MORNING INSIGHT November 11, 2016

NOVEMBER 11, 2016

Economy News Equity  India's infrastructure sector will see an investment of Rs25 trn in the next % Chg five years, creating almost five crore jobs. The investment in infrastructure 10 Nov 16 1 Day 1 Mth 3 Mths sector including roads and shipping would boost the GDP growth by 3%, Indian Indices road transport and highways, and shipping minister Nitin Gadkari said at SENSEX Index 27,518 1.0 (2.0) (1.2) the Economic Editors Conference. (ET) NIFTY Index 8,526 1.1 (2.1) (0.8)  The government's thrust on road infrastructure has led to a rise in BANKEX Index 23,186 3.6 4.8 8.7 demand for bitumen products, prompting some oil marketing companies SPBSITIP Index 9,456 (0.7) (7.2) (14.0) (OMCs) to increase its production for better margins. According to data BSETCG INDEX 14,422 1.8 (2.6) (3.2) BSEOIL INDEX 12,098 1.6 0.7 13.7 from Petroleum Planning Analysis and Cell (PPAC), bitumen's monthly CNXMcap Index 15,391 2.0 (3.8) 4.4 consumption growth rate has been constant year-on-year (y-o-y) since SPBSSIP Index 12,927 1.8 (2.5) 6.1 August 2015, except a dip in July 2015, owing to monsoons. (BS) World Indices  India will take up the issue of visa for Information Technology Dow Jones 18,808 1.2 3.7 1.0 professionals as well as other contentious issues with the new Donald Nasdaq 5,209 (0.8) (0.7) (0.4) Trump administration in the United States. India will continue to FTSE 6,828 (1.2) (3.4) (1.3) negotiate with the US government once it takes charge in early January, NIKKEI 17,344 6.7 2.2 3.9 next year. (BS) HANGSENG 22,839 1.9 (4.5) (0.4)  The Reserve Bank of India made a net purchase of US$4.6 bn from the Value traded (Rs cr) spot market in September to meet the redemption requirement of 10 Nov 16 % Chg - Day FCNR(B) deposits, a data release in the Reserve Bank's monthly Bulletin Cash BSE 3,589 (31.5) said. The central bank bought $ 9 billion and sold $4.4 billion during the Cash NSE 27,197 (20.2) month. (ET) Derivatives 756,148 (3.4)  The Reserve Bank of India relaxed provisioning norms for loans Net inflows (Rs cr) restructuring under the so called S4A scheme, a move that could help the 9 Nov 16 % Chg MTD YTD scheme take off many months after it was first announced. (ET) FII (2,045) (740) (1,678) 43,337 Corporate News Mutual Fund 634 214 3,628 25,684 FII open interest (Rs cr)  PVR, has taken some initiatives, including a complete waiver of 9 Nov 16 % Chg convenience fees for tickets booked online through the PVR Cinemas website, or its mobile app. Currently, the app/website charges between Rs FII Index Futures 13,020 0.9 50-60 depending on the size of the transaction. (BS) FII Index Options 73,243 4.7 FII Stock Futures 56,471 2.8  ONGC Videsh (OVL) foreign arm of state-owned Oil & Natural Gas FII Stock Options 7,262 8.7 Corporation and Petroleos De Venezuela SA (PDVSA) have signed two Advances / Declines (BSE) agreements for facilitating redevelopment of their San Cristobal joint 10 Nov 16 A B T Total % total venture project in Venezuela. (BS) Advances 234 964 40 1,238 79  Dabur, is increasingly turning to markets outside India for growth, as the Declines 65 219 24 308 20 domestic market continues to be subdued. A little over a third of revenue Unchanged 1 3 17 21 1 comes from abroad and it is investing Rs5 bn to expand operations in West Asia and Africa. (BS) Commodity % Chg 10 Nov 16 1 Day 1 Mth 3 Mths  The government is looking into the role played by all stakeholders, including oil ministry officials and executives at Oil and Natural Gas Crude (US$/BBL) 44.4 (0.6) (12.6) 2.1 Corp (ONGC), in the past with respect to the gas dispute between the Gold (US$/OZ) 1,266.8 (0.7) 0.1 (6.5) state firm and Reliance Industries. (ET) Silver (US$/OZ) 18.7 1.5 5.5 (7.9)  SBI is in talks with global sovereign wealth funds and strategic investors Debt / forex market to sell up to 5% stake in SBI Life, the life insurance JV with BNP Paribas 10 Nov 16 1 Day 1 Mth 3 Mths Cardiff, in a pre-IPO fund-raise, pegging its valuation at Rs370-400 bn. (ET) 10 yr G-Sec yield % 6.7 6.7 6.7 7.1  Rane Holdings Ltd (RHL), has decided to sell its 45.26% stake in its Re/US$ 66.6 66.4 66.5 66.7 associate firm SasMos HET Technologies Ltd (SasMos). (BL) Sensex  In a big boost to the Cyrus Mistry camp, the independent directors of Tata Chemicals have come out in full support of its Chairman Cyrus Mistry in a board meeting. (BS)

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange MORNING INSIGHT November 11, 2016

RESULT UPDATE GREAVES COTTON LTD Sanjeev Zarbade [email protected] +91 22 6218 6424 PRICE: RS.129 RECOMMENDATION: BUY TARGET PRICE: RS.160 FY18E P/E: 14.2X

Greaves Cotton's (GCL) quarterly profits exceeded our expectations aided by higher EBITDA margins. Near term revenue growth outlook is weak but is seen improving in the medium term as economy gains momentum and due to the implementation of the BS IV emission norms. The company's foray into spare parts for non Greaves engine fitted vehicles in the 3W segment is positive as it opens up a large market for the company.

Summary table We like the strong free cash generation of the company. Further, trigger could be potential for addition of OEMs for engine supply likely by FY17. (Rs mn) FY16 FY17E FY18E At 14.2x FY18 earnings, GCL is one of the most attractively valued stocks Sales 16162 17575 18954 in our sector coverage. Further, dividend yield is also the highest. We Growth (%) -4.3 8.7 7.9 maintain BUY with an unchanged price target of Rs 160 based on DCF. EBITDA 2686 2844 3052 EBITDA margin (%) 16.6 16.2 16.1 Risks and Concerns: Upgrade by customers to 4W LCVs may cannibalise PBT 2915 2802 3086 3W LCV volumes which is the stronghold of GCL. We would remain Net profit 1740 2017 2222 EPS (Rs) 7.1 8.3 9.1 watchful about this emerging threat. Growth (%) 18.0 16.0 10.1 CEPS 9.0 10.2 11.2 Quarterly performance BV (Rs/share) 33.0 38.4 44.5 (Rs mn) Q2FY17 Q2FY16 YoY (%) H1FY17 H1FY16 YoY (%) DPS (Rs) 5.5 2.5 2.5 ROE % 20.8 21.9 20.9 Gross Revenues 4886 4711 3.7 9322 8931 4.4 ROCE % 20.5 19.6 18.8 Excise duty 501 481 4.2 942 921 2.3 Net cash (debt) 209.2 601.0 278.4 NW Capital (Days) 45 36 38 Net Revenues 4384 4229 3.7 8380 8009 4.6 EV/Sales (x) 1.9 1.8 1.7 other op income 9 21 -57.0 21 46 -54.2 EV/EBITDA (x) 11.6 10.9 10.2 RM costs 2656 2531 4.9 4975 4822 3.2 P/E (x) 18.1 15.6 14.2 P/Cash Earnings 14.4 12.6 11.5 Purchase of traded goods 167 227 -26.6 478 396 20.7 P/BV (x) 3.9 3.4 2.9 Staff costs 411 374 10.0 800 763 4.8

Source: Company, Kotak Securities - Pri- Other costs 462 365 26.4 847 707 19.9 vate Client Research EBITDA 698 753 -7.4 1301 1369 -4.9 Depreciation 115 115 0.0 224 227 -1.4 Other income 130 128 1.9 237 217 9.4 EBIT 712 766 -7.0 1314 1358 -3.2 Interest 2 2 -15.0 2 4 -39.5 PBT 711 764 -7.0 1312 1354 -3.1 Tax -197 -196 0.5 -358 -422 -15.2 Adjusted PAT 513 567 -9.5 954 932 2.4 Extraordinary items 0 -19 -100.0 -55 -19 199.5 Reported PAT 513 549 -6.5 899 913 -1.6 Excise rate (%) 10.0 10.2 10.0 10.3 EBITDA (%) 15.9 17.8 15.5 17.1 RM costs to sales (%) 64.4 65.2 65.1 65.1 Other exp to sales (%) 10.5 8.6 10.1 8.8 Tax rate (%) (27.8) (25.7) (27.3) (31.2) EPS (Rs) 2.1 2.3 3.9 3.8

Source: Company

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2 MORNING INSIGHT November 11, 2016

Estimata - Quarterly performance (Rs mn) Reported Estimated

Revenue 4384 4898 EBITDA (%) 15.9 14.8 PAT 513 507

Source: Kotak Securities - Private Client Research

Revenue growth continued to remain muted During the quarter, engine segment reported decline of 4% in revenue on a y-o- y basis as demand for 3W and 4W LCVs continued to remain weak in the quarter. The 3W engine revenue (account for ~ 55-60% of the revenues) has been wit- nessing weak demand since past few years due to muted economic activity as well as higher financing (interest) rates. The weakness is especially glaring in the cargo segment which is a stronghold of Piaggio (GCL's prime client). Based on SIAM data, the cargo segment in 3W has remained stagnant since FY12 at 95000-100000 units. Passenger 3W volumes for the industry has done marginally better due to urbanization. Thus, the company's significant reliance on the 3W engine segment has been a drag on the company's revenues. While till a few years back, the 4W LCV was being viewed as a growth segment, this product category has also slowed down considerably due to problems of over capacity plus a stringent financing scenario due to increasing delinquencies. Although demand from the automotive engines was weak, the company reported strong growth in sale of DG sets (800 units vs 500 units) in the quarter. The company mainly operates in the 5-500 KVA DG set range.

Engine Volume (Nos) Q2FY17 Q2FY16 % chg

3W 80000 80,000 - 4W 8000 10,000 (20.0) Pumpsets 25000 22,000 13.6 DG sets 800 500 60.0 Tillers 1000 1,000 -

Source: Comapany

Client OEMs of GCL in 3W Corporate Brand Fuel Engine

Piaggio Ape Xtra and City CNG, Diesel, LPG 4 stroke single cylinder M&M Alfa and Champion Diesel and CNG 4 stroke single cylinder TVS King Diesel 4 stroke single cylinder Atul Auto Shakti, Gem and Gemini Diesel 4 stroke single cylinder

Source: Comapany

Segment Revenues (Rs mn) Q2FY17 Q2FY16 YoY (%)

Engines 4779 4565 5 Others (includes mainly Tillers) 120 166 -30 Total 4895 4732 3

Source: Comapany

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 3 MORNING INSIGHT November 11, 2016

Margins declined due to higher provision for doubtful debts in "Other expenditure" Company reported gains in gross margins aided by benign material prices and savings through value engineering. However, EBITDA margin contracted by 190 bps y-o-y to 15.8% as the company provided for doubtful debt of Rs 80 mn in "other expenditure". The provision related to sale of agri-equipment. Note that such provisions are rare for the company as ~ 60% of sales is accounted for by Piaggio. Adjusted for this provision, EBITDA margins been higher by 180 bps.

Segment margins (%) Q2FY17 Q2FY16

Engines 16.5 18.4 Others 5.4 2.6 Total 16.3 17.8

Source: Comapany

Capex likely to remain moderate The company does not envisage major capex in capacity enhancement in the near future. Bulk of the capex of the order of Rs 500-1000 mn is earmarked for R&D aimed at making engines emission compliant. Further, this spend would not be incurred in one go and would be phased out depending on the timeline of rollout of the emission norms.

Company ready with multicylinder engine GCL is an established name in the LCV diesel engine segment but has now also extended its capabilities to make multi-cylinder engines for Small Commercial Vehicles of up to 3-3.5 tons, which opens up a significant market for the company. The company is in talks with various OEMs to partner with them for their existing as well as future engine requirements in the multi-cylinder engine segment.

Other highlights  The company had been selected as the engine sourcing location for the Eicher's Multix model, though engine supplies are at low levels.  The company continues to be very efficient with cash generation and has ac- cumulated cash of Rs 4.5 bn at the end of Q2FY17.  After sales service for multibrands spares: GCL has recently forayed into multi brand spares business as an extension to its after-market services. The company derives ~ 20% of its revenues from sale of spares fitted with GCL engine. Now, the company plans to provide a complete range of multi brand spares across categories (like engine, transmission, electrical, rubber parts, lubricants and body parts) and OEMs.  Since, except Bajaj Auto, most other three wheeler manufacturers are sourcing engines from GCL, this essentially means competing with Bajaj Auto for after sales spares.  The company, will initially, offer fast-moving vehicle and engine spare parts through its strong retail network. This will be in addition to generic parts. In the next phase, even relatively slow-moving parts will also be offered irre- spective of the brand of 3-wheeler passenger and commercial vehicles. The company will be the first to offer spares across all categories in three- wheeler (3W) Segment.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 4 MORNING INSIGHT November 11, 2016

 The company does not plan to manufacture these spares but has tied up with more than 40 vendors for the supply of various spares. That this venture would not be margin dilutive is being taken care of by the company.  The company's strength is its reach across india, which it aims to expand further by opening additional 1500 outlets in the coming three to five years.  Currently, the addressable size of the 3W spare part markets in India is Rs 35 bn. The company aims to gain a substantial market share in the next three years.

Substantial increase in cost of engine for a BS IV compliant engine: The ministry of Road Transport and Highways has mandated all two-wheelers, three-wheelers and four-wheelers (LCV) will have to comply with Bharat Stage IV (BS IV) norms from April 1, 2017. BS IV for these vehicle categories is already in place in metro cities but a nation-wide rollout is scheduled from April 2017. The company sold 3000 units of BS IV compliant LCVs in Q1FY17 out of the total volume of 7000 units sold of 4W LCV. The management has indicated that compliance of BS IV emission norms would lead to a material increase in cost of engines (though it did not quantify in value terms). We therefore see a reasonable probability of surge in demand in the run-up to the implementation of the norms in April 2017.

Valuation and Recommendation GCL is currently trading at 15.6x and 14.2x FY17 and FY18 earnings respectively. The stock trades at a discount to peers, which we believe is mainly on account We maintain BUY on of 1) significant dependence on a single client (Piaggio) 2) Weak growth trend in Greaves Cotton Ltd with a the 3W segment. While we concede that the growth outlook is not very strong price target of Rs.160 and hence the discount, we highlight that the company's return ratios are healthy (ROE of 20.7% in FY16) and cash flow is robust. Given this, we see value in the stock and rate it as BUY with an unchanged price target of Rs 160.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 5 MORNING INSIGHT November 11, 2016

RESULT UPDATE BAJAJ ELECTRICALS LTD (BAEL) Ruchir Khare [email protected] +91 22 6218 6431 PRICE: RS.232 RECOMMENDATION: ACCUMULATE TARGET PRICE: RS.260 FY18E P/E: 14.2X

BAEL reported Q2FY17 result lower than our estimates due to weaker performance in the consumer division (including lighting division). Loss minimization continued in the E&P business. We however highlight that margin in consumer segment is still substantially lower than key competitors like Havells and Crompton Greaves Consumers Electricals. We note that BAEL stock is trading at a significant discount to the peer group due to 1) company's presence in EPC business (B2B) which attract lower valuation, 2) sub-par margins vis-à-vis competitors and 3) prolonged history of earnings disappointment. While we are positive on the new initiatives taken by the management to improve distribution network (under RREP program) and achieve better (and monitorable) reach, we believe that the real benefits would take longer time to surface. We cut FY17 and FY18 earnings estimate to factor in continued Summary table sluggishness in the B2C business and value the SBU at PER of 16x FY18 (Rs mn) FY16 FY17E FY18E earnings (earlier 18x). We arrive at a SOTP based target price of Rs 260 Sales 46120 47896 54980 (earlier Rs 300) and maintain 'ACCUMULATE' (buy on declines) rating on Growth (%) 8.3 3.9 14.8 company's stock. EBITDA 2593 2874 3574 EBITDA margin (%) 5.6 6.0 6.5 PBT 1535 1744 2443 Quarterly performance Net profit 955 1151 1612 (Rs mn) Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%) EPS (Rs) 9.7 11.6 16.3 Growth (%) nm 20.4 40.1 Net Sales 9966 11141 (10.6) 9518 4.7 CEPS 12.4 15.0 19.7 Other Income 77 125 (38.5) 98 (21.6) BV (Rs/share) 76.1 84.5 96.6 Raw material cost 187 -125 (249.8) 510 (63.3) DPS (Rs) 2.0 2.2 3.2 ROE % 13.3 14.5 18.0 Purchase of traded goods 6320 7846 (19.5) 5769 9.5 ROCE % 9.0 10.2 12.8 Employee cost 1305 1251 4.3 1346 (3.1) Net cash (debt) (1418) (3374) (2640) other expenditure 1701 1652 3.0 1328 28.1 NW Capital (Days) 7 25 22 EV/Sales (x) 0.5 0.5 0.4 Provision for E&C losses EV/EBITDA (x) 9.4 8.5 6.8 Total expenditure 9513 10624 (10.5) 8954 6.2 P/E (x) 24.0 19.9 14.2 EBITDA 453 517 564 (19.8) P/Cash Earnings 17.2 14.3 10.9 P/BV (x) 2.8 2.5 2.2 Depreciation 71 63 12.4 67 5.7 PBIT 459 579 (20.8) 595 (22.9) Source: Company, Kotak Securities - Private Client Research Interest expense 200 273 (26.6) 228 (12.3) PBT 259 307 367 (29.5) Tax Expense 92 121 139 (33.7) Adj. PAT 167 185.9 229 (26.9) Other comprehensive Income (7.8) (9.3) (7.7) Total Comprehensive Income 159 177 220.9 EPS (adj) 1.7 1.9 2.3 EBITDA (%) 4.5 4.6 5.9 Tax (%) 35.5 39.4 37.7 RM/Sales (%) 65.3 69.3 66.0

Source: Company

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 6 MORNING INSIGHT November 11, 2016

Result Highlights In Q2FY17, BAEL revenues stood at Rs 9.9 Bn (-10.6% YoY adjusted for excise) due to 1) lower primary sales in the consumer business and 2) subdued execution in the EPC business. Company reported operating margin at 4.5% (down 10 bps YoY) due to poor margins in the consumer business. E&P segment, revenues stood at Rs 4.3 Bn, down 16% YoY due to prolonged monsoons that affected the project execution. Operating profit for the segment stood at Rs 330 mn vis-à-vis Rs 334 mn in Q2FY16. We believe that most of the loss making legacy orders in E&P segment are over and current orders would ascertain sustained margins going ahead. Consumer appliances division disappointed in Q2FY17; revenues stood at Rs 5.6 Bn (-5.5% YoY) due to 1) 33% YoY de-growth in the lighting business (owing to sharp reduction in CFL market and lack of EESL orders for LED) and 2) company's new distribution initiatives emphasizing on boosting secondary sales. Gross margins improved to 34.7% against 30.6% in Q2FY16 driven by lower input costs. Management highlighted that fans revenue too fell 3.2% YoY in the quarter as most of the sales is achieved through wholesaler channel which has been negatively impacted under RREP format. Consumer appliances (ex-fans/lighting) grew 5.4% YoY in the quarter. Management highlighted that 35% of current distribution systems has been brought under RREP (TOC based selling model) and expects meaningful recovery in revenues from Q3FY17 onwards. EBIT margin for the segment, however contracted sharply to 2% in Q2FY17 vis-à-vis 4% in Q2FY16 due to lower volumes. Employee cost at Rs 1.3 Bn (+4.3% YoY) accounted by increased manpower at distribution nodes under new distribution model. Management has maintained that the new distribution model shall stabilize by the end of FY18.

Segment Results Rs (mn) Consolidated revenues Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%)

Consumer Durables 5661 5991 (5.5) 5478 3.3 Engg Projects 4393 5227 (16.0) 4114 6.8 PBIT Consumer Durables 115 238 (52) 252 (54.5) Engg Projects 330 334 309 7.0 PBIT (%) Consumer Durables 2.0 4.0 4.6 Engg Projects 7.5 6.4 7.5

Source: Company, Q1FY17 and Q4FY16 financials not comparable due to reclassification of consumer numbers

Interest charges came down to Rs 200 mn in Q2FY17 vis-à-vis Rs 273 mn last year due to improved working capital. Tax expense stood at Rs 92 mn resulting in adjusted net profit of Rs 167 mn vis-à-vis Rs 185 mn in Q2FY16.

Company's RREP program should yield results from Q3FY17 onwards BAEL launched RREP (Retail reach expansion program) in FY16 to reach out to dealers more efficiently as against traditional wholesaler based model of selling. The RREP programs (TOC-Theory of constraints based model) is currently under implementation and has had diminishing effect on company's primary sales over the last few quarters. Management has earlier highlighted that TOC model would start yield- ing benefits (partially) form Q3FY17 onwards. However, full benefits from TOC based distribution model are expected to materialize from FY18.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 7 MORNING INSIGHT November 11, 2016

RREP model is likely to realign company's interests/incentives with the channel partners. We highlight that several other companies have also opted for a similar kind of distribution model in past, in order to obviate the inherent limitations with the wholesaler based selling such as 1) company's lower degree of involve- ment with distributors (wholesaler centric approach), 2) wholesalers make little efforts to sell newly launched or premium products and sell lower priced items to earn incentives (high volumes realization) and 3) large (influential) wholesalers often try to generate sales in areas other than their territory by offering large discounts. Management believes that TOC based RREP model would provide benefits in terms of 1) improved engagement with dealers, 2) establish efficient feedback mecha- nism, 3) expand product reach for premium/newly launched products and 4) achieve lower inventory levels. Further, management had also highlighted that the company could suffer loss of primary sales in the short run, during the course of implementation of RREP model. In the wholesaler based selling model, company typically used to push sales targets in the end of every month to achieve targets. This was generally achieved by giving extra incentives/discounts to the distributors. Under RREP, company has averted this practice of giving extra discounts and thus expects streamlining of company's interest with dealers. It expects to expand gross margins in the longer term. Under RREP (where supply chain is highly centralized) company is optimistic of seek- ing benefits from 1) improved purchases in terms of bulk buying, 2) savings from lower investment in ideal inventory (slow moving products) and 3) reduction in discounts offered to large wholesalers. As a second step under TOC based selling, company would aim at increasing sales and expect recovery from Q3FY17 onwards. We suspect that the company has lost market share in the past few quarters (reflected in company's poor sales in last few quarters' vis-à-vis competitors). As of now, TOC covers nearly 35% of distributors and should reach 45-50% by the end of current fiscal. Management expects to achieve over 90% TOC rollout by FY18. We note that in the past, some of the other competitors have also made attempts to realign the distributor discounts. For instance, in FY16 Havells too has averted the practice of offering additional discounts to the large distributors and had experiences temporary fall in sales. However, we fail to identify any major players who has com- pletely done away with wholesalers' based selling. Most of the players, we believe have resorted to a combination (40-60 or 50-50) of wholesalers and direct selling model. We therefore believe that the company would have to be swift and efficient in ramping up sales (by means of aggressive advertising campaigns to create demand pull) post full commencement of RREP and regain lost market share. We believe that the successful rollout of RREP is critical for the company and remain watchful of the developments and progress made in this direction.

Earning projection and Valuation We cut FY17/FY18 estimates and project revenue growth at 9.1% CAGR between FY16-18 (earlier 10.8%). In consumer division, we believe BAEL would continue to report low margin in 9MFY17 until major part of RREP implementation is accom- plished. We project EBITA margin at 6% and 6.5% in FY17 and FY18 respectively.

Change in earnings estimate (Rs mn) FY17 FY18 New Old % Chg New Old % Chg

Sales 47896 49474 (3.2) 54980 56794 (3.2) EBITDA 2874 2968 (3.2) 3574 3692 (3.2) PAT 1151 1213 (5.1) 1612 1690 (4.6) EPS (Rs) 11.6 12.3 (5.3) 16.3 17.1 (4.6)

Source: Kotak Securities - Private Client Research

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 8 MORNING INSIGHT November 11, 2016

Valuation and Recommendation We note that at FY18 PER of 14.2x, BAEL stock is trading at a significant discount to the peer group due to 1) company's presence in EPC business (B2B) which attract lower valuation, 2) sub-par margins vis-à-vis competitors and 3) prolonged history of earnings disappointment. We maintain ACCUMULATTE We value consumer business at PER of 16x FY18 earnings (earlier 18x) and arrive at on Bajaj Electricals Ltd with a target price of Rs 260 (earlier Rs 300). We maintain 'ACCUMULATE' (buy on de- a price target of Rs.260 clines) rating on company's stock.

Valuation (Rs mn) FY18E

B2C EBIT-Lighting 728 EBIT-Consumer Appliances 1683 EBIT B2C 2410 Interest (300.00) Tax (696.45) PAT 1414 Target PER 16 Target Market Capitalization (B2C) (a) 22624

EBIT B2B 1128 Interest (700) Tax (141) PAT 287 Target PER 10 Target Market Capitalization (B2B)(b) 2726 Target Market Capitalization (BAEL) (a+b) 25350 Target price per share (BAEL) 260

Source: Kotak Securities - Private Client Research

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 9 MORNING INSIGHT November 11, 2016

RESULT UPDATE PIDILITE INDUSTRIES LTD (PIL) Ruchir Khare [email protected] +91 22 6218 6431 PRICE: RS.665 RECOMMENDATION: SELL TARGET PRICE: RS.670 FY18E P/E: 34.8X

PIL reported Q2FY17 results in line with our estimates; benign VAM prices helped maintaining margins. International business and other subsidiaries including Nina waterproofing and ICA woodworks reported meaningful revenue growth. We believe that at current price, stock is trading expensive implying minimal margin of safety; fully discounting the benefits of lower input prices and potential recovery in B2B and B2C businesses. We value PIL stock at 35x FY18 estimated earnings and maintain 'Sell' recommendation on company's stock with an unchanged target price of Rs 670.

Summary table Consolidated Result (Rs mn) FY16 FY17E FY18E (Rs mn) Q2FY17 Q2FY16 YoY % Q1FY17 QoQ

Sales 53,414 60,735 69,298 Income from Operations 14177 13185 7.5 15694 (9.7) Growth (%) 10.8 13.6 14.0 EBITDA 11,787 14,194 14,778 Decrease/ (Increase) in stock 30 (301) 579 EBITDA margin (%) 22.1 23.4 21.3 Material consumed 6568 6656 (1.3) 6900 (4.8) PBT 10785 13145 13655 Employee expenses 1563 1393 12.1 1625 (3.9) Net profit 7,612 9,333 9,695 Other expenses 2791 2429 14.9 2646 5.5 EPS (Rs) 14.9 18.4 19.1 Growth (%) 47.3 23.4 3.9 Total Expenses 10952 10177 7.6 11750 (6.8) CEPS (Rs) 17.5 21.2 22.1 EBITDA 3225 3008 7.2 3943 (18.2) BV (Rs/share) 54.8 65.6 76.9 Other income 324 216 50.1 241 34.6 DPS (Rs) 4.6 6.4 6.7 ROE (%) 29.9 30.5 26.8 Depreciation 303 248 22.0 258 17.6 ROCE (%) 26.6 27.5 24.6 EBIT 3246 2976 9.1 3927 (17.3) Net cash (debt) 476 831 1,631 Finance cost 26 31 35 NW Capital (Days) 42.6 53.4 58.9 EV/Sales (x) 6.6 5.5 4.9 Exceptional Items 0 0 0 EV/EBITDA (x) 28.6 23.7 22.8 Foreign exchange dif expense (11) (14) (4) P/E (x) 44.6 36.2 34.8 PBT 3209 2959 8.4 3887 (17.5) P/Cash Earnings (x) 38.0 31.4 30.1 Total tax 912 893 2.0 1174 (22.4) P/BV (x) 12.1 10.1 8.7 Other comprehensive income 1.10 0.00 -0.8 Source: Company, Kotak Securities - Private Client Research PAT 2312 2026 14.2 2722 (15.0) Adjusted PAT 2312 2026 2722 (15.0) Adj. EPS (Rs) 4.6 4.0 5.4 (15.0) RM/Sales 46.5 48.2 47.7 EBITDA (%) 22.8 22.8 25.1 Tax Rate (%) 28.4 30.2 30.2

Source: Company, Kotak Securities - Private Client Research

Result Highlights PIL consolidated revenue stood at Rs 14.1 Bn grew 7.5% YoY (adjusted for excise) in Q2FY17 driven by 9.4% YoY growth in consumer business (sales reported at Rs 12.9 Bn). Standalone business reported 4.8% YoY revenue growth (Volume growth stood at 12.7% in industrial and 7.8% in consumer and bazar division). Management stated that the demand outlook remains challenging currently, however is poised to recover on back of strong monsoon boosting consumer spending in tier ii/iii cities. Industrial product division reported growth of 5.2% YoY in the quarter at consolidated level. EBIT margins at 19% expanded 410 bps YoY on back of favourable product mix and benign input prices.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 10 MORNING INSIGHT November 11, 2016

PIL reported consolidated margin expansion to 22.8% in the quarter driven by soft input prices. We believe that VAM prices have stayed at USD 750-800 levels per tonne. Management expects benefit from low input prices to keep flowing in the near term. Earlier management had stated that raw materials savings could be utilized for advertising and promotion activities over FY17/FY18. We believe the promotion expense could increase to 4-5% of sales in future from current 3.5% level. Management also stated that its subsidiaries Blue Coat and Nina waterproofing (acquired in FY16; revenue over Rs 1.5 Bn in FY16) are observing traction. We note that Nina delivered 13-15% YoY revenue growth with 14-15% operating margin in FY16.

Segment reporting Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%)

Consolidated Segment Revenue (Rs mn) Consumer & Bazar Products (CBP) 12929 11820 9.4 14504 (10.9) Industrial Products (IP) 2388 2270 5.2 2457 (2.8) Segment EBIT Consumer & Bazar Products (CBP) 3072 2831 8.5 3926 (21.8) Industrial Products (IP) 455 339 34.1 449 1.3 Segment Margins % Consumer & Bazar Products (CBP) 23.8 24.0 27.1 Industrial Products (IP) 19.0 14.9 18.3

Source: Company

International business revenues reported mixed results in Q2FY17 driven by all the geographies except Middle East and Brazil. Key subsidiaries revenues (implied) reported sales at Rs 1.9 Bn in Q2FY17 vis-à-vis Rs 1.5 Bn in Q2FY16. Sales grew 7% YoY in constant currency basis. EBITDA margins at 7.7% in international business contracted sharply on YoY basis (implied subsidiaries EBITDA at 14.1% in Q2FY16). Pidilite continues to incurr additional O&M costs in Middle East (budgeted from Q3FY16 onwards) having diminishing effects on margins currently (should get net off by in 2HFY17). Among the key geographies, Brazil business continued with report tepid performance due to sluggish economic growth. PIL has taken various cost restructuring measures in the Brazilian subsidiary and have curtailed loss. In Q2FY17, Brazil reported EBITDA of Rs 10.8 mn against loss of Rs 9.1 mn in Q2FY16. North America sales grew by 5.8% YoY in Q2FY17, reported at Rs 635 mn. Operating loss stood at Rs 17 mn against a profit of Rs 70 mn in Q2FY16. Middle East/Africa subsidiary reported revenues at Rs 262 mn in Q2FY17 against Rs 239 mn in Q2FY16. However, reported operating loss of Rs 58 mn against loss of Rs 31 mn in Q2FY16 due to lower capacity utilization, higher SG&A expenses and delay in ramp up of sales. Other subsidiaries including SAARC and SEA reported sales and operating profits reported at Rs 360 mn (23% YoY growth, also aided by inorganic initiative) and Rs 43 mn in the quarter.

Subsidiaries Result (Rs mn) Q2FY17 Q2FY16 YoY % Q1FY17 QoQ

Income from Operations 1977 1548 27.7 1992 (0.8) EBITDA 152 218 (30.5) 76 99.7 PAT 36 123 (71.2) (11) (425.7) EBITDA% 7.7 14.1 3.81

Source: Kotak Securities - Private Client Research

In Q2FY17, tax expense/provision increased to Rs 912 mn resulting in PAT of Rs 2.3 Bn.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 11 MORNING INSIGHT November 11, 2016

Other takeaways  Elastomer business continues to remain on hold. Management expects to work out a definite strategy, involving strategic partner for the business in future. Company is looking to get a strategic partner at Dahej plant.  Company has been able to maintain market share/pricing in most of the product categories despite increased competition.  Company would likely maintain advertisement spends at around 3.5-4% of sales in FY17.  In Middle East, company is looking to reduce SG&A expenses and expects improved performance from Q3FY17 onwards.  PIL will continue to spend nearly 3% of sales in capex (mainly maintenance capex). Any inorganic initiatives would be in addition to this.

Valuation and Recommendation We believe that at current price, stock is trading expensive at 34.8x FY!8 earnings We maintain SELL on Pidilite implying minimal margin of safety; fully discounting the benefits of lower input Industries Ltd with a price prices and potential recovery in B2B and B2C businesses. We value PIL stock at 35x target of Rs.670 FY18 estimated earnings and maintain 'SELL' recommendation on company's stock with an unchanged target price of Rs 670.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 12 MORNING INSIGHT November 11, 2016

RESULT UPDATE APOLLO TYRES LTD (APTY) Arun Agarwal [email protected] PRICE: RS.196 RECOMMENDATION: ACCUMULATE +91 22 6218 6443 TARGET PRICE: RS.211 FY18E P/E: 7.4X

APTY's 2QFY17 results came below expectations. Consolidated revenues for the quarter increased by 2% YoY to Rs31bn, EBITDA margin contracted YoY by 193bps YoY and PAT declined by 7% YoY to Rs2.6bn. Company performance during the quarter was impacted by volume decline in domestic commercial vehicle business, increase in raw material cost, price cuts and lower margin from Reifencom (acquired in 2HFY16). We remain positive about healthy revenue growth for the company over the medium to long term. Expected improvement in commercial vehicle demand, continued growth in passenger car demand, ramp-up in two wheeler segment, OEM's sales startup in Europe and new capacities coming on stream are factors that will drive revenue growth for APTY. We expect EBITDA margins to remain healthy and stable. We have increased our FY17/FY18 net profit estimates by 4%/7%. We revise our target price on the stock to Summary table Rs211 (earlier Rs185) and maintain ACCUMULATE rating on the stock. Any (Rs mn) FY16 FY17E FY18E significant rise in natural rubber remains a key risk to our estimates and Sales 117,930 131,945 155,645 rating. Growth (%) (7.8) 11.9 18.0 EBITDA 19,682 20,236 24,255 EBITDA margin (%) 16.7 15.3 15.6 Standalone result highlights PBT 15,706 15,635 18,445 Adj. Net profit 10,613 11,483 13,404 Quarterly performance (Standalone) Adjusted EPS (Rs) 20.8 22.6 26.3 (Rs mn) 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%) Growth (%) 2.8 8.2 16.7 CEPS (Rs) 29.8 31.4 37.2 Revenues 20,755 22,646 (8.4) 22,734 (8.7) BV (Rs/share) 121.5 141.6 165.5 Total expenditure 17,446 18,652 (6.5) 18,761 (7.0) Dividend / share (Rs) 2.0 2.0 2.0 RM consumed 11,784 13,376 (11.9) 12,476 (5.5) ROE (%) 18.9 17.2 17.1 ROCE (%) 23.7 19.5 19.1 Employee cost 1,487 1,393 6.7 1,563 (4.9) Net cash (debt) (3,610) (14,988) (24,647) Other expenses 4,175 3,882 7.5 4,722 (11.6) NW Capital (Days) 58 53 49 EBITDA 3,309 3,995 (17.2) 3,974 (16.7) P/E (x) 9.1 8.7 7.4 P/BV (x) 1.6 1.4 1.2 EBITDA margin (%) 15.9 17.6 - 17.5 - EV/Sales (x) 0.9 0.9 0.8 Depreciation 644 683 (5.7) 631 2.0 EV/EBITDA (x) 5.3 5.7 5.1 Interest cost 235 224 5.0 242 (2.8) Source: Company, Kotak Securities - Private Other Income 428 93 358.3 253 69.2 Client Research Exceptional item - - PBT 2,858 3,180 (10.1) 3,353 (14.8) PBT margins (%) 13.8 14.0 14.7 Tax 812 1,029 (21.1) 991 (18.1) Tax rate (%) 28.4 32.3 - 29.5 - Reported PAT 2,046 2,152 (4.9) 2,362 (13.4) PAT margins (%) 9.9 9.5 - 10.4 - Other Comprehensive Income (53) 1 3.9 Total Comprehensive Income 1,993 2,153 (7.4) 2,366 (15.8) Reported EPS (Rs) 4.0 4.2 (4.9) 4.6 (13.4)

Source: Company

 APTY's standalone revenues during the quarter declined by 8% YoY to Rs20.8bn. Revenue decline was due to 2% volume degrowth and 6% negative impact of price and mix (due to price cuts taken in past one year and decline in commercial tyres volumes).  During the quarter, company witnessed 10%/15% volume growth in passenger car radial (PCR)/farm tyres and 10% volume decline in truck tyres.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 13 MORNING INSIGHT November 11, 2016

 During the quarter, raw material cost inched up QoQ and that resulted into gross margin sliding by 190bps to 45.1%. On a YoY basis, raw material were lower and thereby gross margin were up by 229bps.  Other expenses increased YoY due to conversion cost for 2W tyres and increase in freight and R&D expenses.  EBITDA for the quarter declined by 17% YoY as margins contracted by 169bps YoY and 153bps QoQ to 15.9%. On a YoY basis, EBITDA margin reducetion was due to volume decline, translating in to negative operating leverage. Se- quentially margin decline was due to increased raw material cost.  Other income saw sharp surge in 2QFY17 due to forex gain and interest income (both accounting ~50% each). Tax rate was also lower during the quarter which we believe was due to higher other income.  Standalone PAT for the quarter declined by 5% YoY to Rs2.05bn.

Consolidated result highlights

Quarterly performance (Consolidated) (Rs mn) 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)

Revenues 30,849 30,136 2.4 33,116 (6.8) Total expenditure 26,466 25,272 4.7 27,728 (4.6) RM consumed 15,915 15,878 0.2 16,186 (1.7) Employee cost 4,338 3,972 9.2 4,468 (2.9) Other expenses 6,212 5,422 14.6 7,075 (12.2) EBITDA 4,383 4,864 (9.9) 5,388 (18.6) EBITDA margin (%) 14.2 16.1 - 16.3 - Depreciation 1,058 1,075 (1.6) 1,060 (0.2) Interest cost 263 256 2.8 269 (2.4) Other Income 430 165 160.7 269 59.5 Exceptional item 478 - - PBT 3,493 4,175 (16.3) 4,328 (19.3) PBT margins (%) 11.3 13.9 13.1 Tax 891 1,366 (34.8) 1,181 (24.6) Tax rate (%) 25.5 32.7 - 27.3 - PAT (bef minority int/asso pft) 2,602 2,810 (7.4) 3,147 (17.3) Share of associates/Minority Int 1 9 - 0 - Reported PAT 2,600 2,801 (7.2) 3,147 (17.4) PAT margins (%) 8.4 9.3 9.5 Other Comprehensive Income 19 1,001 (272) Total Comprehensive Income 2,619 3,802 (31.1) 2,875 (8.9) Reported EPS (Rs) 5.1 5.5 (7.2) 6.2 (17.4)

Source: Company

Segmental performance (Rs mn) 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)

Segmental Revenues APMEA 23,664 25,680 (7.9) 25,611 (7.6) EA 9,942 7,630 30.3 10,577 (6.0) Others 3,678 2,327 58.0 2,962 24.2 EBIT margins APMEA 13.2 13.2 - 14.1 - EA 4.6 5.6 - 8.6 - Others 3.2 3.1 - 2.2 -

Source: Company

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 14 MORNING INSIGHT November 11, 2016

 Consolidated revenues for the quarter grew by 2% YoY to Rs30.8bn. While India operations witnessed decline, growth in Europe plant and acquisition of Reifencom (acquired in 2HFY16) helped the company post marginal consolidated revenue growth. Company takes maintenance shutdown at Europe plant in July/ August every year.  European business revenues grew by 30% YoY to Rs9.9bn. Volume growth in Europe business was 7%. Vredestein (manufacturing activity in Netherland) revenues grew by 6% YoY from Euro106mn to Euro112mn. Reifencom revenues for the quarter was Euro28mn as against Euro29mn in 2QFY16 (this business was acquired during 2HFY16).  Given lower input cost gross margins for the quarter improved by 110bps YoY to 48.4%. However, QoQ EBITDA margin declined by 272bps due to 5% increase in raw material cost basket and weak performance by Reifencom (due to lean season).  Rise in other expenses pertains to conversion cost for 2W tyres and increase in freight and R&D expenses at the standalone business and lower margins at Reifencom business.  Consolidated EBITDA for the quarter declined 10% YoY and 19% QoQ. Lower standalone business EBITDA margin and negative 5% EBITDA margin from Reifencom impacted EBITDA during the quarter. Vredestein's EBITDA margin increased marginally to 11.4% (from ~11% in 2QFY16).  On the back of decrease in EBITDA, PAT declined by 7% YoY to Rs2.6bn.

Conference Call Highlights  Company highlighted that volume decline in truck tyres was for both OEM and replacement segment (though decline in OEM volume decline was higher). Man- agement indicated towards improved truck tyre demand, so far in 3QFY17. How- ever, company pointed out that demonetization could impact demand in the near term.  In the 2W tyre segment, the company continues to make progress. Current volumes stands at 100,000 tyres per month for APTY.  In the consolidated revenues - 75% contribution was from replacement and 25% came from OEM. Truck tyres share declined to 41% from ~45-50% earlier and share of PCR and farm tyres increased YoY. In standalone revenues, share of truck tyres fell from ~65% to ~55%.  APTY signed a MoU with the Andhra Pradesh government for setting up a new greenfield plant with total investment of around Rs5bn.  Company will soon start supplying to OEM's in Europe business.  Company expects Europe business margin could remain under pressure in the near term due to increased fixed cost (R&D / test centre cost) and will improve post Hungary plant coming on stream.  On raw material, company expects prices to be range bound and could witness slight increase in 3QFY17. Average raw material price in 2QFY17 - Natural Rubber - Rs137/kg, Synthetic Rubber - Rs110/kg, Steel Cord - Rs110/kg and Carbon Black - Rs55/kg.  During 1HFY17, APTY incurred capex of Rs6bn for Chennai plant and Euro100mn on Hungary plant. In FY18, company will invest Euro125mn on Hun- gary plant and Rs8bn on Chennai plant expansion.  Capex of Hungary and Chennai plant will end in 4QFY18. Post that capex is expected to come down. Hungary plant's full capacity will be achieved by FY21. Post Hungary plant, APTY's Europe PCR capacity will increase from 6.5mn TPD to 12mn TPD.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 15 MORNING INSIGHT November 11, 2016

 Hungary plant will start commercial production in 4QFY17. Hungary plant will have phase 1 capacity of 5.5mn PCR and 0.7mn truck tyres.  In India current PCR capacity is 32,000 tyres per day (TPD) and the same will remain unchanged. However, APTY exports 1mn tyres annually to Europe and that will stop with Hungary plant coming onstream - thereby creating additional volumes for domestic PCR segment. Company will add small capacities on the SUV tyre segment. Truck Bus Radial (TBR) capacity will increase from current 6,000 TPD to 12,000 TPD post full ramp-up by June 2018.  APTY took a price cut of 2% in July 2016 in TBR segment and 2.5% price cut in TBB segment in October 2016.  Consolidated gross/net debt as of end 2QFY17 was at Rs30bn/16.5bn. Standalone gross/net debt as of end 2QFY17 was at Rs14bn/5bn.

Outlook  We expect APTY's volumes to improve in 2HFY17 and grow at a healthy pace in FY18. Expected improvement in commercial vehicle demand, continued growth in passenger car demand, ramp-up in two wheeler segment, OEM's sales startup in Europe and new capacities coming on stream are factors that will drive revenue growth for APTY.  We expect EBITDA margins to remain healthy and stable  Government have initiated probe against TBR dumping from China. Any positive development on this event can potentially give strong boost to TBR/TBB volumes. APTY derives significant proportion of sales from truck tyres and it could be a key beneficiary if Chinese TBR imports are curbed.  For FY17, we have lowered revenues to factor in weak 2QFY17 performance. We have also adjusted below EBITDA line items in line with 1HFY17 performance. Accordingly our FY17 PAT stands increased by 4%. For FY18, we have marginally increased our revenues and EBITDA margin and that translates into 6.5% increase in PAT. We maintain ACCUMULATE on  We revise our target price on the stock to Rs211 (earlier Rs185) and maintain Apollo Tyres Ltd with a price ACCUMULATE rating on the stock. We have valued the stock on a PE of 8x target of Rs.211 (earlier 7.5x) FY18E EPS.

Change in estimates Consolidated FY17 FY18 (Rs mn) Old New % chg Old New % chg

Revenues 134,301 131,945 -1.8 154,025 155,645 1.1 EBITDA Margin (%) 15.4 15.3 15.5 15.6 PAT 11,070 11,483 3.7 12,584 13,404 6.5

Source: Kotak Securities - Private Client Research

Key Risk Lower than expected volume growth and significant increase in raw material cost are key risks to our earnings estimates.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 16 MORNING INSIGHT November 11, 2016

RESULT UPDATE MOTHERSON SUMI SYSTEMS LTD (MSSL) Arun Agarwal [email protected] PRICE: RS.326 RECOMMENDATION: SELL +91 22 6218 6443 TARGET PRICE: RS.298 FY18E P/E: 22.4X

MSSL's consolidated 2QFY17 revenues and EBITDA came in marginally below our estimates. Consolidated revenues during the quarter grew by 14% YoY to Rs101bn (2% below estimates). EBITDA for the quarter came in at Rs9.97bn, 11% higher YoY but 4% below our estimates. Consolidated PAT during the quarter stood at 3.6bn, 25% growth YoY and 5% above estimates. While standalone business performance was on expected lines, SMRPBV's results were a tad below expectations. Backed by expectation of robust passenger vehicle demand and rising content per car, MSSL's standalone business revenues are expected to grow at a healthy pace. At SMRPBV, execution of various new orders started in 1HFY17 and that will ramp-up in the coming quarters, translating into robust revenue growth. With increased revenues and operational efficiencies, we expect EBITDA margins to witness improvement. We maintain our price target of Rs298 on the stock and maintain SELL as valuations capture most of the positives.

Standalone Result Highlights

Summary table Quarterly performance (Standalone) (Rs mn) FY16 FY17E FY18E (Rs mn) 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)

Sales 386,769 450,269 516,510 Revenues 15,860 13,548 17.1 14,215 11.6 Growth (%) 10 16 15 Total expenditure 12,682 10,794 17.5 11,598 9.3 EBITDA 38,333 46,799 56,679 EBITDA margin (%) 9.9 10.4 11.0 RM consumed 8,560 7,369 16.1 7,548 13.4 PBT 23,399 30,777 39,816 Employee cost 1,999 1,647 21.4 2,003 (0.2) Net profit 12,737 15,228 19,280 Other expenses 2,123 1,778 19.4 2,047 3.7 EPS (Rs) 9.6 11.5 14.6 Growth (%) 47.7 19.5 26.6 EBITDA 3,179 2,754 15.4 2,617 21.5 CEPS (Rs) 18.2 21.1 25.2 EBITDA margin (%) 20.0 20.3 - 18.4 - BV (Rs/share) 32 40 52 Depreciation 492 503 (2.3) 479 2.7 Dividend/share (Rs) 2.5 2.5 2.5 ROE (%) 34.0 31.8 31.6 Interest cost 13 183 (93.1) 135 (90.6) ROCE (%) 24.0 28.0 33.9 Other Income 105 702 (85.1) 105 (0) Net cash (debt) (40,553) (27,288) (8,775) Exchange Differences (net loss) (87) (4) 15 NW Capital (Days) 20 22 22 PBT 2,866 2,773 3.3 2,094 36.9 P/E (x) 33.9 28.3 22.4 P/BV (x) 10.2 8.1 6.3 PBT margins (%) 18.1 20.5 14.7 EV/Sales (x) 1.2 1.0 0.9 Tax 886 784 13.0 657 34.9 EV/EBITDA (x) 12.3 9.8 7.8 Tax rate (%) 30.9 28.3 - 31.4 - Source: Company, Kotak Securities - Pri- Reported PAT 1,980 1,989 (0.5) 1,437 37.8 vate Client Research PAT margins (%) 12.5 14.7 - 10.1 - Other Comprehensive Income (40.9) (15.4) (31.6) Total Comprehensive Income 1,939 1,974 (1.8) 1,405 38.0 Reported EPS (Rs) 1.4 1.5 (6.2) 1.1 29.9

Source: Company

 Standalone revenues grew by 17% YoY to Rs15.9bn. Revenue grew on the back of strong passenger car volume growth and rising content per car. Copper prices in 2QFY17 were lower 22% YoY.  Gross margins during the quarter stood at 46%, 43bps higher YoY but 87bps lower QoQ.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 17 MORNING INSIGHT November 11, 2016

 Employee cost increased by 21% YoY, led by annual increments and increase in manpower. Other expenses increased by 19% YoY due to growth in business.  EBITDA margin for the quarter was at 20%, 30bps lower YoY. Sequentially EBITDA margin moved up on account of operational leverage.  Other income declined YoY on a high base. 2QFY16 other income includes Rs680mn as dividend income. Interest cost was lower YoY and QoQ. Standalone gross debt declined from Rs4.6bn as of on end 1QFY17 to Rs3.1bn as of end 2QFY17.  Despite EBITDA growth of 15% YoY, standalone PAT remained flat YoY at Rs1.98bn due to lower income.

Subsidiary Result Highlights

Quarterly performance (Subs) - Derived (Rs mn) 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)

Revenues 85,509 75,174 13.7 90,289 (5.3) Total expenditure 78,716 68,919 14.2 83,502 (5.7) RM consumed 52,752 45,607 15.7 56,179 (6.1) Employee cost 17,105 15,235 12.3 18,091 (5.5) Other expenses 8,859 8,076 9.7 9,232 (4.0) EBITDA 6,792 6,255 8.6 6,787 0.1 EBITDA margin (%) 7.9 8.3 - 7.5 -

Source: Company

 SMRPBV (includes SMR and SMP) revenues grew by 13% YoY to Euro1,055mn, driven by double-digit growth at both SMP and SMR. SMR revenues grew by 16% YoY to Euro375mn. Revenue growth for SMP during the quarter was 11% with revenues of Euro981mn.  EBITDA margin for SMRPBV witnessed marginal 40bps improvement YoY and the same stood at 7.9%. EBITDA margin improvement was on the back of 30bps margin improvement at both key businesses - SMR and SMP.  SMR's EBITDA margin increased from 9.3% to 9.6% YoY. SMR's EBITDA margin during the quarter is still quite lower than record 12.5% margins achieved during 4QFY16.  SMP's EBITDA margin moved up from 6.2% to 6.5%. However, margins were down 40bps QoQ. SMP's EBITDA margin in the past few quarters have broadly been between 6-7%.  SMRPBV's PAT increased from Euro10mn to Euro14mn YoY.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 18 MORNING INSIGHT November 11, 2016

Consolidated Result Highlights

Quarterly performance (Consolidated) (Rs mn) 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)

Revenues 101,369 88,721 14.3 104,504 (3.0) Total expenditure 91,398 79,712 14.7 95,100 (3.9) RM consumed 61,312 52,977 15.7 63,727 (3.8) Employee cost 19,104 16,882 13.2 20,094 (4.9) Other expenses 10,983 9,854 11.5 11,279 (2.6) EBITDA 9,971 9,009 10.7 9,404 6.0 EBITDA margin (%) 9.8 10.2 - 9.0 - Depreciation 2,643 2,573 2.7 2,508 5.4 Interest cost 980 1,047 (6.4) 847 15.7 Other Income 45 53 (15.4) 37 20.4 Exchange Differences (net loss) (97) 224 123 PBT 6,489 5,218 24.4 5,964 8.8 PBT margins (%) 6.4 5.9 5.7 Tax 2,105 1,692 24.5 1,955 7.7 Tax rate (%) 32.4 32.4 - 32.8 - PAT (bef minority int/asso pft) 4,384 3,526 24.3 4,009 9.3 Share of associates/Minority Int 774 643 20.4 983 (21.2) Reported PAT 3,610 2,883 25.2 3,026 19.3 PAT margins (%) 3.6 3.3 2.9 Other Comprehensive Income (538) (535) 141 Total Comprehensive Income 3,072 2,348 30.8 3,168 (3.0) Reported EPS (Rs) 2.6 2.2 18.0 2.3 12.4

Source: Company

 Backed by growth at India operations and SMRPBV, MSSL's consolidated revenues grew by 14% YoY to Rs101bn, marginally lower than our expectation of Rs103bn.  EBITDA margin for the quarter was 9.8%, lower than 10.2% reported during 2QFY16. EBITDA for the quarter was 9.97bn as against expectation of Rs10.4bn.  Reported PAT for the quarter was grew by 25% YoY to Rs3.6bn as against expectation of Rs3.4bn.

Outlook and Valuation  Domestic passenger vehicle demand is likely to stay robust over FY16-FY18E and the same will be positive for company's India revenues. We recommend SELL on  At SMRPV, company started execution of orders worth Euro3.1bn (Rs.230 bn) Motherson Sumi Systems Ltd in 1HFY17 and ramp-up of these orders will happen in subsequent quarters. with a price target of Rs.298 In 1HFY17, added new orders worth Euro1.6bn (Rs120bn) and the total order book now stands at Euro11.9bn (Rs890bn). Company's order book as of end FY16 stood at Rs1,000bn.  On the back of commencement of new plants, we expect revenue growth to be healthy for the company. With increased revenues and operational efficiencies, we expect EBITDA margins to witness improvement.  We maintain our price target of Rs298 on the stock and maintain SELL as valuations capture most of the positives.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 19 MORNING INSIGHT November 11, 2016

RESULT UPDATE SUN PHARMACEUTICALS INDUSTRIES LTD Meeta Shetty, CFA [email protected] PRICE: RS.667 RECOMMENDATION: BUY +91 22 6218 4425 TARGET PRICE: RS.915 FY18E P/E: 18.2X

Sun's results were ahead of expectations mainly led by better margins. US revenues at US$ 555mn (our exp US$ 560mn) were though in line. Sun has indicated US$ 25mn of one time sales (which may not be repeated on quarterly basis). Adj for that, overall sales were lower than expected. However, on margins front, we saw the operating leverage benefit as well as synergy benefit playing out. Though the quantum of benefits may fluctuate depending on currencies as well as R&D outgo. Sun expects to launch Bromsite in near term, MK3222 BLA will be filed as per guidance in this year. We retain our estimates for FY17E as well as FY18E and continue to value Sun at 23x FY18E and add an NPV (of Rs 28) for MK3222. Maintain Buy with a target price of Rs 915 (unchanged). The key catalyst for Sun remains Halol plant clearance.

Quarterly Financials -Snapshot (Rs mn) 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 YoY (%) QoQ (%)

Net Sales 68,033 70,466 74,139 80,067 77,640 14 (3) Material Expenses 15,583 17,554 14,520 18,470 18,399 18 (0) Employee Expenses 12,088 11,483 11,812 12,393 11,991 (1) (3) Other Oper Expenses 16,600 14,334 18,091 17,181 15,055 (9) (12) R&D expenses 4,769 5,760 6,715 5,176 5,530 Operating Profits 18,994 21,335 23,000 26,847 26,666 40 (1) Other Oper Income 343 355 2,203 2,363 5,011 1,361 112 EBITDA 19,337 21,690 25,203 29,210 31,677 64 8 Interest Cost 1,484 1,170 886 1,346 537 (64) (60) Depreciation 2,711 2,508 2,643 3,160 3,038 12 (4) Other Income 1,913 2,192 (350) 1,571 1,194 (38) (24) PBT 17,055 20,205 21,325 26,275 29,295 72 11 Tax 3,355 2,020 1,706 3,527 4,417 32 25 Minority interest (2,633) (3,948) (2,482) (2,340) (2,360) (10) 1 Exceptional items - - - - - PAT 11,067 14,236 17,137 20,408 22,519 103 10 Share of associates - - - (71) (168) 137 RPAT 11,067 14,236 17,137 20,337 22,351 102 10 Margin Analysis (%) 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 YoY (bps) QoQ (bps) Raw mat cost 22.9 24.9 19.6 23.1 23.7 79.2 62.9 Employee cost 17.8 16.3 15.9 15.5 15.4 (232.3) (3.3) Other expenses 31.4 28.5 33.5 27.9 26.5 (489.7) (141.1) R&D Expenses 7.0 8.2 9.1 6.5 7.1 11.3 65.7 Operating Margin 27.9 30.3 31.0 33.5 34.3 642.7 81.5 EBITDA Margin 28.3 30.6 33.0 35.4 38.3 1004.6 289.0 APAT Margin 16.2 20.1 22.4 24.7 27.0 1085.8 237.1 Tax Rate 19.7 10.0 8.0 13.4 15.1 (459.5) 165.2

Source: Company

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 20 MORNING INSIGHT November 11, 2016

Summary table Results highlights (Rs mn) FY16 FY17E FY18E Domestic formulations Sales 282,697 324,063 388,344  Posted ~10% growth in the quarter. Growth (%) 3.0 14.6 19.8 EBITDA 84,816 104,819 129,360  Company believes - Competition, government mandated price controls and EBITDA margin (%) 30.6 33.1 34.0 changing regulations - are key long term trend deciders for IPM. PBT 67,653 95,471 121,908 APAT 54,030 69,867 88,330  Sun launched 8 products in the Indian market during the quarter. AEPS(Rs) 22.5 29.0 36.7  Sun expects to continue to outperform the IPM. Growth (%) 19.0 29.3 26.4 CEPS(Rs) 23.8 33.9 41.9  Impact from NLEM would be ~Rs 1.5bn for FY17E. BVPS(Rs) 130.5 162.1 201.8 DPS (Rs) 2.0 2.2 2.2 US ROE (%) 16.3 19.8 20.2 ROCE (%) 26.0 27.4 27.7  US formulations revenues were at US$ 555 million up by 9% over Q2 last year. Net debt (51,511)(124,865)(211,602)  Sun indicated two key things for US - (1) the US sales includes a non-recurring NW Capital (Days) 113.6 104.5 98.8 P/E (x) 29.7 23.0 18.2 sale of US$ 25mn (non-recurring on QoQ basis) and (2) The gGleevec revenues P/BV (x) 5.1 4.1 3.3 were booked for a month during the quarter. EV/Sales (x) 5.5 4.6 3.6 EV/EBITDA (x) 18.3 14.1 10.8  Adj for these two, US sales have increased QoQ which was attributable to pick up in supplies from Halol and pick up in market share of few products, this we Source: Company, Kotak Securities - Private Client Research believe is positive as base sales trajectory was subdued over the past few quarters.  Total - 144 ANDAs pending, 423 approved. 3 filed and 6 approvals in 2QFY17.  Sun is seeing delays in launching gGlumetza due to technical difficulties. Others  Emerging Markets sales at US$ 170 million, up 22% YoY the growth was across markets.  Rest of World sales at US$ 79 million, down 3.0% YoY.  API segment - posted 16% growth YoY.  R&D expenses - 7.3% for 2QFY17 and guidance of ~9.0% to sales. The R&D expense is expected to pick up in the coming quarters.  On other expenses, company did not clarify on exact cause of reduction; however, some part is driven by synergy benefits apart from forex, R&D as well as lumpiness in other line items.  Bromsite - Launch by ~Dec - 2016. Company expects to launch one more specialty ophthal product in FY17 (taking the total to 2) and have a dedicated field force of ~100 to market them.  Gleevec competition - Sun has already seen competition in gGleevec with 2 competitors (Teva and Apotex) launching in early Aug-16. Sun expects more competition in coming months which will impact market share as well as prices.  On MK3222, company maintained its earlier guidance of filing in CY17. Sun has signed a licensing agreement with Almirall (Spain), a leading European dermatology company, for the development and commercialization of Tildrakizumab for psoriasis in Europe.  On Halol, company maintained that they have invited the USFDA for re-inspection and expect the plant to be inspected in near term. Once inspected, (as per usual timelines) company expects the USFDA to clear the facility within 3-5 months.  Sun maintained its guidance (8-10% revenue growth) in spite of ~18% growth registered in 1HFY17. Sun has in the past outperformed its guidance, we expect this year too to be similar.  Other operating income was higher for the quarter at Rs 5.01bn (vs avg of Rs 2.5bn) as it includes US$ 45 million of milestone payment from Almirall as part of the licensing agreement for the development and commercialization of Tildrakizumab for psoriasis in Europe.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 21 MORNING INSIGHT November 11, 2016

MK3222 - Tildrakizumab  For Tildra, Sun believes they have a better safety profile as well as the dosing benefit (once a quarter) are the key positives compared to peer set products.  On PASI 90, though tildra seems lower, compared to other IL- category drugs, but as per indications from clinicians, Sun's product is very competi- tive.  Sun also believes pricing will play a key role, once the drug is launched.

Revenue breakup (Rs mn) 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 YoY (%) QoQ (%)

Domestic formulations 18,187 18,903 18,066 18,543 20,091 10 8 Export formulations 47,215 47,513 52,800 56,643 53,836 14 (5) - US formulations 33,158 32,003 39,103 40,706 37,144 12 (9) - Emerging/RoW formulations 14,057 15,510 13,697 15,936 16,692 19 5 Bulks 3,150 4,405 3,760 4,698 3,669 16 (22) Others 142 207 165 183 45 (68) (76) Revenues 68,693 71,028 74,791 80,067 77,640 13 (3)

Source: Company

Outlook and Valuation Sun's results were ahead of expectations mainly led by better margins. US revenues at US$ 555mn (our exp US$ 560mn) were though in line. Sun has indicated US$ 25mn of one time sales (which may not be repeated on quarterly basis). Adj for that, overall sales were lower than expected. However, on margins front, we saw the operating leverage benefit as well as synergy benefit playing out. Though the quantum of benefits may fluctuate depending on currencies as well as R&D outgo. At the start of the year, management had guided for a mere 8-9% growth in rev- We maintain BUY on Sun enues and also indicated margin pressures due to higher expenses towards building Pharmaceuticals Industries Ltd a specialty portfolio as well as higher R&D expenses. The sales guidance included 4 with a price target of Rs.915 months of gGleevec exclusivity revenues as well as consolidation of Japanese acquisition (~US$60mn revenue). The Japanese acquisition will add revenues only for 5-6 months in FY17. Sun has posted ~18% growth in 1HFY17, but has maintained its guidance. Sun has been conservative in its guidance in the past, hence we had built 14.6% growth in revenues for FY17E and we maintain the same. We expect the next key catalyst for Sun would be Halol inspection, post which we expect ANDA approvals to pick up. We retain our estimates for FY17E as well as FY18E and continue to value Sun at 23x FY18E and add an NPV (of Rs 28) for MK3222. Maintain BUY with a target price of Rs 915.

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 22 MORNING INSIGHT November 11, 2016

Bulk deals Trade details of bulk deals Date Scrip name Name of client Buy/ Quantity Avg. Sell of shares price (Rs)

10-Nov APARINDS Fid Funds Mauritius Ltd S 2,42,484 574.0 10-Nov DIKSAT Sajankumar Rameshwarlal Bajaj B 2,22,000 44.0 10-Nov DIKSAT Overskud Multi Asset Management S 93,000 42.8 10-Nov DIKSAT Aryaman Broking Ltd S 2,43,000 43.9 10-Nov ENIL Amansa Holdings Pvt Ltd B 2,58,465 730.0 10-Nov INTENTECH Uno Metals LTD S 1,58,588 91.2 10-Nov JUNCTION Shefali Trehan S 16,000 24.6 10-Nov JUNCTION Darshan Trading Company B 16,000 24.6 10-Nov MAHLIFE Nwbp As Dp Offirststate Glbemrgmkts Sust Fdasubfdoffsinvtsicvc S 2,17,998 422.0 10-Nov MHEL Bimal Abhechand Mehta S 24,000 16.9 10-Nov OMNIAX Roopa Shrenik Shah B 2,85,000 1.0 10-Nov OMNIAX Aryaman Broking Ltd S 4,95,500 1.0 10-Nov RCSL Sonal Bhattbhatt . S 24,551 21.6 10-Nov SAL Thar Commercial Finance Pvt Ltd B 1,00,000 22.0 10-Nov SUNILHITEC Vigrah Trading Pvt Ltd B 90,000 327.0 10-Nov SUPRDOM Rameshbhai Vallabhbhai Patel B 24,500 4.2 10-Nov SUYOG Lts Investment Fund Ltd B 63,200 451.0 10-Nov SUYOG Ivory Consultants Pvt Ltd S 63,200 451.0 10-Nov TRANSPEK* Pankaj Dhanji Chheda S 84,552 471.7 10-Nov TRANSPEK* Transpek Industry Limited B 92,064 471.6 10-Nov TTIL Samseerhusain Kasimhusain Khan S 30,000 14.0

Source: BSE

Gainers & Losers Nifty Gainers & Losers Price (Rs) chg (%) Index points Volume (mn)

Gainers Tata Steel 437 9.4 NA 10.9 Bank of Baroda 165 9.1 NA 19.9 Hindalco Ind 176 8.4 NA 16.3 Losers Asian Paints 1,011 (3.8) NA 1.7 Hero MotoCorp 3,145 (2.8) NA 0.5 Lupin Ltd 1,494 (2.3) NA 2.6

Source: Bloomberg

Forthcoming events Company/Market Date Event

11 Nov Alembic, Gabriel India, GE Shipping, M&M, MT Educare earnings expected

Source: bseindia.com

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 23 MORNING INSIGHT November 11, 2016

RATING SCALE Definitions of ratings BUY – We expect the stock to deliver more than 12% returns over the next 9 months ACCUMULATE – We expect the stock to deliver 5% - 12% returns over the next 9 months REDUCE – We expect the stock to deliver 0% - 5% returns over the next 9 months SELL – We expect the stock to deliver negative returns over the next 9 months NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA – Not Available or Not Applicable. The information is not available for display or is not applicable NM – Not Meaningful. The information is not meaningful and is therefore excluded. NOTE – Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.

Fundamental Research Team Dipen Shah Ruchir Khare Meeta Shetty, CFA Jayesh Kumar IT, Economy Capital Goods, Engineering Pharmaceuticals Economy [email protected] [email protected] [email protected] [email protected] +91 22 6218 5409 +91 22 6218 6431 +91 22 6218 6425 +91 22 6218 5373 Sanjeev Zarbade Ritwik Rai Jatin Damania K. Kathirvelu Capital Goods, Engineering FMCG, Media Metals & Mining Production [email protected] [email protected] [email protected] [email protected] +91 22 6218 6424 +91 22 6218 6426 +91 22 6218 6440 +91 22 6218 6427 Teena Virmani Sumit Pokharna Pankaj Kumar Construction, Cement Oil and Gas Midcap [email protected] [email protected] [email protected] +91 22 6218 6432 +91 22 6218 6438 +91 22 6218 6434 Arun Agarwal Amit Agarwal Nipun Gupta Auto & Auto Ancillary Logistics, Paints, Transportation Information Technology [email protected] [email protected] [email protected] +91 22 6218 6443 +91 22 6218 6439 +91 22 6218 6433

Technical Research Team Shrikant Chouhan Amol Athawale [email protected] [email protected] 91 22 6218 5408 +91 20 6620 3350

Derivatives Research Team Sahaj Agrawal Malay Gandhi Prashanth Lalu [email protected] [email protected] [email protected] +91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497

Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 24 MORNING INSIGHT November 11, 2016

Disclosure/Disclaimer Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSEI). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/ deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to clients as well as our prospects. This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, 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 be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent. Details of Associates are available on our website ie www.kotak.com Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: Bajaj Electricals, Pidilite Industries Ltd, Sun Pharma - Yes Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. "A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)." Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSEI INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities are subject to market risk; please read the SEBI prescribed Combined Risk Disclosure Document prior to investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. In case you require any clarification or have any concern, kindly write to us at below email ids:  Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Online Customers - 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292  Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022- 42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208.  Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Manoj Agarwal ) at [email protected] or call on 91- (022) 4285 8484.  Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on 91- (022) 4285 8301. Kotak Securities - Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 25