India Daily, March 16, 2015

March 16, 2015 India 13-Mar 1-day 1-mo 3-mo Sensex 28,503 (1.5) (2.2) 6.4 Nifty 8,648 (1.5) (1.8) 7.2 Contents Global/Regional indices Dow Jones 17,749 (0.8) (1.5) 4.0 Daily Alerts Nasdaq Composite 4,872 (0.4) (0.5) 7.1 Company alerts FTSE 6,741 (0.3) (1.7) 6.5 Sesa Sterlite: Sindesar Khurd mine visit takeaways - burnished by silver Nikkei 19,299 0.2 7.2 15.2 Hang Seng 23,823 0.1 (3.7) 5.1 Zee Entertainment Enterprises: &TV - well begun is half done KOSPI 1,985 (0.0) 1.4 4.3 DLF: Two events - some relief Value traded – India Dhanuka Agritech: Sempra: the new blockbuster Cash (NSE+BSE) 240 233 178 Derivatives (NSE) 3,160 2,392 2,421 Sector alerts Deri. open interest 2,381 2,407 2,287 Telecom: Spectrum auction update: 10 days of action over; we are likely in the last phase Forex/money market

Change, basis points

13-Mar 1-day 1-mo 3-mo

Rs/US$ 63.1 (0) 89 (74)

10yr govt bond, % 7.9 - 11 (9)

Net investment (US$ mn)

12-Mar MTD CYTD

FIIs 142 3,678 16,162

MFs 45 (628) 4,802

Top movers

Change, %

Best performers 13-Mar 1-day 1-mo 3-mo

HDIL IN Equity 110.9 (4.6) (5.8) 78.7

SIEM IN Equity 1432.8 (2.7) 16.1 71.2

AL IN Equity 72.4 (3.5) 9.4 57.7

ADE IN Equity 634.1 (3.3) (4.4) 43.9

BHFC IN Equity 1289.0 (3.3) 9.7 43.8

Worst performers

PNB IN Equity 166.1 (0.1) (0.4) (22.5)

BOI IN Equity 216.0 (1.8) (8.1) (22.5)

UNBK IN Equity 169.2 (1.1) (5.7) (19.5)

BJAUT IN Equity 2023.1 (2.4) (10.6) (18.9)

HMCL IN Equity 2610.0 (1.2) (7.0) (16.7)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

BUY Sesa Sterlite (SSLT) Metals & Mining MARCH 16, 2015 UPDATE Coverage view: Cautious

Sindesar Khurd mine visit takeaways – burnished by silver. An early ramp up of ore Price (`): 196 production from the SK mine will aid HZ’s volume growth (mid-single digit) over the Target price (`): 250 next two years even as volumes at its Rampura Agucha mine decline. SK has huge silver BSE-30: 28,503 potential with current mining grades (100 ppm) not reflective of the mine’s average global grades (155 ppm). Mine expansion and better grades can increase silver volumes to >500 tons from this mine alone. We maintain BUY on SSLT/HZ.

Company data and valuation summary Sesa Sterlite Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 318-169 EPS (Rs) 19.3 22.0 28.3

Market Cap. (Rs bn) 580.8 EPS growth (%) 14.1 13.9 28.4 Shareholding pattern (%) P/E (X) 10.1 8.9 6.9 Promoters 59.5 Sales (Rs bn) 756.0 863.2 1,024.0 FIIs 17.0 Net profits (Rs bn) 57.3 65.3 83.8 MFs 1.5 EBITDA (Rs bn) 238.3 260.4 312.5 Price performance (%) 1M 3M 12M EV/EBITDA (X) 5.6 5.0 3.8 Absolute (7.7) (9.3) 13.4 ROE (%) 7.7 8.3 9.9 Rel. to BSE-30 (5.8) (12.9) (13.4) Div. Yield (%) 1.7 1.7 1.7

SK mine to support HZ’s volume growth over FY2016/17E as Rampura Agucha volume declines

Hindustan Zinc’s volume growth over FY2016/17E will be largely driven by a ramp up of SK mines, as volumes from the Rampura Agucha mine will remain under pressure due to transition to underground mining. SK mine produced 1.7 mn tons of ore in FY2014, which can increase to ~2.5-3 mn tons in FY2016; the mine’s FY2015 production will be about 2 mn tons. Despite SK mine’s comparatively lower zinc (4.6%) and lead (2.6%) grades , an additional 1 mn tons from this mine can result in 70 kt of increase in mined metal production besides higher silver volumes. HZ expects SK mine’s volumes to increase to 3.5 mn tons in FY2017. Auxiliary mines to help, as the main production shaft will be commissioned only by CY2018 end

Volume growth at SK mines over next three years will be supported by (1) production from auxiliary mines (SK 2 and SK 6), which together can produce an additional ~1 mtpa of ore, and (2) higher volumes from declines from the main ore body until the main production shaft is commissioned. The production ramp up from the main auxiliary mine will start from April 2015 and SK is targeting a 200 kt ore production in March.

SK mine’s production until FY2019 will only be through declines, as the main production shaft will be commissioned by CY2018 end. While the shaft has mostly been excavated (1,000 mts out of the total depth of 1,050 mts), the commissioning timeline is based on equipment installation and other mine preparation works. Higher SK mine ore production and better grades will drive strong growth in silver volumes

HZ’s silver volumes can increase by 87 tons from an additional 1 mtpa of ore production from

SK mine assuming (1) recovery rates of 83% (84% from concentrator and 98.5% from smelter), and (2) better silver grades. The current ore mining is at ore body with lower grades – FY2014 treated grade was at ~105 ppm compared to 155 ppm of the total reserve grade. HZ is targeting 130 ppm of silver mining grades for FY2016, which can add further 60 tons of silver volumes. HZ can increase its captive silver production by 150 tons based on these two improvements. We maintain our mined metal volume growth estimate of 6-7% for FY2016-17 at 933 kt/ 986 kt. Our silver volumes estimate of 365/417 tons for FY2016/17 has upside risks from silver grade improvement at SK mines. We estimate the total silver potential from SK mine at >500 tons after expansion from higher volumes/better grades. We maintain our BUY rating on SSLT/HZ.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Sesa Sterlite Metals & Mining

SK mines – we estimate silver potential at >500 tons after expansion

We estimate the total silver volumes potential at SK mines at 490 tons, which can further increase by 85 tons from auxiliary lenses (mines) based on following drivers/assumptions.

 3.75 mtpa Increase in ore production. SK mine’s FY2014 ore production was 1.7 mn tons, which is likely to increase to 2 mn tons in FY2015. After the mine expansion (first due to declines and then due to commissioning of the main production shaft), the total ore production can increase to 3.75 mtpa. We believe SK mine’s auxiliary lenses has the potential to add another 0.75 mtpa to production through the shaft of the main ore body.

 Improvement in silver grades. The average silver grade at the SK mine in FY2014 was only 105 ppm against the global mine average grade of 155 ppm (grams/ton). The average silver grades in FY2015 are still lower at ~100 ppm.

SK’s silver grades are lower due to mining in areas with low silver content; these will improve as the mining moves deeper into the main ore body. Of the total 20.4 mn tons of proved and probable reserves at SK mine (1) 3 mn tons of proven reserves (where the mining is likely being carried on now) has silver grades of only 98 ppm while (2) 17.4 mn tons of probable reserves have silver grade of 165 ppm. SK mine is targeting ore production with silver grades of 130 ppm in FY2016.

 Silver recovery rates. SK mines’ silver recovery at concentrator is 84-85% and at the downstream smelter is ~98.5%. The silver is recovered in slimes from the lead smelter tank-house (residual of lead electrolysis process) and these slimes have between 17-25% of silver content. The slimes containing silver are transported in drums to Pantanagar refinery with virtually no process losses.

We expect silver volumes to increase gradually with increase in ore production and improvement in grades over FY2016-2019. HZ’s total captive silver production in FY2014 was 301 tons (192 tons of integrated silver in 9MFY15), which included volumes from mines other than SK (mainly Rampura Agucha).

Other points

 Metal recoveries. The mined metal recovery for SK mine ore is 90% for zinc, 88% for lead and 84-85% for silver. The smelter recovery for zinc is high at 97-98 % and for lead at 98.5%.

 Costs. The ore raising cost from the production shaft is lower than declines. We expect SK mine to benefit from commissioning of production shaft as it saves on high hauling costs through declines.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Metals & Mining Sesa Sterlite

Exhibit 1: Sesa Sterlite, Key assumptions, March fiscal year ends 2014-17E (` mn)

2014 2015E 2016E 2017E Volumes (tons) Zinc 750,766 729,911 766,677 782,203 Lead 121,120 125,924 127,324 155,697 Copper 293,575 366,096 367,984 374,059 Aluminum - Balco 252,172 323,675 500,225 559,075 Refined silver 347 330 365 417 Power (mn units) 7,530 9,421 14,273 15,129 Iron ore sales (dmt) 1,798 1,500 1,500 Base assumptions (US$/ton) Zinc 1,909 2,200 2,250 2,300 Lead 2,092 2,100 2,200 2,300 Copper 7,108 6,500 6,250 6,250 Aluminium (all in) 2,030 2,300 2,250 2,300 Dated Brent crude price (US$/bbl) 108 86 70 75

Source: Company, Kotak Institutional Equities

Exhibit 2: Our SOTP-based target price for Sesa Sterlite is `250/share SOTP-based target price of Sesa Sterlite, March fiscal year-ends, September 2016E basis (` mn)

Implied Sesa's Attributable EBITDA Multiple EV Net debt M Cap stake M Cap Contribution (Rs bn) (X) (Rs bn) (Rs bn) (Rs bn) (%) (Rs bn) Rs/ share BALCO 16 6.0 95 44 51 51 26 9 Zinc business Hindustan Zinc 77 6.0 468 (399) 867 64.9 563 190 Zinc International 11 4.5 47 (27) 75 100 75 25 Cairn India (fair value of KIE's energy team) 99 Debt from Cairn India acquisition 306 (103) Standalone (ex-power, iron ore) 62 6.0 374 352 22 100 22 7 Iron ore business 11 Power business (Talwandi Sabo) 12 Sesa Sterlite share price (Rs/ share) 250 Target price of Sesa Sterlite (Rs/ share) 250

Source: Kotak Institutional Equities estimates

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Sesa Sterlite Metals & Mining

Exhibit 3: Sesa Sterlite, Profit model, balance sheet and cash flow model, March fiscal year-ends, 2014-2017E (` mn)

2014 2015E 2016E 2017E Profit model (Rs mn) Net sales 722,341 755,989 863,232 1,023,986 EBITDA 256,650 238,308 260,447 312,498 Other income 19,410 41,264 48,810 49,678 Interest (61,110) (57,190) (64,131) (67,772) Depreciaiton (55,840) (66,807) (78,288) (87,119) Goodwill amortization (28,400) (21,775) (23,679) (25,852) Profit before tax 130,710 133,800 143,159 181,434 Extraordinaries 2,760 (17,176) - - Current tax (10,000) (18,878) (20,091) (35,031) Deferred tax - (124) (6,798) (9,173) Net income before minorities 123,470 97,622 116,269 137,229 Minority interest (73,420) (50,625) (50,985) (53,410) Net income 50,050 46,997 65,284 83,819 Adjusted net income 50,200 57,302 65,284 83,819 EPS adjusted (Rs) 16.9 19.3 22.0 28.3 EPS (ex-goodwill amortization) (Rs) 26.5 26.7 30.0 37.0 Balance sheet (Rs mn) Shareholder's funds 730,087 761,892 812,063 880,768 Borrowings 805,660 861,635 887,652 855,334 Minority Interest 337,975 372,279 407,945 446,035 Deferred tax liability 27,352 27,476 34,275 43,448 Current liabilities 240,110 236,054 244,338 278,823 Total liabilities 2,141,183 2,259,336 2,386,272 2,504,409 Net fixed assets 479,671 685,341 838,555 940,355 Capital work-in-progress 431,277 300,114 199,641 129,954 Goodwill 392,383 370,608 346,930 321,078 Cash and cash equivalents 507,970 541,028 598,678 665,429 Current assets 329,882 362,245 402,468 447,592 Total assets 2,141,183 2,259,336 2,386,272 2,504,409 Free cash flow (Rs mn) Operating cash flow excl. working capital 166,247 202,254 240,356 277,466 Working capital changes (10,239) (36,419) (31,939) (10,640) Capital expenditure (72,317) (141,314) (131,029) (119,232) Free cash flow 83,691 24,521 77,387 147,595 Ratios Debt/equity (X) 1.1 1.1 1.1 1.0 Net debt/equity (X) 0.4 0.4 0.4 0.2 RoE (%) 7.1 6.3 8.3 9.9 RoACE (%) 9.0 6.5 6.6 7.5

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

ADD Zee Entertainment Enterprises (Z) Media MARCH 16, 2015 UPDATE Coverage view: Neutral

&TV—well begun is half done. &TV, Zee’s new mainstream Hindi GEC, saw a Price (`): 344 viewership share of ~4.7% in the first week, best since the launch of Colors (2008). Target price (`): 385 Headline ratings have impressed advertisers even as internals are not perfect. &TV can BSE-30: 28,503 potentially become the main driver of Zee’s ad-revenue growth outperformance over 3- 4 years, if it is able to capitalize on this opening and double viewership share in 3-6 months; we would not worry about interim losses. We trim FY2015/16E EPS by 3-4% (FY2017E unchanged) as we build a slightly higher loss from &TV given high-cost content. Zee’s existing business is on a strong footing—outlook for ad and subscription revenues is robust, and inflation in movie cost is moderating. Reiterate ADD.

Company data and valuation summary Zee Entertainment Enterprises Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 402-259 EPS (Rs) 8.4 8.7 12.2 Market Cap. (Rs bn) 330.6 EPS growth (%) (8.2) 3.8 39.3 Shareholding pattern (%) P/E (X) 40.8 39.3 28.2 Promoters 43.1 Sales (Rs bn) 47.2 55.0 64.9 FIIs 51.9 Net profits (Rs bn) 8.1 8.4 11.7 MFs 0.9 EBITDA (Rs bn) 12.7 13.4 17.8 Price performance (%) 1M 3M 12M EV/EBITDA (X) 24.7 23.3 17.3 Absolute (5.4) (4.7) 23.3 ROE (%) 16.3 15.5 19.8 Rel. to BSE-30 (3.5) (8.6) (5.8) Div. Yield (%) 1.3 1.6 1.9

&TV opening week ratings—strong headline, mixed internals; overall a good start

&TV’s headline ratings of 91 GVMs (gross TV viewership in millions), implying viewership share of about 4.7% in Hindi GEC, makes it the most successful new channel launch since Colors (2008). A detailed analysis of ratings reveals (1) movie telecasts contributed ~25%, (2) ratings were broad based across daily soaps and (3) Shah Rukh Khan (SRK) succeeded in attracting viewers to the channel, but his game show was bit of a letdown. This is not necessarily a concern—a channel built on fiction is usually more profitable than one dependent on a star anchor. Overall, &TV’s start has impressed advertisers and we expect ratings to build up over 3- 6 months. Key things to watch out for are (a) a rise in ratings from original content (excluding movies), (b) cannibalization of Zee TV’s viewership, and (c) whether content sticks to contemporary lines and appeals to the male audience as envisaged.

&TV’s success could lay the foundation for Zee’s industry-leading growth over 3-4 years

While it is too early to extrapolate the first week’s performance, we believe &TV is on the right track. It has all the ingredients of a mainstream Hindi GEC—mythology, comedy, progressive women-centric family dramas, star-anchored non-fiction shows; all created by well-known production houses. The next milestone would be to cross 200 GVMs in the next 3-6 months. If successful, the channel would breakeven within a couple of years and contribute to profits from

FY2018. Improving economic outlook bodes well for &TV and we believe it has the potential to contribute to 5-10% of consolidated EPS in 3-4 years.

Existing business on a strong footing, ADD

Zee is well placed to deliver strong ad-revenue growth over the next 2-3 years driven by a likely acceleration in ad-spend growth and potential upside from BARC and &TV’s launch. &TV’s content cost is likely to be higher than our earlier estimate, and the lukewarm response to SRK’s show could result in a slightly higher near-term loss. We cut our FY2015/16E earnings by 3-4% (FY2017 unchanged) as we build losses of Rs0.7/2.1bn (Rs0.3/1.7bn earlier) from &TV. Retain ADD with TP of Rs385 at ~27X FY2017 EPS (excluding RPS dividend and &TV losses).

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Zee Entertainment Enterprises Media

Content mix– ‘more of the same’ as of now, early success would give &TV leeway to be creative

&TV was envisaged to carry contemporary and progressive content, and to appeal to the male audience (as against Zee’s female centric content). For now, it looks like the channel is largely playing safe with tried-and-tested content—mythology, comedy and family dramas revolving around strong female characters. We believe that &TV’s management may observe a viewership skew (male vs. female) over next few weeks and tweak the storyline to gradually capture the male audience without losing its core female audience. Early success would give the management some flexibility to be creative on this front.

Key highlights from TAM ratings for week ending 8th March 2015

 Opening week ratings in line with our expectation. &TV recorded viewership of 90.6 GVMs (gross TV viewership in millions) in the opening week during which the channel was operational for 5.5 days. This is in line with our expectation of 100 GVMs for the full week.

 Comparison of ratings using GVMs is not appropriate. GVMs depend on the TAM’s (television audience measurement) universe and it keeps increasing as TAM expands its sample set. Thus, a comparison of &TV’s opening week GVMs with that of previous successful launches (Colors in July 2008 and Life OK rebranded in Dec 2011) is not appropriate.

 GRP is a more appropriate for comparison with previous launches. For a like-to-like comparison, GRPs (gross rating points) must be used, as it adjusts for the change in universe (GRP = GVMs/Universe). Colors opened with 68 GRPs and jumped to 98 GRPs in the second week. Life Ok recorded 87 GRPs in the opening week (Star One which was rebranded to Life Ok had achieved 44 GRPs in its last week). &TV’s 90.6 GVMs translates into 42 GRPs for 5.5 days. While &TV’s opening week GRPs are lower than Colors’, it is a respectable number considering the fragmentation and competitive intensity today (6- player Hindi-GEC market versus 3 players when Colors was launched).

 &TV achieved a good average daily reach in the first week. Reach is a function of distribution and marketing. &TV’s average daily reach (average % of total viewers who watched &TV for at least one minute everyday) of 9% is better than recent launches Zindagi TV and Sony Pal but lower than that achieved by Colors and Life Ok. This could be partly due to digitization— availability of few hundred channels in digital environment makes sampling of a new channel difficult. Considering that, &TV’s reach of 9% in the first week is good. &TV’s ratings should improve as its reach improves. Note that, the reach of top-4 Hindi GECs is in the range of 20-25%.

 Movies contributed 25% to first week’s ratings. &TV telecasted 6 movies in the week that helped it garner 22 GVMs, about 25% of total GVMs. The use of Zee’s movie library to attract viewers to the channel is important in early days. We believe contribution of movies would reduce as daily soaps and non-fiction ratings build up.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 Media Zee Entertainment Enterprises

Exhibit 1: &TV is the most successful launch of recent times GVMs, ratings market share and average daily reach of Hindi GECs launched since 2008

Launch Date Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 GVMs (a) NDTV Imagine 21-Jan-08 48.4 76.8 76.1 79.3 77.6 80.6 78.1 80.9 Colors 21-Jul-08 70.2 101.4 120.2 112.9 142.1 132.8 138.3 173.4 Real 15-Mar-09 10.8 15.6 19.7 14.7 16.5 21.7 19.5 20.6 Life OK (b) 18-Dec-11 137.4 117.4 154.4 158.1 137.8 133.3 131.6 137.3 Zee Anmol 01-Sep-13 38.1 47.2 52.1 52.7 50.8 41.8 44.5 46.1 Zindagi 23-Jun-14 15.5 25.4 27.0 28.7 23.0 25.0 25.5 26.2 Sony Pal 01-Sep-14 11.1 20.9 24.3 25.9 22.9 23.8 25.3 26.2 EPIC 19-Nov-14 1.2 2.9 3.7 5.7 4.5 5.3 6.3 7.6 &TV 02-Mar-15 90.6 Ratings market share (%) NDTV Imagine 6.4 9.7 10.0 10.5 10.1 9.9 10.6 10.5 Colors 8.7 12.2 13.8 12.9 16.1 16.6 17.2 19.9 Real 0.9 1.3 1.7 1.2 1.3 1.8 1.6 1.8 Life OK (b) 6.5 5.6 7.6 8.1 7.0 6.6 6.7 7.0 Zee Anmol 1.6 2.0 2.1 2.2 2.0 1.8 1.9 1.8 Zindagi 0.6 1.0 1.1 1.2 0.9 1.0 1.0 1.1 Sony Pal 0.5 0.9 1.0 1.1 1.0 1.0 1.1 1.1 EPIC 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.3 &TV 4.7 Average daily reach (%) (c) NDTV Imagine 10.8 14.4 14.7 15.4 15.7 15.5 15.6 16.0 Colors 15.1 17.9 19.3 18.7 20.1 20.8 20.8 22.3 Real 5.9 5.1 5.3 5.8 5.5 5.6 5.2 6.1 Life OK (b) NA NA NA NA NA NA NA NA Zee Anmol 5.1 6.1 6.3 6.6 6.5 6.2 6.0 6.2 Zindagi 2.9 3.3 3.5 4.2 3.6 3.5 3.1 3.2 Sony Pal 2.1 3.4 3.8 3.9 3.8 3.8 3.9 3.9 EPIC 0.3 0.6 0.8 1.0 0.9 0.9 1.0 1.0 &TV 9.0

Notes: (a) GVMs - gross TV view ership in millions. (b) Life OK w as not a new launch; Star One w as rebranded as Life Ok. (c) Average daily reach is % of total view ers w ho w atch channel for atleast 1 minute every day.

Source: Tam data- CS4+, Hindi speaking market; Kotak Institutional Equities

Exhibit 2: Telecast of movies contributed 25% to &TV’s ratings in the opening week Break-up of &TV’s viewership ratings in the week ending March 08, 2015

GVMs Fiction and Non Fiction Movies Total Sunday Monday 6.8 - 6.8 Tuesday 11.9 1.9 13.8 Wednesday 15.0 2.9 17.9 Thursday 13.3 2.2 15.6 Friday 11.3 2.0 13.3 Saturday 8.9 12.9 21.8 Total 69 22 91

Source: Tam data- Week ending March 08, 2015, CS4+, Hindi speaking market; Kotak Institutional Equities

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Zee Entertainment Enterprises Media

Exhibit 3: Gangaa and SRK’s show India poochega sabse shaana kaun beat Life Ok and Sony in their respective slots in the opening week Prime-time viewership ratings of programs across slots

Show Channel Average TVTs Show Channel Average TVTs Weekday 7.30 to 8.00 pm Weekday 10.00 To 10.30 pm Ye Hai Mohabbatein Star Plus 9,000 Satrangi Sasural Zee TV 5,621 Sasural Simar Ka Colors 7,574 Meri Aashiqui Tum Se Hi Colors 5,251 Hello Pratibha Zee TV 1,746 Comedy Classes Life OK 2,855 C.I.D. Sony 970 Tere Sheher Mein Star Plus 2,655 Mere Rang Mein Rangnewali Life OK 966 Bharat Ka Veer Putra-Maharana Pratap Sony 2,039 Badi Dur Se Aaye Hai SAB 780 Yam Hai Hum SAB 1,935 Razia Sultan &TV 616 Begusarai &TV 653 Weekday 8.00 To 8.30 pm Weekday 10.30 To 11.00 pm Tu Mera Hero Star Plus 6,955 Doli Armano Ki Zee TV 4,480 Balika Vadhu Colors 5,484 Master Chef India Star Plus 3,280 Jodha Akbar Zee TV 4,678 Savdhan India Fight Back Now Life Ok 3,123 Bal Veer SAB 2,335 Code Red Colors 2,426 Mahakumbh-Ek Rahasya Ek Kahani Like Ok 1,932 Itna Karo Na Mujhe Pyaar Sony 2,070 Itna Karo Na Mujhe Pyaar Sony 769 Peterson Hill SAB 1,120 Bhaghya Lakshmi &TV 587 Bhabhiji Ghar Par Hai &TV 812 Weekday 8.30 To 9.00 pm Weekend 9.00 To 10.00 pm Taarak Mehta Ka Ooltah Chashma SAB 6,640 Ff Khatron Ke Khiladi Darr Ka Bb Returns Colors 5,115 Udaan Colors 6,187 Saregamapa Lil Champs 5 Zee TV 4,618 Jamai Raja Zee TV 6,146 Shapath Super Cops Vs Super Villains Life Ok 2,284 Nisha Aur Uske Cousins Star Plus 4,064 Bhanwar Sony 1,759 Gangaa &TV 1,338 Everest Star Plus 1,384 Laut Aao Trisha Like Ok 732 Killer Karaoke Atka Toh Latkah &TV 1,004 Muh Boli Shaadi Sony 501 Weekday 9.00 To 9.30 pm Weekend 10.00 To 11.00 pm Diya Aur Baati Hum Star Plus 9,633 Comedy Nights With Kapil Colors 5784 Kumkum Bhagya Zee TV 9,405 C.I.D. Sony 4078 Chakravartin Ashoka Samrat Colors 5,559 The Great Indian Family Drama SAB 544 Chidiya Ghar SAB 2,922 Tujhse Naaraz Nahin Zindagi &TV 418 India Poochega Sabse Shaana Kaun &TV 880 Laut Aao Trisha Like Ok 732 Tum Aise Hi Rehna Sony 641 Weekday 9.30 To 10.00 pm Yeh Rishta Kya Kehlata Hai Star Plus 8,330 Qubool Hai Zee TV 5,674 Swaragini Colors 5,254 Badi Dur Se Aaye Hai SAB 2,281 Ajeeb Dastaan Hai Yeh Life OK 1,064 India Poochega Sabse Shaana Kaun &TV 880 Hum Hain Naa Sony 751

Notes: (a) TVTs – TV viewership in thousands.

Source: Tam data - Week ending March 08, 2015, CS4+, Hindi speaking markets, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 Media Zee Entertainment Enterprises

Exhibit 4: &TV’s viewership pattern in the opening week

Show Monday Tuesday Wednesday Thursday Friday Saturday

Razia Sultan 660 432 869 638 482 Bhaghya Lakshmi 582 598 686 589 480 Gangaa 1,213 1,199 1,361 1,651 1,267 India Poochega Sabse Shaana Kaun 918 760 983 857 881 Begusarai 719 582 840 592 532 Bhabhiji Ghar Par Hai 926 730 1,089 661 653 Killer Karaoke Atka Toh Latkah 1,004 Tujhse Naaraz Nahin Zindagi 418

Source: Tam data - Week ending March 08, 2015, CS4+, Hindi speaking markets, Kotak Institutional Equities

Exhibit 5: Zee continues to hold #2 or a close #3 position TAM ratings market share for Hindi GEC, March fiscal year-ends, 1QFY12-4QFY15E (%)

FY2012 FY2013 FY2014 FY2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (a) Hindi GEC Colors 20.4 19.6 18.7 16.6 17.6 18.4 19.2 17.8 16.6 19.4 19.0 17.6 15.4 16.1 19.1 18.9 Sony SAB 11.5 10.0 9.6 10.6 9.9 10.4 11.8 12.0 12.8 13.5 12.6 11.9 10.9 11.3 11.9 12.2 Sony TV 12.8 17.5 20.0 17.7 17.7 17.7 17.5 14.4 14.8 13.7 11.6 11.0 12.2 11.6 9.6 10.0 Life OK 3.0 3.0 3.7 6.8 8.4 9.9 10.7 10.7 11.7 12.3 13.6 13.4 14.3 13.0 12.5 13.0 Star Plus 25.5 24.4 25.5 23.2 22.3 20.8 20.7 22.6 23.0 21.5 22.0 25.2 27.9 26.3 25.6 25.5 Zee TV 16.9 15.4 12.7 15.7 18.2 19.0 16.5 18.7 17.4 16.5 17.9 18.1 16.5 18.2 17.1 17.7 Zindagi TV 0.6 1.1 1.2 0.9

Notes: (a) 4QFY15 ratings so far (until March 08, 2015).

Source: TAM data - All Day, CS4+, Hindi speaking markets, Kotak Institutional Equities

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Zee Entertainment Enterprises Media

Exhibit 6: We build higher losses from &TV and trim our earnings estimates for FY2015-16E Revised earnings estimates of Zee, March fiscal year-ends, 2015E-17E (Rs mn)

Revised Previous Change (%) 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E Consolidated Ad revenues 26,723 33,989 40,094 26,623 33,362 39,116 0.4 1.9 2.5 Subscription revenues 17,491 18,758 22,441 17,491 18,758 22,250 - - 0.9 Other operating revenues 3,034 2,251 2,363 3,034 2,251 2,363 - - - Total revenues 47,247 54,997 64,898 47,147 54,371 63,729 0.2 1.2 1.8 Direct costs 20,340 24,968 27,885 20,040 24,268 27,385 1.5 2.9 1.8 Employee cost 4,433 5,308 6,316 4,433 5,308 6,316 - - - SG&A expenses 9,750 11,365 12,855 9,500 11,015 12,155 2.6 3.2 5.8 Total expenditure 34,522 41,641 47,056 33,972 40,591 45,856 1.6 2.6 2.6 EBITDA 12,725 13,356 17,842 13,175 13,780 17,873 (3.4) (3.1) (0.2) EPS (Rs) 8.4 8.7 12.2 8.7 9.0 12.2 (3.6) (3.3) (0.2) EPS (Rs) - prior to RPS dividends 9.9 10.2 13.7 10.2 10.5 13.7 (3.1) (2.8) (0.2) &TV Ad revenues 100 1,750 3,000 - 1,123 2,022 NA 55.8 48.4 Subscription revenues - - 750 - - 559 NA NA 34.1 Total revenues 100 1,750 3,750 - 1,123 2,581 NA 55.8 45.3 Content costs 300 2,700 3,200 - 2,000 2,700 NA 35.0 18.5 SG&A 500 1,150 1,120 - 800 420 NA 43.7 166.6 Total expenditure 800 3,850 4,320 250 2,800 3,120 220.0 37.5 38.5 EBITDA (700) (2,100) (570) (250) (1,677) (539) 180 25 6

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Media Zee Entertainment Enterprises

Exhibit 7: Consolidated financial summary of Zee Entertainment, March fiscal year-ends, 2012-17E (Rs mn)

2012 2013 2014 2015E 2016E 2017E Profit model (Rs mn) Total revenues 30,405 36,996 44,217 47,247 54,997 64,898 EBITDA 7,395 9,543 12,043 12,725 13,356 17,842 Other income 1,384 1,461 1,807 2,200 2,050 2,525 Interest (50) (86) (158) (158) (158) (158) Depreciation (323) (399) (501) (606) (633) (661) Amortization — — — — — — Pretax profits 8,406 10,519 13,191 14,161 14,615 19,548 Extraordinary items 0 0 0 0 0 0 Tax (2,685) (3,318) (4,297) (4,673) (4,823) (6,451) Deferred tax 185 (19) 6 6 6 6 Minority interest (15) 14 21 21 21 21 Net income 5,891 7,196 8,820 8,099 8,403 11,709 Recurring net income 5,891 7,196 8,820 8,099 8,403 11,709 Earnings per share (Rs) 6.1 7.5 9.2 8.4 8.7 12.2 EPS (Rs) - prior to RPS dividends 6.1 7.5 9.3 9.9 10.2 13.7

Balance sheet (Rs mn) Total Equity 34,354 39,115 47,377 52,105 56,013 62,103 Deferred tax balance (337) (288) (298) (298) (298) (298) Minority interest (32) 33 61 61 61 61 Total borrow ings 21 28 29 29 29 29 Currrent liabilities 8,811 11,382 12,850 15,043 17,937 20,610 Total capital 43,154 50,558 60,317 67,238 74,040 82,804 Cash 3,283 5,316 5,644 8,966 11,417 14,900 Current assets 22,135 27,063 34,355 37,760 41,919 47,011 Net fixed assets 9,400 9,975 11,730 11,924 12,116 12,305 Investments 7,374 7,315 7,406 7,406 7,406 7,406 Deferred expenditure — — — — — — Total assets 43,154 50,558 60,317 67,238 74,040 82,804

Free cash flow (Rs mn) Operating cash flow , excl. w orking capital 5,699 6,215 8,734 8,052 8,534 11,393 Working capital (1,621) (2,342) (4,904) (1,212) (1,265) (2,418) Capital expenditure (797) (715) (1,465) (800) (825) (850) Investments (233) 278 (1,719) (0) - - Other income 1,061 883 1,134 2,200 2,050 2,525 F ree cash flow 4,242 3,427 5,889 5,440 6,044 7,301

Revenue model (Rs mn) Advertising revenues 15,841 19,639 23,801 26,723 33,989 40,094 Subscription 13251 16235 18022 17491 18758 22441 Others 1,313 1,122 2,394 3,034 2,251 2,363 Total revenues 30,405 36,996 44,217 47,247 54,997 64,898

Source: Company, Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH

BUY DLF (DLFU) Real Estate MARCH 16, 2015 UPDATE Coverage view: Attractive

Two events – some relief. The SAT quashed the SEBI order that had restrained DLF Price (`): 157 from accessing the capital markets for three years. DLF’s promoters have agreed to Target price (`): 210 defer the conversion of CCPS in its most valuable rent-yielding subsidiary (DCCDL) by a BSE-30: 28,503 year and to lower the coupon rate. Although, operations continue to remain weak, we believe they will improve over four quarters; possible fund raising in the near term could support the balance sheet until then. We maintain BUY, betting on operations improving.

Company data and valuation summary DLF Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 243-100 EPS (Rs) 2.9 4.1 6.0 QUICK NUMBERS Market Cap. (Rs bn) 280.5 EPS growth (%) (21.0) 42.0 48.5 Shareholding pattern (%) P/E (X) 54.9 38.7 26.0  SAT quashes SEBI Promoters 74.9 Sales (Rs bn) 91.9 99.5 119.8 order against DLF FIIs 19.9 Net profits (Rs bn) 5.1 7.3 10.9 MFs 0.0 EBITDA (Rs bn) 27.6 32.2 44.1  DLF promoters Price performance (%) 1M 3M 12M EV/EBITDA (X) 16.5 14.3 10.1 extend CCPS Absolute 1.4 3.5 (6.5) ROE (%) 1.8 2.5 3.6 conversion in Rel. to BSE-30 3.5 (0.7) (28.6) Div. Yield (%) 1.8 1.3 1.3 subsidiary

SAT quashes SEBI order against DLF; paves way from some monetization DLF won its appeal against an order by SEBI that had restrained DLF from accessing the capital markets for three years. Although the case could be taken to the apex court, the appeal-win paves DLF’s way to access capital markets for equity or debt. Two issues (1) negative operating cash flows from development business and (2) DLF’s intent to remove the perceived conflict of interest of the promoters separately holding convertible shares in a rent-yielding subsidiary could be addressed by the possible route of dilution, we believe.

Promoters extend the CCPS conversion window by a year in search of a possible solution

On March 13, 2015, the CCPS holders (promoters of DLF) in a DLF subsidiary (DCCDL) have agreed to defer the conversion of Compulsory Convertible Preference Shares (CCPS) by a year to March 18, 2016 and to reduce the coupon rate to 0.01% (from 9%). The extended window, along with the ban to access the capital markets being lifted, could result in one of the possible solutions being implemented to bring operations under one company. As per unauthenticated media reports, DLF is in discussion with various private equity names to partly sell its commercial assets. It had already said it intends to form two REIT platforms, one each for its office and mall assets.

Fund raising plans in projects too, but operations will need to improve eventually

 Although non-operational events have had an impact on DLF’s performance, operations (especially build-and-sale from the development company) have been weak. DLF’s sales have

been slowing and its core market is also the weakest in India. It has been bleeding around `5 bn per quarter.

 Management has guided that it is in discussions with private equity institutions for monetizing some of its residential projects; plans to raise around `30 bn from this. But long- term sustainable growth can come only from operations. We estimate market to recover in the next four quarters in Gurgaon. To improve volumes, more launches at lower price points are needed, which will eventually lead to improving cash flows.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Real Estate DLF

Exhibit 1: New capital raising avenues could stem a rise in debt until operations improve DLF: Profit model, balance sheet, cash flow model, March fiscal year-ends, 2013-17E (` mn) 2013 2014 2015E 2016E 2017E Profit model Net sales 77,728 82,980 91,872 99,510 119,760 EBITDA 26,262 24,852 27,637 32,194 44,112 Other income 13,229 14,916 8,792 9,127 2,384 Interest (23,140) (24,633) (22,815) (23,118) (23,624) Depreciation (7,962) (6,629) (6,575) (6,812) (7,123) Pre-tax profits 8,388 8,506 7,040 11,392 15,749 Extraordinary items 330 (3,299) — — — Tax (5,147) (3,662) (1,760) (2,848) (3,937) Deferred taxation 3,896 4,498 — — — Net income 7,467 6,044 5,280 8,544 11,812 Adjusted net income 7,953 6,680 5,107 7,322 10,873 Earnings per share (Rs) 4.7 3.7 2.9 4.1 6.0 Balance sheet Total equity 275,277 291,941 291,577 294,719 301,412 Minority interests 4,020 2,023 2,023 2,023 2,023 Non-current liabilities 178,471 158,491 166,077 158,597 131,978 Current liabilities 188,500 192,568 175,426 174,053 181,711 Total liabilities and equity 646,268 645,024 635,102 629,391 617,124 Non-current assets Net fixed assets 276,829 248,133 227,092 220,241 212,106 Other non-current assets and advances 44,008 48,907 44,809 46,200 42,627 Current assets 312,094 339,071 356,868 357,907 357,347 Investments 13,337 8,912 6,333 5,043 5,043 Total assets 646,268 645,024 635,102 629,391 617,124 Free cash flow Operating cash flow excl. w orking capital 12,528 9,477 11,681 14,134 17,996 Working capital changes (7,911) (13,522) (35,675) (14,232) (3,553) Capital expenditure 6,456 26,491 17,046 1,329 1,012 Free cash flow 11,072 22,447 (6,948) 1,230 15,455 Ratios (%) Debt/equity 96 82 92 86 76 Net debt/equity 89 73 77 77 72 RoAE (%) 2.9 2.4 1.8 2.5 3.6 RoACE (%) 2.3 3.6 4.2 4.1 4.8 Book value per share (Rs) 151 154 154 155 159

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH

BUY Dhanuka Agritech (DAGRI) Others MARCH 16, 2015 UPDATE Coverage view:

Sempra: the new blockbuster. Dhanuka’s new launch ‘Sempra’ has the potential to Price (`): 665 become a blockbuster product for the company; sales could potentially scale up to Target price (`): 750 higher than `5 bn in the next 5-7 years. The reasons behind this are: (1) As per the BSE-30: 28,503 management, it is the only product in the world that is effective on ‘Cyprus’ weed, which afflicts sugarcane and maize, (2) India has large acreages of these crops, (3) Dhanuka will enjoy exclusivity for a minimum period of five years, giving it much higher margins versus the base business, and (4) favorable economics as farmers can potentially make 3X the return on their investments in the product. We have increased our estimates; retain BUY rating with a revised TP of `750 (`700 earlier) at 22X FY2017E EPS.

Company data and valuation summary Dhanuka Agritech Stock data Forecasts/Valuations 2015 2016E 2017E 52-week range (Rs) (high,low) 710-231 EPS (Rs) 21.5 26.3 33.9 Market Cap. (Rs bn) 33.5 EPS growth (%) 15.5 22.2 29.0 Shareholding pattern (%) P/E (X) 31.2 25.5 19.8 Promoters 75.0 Sales (Rs bn) 8.4 10.2 12.6 FIIs 5.7 Net profits (Rs bn) 1.1 1.3 1.7 MFs 4.7 EBITDA (Rs bn) 1.4 1.8 2.3 Price performance (%) 1M 3M 12M EV/EBITDA (X) 23.3 19.1 14.5 Absolute 29.7 25.2 166.3 ROE (%) 28.9 28.5 29.6 Rel. to BSE-30 30.4 18.4 100.4 Div. Yield (%) 0.7 0.9 1.1

Introducing Sempra

Sempra (active ingredient (AI): Halosulfuron-Methyl) is an off-patent herbicide that controls the Cyprus weed, which afflicts sugarcane and maize crops in a major way. As per the management, it is the only product available in the world that is effectively able to control this weed. Dhanuka launched the product in 3QFY15 and is poised to enjoy exclusivity on the product for at least five years, as per the in-licensing agreement signed with Nissan (innovator). According to the management, the agreement contains a clause under which Nissan’s exclusive arrangement with Dhanuka would come up for review after five years. However, in case Dhanuka meets the various targets set in the agreement, there is a strong possibility that exclusivity might be extended further.

Sempra could be a blockbuster product

As per our calculations, the potential opportunity (sales) for Sempra in India could be to the tune of `20 bn (at current realizations). Assuming only 25% of the opportunity will materialize implies that the product could easily achieve sales of ~`5 bn in the next 5-7 years. Also, since the product is exclusive, it would possibly enjoy much higher margins (25-30%) versus the base margins of the company at ~17%. Given the base of sales and EBITDA of Dhanuka of `8.4 bn and `1.4 bn in FY2015, respectively, Sempra could possibly enable the company to grow its sales and EBITDA at a fast pace in the next five years.

Key risks – (1) exclusivity may expire after five years, (2) generic versions could be launched

(1) Nissan may choose to end the exclusive arrangement with Dhanuka after five years. As per the management, in case Dhanuka meets the various targets set in the agreement, exclusivity could be extended further, and (2) as per our understanding, Chinese suppliers of AI of Sempra are available. Hence, there is likelihood that a generic version of the product could be launched after 5-6 years by an Indian company after registering the Chinese source. The launch of generic versions would significantly depress the opportunity size for the product and margins for Dhanuka.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Others Dhanuka Agritech

Adoption of the product to be very fast as economics of usage are favorable

As per the management, a farmer spending `5,000 per ha for usage of Sempra would likely make 2-3X return on his investments on account of (1) higher yield (6-7%), (2) savings on labor cost and (2) savings on other agri-inputs like fertilizers, water, etc., as low weed occurrence also implies that more of agri-inputs will go towards growing the main crop rather than weeds.

Exhibit 1: Favorable usage economics of Sempra imply that adoption of the product and commensurate scale-up in sales will be very fast Economics of usage of Sempra (Rs)

Investment on Sempra per ha 5,000 Incremental yield (%) 6 Incremental production (tons) 4.32 Realisation per ton (Rs) 2,500 Incremental revenue (Rs) 10,800 Savings on manual labor for de-weeding (Rs) 5,000 Incremental earnings for the farmer (Rs) 15,800

Source: Company, Kotak Institutional Equities

Given the above economics of usage of the product, in our view, adoption of the product in the farming community will be very fast and the product could become the largest by sales (as of now Targa Super is the largest with annual sales in the vicinity of `1 bn) and contribution to profits in Dhanuka’s portfolio in a short period of time.

As per our understanding, Dhanuka has got registration of Sempra only for use in sugarcane as of now. The management expects that registration for use in the maize crop should come in FY2016, post which scale-up in the product would be even faster considering that acreage of maize in India is almost 2X of that of sugarcane.

Sales of Sempra could potentially scale up to higher than `5 bn

As per our preliminary calculations, sales of Sempra could scale up higher than `5 bn in the next five-seven years. Our calculations and assumptions are highlighted in the exhibits below.

Exhibit 2: Trend in area under cultivation for sugarcane in India, Exhibit 3: Trend in area under cultivation for maize in India, March fiscal year-ends March fiscal year-ends Area under cultivation Production Yield Area under cultivation Production Yield Year (mn ha) (mn tons) (tons/ha) Year (mn ha) (mn tons) (tons/ha) 2005 3.7 237 65 2005 7.4 14 2 2006 4.2 281 67 2006 7.6 15 2 2007 5.2 356 69 2007 7.9 15 2 2008 5.1 348 69 2008 8.1 19 2 2009 4.4 285 65 2009 8.2 20 2 2010 4.2 292 70 2010 8.3 17 2 2011 4.9 342 70 2011 8.6 22 3 2012 5.0 361 72 2012 8.8 22 2

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Dhanuka Agritech Others

Exhibit 4: Sales of Sempra could potentially scale up to higher than Rs5 bn in the next five years Calculations to estimate the sales potential of Sempra

Total area under sugarcane (mn ha) 5 Addressable area for Sempra (%) 50 Area tapped out of the adressable area (%) 25 Usage area under sugarcane for Sempra (mn ha) 0.6 Total area under maize (mn ha) 9 Addressable area for Sempra (%) 20 Area tapped out of the adressable area (%) 50 Usage area under maize for Sempra (mn ha) 0.9 Total usage area (mn ha) 1.5 Usage amount per ha 5,000 Total sales (Rs mn) 7,625

Source: Company, Kotak Institutional Equities

Note: In case of generic competition coming in the market, the opportunity size for the product could compress significantly.

Key risk: exclusivity may expire after five years

As per the management, the in-licensing contract with Nissan for Sempra would come up for renewal after five years. While possibility of renewal of exclusivity exists, however, investors should also bear in mind the following scenarios:

Exclusivity may expire with Nissan remaining as sole source of active ingredient. Nissan could choose to in-license its IP to other Indian agri-chemical companies also, apart from Dhanuka. In this case, exclusivity of Dhanuka will expire and multiple brands from multiple (3-4) companies would emerge in the market even as Dhaunka will retain exclusive rights to use the brand ‘Sempra’ in India. The new players will launch their brands at a discount to Sempra but these discounts would be limited, as for all the companies the source of active ingredient would be Nissan only. Considering that Dhanuka would have already firmly established its brand ‘Sempra’ in the Indian market by that time even as growth rates and margins could come down on account of higher competition, in our view, the company would be able to sustain (1) margins which would still be above the base business and (2) growth in sales of Sempra which would be higher versus the industry (10- 12% p.a.) as a whole. This considering that even at sales level of `7.5 bn, the product would have tapped only ~20% of the addressable opportunity.

Exclusivity may expire with generics hitting the market. As per our understanding, even as of now, there are Chinese suppliers of the active ingredient (Halosulfuron-Methyl) of Sempra, which can supply the same to an Indian company at a much cheaper price versus Nissan. Hence, it is possible that some Indian company is able to register the Chinese source in the coming years. To register the source, an Indian company would have to generate field data for a full registration; process from the start of filing of registration to the launch of the product in the Indian market could take minimum of five years. Since the price of AI in this case would be much cheaper versus Nissan, a ‘me too’ or a generic version could be launched at a much cheaper price versus Sempra. Hence, as and when generic versions are launched, market price (hence margins of Dhanuka in this product) could go down substantially. Also, given likely steep erosion in the market price, in that scenario, size of market for the product and the potential opportunity size could reduce meaningfully.

A global innovator may come up with a more efficient product. There is a possibility that a global innovator could come up (file a patent) with a more efficient product versus Sempra. However, in case that happens, it would take a lot of time before that product could be launched in India as (1) initially the innovator will launch the product in the bigger (LatAm, US, Europe) agri-chemical markets versus India and (2) after India comes on the radar of the innovator, it would take a minimum of 4-5 years to register the product in India. Hence, in our view, even if a global innovator comes up with a more efficient product, it

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Others Dhanuka Agritech

would be able to introduce the same in India only after 7-10 years after the first launch of the product in any of the bigger agri-chemical markets.

Change in earning estimates

We have increased our earning estimates to factor in the high growth potential of Sempra. Our sales estimates imply `2 bn contribution from Sempra, as of now, in FY2017E. We retain BUY rating with a revised target price of `750 (`700 earlier) at 22X FY2017E EPS.

Exhibit 5: Change in estimates for Dhanuka, March fiscal year-ends (Rs mn) 2015E 2016E 2017E New Old Change (%) New Old Change (%) New Old Change (%) Revenues (Rs mn) 8,390 8,390 (0.0) 10,176 10,018 1.6 12,639 11,968 5.3 EBITDA (Rs mn) 1,443 1,443 0.0 1,750 1,723 1.6 2,275 2,154 5.3 PAT (Rs mn) 1,076 1,076 (0.0) 1,315 1,294 1.6 1,696 1,603 5.5 EPS (Rs) 21.5 21.5 0.1 26.3 25.9 1.5 33.9 32.1 5.4

Source: Kotak Institutional Equities estimates

About Cyprus weed (from Wikipedia)

Cyperus rotundus is one of the most invasive weeds known, having spread out to a worldwide distribution in tropical and temperate regions. It has been called ‘the world’s worst weed’ as it is known as a weed in over 90 countries, and infests over 50 crops worldwide.

Its existence in a field significantly reduces crop yield, both because it is a tough competitor for ground resources, and because it is allelopathic, the roots release substances harmful to other plants. The difficulty to control it is a result of its intensive system of underground tubers, and its resistance to most herbicides. It is also one of the few weeds that cannot be stopped with plastic mulch.

Weed pulling in gardens usually results in breakage of roots, leaving tubers in the ground from which new plants emerge quickly. Ploughing distributes the tubers in the field, worsening the infestation; even if the plough cuts up the tubers to pieces, new plants can still grow from them. In addition, the tubers can survive harsh conditions, further contributing to the difficulty to eradicate the plant.

Most herbicides may kill the plant’s leaves, but most have no effect on the root system and the tubers. Glyphosate will kill some of the tubers (along with most other plants) and repeated application can be successful. However, Halosulfuron-methyl is able to control this weed after repeated applications without damaging other plants.

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH Dhanuka Agritech Others

Exhibit 6: Summary financials: Dhanuka Agritech Profit and loss model, cash flow statement and balance sheet for Dhanuka, March fiscal year-ends (Rs mn)

2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Profit model (Rs mn) Sales 3,368 4,075 4,910 5,292 5,823 7,384 8,390 10,176 12,639 EBITDA 480 577 759 794 819 1,206 1,443 1,750 2,275 Other income 5 12 26 6 69 48 24 35 38 Interest (103) (68) (65) (55) (35) (42) (35) (35) (35) Depreciation (27) (31) (49) (45) (45) (48) (59) (73) (86) Profit before tax 355 490 673 700 808 1,163 1,373 1,676 2,192 Tax expense (124) (127) (161) (129) (163) (232) (297) (361) (495) PAT 231 363 511 571 644 931 1,076 1,315 1,696 EPS 4.6 7.3 10.2 11.4 12.9 18.6 21.5 26.3 33.9 Balance sheet (Rs mn) Equity 683 971 1,705 2,146 2,628 3,325 4,124 5,100 6,360 Total borrow ings 515 577 602 460 337 394 394 394 394 Deferred tax liability/minority interest 4 17 28 26 28 36 36 36 36 Current liabilities and provisions 1,178 1,395 1,242 1,325 1,212 1,413 1,724 2,091 2,597 Total liabilites 2,380 2,960 3,576 3,956 4,205 5,168 6,278 7,622 9,388 Net fixed assets 250 386 391 393 639 893 1,184 1,311 1,525 Investments 0 0 0 153 82 10 10 10 10 Cash 34 20 50 87 54 23 255 583 925 Other current assets and miscellaneous 2,097 2,553 3,083 3,323 3,430 4,242 4,830 5,718 6,928 Total assets 2,380 2,960 3,523 3,956 4,205 5,168 6,278 7,622 9,388 Free cash flow (Rs mn) Operating cash flow 333 461 562 609 657 951 1,111 1,354 1,744 Working capital changes (255) (304) (765) (76) (227) (659) (276) (521) (704) Capital expenditure (42) (169) (52) (51) (279) (288) (350) (200) (300) Free cash flow 36 (12) (254) 483 152 4 485 632 740 Ratios EBITDA margin (%) 14.3 14.2 15.5 15.0 14.1 16.3 17.2 17.2 18.0 Net debt/equity (X) 0.71 0.57 0.32 0.17 0.11 0.11 0.03 (0.04) (0.08) Book value (Rs/share) 13.7 19.4 34.1 42.9 52.5 66.5 82.4 102.0 127.2 ROAE (%) 33.4 42.9 36.7 29.4 24.7 30.0 28.4 27.9 29.1 ROACE (%) 24.5 25.9 23.1 23.2 20.6 24.7 23.8 23.8 25.0

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19

CAUTIOUS Telecom India MARCH 16, 2015 UPDATE BSE-30: 28,503

Spectrum auction update: 10 days of action over; we are likely in the last phase. Spectrum auctions continue to drag at a sedate pace with the total committed bid quantum staying flat over the past two days at around Rs1.02 tn. Even as auction design makes any definitive statement risky, we believe that we are fairly close to the closure of these auctions. Overall auction outcome is likely to be in-line or marginally worse than our expectations. Auction results are unlikely to take our price targets up even as we believe they should lend weight to our positive medium-term thesis on the incumbents Bharti and Idea.

Spectrum auctions, days 9 and 10: dragging along. Committed bids flattish at Rs1.02 tn

This update is a part of our running commentary on the spectrum auctions and covers action on days 9 and 10 of the auctions. Even as the auction design makes any definitive statement risky, our assessment of movement in provisional winning price and block demand levels suggests that we may be in the last leg of these auctions with prices unlikely to move up (from current levels) meaningfully in most circle-band combinations. Prices in most large 900 circles and in the 2100 band appear more or less settled to us. This should likely mean two important things –

 Aggregate payout by the industry, which stands at Rs1.02 tn at end-day-10, will likely settle reasonably close to our pre-auction estimate of around Rs1 tn. It may end up being as high as Rs1.2 tn in the worst case but we would still call it reasonably close to our expectations given the naturally high margin of error possible while calling out something as tricky as spectrum auctions in India.

 Likely renewal payout range for the listed incumbents – (1) Bharti – between Rs120-160 bn, in our view, with the company renewing bulk of its spectrum in all the renewal circles, and (2) Idea – between Rs230-270 bn, in our view with Idea too successfully renewing spectrum in all the circles (quantum could be lower than expiring spectrum quantum in some circles but we do not see Idea not renewing 900 spectrum in any circle). We note that these payout numbers are broadly in line with our pre-auction estimates at the lower end and marginally higher at the upper end. Here again, we would not necessarily be negative if eventual results suggest that the incumbents’ payouts are at the higher end of this band. Two reasons – (1) the variation would be within a reasonable margin of error given how tough setting auction expectations is, and (2) auction payouts have flow-through medium-term positives in the form of taking cost of survival even higher for the challengers.

Days 9-10 action details: lowest absolute PWP increase in 900 band; 2100 flat on day 10

On a weighted average basis – (1) aggregate PWP in the 900 band went up by 0.5% on day 9 and 0.2% on day 10; latest round saw PWP increase only in West Bengal; there is still some competition for RCOM’s extant 4.4 MHz 900 spectrum in this circle, (2) aggregate PWP in the 2100 band has been nearly flat for the past two days; on the 1800 side, there is minor price movement in 3-4 circles (largely flat aggregates) while 800 band continues to see aggressive bidding in select 3-4 circles (AP, Assam, MP, North East, and Maharashtra). As far as the 800 band is concerned, we believe that some of the incumbents are trying to make up for losing some quantum of 900 band spectrum by buying 800 band spectrum in select circles.

Finally, we would want to strike a note of caution: auctions have not closed and recent rally has meant that there is little ‘auction pessimism’ left in the stock prices. Even as we remain positive on both Bharti and Idea, we would ideally look to accumulate on dips.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Telecom India

Exhibit 1: Renewal payout scenarios

Scenario 1: Complete renewal Scenario 2: 5 MHz in 900 and complete 1800 At provisional At provisional INR mn At reserve price winning price Increase (%) At reserve price winning price Increase (%) Bharti 100,513 168,960 68 70,559 118,377 68 Idea 172,813 299,131 73 131,781 227,928 73 Vodafone 113,800 194,515 71 87,600 149,480 71 RCOM 37,916 78,897 108 32,864 67,258 105