Ambit Insights

AMBIT INSIGHTS

19 April 2017

DAILY

Thematic

Consumer Have money… spend prudently (Click here for detailed note)

Updates

Interglobe Aviation (SELL) Are we overestimating yield and passenger growth?

Analyst Notes: Banks: RBI proposes higher provisioning for stressed sector exposure Ravi Singh, +91 22 3043 3181 The RBI has notified (https://goo.gl/aip6Tt) banks to consider higher standard asset provisioning over and above the regulatory minimum for exposures to stressed sectors. Beyond looking at company-specific stress, the RBI proposes to have board- approved policy to review sector-level stress each quarter by monitoring debt-burden, profitability ratios and policy issues of sectors. For the immediate future, it has asked banks to review telecom sector exposure by end-June 2017 and consider making higher provisions. While it is difficult to estimate what additional provisioning burden these proposals could cause, similar measures in Jan’14 for exposure to companies

with unhedged foreign currency exposure prescribed additional provisions of up to 80bps. IndusInd Bank (4.7% of total exposure), Yes Bank (4.0%) and Kotak Mahindra Please refer to our website for Bank (3.7%) have higher exposure to telecom. In another notification complete coverage universe (https://goo.gl/V8ppU2), the RBI has tightened disclosure norms by asking banks to disclose material divergences in asset classification and provisioning from RBI norms http://research.ambitcapital.com (as discovered by the RBI) for FY16 along with their FY17 financial statements. Source: Ambit Capital research

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision. Please refer to the Disclaimers at the end of this Report.

Consumer

NEGATIVE

THEMATIC April 19, 2017

Have money… spend prudently Key Recommendations GCPL The international businesses of FMCG companies GCPL, Dabur and SELL Marico contribute 25-50% of consolidated sales. Contrary to Target Price: 1,060 Downside: 37% expectations, they failed to complement growth when the Indian businesses decelerated. Businesses in the Middle East and the Indian Marico SELL subcontinent have succeeded with high profitability and RoCE due to their ‘right to win’ there. However, businesses in Sub-Saharan Africa Target Price: 250 Downside: 17% have been the worst performers with single-digit sales growth and Dabur SELL RoCE. We prefer Dabur’s and Marico’s method of organically building businesses over GCPL’s acquisition-led approach. Reiterate SELL on Target Price: 245 Downside: 15% GCPL with possibility of its RoCE falling below 15% if further big-ticket Britannia acquisitions are pursued. SELL Emerging market MNC ambitions fuelled overseas acquisitions Target Price: 2,800 Downside: 18%

Starting with export-led model in the late 1990s, Indian FMCG companies Asian Paints SELL GCPL, Dabur and Marico organically built international operations in the early 2000s in countries with Indian diaspora. Via a series of acquisitions over FY06- Target Price: 835 Downside: 23% 13, they entered relatively unknown and higher-risk geographies (geopolitical Berger Paints SELL and currency risk) like North and Sub-Saharan Africa and Latin America to rapidly increase overseas presence. Since FY13, Marico and Dabur have Target Price: 190 Downside: 24% focused on organic growth while GCPL has continued with acquisitions. Possibility of further reduction in GCPL’s No ‘right to win’ in Sub-Saharan Africa overseas RoCE while Marico and Dabur Companies setting up operations in the Middle East or Indian subcontinent (ex- are expected to show improvement India) had a ‘right to win’ given: a) cultural similarities helping product 100% acceptability; and b) presence of significant Indian diaspora enabling use of Dabur* existing Indian brand architecture. However, they had no ‘right to win’ in Sub- 75% Dabur Marico* Saharan Africa and LatAm due to completely new product categories and 50% Marico different consumer behaviour traits. Macro and geopolitical issues, poor 25% GCPL* GCPL infrastructure and foreign exchange losses added to their woes. 0%

Organically built businesses doing better than acquisitions -25% Organically built businesses like Dabur’s Asia business (ex-India) and Marico’s buisness Organicof % 0% 10% 20% 30% ROCE of International business Bangladesh business (MBL) have sales of `15bn/`6bn with 25%/13% CAGR over FY12-16 and RoCE >50%. However, acquisitions like Dabur’s Namaste Source: Company, Ambit Capital research Note: Size of the bubble denotes the size of the international (0% sales CAGR) and GCPL’s Africa (10-11% sales CAGR) generate RoCE of business as % of total company sales, * denotes the <10% and are unable to pay down their own debt. Operating at debt:equity of positioning of the company after 5 years, for e.g. Marico* denotes the positioning of Marico after 5 ~5x, these businesses will continue to need equity infusion by the standalone years India business given their inability to generate internal accruals.

Prefer Dabur’s and Marico’s organic growth to GCPL’s acquisitions Consistently significant FCF generation in an FMCG company makes capital allocation very important but also makes detecting management’s capital misallocations difficult. Prudent capital allocation ensures long-term wealth Research Analysts creation. Acquisitions have reduced RoCE of all three companies. However, Dabur and Marico corrected course and have halted acquisitions. GCPL’s Ritesh Vaidya, CFA continued focus on acquisitions despite RoCE falling from 65% in FY07 to 17% +91 22 3043 3246 in FY16 is a concern. Reiterate SELL on GCPL. [email protected] Mapping international businesses - Dabur, Marico placed higher than GCPL Anuj Bansal % of Business Geographical Resource Financial +91 22 3043 3122 Company international integration Overall spread allocation transparency [email protected] sales ability

GCPL 45% Dhiraj Mistry, CFA

Marico 22% +91 22 3043 3264 Dabur 32% [email protected]

Source: Ambit Capital research Note: - Strong; - Relatively Strong; - Average; - Relatively weak.

Interglobe Aviation SELL Are we overestimating yield and passenger growth? Quick Insight The industry reported domestic passenger growth at 20%+ p.a. over FY16-17 driven by ~5-10% annual decrease in yields aided by weak fuel prices in Stock Information FY16 and margin decline in FY17. For Indigo, after a likely 55% YoY decline in Bloomberg Code: INDIGO IN PBT/ASK in FY17, a further 3-4% cut in yields at the cost of margins may make operations unprofitable in FY18. With a decline in yields unlikely, passenger CMP (Rs): 1092 growth may lag capacity growth of 16-17%. This implies that our/consensus TP (Rs): 760 expectations of a simultaneous 6% YoY increase in yields, ASK growth of 19% Mcap (Rs bn/US$ bn): 395/6.1 and stable utilisation of ~85% in FY18 may see significant downside risks. 3M ADV (Rs mn/US$ mn): 521/8.1 Our sensitivity analysis indicates that 1% lower-than-expected yields or utilisation would hit FY18E EPS by 10-12%. Even on our currently optimistic assumptions, Indigo trades at 20x FY18E P/E and 9x EV/EBITDAR, at a significant premium to global peer average of 11x P/E and 6x EV/EBITDAR. Stock Performance (%) 1M 3M 12M YTD Absolute 19 24 4 33 FY17 yields and margins much lower than expected Rel. to Sensex 19 16 (10) 22 Source: Bloomberg, Ambit Capital research We initiated Indigo with a SELL stance a year back as we expected margins to come under pressure to absorb mid-teen capacity growth (click here for our initiation note). Ambit Estimates (Rs mn) Valuations optimistically factored in sustained mid-teen ASK CAGR over FY17-26E and sustenance of peak unitary margin of Rs0.54/ASK seen in FY16 (2x FY10-15 FY16E FY17E FY18E average). However, both of these seem difficult due to planned capacity addition at Revenues 161,399 187,014 236,230 mid-teen levels, insufficient airport infrastructure, and need for decline in prices to EBITDA 30,025 21,047 27,675 keep passenger growth above 15%. In FY17: EPS (Rs) 55.2 44.2 53.0 . Decline in yields and margins sharper than expected: At the beginning of Source: Company, Ambit Capital research the year, we expected 3%/12% YoY decline in average yields/PBT per ASK in FY17 due to rising competition. As against this, in 9MFY17, yields declined by 12% and PBT/ASK declined by 53% – Rs0.54/ASK in FY16 to Rs0.24/ASK in FY17.

. ASK growth marginally higher than expectations: We expected 26% ASK growth in FY17 vs management’s initial guidance of 34%. Actual ASK growth in 11MFY17 was marginally higher, at ~29%.

. Market values of A320neo and A320 largely stable: Although our estimates and valuation did not factor in any decline in profits from sale and lease back, we saw possible risks to the quantum of Indigo’s cash incentives from sale and leaseback as the over 50% correction in crude makes fuel savings less attractive. However, market values of the A320 and the A320neo have remained largely stable at US$43mn and US$48mn respectively.

Research Analyst Parita Ashar, CFA [email protected] Tel: +91 22 3043 3223

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Yield decline drives 20%+ passenger growth in FY16- 17 Over the last 10 years, India’s domestic airline passenger traffic has grown at a healthy 13% CAGR, implying an average GDP factor of 1.8x. Over the last 20 years, passenger growth in China has been ~13%, or 1.5x of GDP. As against this, passenger growth in India has been growing ~20%+ p.a. over FY16 and FY17.

Exhibit 1: 20%+ passenger growth p.a. coincides with declining yields

25% 20% 15% 10% 5% 0% -5% -10% -15% -20% FY09 FY10 FY11 FY12 FY13 FY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 Indigo - YoY Yield growth (%) SpiceJet - YoY Yield growth (%) Jet (Standalone) - YoY Yield growth (%) Industry passenger growth YoY (%)

Source: Company, Ambit capital research Limited scope for further cuts to yields at the cost of margins As depicted in exhibit above, the 20%+ passenger growth coincides with the period when yields have been declining either due to declining crude prices (as seen in FY16) or at the cost of margins of airline companies (as seen in FY17). This corroborates with our view that 15%+ passenger growth requires lower price points, and in the absence of further decline in crude prices, yield decline will have to come at the cost of margins. PBT/ASK for Indigo is likely to decline to ~Rs0.24/ASK in FY17 vs ~Rs0.54/ASK in FY16 and in line with the FY10-15 average. Another 3-4% decline in yields is likely to completely erode the profitability for Indigo in FY18 and, hence, we see limited scope for further cuts in fares at the cost of margins.

Strong supply growth to limit improvement in pricing As depicted in the exhibit below, all the major airlines plan to add significant capacity over the next three years. Hence, supply would increase at 16% CAGR over FY17-20E. The recently announced summer schedule for airline slots also suggests 15.5% YoY growth. We highlight that 16-17% capacity growth does not factor in capacity additions from any new domestic international player such as Qatar Airways, which is considering entering the Indian domestic sector.

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Exhibit 2: Supply to grow by ~16% CAGR led by strong fleet addition plans Current FY17E % FY17-20E 4 year Key Airlines Comments fleet additions growth additions CAGR (%)

Go Air has an order book of 72 A320neos, of which, we expect 8 to be delivered in FY17 and the rest over the next 4 years. Although Go Air has recently given an order of another 72 aircrafts, there is limited Go Air 23 67 58% 23 67 visibility on the delivery of these newly ordered aircrafts. Moreover, we think some of these will be used for replacement of existing aircrafts and hence, we have not included these

Jet has order book of 75 737 Max 8s; however, deliveries are Jet Airways + Jet Lite 102 75 20% 102 75 expected to begin only in end-CY17. We factor in return of 6 aircraft sub-leased to Etihad and other airlines in FY17

Indigo has an order book of 427 A320neos, of which, we expect over Indigo 132 59 13% 132 59 100 are to be delivered over FY17-20E, including 17 in FY17.

Air India will induct up to 15 A320 aircraft on dry lease, without ground staff, insurance and supporting equipment. The aircraft will be on lease for a period of up to 12 years and will include both new and old planes, which are not older than six years at the time of leasing. Air India 137 30 7% 137 30 Moreover, Air India plans to induct 15 more A320. In addition to these 30 A320 aircraft, Air India has announced inducting 14 new A320neos (new engine option) to replace its older fleet. The delivery of 2 of these aircrafts has begun since Mar-17.

SpiceJet had placed an order for 155 737 Max for deliveries to begin Spice Jet 49 34 19% 49 34 from late 2018. We expect the size of the fleet to move up from 48 at present to 83 by the end of FY20 (19% over 3 years).

Expect Air Asia to reach 20 aircrafts by FY2018 from 8 planes Air Asia 9 11 30% 9 11 currently.

Vistara got delivery of its 13th aircraft in Oct-16 and plans to increase Vistara 13 7 15% 13 7 the fleet to 20 aircrafts by 2018.

Total 465 283 17% 465 283 Source: DGCA, Press articles, Companies, Ambit Capital research Where do we go from here? Are we overestimating yields, passenger growth and margins? To meet our and consensus revenue, EBITDAR and EBITDA estimates, Indigo needs to report (a) 6% YoY increase in yields in FY18; (b) ASK growth of 19%; and (c) stable utilisation of ~85%. We remain concerned that a 5-6% increase in yields may negatively impact passenger growth. Hence, we see significant downside risks to our and consensus FY18 estimates as 5-6% yield growth and 15%+ passenger growth may be difficult to achieve simultaneously. Sensitivity to earnings

. Yield: Every 1% decrease in yields has a negative impact of ~10% on FY18 EPS. . Utilisation: Every 1% decrease in utilisation has a negative impact of ~12% on FY18 EPS. Optimistic assumptions + expensive valuations Even on optimistic assumptions, the stock trades at 20x FY18 P/E and 9x EV/EBITDAR. These multiples are at a significant premium to global peer average of 11x P/E and 6x EV/EBITDAR. We reiterate SELL on Indigo with a TP of Rs760, which implies FY19E EV/EBITDAR of 6.3x and FY19 P/E of 12.4x.

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Exhibit 3: Key assumptions and estimates FY15 FY16E FY17E FY18E FY19E

Ending fleet 94 107 133 153 169 % growth 22.1% 13.8% 24.3% 15.0% 10.5% Average fleet 86 101 120 143 161 % growth 19.6% 17.5% 19.4% 19.2% 12.6% ASK (in millions) 35,327 42,830 54,678 65,158 73,360 % growth 17.9% 21.2% 27.7% 19.2% 12.6% Passenger load factor 79.8% 84.0% 85.0% 85.0% 85.0% RPK (in millions) 28,177 35,970 46,490 55,401 62,374 % growth 21.8% 27.7% 29.2% 19.2% 12.6% ATF price/litre 64.0 44.7 43.3 46.4 47.3 % growth -10.0% -30.2% -3.0% 7.0% 2.0% Yields (Rs) 4.94 4.49 4.02 4.26 4.39 % growth 2.9% -9.2% -10.3% 6.0% 2.9% Unitary costs (Rs/ASK)

Revenue 3.94 3.77 3.42 3.63 3.73 Fuel cost 1.63 1.12 1.17 1.22 1.22 Other costs 1.23 1.34 1.30 1.35 1.43 EBITDAR 1.08 1.31 0.95 1.05 1.09 Lease rentals - gross 0.65 0.69 0.67 0.73 0.78 Incentives (0.10) (0.08) (0.10) (0.10) (0.12) Lease rentals - net 0.55 0.61 0.57 0.63 0.66 EBITDA 0.53 0.70 0.38 0.42 0.42 Depreciation 0.09 0.12 0.09 0.09 0.09 EBIT 0.44 0.58 0.29 0.34 0.34 Interest 0.03 0.03 0.05 0.04 0.03 PBT 0.41 0.55 0.24 0.30 0.30 Profit & Loss (Rs mn)

Total Revenues 139,253 161,399 187,014 236,230 273,545 Expenditure ex- fuel and rentals 43,549 57,459 70,998 88,258 104,614 EBITDAR pre fuel 95,704 103,940 116,017 147,972 168,931 Aircraft fuel expenses 57,485 47,793 64,037 79,442 89,206 EBITDAR 38,219 56,147 51,980 68,530 79,725 EBITDAR margin (%) 27.4% 34.8% 27.8% 29.0% 29.1% Aircraft rental on operating lease – Gross 23,076 29,687 36,393 47,415 57,162 Cash and non-cash Incentives (3,553) (3,566) (5,461) (6,560) (8,480) Aircraft rental for operating lease – Net 19,522 26,122 30,933 40,855 48,682 EBITDA 18,697 30,025 21,047 27,675 31,043 EBITDA margin (%) 13.4% 18.6% 11.3% 11.7% 11.3% Depreciation 3,022 5,031 4,942 5,792 6,286 Other Income 3,838 4,614 6,653 7,108 9,345 Finance cost 1,155 1,319 2,783 2,421 2,421 Profit Before Tax 18,357 28,290 19,975 26,571 31,682 Provision for Tax 5,402 8,392 4,009 7,440 9,505 Profit After Tax 12,956 19,897 15,966 19,131 22,177 EPS (Rs/share) 42.2 55.2 44.2 53.0 61.4 Source: Company, Ambit Capital research

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Forensic score percentile Greatness score percentile

Source: Ambit Capital research Source: Ambit Capital research

Forensic Score Evolution Greatness Score Evolution

Source: Ambit Capital research Source: Ambit Capital research

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Income statement (Rs mn) Particulars FY15 FY16E FY17E FY18E FY19E Total Revenues 139,253 161,399 187,014 236,230 273,545 Expenditure ex- fuel and rentals 43,549 57,459 70,998 88,258 104,614 EBITDAR pre fuel 95,704 103,940 116,017 147,972 168,931 Aircraft fuel expenses 57,485 47,793 64,037 79,442 89,206 EBITDAR 38,219 56,147 51,980 68,530 79,725 EBITDAR margin (%) 27.4% 34.8% 27.8% 29.0% 29.1% Aircraft rental on operating lease 23,076 29,687 36,393 47,415 57,162 – Gross Cash and non-cash Incentives (3,553) (3,566) (5,461) (6,560) (8,480) Aircraft rental for operating 19,522 26,122 30,933 40,855 48,682 lease – Net EBITDA 18,697 30,025 21,047 27,675 31,043 EBITDA margin (%) 13.4% 18.6% 11.3% 11.7% 11.3% Depreciation 3,022 5,031 4,942 5,792 6,286 EBIT 15,675 24,994 16,105 21,883 24,758 Other Income 3,838 4,614 6,653 7,108 9,345 Finance cost 1,155 1,319 2,783 2,421 2,421 Profit Before Tax 18,357 28,290 19,975 26,571 31,682 PBT margin (%) 13.2% 17.5% 10.7% 11.2% 11.6% Provision for Tax 5,402 8,392 4,009 7,440 9,505 Profit After Tax 12,956 19,897 15,966 19,131 22,177 Source: Company, Ambit Capital research

Balance Sheet (Rs mn) Particulars FY15 FY16E FY17E FY18E FY19E Share Capital 344 3,604 3,612 3,612 3,612 Total Reserves 3,918 14,739 24,957 37,201 51,395 Shareholder's Funds 4,262 18,343 28,569 40,813 55,007 Total debt 39,262 32,008 32,008 32,008 32,008 Deferred Tax Liabilities 4,091 5,180 5,180 5,180 5,180 Other Long Term Liabilities 20,359 26,994 24,229 28,829 32,429 Deferred Incentives 17,516 15,832 17,450 23,380 27,095 Sources of Funds 86,014 99,167 108,247 131,021 152,529 Total Fixed Assets 48,765 47,275 46,852 46,447 46,225 Current Assets

Inventories 1,306 1,267 1,267 1,601 1,854 Sundry Debtors 1,046 1,571 1,571 1,985 2,298 Cash and Bank 19,994 37,187 49,454 78,817 105,366 Total Current Assets 31,680 56,008 68,275 98,385 125,501 Trade Payables 4,755 7,412 7,412 9,363 10,842 Other Current Liabilities 15,441 16,729 19,495 24,474 28,381 Total Current Liabilities 21,724 31,024 33,790 40,720 46,106 Net Current Assets 9,956 24,984 34,485 57,665 79,395 Application of Funds 86,014 99,167 108,247 131,021 152,529 Source: Company, Ambit Capital research

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Cash flow statement (Rs mn) Particulars FY15 FY16E FY17E FY18E FY19E Profit Before Tax 18,357 28,290 19,975 26,571 31,682 Depreciation 3,022 5,031 4,942 5,792 6,286 Interest & Dividend income (2,704) (4,614) (6,653) (7,108) (9,345) Trade & Other payables 8,607 2,658 (0) 1,951 1,479 Increase/(Decrease) in 35 (1,684) 1,617 5,930 3,715 Deferred incentives Taxes paid (3,951) (7,304) (4,009) (7,440) (9,505) CFO 23,839 30,508 18,657 36,948 33,673 CFI (9,406) 1,074 2,133 1,722 3,281 Capex (10,170) (3,540) (4,520) (5,386) (6,064) Others 764 4,614 6,653 7,108 9,345 CFF (13,070) (14,389) (8,522) (9,308) (10,405) Borrowings 3,817 (7,254) - - - Dividends paid (16,128) (18,521) (5,748) (6,887) (7,984) Finance charges paid (219) (2,783) (2,421) (2,421) (2,421) Net Cash Inflow / Outflow 1,363 17,192 12,268 29,363 26,550 FCFF 13,669 26,968 14,137 31,562 27,609 Source: Company, Ambit Capital research

Margins / Ratios (Rs mn) Particulars FY15 FY16E FY17E FY18E FY19E Unitary costs (Rs/ASK) Revenue 3.94 3.77 3.42 3.63 3.73 Fuel cost 1.63 1.12 1.17 1.22 1.22 Other costs 1.23 1.34 1.30 1.35 1.43 EBITDAR 1.08 1.31 0.95 1.05 1.09 Lease rentals – gross 0.65 0.69 0.67 0.73 0.78 Incentives (0.10) (0.08) (0.10) (0.10) (0.12) Lease rentals – net 0.55 0.61 0.57 0.63 0.66 EBITDA 0.53 0.70 0.38 0.42 0.42 Depreciation 0.09 0.12 0.09 0.09 0.09 EBIT 0.44 0.58 0.29 0.34 0.34 Interest 0.03 0.03 0.05 0.04 0.03 PBT 0.41 0.55 0.24 0.30 0.30 Margins EBITDAR margin % 27.4% 34.8% 27.8% 29.0% 29.1% EBITDA margin % 13.4% 18.6% 11.3% 11.7% 11.3% Adjusted net profit margin % 9.3% 12.3% 8.5% 8.1% 8.1% Per share (Rs) EPS 42.2 55.2 44.2 53.0 61.4 DPS 35.2 42.8 13.3 15.9 18.4 Key drivers ASK (in millions) 35,327 42,830 54,678 65,158 73,360 Passenger load factor 79.8% 84.0% 85.0% 85.0% 85.0% RPK (in millions) 28,177 35,970 46,490 55,401 62,374 Yields (Rs/RPK) 4.94 4.49 4.02 4.26 4.39 Valuation (x) P/E 28.7 19.6 24.4 20.4 17.6 EV/EBITDAR 16.2 11.0 11.9 9.0 7.8 EV/EBITDA 17.8 11.1 11.1 12.0 10.7 Source: Company, Ambit Capital research

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Institutional Equities Team

Saurabh Mukherjea, CFA CEO, Ambit Capital Private Limited (022) 30433174 [email protected] Pramod Gubbi, CFA Head of Equities (022) 30433124 [email protected] Research Analysts Name Industry Sectors Desk-Phone E-mail Nitin Bhasin - Head of Research E&C / Infra / Cement / Home Building (022) 30433241 [email protected] Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected] Abhishek Ranganathan, CFA Retail / Consumer Discretionary (022) 30433085 [email protected] Anuj Bansal Consumer (022) 30433122 [email protected] Aditi Singh Economy / Strategy (022) 30433284 [email protected] Ashvin Shetty, CFA Automobiles / Auto Ancillaries (022) 30433285 [email protected] Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected] Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected] Gaurav Khandelwal, CFA Automobiles / Auto Ancillaries (022) 30433132 [email protected] Girisha Saraf Home Building (022) 30433211 [email protected] Karan Khanna, CFA Strategy (022) 30433251 [email protected] Mayank Porwal Retail / Consumer Discretionary (022) 30433214 [email protected] Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected] Paresh Dave, CFA Healthcare (022) 30433212 [email protected] Parita Ashar, CFA Cement / Metals / Aviation (022) 30433223 [email protected] Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 [email protected] Rahil Shah Banking / Financial Services (022) 30433217 [email protected] Ravi Singh Banking / Financial Services (022) 30433181 [email protected] Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected] Ritesh Vaidya, CFA Consumer (022) 30433246 [email protected] Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected] Sagar Rastogi Technology (022) 30433291 [email protected] Sudheer Guntupalli Technology (022) 30433203 [email protected] Sumit Shekhar Economy / Strategy (022) 30433229 [email protected] Utsav Mehta, CFA E&C / Infrastructure (022) 30433209 [email protected] Vivekanand Subbaraman, CFA Media / Telecom (022) 30433261 [email protected] Sales Name Regions Desk-Phone E-mail Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 [email protected] Dharmen Shah India / Asia (022) 30433289 [email protected] Dipti Mehta India (022) 30433053 [email protected] Krishnan V India / Asia (022) 30433295 [email protected] Nityam Shah, CFA Europe (022) 30433259 [email protected] Punitraj Mehra, CFA India / Asia (022) 30433198 [email protected] Shaleen Silori India (022) 30433256 [email protected] Singapore Praveena Pattabiraman Singapore +65 6536 0481 [email protected] Shashank Abhisheik Singapore +65 6536 1935 [email protected] USA / Canada Ravilochan Pola – CEO Americas +1(646) 793 6001 [email protected] Hitakshi Mehra Americas +1(646) 793 6002 [email protected] Achint Bhagat, CFA Americas +1(646) 793 6752 [email protected] Production Sajid Merchant Production (022) 30433247 [email protected] Sharoz G Hussain Production (022) 30433183 [email protected] Jestin George Editor (022) 30433272 [email protected] Richard Mugutmal Editor (022) 30433273 [email protected] Nikhil Pillai Database (022) 30433265 [email protected]

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Marico Ltd (MRCO IN, SELL) Britannia Industries Ltd (BRIT IN, SELL)

350 4,000 300 3,500 250 3,000 2,500 200 2,000 150 1,500 100 1,000 50 500 0 0 Feb-14 Feb-15 Feb-16 Feb-17 Feb-14 Feb-15 Feb-16 Feb-17 Aug-14 Nov-14 Aug-15 Nov-15 Aug-16 Nov-16 Aug-14 Nov-14 Aug-15 Nov-15 Aug-16 Nov-16 May-14 May-15 May-16 May-14 May-15 May-16 Marico Ltd Britannia Industries Ltd

Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research

Berger Paints India Ltd (BRGR IN, SELL) Dabur India Ltd (DABUR IN, SELL)

300 350 250 300 250 200 200 150 150 100 100 50 50 0 0 Feb-14 Feb-15 Feb-16 Feb-17 Feb-14 Feb-15 Feb-16 Feb-17 Aug-14 Nov-14 Aug-15 Nov-15 Aug-16 Nov-16 Aug-14 Nov-14 Aug-15 Nov-15 Aug-16 Nov-16 May-14 May-15 May-16 May-14 May-15 May-16 Berger Paints India Ltd Dabur India Ltd

Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research

Godrej Consumer Products Ltd (GCPL IN, SELL) Asian Paints Ltd (APNT IN, SELL)

1,800 1,400 1,600 1,200 1,400 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 0 Feb-14 Feb-15 Feb-16 Feb-17 Feb-14 Feb-15 Feb-16 Feb-17 Aug-14 Nov-14 Aug-15 Nov-15 Aug-16 Nov-16 Aug-14 Nov-14 Aug-15 Nov-15 Aug-16 Nov-16 May-14 May-15 May-16 May-14 May-15 May-16 Godrej Consumer Products Ltd Asian Paints Ltd

Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Interglobe Aviation Ltd (INDIGO IN, SELL)

1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 Jul-16 Jan-16 Jun-16 Jan-17 Apr-16 Oct-16 Feb-16 Sep-16 Feb-17 Dec-15 Dec-16 Mar-16 Aug-16 Mar-17 Nov-15 Nov-16 May-16 InterGlobe Aviation Ltd

Source: Bloomberg, Ambit Capital research

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

Explanation of Investment Rating Investment Rating Expected return (over 12-month) BUY >10% SELL <10% NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock

POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs

* In case the recommendation given by the Research Analyst becomes inconsistent with the rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures (like change in stance/estimates) to make the recommendation consistent with the rating legend. Disclaimer This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically, and, in some cases, in printed form. Additional information on recommended securities is available on request.

Disclaimer 1. AMBIT Capital Private Limited (“AMBIT Capital”) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio Manager, Merchant Banker and Depository Participant registered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI. 2. AMBIT Capital makes best endeavours to ensure that the research analyst(s) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s) believes to be reliable. However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. The information, opinions, views expressed in this Research Report are those of the research analyst as at the date of this Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein. 3. This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatisfied with the contents of this complimentary Research Report or with the terms of this Disclaimer, your sole and exclusive remedy is to stop using this Research Report and AMBIT Capital or its affiliates shall not be responsible and/ or liable for any direct/consequential loss howsoever directly or indirectly, from any use of this Research Report. 4. If this Research Report is received by any client of AMBIT Capital or its affiliate, the relationship of AMBIT Capital/its affiliate with such client will continue to be governed by the terms and conditions in place between AMBIT Capital/ such affiliate and the client. 5. This Research Report is issued for information only and the 'Buy', 'Sell', or ‘Other Recommendation’ made in this Research Report such should not be construed as an investment advice to any recipient to acquire, subscribe, purchase, sell, dispose of, retain any securities and should not be intended or treated as a substitute for necessary review or validation or any professional advice. Recipients should consider this Research Report as only a single factor in making any investment decisions. This Research Report is not an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or as an official endorsement of any investment. 6. This Research Report is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied in whole or in part, for any purpose. Neither this Research Report nor any copy of it may be taken or transmitted or distributed, directly or indirectly within India or into any other country including United States (to US Persons), Canada or Japan or to any resident thereof. The distribution of this Research Report in other jurisdictions may be strictly restricted and/ or prohibited by law or contract, and persons into whose possession this Research Report comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition. 7. Ambit Capital Private Limited is registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. SEBI Reg.No.- INH000000313.

Conflict of Interests 8. In the normal course of AMBIT Capital’s business circumstances may arise that could result in the interests of AMBIT Capital conflicting with the interests of clients or one client’s interests conflicting with the interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified and managed and that clients’ interests are protected. AMBIT Capital has policies and procedures in place to control the flow and use of non-public, price sensitive information and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital segregates the activities of staff working in areas where conflicts of interest may arise. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and should make informed decisions in relation to AMBIT Capital’s services. 9. AMBIT Capital and/or its affiliates may from time to time have or solicit investment banking, investment advisory and other business relationships with companies covered in this Research Report and may receive compensation for the same.

Additional Disclaimer for Canadian Persons 10. AMBIT Capital is not registered in the Province of Ontario and /or Province of Québec to trade in securities and/or to provide advice with respect to securities. 11. AMBIT Capital's head office or principal place of business is located in India. 12. All or substantially all of AMBIT Capital's assets may be situated outside of Canada. 13. It may be difficult for enforcing legal rights against AMBIT Capital because of the above. 14. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2 Canada. 15. Name and address of AMBIT Capital's agent for service of process in the Province of Québec is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec H3B 2C3 Canada.

Additional Disclaimer for Singapore Persons 16. This Report is prepared and distributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of the First Schedule to the Financial Advisors Act (CAP 110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore. 17. This Report is only available to persons in Singapore who are institutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”).” Accordingly, if a Singapore Person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited.

Additional Disclaimer for UK Persons 18. All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover. No part of this research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report. This report may not be reproduced, redistributed or copied in whole or in part for any purpose. 19. This report is a marketing communication and has been prepared by Ambit Capital Pvt Ltd of Mumbai, India (“Ambit”) and has been approved in the UK by Ambit Capital (UK) Limited (“ACUK”) solely for the purposes of section 21 of the Financial Services and Markets Act 2000. Ambit is regulated by the Securities and Exchange Board of India and is registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. ACUK is regulated by the UK Financial Services Authority and has registered office at C/o Panmure Gordon & Co PL, One New Change, London, EC4M9AF. 20. In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(1) (persons who have professional experience in matters relating to investments) or Article 49(2)(a) to (d) (high net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended) or (ii) are professional customers or eligible counterparties of ACUK (all such persons together being referred to as "relevant persons"). This report must not be acted on or relied upon by persons in the UK who are not relevant persons. 21. Neither Ambit nor ACUK is a US registered broker-dealer. Transactions undertaken in the US in any security mentioned herein must be effected through a US-registered broker-dealer, in conformity with SEC Rule 15a-6. 22. Neither this report nor any copy or part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of UK or US securities laws, or the law of any such other jurisdictions. 23. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information in this report, or on which this report is based, has been obtained from publicly available sources that Ambit believes to be reliable and accurate. However, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It has also not been independently verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. 24. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors’ individual circumstances and should not be taken as specific advice on the merits of any investment decision. Investors should consider this report as only a single factor in making any investment decisions. Further information is available upon request. No member or employee of Ambit or ACUK accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of this report or its contents.

Ambit Capital Pvt Ltd 19 April 2017

AMBIT INSIGHTS

25. The value of any investment made at your discretion based on this Report, or income therefrom, maybe affected by changes in economic, financial and/or political factors and may go down as well as go up and you may not get back the original amount invested. Some securities and/or investments involve substantial risk and are not suitable for all investors. 26. Ambit and its affiliates and their respective officers directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). Ambit and ACUK may from time to time render advisory and other services to companies referred to in this Report and may receive compensation for the same. 27. Ambit and its affiliates may act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies discussed in this Report (or in related investments) or may sell them or buy them from clients on a principal to principal basis or may be involved in proprietary trading and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. 28. Ambit and ACUK may sell or buy any securities or make any investment which may be contrary to or inconsistent with this Report and are not subject to any prohibition on dealing. By accepting this report you agree to be bound by the foregoing limitations. In the normal course of Ambit and its affiliates’ business, circumstances may arise that could result in the interests of Ambit conflicting with the interests of clients or one client’s interests conflicting with the interest of another client. Ambit makes best efforts to ensure that conflicts are identified, managed and clients’ interests are protected. However, clients/potential clients of Ambit should be aware of these possible conflicts of interests and should make informed decisions in relation to Ambit services.

Additional Disclaimer for U.S. Persons 29. The research report is solely a product of AMBIT Capital 30. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report 31. Any subsequent transactions in securities discussed in the research reports should be effected through Enclave Capital LLC. (“Enclave”). 32. Enclave does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports. 33. The research analyst(s) preparing the email / Research Report/ attachment is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. 34. This report is prepared, approved, published and distributed by the Ambit Capital located outside of the United States (a non-US Group Company”). This report is distributed in the U.S.by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of Ambit Capital only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). In order to receive any additional information about or to effect a transaction in any security or financial instrument mentioned herein, please contact a registered representative of Enclave Capital LLC. 35. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securities. 36. This document does not constitute an offer of, or an invitation by or on behalf of Ambit Capital or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which Ambit Capital or its Affiliates consider to be reliable. None of Ambit Capital accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions. Disclosures 37. The analyst (s) has/have not served as an officer, director or employee of the subject company. 38. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities. 39. All market data included in this report are dated as at the previous stock market closing day from the date of this report.

Analyst Certification Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report.

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Ambit Capital Pvt Ltd 19 April 2017