP plans no further IPPs in Musandam at least until 2025.

A strategic asset for the region: In the absence of an alternative gas based generator and lack of commercially viable alternatives, MPC may be considered as an asset of strategic importance for the region. Given the strategic importance of MPC to Musandam and relatively smaller size of the market, single buyer approach by OPWP may be a suitable power procurement option to be applied in the Musandam Governorate. Thus, we attribute a relatively higher probability of OPWP extending the PPA with MPC after its expiry. Additionally, the capacity of existing plants and firm new builds in Musandam may not be sufficient to cover demand in the Governorate, resulting in potential operating opportunity for MPC beyond the PPA.

United Securities LLC 6 29 October, 2019 Musandam Power Company – IPO Note

Contracted revenue model provides long term revenue visibility Stable and predictable cash flows resilient to potential shocks in gas prices and power demand until 2032: DPC has signed a 15 year PPA with OPWP on similar terms as the other IPP’s in Oman. Under the PPA, DPC receives capacity charges from OPWP for the contracted power capacity of the plant, which are periodically tested. Such capacity charge comprised approximately 85% of the total non-fuel revenue of the Company in FY18. Subject to certain limited exceptions, OPWP is obliged to pay capacity charges to the company for 100% of the available power capacity of the plant, irrespective of whether or not power is actually dispatched. Capacity charges cover MPC’s debt service and other fixed costs, including fixed operating and maintenance costs, insurance costs, taxes and capital returns. The gas price and volume is a virtual pass-through cost, subject to achieving the guaranteed heat rate. For the power that is made available, OPWP also pays the company a variable output charge to cover variable operating costs.

Fuel price risk mitigated by NGSA: Musandam Power is not exposed to a fuel price risk as the fuel cost is passed through to OPWP under the PPA. Further, the technology employed by the plant allows the plant to be operated on secondary fuel (Fuel Oil) in absence of natural gas supply which mitigates the fuel supply risk. The NGSA provides protection against cost escalation due to the use of fuel oil in the event of disruption of natural gas supply by assuring payment to MPC for the incremental fuel costs without any maximum limit and operating cost up to RO 7.5 million per annum.

United Securities LLC 7 29 October, 2019 Musandam Power Company – IPO Note

Stable EBITDA throughout the PPA; steady deleveraging to drive profit growth EBITDA margins stable above 70% throughout the PPA: The contractual nature of business and stable cash flows that ensure operating expense coverage would result in stable EBITDA for MPC. The company is expected to achieve stable EBITDA margins of ca. 74% on its capacity charge revenue through 2023E. Despite a gradual tapering in margins as a result of relatively higher increase in O&M and admin expenses, the EBITDA margins are expected to remain above 70% during the term of the PPA.

Steady deleveraging to result in 5% PBT CAGR: As a result of inflation indexation, we estimate MPC’s EBITDA to grow at CAGR of 0.35% during the PPA, and reach RO 8.5 million in 2031 from RO 8.1 million in 2018. As the company continues to deleverage its balance sheet on a continuous and steady manner, we estimate MPC’s Debt:Equity ratio to reach 55:45 by 2030 from current levels of 88:12, while net debt to EBITDA is expected to reach 3.1x from 8x currently. This will drive the company’s pre-tax profit CAGR to 5%.

Term loan facility extendable up to 5 years beyond the PPA; balloon loan repayment option at PPA expiry: MPC’s existing 15 year term loan facility is extendable by a period of up to 5 years. The loan repayment includes a balloon component of 27.8% of the principal just before PPA expiry. Our estimates assume that repayment of the balloon portion of the term facilities would be extended for an additional 5 years. As a result of these covenants, and due to absence of cash sweep clause, our estimates suggest that the company would be able to distribute dividends throughout the term of the PPA albeit lower dividends from 2027.

No cash sweep in financing covenants: MPC’s financing arrangements does not impose any mandatory cash sweep mechanism in respect of the repayment of its loan. The absence of cash sweep results in MPC’s ability to pay dividends will not be constrained in the same manner as if a cash sweep was imposed.

United Securities LLC 8 29 October, 2019 Musandam Power Company – IPO Note

Transition to floating interest rates may affect stability of dividends from 2024 Combination of fixed and floating interest rates; no interest rate hedging: MPC’s term loans carry annual fixed interest rate of 4.6% until September 2022. Post this date, the interest cost would be charged on the basis of a floating rate equal to the lower of (i) 6% per annum and (ii) Bank Muscat’s 5 year fixed deposit rate plus margin of 200 bps per annum. Additionally, the interest rate reset conditions would be checked at each of the subsequent debt repayment date. In the event that a Market Disruption Interest Rate trigger occur continuously for more than 2 repayment dates, the interest rate reset is subject to further revisions. The company has not adopted any hedging mechanism against potential adverse changes in future interest rate.

Higher cash drawdown to support stable dividends until 2023: Our models assume 6% interest rate starting from 2023, and this results in a marginal dip in cash generation by the company and its net income for the years 2022 and 2023. Despite the application of higher interest rate on term loan facility in 2022, the company projects that it could achieve stable dividend distribution in 2023 by drawing down from available cash balance. However, as a result of lower cash generation in 2023, and higher draw down on cash for dividend payment, the financial projections reveal a lower cash balance in 2023.

Floating rate loan and corporate tax payments to result in dividends volatility from 2024: The migration to a floating rate assumption suggest that such interest rate volatility will have an impact on the distributable cash availability and affect the stability of dividend payments from 2024 onwards. Additionally, the company is expected to start payment of corporate tax from 2027 onwards. As a result of stable EBITDA and debt service, we estimate decline in availability of distributable cash. As a result of volatility in interest rate and tax payment, we estimate significant decline in dividends starting from 2027.

United Securities LLC 9 29 October, 2019 Musandam Power Company – IPO Note

No pending disputes with EPC contractor or OPWP MPC achieved COD on 17 July 2017 against the originally scheduled date of 18 December 2016 as per the PPA. During 2017, OPWP claimed liquidated damages of RO 4.525 million from MPC and deducted them from invoices submitted by the Company. The company, in turn has sought contractual relief from OPWP for liquidated damages being a Buyer Risk Event under the PPA and imposed liquidated damages and claimed revenue losses from the EPC contractor in relation to the above delays.

In respect of BRE, OPWP has accepted 37 days as being a Buyer Risk Event due to non-readiness of the RAECO transmission grid and allowed the relief for payment of LDs during 2017 and returned RO 0.925 million of LDs to the Company.

In relation to the LDs imposed on the EPC contractor, MPC withheld the milestone payment of RO 10.253 million being the maximum cap of delay LDs under the EPC Contract the Company is entitled to.

During 2018, the EPC contractor and the Company entered into the settlement of disputes where the EPC contractor has accepted liquidated damages of RO 3.6 million and also agreed to settle an additional amount of RO 1.5 million in respect of the Company’s claims relating to losses and other expenditure incurred. As per the settlement deed an amount of RO 4.2 million has been settled by the EPC contractor in 2018 and RO 0.807 million will be settled by the EPC contract over the period of three years by way of adjustment against payments towards LTSA.

United Securities LLC 10 29 October, 2019 Musandam Power Company – IPO Note

Modelling for Post-PPA scenarios: We expect OPWP to adopt cost plus approach We modelled MPC’s Post-PPA business with multiple scenarios for estimating the post-PPA cash flows. Taking cues from the IPA’s Post-PPA modelling of MPC, as well as the empirical evidence of PPA extensions that has happened during the recent years in Oman, our models assumed varying EBITDA assumptions. Our base case analysis assumed EBITDA levels that are similar to the PPA term.

We note that Al Kamil Power and ACWA Power Barka had renewed their P(W)PAs in 2017 and 2018 respectively. Contrary to the popular assumptions that OPWP would pass on the entire cost savings from avoided cost to the power generator, we have observed a decline in EBITDA of these companies under the revised PPA as opposed to the original PPA.

We argue that the OPWP’s procurement mechanism is shifting towards Cost- Plus strategy, rather than passing on entire avoided cost savings to the existing IPP. This was evident from the PPA extension given to Al Kamil Power in 2017 where the EBITDA during the extended PPA was reduced by 24% as compared to the EBITDA during original PPA term. A similar strategy was adopted for P(W)PA extension of ACWA Power as well, where the company had to accept a reduced power capacity charge during the PPA extension.

Our Bear-Base-Bull approach to Post-PPA cash flow models carry different levels of EBITDA assumptions. The bear case assumes EBITDA decline of 5% during the first year of extension, which is again expected to remain stable throughout the life of the plant. Our base case assumed the EBITDA projections as assumed by the IPA in the IPO prospectus, while the Base Case scenario assumed EBITDA levels that are similar to the existing PPA period.

United Securities LLC 11 29 October, 2019 Musandam Power Company – IPO Note

DDM valuation during the PPA term

During the forecasted period until 2023, the company indicates to pay more than RO 42.9 million towards debt servicing and dividends. However, the projections assume MPC generating just under RO 41 million during the same period. The additional requirement for cash is met via draw down from the existing cash balance and a proposed draw down of RO 773K from the working capital facility. This will lead to MPC's cash balance at the end of 2023 to significantly lower levels of RO 168K, casting doubts on the company's ability to pay stable dividends on a continued basis beyond the forecast period. Our forecasts beyond 2023 assume working capital repayment in 2024, resulting in lower dividend payment for that year. Additionally, starting from 2027, MPC is expected to start payment of tax, further reducing its ability to distribute higher dividends. Our forecasts lowered dividend distributions for 2027 until end of PPA to accommodate for the company's tax payments.

We have arrived at RO 0.187/Share as the DDM fair value of MPC during its PPA period irrespective of the scenarios envisaged for the Post-PPA analysis. Our PPA valuation employed cost of equity of 10.96% derived from assumed risk free rate of 5.5%, equity risk premium of 7%, and equity beta of 0.78. The adjusted beta was derived from weighted average beta of power companies with respect to MSM Services Sector Index during the last 5 years. In order to arrive at the Post-PPA DDM fair value, we increased the risk premium by 200 bps to capture the anticipated earnings and price volatility.

We note that the DDM fair value arrived by applying our EBITDA assumptions are 2% higher than that was arrived in MPC’s prospectus, and attribute the same to 4 bps decline in our cost of equity, and also to timing differences in repayment of the working capital facility.

United Securities LLC 12 29 October, 2019 Musandam Power Company – IPO Note

DDM fair value of RO 0.187/Share during the PPA term

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Total Dividends (RO ,000) 1945 1944 1944 1944 1944 859 1944 1944 1536 1127 1124 1122 1122 Cost of equity (%) 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% PV of dividend 1,910 1,814 1,634 1,473 1,328 528 1,078 972 876 458 412 370 334 PV of DPS 0.027 0.026 0.023 0.021 0.019 0.008 0.015 0.014 0.012 0.007 0.006 0.005 0.005 Sum of PV (RO ,000) 13,187 No of shares (,000) 70,390 DDM value per share during the PPA (RO/Share) 0.187

United Securities LLC 13 29 October, 2019 Musandam Power Company – IPO Note

Bear-Base-Bull Case scenarios indicate valuation range of RO 0.269 to RO 0.372

We analyzed multiple scenarios for estimating the post-PPA cash flows with varying EBITDA assumptions. We valued MPC using 2-stage DDM by applying differential discount rates for PPA and Post PPA dividend projections. The dividends were projected for the entire estimated plant life of 40 years. Our base case analysis assumed that Post-PPA EBITDA is likely to grow at a similar rate as it grew during the term of the PPA. We valued MPC using 2-stage DDM by applying differential discount rates for PPA and Post PPA dividend projections. We used discount rate of 10.96% during the PPA period, which was increased to 12.9% in order to capture the uncertainties in post PPA cash flows. We note that Al Kamil Power and ACWA Power Barka had renewed their P(W)PAs in 2017. Contrary to the popular assumptions that OPWP would pass on the entire cost savings from avoided cost to the power generator, we have observed a decline in EBITDA of these companies under the revised PPA as opposed to the original PPA.

Our Bear case scenario assumes OPWP to adopt cost plus approach to PPA extension which would force MPC to enter into a new PPA with OPWP post 2031 with a reduction in their existing EBITDA levels. We assume a reduction of 25% in 2032 EBITDA from 2031 EBITDA. The EBITDA of the company is estimated to grow at 0.25% per annum during 2032-56. We have arrived at a DDM fair value of RO 0.269/Share for MPC. Our base case assumes MPC reaching an agreement with OPWP for continuing on the similar terms of the existing PPA. Although we feel such a scenario is an optimistic one, considering the strategic nature of the asset, we keep it as the Base Case Scenario for our valuations. Such an assumption resulted in DDM fair value of RO 0.325 for the shares of MPC. We derived our bull case scenario from the avoided cost savings to the OPWP as suggested by the IPA in MPC’s prospectus. The EBITDA is assumed to witness a boost of 20% in 2032, and further assumed to grow at average annual rate of 2.0%. The Bull Case scenario resulted in the company being valued at RO 0.372/Share.

All the three scenarios assume cost of equity of 10.96% derived from assumed risk free rate of 5.5%, equity risk premium of 7%, and equity beta of 0.78 during the PPA. The adjusted beta was derived from weighted average beta of power companies with respect to MSM Services Sector Index during the last 5 years. For the valuation of Post PPA DDM, we increased the risk premium by 200 bps to capture the anticipated earnings and price volatility. Scenario PPA Post PPA Fair value of MPC

Bear case 0.187 0.090 0.278 Base case 0.187 0.138 0.325 Bull case 0.187 0.185 0.372

United Securities LLC 14 29 October, 2019 Musandam Power Company – IPO Note

MPC relative valuation parameters

Power Enterprise Dividends Market cap EBITDA Net income Total equity Total debt Cash Capacity value (FY19) (MW) Al Kamil power 30,415 4,170 3,587 30,463 0 909 29,506 3,850 228 Sembcorp Salalah (IWPP) 117,412 41,554 15,061 111,225 187,947 8,609 296,750 10,405 445 Dhofar Generating 42,226 14,777 943 43,288 155,657 5,000 192,883 4,000 718 Al Batinah Power 47,242 28,312 9,888 94,225 151,866 12,211 186,897 4,724 744 Al Suwadi Power 49,294 30,295 10,056 100,690 162,950 14,341 197,903 5,001 744 Phoenix Power 112,620 50,565 13,759 172,124 329,808 9,742 432,686 7,898 1,998

Sector total 399,210 169,673 53,293 552,015 988,228 50,812 1,336,626 35,878 4,877

MPC @ RO 0.260/Share 18,301 8,127 2,042 8,996 67,331 1,346 84,286 1,943 120

MPC @ RO 0.325/Share 22,877 8,127 2,042 8,996 67,331 1,346 88,862 1,943 120

All figures in RO ,000 unless mentioned otherw ise

CMP DPS EPS BVPS D/E EV/MW EV/EBITDA P/E P/B Div (RO) (RO) (RO) (RO) (x) (RO) (x) (x) (x) Yield (%) Al Kamil power 0.316 0.040 0.037 0.316 0.0 129 7.1 8.5 1.0 12.7% Sembcorp Salalah (IWPP) 0.123 0.011 0.016 0.117 1.7 667 7.1 7.8 1.1 8.9% Dhofar Generating 0.190 0.018 0.004 0.195 3.6 269 13.1 44.8 1.0 9.5% Al Batinah Power 0.070 0.007 0.015 0.140 1.6 251 6.6 4.8 0.5 10.0% Al Suwadi Power 0.069 0.007 0.014 0.141 1.6 266 6.5 4.9 0.5 10.1% Phoenix Power 0.077 0.005 0.009 0.118 1.9 217 8.6 8.2 0.7 7.0% Average 1.8 274 7.9 7.5 0.7 9.0% Median 1.7 259 7.1 8.0 0.8 9.7% MPC @ RO 0.260/Share 0.260 0.028 0.029 0.128 7.5 702 10.4 9.0 2.0 10.6% MPC @ RO 0.325/Share 0.325 0.028 0.029 0.128 7.5 741 10.9 11.2 2.5 8.5%

United Securities LLC 15 29 October, 2019 Musandam Power Company – IPO Note

Relative valuation based on dividend yield

CMP EV/MW EV/EBITDA P/E P/B Div (RO) (RO) (x) (x) (x) Yield (%) Al Kamil power 0.342 140 7.7 9.2 1.1 11.7% Sembcorp Salalah (IWPP) 0.123 667 7.1 7.8 1.1 8.9% Dhofar Generating 0.190 269 13.1 44.8 1.0 9.5% Al Batinah Power 0.070 251 6.6 4.8 0.5 10.0% Al Suwadi Power 0.069 266 6.5 4.9 0.5 10.1% Phoenix Power 0.079 218 8.6 8.4 0.7 6.8% Average 275 7.9 7.6 0.7 8.9% Median 259 7.4 8.1 0.8 9.7% MPC @ RO 0.260/Share 0.260 702 10.4 9.0 2.0 10.6% MPC @ RO 0.325/Share 0.325 741 10.9 11.2 2.5 8.5%

CMP DPS EV/EBITDA P/E P/B Div Yield (RO) (RO) (x) (x) (x) (%) Sembcorp Salalah (IWPP) 0.123 0.011 7.1 7.8 1.1 8.9% MPC projects to distribute stable dividend per share of 27.6bz every year Dhofar Generating 0.190 0.018 13.1 44.8 1.0 9.5% through 2023E. Cash sweep covenants in many of the listed power utility companies are likely to get triggered by this period, leaving behind just a few Phoenix Power 0.077 0.005 8.6 8.2 0.7 7.0% dividend paying power companies. Average 8.6 9.1 0.8 8.2% MPC @ RO 0.260/Share 0.260 0.028 10.4 9.0 2.0 10.6% In such a scenario, income chasing investors are likely to consider MPC as an attractive investment opportunity. We feel that the high quality of return MPC @ RO 0.325/Share 0.325 0.028 10.9 11.2 2.5 8.5% that MPC shareholders would receive when most of the power utilities would MPC total dividends during the PPA 20,902 struggle to pay dividends should command due premium. Average annual dividend 1,608 Our valuation models assume a target dividend yield of 8.2%, which is the No of shares outstanding 70,390 average dividend of no-cash-sweep companies. We have applied this target MPC average annual dividend during PPA 0.023 dividend yield to the average annual dividend of MPC during the PPA. At the Average dividend yield of peer group companies 8.2% targeted dividend yield, we value shares of MPC at RO 0.279/Share, 7% Implied fair value 0.279 higher than the lower end of the price band.

United Securities LLC 16 29 October, 2019 Musandam Power Company – IPO Note

Fair value estimation through EV/MW

The plant was completed at total cost of RO 90.3 million in 2017. By the end of current fiscal, the founding shareholders would secure cash flow of RO 10 million on their initial investment of RO 13.6 million. Since the plant has already elapsed ca. 6% of its useful life, we feel that the new shareholders would warrant a corresponding discount to the EV/MW of the plant. Such a scenario would result in a target EV/MW of RO 701 for MPC, implying a market cap of RO 18.6 million. This translates to fair value target price of RO 0.264/Share for MPC.

Valuaiton parameter Value Useful life of plant (Days) 14,600 COD 17-Jun-17 Date of valuation 31-Dec-19 Days elapsed since COD 927 Plant life elapsed (%) 6.3% Original EV/MW (RO) 753 Target EV/MW (RO) 705 Target EV (RO, 000) 84,567 less: Net debt (RO, 000) 65,985 Implied market cap (RO, 000) 18,582 No of shares (RO, 000) 70,390

Fair value target price (RO/Share) 0.264

United Securities LLC 17 29 October, 2019 Musandam Power Company – IPO Note

Blended DDM-Relative valuation at RO 0.309 per share

Valuaiton parameter Value Scenario PPA Post PPA Fair value of MPC Useful life of plant (Days) 14,600 Bear case 0.187 0.090 0.278 COD 17-Jun-17 Base case 0.187 0.138 0.325 Date of valuation 31-Dec-19 Bull case 0.187 0.185 0.372 Days elapsed since COD 927

CMP DPS EV/EBITDA P/E P/B Div Yield Plant life elapsed (%) 6.3% (RO) (RO) (x) (x) (x) (%) Original EV/MW (RO) 753 Sembcorp Salalah (IWPP) 0.123 0.011 7.1 7.8 1.1 8.9% Dhofar Generating 0.190 0.018 13.1 44.8 1.0 9.5% Target EV/MW (RO) 705 Phoenix Power 0.077 0.005 8.6 8.2 0.7 7.0% Average 8.6 9.1 0.8 8.2% Target EV (RO, 000) 84,567 MPC @ RO 0.260/Share 0.260 0.028 10.4 9.0 2.0 10.6% less: Net debt (RO, 000) 65,985 MPC @ RO 0.325/Share 0.325 0.028 10.9 11.2 2.5 8.5% Implied market cap (RO, 000) 18,582 MPC total dividends during the PPA 20,902 Average annual dividend 1,608 No of shares (RO, 000) 70,390 No of shares outstanding 70,390 MPC average annual dividend during PPA 0.023 Fair value target price (RO/Share) 0.264 Average dividend yield of peer group companies 8.2% Implied fair value 0.279 Fair value Weight Implied Valuation method (RO) (%) valuation Base case DDM 0.325 70%

Dividend Yield based valuation 0.279 15% 8.9%

EV/MW based valuation 0.264 15% 731

Blended DDM-Relative Valuation target price 0.309 100%

United Securities LLC 18 29 October, 2019 Musandam Power Company – IPO Note

About Musandam Power Company Musandam Power is the first independent power plant in the Musandam Governorate. The Company’s core business activity is to develop, own and operate the Musandam Independent Power Plant. The Plant is a dual fuel powered (natural gas as primary fuel and Fuel Oil as alternative fuel) reciprocating engine power generation plant with a contracted power capacity of c. 120.7 MW and is located on a coastal site within Musandam Governorate, approximately 500km from Muscat in Oman. It has been in full commercial operation since 17 June 2017.

The Company currently generates its revenues pursuant to a 15-year term PPA with OPWP, which is indirectly wholly-owned by the Government. The power produced from the Plant is fully contracted to OPWP and used to meet the growing power demand of the Musandam Governorate during the term of the PPA and beyond. The Plant has the capability to supply majority of the peak demand of 132 MW estimated by.

Natural gas is the primary fuel with Fuel Oil as back-up fuel. The Company has signed a long-term NGSA with the MoG to secure supply of the fuel over the contracted PPA period. The Plant’s output is connected to RAECO grid through 132 kV line built by RAECO and serves the Musandam Power System. WMU, a leading global corporation which manufactures and services power sources and other equipment in the energy and marine markets is the EPC Contractor and O&M contractor (pursuant to a 5 year O&M Agreement). Further, the Company has also signed a 15 year LTSA with WMU to ensure successful long term operating performance of the Plant.

Historically electricity demand of the Musandam Governorate was met through small diesel powered plants operated by RAECO. In 2011, OPWP appointed advisors to conduct a feasibility study to develop a new gas-fired power plant. A special high power committee was constituted, comprising of representatives from the Tender Board, MoF, AER, and PAEW, to oversee the IPP procurement process. Oman Oil Company SAOC was selected as the lead developer for the Plant in a ‘closed’ procurement process. Oman Oil Company SAOC signed the SHA with LGI dated 5 March 2015 for the purpose of building and operating the Plant.

United Securities LLC 19 29 October, 2019 Musandam Power Company – IPO Note

About Musandam Power Company The Plant owned by Musandam Power is located at Tibat, Wilayat Bukha, Sultanate of Oman. The area is surrounded by the Musandam Gas Plant on the North, Oman-UAE border on the South, Arabian Gulf on the West and Mountains on the East. Musandam IPP has been in commercial operation since 17 June 2017. It has a guaranteed capacity of c. 120.7 MW at 50 degrees Celsius.

The Plant comprises of 15 units of Wärtsilä W20V34DF Dual Fuel generating sets grouped into 5 power unit block, operating on natural gas as the primary fuel and Fuel Oil as back up. The selection of the reciprocating engine (Wärtsilä solution) technology was based on many challenges that were indicated during the project development in RAECO grid (132KV system). The Plant’s generation is at 15KV, stepped up to 132KV for transmission to RAECO 132 KV Musandam grid.

The Guaranteed Contracted Power Capacity of the Plant under the PPA is c. 120.7 MW. The demonstrated power capacity of the Plant at the plant acceptance test at reference conditions was c.124.58 MW on natural gas mode. Due to the nature of the reciprocating engines technology, the capacity is expected to remain same level over the period of PPA as capacity degradation is very little for reciprocating engines plant. Moreover, the LTSA provider has guaranteed throughout the terms of the PPA to maintain the GCPC of the Plant to meet contractual requirements under the PPA.

Availability: As per the project agreements, the Plant has been guaranteed to be available at 98% of time in Summer Period and in Winter Period excluding scheduled unavailability. The PPA allows for scheduled unavailability during the Winter Period (a maximum of 15%). However, since the Plant COD, the availability recorded has been 99.9%.

Efficiency of the plant: Plant achieved ‘Contracted Heat Rate’ at the plant acceptance test as 8,202 KJ/KWh on natural gas mode. This was better than the guaranteed contractual requirements under the PPA of 8,597 KJ/KWh on natural gas mode, thus giving a higher assurance of securing sufficient comfort in terms of fuel efficiency. Moreover, the LTSA provider and O&M contractor have guaranteed to achieve the same level of heat rate, with provision for penalties if they are not able to meet those conditions.

The Plant is operated and maintained by its OEM, Wärtsilä, through its 100% owned subsidiary WMU. In order to ensure the reliability, integrity and full life span of the plant engines, MPC has signed a Long Term Agreement (LTSA) with OEM, Wärtsilä. The LTSA contractor is fully responsible to maintain the set scheduled preventive maintenance in timely manner, without impacting the guaranteed availability to the buyer, and to ensure that all the required spares for the scheduled maintenances are available on time to avoid any business continuity impact due to any extended maintenance time. The plant is under 99.9% reliability since the COD on 17 June 2017.

United Securities LLC 20 29 October, 2019 Musandam Power Company – IPO Note

Company management and Board of Directors

Experience Senior Management Team Designation (years) Salim Al Hashmi Project Director 24 Abdul Hameed Al Jabri Finance Manager 17 Siva Prasad Nandikolla Facility Manager 24 Siva Nageswararao Sonthi Operations Manager 22 Satyanarayana Raju Sagi Maintenance Manager 18

Name of director Category Representing Designation

Ahmed Tufail Al Rahman Mujeeb AlNon-Independent, Rahman Non-Executive Personal capacity Chairman Jun H. Kim Non-Independent, Non-Executive LGI Dy. Chairman Mansoor Ali Al-Abdalii Non-Independent, Non-Executive OOFDC Member Hamid A. Hamirani Independent, Non-Executive Personal capacity Member Maqbool-Hussain Moosa Yousuf Al-LawatiIndependent, Non-Executive Personal capacity Member

United Securities LLC 21 29 October, 2019 Musandam Power Company – IPO Note

Points to ponder – Risks to our view

MPC plans to distribute more dividends than its cash from operations: During the forecasted period until 2023, the company plans to pay more than RO 42.9 million towards debt servicing and dividends. However, the projections assume MPC generating just under RO 41 million during the same period. The additional requirement for cash is met via draw down from the existing cash balance and a proposed draw down of RO 773K from the working capital facility. This will lead to MPC's cash balance at the end of 2023 to significantly lower levels of RO 174K, casting doubts on the company's ability to pay stable dividends on a continued basis beyond the forecast period.

Dividend to decline from 2024: Our forecasts beyond 2023 assume working capital repayment in 2024, resulting in lower dividend payment for that year. Additionally, starting from 2027, MPC is expected to start payment of tax, further reducing its ability to distribute higher dividends. Our forecasts lowered dividend distributions for 2027 until end of PPA to accommodate for the company's tax payments.

Post-PPA dividends to depend on renewal scenario: We argue that the OPWP’s procurement mechanism is based on Cost-Plus strategy, rather than passing on entire avoided cost to the IPP. This was evident from the PPA extension given to Al Kamil Power in 2017 where the EBITDA during the extended PPA was reduced by 24% as compared to the EBITDA during original PPA term. A similar strategy was adopted for P(W)PA extension of ACWA Power as well, where the company had to accept a reduced power capacity charge during the PPA extension.

Power 2022 is a competitive bidding: OPWP has initiated the process of 2022 procurement initiative which includes a competitive tender for long-term PPA’s commencing in 2022. The tendering process would include a number of existing P(W)PAs which are scheduled to expire by 2022 namely Al Kamil IPP, ACWA Power Barka IWPP, Rusail IPP, and Sohar IWPP. Through the competitive bidding process, I(W)PPs are asked to bid for PPA renewals depending on their capital operating costs. We observe that had the OPWP considered avoided cost method for PPA extensions, the need for a competitive bidding may not arise.

6M2019 shows lower cash flow as opposed to full year projections: MPC’s financial statements at the end of June 2019 shows the company is not paid on several accounts by the OPWP. While we note that it is a system wide issue where the OPWP has withheld the payment of fuel charge to almost all the IPPs in the country since May 2019. However, due to robust PPA and NGSA terms, the IPPs are not required to pay MOG for their fuel cost until such time that they receive fuel charge from OPWP, and may not lead to any working capital stress on these companies. As at the end of June 2019, MPC reported revenue of RO 8.7 million and EBITDA of 3.8 million which are 37.6% and 46.8% of full year projections respectively. The company reported net cash flow from operating activities at RO 1.9 million, which is just 24.6% of the total operating cash flow projected for the full year. The decline in cash flow was mainly due to RO 1.9 million increase in working capital requirements during the period. Despite the sudden increase in OPWP receivables during 1H19, the management and IPO issue manager are confident of meeting the full year projections given in the IPO prospectus in terms of cash flow commitments. Additionally, they maintain the position that there are no disputed amounts due from OPWP as at the end of September, and expects all monies due to be received before the end of current fiscal. Should there be any delay in receiving these amounts, we assume that MPC would tap the working capital facility to meet its near term cash requirements, which would attract interest at 3.0% per annum.

United Securities LLC 22 29 October, 2019 Musandam Power Company – IPO Note

Key Contacts

Research Team Joice Mathew Santhosh Balakrishnan Head Office Senior Manager - Research Research Analyst P.O.BOX 2566, PC 112 E-Mail: [email protected] E-Mail: [email protected] Next to Ruwi Hotel Tel: +968 2476 3311 Tel: +968 2476 3319 Ruwi, Muscat Tel: +968 2476 3300 Rating Criteria and Definitions

Rating Rating Definitions Strong Buy This recommendation is used for stocks whose current market price offers a deep discount to our 12-Month target price and has an >20% upside potential in excess of 20% Buy This recommendation is used for stocks whose current market price offers a discount to our 12-Month target price and has an upside 10-20% potential between 10% to 20% 0%-10% Hold This recommendation is used for stocks whose current market price offers a discount to our 12-Month target price and has an upside potential between 0% to 10% Strong Buy Hold Neutral Sell Strong Neutral This recommendation is used for stocks whose current market price Buy Sell offers a premium to our 12-Month target price and has a downside side potential between 0% to -10% -10% to 0% Sell This recommendation is used for stocks whose current market price offers a premium to our 12-Month target price and has a downside -10 to - side potential between -10% to -20% 20%% Strong Sell This recommendation is used for stocks whose current market price offers a premium to our 12-Month target price and has a downside >-20% side potential in excess of 20% Not rated This recommendation used for stocks which does not form part of Coverage Universe

DISCLAIMER: This document is not for public distribution and has been furnishedRating to you solelyHistory for your information and must not be reproduced or redistributed to any other person. StockPersons Price into whose Recommendation possession this document History may come are required to observeRecommendation these restrictions. OpinionHistory expressed is our current opinion as of the date appearing on this material only. We do not undertake to advise you as to any change of our views expressedDate in this document.Details While we endeavor to update on a reasonable basis the information discussed in this 3.2material, United Securities, its subsidiaries and associated companies, their directors2-Aug-11 and employeesWe arerecommended under no obligationa toBUY updateon or keepthe thestock informationwith current.a target Also,price there mayof RObe 2.8 2.640, an upside of 12% (CMP-2.362) 2.4regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may 2.0be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. 1.6 1.2The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true and are for general guidance 0.8only. While every effort is made to ensure the accuracy and completeness of information contained, the company takes no guarantee and assumes no liability for any errors or omissions

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United Securities LLC 23 29 October, 2019