INDIA DAILY

December 1, 2016 India 30-Nov 1-day 1-mo 3-mo Sensex 26,653 1.0 (4.4) (6.2) Nifty 8,225 1.0 (4.7) (6.3) Contents Global/Regional indices Dow Jones 19,124 0.0 6.0 3.8 Special Reports Nasdaq Composite 5,324 (1.0) 3.3 1.8 Strategy FTSE 6,784 0.2 (1.9) 0.6 Strategy: 'Passive' joyride and jitters Nikkei 18,625 1.7 6.8 10.0 Hang Seng 22,949 0.7 (0.9) (0.9) Daily Alerts KOSPI 1,982 (0.1) (1.3) (2.5) Results Value traded – India Cash (NSE+BSE) 340 259 260 Tata Power: Coal shows promise Derivatives (NSE) 3,638 2,432 3,223

GSPL: Higher other income offsets subdued volumes Deri. open interest 2,335 2,185 2,605

Sector alerts Forex/money market Energy: Short-term relief from OPEC deal, not enough for a medium-term seal Change, basis points

30-Nov 1-day 1-mo 3-mo Economy alerts Rs/US$ 68.4 (27) 161 143

Economy: Further protracted growth recovery 10yr govt bond, % 6.5 (2) (53) (66)

Net investment (US$ mn)

29-Nov MTD CYTD

FIIs (95) - 4,205

MFs 171 - 5,272

Top movers

Change, %

Best performers 30-Nov 1-day 1-mo 3-mo

VEDL IN Equity 229.9 0.6 4.6 35.0

CAIR IN Equity 251.6 1.5 3.7 25.5

HZ IN Equity 282.6 0.1 3.7 25.2

ONGC IN Equity 288.9 1.4 (0.1) 22.1

HPCL IN Equity 471.2 (0.9) 1.4 16.8

Worst performers

HDIL IN Equity 62.0 1.3 (23.4) (30.8)

JPA IN Equity 8.1 5.9 (26.4) (27.7)

SHTF IN Equity 904.5 (0.5) (14.2) (24.7)

ACEM IN Equity 210.8 2.8 (13.8) (23.9)

RCOM IN Equity 37.8 3.3 (18.8) (23.1)

Kotak Institutional Equities Research [email protected] . Mumbai: +91-22-4336-0000

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

INDIA Strategy Macro DECEMBER 01, 2016 UPDATE BSE-30: 26,653

‘Passive’ joyride and jitters. The recent market correction exposes the hollowness of ‘macro’ trades. The Indian market’s valuations, especially those of high P/E stocks, were simply too expensive, supported as they were by low global yields and unrealistic assumptions of low ‘global’ cost of equity in perpetuity. The Indian market has seen large FPI outflows on (1) higher global bond yields and (2) demonetization but these factors are less relevant versus the fact that valuations were rich before the correction.

Higher DM yields and demonetization are good talking points; market was simply too expensive QUICK NUMBERS

In our view, the recent market correction and purported reasons for correction (higher DM  US 10-year bond bond yields and demonetization) should be viewed against the fact that the Indian market’s yields jump 55 bps valuations were simply quite expensive before the correction. As highlighted several times, in the past month valuations were being supported by unrealistic assumptions of cost of equity, in turn ‘influenced’ by the loose monetary policies of the global central banks. This had led to large  US$26 bn of debt mispricing of cost of equity or in other words, mispricing of country and company-specific risks. and equity outflows in emerging Overall valuations reasonable on FY2018E basis; however, de-rating story may not be over markets in October We find valuations of the market (Nifty-50 Index) more reasonable at 18.9X FY2017E ‘EPS’ and and November 15.6X FY2018E ‘EPS’ (see Exhibits 1-2) after the recent correction in the market. However, we expect (1) the recent sharp increase in DM yields and (2) the demonetization measure of the  Listed funds Indian government to keep multiples of high P/E stocks in check. In fact, we do not rule out invested in India further de-rating in the multiples of (1) consumer durable and (2) building and construction saw redemptions of material stocks (see discussion later). India’s macroeconomic position will likely stay favorable US$1.4 bn in past over the next 12-18 months due to (1) likely lower inflation and interest rates and (2) stable one month CAD and fiscal position, which should support valuations above long-term historical averages. However, current multiples are still 15-20% away from our preferred valuation range.

Sharp increase in global bond yields leads to large outflows from EM equities

The recent sharp increase in DM bond yields (see Exhibit 3), especially in US bond yields, due to the market’s growing expectations about higher fiscal spending and deficits (infrastructure spending accompanied by reduction in corporate tax rates) in the US, has resulted in large equity outflows from emerging markets (see Exhibit 4). Six EMs for which daily FPI flow data is available saw inflows of US$23 bn in the September quarter post ‘Brexit’ (see Exhibit 5); they have now seen outflows of US$10 bn in October and November. Sanjeev Prasad Listed fund activity across the region was negative due to reversal of macro ‘yield’ trade [email protected] Mumbai: +91-22-4336-0830 Recent data from EPFR shows redemptions across EM markets (see Exhibit 6) with China and India seeing large redemptions from listed funds. This reverses the large inflows that they saw in Sunita Baldawa [email protected] the past few months post the June 23, 2016 ‘Brexit’ referendum, arising from a sharp decline in Mumbai: +91-22-4336-0896 DM and EM bond yields on expectations of further monetary stimulus by global central banks, especially the BoE. The BoE did cut rates and announce a QE program, adding to the QE Anindya Bhowmik [email protected] programs of the BoJ and the ECB. Mumbai: +91-22-4336-0897

Kotak Institutional Equities Research [email protected] Mumbai: +91-22-4336-0000

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

Exhibit 1: Overall valuations are more reasonable after the correction but not of high-growth stocks Valuation summary of Nifty-50 sectors (full-float basis), March fiscal year-ends, 2016-18E

Mcap. Adj. mcap. Earnings growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Div. yield (%) RoE (%) (US$ bn) (US$ bn) 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E Automobiles 93.8 50.8 11.4 26.1 15.0 19.0 15.1 13.1 9.5 7.6 6.4 3.4 2.9 2.5 1.0 1.2 1.3 18.1 19.3 18.9 Banking 184.1 138.4 19.7 44.0 24.7 21.0 14.6 11.7 2.2 2.0 1.7 1.0 1.2 1.5 10.4 13.5 14.7 Cement 30.2 13.8 46.0 20.7 21.5 22.3 18.5 15.2 10.7 8.6 6.8 2.7 2.4 2.1 0.7 0.7 0.7 12.1 13.1 14.0 Consumers 81.2 43.9 4.1 16.1 13.3 34.9 30.1 26.5 23.3 19.8 17.3 11.7 11.1 10.5 2.0 2.3 2.8 33.7 36.8 39.7 Energy 100.1 37.1 11.5 7.8 8.6 11.3 10.5 9.7 7.6 6.5 5.8 1.3 1.2 1.1 2.2 2.3 2.6 11.5 11.4 11.4 Industrials 23.5 18.3 51.8 37.3 25.3 27.7 20.2 16.1 20.2 16.2 13.5 2.2 2.1 1.9 1.5 1.9 2.3 7.9 10.2 11.9 Infrastructure 8.4 3.6 23.5 (16.1) 4.0 16.2 19.4 18.6 14.5 13.1 12.5 3.5 3.0 2.7 0.5 0.8 0.9 21.5 15.7 14.5 Media 6.4 3.6 33.2 35.8 14.8 36.4 26.8 23.4 20.1 16.5 14.5 4.6 4.3 3.9 0.5 0.8 0.9 12.7 15.9 16.6 Metals & Mining 39.6 13.0 46.2 29.5 10.5 14.7 11.4 10.3 8.5 7.1 6.6 2.6 2.4 2.2 4.0 4.5 5.0 17.8 21.2 21.4 Pharmaceuticals 55.6 29.3 20.1 14.7 17.4 23.8 20.8 17.7 14.6 12.2 10.1 4.4 3.7 3.1 0.7 0.7 0.9 18.4 17.8 17.8 Technology 138.1 61.5 8.1 8.8 9.4 15.8 14.6 13.3 10.6 9.4 8.3 3.8 3.3 2.9 2.4 2.5 2.8 23.8 22.8 22.0 Telecom 33.2 10.5 (16.2) (41.4) 62.9 29.0 49.4 30.3 7.0 7.0 6.2 2.1 2.1 2.1 1.7 1.7 2.4 7.2 4.3 6.9 Utilities 37.2 14.0 7.8 17.8 11.9 13.3 11.3 10.1 10.2 8.8 7.5 1.6 1.5 1.3 1.9 2.3 2.5 12.0 12.8 13.0 Nifty-50 Index 831.4 437.8 14.3 19.2 15.6 18.3 15.3 13.3 10.3 8.9 7.7 2.6 2.3 2.1 1.6 1.9 2.2 14.0 15.1 15.6 Nifty-50 Index (ex-energy) 731.3 400.7 15.0 21.9 17.1 20.0 16.4 14.0 11.1 9.6 8.3 3.0 2.7 2.4 1.6 1.8 2.1 14.8 16.2 16.8

Notes: (a) We have used consensus numbers for Aurobindo, Bosch and Kotak Mahindra Bank.

Source: Kotak Institutional Equities estimates

Exhibit 2: The Nifty-50 Index trades at 18.9X FY2017E 'EPS' and 15.6X FY2018E 'EPS' (free-float basis) Valuation summary of Nifty-50 sectors (free-float basis), March fiscal year-ends, 2016-18E

Mcap. Adj. mcap. Adjusted net profits (Rs bn) Adjusted P/E (X) (Rs bn) (Rs bn) 2017E 2018E 2019E 2017E 2018E 2019E Automobiles 6,427 3,481 195 247 284 17.8 14.1 12.2 Banking 12,612 9,480 446 604 745 21.3 15.7 12.7 Cement 2,066 945 48 57 69 19.7 16.5 13.8 Consumers 5,563 3,005 91 106 120 32.9 28.3 25.0 Energy 6,857 2,540 234 252 269 10.8 10.1 9.4 Industrials 1,607 1,252 48 63 77 26.2 19.8 16.3 Infrastructure 576 247 15 13 13 16.2 19.4 18.6 Media 438 249 7 9 11 36.4 26.8 23.4 Metals & Mining 2,715 893 57 84 92 15.7 10.7 9.8 Pharmaceuticals 3,805 2,007 81 95 113 24.7 21.1 17.8 Technology 9,461 4,209 267 293 323 15.8 14.4 13.1 Telecom 2,271 720 24 13 23 29.4 54.3 31.7 Utilities 2,549 959 72 84 94 13.3 11.4 10.2 Nifty Index 56,949 29,989 1,586 1,921 2,232 18.9 15.6 13.4 Nifty-50 Index (ex-energy) 50,092 27,449 1,352 1,668 1,963 20.3 16.5 14.0

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Strategy

Exhibit 3: Yields in certain DMs have moved up in the past few months Trend in 10-year benchmark yields across major DMs (%)

France Germany Japan Switzerland UK US 7 6 5 4 3 2 1 0 (1)

(2)

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14 Nov-15 Nov-16

Source: Bloomberg, Kotak Institutional Equities

Exhibit 4: Emerging markets have seen huge outflows in November Debt and equity flows into emerging markets, calendar year-ends, 2015-16 (US$ bn)

50 Debt flows Equity flows Total flows 40

30

20

10

-

(10)

(20)

(30)

Jul 15

Jul 16

Jan15

Jan16

Jun 15

Jun 16

Feb 15

Oct 15

Feb 16

Oct 16

Apr15

Sep15

Apr16

Sep16

Dec 15

Nov 15

Nov 16

Mar 15

Mar 16

Aug15

Aug16

May 15 May 16

Notes: (a) October and November numbers are as per IIF estimates. (b) Countries included: Brazil, Bulgaria, Chile, Czech Republic, Hungary, India, Indonesia, Korea, Mexico, Poland, South Africa, Thailand, Turkey and Ukraine.

Source: Institute of International Finance (IIF), Kotak Institutional Equities

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 5: Emerging markets have seen large outflows in October and November FII flows in various countries, calendar year-ends, 2005-16 (US$ mn)

Year India Indonesia Philippines S.Korea Taiwan Thailand 2005 10,901 (1,732) 354 (3,547) 23,971 2,949 2006 8,338 1,942 721 (12,642) 17,240 2,068 2007 18,518 3,600 1,357 (29,270) 2,205 1,548 2008 (12,918) 1,753 (1,138) (36,641) (15,484) (4,792) 2009 17,639 1,384 424 24,682 15,680 1,136 2010 29,321 2,396 1,225 19,823 9,593 2,689 2011 (512) 2,956 1,331 (8,542) (9,066) (164) 2012 24,548 1,712 2,558 15,084 4,913 2,503 2013 19,754 (1,806) 678 4,875 9,188 (6,210) 2014 16,162 3,766 1,256 5,684 13,190 (1,091) 2015 3,193 (1,574) (1,187) (4,034) 2,315 (4,597) 2016 4,300 1,532 274 9,235 10,955 2,227 Jan (1,702) (165) (43) (2,327) (1,703) (219) Feb (1,170) 303 (85) (43) 1,563 13 Mar 4,085 178 204 3,128 5,122 749 Apr 585 22 (34) 1,826 727 (159) May 386 (17) 287 85 (2,081) 131 Jun 771 664 312 680 2,617 522 Jul 1,690 905 418 3,677 5,384 1,266 Aug 1,463 985 (34) 1,062 2,402 988 Sep 1,401 (250) (273) 1,325 230 493 Oct (746) (174) (94) 258 (63) (514) Nov (2,464) (919) (383) (437) (3,244) (1,044)

Source: Bloomberg, Kotak Institutional Equities

Exhibit 6: Non-ETFs saw higher outflows than ETFs in past four weeks, India-dedicated funds and GEM funds contributed to outflows India EPFR fund flows and AUM broken down by funds and investment style (ETF/non-ETF) (US$ mn)

Estimated AUM EPFR universe India AUM India-dedicated funds GEM funds Other funds Total India-dedicated GEM Others Total ETF Non-ETF Total ETF Non-ETF Total ETF Non-ETF Total ETF Non-ETF Total 42697 33,142 42,869 29,678 105,690 9,847 23,295 33,142 12,070 30,799 42,869 4,894 24,784 29,678 26,812 78,878 105,690 Last 4 weeks 37,961 46,183 30,862 115,007 11,182 26,779 37,961 13,146 33,037 46,183 5,040 25,822 30,862 29,368 85,639 115,007 12-weeks 38,161 46,186 32,693 117,040 11,396 26,765 38,161 12,891 33,296 46,186 5,368 27,325 32,693 29,654 87,386 117,040 26-weeks 33,781 38,086 27,288 99,154 9,992 23,789 33,781 9,607 28,479 38,086 4,386 22,902 27,288 23,985 75,169 99,154 52-weeks 35,553 38,346 29,711 104,746 10,898 24,655 35,553 9,303 29,043 38,346 4,333 25,378 29,711 24,755 79,991 104,746

Flows EPFR universe India flows India-dedicated funds GEM funds Other funds Total 23-11-2016 India-dedicated GEM Others Total ETF Non-ETF Total ETF Non-ETF Total ETF Non-ETF Total ETF Non-ETF Total Last 4 weeks (657) (644) (104) (1,405) (229) (427) (657) (335) (309) (644) 13 (117) (104) (551) (853) (1,405) 12-weeks (711) 288 (25) (449) (312) (400) (711) 248 39 288 96 (121) (25) 32 (481) (449) 26-weeks (552) 2,513 (50) 1,912 (173) (379) (552) 2,032 481 2,513 281 (330) (50) 2,139 (228) 1,912 52-weeks (2,462) 2,368 (528) (622) (898) (1,564) (2,462) 2,710 (342) 2,368 482 (1,010) (528) 2,294 (2,916) (622) CY2016 (1,995) 2,587 (368) 224 (625) (1,371) (1,995) 2,554 34 2,587 382 (751) (368) 2,311 (2,088) 224 CY2015 3,288 (2,483) (1,077) (273) 1,755 1,532 3,288 (459) (2,024) (2,483) 426 (1,503) (1,077) 1,722 (1,995) (273)

Notes: (a) Others includes Asia ex-Japan regional, BRIC, Europe regional, Global, Global ex-US and Pacific regional funds.

Source: EPFR, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 India Strategy

Large outflows from listed India-dedicated funds

The Indian market has seen large FPI outflows in the past 30 days given the twin impact of higher DM yields and demonetization. Listed funds in the EPFR universe invested in India have seen redemptions of US$1.4 bn in the past four weeks (see Exhibit 7). They recorded inflows of US$3.6 bn post the June 23, 2016 ‘Brexit’ referendum until end of October 2016.

Exhibit 7: Listed fund withdrew US$1.4 bn from India in the past four weeks ETF and non-ETF flows into India (US$ mn)

Total ETF Non-ETF 800

600

400

200

-

(200) 6-Jul

1-Jun

8-Jun

5-Oct

7-Sep

13-Jul

20-Jul

27-Jul

2-Nov

9-Nov

3-Aug

15-Jun

22-Jun

29-Jun

12-Oct

19-Oct

26-Oct

14-Sep

21-Sep

28-Sep

16-Nov

23-Nov

10-Aug

17-Aug

24-Aug 31-Aug (400)

(600)

(800)

(1,000)

Source: EPFR, Kotak Institutional Equities

We note that the Indian market has underperformed its peers over the past one month (see Exhibit 8); part of the correction is also due to the demonetization measure of the Indian government. The Indian market would have been expected to hold up better in such a situation.

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 8: Indian market has underperformed its peers over the past one month Performance (not annualized) of emerging and developed markets over a period of time (%)

% change in local currency % change in USD 1-mo 3-mo 6-mo 1-yr 3-yr 5-yr 1-mo 3-mo 6-mo 1-yr 3-yr 5-yr Developed markets Australia 3 0 2 3 2 27 1 (1) 5 5 (16) (7) France 0 3 2 (7) 6 44 (2) (2) (3) (7) (17) 15 Germany (0) 0 4 (5) 13 75 (3) (4) (1) (5) (11) 39 Hong Kong (1) (1) 10 2 (5) 20 (1) (1) 10 2 (5) 20 Japan 5 8 8 (9) 17 112 (2) (1) 5 (1) 6 46 Singapore 3 3 4 1 (9) 5 1 (2) 1 (0) (20) (6) UK (3) 0 10 6 2 22 (1) (5) (5) (12) (22) (2) US (Dow Jones) 5 4 7 7 19 59 5 4 7 7 19 59 US (S&P500) 4 2 5 5 22 77 4 2 5 5 22 77 MSCI World 1 (0) 3 0 5 44 Emerging markets Brazil (5) 5 24 35 16 5 (11) 0 32 54 (20) (44) India (5) (6) 1 3 33 63 (7) (8) (1) 0 21 22 Indonesia (5) (4) 6 13 21 36 (8) (6) 7 15 5 (9) Korea (2) (3) 0 (2) (3) 4 (4) (7) 2 (3) (12) (0) Malaysia (3) (4) (0) (4) (11) 9 (9) (12) (7) (9) (35) (24) Mexico (5) (5) (0) 3 7 23 (14) (13) (10) (17) (32) (19) Philippines (8) (13) (10) (4) 9 58 (11) (18) (15) (9) (4) 37 Russia 6 6 11 18 42 39 3 7 15 22 (27) (33) Shanghai 5 5 12 (6) 46 38 3 2 7 (13) 30 27 Taiwan (1) 2 7 9 10 29 (1) 2 10 12 2 23 Thailand 1 (2) 7 11 10 47 (1) (5) 7 12 (1) 27 MSCI EM (5) (4) 6 4 (16) (11)

Source: Bloomberg, Kotak Institutional Equities

Model Portfolio and positioning: Staying away from high P/E stocks despite recent sharp correction

Exhibit 9 is our revised Model Portfolio. We increase weight in IOCL (200 bps to 400 bps now) and Infosys (100 bps to 10%). We drop PLNG (200 bps earlier) from our Model Portfolio and reduce weight in NTPC by 100 bps to 300 bps.

We still like PLNG’s business model but the solid performance over the past year and three months (42% and 11%) results in a more modest upside to our fair valuation (₹415 on 12-month forward basis). Similarly, we like the regulated utilities noting their inexpensive valuations and quasi-bond status (they should benefit from lower interest rates) but note their strong outperformance over the past one month (and past 12 months) and lower potential upside to our 12-month fair valuations post their strong absolute performance. NTPC and PWGR are up 5-8% in the past one month against the market’s 4.5% correction.

We would still stay away from the high P/E stocks in (1) consumer staples and discretionary sectors and (2) building and construction materials despite a healthy 10-20% correction in their stock prices over the past 3-4 weeks. We find their valuations quite expensive even after the recent correction; they were merely very expensive before the correction.

In our view, the ‘yield compression’ and ‘gross margin expansion’ drivers of stock performance are over, even if they do not reverse fully over the next few quarters. We note the fortuitous nature of two biggest drivers of stock performance in the past few years—(1) re-rating of multiples from ‘yield compression’ or gradual decline in global yields due to extremely loose monetary policies of the global central banks and (2) gross margin expansion arising from sharp correction in commodity prices over the past two years. We had argued about potential de-rating from reversal in the global ‘macro’ drivers over the past six months.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 India Strategy

Exhibit 9: ’Macro’ themes of (1) economic recovery, (2) lower interest rates and (3) higher financial savings KIE large-cap. Model Portfolio

Price (Rs) KIE weight Price (Rs) KIE weight Company 30-Nov Rating (%) 30-Nov Rating (%) Automobiles Reliance Industries 990 ADD 4.0 Maruti Suzuki 5,266 BUY 6.0 Energy 12.0 Tata Motors 459 BUY 6.0 Metals & Mining Automobiles 12.0 JSW Steel 1,729 ADD 2.0 PSU Banking Tata Steel 415 ADD 2.0 State Bank of India 258 BUY 6.0 Metals & Mining 4.0 PSU Banking 6.0 Others Pvt. Banking/Financing InterGlobe Aviation 860 ADD 2.0 Axis Bank 470 REDUCE 4.0 Others 2.0 HDFC 1,263 ADD 8.0 Pharmaceuticals HDFC Bank 1,200 ADD 10.0 Cipla 567 BUY 4.0 ICICI Bank 266 BUY 10.0 Pharmaceuticals 4.0 LIC Housing Finance 564 BUY 4.0 Technology Pvt. Banking/Financing 36.0 Infosys 976 ADD 10.0 Consumers Tech Mahindra 485 BUY 4.0 ITC 233 ADD 3.0 Technology 14.0 Consumers 3.0 Utilities Energy NTPC 163 BUY 3.0 GAIL (India) 425 ADD 4.0 Power Grid 192 BUY 4.0 IOCL 307 BUY 4.0 Utilities 7.0 BSE-30 100.0

Source: Companies, Kotak Institutional Equities

Exhibit 10 shows that the multiples of the high P/E stocks are still too high when measured against historical averages. We would argue for 15-20% premium to historical averages noting India’s better macroeconomic position and lower cost of equity (capital). However, valuations are still nowhere close to our preferred range for such stocks.

Exhibit 11 shows that we have not assumed any correction in gross and EBITDA margins for the consumer staple and discretionary stocks under our coverage. In most cases, GM and EBITDA margins have expanded meaningfully. This presents another source of risk to earnings of companies.

Lastly, we believe gross profit and bottom-line growth of consumer stocks will largely be a function of top-line growth with likely little contribution from margin expansion (they are already quite high) and price-mix changes (weak demand will prevent up-trading). Both volume and realization growth could be low for some time given weak demand conditions and low inflation. It is hard to justify 35-45X 12-month forward multiples for the stocks in the context of likely 10-12% earnings growth.

We stick to our macro themes of (1) economy recovery led by consumption, (2) lower interest rates and (3) higher financial savings. The former theme has got dented by the recent demonetization measure. We were generally avoiding consumption stories (barring select automobile stocks) on expensive valuations. However, the latter two themes should get a big boost from the demonetization measure.

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 10: Most growth stocks in our universe got rerated sharply over the past few years 12-m forward PE multiple and earnings growth of growth stocks in KIE universe, March fiscal year-ends, 2011-18E

12-m forward PE multiple (X) EPS (Rs) Company Sector 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15 31-Mar-16 Current 2012 2013 2014 2015 2016 2017E 2018E Bharat Forge Automobiles 18 16 15 19 31 24 29 17 10 21 32 27 26 34 Hero Motocorp Automobiles 14 16 15 17 17 17 17 119 106 106 127 157 174 187 Eicher Motors Automobiles 15 14 16 25 70 33 31 114 120 146 227 471 599 740 Maruti Suzuki Automobiles 14 15 15 17 20 19 19 57 79 92 123 151 231 292 ACC Cement 21 22 14 24 23 22 26 61 76 47 46 40 39 57 Ambuja Cements Cement 19 20 13 21 27 26 26 8 10 7 9 6 7 9 Shree Cement Cement NA 29 14 21 52 39 26 160 288 190 133 115 544 636 UltraTech Cement Cement 14 17 15 26 28 30 26 89 97 75 73 79 124 149 Asian Paints Consumer Products 26 30 35 37 39 40 44 10 12 13 15 19 20 23 Colgate-Palmolive (India) Consumer Products 23 29 28 33 40 34 37 16 18 18 21 21 22 27 Dabur India Consumer Products 25 24 26 29 34 31 37 4 4 5 6 7 7 8 Glaxosmithkline Consumer Consumer Products 30 31 35 29 37 31 31 84 104 160 139 155 146 169 Hindustan Unilever Consumer Products 25 29 28 32 41 40 39 12 15 16 17 19 20 23 Jubilant Foodworks Consumer Products 37 49 38 39 58 53 46 16 20 15 17 16 15 23 Marico Consumer Products 25 26 28 24 33 35 37 3 3 4 4 6 6 7 Nestle India Consumer Products 35 33 36 38 42 46 51 100 111 114 122 93 106 132 Page Industries Consumer Products 24 26 26 35 61 45 49 81 101 138 176 209 232 290 United Breweries Consumer Products 47 54 58 68 74 55 62 6 7 9 10 11 12 15 United Spirits Consumer Products 22 14 29 56 58 68 47 14 9 (9) (11) 12 30 47 ABB Industrials 25 32 35 35 86 56 47 9 6 8 11 14 18 25 BHEL Industrials 15 10 8 19 21 23 29 29 27 14 6 (4) 3 6 L&T Industrials 20 18 17 22 31 23 21 51 53 49 35 51 56 71 Siemens Industrials 35 30 22 41 69 53 39 14 5 6 11 17 24 30 Thermax Industrials 17 14 17 23 33 31 30 34 27 21 22 23 27 30 Cipla Pharmaceuticals 20 17 19 20 30 19 23 14 19 17 15 17 19 28 Dr Reddy's Laboratories Pharmaceuticals 23 16 16 18 25 24 30 90 96 126 136 139 78 122 Lupin Pharmaceuticals 19 19 21 21 32 22 21 19 29 41 53 50 66 73 Sun Pharmaceuticals Pharmaceuticals 22 22 23 22 30 26 22 12 17 28 20 22 32 33

Source: Companies, Kotak Institutional Equities

Exhibit 11: We assume gross and EBITDA margins to stay at current levels despite significant expansion in both margins over past few years Gross margin and EBITDA margin of consumer companies, March fiscal year-ends, 2012-19E (%)

Gross margin (%) EBITDA margin (%) 2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E Asian Paints 39.8 41.4 42.3 43.8 43.6 45.0 44.9 44.7 15.7 15.8 15.7 15.8 19.4 19.5 19.9 20.0 Bajaj Corp. 53.4 57.5 59.9 61.6 62.8 66.0 65.7 65.6 24.4 28.3 27.6 28.8 33.9 33.3 34.3 34.8 Britannia Industries 35.6 37.6 39.7 40.3 40.3 38.6 39.2 39.4 5.7 6.8 9.1 11.0 14.6 13.9 14.9 15.5 Colgate-Palmolive (India) 61.0 60.5 60.8 63.1 64.1 65.0 65.2 65.4 21.5 20.8 18.6 20.6 22.4 22.4 23.3 24.3 Dabur India 49.3 51.1 52.1 52.5 51.1 51.1 51.3 51.5 16.8 16.0 16.3 16.8 19.3 18.9 19.2 19.2 GlaxoSmithKline Consumer 63.1 63.9 64.3 65.2 68.8 69.3 69.1 68.9 18.2 18.0 17.9 16.9 19.4 18.8 19.2 19.7 Godrej Consumer Products 52.4 52.9 53.2 53.6 54.4 54.6 54.6 54.6 17.6 15.3 15.1 16.5 19.6 20.2 20.5 20.7 Hindustan Unilever 46.9 47.7 48.8 49.2 50.7 50.7 51.2 51.3 14.9 15.5 16.0 16.6 18.5 19.1 20.0 20.5 ITC 61.7 59.6 60.4 59.8 63.2 62.2 62.3 62.4 35.2 35.5 37.0 36.9 37.5 36.5 38.1 39.0 Jubilant Foodworks 74.3 73.8 73.9 74.8 76.2 75.5 76.0 76.0 18.4 17.1 14.4 12.2 11.4 10.6 11.9 13.3 Jyothy Laboratories 44.9 47.2 47.5 48.5 51.5 52.0 51.7 51.4 9.2 11.8 11.9 12.4 14.4 15.3 15.8 15.9 Marico 46.4 51.9 48.8 45.6 48.9 52.9 52.7 52.5 12.2 13.6 16.0 15.2 17.5 18.8 19.4 19.6 Nestle India 52.0 54.5 54.5 53.9 57.3 57.6 57.3 57.2 20.7 22.0 21.9 20.9 19.6 19.5 20.5 20.8 Page Industries 54.0 53.7 53.7 62.0 66.9 62.2 62.1 62.1 21.0 20.2 21.2 20.7 21.1 19.8 20.0 20.2 Pidilite Industries 44.3 45.2 44.9 44.9 51.8 53.1 52.8 52.6 15.5 16.1 15.7 15.9 21.9 22.0 22.0 22.1 Tata Global Beverages 49.9 51.5 52.5 52.0 51.6 53.1 52.9 52.7 9.4 10.5 9.7 9.7 8.3 10.5 10.5 10.6 Titan Company 26.1 26.0 26.3 26.5 27.5 28.5 28.8 29.0 9.4 10.0 9.6 9.6 8.3 9.8 10.5 10.8 United Breweries 55.4 57.8 59.0 59.6 56.1 55.7 56.0 56.2 11.4 12.2 14.1 13.3 14.1 15.1 15.6 15.8 United Spirits 45.1 44.9 45.5 44.1 44.3 45.4 45.9 46.7 12.1 12.6 9.3 7.7 11.1 12.4 14.0 15.7

Source: Companies, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9

ADD Tata Power (TPWR) Utilities DECEMBER 01, 2016 RESULT Coverage view: Attractive

Coal shows promise. Tata Power’s consolidated earnings for the quarter benefitted Price (`): 74 from lower losses at Mundra—a trend likely to reverse on account of rising prices of Target price (`): 80 imported coal. However, TPWRs exposure to coal mines in Indonesia will benefit more BSE-30: 26,653 from rising coal prices compared to the higher cost incidence at Mundra. We view the renewed sale arrangement for part coal mines as positive even as we await clarity on the long-standing dispute over compensatory tariffs for Mundra. Maintain ADD rating and a target price of `80/share.

Company data and valuation summary Tata Power Stock data Forecasts/Valuations 2017E 2018E 2019E 52-week range (Rs) (high,low) 84-55 EPS (Rs) 4.6 7.3 8.1 Market Cap. (Rs bn) 200.3 EPS growth (%) (16.1) 57.3 12.1 Shareholding pattern (%) P/E (X) 16.1 10.2 9.1 Promoters 33.0 Sales (Rs bn) 283.6 311.3 334.4 FIIs 26.2 Net profits (Rs bn) 12.9 20.3 22.8 MFs 3.1 EBITDA (Rs bn) 57.4 63.1 64.8 Price performance (%) 1M 3M 12M EV/EBITDA (X) 10.3 8.8 7.9 Absolute (5.2) (5.7) 10.9 ROE (%) 8.4 12.3 12.4 Rel. to BSE-30 (0.6) 0.7 8.7 Div. Yield (%) 1.6 1.6 1.6

Consolidated PAT led by lower losses at CGPL on forex impact and debt refinancing.

Tata Power reported consolidated PAT of `4 bn in 2QFY17 (+ 147% yoy) on account of (1) lower losses at Mundra (`800 mn compared to `4.4 bn in 2QFY16), (2) improved profits at Maithon (+47% yoy) as the full capacity was contracted (compared to 2QFY16), and (3) better contribution from the coal business benefitting from higher production and lower costs. Loss reduction at Mundra was a result of realignment gains of forex liabilities, refinancing of INR debt and favorable MTM of interest rate swap. Reported earnings include `3.8 bn of MAT credit in the tax expense, which has also been accounted for as a regulatory expense. Standalone revenues down due to low offtake; results cushioned by higher other income

Tata Power’s standalone operations reported revenues of `14 bn in 2QFY17, down 13% yoy on account of (1) weak offtake in Mumbai operations, and (2) low demand from Tata Steel. The earnings weakness was compounded by (1) lower entitlement on working capital interest, and (2) non-recurring cost of `700 mn. However, a sharp increase in other income at `8.9 bn

(+22% yoy) on account of dividend from shipping and investment subsidiaries helped compensate the weak operational performance as well as higher interest cost. Higher interest cost was on account of bond issuance of `35 bn done for the acquisition of Welspun renewables.

Maintain ADD rating on the prospect of increasing coal prices and resolution of CT at CGPL

The upward trend of imported coal prices seen recently will have a net positive impact on the consolidated earnings as attributable sales at Indonesia (adjusting for taxes) exceed the Murtuza Arsiwalla consumption of coal at Mundra. The resolution of compensatory tariff case at Mundra that has [email protected] long been pending could help meaningfully improve consolidated earnings, besides allowing Mumbai: +91-22-4336-0870 the company to enjoy fully rising prices of imported coal. Further, declining interest rates augur Ajinkya Bhat well for the recently concluded acquisition of the renewable assets of Welspun even as the [email protected] revived agreement for part-sale of coal mines in Indonesia for US$400 mn (from US$500 mn) Mumbai: +91-22-4336-0888 augurs well for right sizing the balance sheet. We have revised our estimates for FY2017E downwards by 17% to factor in losses at Mundra UMPP, though FY2018E gets revised upwards for an equivalent amount as the lagged effect of rising coal prices reflects in earnings of the coal segment. Maintain ADD rating with a target price of `80/share.

Kotak Institutional Equities Research [email protected] Mumbai: +91-22-4336-0000

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

Mundra—forex gains and lower interest cost save the day

 CGPL sold 6.6 BU of energy in 2QFY17, up 21% yoy, due to higher availability during the quarter. Revenues reported were `16 bn, up 14% yoy while average realization was down 5% yoy to `2.4/kwh for the quarter. Fuel cost under-recovery for the quarter increased to 43 paise/kwh versus 34 paise/kwh in 2QFY16 due to the increase price of imported coal.

 CGPL reported a sharp reduction in forex loss due to realignment gains of forex liabilities. EBITDA (including other income) stood at `0.4/kwh for the quarter versus `0.2/kwh in 2QFY16. Refinancing of INR debt and favorable MTM of interest rate swap helped reduce financing cost in the quarter.

 Accordingly, CGPL reported a loss of `800 mn in 2QFY17, sharply down from `4.4 bn in 2QFY16. This loss reduction was reflected in sharp consolidated profit increase for Tata Power.

 The resolution of compensatory tariff for the force majeure event of Indonesian coal prices remains pending for the plant. In 1QFY17, the company had indicated early resolution of the issue in September but the judgment is yet to be pronounced.

Generation down for Maithon; recovery of full AFC helps financials

 In 2QFY17, Maithon power plant sold 1.5 BU of energy, down 6% yoy. Recovery of Full Average Fixed Cost (AFC) at Maithon on account of the tie-up of entire installed capacity led to 4% yoy increase in EBITDA at `1.9 bn. The EBITDA realization thus stood at `1.3/kwh, up 11% yoy. PAT in 2QFY17 stood at `530 mn, up 47% yoy.

Large MAT credit in the Delhi distribution business

 The company recognized a MAT credit of `3.9 bn in TPDDL in 2QFY17 which was a pass- through benefit to consumers (TPDDL being a regulated business). Accordingly, the company reported an EBITDA loss of `1.3 bn in 2QFY17. Revenues for TPDDL stood at `20 bn, up 17% yoy in 2QFY17.

Welspun renewables acquisition completed, full benefit from 3QFY17

 Tata Power completed the acquisition of 1,141 MW of renewable energy assets from Welspun towards the end of 2QFY17. The full impact in the consolidated financials will be seen from 3QFY17 onwards. However, the company earned an EBITDA realization of `6/kwh on these assets in 2QFY17, down 3% yoy, but far higher than from the rest of power generation assets of the company.

 On the flip side, the acquisition debt worth `35 bn was taken in standalone books (bond issuance) in additions to the debt of `55 bn on the books of the acquired assets. The increased debt was reflected in the higher interest cost for the standalone entity.

Other takeaways

 In the 2QFY17 earnings call, the management clarified that the quoted deal value for Arutmin coal mine and related assets stood intact at US$510 mn but certain closing adjustments reduced the company’s realizable value to US$400 mn. TPWR mentioned that it is working with the lenders to approve the transaction. As per the lending terms, the transaction can be approved by the lenders once the debt liability goes below a certain value as the repayment schedule proceeds. TPWR is also working to get regulatory approvals to close the transaction.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 Utilities Tata Power

 Tata Power, in partnership with ICICI Venture, has launched a new investment platform for acquiring power assets. The new vehicle named Resurgent Power is registered in Singapore and plans to raise an initial fund of US$850 mn. The company mentioned that the fund will look at thermal and hydro generation assets as well as transmission assets to acquire but the renewables space is not a part of the fund’s mandate. The investment philosophy would revolve around good operational or near-completion assets that can be further improved or quickly turned around. The management mentioned that the fund would look at steady returns and given the uncertainty around offtake from hydroelectric stations in India, the short term focus would be on thermal generation and transmission assets.

Exhibit 1: Lower losses in CGPL on account of forex gains led to consolidated PAT improvement Interim results for Tata Power (consolidated) , March fiscal year-ends (Rs mn)

(% Chg.) 2QFY17 2QFY17E 2QFY16 1QFY17 vs est. yoy qoq 1HFY17 1HFY16 (% chg.) FY2017E FY2016 (% chg.) Net sales 68,841 69,052 71,231 65,344 (0) (3) 5 134,185 140,673 (5) 283,582 362,862 (22) Employee cost (3,071) (3,409) (3,084) (3,116) (6,187) (6,133) (14,070) (16,138) Royalty towards coal mine — 0 — 0 - - — (9,391) Cost of power purchased (24,583) (25,827) (24,907) (22,980) (47,563) (46,083) (93,922) (92,567) Cost of coal purchased 0 0 0 0 - - 0 0 Cost of fuel (21,161) (19,906) (19,543) (17,769) (38,930) (40,022) (79,363) (82,688) Coal processing charges — 0 — 0 - - — (20,368) Cost of raw material and components (2,444) (4,523) (3,604) (2,545) (4,989) (6,645) (22,373) (15,000) Other expenditure (6,214) (1,561) (5,445) (5,619) (11,833) (11,101) (16,439) (48,543) EBITDA 11,369 13,825 14,648 13,316 (18) (22) (15) 24,685 30,690 (20) 57,415 78,167 (27) Depreciation (4,476) (5,181) (3,983) (4,393) (8,870) (7,960) (20,994) (23,764) EBIT 6,892 8,644 10,666 8,923 15,815 22,730 36,421 54,403 Other income 1,898 1,170 2,190 1,437 3,335 3,071 5,336 6,388 Net interest (7,243) (8,237) (9,490) (7,915) (15,157) (17,263) (34,488) (34,765) PBT 1,547 1,577 3,365 2,446 (2) (54) (37) 3,993 8,538 (53) 7,269 26,025 (72) Tax 1,117 (631) (1,865) (1,449) (331) (4,132) (2,762) (8,693) Minority interest and share of associates 1,383 1,350 140 1,324 2,707 (301) 8,402 (1,940) Net profit 4,047 2,296 1,640 2,322 76 147 74 6,369 4,105 55 12,909 15,392 (16) Extraordinary (685) — (2,598) (1,597) (2,282) (2,032) (1,597) (6,658) Reported profit after statutory appropriation 3,362 2,296 (959) 725 46 (451) 364 4,087 2,073 97 11,312 8,734 30 EPS (Rs/share) 1.4 0.8 0.6 0.8 2.3 1.5 4.6 5.5 EBITDA margin (%) 17 20 21 20 18 22 20 22 Effective tax rate (%) (72) 40 55 59 8 48 38 33 Segment revenues Power 64,845 66,657 61,649 (3) 5 126,494 132,029 (4) Coal — — 0 - - Others 5,115 5,203 4,156 (2) 23 9,270 10,148 (9) Total 69,960 71,860 65,804 (3) 6 135,764 142,178 (5) Less: Inter segment revenues (935) (149) (143) (1,078) (304) Net revenues 69,025 71,711 65,662 (4) 5 134,686 141,873 (5) EBIT Power 7,332 11,395 9,416 (36) (22) 16,748 24,425 (31) Coal — — 0 #DIV/0! - - #DIV/0! Others/ Unallocated 391 (21) 31 (1,944) 1,178 422 77 448 Total 7,723 11,373 9,446 (32) (18) 17,170 24,502 (30) EBIT margin (%) Power 11.3 17.1 15.3 13 18 Coal — — #DIV/0! #DIV/0! #DIV/0! Others 7.6 (0.4) 0.7 5 1 Total 11.0 15.8 14.4 13 17

Source: Company, Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Power Utilities

Exhibit 2: TPDDL reported EBITDA loss led by pass-through of MAT credit; the benefit of rising prices is yet to be seen in coal segment Subsidiary-wise key financial and operational metrics (Rs mn)

(% Chg.) 2QFY17 2QFY16 1QFY17 (yoy) (qoq) 1HFY17 1HFY16 (% chg.) Tata Power (Standalone) Net sales 14,038 16,163 13,814 (13) 2 27,852 33,477 (17) EBITDA 11,135 9,165 6,518 21 71 17,653 18,409 (4) PAT 4,603 3,700 1,649 24 179 6,252 6,472 (3) Regulated equity 33,220 34,770 36,400 (4) (9) 33,220 34,770 (4) Tata Power Delhi Distribution Net sales 20,120 17,150 17,840 17 13 37,960 33,110 15 EBITDA (1,340) 2,410 2,750 (156) (149) 1,410 5,360 (74) PAT 690 540 820 28 (16) 1,510 1,450 4 Regulated equity 12,560 11,890 12,480 6 1 12,560 11,890 6 Coal Sales (mn tons) 23 19 21 23 10 43 38.5 12 Realization (US$/ton) 40 46 40 (11) 2 40 46 (12) Cost of Production (US$/ton) 24 30 27 (19) (11) 26 NA NA Coastal Gujarat Power Ltd (Mundra UMPP) Net sales 15,920 13,960 12,150 14 31 28,070 28,790 (3) EBITDA 2,460 960 2,190 156 12 4,650 4,150 12 PAT (800) (4,410) (3,830) (82) (79) (4,630) (5,960) (22) Sales (MU) 6,629 5,494 4,987 21 33 11,616 11,289 3 Realization (Rs/kwh) 2.4 2.5 2.4 (5) (1) 2.4 2.6 (5) Cost of Production (Rs/kwh) 2.0 2.4 2.0 (14) 2 2.0 2.2 (8) EBITDA incl. other income (Rs/kwh) 0.4 0.2 0.4 112 (15) 0.4 0.4 9 Maithon Power Ltd Net sales 5,690 5,650 5,990 1 (5) 11,680 11,410 2 EBITDA 1,930 1,850 2,150 4 (10) 4,080 3,750 9 PAT 530 360 670 47 (21) 1,200 730 64 Sales (MU) 1,501 1,599 1,742 (6) (14) 3,243 3,242 0 Realization (Rs/kwh) 3.6 3.3 3.2 8 10 3.6 3.5 2 Cost of Production (Rs/kwh) 2.3 2.1 2.0 7 13 2.3 2.4 (1) EBITDA (Rs/kwh) 1.3 1.2 1.2 11 4 1.3 1.2 9

Source: Company, Kotak Institutional Equities

Exhibit 3: Standalone revenues down due to low offtake, results cushioned by higher other income Interim results for Tata Power (standalone), March fiscal year-ends (Rs mn)

(% Chg.) 2QFY17 2QFY17E 2QFY16 1QFY17 2QFY17E 2QFY16 1QFY17 1HFY17 1HFY16 (% chg.) FY2017E FY2016 (% chg.) Net sales 14,038 15,605 16,163 13,814 (10) (13) 2 27,852 33,477 (17) 63,188 74,942 (16) Cost of electrical energy purchased (754) (2,298) (2,131) (1,609) (67) (65) (53) (2,363) (4,390) (6,171) (7,930) Cost of fuel (5,864) (6,615) (6,884) (5,982) (11) (15) (2) (11,846) (13,657) (24,066) (25,504) Personnel costs, other expenses and provisions (5,111) (4,633) (5,233) (4,684) 10 (2) 9 (9,795) (11,370) (20,087) (23,776) Total expenses (11,728) (13,546) (14,248) (12,276) (13) (18) (4) (24,004) (29,417) (50,324) (57,210) EBITDA 2,310 2,059 1,915 1,538 12 21 50 3,848 4,060 (5) 12,865 17,732 (27) Depreciation (1,579) (1,525) (1,504) (1,550) (3,129) (2,993) (6,430) (6,657) EBIT 732 533 411 (12) 719 1,068 6,435 11,076 Other income 8,825 5,975 7,250 4,980 48 22 77 13,805 14,349 22,405 14,426 Net interest (3,202) (2,688) (2,737) (2,643) 19 17 21 (5,845) (6,142) (12,820) (11,560) PBT 6,354 3,821 4,924 2,325 66 29 173 8,679 9,274 (6) 16,019 13,942 15 Tax (1,751) (1,223) (1,224) (676) (2,427) (2,803) (4,806) (3,949) Net profit 4,603 2,598 3,700 1,649 77 24 179 6,252 6,471 (3) 11,214 9,993 12 Extraordinary (130) — (138) (180) (310) 428 (180) (2,276) Reported PAT after statutory appropriation 4,473 2,598 3,562 1,469 72 26 204 5,943 6,899 (14) 11,034 7,717 43 EPS (Rs/share) 1.6 0.9 1.3 0.6 2.2 2.3 4.0 3.6 EBITDA margin (%) 16 13 12 11 14 12 20 24 Effective tax rate (%) 28 28 25 29 28 25 30 28

Key operating parameters Units generated (MU) 3,330 3,352 3,243 3,163 (1) 3 5 6,493 6,369 2 13,093 12,433 5 Units sold (MU) 3,228 3,836 3,548 3,370 (16) (9) (4) 6,598 7,052 (6) 14,089 13,856 2

Per unit price realization (Rs) 5.2 5.0 5.5 4.8 4 (5) 7 5.0 5.7 (12) 5.9 5.7 2 Fuel cost per unit sold (Rs) 2.0 2.2 2.6 2.1 (7) (22) (0) 2.0 2.5 (19) 2.0 2.3 (11)

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13 Utilities Tata Power

Exhibit 4: Tata Power sum-of-the-parts valuation

Business Methodology Key assumptions/comments Value (Rs/share) Mumbai (Generation, transmission & Includes valuation of extant Mumbai business DCF-equity 21 distribution business) NDPL earns 16% RoE provided it meets cetain A,T&C loss Delhi Distcom (NDPL) DCF-equity reduction benchmarks. It is also incentivized by way of 11 higher returns in the event of bettering the benchmarks Mundra UMPP DCF-equity Levelized tariff of Rs2.26/unit for 25 years (15) 74% stake in 1,050 MW project; 300 MW to be sold to Maithon DCF-equity DVC, 300 MW to NDPL, 300 MW to Punjab and 150 MW 9 to West Bengal (regulated returns); Coal linkage allocated

Other generation assets (standalone) DCF-equity Jojobera + Belgaum + Haldia (629 MW) 6 IEL DCF-equity Jojobera Unit 5 + IEL Phase 6 - 240 MW 1 The project earns a regulated RoE of 15.5% as per the Powerlinks Transmission Ltd DCF-equity 1 CERC tariff guideline for inter-state transmission project Net economic interest - based on dividend discount model Coal DCF 18

Tata Solar P/E (X) 12X P/E 1 Investments Various 20% discount to CMP/ KIE target price 10 Investible surplus on books Market value Marketable securities & cash on books 16 Total 80

Source: Kotak Institutional Equities estimates

Exhibit 5: Change in estimates for Tata Power, March fiscal year-ends, 2017-19E (Rs mn)

Revenues EBITDA Net profit Old New % Chg. Old New % Chg. Old New % Chg. 2017E 291,456 283,582 (2.7) 66,207 57,415 (13.3) 15,531 12,909 (16.9) 2018E 308,054 311,304 1.1 67,427 63,137 (6.4) 17,417 20,305 16.6 2019E 327,818 334,379 2.0 69,075 64,812 (6.2) 19,096 22,753 19.2

Source: Company, Kotak Institutional Equities estimates

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Power Utilities

Exhibit 6: Tata Power: Profit model, balance sheet, cash model (consolidated), March fiscal year-ends, 2011-19E (Rs mn)

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E Profit model (Rs mn) Net sales 194,508 258,689 328,361 354,702 341,851 362,862 283,582 311,304 334,379 EBITDA 45,956 51,927 64,430 75,279 67,587 78,167 57,415 63,137 64,812 Other income 2,671 4,013 5,586 4,058 5,341 6,388 5,336 5,388 5,357 Interest (8,684) (15,271) (26,355) (34,399) (36,993) (34,765) (34,488) (33,188) (31,777) Depreciation (9,802) (13,346) (22,715) (27,296) (21,742) (23,764) (20,994) (21,181) (21,384) Pretax profits 30,141 27,323 20,945 17,642 14,193 26,025 7,269 14,155 17,008 Tax (9,756) (14,755) (9,201) (10,084) (10,339) (8,693) (2,762) (5,662) (6,803) Minority interest & profit from associates (1,223) (1,194) (1,842) (2,267) (2,410) (1,940) 8,402 11,812 12,548 Net profits 19,162 11,374 9,903 5,291 1,444 15,392 12,909 20,305 22,753 Extraordinary items 1,719 (22,251) (10,757) (7,891) 234 (6,658) (1,597) — — Earnings per share (Rs) 7.8 4.6 4.0 2.1 0.5 5.5 4.6 7.3 8.1

Balance sheet (Rs mn) Total equity 137,442 124,001 118,852 118,662 137,072 142,996 150,377 166,751 185,572 Deferred taxation liability 4,753 6,387 10,005 11,229 13,955 14,758 14,758 14,758 14,758 Total borrowings 247,624 353,598 393,823 416,725 387,049 387,519 355,055 321,185 306,240 Currrent liabilities 95,087 85,494 124,733 139,135 185,251 198,882 142,763 152,920 161,974 Capital contribution from Consumers 3,823 4,013 4,506 5,348 6,117 6,980 6,980 6,980 6,980 Minority interest 14,143 16,313 20,646 22,733 24,926 25,814 28,314 30,592 32,781 Total liabilities and equity 502,871 589,807 672,565 713,833 754,370 776,948 698,247 693,186 708,306 Cash 22,066 36,941 19,899 15,550 15,009 12,108 40,208 45,937 72,369 Current assets 88,862 108,682 184,357 200,268 222,084 223,891 209,685 213,091 215,925 Total fixed assets 356,124 402,878 437,109 467,823 483,896 507,462 410,108 394,542 379,223 Investments 28,410 34,229 31,201 30,193 33,381 33,488 38,246 39,616 40,788 Deferred expenditure 7,409 7,076 — — — — — — — Total assets 502,871 589,806 672,565 713,833 754,370 776,948 698,247 693,186 708,306

Free cash flow (Rs mn) Operating cash flow, excl. working capital 31,888 9,256 26,081 26,511 27,149 35,538 34,511 43,949 46,427 Working capital (769) 62,667 (23,598) (964) 30,760 20,720 (41,348) 6,567 6,117 Capital expenditure (97,932) (63,323) (67,802) (55,969) (34,878) (66,821) 76,360 (5,615) (6,065) Investments (1,100) (5,486) 10,104 1,009 (3,189) (106) (4,758) 1,370— 1,172— Free cash flow (67,913) 3,113 (55,216) (29,413) 19,842 (10,669) 64,764 43,531 45,307

Key ratios Net debt / equity (X) 1.5 2.3 2.7 2.9 2.3 2.3 1.8 1.4 1.1 ROE (%) 14.9 8.7 8.2 4.5 1.1 11.0 8.8 12.8 12.9 ROCE (%) 7.1 4.3 5.0 4.0 2.4 7.1 4.6 5.2 5.4 BVPS (Rs) 58 52 50 50 51 53 56 62 69

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15

ADD GSPL (GUJS) Energy DECEMBER 01 2016 RESULT Coverage view: Attractive

Higher other income offsets subdued volumes. GSPL’s net income increased 7% Price (`): 157 qoq to ₹1.3 bn, 3% above our estimate, as higher other income mitigated 2% decline Target price (`): 175 in volumes. ADD stays with a revised DCF-based TP of `175 (₹170 previously), given our BSE-30: 26,653 expectation of upward revision in regulated tariffs and reasonable valuations, adjusted for the value of investments. We are cautious on the economics of investments in cross- country pipelines given limited visibility on volumes in the medium term.

Company data and valuation summary GSPL Stock data Forecasts/Valuations 2017E 2018E 2019E 52-week range (Rs) (high,low) 173-120 EPS (Rs) 8.8 11.2 12.1

Market Cap. (Rs bn) 88.4 EPS growth (%) 11.9 27.1 8.1 Shareholding pattern (%) P/E (X) 17.8 14.0 12.9 Promoters 37.7 Sales (Rs bn) 10.4 12.4 13.1 FIIs 17.1 Net profits (Rs bn) 5.0 6.3 6.8 MFs 14.6 EBITDA (Rs bn) 9.1 11.1 11.7 Price performance (%) 1M 3M 12M EV/EBITDA (X) 9.2 7.2 6.4 Absolute (1.1) 3.4 15.6 ROE (%) 12.0 13.9 13.7 Rel. to BSE-30 3.7 10.3 13.4 Div. Yield (%) 1.3 1.8 2.3 Weak operational performance due to lower volumes offset by higher other income GSPL reported sequential stable revenues at `2.58 bn in 2QFY17, as 2% qoq decline in gas volumes to 24.6 mcm/d was offset by a modest 1% increase in blended transmission tariffs to ₹1.08/scm. GSPL’s transmission volumes have remained largely stable, despite an improvement in gas availability in the country driven by higher LNG imports, reflecting subdued demand in the operating region. EBITDA declined by 3% qoq to `2.26 bn, 6% below our estimate, led by moderate increase in operating costs. However, net income increased 7% qoq to ₹1.3 bn, 3% ahead of our estimate, boosted by (1) higher other income due to receipt of dividends from Gujarat Gas during the quarter and (2) modestly lower depreciation and interest expenses. Fine-tune estimates; expect steady volumes and upward revision in regulated tariffs We revise our FY2017-19E EPS estimates to `8.8 (-2%), `11.2 (+0.7%) and `12.1 (-0.4%) to reflect (1) details from annual report and 1HFY17 results and (2) other minor changes. We expect gas transmission volumes to remain steady at 25-26.5 mcm/d in FY2017-19, as higher LNG availability with an anticipated recovery in demand environment will offset lower LNG off- take by RIL’s refineries, after the commissioning of petcoke gasification project. We model pipeline tariffs at `1.08/scm in FY2017 and `1.32/scm in FY2018-22, assuming upward revision in regulated tariffs. We see upside to our assumptions, if PNGRB takes a considerate view on other parameters for calculation of regulated tariffs. In the long term, we assume lower regulated tariffs of ₹1.28/scm as we believe that PNGRB will reduce tariffs to offset the benefit from likely higher volumes versus currently assumed divisors. Our assumptions of volume growth and tariff reduction in the long term result in reasonable CROCI of about 13%. Concerns on the economics of potential investments in cross-country pipelines

We have concerns on the economics of GSPL’s proposed investments in cross-country pipelines

(Mehsana-Bhatinda-Srinagar and Mallavaram-Bhilwara) given limited visibility on incremental supply and demand of gas, required to achieve reasonable utilization levels in the medium term.

MoPNG has recently indicated that the Gujarat state government has sought capital grant of Tarun Lakhotia 40% for these pipelines, besides authorization for development of CGD networks on a [email protected] nomination basis, on the lines of support provided to GAIL for its East India gas pipeline project. Mumbai: +91-22-4336-0875

We doubt if the central government will be able to provide such grants to these pipelines, which were awarded to the consortium of GSPL and OMCs by PNGRB on a competitive basis, unlike GAIL’s pipeline project, which has been awarded by the central government on a nomination basis.

Kotak Institutional Equities Research [email protected] Mumbai: +91-22-4336-0000

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

Exhibit 1: Interim results of GSPL, March fiscal year-ends (` mn)

(% chg.) 2QFY17 2QFY17E 2QFY16 1QFY17 2QFY17E 2QFY16 1QFY17 1HFY17 1HFY16 (% chg.) FY2017E Net sales 2,580 2,698 2,528 2,581 (4.4) 2.1 (0.0) 5,161 5,119 0.8 10,362 Total expenditure (319) (295) (277) (248) 8.1 15.0 28.3 (567) (598) (5.3) (1,236) Operating costs (175) (160) (117) (117) 9.3 49.3 49.5 (292) (307) (4.8) (637) Staff cost (77) (73) (109) (79) 4.4 (29.7) (3.1) (155) (189) (17.5) (356) Other expenditure (67) (61) (51) (52) 9.3 31.5 28.5 (119) (103) 16.0 (243) EBITDA 2,262 2,404 2,251 2,333 (5.9) 0.5 (3.1) 4,595 4,521 1.6 9,126 OPM (%) 87.7 89.1 89.0 90.4 89.0 88.3 88.1 Other income 287 157 124 144 82.5 131.4 99.4 431 236 83.0 736 Interest (148) (167) (220) (167) (11.3) (32.6) (11.2) (315) (434) (27.4) (604) Depreciation (436) (462) (460) (430) (5.6) (5.2) 1.5 (866) (891) (2.8) (1,723) Pretax profits 1,965 1,933 1,695 1,881 1.7 15.9 4.5 3,846 3,433 12.0 7,535 Extraordinaries — — — — — — — Tax (573) (676) (513) (604) (1,177) (1,080) (2,310) Deferred taxation (93) — (89) (64) (157) (132) (251) Net income 1,298 1,256 1,093 1,213 3.4 18.8 7.1 2,511 2,220 13.1 4,974 Adjusted net income 1,298 1,256 1,093 1,213 3.4 18.8 7.1 2,511 2,220 13.1 4,974 Earnings per share (Rs) 2.3 2.2 1.9 2.2 3.4 18.8 7.1 4.5 3.9 13.1 8.8 Other comprehensive income (14) (6) (2) (16) (5) Total comprehensive income 1,284 1,087 1,211 2,495 2,216 Income tax rate (%) 33.9 35.0 35.6 35.5 34.7 35.3 34.0

Operating details Gas transmission volumes (mcm) 2,265 2,374 2,237 2,289 (4.6) 1.2 (1.0) 4,553 4,438 2.6 9,238 Gas transmission volumes (mcm/d) 24.6 25.8 24.3 25.1 (4.6) 1.2 (2.1) 24.9 24.3 2.6 25.3 Implied transmission tariff (Rs/scm) 1.08 1.08 1.07 1.07 (0.1) 0.8 0.6 1.08 1.10 (2.1) 1.08 Segment revenues Gas transportation 2,444 2,394 2,455 2.1 (0.4) 4,899 4,875 0.5 Sale of electricity 153 139 143 296 257 Segment EBIT Gas transportation 1,799 1,775 1,911 1.4 (5.8) 3,710 3,625 2.4 Sale of electricity 96 77 87 184 134

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: We compute blended tariffs of ₹1.32/scm, factoring in concessions for power sector Computation of realizable pipeline tariffs (₹/scm)

Current normalized tariffs 1.08 FY2016 volumes (mcm/d) 24.5 PNGRB's authorized capacity (mcm/d) 30.5 Implied utilzation (%) 80.3 Implied tariff hike assuming FY2016 volumes as divisors (%) 24.5 Potential normalized tariffs 1.35 Concession for power consumers 0.03 Potential realizable tariffs 1.32

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17 Energy GSPL

Exhibit 3: APTEL quashed PNGRB’s previous order on GSPL's pipeline tariffs Pipeline tariff computation by PNGRB as per the previous order (₹/mn BTU)

High-pressure Levelized tariffs proposed by GSPL 39.55 Moderations by PNGRB Volumes considered at 100% utilization (7.79) Unaccounted gas not allowed (1.60) Capex considered only for approved pipelines (3.96) Removal of future spur lines (0.54) Rate of depreciation (0.72) Lower inflation of 4.5% (0.43) Future capex which was not verified (0.16) Recurring capex (0.28) Opex including employee cost (1.42) Higher no. of operating days at 355 days (0.04) Pre-tax IRR of 18.18% 1.34 Others 0.04 Total moderations/reductions (15.56) Levelized tariff computed by PNGRB 23.99 Change in date of applicability 2.59 Revised levelized tariff computed by PNGRB 26.58

Source: Company, Kotak Institutional Equities

Exhibit 4: GSPL’s transmission volumes remain subdued despite higher gas availability Gas supply and transmission volumes, March fiscal-year ends, 2016-17YTD (mcm/d)

FY2016 1QFY17 2QFY17 Gas supply Domestic gas supply 85.1 82.3 83.7 LNG imports 58.2 68.6 69.7 Total gas supply 143.3 150.9 153.4 Gas transmission GAIL 92.1 96.4 100.9 GSPL 24.5 25.1 24.6 RGTIL 10.8 8.7 7.7 Total gas transmission 127.4 130.3 133.2

Source: Companies, PPAC, Kotak Institutional Equities estimates

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH GSPL Energy

Exhibit 5: DCF valuation of GSPL (` mn)

2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E EBITDA 11,081 11,694 12,553 13,399 14,340 14,550 15,234 15,855 16,543 17,257 Adjusted tax expense (2,943) (3,162) (3,453) (3,747) (4,062) (4,131) (4,363) (4,574) (4,823) (5,086) Change in working capital (293) (94) (214) (212) (309) (38) (113) (106) (120) 1,285 Operating cash flow 7,845 8,438 8,887 9,440 9,968 10,382 10,757 11,175 11,601 13,456 Capital expenditure (1,920) (1,950) (1,854) (1,760) (1,540) (1,572) (1,603) (1,633) (1,664) (4,748) Free cash flow 5,925 6,488 7,033 7,680 8,429 8,810 9,154 9,542 9,937 8,708 Discounted cash flow 5,338 5,266 5,141 5,058 5,000 4,709 4,407 4,138 3,882 3,065 Discounted cash flow-1 year forward 5,845 5,708 5,614 5,551 5,227 4,893 4,593 4,309 3,402 Discounted cash flow-2 year forward 6,336 6,233 6,161 5,802 5,431 5,100 4,784 3,776

Now + 1-year + 2-years Discount rate (%) 11.0 11.0 11.0 Total PV of free cash flow 46,004 48,207 50,090 Terminal value assumption Growth to perpetuity (%) — — — Sensitivity of 12-month fair value to WACC and perpetual growth FCF in 2027E 8,708 8,708 8,708 Perpetual growth (%) Exit FCF multiple (X) 9.1 9.1 9.1 176 (2.0) (1.0) — 1.0 2.0 Exit EV/EBITDA multiple (X) 4.8 4.8 4.8 10.5 173 178 183 189 197 Terminal value 79,162 79,162 79,162 11.0 168 172 176 182 188 PV of terminal value 27,864 27,864 27,864 11.0 168 172 176 182 188 Total value of operating business 73,867 76,071 77,954 11.5 162 166 170 175 181 WACC(%) 12.0 158 161 164 169 174 Net debt 2,965 (539) (4,236) Equity value 70,902 76,609 82,190 Shares outstanding (mn) 563 563 563 Value of Gujarat pipeline network (Rs) 126 136 146 Value of investments (Rs) 34 35 36 Fair value of GSPL, including dividends (Rs) 162 176 191

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Energy GSPL

Exhibit 6: Profit model, balance sheet, cash model, March fiscal year-ends, 2012-19E (` mn)

2012 2013 2014 2015 2016 2017E 2018E 2019E Profit model (Rs mn) Net sales 11,233 11,732 10,507 9,766 9,919 10,362 12,407 13,139 EBITDA 10,332 10,720 9,289 8,400 8,655 9,126 11,081 11,694 Other income 513 660 552 520 641 736 766 888 Interest (1,302) (1,263) (1,418) (1,178) (773) (604) (493) (392) Depreciation (1,822) (1,861) (1,839) (1,892) (1,843) (1,723) (1,780) (1,840) Pretax profits 7,722 8,257 6,583 5,850 6,680 7,535 9,573 10,349 Extraordinaries (32) 1 — 754 (1) — — — Tax (1,866) (2,253) (2,056) (2,198) (1,994) (2,310) (3,029) (3,321) Deferred taxation (603) (623) (336) (301) (240) (251) (225) (196) Adjusted net profits 5,242 5,381 4,192 3,635 4,446 4,974 6,319 6,831 Earnings per share (Rs) 9.3 9.6 7.4 6.5 7.9 8.8 11.2 12.1

Balance sheet (Rs mn) Total equity 24,667 29,406 32,948 36,231 39,684 43,302 47,720 52,084 Deferred tax liability 3,244 3,867 4,202 4,504 4,744 4,995 5,220 5,416 Total borrowings 14,086 16,269 14,520 11,817 10,859 7,767 5,674 4,912 Currrent liabilities 2,690 2,993 2,357 2,852 3,127 2,835 2,856 2,875 Total liabilities and equity 44,686 52,534 54,028 55,403 58,416 58,898 61,470 65,288 Cash 5,203 8,596 4,992 4,352 5,447 4,802 6,213 9,148 Current assets 2,611 4,179 5,031 6,146 6,698 6,771 7,085 7,198 Total fixed assets 35,708 38,020 38,154 38,419 38,960 39,515 39,861 40,131 Investments 1,164 1,740 5,850 6,487 7,311 7,811 8,311 8,811 Deferred expenditure — — — — — — — — Total assets 44,686 52,534 54,028 55,403 58,416 58,898 61,470 65,288

Free cash flow (Rs mn) Operating cash flow, excl. working capital 7,225 7,032 5,719 5,751 5,451 5,822 7,353 7,820 Working capital changes (851) (1,599) (869) (871) (630) (366) (293) (94) Capital expenditure (2,581) (3,822) (2,401) (2,157) (1,828) (1,888) (1,920) (1,950) Investments (401) (54) (4,581) 157 (2,027) (500) (500) (500) Other income 443 597 516 476 587 736 766 888 Free cash flow 4,236 2,207 2,965 3,199 3,581 4,303 5,905 6,664

Ratios (%) Debt/equity 50.5 48.9 39.1 29.0 24.4 16.1 10.7 8.5 Net debt/equity 33.5 32.8 28.1 22.5 19.6 13.9 9.7 7.9 RoAE 20.7 17.6 11.9 9.3 10.4 10.7 12.5 12.4 RoACE 17.2 15.1 10.9 9.0 9.7 10.1 12.0 12.1 CROCI 18.9 17.1 13.6 11.3 11.9 11.6 13.2 13.3

Key assumptions Volumes (mcm/d) 34.0 27.3 21.1 23.0 24.5 25.3 25.0 26.5 Average tariff (Rs/scm) 0.87 1.13 1.32 1.12 1.07 1.08 1.32 1.32

Source: Company, Kotak Institutional Equities estimates

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ATTRACTIVE Energy India DECEMBER 01, 2016 UPDATE BSE-30: 26,653

Short-term relief from OPEC deal, not enough for a medium-term seal. Potential production cut of 1.2 mn b/d by OPEC and 0.6 mn b/d by key non-OPEC countries, if implemented, will provide a balance to global crude markets and could lead to short- term spikes in crude prices. Nevertheless, surplus inventories, price-led recovery in US shale production and incremental supply from Brazil, Canada and Kazakhstan, may prevent any sustainable recovery in crude prices beyond US$60-65/bbl in the medium term. In our view, key producers’ ability to shore up oil prices by curtailing supply is restricted with rising cost efficiencies in shale as well as conventional production.

1.2 mn b/d of cut by OPEC, contingent on 0.6 mn b/d of cut by key non-OPEC countries

OPEC has surprisingly agreed to curtail crude oil production by 1.2 mn b/d to 32.5 mn b/d from January 1 to balance global crude supply and demand. The proposed production cut includes 0.49 mn b/d by Saudi Arabia, 0.21 mn b/d by Iraq, 0.14 mn b/d by UAE, 0.13 mn b/d by Kuwait and 0.1 mn b/d by Venezuela. Iran, Libya and Nigeria seem to be exempted from production cuts, given country-specific issues of past sanctions, civil unrest and militancy. OPEC’s agreement is apparently contingent on a reduction in supply by major non-OPEC producers to the extent of 0.6 mn b/d, including 0.3 mn b/d from Russia; OPEC is scheduled to meet key non-OPEC countries on December 9.

1.8 mn b/d of production cut, if implemented, may only offset inventories over next two years

Potential production cut of 1.8 mn b/d, if implemented successfully, will drive a gradual reduction in crude oil inventories over the next 18-24 months, assuming no meaningful contribution from non-participating non-OPEC countries. We estimate about 1 bn bbls of build- up in global crude inventories over the past three years driven by excessive production, which is equivalent to nearly 1.5 mn b/d of supply for the next two years. Any incremental production from OPEC members, Libya and Nigeria, in the interim may require higher production cuts by others or delay the period of inventory drawdown.

Price-led recovery in US production and underlying non-OPEC growth may cap crude prices

In our view, (1) likely stabilization and subsequent price-driven growth in US production over the next 12 months—recent increase in deployment of rigs in the US shale regions will translate into higher production in 5-6 months, (2) rising production from Brazil’s pre-salt fields, (3) expected recovery in production from Canada and (4) imminent commissioning of the giant Kashagan field in Kazakhstan, may entirely mitigate the impact of the proposed production cuts and prevent sustainable recovery in crude prices beyond US$60-65/bbl in the medium term.

Falling operating costs and quicker time-to-market to restrain OPEC’s ability to manage prices

Operating costs (including levies) of the US shale companies and international oil majors have fallen significantly over the past two years, driven by deflation in costs and improvement in efficiencies. In our view, low operating costs, quicker time-to-market of US shale oil and resilient production from other non-OPEC countries will restrain OPEC’s ability to manage oil prices. Tarun Lakhotia [email protected] Mumbai: +91-22-4336-0875

Kotak Institutional Equities Research [email protected] Mumbai: +91-22-4336-0000

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

Exhibit 1: OPEC-11 countries have increased production by 2.8 mn b/d, since the removal of quotas OPEC crude production and sustainable capacity (mn b/d)

Sustainable production Spare Nov-14 Oct-16 capacity capacity Algeria 1.16 1.12 1.12 — Angola 1.66 1.52 1.78 0.26 Ecuador 0.54 0.56 0.56 — Gabon NA 0.20 0.22 — Indonesia NA 0.74 0.74 — Iran 2.76 3.72 3.75 0.03 Iraq 3.33 4.59 4.60 0.01 Kuwait 2.70 2.93 2.93 — Libya 0.67 0.51 0.60 0.09 Nigeria 1.92 1.57 1.70 0.13 Qatar 0.70 0.62 0.67 0.05 Saudi Arabia 9.58 10.55 12.20 1.65 United Arab Emirates 2.72 3.08 3.10 — Venezuela 2.32 2.12 2.20 0.08 Total OPEC 30.06 33.83 36.17 2.34

Source: OPEC, IEA, Kotak Institutional Equities

Exhibit 2: Crude oil production from Iran has been increasing in the recent months Monthly production from Iran, 2010-16 (mn b/d)

(mn b/d) Iran oil production 4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

-

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14 Apr-15 Apr-16

Source: OPEC, Kotak Institutional Equities

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Energy India

Exhibit 3: Crude oil production from Libya can recover quickly on restart of export terminals Monthly production from Libya, 2010-16YTD (mn b/d)

(mn b/d) Libya oil production 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2

-

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14 Apr-15 Apr-16

Source: OPEC, Kotak Institutional Equities

Exhibit 4: Crude oil production from Nigeria can increase on restoration of normalcy Monthly production from Nigeria, 2010-16YTD (mn b/d)

(mn b/d) Nigeria oil production 2.5

2.0

1.5

1.0

0.5

-

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14 Apr-15 Apr-16

Source: OPEC, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 India Energy

Exhibit 5: US oil production seems to be stabilizing, being supported by conventional fields as well Weekly field production of crude oil in the US, January 2012 onwards (mn b/d)

(mn b/d) US oil production 10 9 8 7 6 5 4 3 2 1

0

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Apr-12

Apr-13

Apr-14 Apr-15 Apr-16

Source: EIA, Kotak Institutional Equities

Exhibit 6: Rigs deployment in US shale regions have started increasing in the recent months Monthly rig count in the US shale regions versus crude price (units, US$/bbl)

1,500 US shale rig count [LHS] Dated Brent (US$/bbl) [RHS] 160

140 1,250 120 1,000 100

750 80

60 500 40 250 20

- -

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

May-07

May-08

May-09

May-10

May-11

May-12

May-13

May-14 May-15 May-16

Source: EIA, Kotak Institutional Equities

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Energy India

Exhibit 7: Sharp reduction in operating costs of international oil majors and key US shale companies Trailing 12-months operating expenses oil companies, December 2014 - June 2016

Trailing 12-months operating costs, indexed to 100 International oil majors Key US shale players 100

80

60

40

20

0 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Source: Bloomberg, Kotak Institutional Equities

Exhibit 8: Increase in supply from countries in Latin America and FSU region over the next few years, sans production cut Summary of global oil supply (mn b/d)

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E OECD supply Americas 14.1 14.6 15.8 17.2 19.1 20.0 19.4 19.4 19.7 Europe 4.1 3.8 3.5 3.3 3.3 3.5 3.4 3.4 3.3 Pacific 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 Total OECD 18.9 19.0 19.8 21.0 22.9 23.9 23.2 23.3 23.5 Non-OECD supply China 4.1 4.1 4.2 4.2 4.2 4.3 4.0 3.9 3.7 Other Asia 3.7 3.7 2.7 2.7 2.7 2.8 2.7 2.6 2.6 Middle East 1.8 1.7 1.5 1.4 1.3 1.3 1.3 1.3 1.3 Latin America 4.1 4.2 4.2 4.2 4.4 4.6 4.5 4.7 4.9 FSU 13.6 13.6 13.8 13.8 13.9 14.0 14.2 14.5 14.7 Africa 2.5 2.5 2.2 2.0 2.1 2.1 2.0 2.1 2.2 Europe 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Total non-OECD 29.9 29.9 28.7 28.4 28.7 29.1 28.8 29.1 29.4 Total non-OPEC supply 52.7 52.9 52.5 53.6 56.1 57.6 56.7 57.2 57.8

Source: IEA, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 India Energy

Exhibit 9: We expect a gradual reduction in inventory, assuming 1.8 mn b/d of production cut in CY2017E Estimated global crude demand, supply and prices, Calendar year-ends, 2010-17E

2010 2011 2012 2013 2014 2015 2016E 2017E Demand (mn b/d) Total demand 88.7 89.5 90.7 92.0 93.2 95.0 96.3 97.5 Yoy growth 3.1 0.8 1.2 1.3 1.2 1.8 1.2 1.2 Supply (mn b/d) Non-OPEC 52.7 52.9 52.5 53.6 56.1 57.6 56.7 56.7 Yoy growth 1.3 0.2 (0.4) 1.2 2.5 1.4 (0.9) (0.0) OPEC Crude 29.2 29.9 32.1 31.4 31.2 32.3 33.3 32.5 NGLs 5.5 5.9 6.4 6.3 6.5 6.7 6.9 7.0 Total OPEC 34.7 35.8 38.4 37.7 37.7 39.0 40.2 39.5 Total supply 87.4 88.7 90.9 91.4 93.8 96.6 96.9 96.2 Total stock change (1.3) (0.9) 0.1 (0.7) 0.6 1.5 0.6 (1.3) OPEC crude capacity 35.7 34.2 35.8 35.7 35.7 35.6 35.7 35.9 Implied spare capacity 5.3 3.4 3.8 3.6 5.1 4.8 3.0 2.1

Demand growth (yoy, %) 3.6 0.9 1.3 1.5 1.3 1.9 1.3 1.3 Supply growth (yoy, %) Non-OPEC 2.5 0.4 (0.8) 2.2 4.7 2.6 (1.5) (0.0) OPEC 1.4 3.2 7.4 (1.8) (0.1) 3.4 3.1 (1.6) Total 2.1 1.5 2.5 0.5 2.7 2.9 0.3 (0.7)

Dated Brent (US$/bbl) 80 111 112 109 99 52 45 54 World GDP growth (%) 5.4 4.2 3.4 3.3 3.4 3.1 3.4 3.6

Notes: (a) OPEC production data includes Indonesia from 2012 onwards and Gabon from 2013 onwards.

Source: IEA, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH

INDIA Economy National Accounts DECEMBER 01 2016 UPDATE BSE-30: 26,653

Further protracted growth recovery. Real GVA growth at 7.1% in 2QFY17 slowed down marginally from 1QFY17. However, the focus has firmly shifted to the growth scenario over next few quarters on account of demonetization. We believe that a point estimate after factoring such level of uncertainty will, at best, be an ‘informed guess’ as traditional theoretical frameworks may not be of much help. With this disclaimer, we expect 3QFY17 GVA growth around 5.6% and FY2017 GVA growth around 6.4%.

GVA growth supported by government expenditure in 2QFY17

2QFY17 real GVA growth came in at 7.1% (Kotak: 7.2%) compared to 7.3% in 1QFY17 and QUICK NUMBERS 2QFY16 (Exhibit 1). Real GDP growth was at 7.3%. While the headline number was broadly in line, the sectoral breakup was a bit surprising. Specifically, ‘Public admin, defense, etc.’ grew at  2QFY17 GVA 12.3%, even as the high frequency indicators (government’s revenue expenditure excluding growth at 7.1% interest payments) were showing a much slower growth. Overall, service sector grew 8.9%, while industry grew at 5.2%. Expectedly, the uptick in industry was led by manufacturing,  GFCF continues to which grew by 7.1% (9.3% in 1QFY17). With better monsoons in 2QFY17 compared to last contract year, growth mining ((-)3.5%) was affected. Agriculture grew 3.3%, helped by kharif sowing.  3QFY17 GVA Investment cycle remains lackluster growth likely at 5.5%; FY2017 at There was not much signs of investment demand recovery with gross fixed capital formation 6.4% (GFCF) growth at (-)5.6% in 2QFY17 ((-)3.1% in 1QFY17). Low capacity utilization, weak corporate balance sheets and limited fiscal room for continued capital expenditure continue to hint at protracted investment recovery. Overall consumption grew 8.9% in 2QFY17 led by 15.2% growth in government consumption and 7.6% growth in private consumption (Exhibit 2). The demonetization measure will further push out investment cycle recovery as consumption outlook may remain subdued and capacity utilization levels remain low.

Liquidity crunch will lead to 3QFY17 GVA growth slowdown

We reckon that there is fair degree of uncertainty with regard to demonetarization impact on growth. However, we try to quantify the growth impact by assessing (1) differential cash dependence of various sectors, (2) decline in activity levels due to cash crunch, (3) credit support from larger firms to its supply chain, (4) duration of cash crunch, and (5) more durable impact of demonetization on a few sectors. However, paucity of reliable data and error arising from long- term forecasts based on near-term disruptions make the GVA estimation at best an informed guess. We assume differentiated cash dependency across sectors and lower our 3QFY17 growth estimate to 5.6% (earlier: 8%) and FY2017 growth to 6.4% (earlier: 7.7%) (Exhibit 3). Suvodeep Rakshit RBI likely to cut repo rate by 25 bps in December [email protected] Mumbai: +91-22-4336-0898 The downside risks to growth will stem from (1) more cautious consumption outlook, and (2) investment cycle being further drawn out as capacity utilization levels are unlikely to pick up Madhavi Arora [email protected] soon. This implies a widening of the output gap and lower upside risks to inflation. However, Mumbai: +91-22-6166-0541 surplus system liquidity (even after incremental CRR hikes) along with exchange rate Upasna Bhardwaj depreciation implies that monetary conditions are looser than earlier. This supports the case for [email protected] RBI to be on status quo, especially when (1) narrowing real interest rate differential with major Mumbai: +91-22-6166-0531 markets may further amplify INR volatility and (2) other EM central banks are now either hiking or pausing in their rate cut cycle to contain their currency weakness. However, on balance we maintain our call that the RBI will likely cut rates by 25 bps on December 7 on protracted growth slowdown concerns and comfortable inflation dynamics; partly overriding other issues.

Kotak Economic Research [email protected] Mumbai: +91-22-4336-0000

For Private Circulation Only. India Economy

GVA estimation is at best an informed guess at this point

Amid the high degree of uncertainty of demonetization effect and lack of economic indicators yet (only anecdotal evidences), it will be difficult to quantify the growth shock owing to negative wealth and income effect and fall in transaction demand of money and hence consumption demand. We try to estimate the disruption to gross value added at a sectoral level by taking into account the estimated cash dependency of each sector and assume growth drag on these sector depending on their cash sensitivity.

One of the ways to abstract the cash dependency could be through relative productivity of the sector (share of employment versus share of output). The larger impact of the cash crunch will be on certain segments of manufacturing (such as food products, beverages, textiles, and leather products), construction, real estate, and retail trade. This constitutes 45-50% of the total GVA. We exclude agriculture sector (16%) from this given that (1) the government is providing support financially and administratively, and (2) agriculture sector would comprise the harvesting volumes, which have been at record levels for kharif. Further, public utilities (2%), financial services (6%), public administration (13%) would have minimal impact due to cash crunch.

However, extrapolating the current cash crunch to demand contraction and a sustainable growth slowdown may be premature. For example, components such as public expenditure (government’s revenue expenditure) will have minimal cash transactions. Further, agriculture sector and public utilities are being provided various assistances, which are likely to alleviate their cash crunch impact.

Exhibit 1: Trade, construction and real estate will be most impacted from demonetization and cash crunch Real GVA and components growth, March fiscal year-ends (%)

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17E 4QFY17E Real GVA 7.2 7.3 6.9 7.4 7.3 7.1 5.6 5.6 Agriculture and allied 2.6 2.0 (1.0) 2.3 1.8 3.3 7.6 3.1 Industry 6.7 6.3 8.6 7.9 6.0 5.2 3.4 4.5 Mining 8.5 5.0 7.1 8.6 (0.4) (1.5) 0.4 0.5 Manufacturing 7.3 9.2 11.5 9.3 9.1 7.1 4.8 5.8 Electricity 4.0 7.5 5.6 9.3 9.4 3.5 4.2 4.4 Construction 5.6 0.8 4.6 4.5 1.5 3.5 1.4 3.2 Services 8.8 9.0 9.1 8.7 9.6 8.9 6.2 7.0 Trade, hotel, transport, communication 10.0 6.7 9.2 9.9 8.1 7.1 3.3 5.3 Financial, real estate, professional services 9.3 11.9 10.5 9.1 9.4 8.2 5.1 6.1 Public admin, defence, and others 5.9 6.9 7.2 6.4 12.3 12.5 12.1 11.3

Source: CEIC, Kotak Economics Research estimates

Exhibit 2: Investment growth yet to show any steady uptick Real GDP and components growth, March fiscal-year ends, 2014-16 (%)

2014 2015 2016 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 Real GDP 6.6 7.2 7.6 7.6 7.2 7.9 7.1 7.3 Private consumption 6.8 6.2 7.4 6.3 8.2 8.3 6.7 7.6 Government consumption 0.4 12.8 2.2 3.3 3.0 2.9 18.8 15.2 Gross fixed capital formation 3.4 4.9 3.9 9.7 1.2 (1.9) (3.1) (5.6) Inventory (18.6) 20.3 5.5 5.4 7.7 5.6 7.1 4.7 Valuables (42.2) 15.4 0.3 12.4 13.5 (17.2) (48.7) (47.0) Exports 7.8 1.7 (5.2) (4.3) (8.9) (1.9) 3.2 0.3 Imports (8.2) 0.8 (2.8) (0.6) (6.4) (1.6) (5.8) (9.0)

Source: CEIC, Kotak Economics Research

28 KOTAK ECONOMIC RESEARCH Economy India

Exhibit 3: We expect FY2017 at 6.4% factoring in the demonetization impact Real GVA and components growth, March fiscal-year ends, 2013-17E (%)

2017E 2013 2014 2015 2016 2017E 1HFY17 (old) Real GVA 5.4 6.3 7.1 7.2 6.4 7.2 7.7 Agriculture and allied 1.5 4.2 (0.2) 1.2 4.3 2.6 4.3 Industry 3.6 5.0 5.9 7.4 4.8 5.6 6.6 Mining (0.5) 3.0 10.8 7.4 (0.2) (0.9) 1.0 Manufacturing 6.0 5.6 5.5 9.3 6.7 8.1 8.7 Electricity 2.8 4.7 8.0 6.6 5.3 6.4 7.8 Construction 0.6 4.6 4.4 3.9 2.4 2.5 3.8 Services 8.1 7.8 10.3 8.9 7.9 9.2 9.3 Trade, hotel, transport, communication 9.7 7.8 9.8 9.0 5.9 7.6 9.7 Financial, real estate, professional services 9.5 10.1 10.6 10.3 7.3 8.8 9.1 Public admin, defence, and others 4.1 4.5 10.7 6.6 12.0 12.4 9.0

Source: CEIC, Kotak Economics Research estimates

KOTAK ECONOMIC RESEARCH 29

September 2016: Results calendar India Daily Summary Daily Summary India Mon Tue Wed Thu Fri Sat Sun

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK 28-Nov 29-Nov 30-Nov 1-Dec 2-Dec 3-Dec 4-Dec Mahanagar Gas Tata Pow er Co. Balkrishna Industries Gillette India Ashoka Buildcon P & G Hygiene Oil India Guj.St.Petronet 5-Dec 6-Dec 7-Dec 8-Dec 9-Dec 10-Dec 11-Dec Crompton Greaves S A I L GMR Infra.

Prestige Estates Projects 12-Dec 13-Dec 14-Dec 15-Dec 16-Dec 17-Dec 18-Dec CESC Coal India

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December 1, 2016 1, December Source: Bloomberg, NSE India

India Daily Summary Daily Summary India

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1,2016 December

30

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

31 Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo Company Rating 30-Nov-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E (US$ mn) Automobiles Amara Raja Batteries SELL 939 820 (12.7) 160,401 2,342 171 32.2 37.9 43.8 12.4 17.7 15.5 29.2 24.8 21.5 16.9 14.6 12.8 6.4 5.3 4.5 0.7 0.8 0.9 23.8 23.4 22.7 6.2 Apollo Tyres BUY 191 250 31.0 97,173 1,419 509 20.6 21.9 27.6 2.1 6.3 26.1 9.3 8.7 6.9 6.0 5.6 4.3 1.4 1.2 1.1 1.0 1.1 1.3 16.0 15.1 16.5 11.6 Ashok Leyland SELL 80 75 (5.7) 226,247 3,303 2,846 4.6 5.1 5.6 31.2 11.7 9.9 17.3 15.5 14.1 9.6 8.7 8.2 3.6 3.1 2.7 1.7 1.9 2.1 22.0 21.4 20.6 15.5 Bajaj Auto ADD 2,685 2,850 6.1 776,994 11,344 289 138.4 158.7 182.1 9.7 14.7 14.7 19.4 16.9 14.7 14.0 11.8 9.8 5.4 4.6 4.0 2.1 2.4 2.7 30.0 29.4 28.8 12.6 Balkrishna Industries ADD 993 950 (4.3) 95,958 1,401 97 63.3 72.5 84.2 6.2 14.6 16.2 15.7 13.7 11.8 9.6 8.2 6.7 2.9 2.4 2.0 0.6 0.7 0.7 20.0 19.2 18.9 1.5 Bharat Forge SELL 904 810 (10.3) 210,330 3,071 237 25.6 34.3 43.2 (6.5) 34.3 25.6 35.3 26.3 20.9 17.5 13.8 11.3 5.3 4.6 4.0 0.6 0.9 1.1 16.0 18.8 20.5 12.3 Eicher Motors SELL 21,620 17,300 (20.0) 587,219 8,573 27 599.3 739.6 877.1 27.4 23.4 18.6 36.1 29.2 24.7 26.8 21.8 17.7 16.6 11.2 8.1 0.1 0.1 0.1 46.5 45.7 38.0 20.9 Exide Industries SELL 181 175 (3.4) 153,978 2,248 850 8.2 8.9 9.8 12.1 8.7 9.8 22.1 20.3 18.5 13.4 12.4 11.0 3.2 2.9 2.6 1.4 1.7 1.7 15.0 14.9 14.9 8.4 Fag Bearings BUY 4,033 5,000 24.0 67,022 979 17 120.4 161.3 196.3 1.3 34.0 21.7 33.5 25.0 20.5 19.2 14.9 12.0 4.6 4.0 3.6 0.3 0.8 1.5 14.5 17.1 18.4 0.3 Hero Motocorp REDUCE 3,166 2,900 (8.4) 632,221 9,230 200 174.0 187.4 204.8 11.0 7.6 9.3 18.2 16.9 15.5 12.1 11.1 10.0 6.8 5.8 5.1 2.7 3.0 3.2 40.2 37.1 35.2 22.3 Mahindra & Mahindra ADD 1,185 1,375 16.0 736,057 10,746 569 65.8 74.2 83.2 13.5 12.7 12.2 18.0 16.0 14.2 12.1 10.7 9.6 2.7 2.4 2.2 1.4 1.6 1.8 15.8 15.9 16.0 22.0 Maruti Suzuki BUY 5,266 5,900 12.0 1,590,754 23,224 302 231.2 292.3 337.8 52.8 26.4 15.6 22.8 18.0 15.6 14.0 10.4 8.6 5.0 4.2 3.5 1.1 1.4 1.6 23.7 25.2 24.5 62.5 Minda Corp. REDUCE 95 105 10.5 19,895 290 209 5.5 6.6 8.4 19.0 19.1 28.1 17.2 14.5 11.3 8.8 7.6 6.3 3.0 2.5 2.1 0.5 0.6 0.7 18.8 19.1 20.4 0.8 Motherson Sumi Systems SELL 310 280 (9.6) 434,771 6,347 1,404 11.7 14.6 17.3 27.9 25.7 18.2 26.6 21.1 17.9 10.8 8.9 7.4 5.5 4.7 4.0 1.1 1.4 1.7 27.0 24.1 24.3 11.9 SKF REDUCE 1,213 1,400 15.4 63,972 934 53 48.0 55.6 64.5 (0.5) 15.9 16.0 25.3 21.8 18.8 16.3 13.8 11.7 3.7 3.3 3.0 1.2 1.4 1.6 15.3 16.1 16.8 0.4 Suprajit Engineering REDUCE 187 190 1.6 24,567 359 131 7.6 9.1 10.8 39.5 18.9 19.0 24.5 20.6 17.3 13.7 11.8 10.1 4.7 4.0 3.4 0.7 0.9 1.1 20.6 20.8 21.1 0.2 Tata Motors BUY 459 600 30.6 1,477,568 21,572 3,396 36.5 50.6 59.4 (5.7) 38.5 17.4 12.6 9.1 7.7 4.9 3.8 3.3 1.7 1.4 1.2 - - - 14.3 16.9 16.7 64.3 Timken ADD 559 630 12.6 38,043 555 68 16.2 21.2 26.4 17.4 30.5 24.7 34.5 26.4 21.2 19.9 15.4 12.5 6.1 5.1 4.4 0.3 0.4 1.4 19.3 21.1 22.4 0.4 TVS Motor SELL 374 245 (34.5) 177,730 2,595 475 10.9 14.2 17.3 41.6 30.6 22.2 34.4 26.4 21.6 19.6 15.6 13.0 9.2 7.4 6.0 0.8 1.0 1.1 29.3 31.0 30.6 12.5 WABCO India BUY 5,099 6,300 23.6 96,716 1,412 19 133.8 157.2 191.1 24.0 17.5 21.6 38.1 32.4 26.7 24.2 20.1 16.2 7.5 6.2 5.1 0.2 0.2 0.3 21.7 21.0 21.1 0.7 Automobiles Neutral 7,742,040 113,031 12.0 24.5 16.1 19.1 15.4 13.2 9.6 7.7 6.6 3.5 2.9 2.5 1.0 1.2 1.4 18.1 19.1 18.9 288.0 Banks Axis Bank REDUCE 470 510 8.5 1,121,418 16,372 2,383 14.7 30.9 44.4 (57.4) 110.4 43.5 32.0 15.2 10.6 — — — 2.2 1.9 1.7 0.5 1.0 1.5 6.4 12.5 15.9 97.7 Bank of Baroda REDUCE 164 160 (2.5) 378,228 5,522 2,310 6.9 19.1 24.5 129.7 176.2 28.2 23.7 8.6 6.7 — — — 1.6 1.3 1.0 0.8 2.3 3.0 4.4 11.3 13.2 24.4 Bank of India ADD 120 140 17.2 126,036 1,840 817 (2.2) 28.5 40.1 97.1 1,406.2 40.7 (54.8) 4.2 3.0 — — — 1.1 0.8 0.6 (0.4) 4.8 6.7 (0.8) 10.1 12.9 9.5 Canara Bank REDUCE 318 275 (13.6) 172,888 2,524 543 17.5 57.8 57.2 133.8 229.7 (0.9) 18.2 5.5 5.6 — — — 1.5 1.3 0.9 — — — 3.0 9.7 9.1 19.9 City Union Bank REDUCE 135 145 7.6 80,576 1,176 598 8.3 9.9 11.0 11.3 20.0 10.7 16.3 13.6 12.2 — — — 2.5 2.2 1.9 1.0 1.2 1.3 15.2 16.1 15.7 2.2 DCB Bank ADD 112 140 25.3 31,819 465 284 6.7 8.0 10.8 (2.0) 18.6 36.0 16.7 14.1 10.3 — — — 1.7 1.6 1.4 — — — 10.4 11.1 13.3 3.3 Equitas Holdings REDUCE 161 180 12.0 53,878 787 270 5.3 7.1 8.8 (13.9) 33.8 22.8 30.1 22.5 18.3 — — — 2.5 2.3 2.1 — — — 10.0 10.1 11.2 3.7 Federal Bank BUY 71 95 34.2 121,648 1,776 1,719 5.1 6.7 7.6 82.8 32.2 13.7 14.0 10.6 9.3 — — — 1.5 1.4 1.2 1.8 2.4 2.7 10.4 12.6 13.1 12.4 HDFC Bank ADD 1,200 1,400 16.7 3,037,077 44,340 2,528 58.7 69.6 82.3 20.7 18.5 18.3 20.4 17.2 14.6 — — — 3.7 3.2 2.7 1.0 1.1 1.3 18.9 19.3 19.7 28.2 ICICI Bank BUY 266 340 28.0 1,545,277 22,560 5,849 16.4 21.8 26.4 (1.7) 33.6 20.8 16.2 12.2 10.1 — — — 2.0 1.7 1.5 1.8 2.5 3.0 10.3 12.8 14.1 83.2 IDFC Bank ADD 68 80 16.9 232,377 3,393 - 3.4 4.2 5.6 182.4 23.1 34.3 20.2 16.4 12.2 — — — 1.6 1.5 1.4 1.0 1.2 1.6 8.2 9.4 11.6 14.2 IndusInd Bank ADD 1,087 1,350 24.2 647,455 9,453 595 49.3 56.8 65.6 28.4 15.2 15.4 22.0 19.1 16.6 — — — 3.3 2.9 2.5 0.6 0.7 0.8 16.0 15.9 16.1 22.0

J&K Bank BUY 61 85 39.8 29,475 430 485 4.9 13.0 16.2 (42.9) 166.3 24.2 12.4 4.7 3.8 — — — 0.7 0.5 0.4 1.6 4.4 5.4 3.6 9.2 10.6 2.7 India Daily Summary Daily Summary India Karur Vysya Bank BUY 84 120 43.4 51,000 745 609 9.6 10.4 14.3 2.8 8.7 37.4 8.7 8.0 5.9 — — — 1.1 1.0 0.9 14.3 15.5 21.4 12.2 12.2 15.2 1.7 Oriental Bank of Commerce ADD 120 120 0.1 41,489 606 321 13.2 28.1 47.4 172.8 112.3 68.4 9.0 4.3 2.5 — — — 0.8 0.6 0.5 2.2 4.7 7.9 2.8 5.8 9.2 8.6 Punjab National Bank REDUCE 138 135 (2.3) 293,979 4,292 1,964 8.1 23.3 26.2 139.9 188.8 12.3 17.1 5.9 5.3 — — — 1.9 1.2 0.9 1.2 3.4 3.8 4.6 12.0 12.2 30.3 Ujjivan Financial Services REDUCE 365 440 20.4 43,205 631 101 26.2 16.3 20.6 49.5 (37.6) 25.9 14.0 22.4 17.8 — — — 2.4 2.2 2.0 0.6 0.4 0.5 20.4 10.0 11.5 8.4 State Bank of India BUY 258 320 23.9 2,005,514 29,280 7,763 16.2 30.4 38.9 26.3 87.5 28.2 16.0 8.5 6.6 — — — 1.4 1.2 1.0 1.1 1.2 1.2 7.6 12.0 13.7 74.8 Union Bank ADD 152 145 (4.6) 104,457 1,525 687 15.1 36.4 47.0 (23.3) 141.5 29.0 10.1 4.2 3.2 — — — 1.1 0.8 0.6 1.0 2.4 3.1 5.0 11.1 12.8 12.5 YES Bank REDUCE 1,174 1,275 8.6 494,189 7,215 421 69.6 77.5 93.1 15.3 11.4 20.1 16.9 15.1 12.6 — — — 3.1 2.7 2.3 1.0 1.1 1.3 19.6 18.7 19.2 78.3 Banks Attractive 10,611,984 154,931 79.6 64.6 24.6 19.0 11.5 9.3 1.5 1.4 1.2 1.0 1.4 1.7 8.1 12.0 13.4 537.8 NBFCs Bajaj Finserv REDUCE 2,990 2,950 (1.3) 475,803 6,947 159 142.1 164.7 192.4 16.1 15.9 16.8 21.0 18.2 15.5 — — — 3.3 2.9 2.5 0.5 0.5 0.5 16.3 16.9 17.1 11.4 Cholamandalam ADD 970 1,250 28.8 151,552 2,213 156 44.7 55.1 67.3 23.4 23.4 22.1 21.7 17.6 14.4 — — — 3.8 3.3 2.8 0.6 0.7 0.9 17.6 18.6 19.3 6.9 HDFC ADD 1,263 1,550 22.7 1,996,917 29,154 1,580 51.0 55.6 64.8 7.8 9.0 16.5 24.8 22.7 19.5 — — — 4.9 4.4 3.6 1.4 1.5 1.8 21.4 20.4 20.4 51.5 IDFC BUY 57 80 39.4 91,607 1,337 1,594 5.4 6.5 8.5 192.7 18.7 31.0 10.6 8.9 6.8 — — — 0.8 0.7 0.7 0.5 0.6 0.7 12.6 14.0 16.9 6.8 IIFL Holdings ADD 264 330 24.8 83,721 1,222 317 21.6 23.5 27.8 34.1 8.7 18.2 12.2 11.2 9.5 — — — 1.9 1.7 1.5 1.1 1.1 1.4 21.2 19.0 19.6 1.2

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK L&T Finance Holdings BUY 89 125 39.9 156,666 2,287 1,754 2.9 7.5 8.4 (40.0) 157.6 11.9 30.6 11.9 10.6 — — — 2.1 1.8 1.6 0.9 2.2 2.5 7.0 16.3 16.3 11.2 LIC Housing Finance BUY 564 670 18.7 284,832 4,158 505 42.3 51.7 62.1 16.5 22.3 20.0 13.3 10.9 9.1 — — — 2.4 2.0 1.7 1.1 1.4 1.7 19.4 22.2 22.2 20.5

Mahindra & Mahindra Financial REDUCE 297 315 6.2 168,639 2,462 565 12.0 15.2 19.7 0.7 26.5 29.9 24.7 19.5 15.0 — — — 2.7 2.5 2.2 1.1 1.3 1.7 10.7 12.5 14.8 11.9 -

Max Financial Services ADD 534 595 11 142,604 2,082 267 7.0 7.1 7.2 62.8 1.5 1.5 76.0 74.9 73.8 — — — 0.5 0.5 0.5 10.9 10.5 10.0 4.0 December 1, 2016 1, December Muthoot Finance ADD 303 375 23.8 120,878 1,765 399 26.8 27.9 30.1 32.2 4.0 7.8 11.3 10.9 10.1 — — — 1.9 1.7 1.5 2.7 2.8 3.0 17.9 16.7 16.2 3.9 PFC REDUCE 134 120 (10.6) 354,299 5,173 2,640 23.9 21.5 25.5 3.3 (10.3) 18.7 5.6 6.3 5.3 — — — 0.9 1.1 1.0 3.6 3.2 3.8 15.5 12.5 13.4 7.5 Rural Electrification Corp. ADD 137 145 5.9 270,366 3,947 1,975 29.0 19.8 21.8 1.8 (31.9) 10.3 4.7 6.9 6.3 — — — 1.0 1.1 0.9 4.5 3.1 3.4 19.2 12.0 12.1 13.8 Shriram City Union Finance REDUCE 1,900 2,275 19.7 125,255 1,829 66 99.7 132.5 167.2 24.5 32.8 26.2 19.0 14.3 11.4 — — — 2.5 2.3 2.0 0.6 0.8 1.0 13.5 15.8 17.2 1.6 Shriram Transport ADD 904 1,250 38.2 205,204 2,996 223 69.8 83.8 99.6 32.2 20.0 18.8 13.0 10.8 9.1 — — — 1.9 1.7 1.5 1.1 1.3 1.5 14.4 15.3 15.9 12.4 NBFCs Neutral 4,730,062 69,057 16.6 4.1 18.1 14.3 13.7 11.6 2.4 2.1 1.8 1.5 1.5 1.8 16.6 15.5 15.9 537.8

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo Company Rating 30-Nov-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E (US$ mn)

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Cement ACC SELL 1,342 1,350 0.6 252,086 3,680 188 39.1 56.7 77.9 (1.1) 44.8 37.4 34.3 23.7 17.2 16.9 12.4 9.3 2.9 2.7 2.4 1.3 1.3 1.3 8.5 11.7 14.6 10.7 Ambuja Cements SELL 211 225 6.7 418,574 6,111 1,552 6.7 8.8 12.3 21.2 30.0 40.8 31.3 24.1 17.1 12.1 8.8 6.4 2.9 2.8 2.5 1.6 1.6 1.6 10.6 11.9 15.5 13.0 Dalmia Bharat ADD 1,610 2,130 32.3 142,949 2,087 89 50.5 102.5 136.3 134.9 103.0 33.0 31.9 15.7 11.8 9.4 7.4 6.0 3.3 2.8 2.2 0.1 0.1 0.1 11.0 19.2 21.0 3.1 Grasim Industries ADD 870 1,055 21.2 406,242 5,931 467 81.2 91.7 104.0 47.9 12.9 13.3 10.7 9.5 8.4 5.2 4.1 3.1 1.4 1.2 1.1 0.5 0.5 0.5 13.7 13.6 13.6 11.0 India Cements REDUCE 120 100 (16.4) 36,754 537 307 5.8 7.9 9.8 26.7 35.7 24.1 NM 15.2 12.2 8.0 7.0 6.2 1.0 0.9 0.9 1.8 1.8 1.8 4.8 6.3 7.4 9.6 J K Cement ADD 727 1,050 44.4 50,848 742 70 35.5 75.4 97.7 315.4 112.5 29.5 20.5 9.6 7.4 10.1 6.7 5.4 2.8 2.2 1.7 0.6 0.6 0.6 14.3 25.3 25.7 0.3 JK Lakshmi Cement ADD 413 535 29.6 48,592 709 118 17.2 34.7 46.3 772.6 101.1 33.5 24.0 11.9 8.9 11.6 6.9 5.5 3.2 2.6 2.0 0.5 0.5 0.5 14.1 23.8 25.2 0.8 Orient Cement ADD 136 195 43.5 27,831 406 205 2.5 14.3 18.5 (17.6) 470.6 29.6 54.2 9.5 7.3 14.5 6.7 5.4 2.7 2.2 1.7 1.3 1.3 1.3 5.0 25.5 26.3 1.0

Shree Cement SELL 15,501 13,300 (14.2) 540,012 7,884 35 543.6 636.0 782.9 371.2 17.0 23.1 28.5 24.4 19.8 15.6 12.8 10.5 6.8 5.4 4.2 0.2 0.2 0.2 26.8 24.5 23.9 4.0 UltraTech Cement SELL 3,603 3,000 (16.7) 988,923 14,438 274 123.8 149.3 175.7 56.3 20.6 17.7 29.1 24.1 20.5 16.2 13.5 11.5 4.2 3.6 3.1 0.3 0.3 0.3 15.3 15.9 16.2 18.9 Cement Cautious 2,912,811 42,526 70.1 28.4 23.2 23.7 18.5 15.0 11.2 8.8 7.1 3.0 2.6 2.3 0.6 0.6 0.6 12.7 14.3 15.2 72.5 Consumer products Asian Paints REDUCE 970 920 (5.1) 930,326 13,582 959 19.5 23.4 27.6 4.3 20.0 17.8 49.6 41.4 35.1 31.4 26.1 22.0 14.4 12.5 10.8 0.9 1.1 1.3 31.1 32.4 33.1 20.5

Bajaj Corp. BUY 367 460 25.3 54,133 790 148 16.5 18.9 21.1 4.0 14.4 11.7 22.2 19.5 17.4 18.7 15.6 13.2 11.1 10.8 10.5 3.4 4.1 4.5 50.3 56.4 61.1 0.7 -

Britannia Industries ADD 3,033 3,300 8.8 363,875 5,312 120 71.8 91.1 110.6 3.3 26.8 21.4 42.2 33.3 27.4 28.3 22.2 18.1 16.0 12.4 9.7 0.8 1.0 1.2 42.7 42.0 39.7 7.9 2016 1, December Coffee Day Enterprises ADD 210 250 19.1 43,229 631 206 2.0 6.2 9.1 142.1 218.7 46.2 107.2 33.6 23.0 12.5 10.7 9.5 2.0 1.9 1.7 — — — 1.9 5.7 7.8 0.3 Colgate-Palmolive (India) ADD 934 1,040 11.4 253,953 3,708 272 22.2 26.8 32.6 4.6 20.9 21.5 42.1 34.8 28.7 24.9 20.8 17.2 20.2 16.1 12.9 1.2 1.3 1.6 52.9 51.4 49.8 4.2 Dabur India REDUCE 284 270 (4.8) 498,804 7,282 1,759 7.0 8.1 9.2 0.3 15.3 13.5 40.3 35.0 30.8 33.3 28.5 24.8 10.4 9.0 7.8 1.0 1.1 1.3 27.7 27.6 27.2 7.1

GlaxoSmithKline Consumer ADD 5,002 5,700 13.9 210,379 3,071 42 146.3 169.0 192.7 (5.4) 15.5 14.0 34.2 29.6 26.0 23.3 19.6 16.6 7.9 7.3 6.7 1.6 1.9 2.2 24.1 25.6 26.9 1.8 Godrej Consumer Products REDUCE 1,457 1,330 (8.7) 496,209 7,244 341 38.4 44.3 50.9 10.8 15.2 14.9 37.9 32.9 28.6 27.5 23.3 19.9 8.5 7.1 5.9 0.4 0.4 0.4 24.0 23.5 22.4 5.5 Hindustan Unilever REDUCE 844 870 3.1 1,826,623 26,668 2,164 20.0 22.7 25.6 3.6 13.9 12.6 42.3 37.1 33.0 29.6 25.4 22.2 30.7 32.1 33.8 2.1 2.4 2.7 70.7 84.6 99.9 18.4 ITC ADD 233 260 11.8 2,806,463 40,973 12,104 8.0 9.3 10.5 4.0 16.2 12.6 29.0 24.9 22.1 18.9 16.1 14.2 8.1 7.6 7.3 2.3 2.7 3.3 26.3 29.8 32.9 41.1 Jubilant Foodworks REDUCE 920 900 (2.2) 60,595 885 66 15.3 22.6 33.7 (3.6) 47.2 49.3 60.0 40.8 27.3 20.6 15.5 11.2 7.6 6.8 5.8 0.4 0.7 0.9 13.2 17.6 22.9 12.8 Jyothy Laboratories NR 350 — — 63,580 928 181 9.3 10.6 10.9 27.6 14.1 3.6 37.8 33.1 32.0 26.5 22.3 19.6 8.0 7.5 7.1 1.4 1.7 2.0 25.9 23.3 22.7 0.8 Manpasand Beverages REDUCE 615 660 7.4 35,147 513 50 13.0 19.7 27.2 28.9 51.6 38.0 47.2 31.1 22.6 21.6 15.8 10.6 3.0 2.8 2.5 0.2 0.3 0.5 8.4 9.3 11.7 1.0 Marico REDUCE 253 255 0.9 325,962 4,759 1,290 6.0 7.2 8.2 7.9 19.1 14.4 42.0 35.2 30.8 28.7 24.2 21.0 13.5 11.7 10.1 1.2 1.4 1.6 34.5 35.6 35.1 5.3 Nestle India SELL 6,290 5,550 (11.8) 606,426 8,854 96 105.8 131.7 156.3 14.1 24.5 18.7 59.5 47.8 40.2 32.7 27.2 23.3 19.9 18.2 16.7 1.0 1.4 1.7 34.7 39.7 43.2 3.8 Page Industries SELL 13,353 11,500 (13.9) 148,940 2,174 11 232.0 290.1 362.3 11.2 25.1 24.9 57.6 46.0 36.9 36.3 29.4 23.7 23.4 18.2 13.8 0.7 0.8 0.8 45.3 44.5 42.5 2.9

PC Jeweller REDUCE 369 360 (2.3) 65,998 964 179 20.4 22.2 26.0 (5.0) 8.9 17.0 18.1 16.6 14.2 9.3 7.4 6.6 2.3 2.0 1.8 1.0 1.2 1.5 14.1 13.5 13.4 3.6

Pidilite Industries ADD 640 680 6.2 328,317 4,793 513 16.5 18.5 21.3 11.9 12.3 15.2 38.8 34.6 30.0 25.6 22.7 19.4 9.9 8.4 7.2 0.8 0.9 1.1 27.7 26.3 25.9 5.9 S H Kelkar and Company SELL 296 250 (15.7) 42,873 626 145 7.8 9.5 10.7 48.1 21.4 13.0 38.0 31.3 27.7 22.6 19.4 17.0 5.1 4.6 4.2 0.8 0.9 1.1 14.1 15.5 15.9 0.5 Tata Global Beverages ADD 124 140 13.0 78,165 1,141 631 6.5 7.5 8.6 31.4 14.6 14.9 18.9 16.5 14.4 9.6 8.6 7.6 1.3 1.3 1.2 1.8 2.0 2.4 7.1 7.7 8.5 6.5 Titan Company REDUCE 324 330 2.0 287,199 4,193 888 9.6 11.3 13.0 22.6 18.1 15.2 33.8 28.6 24.8 22.8 19.1 16.2 7.2 6.2 5.4 1.0 1.1 1.4 22.7 23.3 23.4 9.8 United Breweries SELL 876 680 (22.4) 231,619 3,382 264 11.6 15.3 19.0 3.0 31.9 23.7 75.3 57.1 46.2 31.1 26.2 22.6 9.8 8.6 7.5 0.2 0.3 0.3 13.8 16.1 17.3 6.6 United Spirits ADD 1,918 2,200 14.7 278,804 4,070 145 30.1 46.6 63.8 149.7 54.5 37.0 NM 41.2 30.1 28.4 21.8 17.3 9.4 6.3 5.2 — — — 18.4 18.3 19.1 12.4 Consumer products Cautious 10,041,207 146,598 7.4 18.1 15.4 37.7 31.9 27.7 24.3 20.5 17.7 10.2 9.1 8.3 1.5 1.8 2.1 27.1 28.6 30.0 179.5 Energy BPCL REDUCE 644 660 2.5 931,260 13,596 1,446 56.1 54.0 57.7 9.1 (3.7) 6.8 11.5 11.9 11.2 8.1 7.4 6.9 2.9 2.5 2.2 2.6 2.5 2.7 27.3 22.4 20.9 25.2 Cairn India ADD 252 260 3.3 471,715 6,887 1,875 12.8 15.8 20.0 11.7 24.0 26.1 19.7 15.9 12.6 9.4 8.8 6.5 0.9 0.9 0.9 1.4 1.8 2.8 4.8 5.8 7.0 12.2 Castrol India ADD 408 470 15.3 201,608 2,943 495 13.5 14.8 16.0 12.0 9.5 8.1 30.3 27.6 25.6 19.4 18.1 16.7 31.1 27.8 24.2 2.5 2.7 2.8 108.9 106.2 101.3 17.7 GAIL (India) ADD 425 490 15.4 538,786 7,866 1,268 29.5 36.0 40.1 64.4 22.0 11.3 14.4 11.8 10.6 8.9 7.5 6.6 1.6 1.5 1.4 2.4 2.6 2.8 11.7 13.1 13.4 15.2 GSPL ADD 157 175 11.5 88,394 1,291 563 8.8 11.2 12.1 11.9 27.1 8.1 17.8 14.0 12.9 9.2 7.2 6.4 2.0 1.9 1.7 1.3 1.8 2.3 12.0 13.9 13.7 0.9 HPCL REDUCE 471 460 (2.4) 478,683 6,989 1,017 48.1 42.9 43.7 26.7 (10.8) 1.8 9.8 11.0 10.8 7.4 8.0 8.1 2.2 2.0 1.8 3.1 2.8 2.8 24.6 19.1 17.3 26.7 Indraprastha Gas ADD 829 880 6.1 116,067 1,695 140 46.6 51.1 55.1 40.5 9.7 7.9 17.8 16.2 15.0 10.5 9.5 8.7 4.2 3.7 3.3 1.5 1.9 2.3 25.1 24.1 23.2 9.5 IOCL BUY 307 400 30.4 1,489,306 21,743 4,856 34.9 34.7 35.8 78.9 (0.5) 3.1 8.8 8.8 8.6 5.6 5.5 5.2 1.8 1.6 1.4 3.5 3.4 3.5 21.4 18.7 17.2 22.8 Mahanagar Gas SELL 769 730 (5.1) 75,975 1,109 99 39.8 42.0 44.4 27.2 5.6 5.7 19.3 18.3 17.3 11.5 10.7 10.0 4.4 4.0 3.7 2.3 2.5 2.9 24.2 22.9 22.0 - ONGC SELL 289 260 (10.0) 2,471,681 36,086 8,556 22.6 24.6 28.6 11.4 9.1 16.0 12.8 11.7 10.1 5.3 4.8 4.3 1.3 1.2 1.1 2.9 3.1 3.6 10.1 10.4 11.4 25.5 Oil India SELL 419 425 1.3 252,086 3,680 601 39.1 40.7 43.8 0.9 4.2 7.4 10.7 10.3 9.6 6.3 6.0 5.7 1.1 1.0 1.0 3.8 3.9 4.2 10.3 10.1 10.3 3.5 Petronet LNG ADD 389 415 6.8 291,525 4,256 750 21.5 26.1 28.6 91.3 21.8 9.3 18.1 14.9 13.6 11.5 9.2 8.0 3.9 3.3 2.9 1.3 1.8 2.3 23.1 23.9 22.5 12.6

India Daily Summary Daily Summary India Reliance Industries ADD 990 1,150 16.2 2,915,151 42,560 3,240 91.1 98.7 102.4 7.7 8.3 3.7 10.9 10.0 9.7 10.1 8.0 7.2 1.2 1.1 1.0 1.2 1.4 1.6 11.7 11.5 10.9 65.2 Energy Attractive 10,322,238 150,701 21.5 5.9 7.8 11.3 10.7 9.9 7.4 6.6 6.0 1.4 1.3 1.2 2.4 2.5 2.8 12.6 12.2 12.1 236.9

Source: Company, Bloomberg, Kotak Institutional Equities estimates

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1,2016 December

32

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

33 Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo Company Rating 30-Nov-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E (US$ mn) Industrials ABB SELL 1,061 950 (10.5) 224,856 3,283 212 17.8 25.2 34.2 26.0 41.6 35.5 59.5 42.0 31.0 29.4 22.7 17.6 6.9 6.2 5.5 0.5 0.7 0.9 12.1 15.6 18.8 0.8 BHEL SELL 130 115 (11.6) 318,555 4,651 2,448 2.6 5.5 8.6 169.0 114.8 54.8 50.6 23.5 15.2 21.7 9.0 4.6 1.0 0.9 0.9 0.4 1.1 1.7 1.9 4.0 6.0 21.4 Carborundum Universal REDUCE 276 250 (9.4) 51,993 759 188 9.7 13.0 16.2 27.0 33.9 24.7 28.5 21.3 17.1 15.7 12.0 9.8 4.0 3.6 3.1 1.1 1.4 1.8 14.7 17.7 19.5 0.8 Crompton Greaves REDUCE 77 75 (3.0) 48,447 707 627 2.4 4.0 5.7 3.4 66.0 43.3 32.0 19.3 13.5 10.5 7.3 5.8 1.0 1.0 0.9 0.6 1.0 1.5 3.2 5.2 7.2 4.6 Crompton Greaves Consumer ADD 148 165 11.3 92,884 1,356 627 4.0 4.7 5.8 4.6 17.6 23.6 37.0 31.5 25.4 22.3 19.3 15.8 21.8 14.0 9.7 0.7 1.0 1.3 76.6 54.2 45.1 3.0 Cummins India REDUCE 789 850 7.8 218,669 3,192 277 27.6 30.8 34.6 4.4 11.4 12.4 28.6 25.6 22.8 26.7 23.4 20.4 6.3 5.7 5.2 1.8 2.0 2.2 23.0 23.3 23.8 3.3 Havells India REDUCE 344 370 7.4 215,169 3,141 624 10.2 11.8 13.5 31.8 15.1 14.8 33.6 29.2 25.5 22.3 18.8 16.0 6.7 6.0 5.4 1.2 1.3 1.7 21.1 21.7 22.3 9.3 Kalpataru Power Transmission BUY 243 300 23.5 37,283 544 153 10.2 13.5 20.2 33.0 32.5 49.9 23.8 18.0 12.0 7.8 6.9 5.6 1.5 1.4 1.3 0.6 0.6 0.6 6.5 8.1 11.2 0.7 KEC International ADD 146 170 16.6 37,471 547 257 9.9 13.3 16.5 33.2 33.6 24.4 14.7 11.0 8.8 7.4 6.4 5.6 2.2 1.9 1.6 0.9 1.2 1.5 15.8 18.2 19.3 1.2 L&T REDUCE 1,383 1,400 1.2 1,288,734 18,815 930 55.6 71.0 84.7 9.2 27.8 19.2 24.9 19.5 16.3 20.1 17.1 15.0 3.2 3.0 2.7 1.7 2.1 2.4 13.4 15.8 17.3 39.8 Siemens SELL 1,087 900 (17.2) 387,156 5,652 356 24.2 30.0 37.1 42.1 24.3 23.7 45.0 36.2 29.3 27.1 21.8 17.5 5.6 5.3 4.9 1.1 1.4 1.7 12.7 15.0 17.4 3.3 Thermax REDUCE 864 810 (6.3) 102,951 1,503 119 26.8 29.6 37.2 15.8 10.5 26.0 32.3 29.2 23.2 23.0 19.5 16.3 4.0 3.6 3.2 0.7 0.7 0.9 12.9 12.9 14.7 0.5 Voltas ADD 316 330 4.5 104,510 1,526 331 11.3 13.2 15.8 7.9 17.4 19.6 28.1 23.9 20.0 23.3 18.5 14.9 4.0 3.6 3.3 1.1 1.5 2.0 14.8 15.8 17.3 8.0 Industrials Cautious 3,128,678 45,677 36.8 31.1 24.7 30.9 23.6 18.9 20.2 16.4 13.6 2.9 2.7 2.5 1.3 1.6 1.9 9.5 11.7 13.4 96.6 Infrastructure Adani Port and SEZ ADD 278 315 13.4 575,517 8,402 2,085 17.0 14.3 14.8 23.5 (16.1) 4.0 16.4 19.5 18.7 14.5 13.1 12.5 3.5 3.1 2.7 0.5 0.8 0.9 23.9 16.8 15.4 21.0 Ashoka Buildcon BUY 147 220 50.2 27,417 400 188 4.7 3.5 3.5 49.6 (24.3) 0.5 31.5 41.6 41.4 8.8 8.3 7.5 1.4 1.4 1.4 1.0 1.3 1.5 4.6 3.4 3.4 0.6 Container Corporation REDUCE 1,170 1,250 6.8 228,120 3,330 195 36.7 42.6 49.7 (9.1) 15.9 16.7 31.9 27.5 23.6 20.0 16.0 13.3 2.7 2.5 2.4 1.0 1.2 1.4 8.6 9.4 10.4 3.2 Gateway Distriparks ADD 236 280 18.5 25,687 375 109 9.7 11.7 15.7 (4.3) 21.5 33.8 24.5 20.2 15.1 10.2 7.7 5.8 2.0 1.9 1.7 1.2 1.5 2.0 8.3 9.5 11.8 0.6 Gujarat Pipavav Port REDUCE 140 170 21.8 67,488 985 483 5.0 5.8 7.8 45.5 16.6 34.0 27.9 24.0 17.9 15.6 12.5 10.2 3.5 3.5 3.4 2.9 3.3 4.5 12.6 14.5 19.3 2.2 IRB Infrastructure BUY 187 265 42.1 65,545 957 351 17.5 17.0 19.6 (3.3) (2.6) 15.1 10.7 11.0 9.5 6.7 6.8 6.0 1.1 1.0 1.0 2.0 2.0 2.1 11.4 9.5 10.5 9.2 Sadbhav Engineering ADD 276 315 14.1 47,343 691 172 11.1 12.8 13.9 37.8 15.8 8.0 24.9 21.5 19.9 16.1 13.1 11.1 2.9 2.6 2.3 — — — 12.2 12.7 12.3 0.7 Infrastructure Attractive 1,037,119 15,142 15.4 (7.3) 9.9 18.9 20.4 18.5 12.4 11.2 10.1 2.7 2.5 2.3 0.9 1.1 1.3 14.6 12.2 12.4 37.6 Internet Info Edge ADD 896 990 10.5 108,341 1,582 121 16.2 21.1 27.1 38.5 30.3 28.2 55.3 42.4 33.1 38.9 29.2 21.7 5.7 5.2 4.7 0.5 0.6 0.8 10.7 12.8 14.9 1.2 Just Dial REDUCE 380 430 13.3 26,373 385 69 17.1 18.8 21.0 (16.3) 10.3 11.5 22.2 20.1 18.1 14.0 10.2 8.3 3.4 3.0 2.6 — 0.5 0.6 16.4 15.7 15.3 9.7 Internet Attractive 134,714 1,967 11.1 22.8 22.5 42.8 34.9 28.4 30.4 22.9 17.7 5.0 4.5 4.0 0.5 0.6 0.7 11.8 13.0 14.2 10.8 Media DB Corp. REDUCE 363 380 4.8 66,659 973 184 22.2 25.2 29.7 37.5 13.4 17.8 16.3 14.4 12.2 8.8 7.8 6.5 4.4 4.0 3.6 3.0 3.9 4.7 28.5 28.9 30.7 0.6 DishTV BUY 91 110 20.7 97,150 1,418 1,066 2.1 3.4 4.8 (67.0) 58.8 40.3 NM 26.8 19.1 9.0 7.7 6.7 5.8 5.8 5.8 — — 1.1 13.7 21.7 30.5 9.5 Jagran Prakashan REDUCE 175 195 11.2 57,324 837 327 12.6 14.1 16.4 21.0 11.7 16.9 13.9 12.5 10.7 8.2 7.0 5.9 3.3 3.0 2.6 3.4 4.0 4.0 24.7 24.9 25.9 0.8 Ortel Communications BUY 130 185 42.4 3,946 58 30 4.0 5.6 12.5 1.7 40.6 122.6 32.6 23.2 10.4 8.0 6.7 5.1 2.6 2.3 1.9 — — — 8.3 10.6 20.2 0.0 PVR ADD 1,149 1,325 15.3 53,714 784 47 26.3 35.0 44.6 (2.2) 33.4 27.3 43.8 32.8 25.8 15.4 12.7 10.6 5.5 4.8 4.1 0.2 0.3 0.4 13.3 15.6 17.2 2.8 Sun TV Network ADD 471 550 16.8 185,535 2,709 394 27.5 29.8 34.2 17.4 8.4 15.0 17.1 15.8 13.7 10.6 9.4 8.1 4.8 4.4 3.9 3.2 3.6 4.0 29.2 28.8 30.1 11.5

Zee Entertainment Enterprises BUY 456 560 22.9 437,628 6,389 960 12.5 17.0 19.5 33.2 35.8 14.8 36.4 26.8 23.4 20.1 16.5 14.5 4.6 4.3 3.9 0.5 0.8 0.9 15.3 16.5 17.4 20.3 India Daily Summary Daily Summary India Media Attractive 901,958 13,168 5.3 23.2 18.5 26.0 21.1 17.8 12.9 11.0 9.5 4.6 4.3 3.9 1.4 1.7 2.0 17.8 20.2 21.8 45.4 Metals & Mining Coal India REDUCE 309 315 2.1 1,949,230 28,458 6,316 22.1 25.6 28.6 (2.5) 15.8 11.7 14.0 12.1 10.8 8.8 7.8 7.0 5.4 5.0 4.6 5.0 5.8 6.5 38.0 42.6 44.0 16.2 Hindalco Industries REDUCE 176 150 (14.7) 362,921 5,299 2,065 11.8 12.4 12.6 334.9 5.3 1.4 14.9 14.2 14.0 7.6 7.1 6.9 0.9 0.8 0.8 0.6 0.6 0.6 6.2 6.1 5.9 30.0 Hindustan Zinc ADD 283 265 (6.2) 1,194,075 17,433 4,225 19.4 21.6 23.2 0.3 11.0 7.7 14.5 13.1 12.2 9.9 7.8 6.4 2.8 2.4 2.1 1.6 1.6 1.6 20.4 19.5 18.2 9.1 Jindal Steel and Power SELL 71 60 (15.0) 64,592 943 915 (13.2) (0.5) 5.2 27.7 96.3 1,151.0 (5.4) (143.9) 13.7 10.7 7.8 6.7 0.2 0.2 0.2 — — — (4.4) (0.1) 1.3 12.1 JSW Steel ADD 1,729 2,070 19.7 417,937 6,102 242 126.0 169.3 209.8 1,297.0 34.3 23.9 13.7 10.2 8.2 7.1 6.1 5.3 1.9 1.6 1.4 0.5 0.5 0.5 14.1 17.4 18.2 16.9 National Aluminium Co. SELL 57 36 (37.0) 110,370 1,611 2,577 2.2 2.9 3.2 (20.1) 33.6 10.5 26.5 19.8 17.9 6.4 4.5 3.9 1.1 1.1 1.0 1.8 1.8 1.8 4.3 5.6 5.9 1.2 NMDC SELL 122 75 (38.6) 386,311 5,640 3,965 7.2 7.6 8.0 (9.5) 5.5 5.3 17.0 16.1 15.3 8.8 8.0 7.5 1.6 1.6 1.6 4.9 4.9 4.9 9.5 10.0 10.4 8.4 Tata Steel ADD 415 465 12.0 403,103 5,885 971 20.8 52.8 58.8 188.9 153.6 11.2 19.9 8 7.1 8.8 6.4 6.0 1.5 1.3 1.1 1.9 1.9 1.9 7.4 18.2 17.4 43.1 Vedanta ADD 230 235 2.2 681,435 9,949 2,965 20.7 26.0 31.3 163.8 25.4 20.4 11.1 8.8 7.3 6.6 5.5 4.5 1.4 1.2 1.1 1.2 1.2 1.2 14.4 14.5 15.4 40.9 Metals & Mining Cautious 5,569,975 81,319 58.0 27.4 13.7 14.1 11.0 9.7 8.1 6.8 6.0 1.8 1.6 1.5 3.0 3.2 3.5 12.8 14.9 15.4 178.0 Pharmaceutical Apollo Hospitals REDUCE 1,195 1,325 10.9 166,296 2,428 139 23.9 33.6 43.0 10.4 40.4 28.1 49.9 35.6 27.8 22.9 18.7 15.8 4.5 4.1 3.7 0.5 0.7 0.9 9.3 12.1 14.2 4.0

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Biocon SELL 917 585 (36.2) 183,360 2,677 200 28.7 27.5 32.1 43.8 (4.3) 16.9 31.9 33.4 28.5 18.9 15.5 12.6 3.8 3.5 3.2 1.1 1.0 1.2 12.6 11.0 11.8 14.7 Cipla BUY 567 650 14.7 455,302 6,647 805 19.5 27.7 36.3 16.3 42.1 31.1 29.1 20.5 15.6 17.0 12.5 9.7 3.4 3.0 2.6 0.7 1.0 1.4 12.4 15.8 — 14.1

Dr Lal Pathlabs SELL 1,156 1,000 (13.5) 95,699 1,397 83 20.6 24.1 28.5 29.2 17.0 18.3 56.2 48.1 40.6 35.6 29.7 24.9 14.9 11.9 9.6 0.3 0.3 0.4 29.8 27.6 26.2 2.8 -

Dr Reddy's Laboratories SELL 3,197 2,500 (21.8) 529,719 7,734 171 78.4 121.8 153.5 (43.7) 55.3 26.0 40.8 26.2 20.8 21.2 13.5 10.7 4.3 3.8 3.3 0.4 0.6 0.7 10.3 15.3 16.8 14.2 December 1, 2016 1, December HCG BUY 250 270 8.2 21,235 310 85 2.1 2.2 4.3 1,331.8 4.1 97.6 119.6 114.9 58.1 24.1 19.3 14.8 3.8 3.7 3.5 — — — 3.3 3.3 6.2 0.5 Lupin REDUCE 1,505 1,600 6.3 678,446 9,905 450 65.5 72.5 87.4 29.8 10.7 20.5 23.0 20.7 17.2 15.0 12.9 10.4 5.0 4.2 3.4 0.7 0.7 0.9 24.0 21.9 21.9 25.0 Sun Pharmaceuticals REDUCE 710 715 0.7 1,708,272 24,940 2,406 31.9 32.8 36.9 44.5 2.6 12.7 22.2 21.7 19.2 13.2 12.1 10.3 4.4 3.8 3.2 0.9 0.9 1.0 22.0 18.8 18.0 40.3 Torrent Pharmaceuticals REDUCE 1,377 1,350 (2.0) 233,035 3,402 169 55.2 63.1 78.5 (46.1) 14.3 24.4 25.0 21.8 17.6 16.1 13.8 11.5 5.7 4.7 0.9 1.1 1.3 24.9 23.6 22.3 4.7 Pharmaceuticals Cautious 4,071,363 59,440 11.8 14.0 19.4 26.2 23.0 19.3 15.8 13.2 10.8 4.5 3.8 3.3 0.7 0.8 1.0 17.0 16.6 17.0 120.3

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Kotak Institutional Equities: Valuation summary of KIE Universe stocks India Daily Summary Daily Summary India Target O/S Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) ADVT-3mo Company Rating 30-Nov-16 (Rs) (%) (Rs mn) (US$ mn) (mn) 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E (US$ mn)

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Real Estate DLF BUY 115 180 56.5 205,131 2,995 1,801 2.8 1.5 3.0 (9.2) (44.6) 98.7 41.5 75.0 37.7 14.9 13.6 12.2 0.7 0.7 0.7 1.7 1.7 1.7 1.7 1.0 1.9 22.9 Godrej Properties REDUCE 301 280 (6.9) 65,008 949 216 9.7 10.5 11.4 (9.3) 8.5 8.3 31.0 28.6 26.4 60.2 49.7 30.1 2.8 2.6 2.4 — 0.8 0.8 9.3 9.4 9.5 1.2 Oberoi Realty BUY 286 350 22.4 96,990 1,416 339 10.8 30.9 43.2 (13.7) 185.2 39.9 26.4 9.3 6.6 17.4 5.6 5.8 1.7 1.5 1.2 0.7 0.7 0.7 6.7 17.3 20.2 2.2 Prestige Estates Projects BUY 153 250 63.7 57,281 836 375 7.0 8.4 8.9 (24.8) 18.7 6.3 21.7 18.3 17.2 11.5 11.1 10.7 1.3 1.2 1.2 1.0 1.0 1.0 6.2 7.0 7.1 1.5 Sobha BUY 255 440 72.3 24,596 359 98 14.1 17.3 21.2 (9.9) 22.7 22.8 18.1 14.8 12.0 10.9 10.0 8.8 1.0 0.9 0.9 2.7 2.7 2.7 5.3 6.4 7.5 0.5 Sunteck Realty BUY 197 360 83.2 12,373 181 60 82.0 53.3 — 201.9 (34.9) (100.0) 2.4 3.7 - 1.8 (0.4) — 0.6 0.5 1.0 1.0 — 26.2 14.1 — 0.5 Real Estate Attractive 461,380 6,736 5.1 19.5 19.0 23.4 19.6 16.5 13.7 11.2 11.1 1.0 1.0 1.0 1.3 1.3 1.3 4.3 4.9 5.9 28.8 Technology

HCL Technologies REDUCE 804 800 (0.5) 1,133,966 16,555 1,413 58.1 59.6 63.0 48.0 2.6 5.8 13.8 13.5 12.7 9.8 9.2 8.4 3.5 3.1 2.9 3.1 3.6 4.1 27.2 24.5 23.5 22.1 Hexaware Technologies ADD 206 225 9.3 62,142 907 304 13.2 15.3 17.4 2.0 15.9 13.8 15.6 13.5 11.8 10.2 8.4 7.2 3.8 3.5 3.1 2.7 3.9 3.9 26.3 27.1 27.6 3.1 Infosys ADD 976 1,175 20.4 2,240,784 32,715 2,286 61.8 69.2 76.7 4.8 12.0 10.8 15.8 14.1 12.7 10.0 8.7 7.6 3.5 3.1 2.8 2.8 3.1 3.6 23.1 23.1 23.0 53.1 Mindtree REDUCE 477 460 (3.6) 80,114 1,170 168 27.0 34.6 41.3 (24.7) 28.1 19.4 17.7 13.8 11.6 10.0 7.9 6.4 3.0 2.6 2.3 1.5 2.0 2.3 17.8 20.1 20.9 5.5 Mphasis SELL 527 460 (12.7) 110,721 1,616 210 38.6 39.8 40.3 11.9 3.2 1.3 13.7 13.2 13.1 8.5 7.8 7.4 1.7 1.6 1.5 3.8 3.8 3.8 12.6 12.3 11.9 1.1

TCS REDUCE 2,276 2,325 2.2 4,484,792 65,476 1,970 132.4 142.3 156.4 7.8 7.4 9.9 17.2 16.0 14.6 12.3 10.9 9.7 5.2 4.4 3.8 2.3 2.5 2.7 32.6 29.8 28.2 46.5 -

Tech Mahindra BUY 485 520 7.2 471,035 6,877 872 33.9 39.9 45.4 (5.3) 17.9 13.8 14.3 12.2 10.7 9.7 7.8 6.5 2.6 2.2 1.9 2.5 1.3 1.5 19.4 19.9 19.3 21.4 2016 1, December Wipro REDUCE 465 485 4.2 1,130,896 16,511 2,467 34.4 38.5 41.3 (4.6) 12.1 7.2 13.5 12.1 11.3 8.1 7.0 5.9 2.2 2.0 1.7 1.1 1.1 1.1 17.2 17.3 16.4 14.1 Technology Neutral 9,714,451 141,827 7.8 8.9 9.5 15.8 14.5 13.3 10.6 9.3 8.2 3.7 3.3 2.9 2.4 2.5 2.8 23.5 22.5 21.7 166.9 Telecom Bharti Airtel BUY 325 375 15.5 1,297,556 18,944 3,997 11.9 8.0 12.6 21.7 (33.0) 58.6 27.3 40.8 25.7 6.3 6.3 5.5 1.9 1.8 1.8 1.0 0.7 1.5 7.0 4.6 7.1 18.5 Bharti Infratel ADD 375 410 9.2 694,435 10,138 1,897 15.8 17.0 19.1 25.7 7.8 12.2 23.8 22.1 19.7 11.4 10.4 9.5 4.2 4.0 3.9 3.1 3.2 3.6 16.7 18.6 20.2 11.9 IDEA BUY 77 100 29.1 278,882 4,072 3,601 0.5 (4.8) (3.0) (94.4) (1,095.9) 37.2 160.5 (16.1) (25.7) 6.9 7.4 6.4 1.2 1.3 1.5 1.3 2.6 4.0 0.7 (7.9) (5.6) 12.7 Tata Communications ADD 658 670 1.8 187,516 2,738 285 23.1 22.7 28.6 1,306.8 (1.9) 26.5 28.5 29.0 23.0 8.6 7.7 7.0 765.8 27.9 12.6 1.0 1.0 1.0 (334.2) 185.4 75.5 10.6 Telecom Cautious 2,458,389 35,892 (9.7) (38.3) 58.4 28.9 46.9 29.6 7.1 7.1 6.2 2.2 2.3 2.2 1.6 1.6 2.2 7.8 4.8 7.6 53.8 Utilities Adani Power SELL 29 26 (9.4) 98,081 1,432 3,334 2.3 4.7 4.6 58.1 104.0 (2.9) 12.4 6.1 6.3 6.9 5.7 5.4 1.2 1.0 0.9 — — — 9.9 17.6 14.6 3.7 CESC ADD 586 640 9.1 77,718 1,135 133 52.2 68.7 90.0 87.0 31.4 31.0 11.2 8.5 6.5 7.1 6.6 5.7 0.8 0.8 0.7 1.6 1.7 1.8 7.6 9.5 11.5 4.0 JSW Energy ADD 60 75 25.8 97,747 1,427 1,640 5.1 8.0 7.6 (32.3) 56.2 (5.7) 11.6 7.4 7.9 6.4 4.9 4.9 1.1 1.0 0.9 3.4 3.4 3.4 9.6 13.9 12.0 3.1 NHPC ADD 28 27 (3.7) 310,532 4,534 11,071 3.2 3.4 3.6 34.1 6.7 7.2 8.8 8.3 7.7 8.5 6.9 6.0 1.0 0.9 0.9 6.4 6.8 7.2 11.0 11.3 11.7 2.0

NTPC BUY 163 180 10.3 1,345,247 19,640 8,245 12.1 15.3 16.9 (2.3) 26.2 10.5 13.4 10.6 9.6 11.2 9.4 7.6 1.4 1.3 1.2 2.2 2.8 3.1 10.9 12.7 12.9 9.9

Power Grid BUY 192 210 9.4 1,003,942 14,657 5,232 14.5 15.6 17.9 26.9 7.8 14.5 13.3 12.3 10.7 9.6 8.3 7.3 2.1 1.8 1.6 1.5 1.6 1.9 16.6 15.8 16.0 12.2 Reliance Power SELL 42 36 (13.7) 116,974 1,708 2,805 4.8 5.3 5.9 (1.1) 11.1 10.1 8.7 7.8 7.1 8.7 7.6 7.2 0.5 0.5 0.5 - - - 6.2 6.5 6.7 2.3 Tata Power ADD 74 80 8.0 200,278 2,924 2,800 4.6 7.3 8.1 (16.1) 57.3 12.1 16.1 10.2 9.1 10.3 8.8 7.9 1.3 1.2 1.1 1.6 1.6 1.6 8.4 12.3 12.4 5.6 Utilities Attractive 3,250,520 47,456 9.3 22.4 10.5 12.5 10.2 9.2 9.4 8.0 7.0 1.3 1.2 1.1 2.2 2.6 2.8 10.8 12.1 12.3 42.7 Others Astral Poly Technik SELL 402 360 (10.4) 48,116 702 120 10.2 13.0 16.1 21.0 28.2 23.2 39.5 30.8 25.0 20.3 16.2 13.3 5.7 4.9 4.1 0.1 0.1 0.2 15.0 17.1 17.9 0.4 Cera Sanitaryware REDUCE 2,073 2,050 (1.1) 26,959 394 13 73.7 93.2 112.2 14.9 26.4 20.4 28.1 22.2 18.5 16.4 13.0 10.8 5.4 4.4 3.6 0.4 0.5 0.5 20.8 21.8 21.7 0.8 Dhanuka Agritech BUY 720 820 13.9 36,014 526 50 25.6 30.5 37.5 22.4 19.3 22.9 28.2 23.6 19.2 20.0 16.4 13.2 6.2 5.1 4.2 1.0 1.2 1.5 24.1 23.8 24.2 0.7 Godrej Industries REDUCE 389 390 0.1 130,852 1,910 336 17.6 20.6 21.7 22.4 17.0 5.0 22.1 18.9 18.0 17.6 15.6 15.5 3.3 2.8 2.5 0.4 0.4 0.4 15.8 16.1 14.7 2.4 HSIL ADD 292 345 18.1 21,118 308 72 16.7 19.1 24.2 35.3 14.9 26.7 17.5 15.3 12.0 8.0 6.9 5.9 1.4 1.3 1.2 1.4 1.4 1.4 8.5 9.1 10.7 0.5 InterGlobe Aviation ADD 860 1,060 23.3 309,835 4,523 351 54.7 76.0 95.1 (3.6) 39.0 25.2 15.7 11.3 9.0 10.6 7.3 5.6 12.4 8.6 6.2 3.2 4.4 5.5 94.1 89.8 79.7 4.4 Kaveri Seed BUY 415 460 10.8 28,679 419 69 28.9 39.7 48.4 15.2 37.4 22.0 14.4 10.5 8.6 11.2 7.8 6.0 2.8 2.4 2.0 2.1 2.9 4.1 20.5 24.4 25.6 3.9 PI Industries ADD 870 940 8.1 119,287 1,742 136 31.4 36.1 42.2 35.8 14.9 17.0 27.7 24.1 20.6 21.6 17.9 14.9 7.7 6.1 4.9 0.5 0.6 0.7 31.7 28.3 26.3 1.4 Rallis India ADD 204 250 22.5 39,681 579 194 9.7 12.2 15.3 32.3 25.9 24.7 21.0 16.7 13.4 13.9 10.8 8.5 3.5 3.1 2.6 1.5 1.6 1.8 18.6 19.6 21.2 1.0 SRF BUY 1,575 1,910 21.3 90,434 1,320 57 86.0 102.3 117.6 16.8 19.0 15.0 18.3 15.4 13.4 10.7 9.2 8.1 2.9 2.5 2.2 0.7 0.8 0.8 17.2 17.6 17.4 7.1 Tata Chemicals ADD 479 550 14.7 122,130 1,783 255 32.7 53.0 50.2 6.6 62.2 (5.2) 14.7 9.0 9.5 8.3 6.5 5.6 1.8 1.4 1.2 2.1 2.1 2.1 12.7 17.3 13.8 7.8 TeamLease Services ADD 868 1,100 26.7 14,843 217 16 22.2 26.8 34.7 39.2 21.0 29.4 39.2 32.4 25.0 28.4 18.5 13.9 4.2 3.8 3.3 — — — 11.5 12.3 14.0 0.1 UPL ADD 634 760 19.9 321,360 4,692 429 33.9 43.5 51.5 6.7 28.1 18.6 18.7 14.6 12.3 10.7 9.0 7.6 3.4 2.8 2.3 0.7 0.8 0.9 21.2 21.0 20.4 16.4 Whirlpool SELL 998 980 (1.8) 126,618 1,849 127 26.3 31.8 38.4 36.2 21.2 20.6 38.0 31.4 26.0 22.7 19.0 15.9 8.5 7.0 5.8 — 0.6 0.8 25.0 24.4 24.4 1.3 Others 1,458,054 21,287 15.1 30.2 15.7 18.8 14.5 12.5 11.7 9.4 8.0 3.9 3.2 2.7 1.3 1.7 2.0 20.6 22.0 21.5 48.2 KIE universe 78,595,019 1,147,456 Daily Summary India 23.4 20.1 15.7 17.9 14.9 12.9 10.4 8.9 7.8 2.4 2.2 1.9 1.6 1.9 2.1 13.3 14.5 15.1 KIE universe (ex-energy) 68,272,780 996,756 24.0 23.8 17.4 19.6 15.8 13.5 11.3 9.6 8.3 2.7 2.4 2.1 1.5 1.8 2.0 13.5 15.1 15.8

Notes: (a) We have used adjusted book values for banking companies. (b) 2017 means calendar year 2016, similarly for 2018 and 2019 for these particular companies. (c) Exchange rate (Rs/US$)= 68.50 Source: Company, Bloomberg, Kotak Institutional Equities estimates

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1,2016 December

34

Disclosures

Disclosures

"Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Sanjeev Prasad, Murtuza Arsiwalla, Tarun Lakhotia, Suvodeep Rakshit."

Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships Percentage of companies covered by Kotak Institutional 70% Equities, within the specified category.

60% Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided 50% investment banking services within the previous 12 months.

40% * The above categories are defined as follows: Buy = We 34.9% expect this stock to deliver more than 15% returns over the 29.0% next 12 months; Add = We expect this stock to deliver 5-15% 30% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We 18.8% 20% 17.2% expect this stock to deliver less than -5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with 10% 4.8% 4.3% applicable regulations. As of 30/09/2016 Kotak Institutional 0.5% 0.5% Equities Investment Research had investment ratings on 186 0% equity securities. BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of September 30, 2016

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

35 KOTAK INSTITUTIONAL EQUITIES RESEARCH

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